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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


(Mark one)

ý

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

For the Fiscal Year Ended December 31, 2017

OR

o

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

For the transition period from                                    to                               

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
OR
☐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

atvi-20201231_g1.jpg
ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)

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

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

90405
(Zip Code)

Registrant's

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

code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each ClassclassTrading Symbol(s)Name of Each Exchangeeach exchange on Which Registeredwhich registered
Common Stock, par value $.000001$0.000001 per shareATVIThe Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒  No o

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o☐ No ý

☒

Indicate by check mark whether the registrantregistrant:  (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 ý☒  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 ý☒  No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer," "smallerfiler”, “accelerated filer”, “smaller reporting company,"company”, and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filerý☒Accelerated Filero☐Non-accelerated Filero
(Do not check if a
smaller		☐Smaller reporting company)company☐Smaller Reporting Companyo

Emerging Growth Company o

growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o☐ No ý

☒

The aggregate market value of the registrant'sregistrant’s Common Stock held by non-affiliates on June 30, 20172020 (based on the closing sale price as reported on the Nasdaq) was $42,587,342,045.

$58,006,915,377.

The number of shares of the registrant'sregistrant’s Common Stock outstanding at February 20, 201816, 2021 was 758,631,663.

774,753,965.

Documents Incorporated by Reference

Portions of the registrant's definitiveregistrant’s Proxy Statement to be filed withfor the Securities and Exchange Commission with respect to the 20182021 Annual Meeting of Shareholders which is expected to be held on June 26, 2018,Stockholders are incorporated herein by reference into Part III of this Annual Report.

Form 10-K to the extent stated herein. The 2021 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020.


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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

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PART I


CAUTIONARY STATEMENT


This Annual Report on Form 10-K 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 facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services;services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as "outlook," "forecast," "will," "could," "should," "would," "to“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” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to," "subject” “subject to," "upcoming"” “upcoming,” and other similar words and expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management'smanagement’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

The company cautions


We caution that a number of important factors, many of which are beyond our control, could cause Activision Blizzard, Inc.'sour actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Some of the risk factors that could cause our actual results to differ from those stated in the forward-looking statements can be found in "Risk Factors"“Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K. The forward-looking statements contained herein are based uponon information available to us as of the date of this Annual Report on Form 10-K 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’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard.Blizzard, Inc. All other product or service names are the property of their respective owners. All dollar amounts referred to in, or contemplated by, this Annual Report on Form 10-K refer to United States ("U.S.") dollars, unless otherwise explicitly stated to the contrary.

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Item 1. BUSINESS


Overview


Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers ("PC")(“PC”s), and mobile devices. We also operate esports events and leagues and create film and television content based onoffer digital advertising within some of our games.content. The terms "Activision“Activision Blizzard,"” the "Company," "we," "us,"“Company,” “we,” “us,” and "our"“our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

        The For a discussion of the history of the formation of our Company, was originally incorporated in California in 1979including our year and was reincorporated in Delaware inform of incorporation, refer to Part I, Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 1992. In connection with the 2008 business combination (the "Business Combination") by and among the Company (then known as Activision, Inc.), Vivendi S.A. ("Vivendi"), and Vivendi Games, Inc. ("Vivendi Games"), an indirect wholly-owned subsidiary of Vivendi, we were renamed Activision Blizzard, Inc.

        The common stock of Activision Blizzard is traded on The Nasdaq Stock Market under the ticker symbol "ATVI."

31, 2019.


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The King Acquisition

        On February 23, 2016 (the "King Closing Date"), we acquired King Digital Entertainment, a leading interactive mobile entertainment company ("King"), by purchasing all of its outstanding shares (the "King Acquisition"). We made this acquisition because we believed that the addition of King's highly complementary mobile business positioned us as a global leader in interactive entertainment across mobile, console, and PC platforms, and aligned us for future growth. The aggregate purchase price of approximately $5.8 billion was funded with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King's results of operations since the King Closing Date are included in our consolidated financial statements.

Our Strategy and Vision


Our objective is to continueconnect and engage the world through epic entertainment by continuing to be a worldwide leader in the development, publishing, and distribution of high-quality interactive entertainment content and services, as well as related media, that deliver engaging entertainment experiences on a year-round basis. In pursuit of this objective, we focus on three strategic pillars: expanding audience reach; driving deepdeepening consumer engagement; and providing more opportunities forincreasing player investment.


Expanding audience reach.Building on our strong established franchises and creating new franchises through compelling new content is at the core of our business. We endeavor to reach as many consumers as possible either through: (1) the purchase ofby offering our content on multiple platforms and services; (2) engagement in ourdelivering compelling experiences across multiple business models (e.g. premium, free-to-play, games, which allow consumers to play games with no up-front cost but provide for player investment through sales of downloadable content or via microtransactions; or (3) engagement in other types of media based on our franchises, such as esports and film and television content.

subscription-based, etc.).


Driving deep consumer engagement.engagement. Our high-quality entertainment content not only expands our audience reach, but it also drives deep engagement with our franchises. We design our games, as well as related media, to provide a depth of content that keeps consumers engaged for a long period of time following a game's release,game’s release. In addition, our games are designed to provide players the ability to connect with each other socially within our franchise communities, thus delivering more value to our players and providing additional growth opportunities for our franchises.

        Providing more opportunities for


Increasing player investment.Increasingly, our consumers are connected to our games online through consoles, PCs, and mobile devices. This allows us to offer additional digital player investment opportunities directly to our consumers on a year-round basis. In addition to purchasing full games or subscriptions, players can invest in certain of our games and franchises by purchasing incremental "in-game"in-game content (including(i.e. larger downloadable content or smaller content via microtransactions). These digital revenue streams tend to be more recurring and have relatively higher profit margins. Further, if executed properly, additional player investment can increase engagement, as it provides more frequent and incremental content for our players. In addition, we believe there is an opportunity forgenerate revenue through offering advertising within certain of our franchises, as well asand we believe there are opportunities to drivegrow new forms of player investment through esports film and television, and consumer products. We are still in the early stages of developing these new revenue streams.


Our strategy is ultimately aimed at creating shareholder value and enhancing returns. We strive to increase profitability, cash flows, and return on capital—and to do so while keeping our company a great place to work for our employees.

Reportable Segments

        As part of the continued implementation of our esports strategy, we instituted changes to our internal organization and reporting structure such that the Major League Gaming ("MLG") business now operates as a division of Blizzard Entertainment, Inc. ("Blizzard"). As such, commencing with the



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second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League™, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.

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

(i)    Activision Publishing, Inc.

        Activision Publishing, Inc. ("Activision"),each of which is a leading global developer and publisher of interactive software products and entertainment content particularly for the console platform.and services based primarily on our internally developed intellectual properties.


(i) Activision primarilyPublishing, Inc.

Activision Publishing, Inc. (“Activision”) delivers content through retailboth premium and digital channels, includingfree-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties. We have also established a long-term alliance with Bungie to publish its game universe, Destiny.

        Activision'sActivision’s key product franchises include:franchise is Call of Duty®Duty®, a first-person shooter foraction franchise. Activision also includes the console and PC platforms, and Destiny, an online universeactivities of first-person action gameplay (which we call a "shared-world shooter") for the console and PC platforms. Call of Duty Activision's leading franchise, has been the number one console franchise globally for eightLeagueTM, a global professional esports league with city-based teams.

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(ii) Blizzard Entertainment, Inc.


Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarilyEntertainment, Inc. (“Blizzard”) delivers content through retailboth premium and digital channels, including subscriptions,free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well assubscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®Battle.net®, which facilitates digital distribution of Blizzard content along with Activision'sDestiny 2 PCand selected Activision content, online social connectivity, and the creation of user-generated content. As noted above, Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.

        Blizzard'sBlizzard’s key product franchises include: World of Warcraft®Warcraft®, a subscription-based massive multi-player online role-playing game ("MMORPG") for PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®Hearthstone®, an online collectible card franchise forbased in the PCWarcraft universe; Diablo®, an action role-playing franchise; and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for PC; and Overwatch®Overwatch®, a team-based first-person shooter foraction franchise. Blizzard also includes the PC and console platforms. Worldactivities of Warcraft, which was initially launched in November 2004, is the leading subscription-based MMORPG in the world.

Overwatch LeagueTM, a global professional esports league with city-based teams.


(iii) King Digital Entertainment


King is a leading global developerDigital Entertainment (“King”) delivers content primarily through free-to-play offerings and publisher of interactive entertainment contentprimarily generates revenue from in-game sales and services, particularly on mobile platforms, such as Google Inc.'s ("Google") Android and Apple Inc.'s ("Apple") iOS. King also distributes its content and servicesin-game advertising on the PC platform, primarily via Facebook, Inc. ("Facebook"). King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency.


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        King'smobile platform. King’s key product franchises, all of which are for the mobile and PC platforms, include:franchise is Candy Crush™, which features "match three" games; Farm Heroes™, which also features "match three" games; and Bubble Witch™, which features "bubble shooter" games. King had two of the top 10 highest-grossing titles in the U.S. mobile app stores for the last 17 quarters in a row, according to App Annie Intelligence and internal estimates for the Apple App Store and the Google Play Store combined.

“match three” franchise.


Other


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

    •
    the Activision Blizzard Studios ("Studios") business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV seriesSkylanders™ Academy on Netflix; and

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


Impacts of the Global COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has since extensively impacted global health and the economic environment. On March 11, 2020, the World Health Organization (“WHO”) characterized COVID-19 as a pandemic. In an effort to contain the spread of COVID-19, domestic and international governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” quarantine orders for individuals to stay in their homes or places of residence, and to practice social distancing when engaging in essential activities. We anticipate that these actions and the ongoing global health crisis caused by COVID-19 will continue to negatively impact many business activities and financial markets across the globe.

During the COVID-19 pandemic, our business has experienced an increase in demand for certain of our products and services as a result of the stay-at-home orders enacted in various regions as players have more time to engage with our games. These trends contributed to strong full-game and in-game content sales for Call of Duty: Modern Warfare®, which also benefited from the launch of Call of Duty: WarzoneTM in March. In addition, we saw further demand for World of Warcraft, including its in-game content, which also continued to benefit from the release of World of Warcraft Classic in August 2019. Beginning in the month of March, our business also experienced an increase in monthly active users for certain franchises. We have, however, seen a moderation in these trends since the stay-at-home orders were originally enacted earlier in 2020.

As a result of the COVID-19 pandemic and stay-at-home orders enacted in various regions, both the Overwatch League and the Call of Duty League pivoted all matches from their originally planned local homestand formats to online play and remote production for the remainder of the regular and postseason in order to keep players and fans safe while still delivering premium esports content to a global audience. Additionally, to support our Overwatch League and Call of Duty League team owners and ecosystems amid a challenging environment, which includes losing the ability to have live fan-attended home venue events, we have taken certain actions to support their short-term cash flow needs, adjusted our league operations to reduce operating costs and improve franchise terms, and made certain investments which have impacted our operating results in 2020. This impact was primarily in the Blizzard segment.

The sustainability of these trends and long-term implications to our business is dependent on future developments, including the duration of the COVID-19 pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. See Item 1A “Risk Factors” for additional details on risks and uncertainties regarding the impacts of the global COVID-19 pandemic on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, and stock price.

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In an effort to protect the health and safety of our employees, the majority of our workforce is currently working from home and we have placed restrictions on non-essential business travel. We have implemented business continuity plans and have increased support and resources to enable our employees to work remotely and, thus far, our business has been able to operate with minimal disruption to our game titles’ published release dates. The COVID-19 pandemic remains a rapidly evolving situation. We will continue to actively monitor the developments of the COVID-19 pandemic and may take further actions that could alter our business operations as may be required by federal, state, local, or foreign authorities, or that we determine are in the best interests of our employees, customers, partners, and shareholders. It is not clear what effects any such potential actions may have on our business, including the effects on our employees, players and consumers, customers, partners, game development and content pipelines, or on our reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.

The full extent of the impact of the COVID-19 pandemic on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price will depend on numerous evolving factors that we are not able to fully predict at this time. However, we believe that given our strong balance sheet, with cash and cash equivalents and short-term investments of $8.8 billion as of December 31, 2020, and the fact that our business has increasingly shifted to digital channels, we have substantial flexibility as we navigate through the uncertain environment and near-term implications of the COVID-19 pandemic.

Products


We develop interactive entertainment content and services, principally for console, PC, and mobile devices, and we market and sell our games primarily through retail and digital distribution channels. Our products span various genres, including first-person shooter,first- and third-person action/adventure, role-playing, strategy, and "match“match three,"” among others. We primarily offer the following products and services:


•
premium full-games, which typically provide access to main game content primarilyafter purchase;

•free-to-play offerings, which allow players to download the game and engage with the associated content for console or PC;

free;

•
downloadable content, which provides players with additional in-game content for purchase to purchase following the purchase of a full game;

•
enhance gameplay (i.e. microtransactions which typically provide relatively small pieces of additional in-game content or enhancements to gameplay, generally at relatively low price points; and

downloadable content) available within both our full-games and free-to-play offerings; and

•
subscriptions for players in our World of Warcraft franchise that provide for continualongoing access to the game content.


Providing additional content and experiences within franchises has increased opportunities for player investment outside of premium full-game purchasespurchases. This has allowed us to shift from our historical seasonality to a more consistently recurring and year-round revenue model. In addition, if executed properly, it allows us to increase player engagement as it provides more frequentwith our games and incremental content for our players.

content.


Product Development and Support


We focus on developing enduring wholly-owned franchises backed by well-designed, high-quality games with regular content updates. We aim to build interactive entertainment content with the potential for broad reach, sustainable engagement, and year-round player investment. It is our experience that enduring franchises then serve as the basis for sequels, prequels and related new products and content that can be released over an extended period of time. We believe that the development and distribution of products and content based on provenestablished franchises enhances predictability of revenues and the probability of high unit volume sales and operating profits. We intend to continue development of content based on our owned franchises in the future.



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We develop and produce our titles using a model in which a group of creative, technical, and production professionals, including designers, producers, programmers, artists, and sound engineers, in coordination with our marketing, finance, analytics, sales, and other professionals, hashave responsibility for the entire development and production process, including the supervision and coordination of internal and, where appropriate, external resources. We believe this model allows us to deploy the best resources for a given task, including by supplementing our internal expertise with top-quality external resources on an as-needed basis.


While most of theour content for our franchises is developed by our internal studios, we periodically engage independent third-party developers to create content on our behalf. From time to time, we also acquire the license rights to publish and/or distribute software products that are, or will be, independently created by third-party developers. Since 2010, Activision has been in a long-term exclusive relationship with Bungie, the developer

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We provide various forms of product support. Central technology and development teams review, assess, and provide support to products throughout the development process. Quality assurance personnel are also involved throughout the development and production of published content. We subject all such content to extensive testing before public release to ensure compatibility with appropriate hardware systems and configurations and to minimize the number of bugs and other defects found in the products. To support our content, we generally provide 24-hour game support to players through various means, primarily online and by telephone.


Marketing, Sales, and Distribution


Many of our products contain software that enables us to connect with our gamers directly. This provides a significant marketing tool that allows us to communicate and market directly to our customers, including through customized advertising and in-game messaging based on customer preferences and trends. Our marketing efforts also include activities on Facebook, Twitter, Twitch, YouTube andon: online social networks; other online social networks, other online advertising, otheradvertising; public relations activity,activities; print and broadcast advertising,advertising; coordinated in-store and industry promotions (including merchandising and point of purchase displays),; participation in cooperative advertising programs,programs; direct response vehicles,vehicles; and product sampling through demonstration software distributed through the Internet or the digital online services provided by our partners.sampling. From time to time, we also receive marketing support from hardware manufacturers, producers of consumer products related to a game, and retailers in connection with their own promotional efforts, as well as co-marketing from promotional partners.

        Our physical products are available for sale in outlets around the world. These products are sold primarily on a direct basis to mass-market retailers (e.g., Target, Wal-Mart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop), and other stores (e.g., Amazon) or through third-party distribution and licensing arrangements.


Most of our products and content are also available in a digital format, which allows consumers to purchase and download the content at their convenience directly to their console, PC, or mobile device through our platform partners, including Apple Inc. (“Apple”), Facebook, Inc. (“Facebook”), Google Inc. (“Google”), Microsoft Corporation ("Microsoft"(“Microsoft”), Nintendo Co., Ltd. (“Nintendo”), and Sony Interactive Entertainment Inc. ("Sony"(“Sony”), Apple, Google, Nintendo Co., Ltd. ("Nintendo"), and Facebook.. Blizzard utilizes its proprietary online gaming service, Blizzard Battle.net, to distribute most of Blizzard'sBlizzard’s content and selected Activision content directly to PC consumers.


In addition to serving as a distribution platform, Blizzard Battle.net offers players communications features, social networking, player matching, and digital content delivery and is designed to allow people


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to connect regardless of which of our games on Blizzard Battle.net they are playing. It attracts millions of active players, making it one of


Our physical products are available for sale in outlets around the largest online game-related services in the world.

These products are sold primarily on a direct basis to mass-market retailers (e.g., Target, Walmart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop), and other stores (e.g., Amazon), or through third-party distribution and licensing arrangements.


Manufacturing


We prepare master program copies for our products on each release platform. With respect to products for Microsoft, Sony, and Nintendo consoles, our disk duplication, packaging, printing, manufacturing, warehousing, assembly, and shipping are performed by third-party subcontractors or distribution facilities owned by us.


Microsoft, Sony, and Nintendo generally specify or control the manufacturing and assembly of finished products and license their hardware technologies to us for whichus. In return, we pay an applicable royalty per unit once the manufacturer fills the product order, even if the units do not ultimately sell. We deliver the master materials to the licensor or its approved replicator, who then manufactures the finished goods and delivers them to us for distribution under our label.


Significant Customers and Top Franchises


Customers


While the Company does sell directly to end consumers in certain instances, such as sales through Blizzard's proprietary online gaming service platform, Blizzard Battle.net, in other instances our customers may beare platform providers, such as Sony, Microsoft, Google, and Apple, or retailers, such as Wal-MartWalmart and GameStop, who act as distributors of our content to end consumers. For the year ended December 31, 2017, we had three customers—2020, Sony, Apple, Sony,Google, and Google—who accounted for 16%Microsoft were our most significant customers, with revenues of 17%, 15%, 14%, and 10%11%, respectively, of net revenues.respectively. For the yearyears ended December 31, 2016, we2019 and 2018, Apple, Google, and Sony were our most significant customers, with revenues of 17%, 13%, and 11%, respectively, for 2019, and 15%, 11%, and 13%, respectively, for 2018. No other customer accounted for 10% or more of our net revenues in those periods.

We had two customers—SonyMicrosoft and Apple—who each accounted for 13% of net revenues. For the year ended December 31, 2015, we had two customers—Sony and Microsoft—Sony—who accounted for 12%28% and 10%, respectively, of net revenues.

        We had three customers—Sony, Microsoft, and Apple—who accounted for 17%, 14%, and 10%21%, respectively, of consolidated gross receivables at December 31, 2017. We had three customers—Sony, Microsoft,2020, and Wal-Mart—who11% and 18%, respectively, at December 31, 2019. No other customer accounted for 17%, 10%, and 10%, respectively, or more of our consolidated gross receivables at December 31, 2016.

in those periods.

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Top Franchises


For the years ended December 31, 20172020, 2019, and 2016,2018, our top fourthree franchises—Call of Duty, Candy Crush, and World of Warcraft, and Overwatch—Warcraft—collectively accounted for 66%76%, 67%, and 69%58%, respectively, of our net revenues. No other franchise comprised 10% or more of our net revenues respectively. For the year ended December 31, 2015, our top four franchises—Call of Duty, World of Warcraft, Destiny, and Hearthstone—collectively accounted for 75% of our net revenues.

in those periods.


Competition


We compete for the leisure time and discretionary spending of consumers with other interactive entertainment companies and software competitors, as well as with providers of different forms of entertainment, such as film, television, social networking, music, and other consumer products.


The interactive entertainment industry is intensely competitive, and new interactive entertainment software products and platforms are regularly introduced. We believe that the main competitive factors in the interactive entertainment industry include: product features, game quality, and playability; brand name recognition; compatibility of products with popular platforms; access to distribution channels; online capability and functionality; ease of use; price;price of content; marketing support; and quality of customer service.



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        We compete with other publishers of video game console, PC, and mobile interactive entertainment software.

In addition to third-party software competitors, integrated video game console hardware and software companies, such as Microsoft, Sony, and Nintendo, compete directly with us in the development of software titles for their respective platforms. A number of software publishers have developedplatforms, while at the same time act as key distribution channels and commercialized, orpayment gateways for our products and services through their digital storefronts. Apple and Google are currently developing, online games for use by consumers.

similarly positioned on mobile devices.


Intellectual Property


Like other interactive entertainment companies, our business is significantly dependent on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of copyrighted software code, patented technology, and other technology and trade secrets that we use to develop and run our games. Other intellectual property is in the form of copyrighted audio-visual elements that consumers can see, hear, and interact with when they are playing our games.


We develop a majority of our products based on wholly-owned intellectual properties, such as Call of Duty, World of Warcraft, and Candy Crush, among others.Crush. In other cases, we obtain intellectual property through licenses and service agreements, such as for our Destiny franchise.agreements. Further, our products that play on consoles and mobile platforms include technology that is owned by the platform provider and is licensed non-exclusively to us for use in the relevant product. We also license technology from providers other than console manufacturers in developing our content and services. While we may have renewal rights for some licenses, our business is dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights on reasonable terms and at reasonable rates.


We are actively engaged in enforcement of our copyright, trademark, patent, and trade secret rights against potential infringers of those rights along with other protective activities, including monitoring online channels for distribution of pirated copies and participating in various enforcement initiatives, education programs, and legislative activity around the world. For our PC products, we use technological protection measures to prevent piracy and the use of unauthorized copies of our products. For other platforms, the platform providers typically incorporate technological protections and other security measures in their platforms to prevent the use of unlicensed products on those platforms.


Human Capital

We believe that our continued success and growth is directly related to our ability to attract, retain, and develop top talent. As of December 31, 2020, Activision Blizzard had approximately 9,500 employees, with approximately 65% in North America, approximately 30% in the Europe, Middle East, and Africa (“EMEA”) region, and approximately 5% in the Asia Pacific region. Of these employees, approximately 61% are personnel whose primary focus is on game and technology development, which represents an approximate three percentage point increase from 2019. Activision Blizzard takes an active role in the entirety of the employee lifecycle, from candidates to alumni. Recognizing that ours is a rapidly changing industry with constant technological innovation, we remain focused on attracting, recruiting, enabling, developing, and retaining a diverse and innovative employee population.

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Diversity, Equity, and Inclusion (“DE&I”): We believe that a culture of inclusion and diversity enables us to create, develop, and fully leverage the strengths of our workforce to exceed players' and fans' expectations and meet our growth objectives. We remain committed to building and sustaining a culture of belonging, built on equitable processes and systems, where everyone thrives. By embedding DE&I practices and programs in the full employee lifecycle, we work to recruit, attract, retain, and grow world-class talent. Our employee resource groups play an active role in our DE&I efforts by building community and awareness. We also offer leadership and management development opportunities on the topics of unconscious bias and inclusive leadership and train our recruiting workforce in diverse sourcing strategies.

Our Corporate Governance Principles and Policies provide that the initial list from which any new independent director nominee is chosen includes qualified female and racially/ethnically diverse candidates and, similarly, if we conduct an external search for a new CEO, that the initial list of external candidates includes qualified female and racially/ethnically diverse candidates. As of December 31, 2020, two of our ten directors were women.

Additionally, we have been recognized for our efforts to create an inclusive workplace, including receiving the distinction for two consecutive years as a “Best Place to Work for LGBTQ Equality” by the Human Rights Campaign Foundation’s Corporate Equality Index. We are proud of these accolades because we believe that the most innovative work comes from a culture in which all employees can be, and bring, their authentic and best selves.

Compensation and Benefits: The main objective of our compensation program is to provide a compensation package that attracts, retains, motivates, and rewards top-performing employees that operate in a highly competitive and technologically challenging environment. We seek to do this by linking compensation (including annual changes in compensation) to overall Company and business unit performance, as well as each individual’s contribution to the results achieved. The emphasis on overall Company performance is intended to align our employee’s financial interests with the interests of our shareholders. We also seek fairness in total compensation by reference to external comparisons, internal comparisons, and the relationship between development and non-development, as well as management and non-management, remuneration. We believe in equal pay for equal work, and we continue to make efforts across our global organization to promote equal pay practices.

We are committed to providing comprehensive benefit options, and it is our intention to offer benefits that allow our employees and their families to live healthier and more secure lives. Some examples of our wide-ranging benefits offered are: medical insurance, prescription drug benefits, dental insurance, vision insurance, hospital indemnity insurance, accident insurance, critical illness insurance, life insurance, disability insurance, health savings accounts, and flexible spending accounts. We frequently upgrade our benefit portfolio by seeking out pioneer partners that give our employees modern benefit experiences. As an example, at the onset of the COVID-19 pandemic when traditional medical services became under huge demand, in order to help ensure that our employees and their families had access to medical advice, we created an enterprise-wide global network of physicians.

Talent Assessment and Development: Recognizing that ours is a rapidly changing industry with constant innovation, developing our diverse and innovative talent base is paramount, imperative, and vital to our business. We intend for our employees to have a clear understanding of their strengths and development opportunities, while fostering a collaborative and productive relationship between employees and their managers. Talent assessment and development are therefore critical aspects of our human capital programs. We employ a broad range of talent processes—for example, talent assessment, succession planning, and performance management. Our performance management process includes the establishment of goals (at the beginning of the year), and throughout the year we encourage regular check-ins on progress and performance so that employees have a clear understanding of their strengths and areas for improvement. We regularly assess employee contributions to our Company results and culture so that we can appropriately recognize and reward performance. Additionally, on an annual basis, we conduct an organizational and performance review process with our CEO and all segment, business unit, and function leaders, focusing on our high-performing and high-potential talent, diverse talent, and the performance and succession for our most critical roles.

Employee Experience: We capture and act on the voice of our employees through regular company-wide pulse surveys. We emphasize to employees that this is their chance to “provide honest, candid feedback about their experience working for the company.” Our survey participation rates (regularly 75% or higher) demonstrate our collective commitment that Activision Blizzard remains a great place to work. The survey—and other forms of employee feedback—result in actionable steps that lead to positive improvements to the employee experience at the company-wide, business unit, and team levels. Our employee feedback is dynamic and relevant to our employees’ immediate needs. For example, most recent surveys focused on whether our employees felt supported as they worked from home during the COVID-19 pandemic, and expectations of the employee population as we anticipate a return to the office.

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Information about our Executive Officers


Our executive officers and their biographical summaries are provided below:

Name
AgePosition

Name

AgePosition
Robert A. Kotick

5754Chief Executive Officer of Activision Blizzard

Collister Johnson

Daniel Alegre		5241President and Chief Operating Officer of Activision Blizzard

Dennis Durkin

5047Chief Corporate Officer of Activision Blizzard

Spencer Neumann

48Chief Financial Officer of Activision Blizzard

Eric Hirshberg

Claudine Naughton		5249President and Chief Executive Officer of Activision

Michael Morhaime

50President and Chief Executive Officer of Blizzard

Brian Stolz

42Chief People Officer of Activision Blizzard

Christopher Walther

5451Chief Legal Officer of Activision Blizzard

Riccardo Zacconi

50Chief Executive Officer of King


Robert A. Kotick, Chief Executive Officer of Activision Blizzard


Robert A. Kotick, who serves as our Chief Executive Officer, has been a director of Activision Blizzard since February 1991, following his purchase of a significant interest in the Company, which was then on the verge of insolvency. Mr. Kotick was our Chairman and Chief Executive Officer from February 1991 until July 2008, when


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he became our President and Chief Executive Officer in connection with the Business Combination. Mr KotickOfficer. He served as our President from July 2008 until June 2017, when Mr. Johnson began serving as our President and Chief Operating Officer. Mr. Kotick remains the Chief Executive Officer of Activision Blizzard.2017. Mr. Kotick is also a member of the board of directors of The Coca-Cola Company, a multinational beverage corporation, and the boards of trustees for The Center for Early Education and the Harvard-Westlake School. He is also vice chairmanthe Vice Chairman of the boardBoard and chairmanChairman of the committeeCommittee of trustees of the Los Angeles County Museum of Art. In addition, Mr. Kotick is the founderco-founder and co-chairmanco-Chairman of the Call of Duty Endowment, a nonprofit, public benefit corporation that seeks to help organizations that provide job placement and training services for veterans.

Collister Johnson,


Daniel Alegre, President and Chief Operating Officer of Activision Blizzard

        Collister "Coddy" Johnson


Daniel Alegre has served as our President and Chief Operating Officer since June 2017. Prior to that, he served as the chief operating officer and co-founder of Altschool, a public benefit, education technology company, from April 2016 until May 2017.2020. Prior to joining Altschool, hethe company, Mr. Alegre held a number of leadership positions of increasing responsibility at the CompanyGoogle from 20082004 to 2016,2020, including serving as President of Global Retail and Shopping, where he led the chief financial officerinitiatives to embed e-commerce across all Google product areas and headto help diversify beyond advertising into the retail transactions business. Prior to that, Mr. Alegre was President of operationsthe Google’s Global and Strategic Partnerships organization, working across all of Activision, oneGoogle’s core business lines to create and foster key strategic relationships with some of our principal operating units, chief operating officerthe world’s largest partners. Mr. Alegre was also instrumental in Google’s international expansion, serving as President of Activision studios,Google’s Asia-Pacific and senior vice presidentJapan businesses living in China, Singapore, and chiefTokyo and as Vice President of staffthe Latin America business, overseeing a massive expansion in both regions. Prior to our Chief Executive Officer.joining Google, Mr. JohnsonAlegre was Vice President at Bertelsmann Media, running a division of BMG Music in Latin America as well as Partnerships of the Bertelsmann eCommerce Group in New York City. Mr. Alegre holds a B.A. degree in ethics, politicsfrom the Woodrow Wilson School of Public and economicsInternational Affairs at Princeton University, as well as dual M.B.A. and J.D. degrees from Yale UniversityHarvard Business School and an M.B.A. degree from Stanford University.

Harvard Law School.


Dennis Durkin, Chief CorporateFinancial Officer of Activision Blizzard


Dennis Durkin became our Chief Corporate Officer in June 2017. Prior to this, Mr. Durkinhas served as our Chief Financial Officer since joiningJanuary 2019. Mr. Durkin joined the Company in March 2012.2012 as our Chief Financial Officer and served in that role until May 2017. He served as our Chief Corporate Officer from May 2017 until January 2019. Prior to joining the Company in 2012, Mr. Durkin held a number of positions of increasing responsibility at Microsoft, Corporation, a computing hardwaresoftware and softwarehardware manufacturer, most recently serving as the corporate vice presidentCorporate Vice President and chief operatingChief Operating and financial officerFinancial Officer of Microsoft Corporation'sMicrosoft’s interactive entertainment business, which included the Xbox console business. Prior to joining Microsoft Corporation'sMicrosoft’s interactive entertainment business in 2006, Mr. Durkin workedspent seven years on Microsoft Corporation'sMicrosoft’s corporate development and strategy team, including two years where he was based in London, England, driving pan-European activity. Before joining Microsoft, Corporation, Mr. Durkin was a financial analyst at Alex. Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from Harvard University.

Spencer Neumann,


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Claudine Naughton, Chief FinancialPeople Officer of Activision Blizzard

        Spencer Neumann


Claudine Naughton has served as our Chief FinancialPeople Officer since May 2017.August 2019. Prior to joining the Company, Mr. NeumannMs. Naughton held a number of positions of increasing responsibility at The Walt Disney Company, most recentlywithin the human resources department of American International Group, Inc. from 1997 to 2018, including serving as the chief financial officer and executive vice president of Global Guest Experience of Walt Disney Parks and Resorts, from 2012 until May 2017. From 2005 to 2012, Mr.��Neumann worked at the private equity firms of Providence Equity Partners and Summit Partners. Prior to that, Mr. Neumann held several other roles with Disney, which he initially joined in 1992, including executive vice president of the ABC Television Network from 2001 to 2004 and chief financial officer of the Walt Disney Internet Group from 1999 to 2001. He is also a member of the national board of directors of Make-A-Wish America. Mr. Neumann holds a B.A. degree in economics from Harvard University and an M.B.A. degree from Harvard University.

Eric Hirshberg,company's Executive Vice President and Chief Executive Officer of Activision

        Eric Hirshberg became the President and Chief Executive Officer of Activision in September 2010.Human Resources Officer. Prior to joining us, Mr. HirshbergAIG, Ms. Naughton served in positionsas the Regional Manager and Director of increasing responsibility with Deutsch LA, a marketing and advertising agency, most recently serving as its co-chief executive officer and its chief


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creative officer. Prior to working at Deutsch LA, Mr. Hirshberg worked at Fattal & Collins, a marketing and advertising agency. Mr. HirshbergTraining for Fairways Golf Corporation. Ms. Naughton holds a B.F.A. degree from the University of California at Los Angeles.

Michael Morhaime, President and Chief Executive Officer of Blizzard

        Michael Morhaime became Chief Executive Officer of Blizzard and an executive officer of Activision Blizzard in July 2008 in connection with the Business Combination. Mr. Morhaime co-founded Blizzard in February 1991, and transitioned to the role of Blizzard's President in April 1998. Mr. Morhaime served on the executive committee of Vivendi Games from January 1999, when Blizzard became a subsidiary of Vivendi Games, until the consummation of the Business Combination, when Blizzard became a subsidiary of the Company. Mr. Morhaime holds a B.S.B.A degree in electrical engineeringpolitical science from the University of California at Los Angeles.

Brian Stolz, Chief People Officer of Activision Blizzard

        Brian Stolz became our Chief People Officer in May 2016. Prior to joining the Company, Mr. Stolz served as senior vice president of the neurology, dental, and generics businesses of Valeant Pharmaceuticals, a pharmaceutical company. Before that, Mr. Stolz served as Valeant's executive vice president of administration and its chief human capital officer. Prior to joining Valeant, Mr. Stolz held positions as a principal at ghSMART, a leadership consulting and advisory firm, and as an associate principal at McKinsey & Co., a strategy consulting firm. Mr. Stolz holds a B.S. degree in finance from Georgetown University and an M.B.A. degree from HarvardStockton University.


Christopher Walther, Chief Legal Officer of Activision Blizzard


Christopher Walther becamehas served as our Chief Legal Officer insince November 2009 and served as our Secretary from February 2010 until February 2011. Prior to joining us,the Company, Mr. Walther held a number of positions of increasing responsibility within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the general counselGeneral Counsel for Central and Eastern Europe, Middle East, and Africa, general counselGeneral Counsel for Northeast Asia and, most recently, as general counselGeneral Counsel for Western Europe. Mr. Walther also led Procter & Gamble'sGamble’s corporate and securities and mergers and acquisitions practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for Children's Rights.Children’s Rights and currently serves as its co-chair. Mr. Walther has also served as our representative on the board of directors of the Entertainment Software Association since 2013.2013 and on its executive committee. Mr. Walther holds a B.A. degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.

Riccardo Zacconi, Chief Executive Officer of King

        Riccardo Zacconi serves as the Chief Executive Officer of King and became an executive officer of Activision Blizzard in February 2016 in connection with the King Acquisition. Mr. Zacconi co-founded King in March 2003, and has served as its chief executive officer since its founding. Prior to founding King, Mr. Zacconi served as vice president of European sales and marketing at uDate.com, an online dating service, from 2002 until that company's acquisition later that year. From 2001 to 2002, Mr. Zacconi served as entrepreneur in residence at Benchmark Capital Partners, a venture capital firm. Prior to joining Benchmark Capital, he was managing director for Spray Network, an online messaging portal based in Hamburg, Germany, from 1999 until its sale in 2000. Prior to 1999, Mr. Zacconi served in various investment and consulting positions of increasing responsibility with The Boston Consulting Group and LEK Consulting, both of which are management consulting firms. Mr. Zacconi holds a B.A. degree in economics from LUISS University in Italy.



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Employees

        At December 31, 2017, we had approximately 9,800 total full-time and part-time employees. At December 31, 2017, approximately 175 of our full-time employees were subject to fixed-term employment agreements with us.

        The majority of our employees in France, Germany, Spain, and Italy are subject to collective agreements as a part of normal business practices in those countries. In addition, certain employees in those countries are subject to collective bargaining agreements. To date, we have not experienced any labor-related work stoppages.

Additional Financial Information


See the “Critical Accounting Policies and Estimates” section under Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 13 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for certain additional information regarding operating segments and geographic areas. See the Critical Accounting Policies section under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” for a discussion of our practices with regard to several working capital items, such as rights of return.items. See the "Management's“Management’s Overview of Business Trends"Trends” under Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” for a discussion of the impact of seasonality on our business. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding product development expense during the past three years.


Available Information


Our website, located at https://www.activisionblizzard.com, allows free-of-charge access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). The information found on our website is not a part of, and is not incorporated by reference into, this or any other report that we file with or furnish to the Securities and Exchange Commission ("SEC"(“SEC”).


Our SEC filings are also available to the public over the Internet at the SEC'sSEC’s website at https://www.sec.gov. Additionally, the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.


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Item 1A. RISK FACTORS


We wish to caution the reader that the following important risk factors, and those risk factors described elsewhere in this report or in our other filings with the SEC, could cause our actual results to differ materially from those stated in forward-forward‑looking statements contained in this document and elsewhere. These risks are not presented in order of importance or probability of occurrence. Further, the risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks may have a material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.


We are unable to predict the full impact of the Global COVID-19 pandemic.

In December 2019, COVID-19 emerged and has since extensively impacted global health and the economic environment. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The full extent to which the global COVID-19 pandemic and its aftermath will impact our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price depends on numerous evolving factors that we are not able to fully predict, including: the duration and severity of the pandemic; the impact of the pandemic on the global economy; the impact of governmental, business and individual actions that have been and will continue to be taken in response to the pandemic; unintended consequences of actions we take, or have taken, in response to the pandemic; the impact of the pandemic on the health or productivity of our employees and external developers, including the ability to develop high-quality and well-received interactive software products and entertainment content and/or to release our products and content in a timely manner; the effects on the health, finances and discretionary spending patterns of our consumers, including the ability of our consumers to pay for our products and content; our ability to sell products at assumed prices; the financial impact and strain on the retail customers and distributors on whom we rely to sell our physical products to consumers; the financial impact and strain on platform providers for whose video game consoles and/or on whose networks certain of our products are exclusively available; the financial impact and strain on third-party mobile and web platforms that provide significant online distribution for, and/or provide other services critical for the operation of, a number of our games; the effects on our suppliers who manufacture our physical products; the effects on other third parties with which we partner (e.g., to market or ship our products); the effects on our lenders and financial counterparties; the effects on regulatory agencies around the world on which we rely; our ability to continue to develop our emerging businesses, such as advertising; increased volatility in foreign currency exchange rates; the impact of recent and potential upcoming or ongoing large-scale actions by local and federal governments and agencies or similar governing bodies in the U.S. and around the world, the U.S. Federal Reserve, and other central banks around the world, including the impact of any of these actions on the U.S. or world economy or global financial markets; and any other factor which results in disruptions or increased costs associated with the development, production, post-production, marketing and distribution of our products, and/or the digital advertising offered within our content. If the ongoing global COVID-19 pandemic has adverse effects in any one of these areas, our business may be negatively impacted. As in the case of COVID-19, the occurrence of other epidemics, medical emergencies, and other public health crises outside of our control could have a negative impact on our business. Additionally, in the case of the COVID-19 pandemic, we have seen increased demand for our products due to stay-at-home orders, the curtailment of certain other forms of entertainment, and other pandemic-related factors that make consumers more inclined to spend time at home, benefiting our financial results and operating metrics. The trends in 2020 for revenues, net income, and other financial results and operating metrics, may not be indicative of results for future periods, particularly if these pandemic-related factors become less significant.

Our professional esports leagues (i.e. the Overwatch League and the Call of Duty League) and the franchise teams that make up the leagues generate revenues from live in-person events. The COVID-19 pandemic has resulted in the cancellation of live in-person events and any continued health and safety concerns with large public gatherings may impact the ability of the teams in our leagues to hold future live in-person events. Prolonged COVID-19 risks could result in teams being unable or unwilling to pay their franchise fees to us or participate in our leagues going forward. This, in turn, could result in the loss of those future franchise fee payments, revenue from advertising, and other future potential league revenues or income, other benefits associated with our esports business, and/or the termination of our leagues. Also, we have provided, and may continue to provide, concessions to the owners of the teams as a result of the COVID-19 pandemic. Any one of these things could harm our business. Additionally, a prolonged impact of COVID-19 could heighten many of the risk factors included in this Annual Report filed on Form 10-K.

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Business and Industry Risks

If we do not consistently deliver popular, high-qualityhigh‑quality content in a timely manner, if we are not successful in meaningfully expanding our franchises further on the mobile platform, or if consumers prefer competing products from our competitors, our business may be negatively impacted.


Consumer preferences for games are usually cyclical and difficult to predict, and evenpredict. Even the most successful content remainsgames can lose consumer audiences over time, and remaining popular for only limited periods of time, unlessis increasingly dependent on the games being refreshed with new content or otherwise enhanced.other enhancements. In order to remain competitive and maximize the chances that consumers select our products as opposed to the various entertainment options available to them and with which we compete, we must continuously develop new products or new content for, or other enhancements to, our existing products. These products or enhancements may not be well-receivedwell‑received by consumers, even if well-reviewedwell‑reviewed and of high quality. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have and many smaller competitors, particularly on the mobile platform. Our larger competitors may be able to leverage their greater financial, technical, personnel, and other resources to provide larger budgets for development and marketing and make higher offers to licensors and developers for commercially desirable properties, as well as adopt more aggressive pricing policies to develop more commercially successful video game products than we do. Further, competitors may develop content that imitates or competes with our best-sellingbest‑selling games, potentially takingreducing our sales away from them or reducing our ability to charge the same prices we have historically charged for our products. These competing products may take a larger share of consumer spending than anticipated, which could cause product sales to fall below expectations. If we do not continue to develop consistently high-qualityhigh‑quality and well-receivedwell‑received games or enhancements to those games, if our marketing fails to resonate with our consumers, if we are not successful in meaningfully expanding our franchises further on the mobile platform, or if consumers lose interest in a genre of games we produce, if the use of cross-promotion within our mobile games to retain consumers becomes less effective, or if our competitors develop more successful products or offer competitive products at lower prices, our revenues and profit margins could decline. In addition, our own best‑selling products could compete with our other games, reducing sales for those other games. Further, a failure by us to develop a high-qualityhigh‑quality product, or our development of a product that is otherwise not well-received,well‑received, could potentially result in additional expenditures to respond to consumer demands, harm our reputation, and increase the likelihood that our future products will not be well-received.well‑received. The increased importance of downloadable content to our business amplifies these risks, as downloadable content for poorly-receivedpoorly‑received games typically generates lower-than-expectedlower‑than‑expected sales. In addition,The increased demand for consistent enhancements to our own best-selling products could compete with our other games, reducing sales foralso requires a greater allocation of financial resources to those other games.

products.


Additionally, consumer expectations regarding the quality, performance, and integrity of our products and services are high. Consumers may be critical of our brands, games, services, and/or business practices for a wide variety of reasons, and such negative reactions may not be foreseeable or within our control to manage effectively. For example, if our games or services, such as our proprietary online gaming service, do not function as consumers expect, whether because they fail to function as advertised or otherwise, our sales may suffer. The risk that this may occur is particularly pronounced with respect to our games with online features because they involve ongoing consumer expectations, which we may not be able to consistently satisfy. Our games with online features are also frequently updated, increasing the risk that a game may contain significant "bugs."errors, or “bugs.” If any of these issues occur, consumers may stop playing the game and may be less likely to return to the game as often in the future, which may negatively impact our business.


Further, delays in product releases or disruptions following the commercial release of one or more new products could negatively impact our business on our revenues and reputation and could cause our results of operations to be materially different from expectations. If we fail to release our products in a timely manner, or if we are unable to continue to extend the life of existing games by adding features and functionality that will encourage continued engagement with the game, our business may be negatively impacted.



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Additionally, the amount of lead time and cost involved in the development of high-qualityhigh‑quality products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial resources to such product, the more critical it is that we accurately predict consumer demand for such product. If our future products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to recover the substantial up-frontup‑front development and marketing costs associated with those products.


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We depend on a relatively small number of franchises for a significant portion of our revenues and profits.


We follow a franchise model, and a significant portion of our revenues has historically been derived from products based on a relatively small number of popular franchises. These products are also responsible for a disproportionately high percentage of our profits. For example, in 2020, revenues associated with the Call of Duty, Candy Crush, and World of Warcraft and Overwatch franchises, collectively, accounted for approximately 66%76% of our net revenues—and a significantly higher percentage of our operating income—for 2017.income. We expect that a relatively limited number of popular franchises will continue to produce a disproportionately high percentage of our revenues and profits. Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises could negatively impact our business. Additionally, if the popularity of a franchise declines, as has happened in the past with other popular franchises, we may have to write off the unrecovered portion of the underlying intellectual property assets, which could negatively impact our business.

We may be unable to effectively manage the continued growth in the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors.

        We have experienced significant growth in the scope and complexity of our business, including through the acquisition of King and the development of our MLG, Studios and consumer products businesses, and remain ambitious as to the future growth in the scope and complexity of our business. Our future success depends, in part, on our ability to manage this expanded business and our aspirations for continued expansion. We have dedicated resources both to new business models that are largely untested, as is the case with esports, and to adjacent business opportunities in which very large competitors have an established presence, as is the case with our Studios and consumer products businesses. We do not know to what extent our future expansions will be successful. Further, even if successful, the growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand or otherwise negatively impact our business. Further, any failure by these new businesses may damage our reputation or otherwise negatively impact our core business of interactive software products and entertainment content.

The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game.

        As a result of, among other things, the King Acquisition, we are more dependent on our ability to develop, enhance and monetize free-to-play games, such as the games in our Candy Crush franchise andHearthstone. As such, we are increasingly exposed to the risks of the free-to-play business model. For example, we may invest in the development of new free-to-play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Further, if: (1) we



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are unable to continue to offer free-to-play games that encourage consumers to purchase our virtual currency and subsequently use it to buy our virtual items; (2) we fail to offer monetization features that appeal to these consumers; (3) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (4) our platform providers make it more difficult or expensive for players to purchase our virtual currency; or (5) we cannot encourage significant additional consumers to purchase virtual items in our free-to-play games, our business may be negatively impacted.

        Furthermore, as there are relatively low barriers to entry to developing mobile or online free-to-play or other casual games, we expect new competitors to enter the market and existing competitors to allocate more resources to developing and marketing competing games and applications. We compete, or may compete, with a vast number of small companies and individuals who are able to create and launch casual games and other content using relatively limited resources and with relatively limited start-up time or expertise. Competition for the attention of consumers on mobile devices is intense, as the number of applications on mobile devices has been increasing dramatically, which, in turn, has required increased marketing to garner consumer awareness and attention. This increased competition could negatively impact our business. In addition, a continuing industry shift to free-to-play games could result in a deprioritization of our other products by traditional retailers and distributors.

Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.

        Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, distribution channels and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, distribution channels and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or distribution channels incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial "up front" costs of developing and marketing those products and distribution channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.

        If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products incorporating that technology or for that platform or against companies using that business model.

The increasing importance of digital sales to our business exposes us to the risks of that business model, including greater competition.

        The proportion of our revenues derived from digital content delivery, as compared to traditional retail sales, continues to increase. The increased importance of digital content delivery in our industry increases our potential competition, as the minimum capital needed to produce and publish a digitally delivered game, particularly a new game for mobile platforms, may be significantly less than that needed to produce and publish one that is purchased through retail distribution and is played on a game console or PC. Also, while digitally-distributed products generally have higher profit margins than retail sales, the risk profile for us, as the publisher, may be increased as business shifts to digital distribution, since the volume of initial orders from retailers for physical discs could be reduced.


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Further, the providers of the platforms through which we digitally distribute content are also publishers of their own content distributed on those platforms, and, therefore, a platform provider may give priority to its own products or those of our competitors.

Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our sales.

        Within the interactive entertainment industry, we compete with other publishers of interactive entertainment software, both within and outside the United States. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. Our larger competitors may be able to leverage their greater financial, technical, personnel and other resources to provide larger budgets for development and marketing and make higher offers to licensors and developers for commercially desirable properties, as well as adopt more aggressive pricing policies to develop more commercially successful video game products than we do. In addition, competitors with large product lines and popular games typically have greater leverage with retailers, distributors and other customers, who may be willing to promote products with less consumer appeal in return for access to those competitors' more popular games.

        Additionally, we compete with other forms of entertainment and leisure activities. As our business continues to expand in complexity and scope, we have increased exposure to additional competitors, including those with access to large existing user bases and control over distribution channels. Further, it is difficult to predict and prepare for rapid changes in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities. Failure to adequately identify and adapt to these competitive pressures could negatively impact our business.

If we are unable to sustain traditional pricing levels for our products, our business may be negatively impacted.

        If we are unable to sustain traditional pricing levels for our console or PC titles or the associated downloadable content, whether due to competitive pressure, because retailers or other third parties elect to price these products at a lower price, or otherwise, it could have a negative impact on our business. Further, our decisions around the development of new game content are grounded in assumptions about eventual pricing levels. If there is price compression in the market after these decisions are made, it could have a negative impact on our business.

If we do not continue to attract, retain, and retainmotivate skilled personnel, we will be unable to effectively conduct our business.


Our employees are our greatest asset. As such, our success depends to a significant extentsignificantly on our ability to identify, attract, hire, retain, motivate, and utilize the abilities of qualified personnel, including in some cases, external developers, particularly personnel with the specialized skills needed to create and sell the high-quality, well-receivedhigh‑quality, well‑received content upon which our business is substantially dependent. Our industry is generally characterized by a high level of employee mobility, competitive compensation programs, and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative, and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs in order to do so. If we are unable to attract additional qualified employeespersonnel or retain and utilize the services of key personnel, it could have a negative impact on our business.



Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.

Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt to emerging technologies, such as cloud-based game streaming, and business models, such as free-to-play and subscription-based access to a portfolio of interactive content, to stay competitive. Forecasting the financial impact of these changing technologies and business models is inherently uncertain and volatile. Supporting a new technology or business model may require partnering with a new platform, business, or technology partner, which may be on terms that are less favorable to us than those for traditional technologies or business models. If we invest in the development of interactive entertainment products for distribution channels that incorporate a new technology or business model that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial up-front costs of developing and marketing those products, or recover the opportunity cost of diverting management and financial resources away from other products or opportunities. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.

If, on the other hand, we elect not to pursue the development of products incorporating a new technology, or otherwise elect not to pursue new business models that achieve significant commercial success, it may have adverse consequences. It may take significant time and expenditures to shift product development resources to that technology or business model, and it may be more difficult to compete against existing products incorporating that technology or using that business model.

The increasing importance of digital sales to our business exposes us to the risks of that business model, including greater competition.

The proportion of our revenues derived from digital distribution channels, as compared to traditional retail sales, continues to increase. The increased importance of digital channels in our industry increases our potential competition, as the minimum capital needed to produce and publish a digitally delivered game, particularly a game for a mobile platform, may be significantly less than that needed to produce and publish one that is purchased through retail distribution and is played on a game console or PC. Also, while digitally‑distributed products generally have higher profit margins than retail sales, as business shifts to digital distribution, the volume of orders from retailers for physical discs has been, and is expected to be, reduced. Further, some of the providers of the platforms through which we digitally distribute content are also publishers of their own content distributed on those platforms, and, therefore, a platform provider may give priority to its own products or those of our competitors.

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We rely on external developers


The importance of retail sales to develop someour business exposes us to the risks of that business model.

While the proportion of our software products.

        We relyrevenues derived from digital distribution channels, as compared to traditional retail sales, continues to increase, retail sales remain important to our business. Such sales are made primarily on external software developersa purchase order basis without long‑term agreements or other forms of commitments, and due to develop somethe increased proportion of our revenue from digital distribution channels, our retail customers and distributors have generally been reducing the levels of inventory they are willing to carry. The loss of, or significant reduction in sales to, any of Activision’s principal retail customers or distributors, including digital distributors, could have adverse consequences.


We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors.

We have experienced significant growth in the scope and complexity of our business, including through acquisitions and the development of our esports, advertising, and consumer products businesses. Our future success depends, in part, on our ability to manage this expanded business and our aspirations for continued expansion and growth. We have dedicated resources both to new business models that are largely untested, as is the case with esports, and to adjacent business opportunities in which very large competitors have an established presence, as is the case with our advertising and consumer products businesses. We do not know to what extent our future expansions will be successful. Further, even if successful, our aspirations for growth in our core businesses and these adjacent businesses could create significant challenges for our management, operational, and financial resources. If not managed effectively, this growth could result in the over‑extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure by these new businesses or failure to adequately manage our growth in any of these ways may cause damage to our brand or otherwise negatively impact our core business. Further, the success of these new businesses is largely contingent on the success of our underlying franchises and as such, a decline in the popularity of a franchise may impact the success of the new businesses adjacent to that franchise.

Due to our reliance on third‑party platforms, platform providers are frequently able to influence our products and costs.

Generally, when we develop interactive entertainment software products for hardware platforms offered by companies such as Sony and Microsoft, the physical products are replicated exclusively by that hardware manufacturer or their approved replicator. The agreements with these manufacturers include certain provisions, such as approval rights over all software products and related promotional materials and the ability to change the fee they charge for the manufacturing of products, which allow the hardware manufacturers substantial influence over the cost and the release schedule of such interactive entertainment software products. Because we depend onDuring a console transition, like the one that occurred in 2020, as described below, these developers, we are subjectmanufacturers may seek to change the following risks:

    •
    continuing strong demandterms governing our relationships with them. In addition, because each of the manufacturers is also a publisher of games for top-tier developers' resources, combined with the recognition they receive in connection with their work,its own hardware platforms and may manufacture products for other licensees, a manufacturer may give priority to its own products or those of our competitors. Accordingly, console manufacturers could cause developers who worked for usunanticipated delays in the past either to work for a competitor in the future or to renegotiate agreements with us on terms less favorable to us;

    •
    limited financial resources and business expertise and inability to retain skilled personnel may force developers outrelease of business prior to completing products for us or require us to fund additional costs;

    •
    a competitor may acquire the business of one or more key developers or sign them to exclusive development arrangements and, in either case, we would not be able to continue to engage such developers' services for our products, except foras well as increases to projected development, manufacturing, marketing, or distribution costs, any period of time for which the developer is contractually obligated to complete development for us; and

    •
    reliance on external developers reduces our visibility into, and control over, development schedules and operational outcomes compared to those when utilizing internal development resources.

        Increased competition for skilled third-party software developers also has compelled us to agree to make significant advance payments on royalties to game developers. If the products subject to these arrangements do not generate sufficient revenues to recover these royalty advances, we would have to write off unrecovered portions of these payments, which could negatively impact our business. Typically,


Sony and Microsoft are also platform providers which control the networks over which consumers purchase digital products and services for their platforms and through which we payprovide online game capabilities for our products. The control that these platform providers have over consumer access to our games, the fee structures and/or retail pricing for products and services for their platforms and online networks and the terms and conditions under which we do business with them could impact the availability of our products or the volume of purchases of our products made over their networks and our profitability. The networks provided by these platform providers are the exclusive means of selling and distributing our content on these platforms. Further, increased competition for limited premium “digital shelf space” has placed the platform providers in an increasingly better position to negotiate favorable terms of sale. If the platform provider establishes terms that restrict our offerings on its platform, significantly alters the financial terms on which these products or services are offered, or does not approve the inclusion of content on its platform, our business could be negatively impacted. We also derive significant revenues from distribution on third‑party mobile and web platforms, such as the Apple App Store, the Google Play Store, and Facebook, which are also our direct competitors and in some cases the exclusive means through which our content reaches gamers on those platforms, and most of the virtual currency we sell is purchased using these platform providers’ payment processing systems. These platforms also serve as significant online distribution platforms for, and/or provide other services critical for the operation of, a number of our games. If these platforms deny access to our games, modify their current discovery mechanisms,
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communication channels available to developers, operating systems, terms of service, or other policies (including fees), our business could be negatively impacted. Additionally, if these platform providers are required to change how they label a royaltygame’s business model, such as free‑to‑play, or change how the personal information of consumers is made available to developers, our business could be negatively impacted. These platform providers or their services may be unavailable or may not function as intended or may experience issues with their in‑app purchasing functionality. As has sometimes happened in the past, if any of these events occurs on a prolonged, or even short‑term, basis or other similar issues arise that impact players’ ability to access our games, access social features, or make purchases, it may result in lost revenues and otherwise negatively impact our business.

Our business is highly dependent on the success and availability of video game consoles manufactured by third parties, as well as our ability to develop commercially successful products for these consoles.

We derive a substantial portion of our revenues from the sale of products for play on video game consoles manufactured by third parties, such as Sony’s PS4 and PS5, Microsoft’s Xbox One and Series X, and Nintendo’s Switch. Sales of products for consoles accounted for 34% of our consolidated net revenues in 2020. The success of our console business is driven in large part by our ability to accurately predict which consoles will be successful in the marketplace and our ability to develop commercially successful products for these consoles. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers, including our ability to reach consumers via the online networks operated by these console manufacturers. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the consoles for which we develop new software products or modify existing products do not attain significant consumer acceptance, we may not be able to recover our development costs, which could be significant.

Sony and Microsoft each launched next‑generation consoles in 2020. We have released titles that operate on these consoles, and we may continue to develop games for these new console systems. When next-generation consoles are announced or introduced into the market, consumers have typically reduced their purchases of game console entertainment software products for prior-generation consoles in anticipation of purchasing a next-generation console and products for that console. During these periods, sales of the game console entertainment software products we publish may decline until new platforms achieve wide consumer adoption. Console transitions may have a comparable impact on sales of downloadable content, amplifying the impact on our revenues. This decline may not be offset by increased sales of products for the next-generation consoles. In addition, as console hardware moves through its life cycle, hardware manufacturers typically enact price reductions, and decreasing prices may put downward pressure on software prices. During console transitions, we may simultaneously incur costs both in continuing to develop, market, and operate titles for prior‑generation video game platforms, while also developing and supporting next‑generation platforms. As a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times.

The increasing importance of free‑to‑play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game.

We are increasingly dependent on our ability to develop, enhance, and monetize free‑to‑play games, such as the games in our Candy Crush franchise, Hearthstone, Call of Duty: Mobile, and Call of Duty: Warzone. As such, we are increasingly exposed to the risks of the free‑to‑play business model. For example, we may invest in the development of new free‑to‑play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Further, our business may be negatively impacted if: (1) we are unable to encourage new and existing consumers to purchase our virtual items; (2) we fail to offer monetization features that appeal to these consumers;(3) our platform providers make it more difficult or expensive for players to purchase our virtual items; (4) we cannot encourage significant additional consumers to purchase virtual items in our game and/or (5) our free-to-play releases reduce sales of our other games.

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We may not realize the expected benefits of our recent restructuring actions, and implementation of such actions may negatively impact our business.

During 2019, we began implementing a plan aimed at refocusing our resources on our largest opportunities and removing unnecessary levels of complexity and duplication from certain parts of our business. While we believe this plan enables us to provide better opportunities for talent, and greater expertise and scale over the long term, our ability to achieve the desired and anticipated benefits from the plan is subject to many estimates and assumptions, and the actual savings and timing for those savings may vary materially based on a percentagefactors such as local labor regulations, negotiations with third parties, and operational requirements. These estimates and assumptions are also subject to significant economic, competitive, and other uncertainties, some of net revenues from product sales, less agreed upon deductions, but from timewhich are beyond our control.

Additionally, there can be no assurance that our business will be more efficient or effective than prior to time,implementation of the plan. The implementation of the plan may be more costly than we anticipated or have agreedother negative consequences, such as attrition beyond our planned reduction in workforce or negative impacts on employee morale and productivity, or on our ability to pay developers fixed per unit product royalties after royalty advances are fully recouped. To the extent that sales pricesattract and retain highly skilled employees. Any of products on which we have agreed to pay a fixed per unit royalty are marked down, itthese consequences could negatively impact our business.

In addition, there can be no assurance that additional plans will not be required or implemented in the future.


We engage in strategic transactions and may encounter difficulties in integrating acquired businesses or otherwise realizing the anticipated benefits of thethese transactions.


As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with, complementary businesses. These transactions may involve significant risks and uncertainties, including: (1) in the case of an acquisition, (i) the potential for the acquired business to underperform relative to our expectations and the acquisition price, (ii) the potential for the acquired business to cause our financial results to differ from expectations in any given period, or over the longer-term,longer‑term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of the acquired business'sbusiness’s operations going forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating the acquired business, its operations, and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of the acquired businesses,businesses; and (2) in the case of an investment, alliance, or joint venture, (i) our ability to cooperate with our partner, (ii) our partner having economic, business, or legal interests or goals that are inconsistent with ours, and (iii) the potential that our partner may be unable to meet its economic or other obligations, which may require us to fulfill those obligations alone. Further, any such transaction may involve the risk that our senior management'smanagement’s attention will be excessively diverted from our other operations, the risk that our industry does not evolve as anticipated, and that any intellectual property or personnel skills acquired do not prove to be those needed for our future


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success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.

Our debt could adversely affect our business.

        As of December 31, 2017, the Company had approximately $4.4 billion of long-term debt outstanding. Our debt burden could have important consequences, including: increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; requiring the dedication of a substantial portion of any cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing the availability of cash flow to fund our operations, growth strategy, working capital, capital expenditures, future business opportunities, and other general corporate purposes; exposing us to the risk of increased interest rates with respect to any borrowings that are at floating rates of interest; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; limiting our ability to obtain additional financing for working capital, capital expenditures, research and development, acquisitions and general corporate or other purposes; limiting our ability to adjust to changing market conditions; and placing us at a competitive disadvantage relative to competitors who are less highly leveraged.

        Agreements governing our indebtedness, including our credit agreement and the indentures governing our notes, impose operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and ratios. In addition, under certain circumstances, our credit agreement and indentures may limit or prohibit other activities. In addition, we are required to maintain a maximum total net debt ratio calculated pursuant to a financial maintenance covenant under our credit agreement. Further, various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under our credit agreement or the indentures governing our notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. There can be no assurances that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

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

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

We may be involved in legal proceedings that have a negative impact on our business.

        From time to time, we are involved in claims, suits, government investigations, audits and proceedings arising in the ordinary course of our business, including actions with respect to intellectual property, competition and antitrust matters, privacy matters, tax matters, labor and employment matters, unclaimed property matters, compliance and commercial claims. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations from



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regulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be damaging to our reputation.

        Claims, suits, government investigations, audits and proceedings are inherently difficult to predict and their results are subject to significant uncertainties, many of which are outside of our control. Regardless of the outcome, such legal proceedings can have a materially adverse impact on us due to legal costs, diversion of management resources and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in reputational harm, substantial settlements, judgments, fines or penalties, criminal sanctions, consent decrees or orders preventing us from offering certain features, functionalities, products or services, requiring us to change our development process or other business practices.

        There is also inherent uncertainty in determining reserves for these matters. There is significant judgment required in the analysis of these matters, including assessing the probability of potential outcomes and determining 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. Further, it may take time to develop factors on which reasonable judgments and estimates can be based. If we fail to establish appropriate reserves, our business could be negatively impacted.

Issues with the toys, accessories or hardware peripherals utilized in certain of our games may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities.

        We may experience issues with toys, accessories or peripherals that may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities. Any of these activities could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, decreased willingness by our customers to purchase, or by our partners to provide marketing support for, those products, denial or increased cost for insurance coverage, or additional safety and testing requirements, any of which could negatively impact our business.

Lawsuits have been filed, and may continue to be filed, against publishers of interactive entertainment software products.

        In prior years, lawsuits have been filed against numerous interactive entertainment companies, including against us, by the families of victims of violence, alleging that interactive entertainment products influence the behavior of the perpetrators of such violence. These lawsuits have been dismissed, but similar additional lawsuits could be filed in the future. Although our general liability insurance carrier has agreed to defend lawsuits of this nature with respect to the prior lawsuits, it is uncertain whether insurance carriers would do so in the future, or if such insurance carriers would cover all or any amounts for which we might be liable if such future lawsuits are not decided in our favor. Further, any such lawsuit could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, or decreased willingness by our customers to purchase, or by our partners to provide marketing support for, those products. Such results could divert development and management resources, increase legal fees and other costs and have other negative impacts on our business.

We are exposed to seasonality in the sale of our products.


The interactive entertainment industry is somewhat seasonal, with the highest levels of consumer demand occurring during the year-endcalendar year‑end holiday buying season inseason. As a result, our sales, particularly for our Activision segment, receivables, and credit risk, are higher during the fourth quarter of the calendar year. As a result, our sales have historically been highest during the second half of the year, particularly for


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our Activision segment. Receivables and credit risk are likewise higher during the second half of the year, as consumers and retailers increase their purchases of our products in anticipation of the holiday season. Delays in development, approvals or manufacturing could affect the timing of the release of products, causing us to miss key selling periods such as the year-endyear‑end holiday buying season, which could negatively impact our business.


Our business may be harmed if our distributors, retailers, development, and licensing partners, or other third parties with whom we do businessare affiliated, act in ways that put our brand at risk.


In many cases, our business partners and other third party affiliates, which may include, among others, individuals or entities affiliated with the esports leagues we operate, are given access to sensitive and proprietary information or control over our intellectual property in order to provide services and support to our team. These third parties may misappropriate or misuse our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. Theit. Further, the failure of these third parties to provide adequate services and technologies the failure of third partiesor to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation and may negatively impact our business.

At the same time, if the media, consumers, or employees raise any concerns about our actions vis-à-vis third parties including consumers who play our games, this could also damage our reputation or our business.


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We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.


We use open source software in connection with certainsome of ourthe games and the services we offer. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open source software. Were it determined that our use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineerre‑engineer our games or products, discontinue distribution in the event re-engineeringre‑engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our game development efforts, any of which could negatively impact our business.

We may be subject to intellectual property claims.

        As the number of interactive entertainment software products increases and the features and content of these products continue to overlap, software developers have increasingly become subject to infringement claims. Further, many of our products are highly realistic and feature materials that are based on real-world things or people, which may also be the subject of claims of infringement of the intellectual property of others, including right of publicity, trademark, and unfair competition claims. In addition, our products often utilize complex, cutting-edge technology that may become subject to emerging intellectual property claims of others. Although we take steps to avoid knowingly violating the intellectual property rights of others, third parties may still claim infringement, particularly since there are many companies that focus exclusively on enforcing patent rights.

        From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether meritorious or not, may be time consuming, distracting to management and expensive to defend. Further, intellectual property litigation or claims could force us to do one or more of the following:

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    cease selling, incorporating, supporting or using products or services that incorporate the challenged intellectual property;


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      obtain a license from the holder of the infringed intellectual property, which, if available at all, may not be available on commercially favorable terms;

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      redesign the affected interactive entertainment software products, which could result in additional costs, delay introduction and possibly reduce commercial appeal of the affected products; or

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      pay damages to the holder of the infringed intellectual property for past infringements.

    Our products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent us from enforcing or defending our proprietary technologies. We may also face legal risks arising out of user-generated content. Further, the use of unauthorized "cheat" programs or the use of other unauthorized software modifications by users could impact multiplayer gameplay or lead to reductions in microtransactions in our games.

            We regard our software as proprietary and rely on a variety of methods, including a combination of copyright, patent, trademark and trade secret laws and employee and third-party nondisclosure agreements, to protect our proprietary rights. We own or license various copyrights, patents, trademarks and trade secrets. The process of registering and protecting these rights in various jurisdictions is expensive and time-consuming. Further, we are aware that some unauthorized copying occurs, and if a significantly greater amount of unauthorized copying of our software products were to occur, it could negatively impact our business.

            Piracy is a persistent problem for us, and policing the unauthorized sale, distribution and use of our products is difficult, expensive, and time-consuming. Further, the laws of some countries in which our products are, or may be, distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. In addition, though we take steps to make the unauthorized sale, distribution and use of our products more difficult and to enforce and police our rights, as do the manufacturers of consoles and the operators of other platforms on which many of our games are played, our efforts and the efforts of the console manufacturers and platform operators may not be successful in controlling the piracy of our products in all instances. Technology designed to circumvent the protection measures used by console manufacturers and platform operators or by us in our products, the increasing availability of broadband access to the Internet, the refusal of Internet service providers to remove infringing content in certain instances and the ability to download pirated copies of games from various Internet sites and peer-to-peer networks could result in an expansion in piracy.

            In addition, "cheating" programs or other unauthorized software tools and modifications that enable consumers to cheat in games could negatively impact the volume of microtransactions or purchases of downloadable content. In addition, vulnerabilities in the design of our applications and of the platforms upon which they run could be discovered after their release, which may result in lost revenue opportunities. This may lead to lost revenues from paying consumers or increased cost of developing technological measures to respond to these, either of which could negatively impact our business.

            We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging technologies.

    Due to our reliance on third-party platforms, platform providers are frequently able to influence our products and costs.

            Generally, when we develop interactive entertainment software products for hardware platforms offered by Sony, Microsoft, or Nintendo, the physical products are replicated exclusively by that hardware manufacturer or their approved replicator. The agreements with these manufacturers include


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    certain provisions, such as approval rights over all software products and related promotional materials and the ability to change the fee they charge for the manufacturing of products, which allow the hardware manufacturers substantial influence over the cost and the release schedule of such interactive entertainment software products. In addition, because each of the manufacturers is also a publisher of games for its own hardware platforms and manufactures products for all of its other licensees, a manufacturer may give priority to its own products or those of our competitors. Accordingly, Sony, Microsoft, or Nintendo could cause unanticipated delays in the release of our products, as well as increases to projected development, manufacturing, marketing or distribution costs, any of which could negatively impact our business.

            The platform providers also control the networks over which consumers purchase digital products and services for their platforms and through which we provide online game capabilities for our console platform products. The control that the platform providers have over the fee structures and/or retail pricing for products and services for their platforms and online networks could impact the volume of purchases of our products made over their networks and our profitability. With respect to certain downloadable content and microtransactions, the networks provided by these platform providers are the exclusive means of selling and distributing this content. Further, increased competition for limited premium "digital shelf space" has placed the platform providers in an increasingly better position to negotiate favorable terms of sale. If the platform provider establishes terms that restrict our offerings on its platform, or significantly impact the financial terms on which these products or services are offered to our customers, or does not renew our license or approve the inclusion of online capabilities in our console products, our business could be negatively impacted.

            We also derive significant revenues from the distribution of free-to-play games on third-party mobile and web platforms such as the Apple App Store, the Google Play Store, and Facebook, and most of the virtual currency we sell is purchased using the payment processing systems of these platform providers. These platforms also serve as significant online distribution platforms for our games. If these platforms modify their current discovery mechanisms, communication channels available to developers, operating systems, terms of service or other policies (including fees), or they develop their own competitive offerings, our business could be negatively impacted. Further, if these platform providers are required to change how they label free-to-play games or take payment for in-app purchases or change how the personal information of consumers is made available to developers, our business could be negatively impacted.

    Our business is highly dependent on the success and availability of video game platforms manufactured by third parties, as well as our ability to develop commercially successful products for these platforms.

            We derive a substantial portion of our revenues from the sale of products for play on video game platforms manufactured by third parties, such as Sony's PS4, Microsoft's Xbox One, and Nintendo's Wii U and Switch. For example, sales of products for consoles accounted for 34% of our consolidated net revenues in 2017. The success of our console business is driven in large part by our ability to accurately predict which platforms will be successful in the marketplace and our ability to develop commercially successful products for these platforms. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We must make product development decisions and commit significant resources well in advance of the anticipated introduction of a new platform, and development costs for new console platforms may be greater than those costs for the then-current console platforms. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we develop new software products or modify existing products do not attain significant market acceptance, we may not be able to recover our development costs, which could be significant.


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    The importance of retail sales to our business exposes us to the risks of that business model.

            In the United States and Canada, our "boxed" products are often sold on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses and game specialty stores. Our "boxed" products are sold internationally on a direct-to-retail basis, through third-party distribution and licensing arrangements, and through our wholly-owned European distribution subsidiaries. Our sales are made primarily on a purchase order basis without long-term agreements or other forms of commitments, and our retail customers and distributors have generally been reducing the levels of inventory they are willing to carry. The loss of, or significant reduction in sales to, any of Activision's principal retail customers or distributors could have adverse consequences. In addition, having such a large portion of our retail total net revenues concentrated in a few customers reduces our negotiating leverage with these customers.

            Further, the concentration of sales in a small number of large customers also makes us more vulnerable to collection risk if one or more of these large customers becomes unable to pay for our products or seeks protection under the bankruptcy laws. Retailers and distributors in the interactive entertainment industry have from time to time experienced significant fluctuations in their businesses and a number of them have failed. Challenging economic conditions may impair the ability of our customers to pay for products they have purchased and, as a result, our reserves for doubtful accounts and write-off of accounts receivable could increase and, even if increased, may turn out to be insufficient. Moreover, even in cases where we have insurance to protect against a customer's bankruptcy, insolvency or liquidation, this insurance typically contains a significant deductible and co-payment obligation, and does not cover all instances of non-payment. Further, the insolvency or business failure of other types of business partners could result in disruptions to the manufacturing or distribution of our products or the cancellation of contractual arrangements that we consider to be favorable. A payment default by, or the insolvency or business failure of, a significant business partner could negatively impact our business.

            Moreover, the importance of retail sales to our business exposes us to the risk of product returns and price protection with respect to our distributors and retailers. In some cases, return policies allow distributors and retailers to return defective, shelf-worn, damaged and certain other products in accordance with terms granted. Price protection, when granted and applicable, allows these distributors and retailers a credit against amounts owed with respect to merchandise unsold by them. We may permit product returns from, or grant price protection to, distributors and retail customers who meet certain conditions. These conditions may include compliance with applicable payment terms, delivery of weekly inventory and sales information and consistent participation in the launches of premium title releases. We may also consider other factors, including the facilitation of slow-moving inventory and other industry factors. Activision also offers a 90-day limited warranty to end users that Activision products will be free from manufacturing defects. Although we maintain a reserve for returns and price protection, and although we may place limits on product returns and price protection, we could be forced to accept substantial product returns and provide substantial price protection to maintain our relationships with retailers and our access to distribution channels. We face similar issues and risks, including exposure to risk of chargebacks, with respect to end users to whom we sell products directly, whether through our proprietary online gaming service or otherwise.

            Further, retailers typically have a limited amount of shelf space and promotional resources, and there is intense competition for high-quality retail shelf space and promotional support from retailers. Competition for shelf space may intensify and may require us to increase our marketing expenditures. Retailers with limited shelf space typically devote the most and highest quality shelf space to those products expected to be best sellers. We cannot be certain that our new products will consistently achieve such "best seller" status. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. Our products


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    constitute a relatively small percentage of most retailers' sales volume. We cannot be certain that retailers will continue to purchase our products or provide those products with adequate levels of shelf space and promotional support on acceptable terms.

            Additionally, we make provisions for retail inventory price protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, it could similarly have a negative impact on our business. Further, because we pay a licensing fee to the console hardware manufacturer for each physical copy of a product manufactured for that manufacturer's game platform regardless of whether that product is actually sold, if we overestimate demand and make too many physical "boxed" copies of any title, we will incur unrecoverable manufacturing costs for unsold units.

    We are a global company and are subject to the risks and uncertainties of conducting business outside the U.S.


    We conduct business throughout the world, and we derive a substantial amount of our revenues and profits from international trade, particularly from Europe Asia and Australia. Moving forward, weAsia. We expect that international sales will continue to account for a significant portion of our total revenues and profits and, moreover, that sales in emerging markets in Asia and elsewhere will continue to be an increasingly important part of our international sales. As such, we are, and may be increasingly, subject to risks inherent in foreign trade generally, as well as risks inherent in doing business in emergingnon-U.S. markets, including increased tariffs and duties, compliance with economic sanctions, fluctuations in currency exchange rates, shipping delays, increases in transportation costs, international political, regulatory and economic developments, unexpected changes to laws, regulatory requirements, and enforcement on us and our platform partners and differing local business practices, all of which may impact profit margins or make it more difficult, if not impossible, for us to conduct business in foreign markets.


    A deterioration in relations between either us or the United States and any country in which we have significant operations or sales, or the implementation of government regulations in the United States or such a country, could result in the adoption or expansion of trade restrictions, including economic sanctions or absolute prohibitions, that could have a negative impact on our business. For instance, to operate in China, all games must have regulatory approval. A decision by the Chinese government to revoke its approval for any of our games or to decline to approve any products we desire to sell in China in the future could have a negative impact on our business.business, as could delays in the approval process. Additionally, in the past, legislation has been implemented in China that has required modifications to our software.products and our business model to satisfy regulatory requirements. The future implementation of similar or new laws or regulations in China or any other country in which we have operations or sales may restrict or prohibit the sale of our products or may require engineering modifications to our products and our business model that are not cost-effective,cost‑effective, if even feasible at all, or could degrade the consumer experience to the point where consumers cease to purchase such products. Changes in Chinese game approval procedures in 2018 have resulted in reduced rates of approval for games and unclear approval timeframes, making it uncertain as to if and when our new products will be approved for release in China. Further, the continued enforcement of regulation ofregulations relating to mobile and other games with an online element in China remains uncertain, and further changes, either in the regulations or their enforcement, could have a negative impact on our business in China.

            We are also subject to risks that our operations outside the United States could be conducted by our employees, contractors, third-party partners, representatives or agents in ways that violate the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act or other similar anti-bribery laws, as well as the 2017 U.K. Criminal Finances Act or other similar financial crime laws. While we have policies and procedures, as well as training for our employees, intended to secure compliance with these laws, our employees, contractors, third-party partners, representatives or agents may take actions that violate our policies. Moreover, it may be more difficult to oversee the conduct of any such persons who are not our employees, potentially exposing us to greater risk from their actions.

            Additionally, in June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union (the "E.U."), commonly referred to as "Brexit." The United



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    Kingdom commenced withdrawal proceedings with the E.U. in March 2017. These proceedings have created political and economic uncertainty, particularly in the United Kingdom and the E.U., and this uncertainty may persist for years. The uncertainty surrounding the terms of the United Kingdom's withdrawal and its consequences could adversely impact consumer and investor confidence and the level of sales of discretionary items, including our products. Any of these effects could negatively impact our business.

    In addition, cultural differences may affect consumer preferences and limit the international popularity of games that are popular in the U.S,U.S. or require us to modify the content of the games or the method by which we charge our customers for the games to be successful. If we do not correctly assess consumer preferences in the countries in which we sell our products, or if the other risks discussed herein come to fruition, it could negatively impact our business.

    Changes in tax rates or exposure to additional tax liabilities could negatively impact our business.


    We are also subject to income taxes inrisks that our operations outside the United States and other jurisdictions. In the ordinary course of business there are many transactions and calculations where the ultimate income tax determination is uncertain. Significant judgment is required in determining our worldwide income tax provision. Although we believe our income tax estimates are reasonable, the ultimate outcomes may have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations.

            Our income tax liability and effective tax rate could be adversely affectedconducted by a variety of factors, including changesour employees, contractors, third‑party partners, representatives, or agents in our business,ways that violate the mix of earnings in countries with differing statutory tax rates, changes in taxForeign Corrupt Practices Act, the U.K. Anti‑Bribery Act or other similar anti‑bribery laws, or tax rulings, changes in interpretations of existing laws, or developments in tax examinations or investigations. Any of these factors could have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations or require us to change the manner in which we operate our business. The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. The E.U. and its member states, and a number of other countries are actively pursuing fundamental changes to the tax laws applicable to multinational companies like us. Furthermore, tax authorities may choose to examine or investigate our tax reporting or tax liability, including under transfer pricing or permanent establishment theories. These proceedings may lead to adjustments or proposed adjustments to our income taxes or provisions for uncertain tax positions.

            On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act") was enacted in the United States. The U.S. Tax Reform Act introduces significant changes to U.S. income tax law that will have a meaningful impact on our financial position and effective tax rate. Accounting for the income tax effects of the U.S. Tax Reform Act requires complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different from our interpretation. Due to the timing of enactment and the complexity in determining the income tax effects of the U.S. Tax Reform Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take as a result of the U.S. Tax Reform Act. These adjustments could materially affect our financial position and results of operations as well as the 2017 U.K. Criminal Finances Act or other similar financial crime laws. While we have policies, procedures, and training for our effective tax rate inemployees, intended to secure compliance with these laws, our employees, contractors, third‑party partners, representatives, or agents may take actions that violate our policies. Moreover, it may be more difficult to oversee the period in which these adjustmentsconduct of any such persons who are made.

            In late 2017, we received a Notice of Reassessmentnot our employees, potentially exposing us to greater risk from the French Tax Authority ("FTA") related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. We disagree with the proposed assessment and intend to vigorously

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    contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

            We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes, in both the United States and various other jurisdictions. Tax authorities regularly examine these non-income taxes. The outcomes from these examinations, changes in the business, changes in applicable tax rules or other tax matters may have a negative impact on our business.

    Fluctuations in currency exchange rates could negatively impact our business.

            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. A substantial portion of our international sales and expenses are denominated in local currencies, including euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona, which could fluctuate against the U.S. dollar. Since we have significant international sales, but incur the majority of our costs in the United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We have, in the past, utilized currency derivative contracts to hedge certain foreign exchange exposures and managed these exposures with natural offsets. However, there can be no assurance that we will continue our hedging programs, or that we will be successful in managing exposure to currency exchange rate risks whether or not we do so.


    Our games are subject to scrutiny regarding the appropriateness of their content.may include undisclosed content or features. If we fail to receive our target ratings for certain titles, or if our retailers refuse to sell such titles, or consumers refuse to purchase such titles, due to what they perceive to be objectionable undisclosed content, it could have a negative impact on our business.

            Our console and PC games are subject to ratings by the Entertainment Software Rating Board (the "ESRB"), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple's use of its proprietary "App Rating System" and Google Play's use of the International Age Rating Coalition (IARC) rating system. If we are unable to obtain the ratings we have targeted for our products, it could have a negative impact on our business. In some instances, we may be required to modify our products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories. Further, if one of our games is "re-rated" for any reason, a ratings organization could require corrective actions, which could include a recall, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies previously purchased.

            Additionally, retailers may decline to sell interactive entertainment software containing what they judge to be graphic violence or sexually explicit material or other content that they deem inappropriate for their businesses, whether because a product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our products based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material or other generally



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    objectionable content, we might be required to modify particular titles or forfeit the revenue opportunity of selling such titles with that retailer.

            Further, throughout

    Throughout the history of the interactive entertainment industry, many interactive software products have included hidden content and/or hidden gameplay features, some of which have been accessible through the use of in-gamein‑game codes or other technological means, that are intended to enhance the gameplay experience. In some cases, such undisclosed content or features have been considered to be objectionable. While publishers are required to disclose pertinent hidden content during the ESRB ratings process, in a few cases, publishers have failed to disclose hidden content, and the ESRB has required the recall of the game, changed the rating or associated content descriptors originally assigned to the product, required the publisher to change the game or game packaging and/or imposed fines on the publisher. Retailers have on occasion reacted to the discovery of such undisclosed content by removing these games from their shelves, refusing to sell them, and demanding that their publishers accept them as product returns. Likewise, some interactive entertainment software consumers have reacted to the revelation of undisclosed content by refusing to purchase such games, demanding refunds for games they have already purchased, refraining from buying other games published by the company whose game contained the objectionable material, and, on at least one occasion, filing a lawsuit against the publisher of the product containing such content.


    We have implemented preventive measures designed to reduce the possibility of objectionable undisclosed content from appearing in the interactive software products we publish. Nonetheless, these preventive measures are subject to human error, circumvention, overriding, and reasonable resource constraints. If an interactive software product we publish is found to contain undisclosed content, we could be subject to any of these consequences.


    Our business, products, and distribution are subject to increasing regulation in key territories. If we do not successfully respond to these regulations, our business could be negatively impacted.

            Legislation is continually being introduced, and litigation and regulatory enforcement actions are taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute and advertise our products. The video game industry continues to evolve, and new and innovative business opportunities are often subject to new attempts at regulation. Many foreign countries, such as China and Germany, have laws that permit governmental entities to restrictresults of operations or prohibit marketing or distribution of interactive entertainment software products because of the content therein (and similar legislation has been introduced at one time or another at the federal and state levels in the United States). Further, the growth and development of electronic commerce and virtual items and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens or limitations on operations of companies such as ours conducting business through the Internet and mobile devices. We are subject to laws and regulations related to protection of minors, consumer privacy, accessibility, advertising, taxation, payments, intellectual property, distribution, and antitrust, among others. Also, existing laws or new laws regarding the marketing of in-app purchases, regulation of currency, banking institutions, virtual currencies, unclaimed property, and money launderingreputation may be interpreted to cover virtual currencyharmed as a result of objectionable consumer- or goods. Furthermore, the growth and development of electronic commerce and virtual items and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens or limitations on operations of companies such as ours conducting business through the Internet and mobile devices. The adoption and enforcement of legislation that restricts the marketing, content, business model, or salesother third party‑created content.


    Certain of our productsgames and esports broadcasts support collaborative online features that allow consumers to communicate with one another and post narrative comments, in countries in which we do business may harm the salesreal time, that are visible to other consumers. Additionally, certain of our products, as the products we are ablegames allow consumers to offercreate and share “user‑generated content” that is visible to our customersother consumers. From time to time, objectionable and the size of the potential market for our productsoffensive consumer content may be limited. We may be requireddistributed within our games and on our broadcasts through these features or to modify certain product development processes or products or alter our marketing strategies to comply with regulations, which could be costly or delay the release of our products. The laws and regulations affecting our products vary by territory and may be inconsistent with one another,


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    imposing conflicting or uncertain restrictions. Failure to comply with any applicable legislation may also result in government-imposed finesgaming websites or other penalties, as well as harmsites or forums with online chat features or that otherwise allow consumers to our reputation. Moreover, the public dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers' willingness to purchase our products. Because the King Acquisition has significantly increased our user population, it may subject us to laws and regulations in additional jurisdictions and exacerbate the potential adverse impact on our business.

            Although we have structured and operate our skill tournaments with applicable laws in mind, including any applicable laws relating to gambling, and believe that playing these games does not constitute gambling, our skill tournaments could in the future become subject to gambling-related rules and regulations and expose us to civil and criminal penalties.post comments. We also sometimes offer consumers of our online and casual games various types of contests and promotional opportunities. We are subject to laws in a number of jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving and could be interpreted in ways that could harm our business. Further, some of our online games and other services include random digital item mechanics, which may become subject to regulations in various jurisdictions. If these were to occur, we might be required to seek licenses, authorizations, or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements, and we may be subject to additionallawsuits, governmental regulation or restrictions, and oversight, suchconsumer backlash (including decreased sales and harmed reputation), as reportinga result of consumers posting offensive content.


    Additionally, we have begun to regulators, all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the United States, Europe, or elsewhere regarding these activities may lessen the growth of casual game services and impair our business.

    Change in government regulations relating to the Internet could negatively impact our business.

            We rely on our consumers' access to significant levels of Internet bandwidth for the sale and digital deliverygenerate revenue through offering advertising within certain of our franchises and in connection with our esports broadcasts. The content of in‑game and the functionality ofesports broadcast advertisements is generally created and delivered by third‑party advertisers without our pre‑approval, and, as such, objectionable content may be published in our games with online features. Changes in laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws impacting "net neutrality," could decrease the demand forduring our products and services or increase our cost of doing business. Although certain jurisdictions have implemented laws and regulations intended to prevent Internet service providers from discriminating against particular types of legal traffic on their networks, other jurisdictionsesports broadcasts by these advertisers. This objectionable third party‑created content may lack such laws and regulations or repeal existing laws or regulations. For example, on December 14, 2017, the Federal Communications Commission voted to repeal net neutrality regulations in the U.S. Given uncertainty around these rules, including changing interpretations, amendments, or repeal, coupled with the potentially significant political and economic power of local Internet service providers and the relatively significant level of Internet bandwidth access our products and services require, we could experience discriminatory or anti-competitive practices that could impede our growth, causeexpose us to incur additional expenses,regulatory action or claims related to content, or otherwise negatively impact our business.

    The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our business.

            Consumers play certain of our games online using third-party platforms and networks, through online social platforms, and on mobile devices. We collect and store information about our consumers of these games—both personally identifying and non-personally identifying information. We aremay also be subject to lawsconsumer backlash from a variety of jurisdictions regarding privacycomments made in response to postings we make on social media sites such as Facebook, YouTube, and the protection of this information. For example, the E.U. has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy regulations. The U.S. Children's Online Privacy Protection Act ("COPPA") also regulates the collection, use, and disclosure of personal information from children under 13 years of age. Failure

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    to comply with COPPA may increase our costs, subject us to expensive and distracting government investigations, and result in substantial fines.

            Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future, which could impact our approach to operating and marketing our games. For example, the E.U.'s General Data Protection Regulation (the "GDPR"), which will come into effect in May 2018, imposes a range of new compliance obligations for us and other companies with European users, and increases financial penalties for noncompliance significantly. Regulators have not yet issued clear guidance for many of these new compliance obligations. The U.S. government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about consumer behavior on the Internet and on mobile devices, and the E.U. has proposed reforms to its existing data protection legal framework, including the GDPR. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our consumers that is necessary for compliance with these various types of regulations.

            Player interaction with our games is subject to our privacy policies, end user license agreements ("EULAs"), and terms of service. If we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If regulators, the media, or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, and damage our business.


    We depend on servers and networks to operate our games with online features and our proprietary online gaming service. If we were to lose server functionality in any of these areas for any reason, our business may be negatively impacted.


    Our business relies on the continuous operation of servers, some of which are owned and operated by third parties. Although we strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-basedbroad‑based catastrophic server malfunction, a significant service-disruptingservice‑disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games. ThisThe risk is particularly pronounced with respect toto: (1) the mobile games published by King, which rely on a small number of third-partythird‑party owned data centers located in one city, or with respect tocity; (2) the functioning of our proprietary online gaming service, Blizzard Battle.net, the disruption of which could prevent Blizzard from delivering content digitally or render all of Blizzard'sBlizzard games, as well asDestiny 2 selected Activision content for the PC content, unavailable.

    platform, unavailable; and (3) the Company’s multiplayer game services, which rely on systems hosted in a hybrid of data centers across the world as well as cloud providers. Further, insufficient server capacity could affect our ability to provide game services, which could negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.


    We also rely on platforms and networks operated by third parties, such as the PlayStation Network, Xbox Live, and Steam, for the sale and digital delivery of downloadable console and PC game content, and the functionality of our games with online features. Similarly, we rely on those platforms and networks, as well as the continued operation of the Apple App Store, the Google Play Store, and Facebook, for the sale of virtual currency and other services for our free-to-playfree‑to‑play games. An extended interruption to any of these services could adversely affect our ability to sell and distribute our digital products and operate our games with online features, negatively impacting our business.


    Tablewhich could result in a loss of Contents

            Further, insufficient server capacity could alsorevenue and otherwise negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.

    We rely on complex information technology systems and networks to operate our business.


    Any cybersecurity‑related attack, significant data breach, or systemdisruption of the information technology systems or network disruptionnetworks on which we rely could negatively impact our business.


    In the course of our day-to-dayday‑to‑day business, we and third parties operating on our behalf create, store, and/or use commercially sensitive information, such as the source code and game assets for our interactive entertainment software products and sensitive and confidential information with respect to our customers, consumers, and employees. A malicious cybersecurity‑related attack, intrusion, or disruption by hackers (including through spyware, ransomware, viruses, phishing, denial of service, and similar attacks) or other breach of the systems on which such source code and assets, account information (including personally identifiablepersonal information), and other sensitive data (including credit card information maintained in a proprietary database) is stored could lead to piracy of our software, fraudulent activity, disclosure, or misappropriation of, or access to, our customers'customers’, consumers'consumers’, or employees' personally identifiableemployees’ personal information, or our own sensitive business data. Such incidents could also lead to product code‑base and game distribution platform exploitation, should undetected viruses, spyware, or other malware be inserted into our products, services, or networks, or systems used by our consumers. We have implemented cybersecurity programs and the tools, technologies, processes, and procedures intended to secure our data and systems, and prevent and detect unauthorized access to, or loss of, sensitive data.our data, or the data of our customers, consumers, or employees. However, because these attackscyberattacks may remain undetected for prolonged periods of time and the techniques used by criminal hackers and other third parties to breach systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. A data intrusion into a server for a game with online features or for our proprietary online gaming service could also disrupt the operation of such game or platform. If we are subject to data securitycybersecurity breaches, or a security-relatedsecurity‑related incident that materially disrupts the availability of our products and services, we may have a loss in sales or subscriptions or be forced to pay damages or incur other costs, including from the implementation of additional cyber and physical security measures, or suffer reputational damage. Additionally, whilealthough we maintain insurance policies, they may be insufficient to reimburse usthe Company for all losses or all types of claims that may be caused by data breachescyberbreaches or system or network disruptions.disruptions, and it is uncertain whether we will be able to maintain our current level of coverage in the future. Moreover, if there were a public perception that our data protection measures are inadequate, whether or not the case, it could result in reputational damage and potential harm to our business relationships or the public perception of our business model. In addition, such data securitycybersecurity breaches may subject us to legal claims or proceedings, includinglike individual claims and regulatory investigations and actions, including fines, especially if there is loss, disclosure, or misappropriation of, or access to, our customers' credit cardcustomers’ personal information or other sensitive information, or personally identifiable information.

    there is otherwise an intrusion into our customers’ privacy.


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    Significant disruption during our live events may adversely affect our business.

    We, as well as the teams in the esports leagues we operate, host numerous live events each year, many of which are attended by a large number of people. There are many risks that are inherent in large gatherings of people, including the risk of an actual or threatened terrorist act, fire, explosion, protests, and riots, and other safety or security issues, any one of which could result in injury or death to attendees and/or damage to the facilities at which such an event is hosted. While we maintain insurance policies, they may be insufficient to reimburse us for all losses or all types of claims that may be caused by such an event. Moreover, if there were a public perception that the safety or security measures are inadequate at the events we host or events hosted by teams in the esports leagues we operate, whether or not the case, it could result in reputational damage and a decline in future attendance at events hosted by us or those teams. Any one of these things could harm our business.

    Catastrophic events may disrupt our business.

    Our corporate headquarters and our primary corporate data center are located in the Los Angeles, California area, which is near a major earthquake fault. A major earthquake or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems, or otherwise prevents us from conducting our normal business operations, could require significant expenditures to resume operations and negatively impact our business. While we maintain insurance coverage for some of these events, the potential liabilities associated with such events could exceed the insurance coverage we maintain. Further, our system redundancy may be ineffective or inadequate and our disaster recovery planning may not be sufficient for all eventualities. Any such event could also limit the ability of retailers, distributors, or our other customers to sell or distribute our products.

    Provisions in our corporate documents and Delaware state law could delay or prevent a change of control.

    Our Fourth Amended and Restated Bylaws contain a provision regulating the ability of shareholders to bring matters for action before annual and special meetings. The regulations on shareholder action could make it more difficult for any person seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. In addition, our Third Amended and Restated Certificate of Incorporation authorizes the issuance of so‑called “blank check” preferred stock. This ability of our Board of Directors to issue and fix the rights and preferences of preferred stock could effectively dilute the interests of any person seeking control or otherwise make it more difficult to obtain control.

    Regulatory and Legal Risks

    We may be involved in legal proceedings that have a negative impact on our business.

    From time to time, we are involved in claims, suits, investigations, audits, and proceedings arising in the ordinary course of our business, including with respect to intellectual property, competition and antitrust, regulatory, tax, privacy, labor and employment, compliance, unclaimed property, liability and personal injury, product damage, collection, and/or commercial matters. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations from regulatory agencies and consumer groups, as well as litigation.

    Claims, suits, investigations, audits, and proceedings are inherently difficult to predict, and their results are subject to significant uncertainties, many of which are outside of our control. Regardless of the outcome, such legal proceedings can have a negative impact on us due to reputational harm, legal costs, diversion of management resources, and other factors. It is also possible that a resolution of one or more such proceedings could result in substantial settlements, judgments, fines or penalties, injunctions, criminal sanctions, consent decrees, or orders preventing us from offering certain features, functionalities, products, or services, requiring us to change our development process or other business practices.

    There is also inherent uncertainty in determining reserves for these matters. Significant judgment is required in the analysis of these matters, including assessing the probability of potential outcomes and determining 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. Further, it may take time to develop factors on which reasonable judgments and estimates can be based.

    21

    We regard our software as proprietary and rely on a variety of methods, including a combination of copyright, patent, trademark, and trade secret laws, and employee and third‑party non‑disclosure agreements, to protect our proprietary rights. We own or license various copyrights, patents, trademarks, and trade secrets. The process of registering and protecting these rights in various jurisdictions is expensive and time‑consuming. Further, we are aware that some unauthorized copying and piracy occurs, and if a significantly greater amount of unauthorized copying or piracy of our software products were to occur, it could negatively impact our business. We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging technologies or that we will be able to effectively protect our intellectual property through litigation and other means.

    Our business, products, and distribution are subject to increasing regulation in key territories. If we do not successfully respond to these regulations, our business could be negatively impacted.

    The video game industry continues to evolve, and new and innovative business opportunities are often subject to new attempts at regulation. As such, legislation is continually being introduced, and litigation and regulatory enforcement actions are taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute and advertise our products. These laws, regulations, and investigations are related to protection of minors, gambling, screen time, business models, consumer privacy, accessibility, advertising, taxation, payments, intellectual property, distribution, and antitrust, among others.

    For example, many foreign countries have laws that permit governmental entities to restrict or prohibit marketing or distribution of interactive entertainment software products because of the content therein (and similar legislation has been introduced at one time or another at the federal and state levels in the United States, including legislation that attempts to impose additional taxes based on content). In addition, certain jurisdictions have laws that restrict or prohibit marketing or distribution of interactive entertainment software products with random digital item mechanics, which some of our online games and services include, or subject such products to additional regulation and oversight, such as reporting to regulators. Certain jurisdictions also have laws that restrict or prohibit certain types of esports tournaments. We also sometimes offer consumers of our online and casual games various types of contests and promotional opportunities. We are subject to laws in a number of jurisdictions concerning the operation and offering of tournaments and games, many of which are still evolving and could be interpreted in ways that could harm our business. Further, the growth and development of electronic commerce, virtual items, and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens or limitations on operations of companies such as ours conducting business through the Internet and mobile devices, including related to screen time. Also, existing laws or new laws regarding the marketing of in‑app purchases, regulation of currency, banking institutions, unclaimed property, and money laundering may be interpreted to cover virtual currency or goods. Additionally, laws may limit or prevent the auto-renewal of contracts and subscriptions. Further, the European Commission has recently imposed a large antitrust fine on a number of other game publishers who had been geoblocking certain EU countries. In addition, in 2019 the World Health Organization included “gaming disorder” in the 11th Revision of the International Classification of Diseases (ICD-11), leading some countries to consider legislation and policies aimed at addressing this issue. Moreover, the public dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers’ willingness to purchase our products.

    The adoption and enforcement of legislation that restricts the marketing, content, business model, or sales of our products in countries in which we do business may harm the sales of our products, as the products we are able to offer to our customers and the size of the potential audience for our products may be limited. We may be required to modify certain product development processes or products or alter our marketing strategies to comply with regulations, which could be costly or delay the release of our products. In addition, the laws and regulations affecting our products vary by territory and may be inconsistent with one another, imposing conflicting or uncertain restrictions. Failure to comply with any applicable legislation may also result in government‑imposed fines or other penalties, as well as harm to our reputation.

    22

    Change in government regulations relating to the Internet could negatively impact our business.

    We rely on our consumers’ access to significant levels of Internet bandwidth for the sale and digital delivery of our content and the functionality of our games with online features. Changes in laws or regulations that adversely affect the growth, popularity, or use of the Internet, including laws impacting “net neutrality” or the availability of bandwidth could impair our consumers’ online video game experiences, decrease the demand for our products and services or increase our cost of doing business. Although certain jurisdictions have implemented laws and regulations intended to prevent Internet service providers from discriminating against particular types of legal traffic on their networks, other jurisdictions may lack such laws and regulations or repeal existing laws or regulations. For example, in December 2017, the Federal Communications Commission voted to repeal net neutrality regulations in the U.S. and, following that decision, several states enacted net neutrality regulations. Given uncertainty around these rules relating to the Internet, including changing interpretations, amendments, or repeal of those rules, coupled with the potentially significant political and economic power of local Internet service providers and the relatively significant level of Internet bandwidth access our products and services require, we could experience discriminatory or anti‑competitive practices that could impede our growth, cause us to incur additional expenses, or otherwise negatively impact our business.

    The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our business.

    Consumers play certain of our games online using our own distribution platforms, including Blizzard Battle.net, third‑party platforms and networks, through online social platforms, and on mobile devices. We collect and store information about our consumers, including consumers who play these games. In addition, we collect and store information about our employees. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this information, including the E.U.’s General Data Protection Regulation (the “GDPR”), the U.S. Children’s Online Privacy Protection Act, which regulates the collection, use, and disclosure of personal information from children under 13 years of age, and the California Consumer Privacy Act, among others. Failure to comply with any of these laws or regulations may increase our costs, subject us to expensive and distracting government investigations, result in substantial fines, or result in lawsuits and claims against us to the extent these laws include a private right of action.

    Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future and may be inconsistent from jurisdiction to jurisdiction. For example, the E.U. has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy and protection regulations, including those imposed under the GDPR. The U.S. government, including the Federal Trade Commission and the Department of Commerce, as well as various U.S. state governments, are continuing to review the need for greater regulation over the collection, sharing, use, or sale of personal information and information about consumer behavior on the Internet and on mobile devices. Complying with emerging and changing laws could require us to incur substantial costs or impact our approach to operating and marketing our games. Due to the rapidly changing nature of these data privacy protection laws, there is not always clear guidance from the respective governments and regulators regarding the interpretation of the law, which may create the risk of an inadvertent violation. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers and external data processors to assist us in ensuring compliance with these various types of regulations, and a violation by one of these third parties may also subject us to government investigations and result in substantial fines.

    Player interaction with our games is subject to our privacy policies, end user license agreements (“EULAs”), and terms of service. If we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy‑related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition, and harm our business. If regulators, the media, consumers, or employees raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, or damage our business.

    23

    Our games are subject to scrutiny regarding the appropriateness of their content. If we fail to receive our target ratings for certain titles, or if our retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business.

    Our console and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self‑regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity, or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary “App Rating System” and Google Play’s use of the International Age Rating Coalition (“IARC”) rating system. If we are unable to obtain the ratings we have targeted for our products, it could have a negative impact on our business. In some instances, we may be required to modify our products to meet the requirements of the rating systems, which could delay or disrupt the release of any given product or may prevent its sale altogether in certain territories. Further, if one of our games is “re‑rated” for any reason, a ratings organization could require corrective actions, which could include a recall, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies previously purchased.

    Additionally, retailers may decline to sell interactive entertainment software containing what they judge to be graphic violence or sexually explicit material or other content that they deem inappropriate for their businesses, whether because a product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our products based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material, or other generally objectionable content, we might be required to modify particular titles or forfeit the revenue opportunity of selling such titles with that retailer.

    Financial and Economic Risks

    Changes in tax rates or exposure to additional tax liabilities could negatively impact our business.

    Our income tax liability and effective tax rate could be adversely affected by a variety of factors, including changes in our business, the mix of earnings in countries with differing statutory tax rates, changes in tax laws or tax rulings, changes in interpretations of existing laws, or developments in tax examinations or investigations. Any of these factors could have a negative impact on our business or require us to change the manner in which we operate our business. The tax regimes we are subject to, or operate under, are unsettled and may be subject to significant change. Furthermore, tax authorities may choose to examine or investigate our tax reporting or tax liability, including under transfer pricing or permanent establishment theories. These proceedings may lead to adjustments or proposed adjustments to our income taxes or provisions for uncertain tax positions.

    Additionally, a number of countries are actively pursuing fundamental changes to the tax laws applicable to multinational companies like us, including an increasing number that have enacted, or are considering enacting, revenue-based taxes on digital services. These digital services taxes target various business activities, including online advertising and, in some cases, video game sales. While the scope and applicability of these taxes often remains unclear, digital services taxes that ultimately apply to us could have an adverse impact on our business.

    Fluctuations in currency exchange rates could negatively impact our business.

    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. A substantial portion of our international sales and expenses are denominated in local currencies, which could fluctuate against the U.S. dollar. Since we have significant international sales but incur the majority of our costs in the United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We have, in the past, utilized currency derivative contracts to hedge certain foreign exchange exposures and managed these exposures with natural offsets. However, there can be no assurance that we will continue our hedging programs, or that we will be successful in managing exposure to currency exchange rate risks whether or not we do so.

    24

    Our reported financial results could be significantly impacted by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves.


    Our reported financial results are impacted by the accounting policies promulgated by the SEC and national accounting standards bodies and the methods, estimates, and judgments that we use in applying our accounting policies. Policies affecting revenue recognition have affected, and could further significantly affect, the way we report revenues related to our products and services. We recognize a majority of the revenues from bundled sales (i.e., video games that include an online service component) on a deferred basis over an estimated service period for such games. In addition, we defer the cost of revenues of those products. Further, as we increase our downloadable content and add new features to our online services, our estimate of the service period may change, and we could be required to recognize revenues, and defer related costs, over a shorter or longer period of time. As we enhance, expand, and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and income taxes, could have a significant impact on our reported net revenues, net income and earnings per share under generally accepted accounting principles generally accepted in the United States in any given period.



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    Provisions in our corporate documents and Delaware state law could delay

    The insolvency or prevent a change of control.

            Our Amended and Restated Bylaws contain a provision regulating the ability of shareholders to bring matters for action before annual and special meetings. The regulations on shareholder action could make it more difficult for any person seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. In addition, our Third Amended and Restated Certificate of Incorporation authorizes the issuance of so-called "blank check" preferred stock. This ability of our Board of Directors to issue and fix the rights and preferences of preferred stock could effectively dilute the interests of any person seeking control or otherwise make it more difficult to obtain control.

    Historically, our stock price has been highly volatile.

            The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to many factors, including for example, but without limitation:

      •
      quarter-to-quarter variations in the results of our operations;

      •
      the announcement of new products;

      •
      the announcement of lower prices on competing products;

      •
      product development or release schedules;

      •
      general conditions in the computer, software, entertainment, media or electronics industries, or in the worldwide economy;

      •
      announcements of developments in the overall worldwide market for interactive entertainment, including announcements of industry sales data;

      •
      the timing of the introduction of new platforms and delays in the actual release of new platforms;

      •
      hardware manufacturers' announcements of price changes for hardware platforms;

      •
      consumer acceptance of hardware platforms;

      •
      consumer spending trends;

      •
      the outcome of lawsuits or regulatory investigations in which we are, or may become, involved;

      •
      changes in earnings estimates or buy/sell recommendations by analysts;

      •
      sales or acquisitions of common stock by our directors or executive management; and

      •
      investor perceptions and expectations regarding our products, plans and strategic position, and those of our competitors and customers.

    Catastrophic events may disrupt our business.

            Our corporate headquarters and our primary corporate disaster center are located in the Los Angeles, California area and our primary corporate disaster recovery data center is in Las Vegas, Nevada, each of which is near a major earthquake fault. A major earthquake or other catastrophic event that results in the destruction or disruptionbusiness failure of any of our critical business partners could negatively impact us.


    Our sales, whether digital or information technology systems,retail, are concentrated in a small number of large customers, which makes us more vulnerable to collection risk if one or otherwise prevents usmore of these large customers becomes unable to pay for our products or seeks protection under the bankruptcy laws. Retailers and distributors in the interactive entertainment industry have from conductingtime to time experienced significant fluctuations in their businesses and a number of them have failed. Challenging economic conditions may impair the ability of our normalcustomers to pay for products they have purchased and, as a result, our reserves for doubtful accounts and write‑off of accounts receivable could increase and, even if increased, may turn out to be insufficient. While we have insurance to protect against a customer’s bankruptcy, insolvency, or liquidation, this insurance typically contains a significant deductible and co‑payment obligation and does not cover all instances of non‑payment. Further, a payment default or the insolvency or business operations,failure of, other types of business partners could require significant expendituresresult in disruptions to resume operationsthe manufacturing or distribution of our products or the cancellation of contractual arrangements that we consider to be favorable, and could negatively impact our business. While we maintain insurance coverage for someIn addition, having such a large portion of our total net revenues concentrated in a few customers reduces our negotiating leverage with these events, the potential liabilities associated with such events could exceed the insurance coverage we maintain. Further,customers.

    Because our system redundancy may be ineffective or inadequateproducts and our disaster recovery planning may not be sufficient for all eventualities.


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    Any such event could also limit the ability of retailers, distributors or our other customers to sell or distribute our products.

    Ifservices are discretionary spending, if general economic conditions decline, demand for our products could decline.


    Purchases of our products and services involve discretionary spending on the part of consumers. Consumers are generally more willing to make discretionary purchases, including purchases of products and services like ours, during periods in which favorable economic conditions prevail. As a result, our products are sensitive to general economic conditions and economic cycles. A reduction or shift in domestic or international consumer spending could result in an increase in our selling and promotional expenses, in an effort to offset that reduction, and could negatively impact our business.




    25
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    Item 1B.    UNRESOLVED STAFF COMMENTS


    None.


    Item 2.    PROPERTIES


    Our principal corporate and administrative offices, which include our Activision segment’s headquarters, are located at 3100 Ocean Park Boulevard,in Santa Monica, California. The following is a summary ofOur Activision segment also leases office space for development studio personnel throughout the principal leased offices we maintained as of December 31, 2017:

    Type of Leased Facility
    		 Americas EMEA(1) Asia Total 
     
    		 Square footage of leased properties
    		 

    Corporate Offices

    		  152,431  1,147  —  153,578 

    Activision Product Development & Publishing Facilities (Activision segment)

    		  724,122  48,343  25,838  798,303 

    Blizzard Product Development & Publishing Facilities (Blizzard segment)

    		  904,773  99,922  102,898  1,107,593 

    King Product Development & Publishing Facilities (King segment)

    		  83,885  401,469  4,189  489,543 

    Distribution and Other Facilities

    		  23,557  101,583  —  125,140 

    Sales offices

    		  12,267  34,747  8,055  55,069 
    ​​​ ​ ​​ ​​​ ​ ​​ ​​

    Total

    		  1,901,035  687,211  140,980  2,729,226 
    ​​​ ​ ​​ ​​​ ​ ​​ ​​
    ​​​​​​​​​​​​​​
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​
    (1)
    Consists of the Europe, Middle East,U.S., primarily in California, New York, and Africa geographic regions.

            In total, we have approximately 100 facility leasesWisconsin. We also lease office space in the following 20 countries: Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, theIrvine, CA for our Blizzard segment’s headquarters, which include administrative and development studio space. We lease office space in London, United Kingdom for our King segment’s headquarters, as well as office space for additional administrative and the United States.

            The only facilities currently owned by the Company are two European warehouses utilized by the Distribution segment, one locateddevelopment studio space in Burglengenfeld, GermanyBarcelona, Spain and the other in Venlo, the Netherlands.

    Stockholm, Sweden.


    We anticipate no difficulty in extending the leases of our facilities or obtaining comparable facilities in suitable locations, as needed, and we consider our facilities to be adequate for our current needs.


    Item 3.    LEGAL PROCEEDINGS

            As further described in


    Refer to Note 1522 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K on December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one offor disclosures regarding our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

            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,


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    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.

    proceedings.


    Item 4.    MINE SAFETY DISCLOSURES


    Not applicable

    applicable.


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    PART II


    Item 5.    MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES


    Market Information and Holders


    Our common stock is quoted on the Nasdaq National Market under the symbol "ATVI." The following table sets forth, for the periods indicated, the high and low reported sale prices for our common stock.“ATVI”. At February 20, 2018,16, 2021, there were 1,6631,524 holders of record of our common stock.


     
    		 High Low 

    2017

    		       

    First Quarter Ended March 31, 2017

    		 $50.40 $36.18 

    Second Quarter Ended June 30, 2017

    		  61.58  48.41 

    Third Quarter Ended September 30, 2017

    		  66.58  55.86 

    Fourth Quarter Ended December 31, 2017

    		  67.40  57.29 


     
    		 High Low 

    2016

    		       

    First Quarter Ended March 31, 2016

    		 $38.09 $26.49 

    Second Quarter Ended June 30, 2016

    		  39.99  33.03 

    Third Quarter Ended September 30, 2016

    		  45.12  39.28 

    Fourth Quarter Ended December 31, 2016

    		  45.55  35.12 

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    Stock Performance Graph


    This performance graph shall not be deemed "filed"“filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Activision Blizzard, Inc. under the Exchange Act or the Securities Act of 1933.


    1933, as amended.


    COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

    among Activision Blizzard, Inc., the Nasdaq Composite Index, the S&P 500 Index,
    and the RDG Technology Composite Index


    The following graph and table compare the cumulative total stockholder return on our common stock, the Nasdaq Composite Index, the S&P 500 Index, and the RDG Technology Composite Index. The graph and table assume that $100 was invested on December 31, 2012,2015, and that dividends were reinvested daily. The stock price performance on the following graph and table is not necessarily indicative of future stock price performance.

    atvi-20201231_g2.jpg
    27
    Fiscal year ending December 31:
    		 12/12 12/13 12/14 12/15 12/16 12/17 

    Activision Blizzard, Inc. 

    		 $100.00 $170.11 $194.06 $376.61 $354.16 $624.78 

    Nasdaq Composite

    		  100.00  141.63  162.09  173.33  187.19  242.29 

    S&P 500

    		  100.00  132.39  150.51  152.59  170.84  208.14 

    RDG Technology Composite

    		  100.00  132.51  155.05  161.00  181.12  247.79 

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    Fiscal year ending December 31:12/1512/1612/1712/1812/1912/20
    Activision Blizzard, Inc. $100.00 $94.04 $165.89 $122.64 $157.75 $248.10 
    Nasdaq Composite100.00 108.87 141.13 137.12 187.44 271.64 
    S&P 500100.00 111.96 136.40 130.42 171.49 203.04 
    RDG Technology Composite100.00 114.21 156.95 157.68 231.96 340.33 

    Cash Dividends


    We have paid a dividend annually since 2010. Below is a summary of cash dividends paid over the past three fiscal years, along with the dividend most recently declared by the Board of Directors that will be paid in May 2018:

    2021:
    YearPer Share AmountRecord DateDividend Payment Date
    2021$0.474/15/20215/6/2021
    2020$0.414/15/20205/6/2020
    2019$0.373/28/20195/9/2019
    2018$0.343/30/20185/9/2018
    Year
    		 Per Share
    Amount    		 Record
    Date    		 Dividend
    Payment
    Date    		 

    2018

    		 $0.34  3/30/2018  5/9/2018 

    2017

    		 $0.30  3/30/2017  5/10/2017 

    2016

    		 $0.26  3/30/2016  5/11/2016 

    2015

    		 $0.23  3/30/2015  5/13/2015 

    Future dividends will depend upon our earnings, financial condition, cash requirements, anticipated future prospects, and other factors deemed relevant by our Board of Directors. Further, agreements governing certain of our indebtedness, as described in Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, may, under certain circumstances, limit our ability to pay distributions or dividends. There can be no assurances that dividends will be declared in the future.

    10b5-1 Stock Trading Plans

            The Company's directors and employees may, at a time they are not aware of material non-public information, enter into plans to purchase or sell shares of our common stock that satisfy the requirements of Exchange Act Rule 10b5-1 ("Rule 10b5-1 Plans"). Rule 10b5-1 Plans permit persons whose ability to purchase or sell our common stock may otherwise be substantially restricted (by quarterly and special stock-trading blackouts and by their possession from time to time of material nonpublic information) to trade on a pre-arranged, "automatic-pilot" basis.

            Trading under Rule 10b5-1 Plans is subject to certain conditions, including that the person for whom the plan is created (or anyone else aware of material non-public information acting on such person's behalf) not exercise any subsequent influence regarding the amount, price and dates of transactions under the plan. In addition, the Company requires Rule 10b5-1 Plans to be established and maintained in accordance with the Company's "Policy on Establishing and Maintaining 10b5-1 Trading Plans."

            Trades under a Rule 10b5-1 Plan by our directors and employees are not necessarily indicative of their respective opinions of our current or potential future performance at the time of the trade. Trades by our directors and executive officers pursuant to a Rule 10b5-1 Plan will be disclosed publicly through Form 144 and Form 4 filings with the SEC, in accordance with applicable laws, rules, and regulations.


    Issuer Purchase of Equity Securities


    On February 2, 2017,January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1$4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, 2017 through February 12, 2019. As2023 and a determination by the Board of Directors to discontinue the repurchase program. To date, hereof, we have not repurchased any shares under this program.

    On January 31, 2019, 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 during the two-year period from February 14, 2019 until the earlier of February 13, 2021 and a determination by the determination asBoard of Directors to if and when we makediscontinue the repurchase program. We did not repurchase any such stock repurchases will be dependent on market conditions and other factors.

    shares under this program.


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    Item 6.    SELECTED FINANCIAL DATA

            The following table summarizes certain selected consolidated financial data, which should be read in conjunction with our Consolidated Financial Statements and Notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data presented below at and for each of the years in the five-year period ended December 31, 2017 is derived from our Consolidated Financial Statements and include the operations of King commencing on the King Acquisition Date. All amounts set forth in the following tables are in millions, except per share data.


    Not applicable.



     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 2014 2013 

    Statement of Operations Data:

    		                

    Net revenues

    		 $7,017 $6,608 $4,664 $4,408 $4,583 

    Net income(1)

    		  273  966  892  835  1,010 

    Basic net income per share

    		  0.36  1.30  1.21  1.14  0.96 

    Diluted net income per share

    		  0.36  1.28  1.19  1.13  0.95 

    Cash dividends declared per share

    		  0.30  0.26  0.23  0.20  0.19 

    Operating cash flows

    		 
    $
    2,213    		 
    $
    2,155    		 
    $
    1,259    		 
    $
    1,331    		 
    $
    1,293    		 

    Balance Sheet Data:

    		  
         		  
         		  
         		  
         		  
         		 

    Cash and investments(2)

    		 $4,775 $3,271 $1,840 $4,867 $4,452 

    Total assets

    		  18,668  17,452  15,246  14,637  13,947 

    Long-term debt, net(3)

    		  4,390  4,887  4,074  4,319  4,687 

    Long-term debt, gross

    		  4,440  4,940  4,119  4,369  4,744 

    Net debt(4)

    		  —  1,669  2,279  —  292 
    28
    (1)
    Net income includes the impact of significant discrete tax-related impacts, including incremental income tax expense due to the application of the U.S. Tax Reform Act. See further discussion in Note 15 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

    (2)
    Cash and investments consists of cash and cash equivalents along with short-term and long-term investments. We had short-term investments of $62 million and did not have any long-term investments as of December 31, 2017. We had short-term and long-term investments of $13 million and $13 million, respectively, as of December 31, 2016, $8 million and $9 million, respectively, as of December 31, 2015, $10 million and $9 million, respectively, as of December 31, 2014, and $33 million and $9 million, respectively, as of December 31, 2013. Cash and investments as of December 31, 2015 excludes $3,561 million of cash placed in escrow for the King Acquisition.

    (3)
    For discussion on our debt obligations, see Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

    (4)
    Net debt is defined as long-term debt, gross less cash and investments.

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    Item 7.    MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


    Business Overview


    Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, PC,PCs, and mobile devices. We also operate esports events and leagues and create film and television content based on our games.

    The King Acquisition

            On February 23, 2016, we completed the King Acquisition for an aggregate purchase price of approximately $5.8 billion, as further described in Note 20 of the notes to the consolidated financial statements. Our consolidated financial statements include the operations of King commencing on February 23, 2016.

    Reportable Segments

            As part of the continued implementationoffer digital advertising within some of our esports strategy, we instituted changescontent. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to our internal organization and reporting structure such that the MLG business now operates as a division of Blizzard. As such, commencing with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League, along with other esports events, and will also continuerefer collectively to serve as a multi-platform network for other Activision Blizzard, esports content.

    Inc. and its subsidiaries.


    Our Segments

    Based upon our organizational structure, we conduct our business through three reportable segments: Activision, Blizzard, and King.

    (i)    Activision

            Activisionsegments, each of which is a leading global developer and publisher of interactive software products and entertainment content particularly for the console platform.and services based primarily on our internally developed intellectual properties.


    (i) Activision primarily

    Activision delivers content through retailboth premium and digital channels, includingfree-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties.

    also includes the activities of the Call of Duty League, a global professional esports league with city-based teams.


    (ii) Blizzard


    Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retailboth premium and digital channels, including subscriptions,free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well assubscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net, which facilitates digital distribution of Blizzard content along with Activision'sDestiny 2and selected Activision content, online social connectivity, and the creation of user-generated content. As noted above, Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, alonga global professional esports league with other esports events,city-based teams.

    (iii) King

    King delivers content primarily through free-to-play offerings and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.

    (iii)  King

            King is a leading global developerprimarily generates revenue from in-game sales and publisher of interactive entertainment content and services, particularly on mobile platforms, such as Google's Android and Apple's iOS. King also distributes its


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    content and servicesin-game advertising on the PC platform, primarily via Facebook. King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency.

    mobile platform.


    Other


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

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    Business Results and Highlights


    Financial Results

            The Company's 2017


    2020 financial highlights include:


    •
    consolidated net revenues increased 6%25% to $7.0$8.1 billion and consolidated operating income decreased 7%increased 70% to $1.3$2.7 billion, as compared to consolidated net revenues of $6.6$6.5 billion and consolidated operating income of $1.4$1.6 billion in 2016;

    2019;

    •
    revenues from digital online channelsdiluted earnings per common share increased 13% to $5.5 billion, or 78% of consolidated net revenues,$2.82, as compared to $4.9 billion, or 74% of consolidated net revenues,$1.95 in 2016;

    2019; and

    •
    operating margin was 18.7%, as compared to 21.4% in 2016;

    •
    cash flows from operating activities ofwere approximately $2.21$2.25 billion, an increase of 3%23%, as compared to $2.16$1.83 billion in 2016;

    •
    consolidated net income decreased 72% to $273 million, as compared to $966 million in 2016, primarily driven by the impact of significant discrete tax-related impacts, including incremental income tax expense due to the impacts from the U.S. Tax Reform Act, as discussed in "Consolidated Results" below;

    •
    consolidated net income included $113 million of excess tax benefits from share-based payments, as compared to $81 million in 2016; and

    •
    diluted earnings per common share decreased 72% to $0.36, as compared to $1.28 in 2016, primarily driven by incremental income tax expense due to the impacts from the U.S. Tax Reform Act.

    2019.


    Since certain of our games are hosted online or include significant online functionality that represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable,performance obligation, we initially defer the software-related revenuestransaction price allocable to the online functionality from the sale of these games and recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net revenues and operating income for the year ended December 31, 2017,2020, include a net effect of $139$333 million and $71$238 million, respectively, from the deferralsdeferral of net revenues and related cost of revenues.



    Table

    Additionally, for the year ended December 31, 2020 and 2019, 16% and 18% of Contents

    Release Highlights

            Games and downloadable contenttotal net revenues recognized were from revenue sources that were releasedrecognized at a “point-in-time,” respectively, while “over-time and other” revenues were 84% and 82%, of total net revenues, respectively. Revenue recognized at a “point-in-time” is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e., upon delivery of the software product) and revenues from our Distribution business. “Over-time and other revenue” is primarily comprised of revenue associated with the online functionality of our games, in-game purchases, and subscriptions.


    Content Release and Event Highlights

    Throughout the year we regularly release new content through seasonal and live services updates within our franchises, including Call of Duty, Candy Crush, and Hearthstone. In addition to these updates, notable game releases during 2017, include:


    •
    Activision's four downloadable content packs forActivision’s Call of Duty: Infinite Warfare™;Warzone, a free-to-play experience on console and one downloadable content pack forCall of Duty: Modern Warfare® RemasteredPC platforms;

    •Activision’s Tony Hawk’sTM Pro SkaterTM 1 and 2;


    •
    Activision'sActivision’s CrashTM Bandicoot 4: It’s About TimeTM;

    •Activision’s Call of Duty: Black Ops III Zombies Chronicles, a downloadable content packCold War; and

    •Blizzard’s World of remastered zombies maps fromCall of Duty: World at War, Call of Duty: Black Ops, andCall of Duty: Black Ops II;

    •
    Activision'sCrash Bandicoot™ N. Sane Trilogy, a remastered version of the first three Crash Bandicoot games for Playstation 4;

    •
    Activision'sDestiny 2, the sequel toDestiny, andCurse of Osiris, the first expansion toDestiny 2;

    •
    Activision'sCall of Duty: WWII;

    •
    Blizzard's latest expansions toHearthstone—Journey to Un'Goro™,Knights of the Frozen Throne™, andKobolds and Catacombs™;

    •
    Blizzard'sRise of the Necromancer™, a downloadable content pack forDiablo III; and

    •
    King'sBubble Witch 3 Saga™Warcraft: Shadowlands.

            We also completed the sale of 12 teams for the Overwatch League, the first major global professional esports league with city-based teams. The first preseason matches occurred in December 2017 and the inaugural regular season started in January 2018.


    International Sales


    International sales are a fundamental part of our business. An important element of our international strategy is to develop content that is specifically directed toward local cultures and customs. Net revenues from international sales accounted for approximately 55%52%, 55%54%, and 52%54% of our total consolidated net revenues for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The majority of our net revenues from foreign countries are generated by consumers in Australia, Canada, China, France, Germany, Italy, Japan, South Korea, Spain, Sweden, and the United Kingdom.U.K. Our international business is subject to risks typical of an international business, including, but not limited to, foreign currency exchange rate volatility and changes in local economies. Accordingly, our future results could be materially and adversely affected by changes in foreign currency exchange rates and changes in local economies

    economies.


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    Operating Metrics


    The following operating metrics are key performance indicators that we use to evaluate our business.

    The key drivers of changes in our operating metrics are presented in the order of significance.


    Net bookings and In-game net bookings

    We monitor net bookings and in-game net bookings as key operating metrics in evaluating the performance of our business because they enable an analysis of performance based on the timing of actual transactions with our customers and provide a more timely indication of trends in our operating results. Net bookings is the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings is equal to net revenues excluding the impact from deferrals. In-game net bookings primarily includes the net amount of microtransactions and downloadable content sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.

    Net bookings and in-game net bookings were as follows (amounts in millions):
    For the Years Ended December 31,Increase
    (Decrease)
    20202019
    Net bookings$8,419 $6,388 $2,031 
    In-game net bookings$4,852 $3,366 $1,486 

    Net bookings

    The increase in net bookings for 2020, as compared to 2019, was primarily due to:

    •a $1.7 billion increase in Activision net bookings driven by higher net bookings from (1) Call of Duty: Modern Warfare (which was released in October 2019, and when referred to herein, is inclusive of Call of Duty: Warzone, from its release in March 2020 through December 16, 2020, the launch date of Call of Duty: Black Ops Cold War Season 1 content; after December 16, 2020, Call of Duty: Warzone revenues are associated with Call of Duty: Black Ops Cold War content and included within that title’s revenue), as compared to Call of Duty: Black Ops 4,which was released in October 2018, (2) Call of Duty: Mobile, which was released in October 2019, and (3) the Call of Duty franchise catalog titles, partially offset by lower net bookings from SekiroTM: Shadows Die Twice, which was released in March 2019;

    •a $186 million increase in Blizzard net bookings driven by higher net bookings from World of Warcraft,which includes the release of World of Warcraft: Shadowlands in November 2020, partially offset by lower net bookings from Overwatch;

    •a $133 million increase in King net bookings driven by higher net bookings from advertising and in-game player purchases, primarily in the Candy Crush franchise; and

    •a $116 million increase in net bookings from our Distribution business.

    In-game net bookings

    The increase in in-game net bookings for 2020, as compared to 2019, was primarily due to:

    •a $1.4 billion increase in Activision in-game net bookings, driven by higher in-game net bookings from (1) Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4 and (2) Call of Duty: Mobile; and

    •a $75 million increase in Blizzard in-game net bookings, driven by World of Warcraft.

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    Monthly Active Users


    We monitor monthly active users ("MAUs"(“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed 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 accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.


    Table In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of Contents

    MAUs for these third-party published games.


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

    December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
    Activision128 111 125 102 128 
    Blizzard29 30 32 32 32 
    King240 249 271 273 249 
    Total397 390 428 407 409 
     
    		 December 31,
    2017    		 September 30,
    2017    		 June 30,
    2017    		 March 31,
    2017    		 December 31,
    2016    		 September 30,
    2016    		 

    Activision

    		  55  49  47  48  51  46 

    Blizzard

    		  40  42  46  41  41  42 

    King

    		  290  293  314  342  355  394 
    ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

    Total

    		  385  384  407  431  447  482 
    ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
    ​​​​​​​​​​​​​​​​​​​​
    ​​​​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

    Average MAUs increased by 7 million, or 2%, for the quarterthree months ended December 31, 2017 were comparable2020, as compared to the quarterthree months ended September 30, 2017. The decrease in King's and Blizzard's average MAUs is partially offset by2020, primarily due to an increase in Activision's average MAUs for Activision driven by the Call of Duty franchise due to (1) the November 2020 launch ofCall of Duty: WWII in November 2017.

            Average MAUs decreased by 62 million, or 14%, for the quarter ended December 31, 2017, as compared to the quarter ended December 31, 2016. The decrease in King's average MAUs is due to decreases across King's franchises that are largely attributable to less engaged users leaving the network and maturity of titles.

    Net Bookings

            We monitor net bookings as a key operating metric in evaluating the performance of our business. Net bookings is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings were as follows (amounts in millions):

     
    		 For the years ended
    December 31,    		  
    		  
    		 
     
    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 
     
    		 2017 2016 2015 

    Net bookings

    		 $7,156 $6,599 $4,621 $557 $1,978 

            The increase in net bookings for 2017, as compared to 2016, was primarily due to:


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    China. The increase was partially offset by:


    Average MAUs decreased by 12 million, or 3%, for the three months ended December 31, 2020, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title;

    •
    lower net bookings fromOverwatch, which was releasedthree months ended December 31, 2019. The year-over-year decrease in May 2016;

    •
    lower net bookings fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion™ in August 2016, with no comparable release in 2017; and

    •
    lower net bookings from the Skylanders® franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.

            The increase in net bookings for 2016, as compared to 2015, was primarilyaverage MAUs is due to:


    •
    new net bookingslower average MAUs across King’s various franchises, primarily from King titles following the King Closing Date,non-Candy Crush franchises; and

    •lower average MAUs across Blizzard, primarily driven by the Candy Crush franchise;

    •
    net bookings fromOverwatch, which was released in May 2016;

    •
    higher net bookings from digital content associated withCall of Duty: Black Ops III, which was released in November 2015, as compared toCall of Duty: Advanced Warfare, the comparable 2014 title; and

    •
    higher net bookings fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2015.

            The increase was partially offset by:

    Management'sOverwatch.


    Management’s Overview of Business Trends


    Impacts of the Global COVID-19 Pandemic

    Refer to the “Impacts of the Global COVID-19 Pandemic” section under Part I, Item 1 “Business” for discussion on the impacts of COVID-19 on our business.

    Interactive Entertainment and Mobile Gaming Growth


    Our business participates in the global interactive entertainment industry. Games have become an increasingly popular form of entertainment, and we estimate, based on consumer spending, that the total industry has grown, on average, 18% over the last three years.17% annually from 2017 to 2020. The industry continues to benefit from additional players entering the market as interactive entertainment becomes more common placecommonplace across age groups and as more developing regions gain access to this form of entertainment.

            Further, the wide


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    Mobile Gaming and Free-to-Play Games

    Wide adoption of smart phonessmartphones globally and the free-to-play business model on thosemobile platforms hashave increased the total addressable marketaudience for gaming significantly by introducing gaming to new age groups and new regions and allowing gaming to occur more widely outside the home. Mobile gaming is now estimated to be larger than console and PC gaming, and continues to grow at a


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    significant rate. King is a leading developer of mobile and free-to-play games, and our other business units have mobile efforts underway that present the opportunity for us to expand the reach of, and drive additional player investment from,in, our franchises.

    Opportunities The 2019 launch of Call of Duty: Mobile is an example of these efforts.


    In addition, the free-to-play business model, which allows players to Expand Franchises Outsidetry a new game with no upfront cost, has begun to receive broader acceptance on PC and console platforms. This provides opportunities for us to increase the reach of Games

            Our fans spend significant time investing in our franchises through purchases of our game content, whether through purchases of full games or downloadable content or via microtransactions. Given the passion our players have for our franchises, we believe there are emergingfree-to-play offerings, which, in turn, provides opportunities to further drive additional engagement andplayer investment, inas was seen with our franchises outsiderecent Call of games. These opportunities include esports, film and television, and consumer products. Our efforts to build these adjacent opportunities are still relatively nascent, but we view them as potentially significant sources of future revenues.

            As part of our efforts to take advantage of the esports opportunity, during 2017 we completed the sale of 12 teams for the Overwatch League. The Overwatch League is the first major global professional esports league with city-based teams. The first preseason matches occurred in December 2017 and the inaugural regular season started in January 2018.

    Duty: Warzone release.


    Concentration of Sales Among the Most Popular Franchises

            The concentration of retail revenues among key titles has continued as a trend in the overall interactive entertainment industry. According to The NPD Group, the top 10 titles accounted for 36% of the retail sales in the U.S. interactive entertainment industry in 2017. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, Candy Crush, World of Warcraft, and Overwatch franchises, collectively, accounted for 66% of our consolidated net revenues—and a significantly higher percentage of our operating income—for 2017.


    The top titles in the industry are also becoming more consistent as players and revenues concentrate more heavily in established franchises. Of the top 10 consolegaming franchises in 2017,the U.S. in 2020, all 10 arewere established prior to 2020.

    A significant portion of our revenues historically has been derived from established franchises. Similarly, according to U.S rankings for the Apple App Storevideo games based on a few popular franchises, and Google Play store per App Annie Intelligence as of December 2017, the top 10 mobilethese video games have an average tenurealso been responsible for a disproportionately higher percentage of 22 months.

    our profits. For example, in 2020, the Call of Duty, Candy Crush, and World of Warcraft franchises, collectively, accounted for 76% of our consolidated net revenues—and a significantly higher percentage of our operating income.


    In addition to investing in and developing sequels andnew content for our top titles,franchises, with the aim of releasing such content more frequently, we are continually exploring additional ways to expand those franchises. Further, while there is no guaranteefranchises, such as our recent release of success, we invest in new properties in an effort to develop future top franchises. In 2014, we releasedHearthstone andDestiny, in 2015, we releasedHeroesActivision’s Call of the Storm, and in 2016, we releasedOverwatchDuty: Warzone. Additionally, we have been increasing our development efforts to diversifyfocus on expanding our portfolio of key franchises and increase our presence into the mobile market, on February 23, 2016, we completedplatform, as demonstrated by the King Acquisition.

    release of Call of Duty: Mobile, as well as our plans for Diablo Immortal™ and Crash Bandicoot: On the Run!™, which are both currently in development.


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



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    Recurring Revenue Business Models and Seasonality


    Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our business further towards a more consistently recurring and year-round model. Offering downloadableWhile our business does continue to experience some periods of “seasonality” driven primarily by the timing of our releases of new premium full games, our in-game content and microtransactions, in addition to full games, allowsfree-to-play offerings allow our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenues, but it can also increase player engagement. Also, mobile

    Opportunities to Expand Franchises Outside of Games

    Our fans spend significant time engaging in our franchises and investing through purchases of our game content, including full games and free-to-playin-game content. Given the passion our players have for our franchises, we believe there are emerging opportunities to drive additional engagement and investment in our franchises outside of games, more broadly, are generally less seasonal.

            Whilesuch as with our business is transitioning to a year-round engagement model, the interactive entertainment industry remains somewhat seasonal. We have historically experienced our highest sales volume, particularly for Activision, in the year-end holiday buying season, which occurs in the fourth quarter. Following the acquisition of King, which focuses on free-to-play games which are generally less seasonal,Overwatch and as we otherwise make the shift to a year-round model, less of our revenues are generated during the fourth quarter. For our reportable segments—Activision, Blizzard, and King—the percentage of our revenue represented by the fourth quarter in each of 2017 and 2016 was 36%, as compared to 46% in 2015.

    Expected Upcoming Releases

            We expect to releaseWorld of Warcraft: Battle for Azeroth and our latest Call of Duty game inleagues. Our efforts to build these adjacent opportunities are still relatively nascent.

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    Upcoming Content Release Highlights

    In the second half of 2018.2021, we plan to release the next premium title in our Call of Duty franchise. In addition, throughout the year we expect to deliver ongoing content for our various franchises, including expansion packscontinued in-game content forHearthstone andDestiny 2, in-game events forOverwatch, and map packs forCall of Duty: WWIIBlack Ops Cold War, as well aswhich includes seasonal content updates for Call of Duty: Warzone,seasonal content updates for Call of Duty: Mobile, content updates for World of Warcraft, expansion packs and content updates for Hearthstone, and continued releases of remastered versions of titles from our library of IP. We also expect to release at least two new mobile titles during 2018, including a social casino game from King.

    content, features, and services across King’s portfolio with an ongoing focus on the Candy Crush franchise. We will also continue to invest in new opportunities that we think have the potential to drive our growth over the long-term, including new titles across our platforms, and continuecontinuing to build on our advertising initiatives and esports initiatives.

    investments in mobile titles, some of which we anticipate will launch in 2021, including Crash Bandicoot: On the Run and Diablo Immortal.

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    Consolidated Statements of Operations Data


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

    revenues:
     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 

    Net revenues

    		                   

    Product sales

    		 $2,110  30%$2,196  33%$2,447  52%

    Subscription, licensing, and other revenues

    		  4,907  70  4,412  67  2,217  48 
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

    Total net revenues

    		  7,017  100  6,608  100  4,664  100 
    ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

    Costs and expenses

    		                   

    Cost of revenues—product sales:

    		                   

    Product costs

    		  733  35  741  34  872  36 

    Software royalties, amortization, and intellectual property licenses

    		  300  14  331  15  370  15 

    Cost of revenues—subscription, licensing, and other:

    		                   

    Game operations and distribution costs

    		  
    984    		  
    20    		  
    851    		  
    19    		  
    274    		  
    12    		 

    Software royalties, amortization, and intellectual property licenses

    		  484  10  471  11  69  3 

    Product development

    		  1,069  15  958  14  646  14 

    Sales and marketing

    		  1,378  20  1,210  18  734  16 

    General and administrative

    		  760  11  634  10  380  8 
    ​​​​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

    Total costs and expenses

    		  5,708  81  5,196  79  3,345  72 
    ​​​ ​ ​​​ ​​ ​ ​​ ​​​ ​ ​​ ​​

    Operating income

    		  1,309  19  1,412  21  1,319  28 

    Interest and other expense (income), net

    		  146  2  214  3  198  4 

    Loss on extinguishment of debt(1)

    		  12  —  92  1  —  — 
    ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

    Income before income tax expense

    		  1,151  16  1,106  17  1,121  24 

    Income tax expense

    		  878  13  140  2  229  5 
    ​​​ ​ ​​​ ​​ ​ ​​ ​​​ ​ ​​ ​​

    Net income

    		 $273  4%$966  15%$892  19%
    ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
    ​​​​​​​​​​​​​​​​​​​​
    ​​​ ​ ​​​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​
    For the Years Ended December 31,
    20202019
    Net revenues
    Product sales$2,350 29 %$1,975 30 %
    In-game, subscription, and other revenues5,736 71 4,514 70 
    Total net revenues8,086 100 6,489 100 
    Costs and expenses
    Cost of revenues—product sales:
    Product costs705 30 656 33 
    Software royalties, amortization, and intellectual property licenses269 11 240 12 
    Cost of revenues—in-game, subscription, and other:
    Game operations and distribution costs1,131 20 965 21 
    Software royalties, amortization, and intellectual property licenses155 3 233 5 
    Product development1,150 14 998 15 
    Sales and marketing1,064 13 926 14 
    General and administrative784 10 732 11 
    Restructuring and related costs94 1 132 2 
    Total costs and expenses5,352 66 4,882 75 
    Operating income2,734 34 1,607 25 
    Interest and other expense (income), net87 1 (26)— 
    Loss on extinguishment of debt (1)31 — — — 
    Income before income tax expense2,616 32 1,633 25 
    Income tax expense419 5 130 2 
    Net income$2,197 27 %$1,503 23 %

    (1)
    Represents the loss on extinguishment of debt we recognized associatedin connection with our refinancing activities. The 2017 lossdebt financing activities during the year ended December 31, 2020. Refer to Note 13 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on extinguishment is comprisedForm 10-K for further disclosures regarding our debt obligations.

    35
    Table of a $12 million write-off of unamortized discount and deferred financing costs associated with refinancing activities on our tranche of term loans "A" and the 2016 loss on extinguishment was comprised of a premium payment of $63 million and a write-off of unamortized discount and financing costs of $29 million associated with the extinguishment of certain term loan and senior note facilities through our refinancing activities.Contents


    Consolidated Net Revenues


    The key drivers of changes in our consolidated results, operating segment results, and sources of liquidity are presented in the order of significance.

    The following table summarizes our consolidated net revenues and the increase/(decrease) in deferredin-game net revenues recognized (amounts in millions):

     For the Years Ended December 31,
     20202019Increase/
    (decrease)    		% Change
    Consolidated net revenues$8,086 $6,489 $1,597 25 %
    In-game net revenues (1)$4,571 $3,376 $1,195 35 %
     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 Increase/
    (decrease)
    2017 v 2016    		 Increase/
    (decrease)
    2016 v 2015    		 % Change
    2017 v 2016    		 % Change
    2016 v 2015    		 

    Consolidated net revenues

    		 $7,017 $6,608 $4,664 $409 $1,944  6% 42%

    Net effect from recognition (deferral) of deferred net revenues

    		  (139) 9  43  (148) (34)      


    Table(1)    In-game net revenues primarily includes the net amount of Contents

    revenue recognized for microtransactions and downloadable content during the period.


    Consolidated net revenues

      2017 vs. 2016


    The increase in consolidated net revenues for 2017,2020, as compared to 2016,2019, was primarily driven by an increase in revenues of $1.9 billion due to:

      •
      to higher revenues from King titles,from:

    •Call of Duty: Modern Warfare, which was released in October 2019, as 2017 includes King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise, duecompared to in-game events and features;

    •
    higher revenues recognized from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles4, which was released in May 2017, and the continued strengthOctober 2018;

    •Call of microtransactions;

    •
    revenues fromCrash Bandicoot N. Sane TrilogyDuty: Mobile, which was released in June 2017;October 2019;

    •World of Warcraft, which includes therelease of World of Warcraft: Shadowlands in November 2020;

    •our Distribution business;

    •the Candy Crush franchise; and


    •
    higherthe Call of Duty franchise catalog titles.

    The increase was partially offset by a decrease in revenues recognized fromof $339 million due to lower revenues from:

    •Overwatch;

    •Call of Duty: WWIIBlack Ops Cold War, which was released in November 2017,2020, as compared toCall of Duty: InfiniteModern Warfare; and

    •Sekiro: Shadows Die Twice, the comparable 2016 title.

    which was released in March 2019.


    In-game net revenues

    The increase in in-game net revenues for 2020, as compared to 2019, was partially offset by:

      •
      lowerprimarily driven by an increase in in-game net revenues recognized fromof $1.2 billion due to higher in-game net revenues from:

    •Call of Duty: InfiniteModern Warfare,, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title;4; and


    •
    lower revenues from the Skylanders franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.

      2016 vs. 2015

            The increase in consolidated net revenues for 2016, as compared to 2015, was primarily due to:

      •
      new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;

      •
      revenues recognized fromOverwatch, which was released in May 2016; and

      •
      higher revenues recognized in 2016 fromCall of Duty: Black Ops III, which was released in the fourth quarter of 2015 and was the third game in our successful Black Ops series, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content.

            The increase was partially offset by:

      •
      lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015;

      •
      lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone toys and accessories from the Skylanders franchise in 2016; and

      •
      lower revenues recognized from the Diablo franchise due to the timing of releases.
    Mobile    .



    36
    Table of Contents

    Change in Deferred Revenues Recognized

      2017 vs. 2016

            The decrease in net deferred revenues recognized for 2017, as compared to 2016, was primarily due to:

      •
      a net deferral of revenues for the Destiny franchise, primarily due toDestiny 2, which was released in September 2017, as compared to net deferred revenues recognized in the comparable prior period; and

      •
      a higher net deferral of revenues from the Call of Duty franchise, primarily due to the stronger performance ofCall of Duty: WWII in the fourth quarter of 2017, as compared toCall of Duty: Infinite Warfare in the fourth quarter of 2016.

            The decrease was partially offset by:

      •
      net deferred revenues recognized fromOverwatch in 2017, as compared to a net deferral of revenues in 2016 due to the release ofOverwatch in May 2016; and

      •
      net deferred revenues recognized fromWorld of Warcraft in 2017, as compared to a net deferral of revenues in 2016 due to the release ofWorld of Warcraft: Legion in August 2016.

      2016 vs. 2015

            The decrease in net deferred revenues recognized for 2016, as compared to 2015, was primarily due to:

      •
      deferrals of revenues associated with the release ofWorld of Warcraft: Legion in August 2016, as compared to the recognition of deferred revenues in 2015 from the release ofWorld of Warcraft: Warlords of Draenor® in November 2014; and

      •
      deferrals of revenues associated withOverwatch.

            The decrease was partially offset by lower deferrals of revenues associated with the Call of Duty franchise, driven by lower revenue deferrals fromCall of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, the comparable 2015 title.

    Foreign Exchange Impact

            Changes in foreign exchange rates had a positive impact of $42 million, a negative impact of $81 million, and a negative impact of $373 million on Activision Blizzard's consolidated net revenues in 2017, 2016, and 2015, respectively, as compared to the same periods in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.


    Operating Segment Results

            Currently, we


    We have three reportable segments.segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"(“CODM”). 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 games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.



    Table of Contents

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


    Information on the reportable segmentssegment net revenues and segment operating income are presented below (amounts in millions):


     
    		 For the Year Ended December 31, 2017 Increase / (decrease) 2017 v 2016 
     
    		 Activision Blizzard King Total Activision Blizzard King Total 

    Segment Revenues

    		                         

    Net revenues from external customers

    		 $2,628 $2,120 $1,998 $6,746 $408 $(319)$412 $501 

    Intersegment net revenues(1)

    		  —  19  —  19  —  19  —  19 
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

    Segment net revenues

    		 $2,628 $2,139 $1,998 $6,765 $408 $(300)$412 $520 

    Segment operating income

    		 
    $
    1,005    		 
    $
    712    		 
    $
    700    		 
    $
    2,417    		 
    $
    217    		 
    $
    (283
    )
    $
    163    		 
    $
    97    		 


    For the Year Ended December 31, 2020Increase / (decrease)
    ActivisionBlizzardKingTotalActivisionBlizzardKingTotal
    Segment Revenues
    Net revenues from external customers$3,942 $1,794 $2,164 $7,900 $1,723 $118 $133 $1,974 
    Intersegment net revenues (1)— 111 — 111 — 68 — 68 
    Segment net revenues$3,942 $1,905 $2,164 $8,011 $1,723 $186 $133 $2,042 
    Segment operating income$1,868 $693 $857 $3,418 $1,018 $229 $117 $1,364 
    For the Year Ended December 31, 2019
    ActivisionBlizzardKingTotal
    Segment Revenues
    Net revenues from external customers$2,219 $1,676 $2,031 $5,926 
    Intersegment net revenues (1)— 43 — 43 
    Segment net revenues$2,219 $1,719 $2,031 $5,969 
    Segment operating income$850 $464 $740 $2,054 

     
    		 For the Year Ended December 31, 2016 Increase / (decrease) 2016 v 2015 
     
    		 Activision Blizzard King Total Activision Blizzard King Total 

    Segment Revenues

    		                         

    Net revenues from external customers

    		 $2,220 $2,439 $1,586 $6,245 $(480)$874 $1,586 $1,980 

    Intersegment net revenues(1)

    		  —  —  —  —  —  —  —  — 
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

    Segment net revenues

    		 $2,220 $2,439 $1,586 $6,245 $(480)$874 $1,586 $1,980 

    Segment operating income

    		 
    $
    788    		 
    $
    995    		 
    $
    537    		 
    $
    2,320    		 
    $
    (80
    )
    $
    434    		 
    $
    537    		 
    $
    891    		 


     
    		 For the Year Ended December 31, 2015  
    		  
    		  
    		  
    		 
     
    		 Activision Blizzard King Total  
    		  
    		  
    		  
    		 

    Segment Revenues

    		                         

    Net revenues from external customers

    		 $2,700 $1,565 $— $4,265             

    Intersegment net revenues(1)

    		  —  —  —  —             
    ​​​ ​ ​​ ​​​ ​ ​​ ​​​​​​​​​​​​​​

    Segment net revenues

    		 $2,700 $1,565 $— $4,265             

    Segment operating income

    		 
    $
    868    		 
    $
    561    		 
    $
    —    		 
    $
    1,429    		  
         		  
         		  
         		  
         		 
    (1)
    Intersegment revenues reflect licensing and service fees charged between segments.


    37
    Table of Contents


    Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense are presented in the table below (amounts in millions):

     
    		 For the Years Ended
    December 31,    		 
     
    		 2017 2016 2015 

    Reconciliation to consolidated net revenues:

    		          

    Segment net revenues

    		 $6,765 $6,245 $4,265 

    Revenues from other segments(1)

    		  410  354  356 

    Net effect from recognition (deferral) of deferred net revenues(2)

    		  (139) 9  43 

    Elimination of intersegment revenues(3)

    		  (19) —  — 
    ​​​ ​ ​​ ​ ​​​ ​

    Consolidated net revenues

    		 $7,017 $6,608 $4,664 
    ​​​ ​ ​​ ​​​ ​ ​
    ​​​​​​​​​​​
    ​​​​ ​​ ​ ​​​ ​

    Reconciliation to consolidated income before income tax expense:

    		          

    Segment operating income

    		 $2,417 $2,320 $1,429 

    Operating (loss) income from other segments(1)

    		  (19) 14  37 

    Net effect from recognition (deferral) of deferred net revenues and related cost of revenues(2)

    		  (71) (10) (39)

    Share-based compensation expense

    		  (178) (159) (92)

    Amortization of intangible assets(4)

    		  (757) (706) (11)

    Fees and other expenses related to the King Acquisition(5)

    		  (15) (47) (5)

    Restructuring costs(6)

    		  (15) —  — 

    Other non-cash charges(7)

    		  (14) —  — 

    Discrete tax-related items(8)

    		  (39) —  — 
    ​​​ ​​​ ​ ​​ ​​

    Consolidated operating income

    		  1,309  1,412  1,319 

    Interest and other expense (income), net

    		  146  214  198 

    Loss on extinguishment of debt

    		  12  92  — 
    ​​​ ​ ​​ ​ ​​​ ​

    Consolidated income before income tax expense

    		 $1,151 $1,106 $1,121 
    ​​​ ​ ​​ ​​​ ​ ​
    ​​​​​​​​​​​
    ​​​​ ​​ ​ ​​ ​ ​
    For the Years Ended December 31,
    20202019
    Reconciliation to consolidated net revenues:
    Segment net revenues$8,011 $5,969 
    Revenues from non-reportable segments (1)519 462 
    Net effect from recognition (deferral) of deferred net revenues (2)(333)101 
    Elimination of intersegment revenues (3)(111)(43)
    Consolidated net revenues$8,086 $6,489 
    Reconciliation to consolidated income before income tax expense:
    Segment operating income$3,418 $2,054 
    Operating income (loss) from non-reportable segments (1)(55)24 
    Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)(238)52 
    Share-based compensation expense (Note 16)
    		(218)(166)
    Amortization of intangible assets(79)(203)
    Restructuring and related costs (Note 17)
    		(94)(137)
    Discrete tax-related items (4)— (17)
    Consolidated operating income2,734 1,607 
    Interest and other expense (income), net87 (26)
    Loss on extinguishment of debt31 — 
    Consolidated income before income tax expense$2,616 $1,633 

    (1)
    Includes other income and expenses from operating segments managed outside the reportable segments, including our Studios and Distribution businesses.business. Also includes unallocated corporate income and expenses.


    (2)
    We have determined that someSince certain of our titles'games are hosted online or include significant online functionality represents an essential component of gameplay and, as a result,that represents a more-than-inconsequential separate deliverable. As such,performance obligation, we are requireddefer the transaction price allocable to the online functionality from the sale of these games and then recognize the attributable revenues from these titles over the relevant estimated service periods, which are generally less than twelve months.a year. The related cost of revenues areis deferred and recognized whenas an expense as the related revenues are recognized. In the operating segment resultsThis table we reflectreflects the net effect from the deferrals of revenues and (recognition)recognition of deferred revenues, along with the related cost of revenues, on certain of our online enabled products.


    (3)
    Intersegment revenues reflect licensing and service fees charged between segments.


    (4)
    We amortize intangible assets over their estimated useful lives based on the pattern of consumption of the underlying economic benefits. The amounts presented in the table represent the effect of the amortization of intangible assets in our consolidated statements of operations.

    (5)
    Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.

    (6)
    Reflects restructuring charges, primarily severance costs.

    (7)
    Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.

    (8)
    Reflects the impact of other unusual or unique tax-related items and activities.


    Table of Contents

    Segment Net Revenues


    Activision

      2017 vs. 2016


    The increase in Activision'sActivision’s segment net revenues for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      to higher revenues from the Destiny franchise, driven by the release ofDestiny 2 in September 2017, with no comparable release in 2016;

      from:

    •
    higher revenues fromCall of Duty: WWIIModern Warfare,which was released in November 2017,October 2019, as compared toCall of Duty: Infinite Warfare, the comparable 2016 title;

    •
    higher revenues from from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions; and

    •
    revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017.

            The increase was partially offset by:

      •
      lower revenues fromCall of Duty: Infinite Warfare including its associated digital content, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title; and

      •
      lower revenues from the Skylanders franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.

      2016 vs. 2015

            The decrease in Activision's net revenues for 2016, as compared to 2015, was primarily due to:

      •
      lower revenues fromCall of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, the comparable 2015 title, which was the third game in our successful Black Ops series;

      •
      lower revenues from the Destiny franchise, as there were two expansion packs in 2015—House of Wolves andThe Taken King—but only one in 2016—Rise of Iron;

      •
      lower revenues fromSkylanders Imaginators4, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys and accessories in 2016; and

      2018;

    •
    lower revenues fromGuitar Hero LiveCall of Duty: Mobile, which was released in 2015 with no comparable release in 2016.

    October 2019; and


    •the Call of Duty franchise catalog titles.

    38

    The decreaseincrease was partially offset by higherlower revenues from digital content associated withCall of Duty: Black Ops III, as compared toCall of Duty: Advanced Warfare, the comparable 2014 title.

    Blizzard

      2017 vs. 2016

            The decrease in Blizzard's net revenues for 2017, as compared to 2016, was primarily due to:

      •
      lower revenues fromOverwatchSekiro: Shadows Die Twice, which was released in May 2016; and

      •
      lower revenues fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2017.
    March 2019.


    Table of Contents

            The decrease was partially offset by:

      •
      revenues recognized from franchise sales of city-based teams for the Overwatch League; and

      •
      higher revenues fromDiablo III, primarily due to the release ofRise of the Necromancer, a downloadable content pack forDiablo III that was released in June 2017.

      2016 vs. 2015

    Blizzard

    The increase in Blizzard'sBlizzard’s segment net revenues for 2016,2020, as compared to 2015, was primarily due to:

      •
      revenues fromOverwatch, which was released in May 2016; and

      •
      higher revenues fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2015.

    King

      2017 vs. 2016

            The increase in King's net revenues for 2017, as compared to 2016, was primarily due to:

      •
      2017 including King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date; and

      •
      higher revenues from the Candy Crush franchise, due to in-game events and features.

      2016 vs. 2015

            King's 2016 net revenues represent the net revenues from the King Closing Date through December 31, 2016. The revenues were primarily driven by the Candy Crush franchise, which included the release ofCandy Crush Jelly Saga™ in January 2016.

    Segment Income from Operations

    Activision

      2017 vs. 2016

            The increase in Activision's operating income for 2017, as compared to 2016,2019, was primarily due to higher revenues from World of Warcraft, which includes the release of World of Warcraft: Shadowlands in November 2020. The increase was partially offset by lower revenues from Overwatch.


    King

    The increase in King’s net revenues for 2020, as discussed above,compared to 2019, was primarily due to higher revenues from advertising and in-game player purchases, primarily in the Candy Crush franchise.

    Segment Income from Operations

    Activision

    The increase in Activision’s operating income for 2020, as compared to 2019, was primarily due to higher segment net revenues.

    The increase was partially offset by:

    •higher cost of revenues and marketing costs for the Call of Duty franchise; and

    •higher product development costs driven by higher personnel bonuses as a result of strong business performance.

    Blizzard

    The increase in Blizzard’s operating income for 2020, as compared to 2019, was primarily due to:

    •higher segment net revenues;

    •lower product development costs, associated withdespite an increase in personnel costs, driven by higher capitalization of software development costs from the Skylanders franchise, as there was not a new title released in 2017.

    timing of game development cycles; and


    •lower general and administrative costs.

    The increase was partially offset by higher salescost of revenues, primarily from higher software amortization and higher marketing spend on the Destiny franchise duecosts related to the releaselaunch ofDestiny 2World of Warcraft: Shadowlands.

      2016 vs. 2015


    King

    The decreaseincrease in Activision'sKing’s operating income for 2016,2020, as compared to 2015,2019, was primarily due to to:

    •higher segment net revenues; and

    •lower revenues, as discussed above. This was partially offset by:

      •
      lower salesgeneral and marketing spend onGuitar Hero Live and the Destiny franchise given the timing of game launches; and

      •
      the relativeadministrative costs.

    The increase in revenues coming from the digital online channel, which typically has a higher profit margin.

    Table of Contents

    Blizzard

      2017 vs. 2016

            The decrease in Blizzard's operating income for 2017, as compared to 2016, was primarily due to lower revenues, as discussed above, along with higher product development costs resulting from lower capitalization of software development costs due to the timing of game development cycles.

            The decrease was partially offset by lower sales andhigher marketing costs, and software amortization forOverwatch andWorld of Warcraft: Legion, due to their respective launches in 2016, with no comparable releases in 2017.

      2016 vs. 2015

            The increase in Blizzard's operating income for 2016, as compared to 2015, was primarily due to higher revenues. This was partially offset by:

      •
      new sales and marketing spending to supportOverwatch; and

      •
      higher personnel costs due to segment performance bonuses and increased headcount to support the business growth.

    King

      2017 vs. 2016

            The increase in King's operating income for 2017, as compared to 2016, was primarily due to:

      •
      2017 including King's results of operations for the full year, while 2016 only included King's results of operations for the partial period following the King Closing Date; and

      •
      higher revenues fromdriven by the Candy Crush franchise as discussed above.

      2016 vs. 2015

            King's operating income for the year ended December 31, 2016 represents the operating income from the King Closing Date through December 31, 2016.

    .


    Foreign Exchange Impact

    Changes in foreign exchange rates had a positive impact of $85 million, a negative impact of $30$61 million and a negative impact of $338$126 million on reportable segment net revenues for 2017, 2016,2020 and 2015,2019, respectively, as compared to the same periods in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and British pound.



    39

    Consolidated Results


    Net Revenues by Distribution Channel


    The following table details our consolidated net revenues by distribution channel (amounts in millions):

     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 Increase/
    (decrease)
    2017 v 2016    		 Increase/
    (decrease)
    2016 v 2015    		 % Change
    2017 v 2016    		 % Change
    2016 v 2015    		 

    Net revenues by distribution channel

    		                      

    Digital online channels(1)

    		 $5,479 $4,865 $2,502 $614 $2,363  13% 94%

    Retail channels

    		  1,033  1,386  1,806  (353) (420) (25) (23)

    Other(2)

    		  505  357  356  148  1  41  — 
    ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​​​​​​​

    Total consolidated net revenues

    		 $7,017 $6,608 $4,664 $409 $1,944  6% 42%
    ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​​​
    ​​​​​​​​​​​​​​​​​​​​​​​
    ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​​​
     For the Years Ended December 31,
     20202019Increase/
    (decrease)    		% Change
    Net revenues by distribution channel:    
    Digital online channels (1)$6,658 $4,932 $1,726 35 %
    Retail channels741 909 (168)(18)
    Other (2)687 648 39 6 
    Total consolidated net revenues$8,086 $6,489 $1,597 25 

    (1)
    Net revenues from "Digital“Digital online channels"channels” include revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransactions, subscriptions, and products.

    products, as well as licensing royalties.

    (2)
    Net revenues from "Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.


    Digital Online Channel Net Revenues

      2017 vs. 2016


    The increase in net revenues from digital online channels for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      to higher revenues from King titles,from:

    •Call of Duty: Modern Warfare,which was released in October 2019, as 2017 includes King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise duecompared to in-game events and features; and

    •
    higher revenues recognized from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles4, which was released in May 2017,October 2018;

    •Call of Duty: Mobile, which was released in October 2019;

    •World of Warcraft, which includes the release of World of Warcraft: Shadowlands in November 2020;

    •the Call of Duty franchise catalog titles; and

    •the continued strength of microtransactions.

            TheCandy Crush franchise, driven by higher revenues from advertising and in-game player purchases.


    This increase was partially offset by lower revenues recognized fromCall of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title.

      2016 vs. 2015

            The increase in net revenues from digital online channels for 2016, as compared to 2015, was primarily due to:

      •
      new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;

      •
      revenues recognized fromOverwatch, which was released in May 2016; and

      •
      higher revenues recognized in 2016 from digital content associated withCall of Duty: Black Ops III, as compared to revenues recognized in 2015 from digital content associated withCall of Duty: Advanced Warfare, the comparable 2015 title.
    .


    Table of Contents

    Retail Channel Net Revenues

      2017 vs. 2016


    The decrease in net revenues from retail channels for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      to lower revenues recognized fromfrom:

    •Call of Duty: Infinite WarfareBlack Ops Cold War, which was released in November 2016,2020, as compared to the performance ofCall of Duty: Black Ops IIIModern Warfare; and

    •Sekiro: Shadows Die Twice, the comparable 2015 title; and

    •
    lower revenues from the Skylanders franchise, due to the release ofSkylanders Imaginatorswhich was released in October 2016, with no comparable release in 2017.

    March 2019.


    The decrease was partially offset by:

      •
      by higher revenues fromfrom:

    •Crash Bandicoot N. Sane Trilogy, which was released in June 2017; and

    •
    higher revenues recognized fromCall of Duty: WWII, which was released in November 2017, as compared toCall of Duty: Infinite Warfare, the comparable 2016 title.

      2016 vs. 2015

            The decrease in net revenues from retail channels for 2016, as compared to 2015, was primarily due to:

      •
      lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015;

      •
      lower revenues fromSkylanders Imaginators,4: It’s About Time; which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys2020; and

    •Tony Hawk’s Pro Skater 1 and accessories in 2016; and

    •
    lower revenues recognized fromCall of Duty: Infinite Warfare2,which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, which was released in the fourth quarter of 2015.

            The decrease was partially offset by:

      •
      revenues recognized fromOverwatch, which was released in May 2016; and

      •
      higher revenues recognized in 2016 fromCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014.
    September 2020.


    40
    Table of Contents

    Net Revenues by Geographic Region

            The following table details our consolidated net revenues by geographic region (amounts in millions):

     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 Increase/
    (decrease)
    2017 v 2016    		 Increase/
    (decrease)
    2016 v 2015    		 % Change
    2017 v 2016    		 % Change
    2016 v 2015    		 

    Geographic region net revenues:

    		                      

    Americas

    		 $3,607 $3,423 $2,409 $184 $1,014  5% 42%

    EMEA(1)

    		  2,464  2,221  1,741  243  480  11  28 

    Asia Pacific

    		  946  964  514  (18) 450  (2) 88 
    ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​​​

    Consolidated net revenues

    		 $7,017 $6,608 $4,664 $409 $1,944  6  42 
    ​​​​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​​​
    ​​​​​​​​​​​​​​​​​​​​​​​
    ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​​​​​​

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

    Americas

      2017 vs. 2016

            The increase in net revenues in the Americas region for 2017, as compared to 2016, was primarily due to:

      •
      higher revenues from King titles, as 2017 includes King's revenues for the full year, while 2016 only included King's revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to in-game events and features;

      •
      higher revenues recognized from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions; and

      •
      revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017.

            The increase was partially offset by lower revenues recognized fromCall of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title.

      2016 vs. 2015

            The increase in net revenues in the Americas region for 2016, as compared to 2015, was primarily due to:

      •
      new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;

      •
      revenues recognized fromOverwatch, which was released in May 2016; and

      •
      higher revenues recognized in 2016 fromCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content.

    Table of Contents

            The increase was partially offset by:

      •
      lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015; and

      •
      lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone toys and accessories from the Skylanders franchise in 2016.

    EMEA

      2017 vs. 2016

            The increase in net revenues in the EMEA region for 2017, as compared to 2016, was primarily due to the same drivers and partially offsetting factors as those for the Americas region discussed above, as well as higher revenues from our Distribution business, primarily due to higher sales during the holiday season.

      2016 vs. 2015

            The increase in net revenues in the EMEA region for 2016, as compared to 2015, was primarily due to the same drivers and partially offsetting factors as the Americas region, as discussed above.

    Asia Pacific

      2017 vs. 2016

            The slight decrease in net revenues in the Asia Pacific region for 2017, as compared 2016, was primarily due to slightly lower revenues recognized fromOverwatch andHearthstone, mostly offset by higher revenues from King titles andCrash Bandicoot N. Sane Trilogy.

      2016 vs. 2015

            The increase in net revenues in the Asia Pacific region for 2016, as compared to 2015, was primarily due to:

      •
      new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;

      •
      revenues recognized fromOverwatch, which was released in May 2016; and

      •
      higher revenues recognized fromHearthstone.

            The increase was partially offset by lower revenues recognized from the Diablo franchise due to the timing of releases.


    Table of Contents

    Net Revenues by Platform


    The following tables detail our net revenues by platform and as a percentage of total consolidated net revenues (amounts in millions):

     
    		 Year Ended
    December 31,
    2017    		 % of
    total(3)
    consolidated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    total(3)
    consolidated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    total(3)
    consolidated
    net revenues    		 Increase/
    (Decrease)
    2017 v 2016    		 Increase/
    (Decrease)
    2016 v 2015    		 

    Platform net revenues:

    		                         

    Console

    		 $2,389  34%$2,453  37%$2,391  51%$(64)$62 

    PC

    		  2,042  29  2,124  32  1,499  32  (82) 625 

    Mobile and ancillary(1)

    		  2,081  30  1,674  25  418  9  407  1,256 

    Other(2)

    		  505  7  357  5  356  8  148  1 
    ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

    Total consolidated net revenues

    		 $7,017  100%$6,608  100%$4,664  100%$409 $1,944 
    ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​​
    ​​​​​​​​​​​​​​​​​​​​​​​​​​
    ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​
    For the Years Ended December 31,
    20202019Increase/
    (decrease)    		% Change
    Net revenues by platform:
    Console$2,784 $1,920 $864 45 %
    PC2,056 1,718 338 20 
    Mobile and ancillary (1)2,559 2,203 356 16 
    Other (2)687 648 39 6 
    Total consolidated net revenues$8,086 $6,489 $1,597 25 

    (1)
    Net revenues from "Mobile“Mobile and ancillary"ancillary” include revenues from mobile devices, as well as non-platform-specific game-related revenues, such as standalone sales of toys and accessories from our Skylanders franchise and other physical merchandise and accessories.


    (2)
    Net revenues from "Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the Overwatch League.

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

    Console Net Revenues

      2017 vs. 2016

            The decrease in net revenues from console for 2017, as compared to 2016, was primarily due to lower revenues recognized fromCall of Duty: Infinite Warfare, which was released November 2016, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title. The decrease is partially offset by:

      •
      higher revenues recognized from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions;

      •
      revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017; and

      •
      higher revenues recognized fromCall of Duty: WWII, which was released in November 2017, as compared toCall of Duty: Infinite Warfare, the comparable 2016 title.

      2016 vs. 2015

    Duty League.


    Console

    The increase in net revenues from the console platform for 2016,2020, as compared to 2015,2019, was primarily due to:

      •
      to higher revenues recognizedfrom Call of Duty: Modern Warfare,which was released in 2016 fromOctober 2019, as compared to Call of Duty: Black Ops III4, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content; and

      •
      revenues recognized fromOverwatch, which was released in May 2016.

    October 2018. The increase was partially offset by lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015.


    TableCall of Contents

    PC Net Revenues

      2017 vs. 2016

            The decrease in net revenues from PC for 2017, as compared to 2016, was primarily due to:

      •
      lower revenues recognized from the World of Warcraft franchise; and

      •
      lower revenues recognized fromOverwatchDuty: Black Ops Cold War, which was released in May 2016.

      2016 vs. 2015

    November 2020, as compared to Call of Duty: Modern Warfare.


    PC

    The increase in net revenues from the PC platform for 2016,2020, as compared to 2015,2019, was primarily due to:

      •
      to higher revenues recognized fromOverwatchfrom:

    •Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and

    •World of Warcraft, which includes the release of World of Warcraft: Shadowlands in November 2020.

    The increase was released in May 2016; and

    •
    partially offset by lower revenues from King titles following the King Closing Date.

    Overwatch.


    Mobile and Ancillary Net Revenues

      2017 vs. 2016


    The increase in net revenues from mobile and ancillary for 2017,2020, as compared to 2016,2019, was primarily due to higher revenues from King titles, as 2017 includes King's revenues for the full year, while 2016 only included King's revenues for the partial period following the King Closing Date, as well as higher revenues from from:

    •Call of Duty: Mobile, which was released in October 2019; and

    •the Candy Crush franchise, due to in-game events and features.

            The increase was partially offsetdriven by lowerhigher revenues from sales of standalone toysadvertising and accessories from the Skylanders franchise.

      2016 vs. 2015

            The increase in net revenues from mobile and ancillary for 2016, as compared to 2015, was primarily due to:

      •
      new revenues from King titles following the King Closing Date, which were primarily driven by the Candy Crush franchise; and

      •
      higher revenues recognized fromHearthstone, which was released on iPhone and Android smartphones in April 2015.

            The increase was partially offset by lower revenues from sales of standalone toys and accessories from the Skylanders franchise.

    in-game player purchases.

    41


    Costs and Expenses


    Cost of Revenues


    The following tables detail the components of cost of revenues in dollars (amounts in millions) and as a percentage of associated net revenues (amounts in millions):

    revenues:
     Year Ended December 31, 2020% of
    associated
    net revenues    		Year Ended December 31, 2019% of
    associated
    net revenues    		Increase
    (Decrease)
    Cost of revenues—product sales:
    Product costs$705 30 %$656 33 %$49 
    Software royalties, amortization, intellectual property licenses269 11 240 12 29 
    Cost of revenues—in-game, subscription, and other:
    Game operations and distribution costs1,131 20 965 21 166 
    Software royalties, amortization, intellectual property licenses155 3 233 5 (78)
    Total cost of revenues$2,260 28 %$2,094 32 %$166 
     
    		 Year Ended
    December 31,
    2017    		 % of
    associated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    associated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    associated
    net revenues    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Cost of revenues—product sales:

    		                         

    Product costs

    		 $733  35%$741  34%$872  36%$(8)$(131)

    Software royalties, amortization, intellectual property licenses

    		  300  14  331  15  370  15  (31) (39)

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

    		                         

    Game operations and distribution costs

    		  984  20  851  19  274  12  133  577 

    Software royalties, amortization, intellectual property licenses

    		  484  10  471  11  69  3  13  402 
    ​​​ ​​​​​​ ​ ​​​​​ ​ ​​​​​ ​ ​​ ​ ​

    Total cost of revenues

    		 $2,501  36%$2,394  36%$1,585  34%$107 $809 
    ​​​ ​ ​​​​​​ ​​​​​ ​​​​​​ ​ ​​ ​ ​
    ​​​​​​​​​​​​​​​​​​​​​​​​​​
    ​​​ ​ ​​​​​​ ​​​​​ ​ ​​​​​ ​ ​​ ​ ​

    Cost of Revenues—Product Sales:

      2017 vs. 2016

            ProductSales:


    The increase in product costs for 2017, were comparable2020, as compared to 2016,2019, was primarily due to loweran increase in product costs from the Skylanders franchisefor our Distribution business as there was no new release in 2017, offset bya result of higher product costs resulting from the increased revenues of our relatively lower-margin Distribution business.

    revenues.


    The decreaseincrease in software royalties, amortization, and intellectual property licenses related to product sales for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      lowerto a $32 million increase in software amortization associated withGuitar Hero Liveand royalties from Activision, driven by software amortization and royalties from the 2020 releases of (1) Tony Hawk’s Pro Skater 1 and 2, (2)Crash Bandicoot 4: It’s About Time, and (3) Call of Duty:Modern Warfare 2 Campaign Remastered;partially offset by lower software amortization and royalties from:

    •Sekiro: Shadows Die Twice, which was released in March 2019; and

    •Call of Duty: Modern Warfare,which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2015;

    •
    lower software amortization fromOverwatch, which2018.

    Cost of Revenues—In-game, Subscription, and Other Revenues:

    The increase in game operations and distribution costs for 2020, as compared to 2019, was released in May 2016; and

    •
    lower software amortization from the Skylanders franchise as there was no new release in 2017.

            The decrease was partially offset by higher software amortization associated with the Destiny franchise, primarily due to the release(1) an increase ofDestiny 2 $114 million in September 2017.

      2016 vs. 2015

            The decrease in product costsservice provider fees such as digital storefront fees (e.g., fees retained by Apple and Google for 2016,our sales on their platforms), payment processor fees, and server bandwidth fees, as compared to 2015, was primarily due to:

      •
      lower producta result of higher revenues, and (2) an increase of $64 million associated with our professional esports leagues, which includes event and production costs associated with the Skylanders franchise; and

      •
      inaugural season of the relative increaseCall of Duty League in revenues coming from the digital online channel, which typically have relatively lower product costs.

    2020.


    The decrease in software royalties, amortization, and intellectual property licenses related to product sales for 2016, as compared to 2015, was primarily due to lower software amortization from the Destiny franchise, asDestiny was released in the third quarter of 2014, but had no comparable full-game release in 2015.


    Table of Contents

            This decrease was partially offset by:

      •
      software amortization fromOverwatch, which was released in May 2016 with no comparable 2015 title; and

      •
      higher software amortization associated withCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared toCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014.

    Cost of Revenues—Subscription, Licensing, and Other Revenues:

      2017 vs. 2016

            The increase in game operations and distribution costs for 2017, as compared to 2016, was primarily due to platform provider fees associated with the increase in revenues from King.

            Software royalties, amortization, and intellectual property licenses related toin-game, subscription, licensing, and other revenues for 2017 were comparable to 2016.

      2016 vs. 2015

            The increase in game operations and distribution costs for 2016,2020, as compared to 2015, was primarily due to:

      •
      increased online costs and platform provider fees associated with revenues from King titles included following the King Closing Date; and

      •
      increased expenditures to support our growing online activity across our existing and new titles.

            The increase in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for 2016, as compared to 2015,2019, was primarily due to a full year-to-date perioddecrease of $128 million in amortization of internally-developed franchise intangible assets acquired as part of our 2016 acquisition of King. The decrease was partially offset by an increase in the King Acquisition, while the comparable prior period only included the partial periodsoftware amortization and royalties from Activision of amortization$46 million, driven by Call of internally-developed franchise intangible assets following the King Closing Date.

    Duty: Mobile, which was released in October 2019.


    42

    Product Development (amounts in millions)

    Year Ended December 31, 2020% of
    consolidated
    net revenues    		Year Ended December 31, 2019% of
    consolidated
    net revenues    		Increase
    (Decrease)
    Product development$1,150 14 %$998 15 %$152 
     
    		 Year Ended
    December 31,
    2017    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    consolidated
    net revenues    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Product development

    		 $1,069  15%$958  14%$646  14%$111 $312 

      2017 vs 2016

    The increase in product development costs for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      to higher Blizzard product development costs resulting from lowerof $261 million, driven by higher personnel bonuses as a result of strong business performance. The increase was partially offset by a $108 million increase in capitalization of software development costs, due todriven by the timing of Blizzard’s game development cycles; and

      •
      increased product development costs for King, as 2017 includes King's costs for a full year, while 2016 only included King's costs for the partial period following the King Closing Date.

      2016 vs 2015

            The increase in product development costs for 2016, as compared to 2015, was primarily due to:

      •
      product development costs associated with King's titles for the period following the King Closing Date; and
    cycles.


    Table of Contents

      •
      increased product development costs for Activision and Blizzard's current and upcoming releases.

    Sales and Marketing (amounts in millions)

    Year Ended December 31, 2020% of
    consolidated
    net revenues    		Year Ended December 31, 2019% of
    consolidated
    net revenues    		Increase
    (Decrease)
    Sales and marketing$1,064 13 %$926 14 %$138 
     
    		 Year Ended
    December 31,
    2017    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    consolidated
    net revenues    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Sales and marketing

    		 $1,378  20%$1,210  18%$734  16%$168 $476 

      2017 vs. 2016

    The increase in sales and marketing expenses for 2017,2020, as compared to 2016,2019, was primarily due to:

      •
      higher sales and marketing costs for the Destiny franchise, given the releaseto an increase ofDestiny 2 $159 million in September 2017; and

      •
      increased amortization of the customer base intangible assets acquired in the King Acquisition and increased sales and marketing costs to support King's titles, as 2017 includes a full year of costs, while 2016 only included King's costs for the partial period following the King Closing Date.

            The increase was partially offset by lower sales and marketing costs for the Skylanders franchise as there was no new title release in 2017.

      2016 vs. 2015

            The increase in sales and marketing expenses for 2016, as compared to 2015, was primarily due to:

      •
      amortization of the customer base intangible assets acquired in the King Acquisition;

      •
      sales and marketing spending, to support King's titlesdriven by the Call of Duty, World of Warcraft, and new launches, includingCandy Crush Jelly Saga andFarm Heroes Super Saga™; and

      •
      sales and marketing spending to support Blizzard's new title,Overwatch.

            The increase was partially offset by lower sales and marketing expenditures onGuitar Hero Live and the Destiny franchise given the timing of game launches.

    franchises.


    General and Administrative (amounts in millions)

    Year Ended December 31, 2020% of
    consolidated
    net revenues    		Year Ended December 31, 2019% of
    consolidated
    net revenues    		Increase
    (Decrease)
    General and administrative$784 10 %$732 11 %$52 
     
    		 Year Ended
    December 31,
    2017    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    consolidated
    net revenues    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    General and administrative

    		 $760  11%$634  10%$380  8%$126 $254 

      2017 vs. 2016

    The increase in general and administrative expenses for 2017,2020 as compared to 2016,2019, was primarily due to:

      •
      increasedto a $48 million increase in personnel costs including stock compensation expenses,as a result of higher share-based compensation.

    Restructuring and related costs (amounts in millions)
    Year Ended December 31, 2020% of
    consolidated
    net revenues    		Year Ended December 31, 2019% of
    consolidated
    net revenues    		Increase
    (Decrease)
    Restructuring and related costs$94 1 %$132 2 %$(38)

    During 2019, we began implementing a plan aimed at refocusing our resources on our largest opportunities and to support the growthremove unnecessary levels of complexity and duplication from certain parts of our business. Since then, we have been, and will continue focusing on these goals as we continue to execute against our plan. The restructuring and related costs incurred during 2020 relate primarily to severance costs. We do not expect to realize significant net savings in our businesstotal operating expenses as a result of our plan, as cost reductions in our selling, general and adjacent areasadministrative activities is expected to be offset by increased investment in product development. Refer to Note 17 of opportunity;

    •
    the inclusion of a non-cash accounting chargenotes to reclassify certain lossesthe consolidated financial statements included in our cumulative translation adjustments into earnings due to the substantial liquidationItem 8 of certain of our foreign entities, with no comparable activity in 2016;
    this Annual Report on Form 10-K for further discussion.


    43
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      •
      restructuring charges, primarily severance costs, incurred in 2017 with no comparable activity in 2016; and

      •
      higher foreign currency transaction losses.

            The increase is partially offset by lower transaction costs as 2016 included the King Acquisition.

      2016 vs. 2015

            The increase in general and administrative expenses for 2016, as compared to 2015, was primarily due to:

      •
      King's general and administrative costs, which are included from the King Closing Date;

      •
      higher Blizzard personnel costs due to segment performance bonuses and increased headcount to support the growth of the Blizzard business;

      •
      higher professional and transaction-related fees due to the King Acquisition, which closed on February 23, 2016; and

      •
      lower foreign currency transaction and derivative contract gains.


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

    Year Ended December 31, 2020% of
    consolidated
    net revenues    		Year Ended December 31, 2019% of
    consolidated
    net revenues    		Increase
    (Decrease)
    Interest and other expense (income), net$87 1 %$(26)— %$113 
     
    		 Year Ended
    December 31,
    2017    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2016    		 % of
    consolidated
    net revenues    		 Year Ended
    December 31,
    2015    		 % of
    consolidated
    net revenues    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Interest and other expense (income), net

    		 $146  2%$214  3%$198  4%$(68)$16 

      2017 vs. 2016

            The decrease in interest and other expense, net, for 2017, as compared to 2016, was primarily due to our lower total outstanding debt and lower interest rates on our current debt instruments as a result of our refinancing activities in 2016 and 2017. See further discussion below under "Liquidity and Capital Resources."

      2016 vs. 2015

    The increase in interest and other expense (income), net, for 2016,2020, as compared to 2015,2019, was primarily due toto:

    •a $58 million decrease in interest expense associated with the new $2.3 billion tranche of term loans "A" that were incurred in connection with the King Acquisition. This increase was partially offsetincome driven by lower returns on our investment portfolio as a result of interest expense relatedrate cuts, reflecting actions by central banks around the world;

    •a $38 million gain recognized in the prior-year period as a result of adjusting a cost-method equity investment to our prior term loan becausefair value, as compared to a $3 million gain recorded in the current year; and

    •a $7 million gain recognized in the prior-year period from the settlement of voluntary prepayments onavailable for sale securities, as compared to a $4 million loss recorded in the principal we made throughout 2016, with the prior term loan being fully extinguished in September 2016. See further discussion below under "Liquidity and Capital Resources."

    current year.


    Income Tax Expense (Benefit) (amounts in millions)

    Year Ended December 31, 2020% of
    Pretax
    income    		Year Ended December 31, 2019% of
    Pretax
    income    		Increase
    (Decrease)
    Income tax expense$419 16 %$130 8 %$289 
     
    		 Year Ended
    December 31,
    2017    		 % of
    Pretax
    income    		 Year Ended
    December 31,
    2016    		 % of
    Pretax
    income    		 Year Ended
    December 31,
    2015    		 % of
    Pretax
    income    		 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Income tax expense

    		 $878  76%$140  13%$229  20%$738 $(89)

    For the years ended December 31, 2017, 2016,2020 and 2015,2019, the Company'sCompany’s income before income tax expense was $1.15 billion, $1.11$2.6 billion and $1.12$1.6 billion, respectively, and our income tax expense was $878$419 million (or a 76%16% effective tax rate), $140 and $130 million (or a 13% effective tax rate), and $229 million (or a 20%an 8% effective tax rate), respectively. Our full year 20172020 effective tax rate of 76%16% is higherlower than


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    the U.S. statutory rate of 35%21% primarily due to thea U.S. tax benefit from foreign-derived intangible income, a one-time benefit from deferred tax asset remeasurement, and excess tax benefits from share-based payments.


    The effective tax rate in 2020 was higher than in 2019, primarily due to one-time tax expensebenefits reported in the prior year related to the U.S. Tax Reform Act (discussed further below) andintra-entity transfer of certain intellectual property rights, partially offset by changes in the Company's liability for uncertain tax positions partially offset by earnings taxed at relatively lower rates in foreign jurisdictions, recognition of excess tax benefits from shared-based payments, and research and development ("R&D") credits.

            On December 22, 2017, the U.S. Tax Reform Act was enacted. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax").

            On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement period of up to one year, until accounting is complete.

            We recorded a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate in the fourth quarter of 2017 resulting in a charge of $636 million. This includes current tax expense of $555 million related to the Transition Tax, which is payable over eight years, and deferred tax expense of $81 million related to the remeasurement of deferred taxes resulting from the U.S. corporate income tax rate reduction. Accounting for the income tax effects of the U.S. Tax Reform Act requires complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different from our interpretation. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take as a result of the U.S. Tax Reform Act.

            We continue to analyze the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as global intangible low-taxed income ("GILTI") of foreign subsidiaries, base erosion anti-abuse tax ("BEAT"), and foreign-derived intangible income ("FDII"), potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act.

            In 2017 and 2016, our U.S. income before income tax expense was $185 million and $228 million, respectively, and comprised 16% and 21%, respectively, of our consolidated income before income tax expense. In 2017 and 2016, our foreign income before income tax expense was $966 million and $878 million, respectively, and comprised 84% and 79%, respectively, of our consolidated income before income tax expense.

            In 2017, 2016 and 2015, earnings taxed at lower rates in foreign jurisdictions, as compared to domestic earnings taxed at the U.S. federal statutory tax rate, lowered our effective tax rate by 24 percentage points, 22 percentage points, and 20 percentage points, respectively. The increase in the foreign rate differential is due to the overall increase in foreign income, which is taxed at relatively lower rates in proportion to U.S. income.

    audit settlements.


    The overall effective income tax rate in future periods will depend on a variety of factors, such as changes in the mix ofpre-tax income or loss by tax jurisdiction, applicable accounting rules, applicable tax laws and regulations, and 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.



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            On December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

    Further analysis of the differences between the U.S. federal statutory rate and the consolidated effective tax rate, as well as other information about our income taxes, is provided in Note 1519 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.


    Foreign Exchange Impact


    Changes in foreign exchange rates had a positive impact of $27 million, a positive impact of $10$62 million and a negative impact of $242$150 million on Activision Blizzard'sour consolidated net revenues in 2020 and 2019, respectively, as compared to the same periods in the previous year.

    Changes in foreign exchange rates had a positive impact of $35 million and a negative impact of $71 million on our consolidated operating income in 2017, 20162020 and 2015, respectively. The changes are primarily due2019, respectively, as compared to changesthe same periods in the valueprevious year.

    Comparison of 2019 to 2018

    For the U.S. dollar relativecomparison of 2019 to 2018, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the euro and British pound and its impact on our foreign operating income.

    year ended December 31, 2019.


    44

    Liquidity and Capital Resources


    We believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. InDespite the impacts of the COVID-19 pandemic on the global economy, in the near term, we expect our business and financial condition to remain strong and to continue to generate significant operating cash flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term investments of $4.8$8.8 billion, our access to capital, and the availability of our $250 million$1.5 billion revolving credit facility, we believe will be sufficient to finance our operational and financing requirements for the next 12 months. Our primary sources of liquidity, which are available to us to fund cash outflows such as our anticipatedpotential dividend payments or share repurchases, and scheduled debt maturities (the next of which is in 2026), include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities.


    As of December 31, 2017,2020, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $3.0$2.5 billion, as compared to $1.9$2.8 billion as of December 31, 2016. Following the enactment of the U.S. Tax Reform Act and the current period expense on unrepatriated earnings, we no longer consider these available2019. These cash balances which primarily relateare generally available for use in the U.S., subject in some cases to undistributed earnings of our most significant foreign subsidiaries, to be indefinitely reinvested.

    certain restrictions.


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



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    Sources of Liquidity (amounts in millions)

    For the Years Ended December 31,
    20202019Increase
    (Decrease)
    Cash and cash equivalents$8,647 $5,794 $2,853 
    Short-term investments170 69 101 
    $8,817 $5,863 $2,954 
    Percentage of total assets38 %30 % 
     
    		 For the Years Ended
    December 31,    		 
     
    		 2017 2016 Increase
    (Decrease)
    2017 v 2016    		 

    Cash and cash equivalents

    		 $4,713 $3,245 $1,468 

    Short-term investments

    		  62  13  49 
    ​​​ ​ ​​ ​ ​​ ​ ​

    		 $4,775 $3,258 $1,517 
    ​​​ ​ ​​ ​ ​​ ​ ​
    ​​​​​​​​​​​
    ​​​​ ​​ ​ ​​ ​ ​

    Percentage of total assets

    		  26% 19%   


     For the Years Ended December 31,
     20202019Increase
    (Decrease)
    Net cash provided by operating activities$2,252 $1,831 $421 
    Net cash used in investing activities(178)(22)(156)
    Net cash provided by (used in) financing activities711 (237)948 
    Effect of foreign exchange rate changes69 (3)72 
    Net increase in cash and cash equivalents and restricted cash$2,854 $1,569 $1,285 

     
    		 For the Years Ended December 31, 
     
    		 2017 2016 2015 Increase
    (Decrease)
    2017 v 2016    		 Increase
    (Decrease)
    2016 v 2015    		 

    Net cash provided by operating activities

    		 $2,213 $2,155 $1,259 $58 $896 

    Net cash used in investing activities

    		  (197) (1,177) (3,716) 980  2,539 

    Net cash (used in) provided by financing activities

    		  (624) 500  (202) (1,124) 702 

    Effect of foreign exchange rate changes

    		  76  (56) (366) 132  310 
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​​

    Net increase (decrease) in cash and cash equivalents

    		 $1,468 $1,422 $(3,025)$46 $4,447 
    ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​​
    ​​​​​​​​​​​​​​​​​
    ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

    Net Cash Provided by Operating Activities


    The primary driver of net cash flows associated with our operating activities is the collection of customer receivablesincome generated from the sale of our products and services. These collections are typically partially offset by: payments to vendors forworking capital requirements used in the manufacturing, distribution,development, sale, and marketingsupport of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.

      2017 vs 2016


    Net cash provided by operating activities for 20172020 was $2.21$2.25 billion, as compared to $2.16$1.83 billion for 2016.2019. The increase was primarily due to:

      •
      increased earnings after excluding the effects of charges due to impacts from the U.S. Tax Reform Act, which did not result in current year cash outflows,higher net income, partially offset by higher tax payments and other non-cash charges for depreciation and amortization and share-based compensation expenses;

      •
      a full year of King operating cash flows; and

      •
      changes in our working capital due toresulting from the timing of collections and payments.

            Net cash provided by operating activities for 2017 included $145 million of interest paid on our outstanding debt, as compared to $209 million paid in 2016.

      2016 vs 2015

            Net cash provided by operating activities for 2016 was $2.2 billion, as compared to $1.3 billion for 2015. The increase was primarily due to:

      •
      new operating cash flows contributed by King following the King Closing Date; and


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      •
      higher net income in 2016, as compared to 2015, along with larger adjustments to net income for non-cash charges, primarily associated with the amortization of the acquired intangibles in the King Acquisition, higher stock compensation expense due to converted equity awards for King personnel in the King Acquisition, and other non-cash or non-operating costs associated with our debt-related activities during the year.

            Net cash provided by operating activities for 2016 included $209 million of interest paid on our outstanding debt, as compared to $193 million paid in 2015.

    Net Cash Used in Investing Activities


    The primary drivers of net cash flows associated with investing activities typically include capital expenditures, purchases and sales of investments, changes in restricted cash balances, and cash used for acquisitions.

      2017 vs 2016


    45

    Net cash used in investing activities for 20172020 was $197$178 million, as compared to $1.2 billion$22 million for 2016.2019. The decreaseincrease in the cash used was primarily due to cash used for the King Acquisition in 2016, with no comparable transaction in 2017. The decrease was partially offset by purchases of available-for-sale investments, net of proceeds from maturities, of $55 million in 2017, with no comparable transaction in 2016.

      2016 vs 2015

            Net cash used in investing activities for 2016 was $1.2 billion, as compared to $3.7 billion for 2015. The lower amount of cash used in investing activities in 2016 was primarily due to a 2015 cash outflowthe net purchases of $3.6 billion for cash placed into escrowavailable-for-sale investments of $100 million in 2020, as compared to facilitatenet proceeds from maturities of available-for-sale investments of $88 million in 2019. This was partially offset by capital expenditures of $78 million in 2020, which were lower than the King Acquisition. In 2016, when we acquired King, the cashcapital expenditures of $116 million in escrow became a cash inflow. As a result, in 2016 we had a $2.2 billion cash outflow for the King Acquisition in excess of the cash already in escrow, net of $1.15 billion of cash acquired from King.

    2019.


    Net Cash Provided by (Used in) Financing Activities


    The primary drivers of net cash flows associated with financing activities typically include the proceeds from, and repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise of stock options, as well as the payment of dividends.

      2017 vs 2016

            Net cash used in financing activities for 2017 was $624 million, as compared to net cash provided by financing activities of $500 million for 2016. The changes were primarily attributed to our debt financing activities. For 2017, we had net debt repayments of $500 million, as compared to approximately $700 million of net debt proceeds, inclusive of a premium payment, for 2016. The cash flows used in financing activities for 2017, were partially offset by:

      •
      higher proceeds from stock option exercises in 2017 of $178 million, as compared to $106 million for 2016; and

      •
      lower tax payments made for net share settlements on restricted stock units in 2017 of $56 million, as compared to $115 million in 2016.


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      2016 vs 2015

    Net cash provided by financing activities for 20162020 was $500$711 million, as compared to net cash flows used in financing activities of $202$237 million for 2015.2019. The differencechange was primarily due to $6.9 billionattributed to:

    •our debt financing activities—for 2020 we had net debt proceeds of proceeds receivedapproximately $896 million resulting from the following debt issuances in 2016:

      •
      issuance of a $2.3 billion tranche of term loans "A" on February 23, 2016 to fund the King Acquisition;

      •
      issuance of an additional $250aggregate principal amount of $2.0 billion of new notes and the early redemption of $1.05 billion of our previously outstanding notes, with no comparable activity for 2019 (refer to Note 13 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion); and

    •higher proceeds from issuances of common stock to employees of $170 million tranche of term loans "A" on March 31, 2016;

    •
    issuance of a new unsecured $2.9 billion tranche of term loans "A" in connection with2020 as compared to $105 million in 2019.

    The cash flows provided by the fifth amendment to our credit agreement on August 23, 2016;

    •
    issuance of $650 million of 2.3% unsecured senior notes due September 2021 on September 19, 2016; and

    •
    issuance of $850 million of 3.4% unsecured senior notes due September 2026 on September 19, 2016.

            These issuancesactivities above were partially offset by:

      •
      repayments of $1.9 billion to extinguish our term loan outstanding at December 31, 2015 (the "Original Term Loan");

      •
      repayments of $2.5 billion in connectionby higher dividends paid, with the refinancing of our tranche of term loans "A" that were provided in the first quarter of 2016;

      •
      repayments of $185 million on our new tranche of term loans "A" that were provided on August 23, 2016, which included $167$316 million of voluntary prepayments,dividend payments in 2020, as compared to the $250$283 million partial repayment of our Original Term Loan in 2015;

      •
      a cash payment to redeem all $1.5 billion of our outstanding 5.625% unsecured senior notes due September 2021, as well as the associated $63 million premium; and

      •
      higher cash dividend payments made during 2016, as compared to 2015.

            Net cash used in financing activities for 2015 also included proceeds of $202 million received in the settlement of the litigation related to the October 11, 2013 repurchase of approximately 429 million shares of our common stock (the "Purchase Transaction"). There were no such proceeds received in 2016.

    2019.


    Effect of Foreign Exchange Rate Changes


    Changes in foreign exchange rates had a positive impact of $76 million, a negative impact of $56$69 million and a negative impact of $366$3 million on our cash and cash equivalents for the years ended December 31, 2017, 2016,2020 and 2015,2019, respectively. The change is primarily due to changes in the value of the U.S. dollar relative to the Euroeuro and British pound.


    Debt

            As of


    At December 31, 2016,2020 and December 31, 2019, our total outstanding debt was $4.9$3.6 billion and $2.7 billion, respectively, bearing interest at a weighted average rate of 2.92%. As a result of the activities described below, our total outstanding debt as of December 31, 2017, was $4.4 billion, bearing interest at a weighted average rate of 3.58%.

            On February 3, 2017, we entered into a sixth amendment (the "Sixth Amendment") to our credit agreement, which was originally executed on October 11, 2013 (as amended thereafter2.87% and from time to time, the "Credit Agreement"). The Sixth Amendment: (1) provided for a new tranche of term loans "A" in an aggregate principal amount of $2.55 billion (the "2017 TLA") and (2) released each of

    3.18%, respectively.


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    our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the term loans then outstanding (the "2016 TLA") under the Credit Agreement, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The fees incurred as a result of the Sixth Amendment were not material. The 2017 TLA will mature on August 23, 2021.

            On May 26, 2017, in a public underwritten offering, we issued three series of unsecured senior notes—$400 million of 2.6% unsecured senior notes due June 2022, $400 million of 3.4% unsecured senior notes due June 2027, and $400 million of 4.5% unsecured senior notes due June 2047. The proceeds from these unsecured senior notes, together with cash on hand, were used to make a prepayment of $1.2 billion on our 2017 TLA.

            During the year ended December 31, 2017, we reduced our total outstanding long-term debt by $500 million. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with a prepayment on the 2017 TLA of $361 million. The prepayment made on our 2017 TLA satisfied the remaining required quarterly principal repayments for the entire term of the Credit Agreement.

    A summary of our outstanding debt as of December 31, 2017, is as follows (amounts in millions):

     At December 31, 2020At December 31, 2019
    2021 Notes$— $650 
    2022 Notes— 400 
    2026 Notes850 $850 
    2027 Notes400 $400 
    2030 Notes500 $— 
    2047 Notes400 $400 
    2050 Notes1,500 $— 
    Total gross long-term debt$3,650 $2,700 
    Unamortized discount and deferred financing costs(45)(25)
    Total net carrying amount$3,605 $2,675 
     
    		 December 31, 2017 
     
    		 Gross
    Carrying
    Amount    		 Unamortized
    Discount and Deferred
    Financing Costs    		 Net
    Carrying
    Amount    		 

    2017 TLA

    		 $990 $(8)$982 

    2021 Notes

    		  650  (4) 646 

    2022 Notes

    		  400  (4) 396 

    2023 Notes

    		  750  (9) 741 

    2026 Notes

    		  850  (9) 841 

    2027 Notes

    		  400  (6) 394 

    2047 Notes

    		  400  (10) 390 
    ​​​ ​ ​​ ​​​ ​ ​

    Total debt

    		 $4,440 $(50)$4,390 
    ​​​ ​ ​​ ​ ​​ ​ ​
    ​​​​​​​​​​​
    ​​​​ ​​ ​ ​​ ​ ​

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


     
    		 December 31, 2016 
     
    		 Gross
    Carrying
    Amount    		 Unamortized
    Discount and Deferred
    Financing Costs    		 Net
    Carrying
    Amount    		 

    2016 TLA

    		 $2,690 $(27)$2,663 

    2021 Notes

    		  650  (5) 645 

    2023 Notes

    		  750  (11) 739 

    2026 Notes

    		  850  (10) 840 
    ​​​ ​ ​​ ​ ​​ ​ ​

    Total long-term debt

    		 $4,940 $(53)$4,887 
    ​​​ ​ ​​ ​​​ ​ ​
    ​​​​​​​​​​​
    ​​​ ​ ​​ ​ ​​ ​ ​

            On February 1, 2018, our Board of Directors authorized repayments of up to $1.8 billion of the company's outstanding debt during 2018. As of the date hereof, we have not made any additional repayments on our outstanding debt and the determination as to if and when we make any such repayment will be dependent on market conditions and other factors.

    Refer to Note 1113 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further disclosures regarding terms and activities associated with our debt obligations.



    46

    Dividends


    On February 1, 2018,4, 2021, our Board of Directors approveddeclared a cash dividend of $0.34$0.47 per common share, payable on May 9, 2018,6, 2021, to shareholders of record at the close of business on March 30, 2018.

    April 15, 2021.


    On February 2, 2017,6, 2020, our Board of Directors approveddeclared a cash dividend of $0.30$0.41 per common share andshare. On May 6, 2020, we made an aggregate cash dividend payment on May 10, 2017 of $226$316 million to shareholders.

    shareholders of record at the close of business on April 15, 2020.


    Capital Expenditures


    We made capital expenditures of $155$78 million in 2017,2020, as compared to $136$116 million in 2016.2019. In 2018,2021, we anticipate total capital expenditures of approximately $155$100 million, primarily for computer hardware, leasehold improvements, computer hardware, and software purchases.


    Commitments


    Refer to Note 1922 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding our commitments.

    commitments, including a table showing contractual obligations.


    Comparison of 2019 to 2018

    For the comparison of 2019 to 2018, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019, under the subheading “Liquidity and Capital Resources.”

    Off-balance Sheet Arrangements


    At December 31, 20172020 and 2016,2019, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as "structured finance"“structured finance” or "special purpose"“special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.


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    Critical Accounting Policies and Estimates


    The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. The impact and any associated risks related to these policies on our business operations are discussed throughout Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The policies, estimates, and assumptions discussed below are considered by management to be critical because they are both important to the portrayal of our financial condition and results of operations and because their application places the most significant demands on management'smanagement’s judgment, with financial reporting results relying on estimates and assumptions about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies, estimates, and assumptions are described in the following paragraphs.


    Revenue Recognition


    In May 2014, the Financial Accounting Standards Board issued new accounting guidance related to revenue recognition. On January 1, 2018, we adopted the new accounting standard and related amendments.

    We recognize revenues when there is persuasive evidencegenerate revenue primarily through the sale of an arrangement,our interactive entertainment content and services, principally for the product or service has been providedconsole, PC, and mobile platforms, as well as through the licensing of our intellectual property. Our products span various genres, including first- and third-person action/adventure, role-playing, strategy, and “match three.” We primarily offer the following products and services:

    •premium full games, which typically provide access to main game content after purchase;

    •free-to-play offerings, which allow players to download the game and engage with the associated content for free;

    •in-game content for purchase to enhance gameplay (i.e.microtransactions and downloadable content) available within both our full-game and free-to-play offerings; and

    •subscriptions to players in our World of Warcraft franchise, which provide ongoing access to the customer,game content.

    When control of the collection ofpromised products and services is transferred to our fees is reasonably assured, andcustomers, we recognize revenue in the amount of feesthat reflects the consideration we expect to be paidreceive in exchange for these products and services.

    We determine revenue recognition by:

    •identifying the contract, or contracts, with a customer;

    •identifying the performance obligations in each contract;

    •determining the transaction price;

    •allocating the transaction price to the performance obligations in each contract; and

    •recognizing revenue when, or as, we satisfy performance obligations by transferring the customer is fixedpromised goods or determinable. services.

    Certain products are sold to customers with a "street date"“street date” (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later of the street date orand the date the product is sold to our customer. For digital full-game downloads sold to customers, we recognize revenue when it is available for download or is activated for gameplay. Revenues are recorded net of taxes assessed by governmental authorities that are imposed at the customer.

    time of the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.


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      Revenue Arrangements with Multiple Deliverables

       ��    Certain


    Payment terms and conditions vary by contract type, although terms generally include a requirement of ourpayment immediately upon purchase or within 30 to 90 days. In instances where the timing of revenue arrangements have multiple deliverables, whichrecognition differs from the timing of invoicing, we account for in accordance with Accounting Standards Codification ("ASC") Topic 605. These revenue arrangements include product sales consistingdo not adjust the promised amount of both software, service (such as ongoing hosting arrangements), and hardware deliverables (such as peripherals or other ancillary collectors' items sold together with physical "boxed" software).

            When a revenue arrangement contains multiple elements, such as hardware and software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") if it is available, third-party evidence ("TPE") if VSOE is not available, or best estimated selling price ("BESP") if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue.

            As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue arrangements that required using BESP for the years ended December 31, 2017, 2016, and 2015. The inputseffects of a significant financing component when we use to determine the selling price of our significant deliverables include the actual price charged by the Company for deliverablesexpect, at contract inception, that the Company sells separately (which represents VSOE)period between our transfer of a promised product or service to our customer and the wholesale prices of the samepayment for that product or similar products for deliverables not sold separately (which represents TPE).

      service will be one year or less.


    Product Sales


    Product sales consistsconsist of sales of our games, including physical products and digital full-game downloads.downloads and physical products. We recognize revenues from the sale of our products after both (1) title and riskcontrol of loss havethe products has been transferred to our customers and (2) allthe underlying performance obligations have been completed. With respect to digital full-game downloads, this is when the product is available for download or is activated for gameplay. satisfied. Such revenues, which include our software products with significant online functionality and our online hosted software arrangements, are recognized in "Product sales" on our consolidated statement of operations.

    Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection.

      Productprotection, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and price protection are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.


    Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are considered adjustments of the transaction price of our products and are reflected as reductions to revenues. Sales incentives and other consideration that represent costs incurred by us for distinct goods or services received, such as the appearance of our products in a customer’s national circular advertisement, are recorded as “Sales and marketing” expense when the benefit from the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the good or service.

    Products with Online Functionality or Online Hosted Arrangements


    For our software products withthat include both offline functionality (i.e., do not require an Internet connection to access) and significant online functionality, or that are partsuch as for most of an online hosted arrangement,our titles from the Call of Duty franchise, we evaluate whether thatthe license of our intellectual property and the online functionality constituteseach represent separate and distinct performance obligations. In such instances, we typically have two performance obligations: (1) a more-than-inconsequential separate deliverable in additionlicense to the game software product.that is accessible without an Internet connection (predominantly the offline single player campaign or game mode) and (2) ongoing activities associated with the online components of the game, such as content updates, hosting of online content and gameplay, and online matchmaking (the “online functionality”). The online functionality generally operates to support the additional features and functionalities of the game that are only available online, not the offline license. This evaluation is performed for each software product or product add-on, (includingincluding downloadable content), when it is released. Determining whether the online functionality for a particular product constitutes a more-than-inconsequential deliverable is subjective and requires management's judgment.content. When we determine that our software products contain a license of intellectual property (i.e., the offline software license) that is separate and distinct from the online functionality, constitutes a more-than-inconsequential separate service deliverable in addition to the product, which is principally because of the online functionality's importance to gameplay, we consider our performance obligation for this titlemarket conditions and other observable inputs to extend beyondestimate the sale of the game. In addition, VSOE of fair value does not existstandalone selling price for the online functionality of some products, asperformance obligations, since we do not separately charge for this component. Asgenerally sell the software license on a result,standalone basis. These products may be sold in a bundle with other products and services, which often results in the recognition of additional performance obligations.

    For arrangements that include both a license to the game software that is accessible offline and separate online functionality, we initially defer allrecognize revenue when control of the software-related revenues fromlicense transfers to our customers for the saleportion of any such title (including downloadable content)the transaction price allocable to the offline software license and recognize the revenues ratably over the estimated service period. In addition,period for the portion of the transaction price allocable to the online functionality. Similarly, we initially defer a portion of the cost of revenues for the titleon these arrangements and recognize the cost of revenuescosts as the related revenues are recognized. The cost of revenues that are initially deferred include


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    product andcosts, distribution costs, and software royalties, and amortization, and intellectual property licenses, and excludeexcludes intangible asset amortization.


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    Online Hosted Software Arrangements

    For our online hosted software arrangements, such as titles for the Overwatch, World of Warcraft, and Candy Crush franchises, substantially all gameplay and functionality are obtained through our continuous hosting of the game content for the player. In these instances, we typically have a single performance obligation related to our ongoing activities in the hosted arrangement, including content updates, hosting of the gameplay, online matchmaking, and access to the game content. Similar to our software products with online functionality, thatthese arrangements may include other products and services, which often results in the recognition of additional performance obligations. Revenues related to online hosted software arrangements are considered to be incidental to the overall product offering and are inconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met.

            For ourWorld of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with the related subscription service revenuesgenerally recognized ratably over the estimated service period, beginning upon the activation of the softwareperiod.


    In-game, Subscription, and delivery of the related services. ForOther Revenues

    In-game Revenues

    In-game revenues associated with the sales of subscriptions, the revenues are deferred until the subscription service is activated by the consumerprimarily includes revenue from microtransactions and are then recognized ratably over the subscription period. Revenues attributed to the sale ofWorld of Warcraft boxed software and related expansion packs are classified as "Product sales," whereas revenues attributable to subscriptions and other value-added services are classified as "Subscription, licensing, and other revenues."

      Microtransaction Revenues

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


    Subscription Revenues

    Subscription revenue arrangements are mostly derived from World of Warcraft, which is only playable online and is generally sold on a subscription-only basis. Revenues associated with the sales of subscriptions are deferred until the subscription service is activated by the consumer and are then recognized ratably over the subscription period as the performance obligations are satisfied.

    Revenues attributable to the purchase of World of Warcraft software by our customers, including expansion packs, are classified as “Product sales,” whereas revenues attributable to subscriptions and other in-game revenues are classified as “In-game, subscription, and other revenues.”

    Other Revenues

    Other revenues primarily include revenues from software licensing and licensing of intellectual property other than software. These revenues are recognized in "In-game, subscription, and other revenues" on our consolidated statement of operations.

    In certain countries we have software licensing arrangements where we utilize third-party licensees to distribute and host our games in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3) ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee.

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    Revenues from the licensing of intellectual property other than software primarily include the licensing of our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our media content are generally recognized when control has transferred to the customer, which may be upfront or over time.

    Significant Judgment around Revenue Arrangements with Multiple Deliverables

    Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency with the online functionality. In these cases, significant judgment is required to determine whether this license of our intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with the online functionality provided and recognized over time. Generally, for titles in which the software license is functional without the online functionality and a significant component of gameplay is available offline, we believe we have separate performance obligations for the license of the intellectual property and the online functionality.

    Significant judgment is also required to determine the standalone selling price for each distinct performance obligation and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the various products and services. To estimate the standalone selling price we generally consider market data, including our pricing strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is available, and the replayability design of both the offline and online components of our games. In limited instances, we may also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.

    Estimated Service Period


    We determineconsider a variety of data points when determining the estimated service period for players of our games, with consideration of various data points, including the weighted-averageweighted average number of days between players'players’ first and last datedays played online, the average total hours played, the average number of days in which player activity stabilizes, and the weighted-average number of days between players'players’ first purchase date and last date played online. We also consider known online trends, the service periods of our previously released games, and, to the extent publicly available, the service periods of our competitors'competitors’ games that are similar in nature to ours,ours. We believe this provides a reasonable depiction of the transfer of services to our customers, as it is the extent they are publicly available.best representation of the time period during which our customers play our games. Determining the estimated service period is subjective and requires management'smanagement’s judgment. Future usage patterns may differ from historical usage patterns, and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are generally less than twelve12 months.


    Principal Agent Considerations


    We evaluate sales of our products and content via third partythird-party digital storefronts, such as Microsoft'sMicrosoft’s Xbox Games Store, Sony'sSony’s PSN, the Apple App Store, and the Google Play Store, to determine whether our revenues should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatmentwhether we are the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to, the following:

      to:

    •
    thewhich party is primarily responsible for delivery/fulfillment offulfilling the product or servicepromise to provide the consumer;

    •
    the party responsible for consumer billing, fee collection, and refunds;

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        •
        the storefront and terms of sale that govern the consumer's purchase of the productspecified good or service; and


      •
      which party has discretion in establishing the party that setsprice for the pricing with the consumer and has credit risk.

      specified good or service.


      Based on our evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via the Apple App Store and the Google Play Store, and we report revenues on a net basis (i.e., net of fees retained by the digital storefront) for sales arrangements via Microsoft'sMicrosoft’s Xbox Games Store and SonySony’s PSN.

      Allowances for Returns and Price Protection

              We closely monitor and analyze the historical performance of our various titles, the performance of products released by other publishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles. Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We benchmark units to be shipped to our customers using historical and industry data.

              We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive price protection credits include, among other things, compliance with applicable trading and payment terms and consistent return of inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-through performance targets in certain instances, the facilitation of slow-moving inventory, and other market factors.

              Significant management judgments and estimates with respect to potential future product returns and price protection related to current period product revenues must be made and used when establishing the allowance for returns and price protection in any accounting period. We estimate the amount of future returns and price protection for current period product revenues utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historical performance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise; console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-hand retail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title's recent sell-through history (if available); marketing trade programs; and the performance of competing titles. The relative importance of these factors varies among titles depending upon, among other things, genre, platform, seasonality, and sales strategy.

              Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of a title, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of new hardware platforms. There may be material differences in the amount and timing of our revenues for any period if factors or market conditions change or if matters resolve in a manner that is inconsistent with management's assumptions utilized in determining the allowances for returns and price protection. For example, a 1% change in our December 31, 2017 allowance for sales returns, price protection, and other allowances would have impacted net revenues by approximately $3 million.



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      Software Development Costs

              Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized costs for products that are cancelled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to "Product development."

              Commencing upon a product's release, capitalized software development costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years.

              We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based.

              Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management's expectations.


      Income Taxes


      We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASCAccounting Standards Codification Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is


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      recognized in income in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of "more“more likely than not"not” that they will be realized in the future, a valuation allowance is recorded.


      Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to tax expensesexpense in the period such determination is made.

      The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of ASC Topic 740 and complex tax laws. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes. Resolution of these uncertainties in a manner inconsistent with management'smanagement’s expectations could have a material impact on our business and results of operations in an interim period in which the uncertainties are ultimately resolved.


      Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.

              Our provision for income taxes is subject to volatility and could be adversely impacted by: (1) earnings being lower than anticipated in foreign regions where taxes


      We 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; (2) changes in the valuation of our deferred tax assets and liabilities; (3) tax effects of nondeductible compensation; (4) tax costs related to intercompany realignments; (5) differences between amounts included in our tax filings and the estimate of such amounts included in our tax expenses; (6) changes in accounting principles; or (7) changes in tax laws, regulations, administrative practices, principles or interpretations, including fundamental changes to the tax laws applicable to multinational corporations. Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes. In addition, we arealso subject to the continuous examination of our income tax returns by the IRS and are regularly subject to audit by other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.

              As further described in "Consolidated Results" above, on


      On December 22, 2017, the U.S. enacted the Tax ReformCuts and Jobs Act was enacted. The U.S. Tax Reform Act, amongwhich also created a new minimum tax that applies to certain foreign earnings (“GILTI”). We have elected to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years.



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      Software Development Costs

      Software development costs include direct costs incurred for internally developed products, as well as payments made to independent software developers under development agreements. Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Significant management judgments and estimates are applied in assessing when capitalization commences for software development costs and the evaluation is performed on a product-by-product basis. Prior to a product’s release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization, and intellectual property licenses.” Capitalized costs for products that are canceled or are expected to be abandoned are charged to “Product development” in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to “Product development.”

      Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—software royalties, amortization, and intellectual property licenses” based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years.

      We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that have been released, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Additionally, criteria used to evaluate expected product performance may include, as appropriate: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based.

      Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management’s expectations.

      For a detailed discussion of the application of these and other things, reducedaccounting policies, see Note 2 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

      Recently Issued Accounting Pronouncements

      For a detailed discussion regarding the accounting adoption and impacts, see Note 2 and Note 3 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.


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      Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

      Foreign Currency Exchange Rate Risk

      We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, with a heightened risk for volatility in the future due to potential impacts of COVID-19 on global financial markets. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona. To the extent the U.S. corporatedollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions will result in reduced revenues, operating expenses, net income, tax rateand cash flows from 35% to 21% beginningour international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earningsthe United States, the impact of foreign subsidiaries.

              On December 22, 2017,currency fluctuations, particularly the SEC staff issued SAB 118, which provides guidance on how to account for the effectsstrengthening of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companiesdollar, may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.


      To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, and earnings and our foreign currency risk related to recordfunctional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a provisional amountmaturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

      The fair values of our foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.

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

      For a detailed discussion of our accounting policies for our foreign currency forward contracts, see Note 2 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

      Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”) and Foreign Currency Forward Contracts Not Designated as Hedges

      Refer to Note 10 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding our Cash Flow Hedges and foreign currency forward contracts not designated as hedges.

      In the absence of hedging activities for the effectsyear ended December 31, 2020, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in a theoretical decline of our net income of approximately $191 million. This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. Tax Reform Act baseddollar; however, all foreign currency exchange rates do not always move in this manner and actual results may differ materially.

      Interest Rate Risk

      Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, as our outstanding debt is all at fixed rates. Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a reasonable estimate,portfolio consisting of cash, cash equivalents, or short-term securities is more subject to adjustment duringmarket fluctuations than a measurement periodportfolio of uplonger-term securities. Conversely, the fair value of such a portfolio is less sensitive to one year, until accounting is complete.

              We continue to analyze the prospective effectsmarket fluctuations than a portfolio of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as GILTI, BEAT,longer-term securities. At December 31, 2020, our $8.6 billion of cash and FDII, potential limitations on

      cash equivalents was comprised primarily of money market funds.


      54

      As of December 31, 2020, based on the composition of our investment portfolio and recent actions by central banks around the world, including the interest expense deductions, and changesrate cuts by the U.S. Federal Reserve, we anticipate investment yields may remain low, which would continue to negatively impact our future interest income. Such impact is not expected to be material to the provisionsCompany’s liquidity.

      Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
      Report of Independent Registered Public Accounting Firm
      F-1
      Consolidated Balance Sheets at December 31, 2020 and 2019
      F-3
      Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
      F-4
      Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019, and 2018
      F-5
      Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2020, 2019, and 2018
      F-6
      Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
      F-7
      Notes to Consolidated Financial Statements
      F-8
      Schedule II—Valuation and Qualifying Accounts at December 31, 2020, 2019, and 2018
      F-54

      Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto.

      Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

      Item 9A.    CONTROLS AND PROCEDURES

      Definition and Limitations of Section 162(m)Disclosure Controls and Procedures.

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

      55

      Evaluation of Disclosure Controls and Procedures.

      Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at December 31, 2020, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported on a timely basis, and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

      Management’s Report on Internal Revenue Code, among other provisionsControl Over Financial Reporting.

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the U.S. Tax Reform Act. effectiveness, as of December 31, 2020, of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

      The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.

      Changes in Internal Control Over Financial Reporting.

      Our management, with the participation of our principal executive officer and principal financial officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2020, there have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Additionally, we have not experienced any material impact to our internal control over financial reporting or our disclosure controls and procedures despite the fact that most of our employees are working remotely for their health and safety during the COVID-19 pandemic. We are continually monitoring and assessing the potential impact of COVID-19 on our internal controls to minimize the impact on their design and operating effectiveness.

      Item 9B.    OTHER INFORMATION

      None.

      PART III

      Item 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

      The information required by this Item, other than the information regarding executive officers, which is included in Item 1 of this report, is incorporated by reference to the sections of our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders entitled “Proposal 1—Election of Directors,” “Corporate Governance Matters—Board of Directors and Committees—Board Committees,” “Corporate Governance Matters—Code of Conduct,” and, if applicable, “Beneficial Ownership Matters—Delinquent Section 16(a) Reports” to be filed with the SEC.

      56

      Item 11.    EXECUTIVE COMPENSATION

      The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders entitled “Executive Compensation” and “Director Compensation” to be filed with the SEC.

      Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders entitled “Beneficial Ownership Matters” and “Equity Compensation Plan Information” to be filed with the SEC.

      Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

      The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders entitled “Corporate Governance Matters—Board of Directors and Committees” and “Certain Relationships and Related Person Transactions” to be filed with the SEC.

      Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders entitled “Audit-Related Matters” to be filed with the SEC.

      PART IV

      Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
      (a)1 
      Financial Statements See Item 8.—Consolidated Financial Statements and Supplementary Data for index to Financial Statements and Financial Statement Schedule on page 55 herein.
      2 
      Financial Statement Schedule The following financial statement schedule of Activision Blizzard for the years ended December 31, 2020, 2019, and 2018 is filed as part of this report on page F-54 and should be read in conjunction with the consolidated financial statements of Activision Blizzard:
      Schedule II—Valuation and Qualifying Accounts
      Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto.
      3 The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K.

      Item 16.    FORM 10-K SUMMARY

      None.

      57

      Report of Independent Registered Public Accounting Firm

      To the Board of Directors and Shareholders of Activision Blizzard, Inc.

      Opinions on the Financial Statements and Internal Control over Financial Reporting

      We have audited the accompanying consolidated balance sheets of Activision Blizzard, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company has electedas of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

      Changes in Accounting Principles

      As discussed in Note 2 to accountthe consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

      Basis for Opinions

      The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. Tax Reform Act provisions relatedfederal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

      We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to GILTIobtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

      Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as period costs ifwell as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and when incurred pursuanttesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

      F-1

      Definition and Limitations of Internal Control over Financial Reporting

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the FASB Staff Q&A guidance issued in January 2018.

      Fair Value Estimates

              Thereliability of financial reporting and the preparation of financial statements oftenfor external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Critical Audit Matters

      The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

      Revenue Recognition – Determination ofService Period for Online Functionality

      As described in Note 2 to the consolidated financial statements, a portion of the Company’s $8.1 billion of revenues for the year ended December 31, 2020, is recognized ratably over the estimated service period for the portion of the transaction price allocable to the online functionality, which is generally less than twelve months. When determining the estimated service period for players of the Company’s games, management considers a variety of data points including the weighted-average number of days between the players’ first and last days played online, the average total hours played, the average number of days in which the player activity stabilizes, and the weighted-average number of days between players’ first purchase date and last date played online. Management also considers known online trends, the service period of their previously released games, and the service period of their competitors’ games that are similar in nature, to the extent they are publicly available. Determining the estimated service period is subjective and requires management’s judgment.

      The principal considerations for our determination that performing procedures relating to revenue recognition - determination of the service period for the online functionality is a critical audit matter are the significant judgment by management when determining the service period, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate audit evidence relating to the data used in developing the service period assumption, such as the player data assessed by management for historical or comparable titles to determine the weighted-average number of days between players’ first purchase date and last date played online, as well as qualitative factors utilized by management, such as analysis of competitor information.

      Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the determination of the service period for the online functionality. These procedures also included, among others, (i) testing management’s process for determining the service period, (ii) testing management’s method of analyzing player data, (iii) testing the completeness and accuracy of underlying data used in the determination of the service period estimate, and (iv) evaluating the reasonableness of the service period by comparing it to similar or historical titles and competitor information.


      /s/ PricewaterhouseCoopers LLP

      Los Angeles, California
      February 23, 2021

      We have served as the Company’s auditor since 2008.
      F-2

      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      CONSOLIDATED BALANCE SHEETS
      (Amounts in millions, except share data)
      At December 31, 2020At December 31, 2019
      Assets
      Current assets:
      Cash and cash equivalents$8,647 $5,794 
      Accounts receivable, net of allowances of $83 and $132, at December 31, 2020 and December 31, 2019, respectively1,052 848 
      Software development352 322 
      Other current assets514 328 
      Total current assets10,565 7,292 
      Software development160 54 
      Property and equipment, net209 253 
      Deferred income taxes, net1,318 1,293 
      Other assets641 658 
      Intangible assets, net451 531 
      Goodwill9,765 9,764 
      Total assets$23,109 $19,845 
      Liabilities and Shareholders’ Equity
      Current liabilities:
      Accounts payable$295 $292 
      Deferred revenues1,689 1,375 
      Accrued expenses and other liabilities1,116 1,248 
      Total current liabilities3,100 2,915 
      Long-term debt, net3,605 2,675 
      Deferred income taxes, net418 505 
      Other liabilities949 945 
      Total liabilities8,072 7,040 
      Commitments and contingencies (Note 22)
      		00
      Shareholders’ equity:  
      Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,202,906,087 and 1,197,436,644 shares issued at December 31, 2020 and December 31, 2019, respectively0 0 
      Additional paid-in capital11,531 11,174 
      Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2020 and December 31, 2019(5,563)(5,563)
      Retained earnings9,691 7,813 
      Accumulated other comprehensive loss(622)(619)
      Total shareholders’ equity15,037 12,805 
      Total liabilities and shareholders’ equity$23,109 $19,845 

      The accompanying notes are an integral part of these Consolidated Financial Statements.
      F-3

      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF OPERATIONS
      (Amounts in millions, except per share data)
       For the Years Ended December 31,
       202020192018
      Net revenues   
      Product sales$2,350 $1,975 $2,255 
      In-game, subscription, and other revenues5,736 4,514 5,245 
      Total net revenues8,086 6,489 7,500 
      Costs and expenses   
      Cost of revenues—product sales:
      Product costs705 656 719 
      Software royalties, amortization, and intellectual property licenses269 240 371 
      Cost of revenues—in-game, subscription, and other:
      Game operations and distribution costs1,131 965 1,028 
      Software royalties, amortization, and intellectual property licenses155 233 399 
      Product development1,150 998 1,101 
      Sales and marketing1,064 926 1,062 
      General and administrative784 732 822 
      Restructuring and related costs94 132 10 
      Total costs and expenses5,352 4,882 5,512 
      Operating income2,734 1,607 1,988 
      Interest and other expense (income), net (Note 18)
      		87 (26)71 
      Loss on extinguishment of debt31 0 40 
      Income before income tax expense2,616 1,633 1,877 
      Income tax expense419 130 29 
      Net income$2,197 $1,503 $1,848 
      Earnings per common share   
      Basic$2.85 $1.96 $2.43 
      Diluted$2.82 $1.95 $2.40 
      Weighted-average number of shares outstanding   
      Basic771 767 762 
      Diluted778 771 771 

      The accompanying notes are an integral part of these Consolidated Financial Statements.
      F-4

      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
      (Amounts in millions)
       For the Years Ended December 31,
       202020192018
      Net income$2,197 $1,503 $1,848 
      Other comprehensive income (loss):   
      Foreign currency translation adjustments, net of tax35 5 (9)
      Unrealized gains (losses) on forward contracts designated as hedges, net of tax(36)(15)38 
      Unrealized gains (losses) on investments, net of tax(2)(8)5 
      Total other comprehensive income (loss)$(3)$(18)$34 
      Comprehensive income$2,194 $1,485 $1,882 

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

      F-5

      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
      For the Years Ended December 31, 2020, 2019, and 2018
      (Amounts and shares in millions, except per share data)
       Common StockTreasury StockAdditional
      Paid-In
      Capital      		Retained
      Earnings      		Accumulated
      Other
      Comprehensive
      Income (Loss)      		Total
      Shareholders’
      Equity
       SharesAmountSharesAmount
      Balance at December 31, 20171,186 $0 (429)$(5,563)$10,747 $4,916 $(638)$9,462 
      Cumulative impact from adoption of new revenue accounting standard— — — — — 88 3 91 
      Components of comprehensive income:        
      Net income— — — — — 1,848 — 1,848 
      Other comprehensive income (loss)— — — — — — 34 34 
      Issuance of common stock pursuant to employee stock options5 — — — 98 — — 98 
      Issuance of common stock pursuant to restricted stock units2 — — — — — — 0 
      Restricted stock surrendered for employees’ tax liability(1)— — — (93)— — (93)
      Share-based compensation expense related to employee stock options and restricted stock units— — — — 211 — — 211 
      Dividends ($0.34 per common share)— — — — — (259)— (259)
      Balance at December 31, 20181,192 $0 (429)$(5,563)$10,963 $6,593 $(601)$11,392 
      Components of comprehensive income:        
      Net income— — — — — 1,503 — 1,503 
      Other comprehensive income (loss)— — — — — — (18)(18)
      Issuance of common stock pursuant to employee stock options4 — — — 105 — — 105 
      Issuance of common stock pursuant to restricted stock units2 — — — — — — 0 
      Restricted stock surrendered for employees’ tax liability(1)— — — (58)— — (58)
      Share-based compensation expense related to employee stock options and restricted stock units— — — — 164 — — 164 
      Dividends ($0.37 per common share)— — — — — (283)— (283)
      Balance at December 31, 20191,197 $0 (429)$(5,563)$11,174 $7,813 $(619)$12,805 
      Cumulative impact from adoption of new credit loss standard— $— — $— $— $(3)$— (3)
      Components of comprehensive income:
      Net income— — — — — 2,197 — 2,197 
      Other comprehensive income (loss)— — — — — — (3)(3)
      Issuance of common stock pursuant to employee stock options5 — — — 171 — — 171 
      Issuance of common stock pursuant to restricted stock units1 — — — — — — 0 
      Restricted stock surrendered for employees’ tax liability— — — — (40)— — (40)
      Share-based compensation expense related to employee stock options and restricted stock units— — — — 226 — — 226 
      Dividends ($0.41 per common share)— — — — — (316)— (316)
      Balance at December 31, 20201,203 $0 (429)$(5,563)$11,531 $9,691 $(622)$15,037 
      The accompanying notes are an integral part of these Consolidated Financial Statements.
      F-6

      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CASH FLOWS
      (Amounts in millions)
       For the Years Ended December 31,
       202020192018
      Cash flows from operating activities:   
      Net income$2,197 $1,503 $1,848 
      Adjustments to reconcile net income to net cash provided by operating activities:   
      Deferred income taxes(94)(352)(35)
      Non-cash operating lease cost65 64 0 
      Depreciation and amortization197 328 509 
      Amortization of capitalized software development costs and intellectual property licenses (1)249 225 489 
      Share-based compensation expense (2)218 166 209 
      Other59 19 53 
      Changes in operating assets and liabilities:   
      Accounts receivable, net(194)182 (114)
      Software development and intellectual property licenses(378)(275)(372)
      Other assets(119)171 (56)
      Deferred revenues216 (154)(122)
      Accounts payable(10)31 (65)
      Accrued expenses and other liabilities(154)(77)(554)
      Net cash provided by operating activities2,252 1,831 1,790 
      Cash flows from investing activities:   
      Proceeds from maturities of available-for-sale investments121 153 116 
      Purchases of available-for-sale investments(221)(65)(209)
      Capital expenditures(78)(116)(131)
      Other investing activities0 6 (6)
      Net cash used in investing activities(178)(22)(230)
      Cash flows from financing activities:   
      Proceeds from issuance of common stock to employees170 105 99 
      Tax payment related to net share settlements on restricted stock units(39)(59)(94)
      Dividends paid(316)(283)(259)
      Proceeds from debt issuances, net of discounts1,994 0 0 
      Repayment of long-term debt(1,050)0 (1,740)
      Payment of financing costs(20)0 0 
      Premium payment for early redemption of note(28)0 (25)
      Other financing activities0 0 (1)
      Net cash provided by (used in) financing activities711 (237)(2,020)
      Effect of foreign exchange rate changes on cash and cash equivalents69 (3)(31)
      Net increase (decrease) in cash and cash equivalents and restricted cash2,854 1,569 (491)
      Cash and cash equivalents and restricted cash at beginning of period5,798 4,229 4,720 
      Cash and cash equivalents and restricted cash at end of period$8,652 $5,798 $4,229 
      Supplemental cash flow information:
      Cash paid for income taxes, net of refunds$806 $319 $560 
      Cash paid for interest82 86 150 
      (1)Excludes deferral and amortization of share-based compensation expense.
      (2)Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.

      The accompanying notes are an integral part of these Consolidated Financial Statements.
      F-7
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements


      1. Description of Business

      Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also operate esports leagues and offer digital advertising within some of our content. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

      Our Segments

      Based upon our organizational structure, we conduct our business through 3 reportable segments, each of which is a leading global developer and publisher of interactive entertainment content and services based primarily on our internally developed intellectual properties.

      (i) Activision Publishing, Inc.

      Activision Publishing, Inc. (“Activision”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product franchise is Call of Duty®, a first-person action franchise. Activision also includes the activities of the Call of Duty LeagueTM, a global professional esports league with city-based teams.

      (ii) Blizzard Entertainment, Inc.

      Blizzard Entertainment, Inc. (“Blizzard”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, subscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing franchise; Hearthstone®, an online collectible card franchise based in the Warcraft universe; Diablo®, an action role-playing franchise; and Overwatch®, a team-based first-person action franchise. Blizzard also includes the activities of the Overwatch LeagueTM, a global professional esports league with city-based teams.

      (iii) King Digital Entertainment

      King Digital Entertainment (“King”) delivers content primarily through free-to-play offerings and primarily generates revenue from in-game sales and in-game advertising on the mobile platform. King’s key product franchise is Candy Crush™, a “match three” franchise.
      Other

      We also engage in other businesses that do not represent reportable segments, including the Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

      F-8
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (Continued)

      2. Summary of Significant Accounting Policies

      Basis of Consolidation and Presentation

      The accompanying consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.

      Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.

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

      Cash and Cash Equivalents

      We consider all money market funds and highly liquid investments with original maturities of three months or less at the time of purchase to be “Cash and cash equivalents.”

      Investment Securities

      Investments in debt securities designated as available-for-sale are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Unrealized gains and losses on the Company’s available-for-sale debt securities are excluded from earnings and are reported as a component of “Other comprehensive income (loss).”

      Investments with original maturities greater than three months and remaining maturities of less than one year are classified within “Other current assets.” Investments with maturities beyond one year may be classified within “Other current assets” if they are highly liquid in nature and represent the investment of cash that is available for current operations.

      The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in “Interest and other expense (income), net” in our consolidated statements of operations.

      Investments in equity securities which are not accounted for under the equity method and for which there is not a readily determinable fair value are carried at cost, less impairment, and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer.

      Financial Instruments

      The carrying amounts of “Cash and cash equivalents,” “Accounts receivable, net of allowances,” “Accounts payable,” and “Accrued expenses and other liabilities” approximate fair value due to the short-term nature of these accounts. Our investments in U.S. treasuries, government agency securities, and corporate bonds, if any, are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.

      We transact business in various foreign currencies and have significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

      F-9
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      We assess the nature of these derivatives under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815 to determine whether such derivatives should be designated as hedging instruments. The fair values of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period. We report the fair value of a particular item to fairly presentthese contracts within “Other current assets,” “Accrued expense and other liabilities,” “Other assets,” or “Other liabilities,” as applicable, in our consolidated financial statements. Without an independent marketbalance sheets.

      We do not hold or another representative transaction, determiningpurchase foreign currency forward contracts for trading or speculative purposes.

      For foreign currency forward contracts which are not designated as hedging instruments under ASC 815, we record the fair value of a particular item requires us to make several assumptions that are inherently difficult to predict and can have a material impact on the conclusion of the appropriate accounting.

              There are various valuation techniques used to estimate fair value. These include: (1) the market approach, where market transactions for identical or comparable assets or liabilities are used to determine the fair value; (2) the income approach, which uses valuation techniques to convert future amounts (for example, future cash flows or future earnings) to a single present amount; and (3) the cost approach, which is based on the amount that would be required to replace an asset. For many of our fair value estimates, including our estimates of the fair value of acquired intangible assets, we use the income approach. Using the income approach requires the use of financial models, which require us to make various estimates including, but not limited to: (1) the potential future cash flows for the asset, liability or equity instrument being measured; (2) the timing of receipt or payment of those future cash flows; (3) the time value of money associated with the delayed receipt or payment of such cash flows; and (4) the inherent risk associated with the cash flows (that is, the risk premium). Determining these cash flow estimates is inherently difficult and subjective, and, if any of the estimates used to determine the fair value using the income approach turns out to be inaccurate, our financial results may be negatively impacted. Furthermore, relatively small changes in many of these estimates can have a significant impact on the estimated fair value resulting from the financial models or the related accounting conclusion reached. For example, a relatively small change in the estimated fair value of an asset may change a conclusion as to whether an asset is impaired. While we are required to make certain fair value assessments associatedthese derivatives within “General and administrative expenses” in our consolidated statements of operations, consistent with the accounting for several types of transactions, the following areas are the most sensitive to the assessments:

              Business Combinations.    Assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair value. Our assessmentnature of the estimated fair value of eachunderlying transactions.


      For foreign currency forward contracts which have been designated as cash flow hedges in accordance with ASC 815, we assess the effectiveness of these can have a material effectcash flow hedges at inception and on our reported results as intangible assetsan ongoing basis and determine if the hedges are amortized over various estimated useful lives. Furthermore, a changeeffective at providing offsetting changes in cash flows of the hedged items. The Company records the changes in the estimated fair value of an assetthese derivatives in “Accumulated other comprehensive loss” and subsequently reclassifies the related amount of accumulated other comprehensive income (loss) to earnings within “General and administrative” or liability often has a direct impact on“Net revenues” when the amount we recognize as goodwill, which is an asset that is not amortized. Often determininghedged item impacts earnings, consistent with the fair value of these assetsnature and liabilities assumed requires an assessmenttiming of the expected use of the asset, the expected cost to extinguish the liability or our expectations related to the timing and the successful completion of development of an acquired in-process technology. Such estimatesunderlying transactions. Cash flows from these foreign currency forward contracts are inherently difficult and subjective and can have a material impact on our financial statements.

              Assessment of Impairment of Definite-lived Intangible and Other Long-lived Assets.    We evaluate the recoverability of our identifiable amortizable intangible assets and other long-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances (referred to as a "triggering event") indicate a potential impairment exists. We consider certain events and circumstances in determining whether a triggering event has occurred that could indicate the carrying value of identifiable definite-lived intangible assets and other long-lived assets, may not be recoverable, including, but not limited to: (1) significant changes in performance relative to expected operating results; (2) significant changesclassified in the usesame category as the cash flows associated with the hedged item in the consolidated statements of the assets; (3) significant negative industry or economic trends; (4) a significant decline in our stock price for a


      Table of Contents

      sustained period of time;cash flows. We measure hedge ineffectiveness, if any, and (5) changes in our business strategy. Ifif it is determined that a triggering eventderivative has occurred,ceased to be a highly effective hedge, the Company will discontinue hedge accounting for the derivative.


      Concentration of Credit Risk

      Our concentration of credit risk relates to depositors holding the Company’s cash and cash equivalents and customers with significant accounts receivable balances.

      Our cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt instruments issued by governments and governmental organizations, financial institutions, and industrial companies.

      Our customer base includes first party digital storefronts, retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, and game specialty stores in the U.S. and other countries worldwide. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. We generally do not require collateral or other security from our customers.

      For the year ended December 31, 2020, Sony Interactive Entertainment, Inc. (“Sony”), Apple Inc. (“Apple”), Google Inc. (“Google”), and Microsoft Corporation (“Microsoft”) were our most significant customers with revenues of 17%, 15%, 14%, and 11%, respectively. For the years ended December 31, 2019 and 2018, Apple, Google, and Sony were our most significant customers with revenues of 17%, 13%, and 11%, respectively, for 2019, and 15%, 11%, and 13%, respectively, for 2018. No other customer accounted for 10% or more of our net revenues in those periods.

      We had two customers—Microsoft and Sony—who accounted for 28% and 21%, respectively, of consolidated gross receivables at December 31, 2020, and 11% and 18%, respectively, at December 31, 2019. No other customer accounted for 10% or more of our consolidated gross receivables in those periods.

      F-10
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Software Development Costs and Intellectual Property Licenses

      Software development costs include direct costs incurred for internally developed products, as well as payments made to independent software developers under development agreements. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Significant management judgments and estimates are applied in assessing when capitalization commences for software development costs and the evaluation is performed on a product-by-product basis. Prior to a product’s release, if and when we determinebelieve capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization, and intellectual property licenses.” Capitalized costs for products that are canceled or are expected to be abandoned are charged to “Product development” in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to “Product development.”

      Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—software royalties, amortization, and intellectual property licenses” based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years.

      Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products. Depending upon the agreement with the rights holder, we may obtain the right to use the intellectual property in multiple products or for a single product. Prior to a product’s release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization, and intellectual property licenses.” Capitalized intellectual property costs for products that are canceled or are expected to be abandoned are charged to “Product development” in the period of cancellation.

      Commencing upon a product’s release, capitalized intellectual property license costs are amortized to “Cost of revenues—software royalties, amortization, and intellectual property licenses” based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed property will be utilized. As intellectual property license contracts may extend for multiple years and can be used in multiple products to be released over a period beyond one year, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year.

      We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Additionally, criteria used to evaluate expected product performance may include, as appropriate: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based.

      Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment exists based on an estimatecharge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management’s expectations.

      F-11
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Assets Recognized from Costs to Obtain a Contract with a Customer

      We apply the practical expedient to expense, as incurred, costs to obtain a contract with a customer when the amortization period would have been one year or less for certain similar contracts in which commissions are paid to internal personnel or third parties. We believe application of the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If the undiscounted cash flows are lower than the carrying values of the related asset group, an impairment exists and the impairment loss is measured aspractical expedient has a limited effect on the amount by which the carrying amountand timing of the group's assets exceeds the fair value of the asset group. We did not record an impairment chargecost recognition. Total capitalized costs to any of our definite-lived intangible assetsobtain a contract were immaterial as of December 31, 2017, 2016,2020 and 2015.

              Assessment2019.


      Long-Lived Assets

      Property and Equipment.

      Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful life of Impairmentthe asset (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other equipment). When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.

      Goodwill and Indefinite-lived IntangibleOther Indefinite-Lived Assets.    We

      Goodwill is considered to have an indefinite life and is carried at cost. Acquired trade names are requiredassessed as indefinite lived assets if there are no foreseeable limits on the periods of time over which they are expected to test goodwillcontribute cash flows. Goodwill and other indefinite-lived intangible assets for impairment onare not amortized, but are subject to an annual basis and, if currentimpairment test, as well as between annual tests when events or circumstances require, on an interim basis. ASC Topic 350 provides companies an option toindicate that the carrying value may not be recoverable. We perform our annual impairment testing at December 31.

      Our annual goodwill impairment test is performed at the reporting unit level. As of December 31, 2020 and 2019, our reporting units were the same as our operating segments. We generally test goodwill for possible impairment first performby performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value before performingvalue. If a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative two-step approach to testing goodwill for impairment. We perform our impairment test for each reporting unit as part of our annual impairment test performed as of December 31. Our reporting units are determined based on the guidance within ASC Subtopic 350-20. The first step of theis performed. If a quantitative test measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit.

              Tois performed, we determine the fair values of the reporting units used in the first step, we use a discounted cash flow approach. Each step requires us to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates based on our weighted average cost of capital, and future economic and market conditions. These estimates and assumptions must be made for each reporting unit evaluated for impairment. Our estimates for market growth, our market share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying business. If future forecasts are revised, they may indicate or require future impairment charges. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

              In determining the fair value of our significantthe related reporting units—namely Activision, Blizzard,unit and King—we assumed discount rates ranging from 8.5%compare this value to 11.5% and terminal growth ratesthe recorded net assets of 0.0% to 4.0%, depending on the reporting unit, and its specific characteristics and risk profiles. Basedincluding goodwill. The fair value of our reporting units is determined using an income approach based on our quantitative evaluation, we determineddiscounted cash flow models. In the event the recorded net assets of the reporting unit exceed the estimated fair value of all ofsuch assets, an impairment charge is recorded for this amount under revised accounting guidance effective for the reporting units exceeded their carrying values as ofyear ended December 31, 2017. Changes in2020, and future periods. Refer to Note 3 for further discussion on the revised accounting guidance. Based on our assumptions underlying our estimatesannual impairment assessment, 0 impairments of fair value, which will be a function of our future financial performancegoodwill were identified for the years ended December 31, 2020, 2019, and changes in economic conditions, could result in future impairment charges

      2018.


      We test our acquired trade names for possible impairment by applying the same process as for goodwill. In the instance when a qualitative test is not performed or is inconclusive, a quantitative test is performed by using a discounted cash flow model to estimate fair value. Atvalue of our acquired trade names. Based on our annual impairment assessment, 0 impairments of our acquired trade names were identified for the years ended December 31, 20172020, 2019, and 2016, we concluded that no impairment had occurred and that no impairment was reasonably likely to occur. In determining the fair value of these trade names, we assumed a discount rate of 8.5%, and royalty saving rates of approximately 1.5%. 2018.

      Changes in our assumptions underlying our estimates of fair value, which will be a function of our future financial performance and changes in economic conditions, could result in future impairment charges.


      Amortizable Intangible and Other Long-lived Assets.

      Intangible assets subject to amortization are carried at cost less accumulated amortization, and amortized over the estimated useful life in proportion to the economic benefits received.

      F-12
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      We evaluate the recoverability of our definite-lived intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. We consider certain events and circumstances in determining whether the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in our stock price for a sustained period of time; and changes in our business strategy. If we determine that the carrying value may not be recoverable, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group to determine whether an impairment exists. If an impairment is indicated based on a comparison of the asset groups’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. We did 0t record an impairment charge to our definite-lived intangible assets for the years ended December 31, 2020, 2019, and 2018.

      Leases

      In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard replaced all current U.S. GAAP guidance on this topic. On January 1, 2019, we adopted the new lease accounting standard.

      We determine if an arrangement is or contains a lease at contract inception. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement provides us with an asset that is physically distinct, or that represents substantially all of the capacity of the asset, and if we have the right to direct the use of the asset. Lease assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. Included in the lease liability are future lease payments that are fixed, in-substance fixed, or are payments based on an index or rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. The operating lease right-of-use (“ROU”) asset also includes any lease payments made prior to the lease commencement date, initial direct costs incurred, and lease incentives received. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an approximation of the rate that would be charged to borrow funds to purchase the leased asset over a similar term, and is based on the information available at the commencement date of the lease. For leased assets with similar lease terms and asset types, we applied a portfolio approach in determining a single incremental borrowing rate for the leased assets.

      In determining our lease liability, the lease term includes options to extend the lease when it is reasonably certain that we will exercise such option. For operating leases, the lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Finance lease assets are depreciated on a straight-line basis over the estimated life of the asset, not to exceed the length of the lease, with interest expense associated with finance lease liabilities recorded using the effective interest method. Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term.

      We have lease agreements with lease and non-lease components. For our real estate, server and data center, and event production and broadcasting equipment leases, we elected the practical expedient to account for the lease and non-lease components as a single lease component. In all other lease arrangements, we account for lease and non-lease components separately. Additionally, for certain leases that have a group of leased assets with similar characteristics in size and composition, we may apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

      Operating lease ROU assets are presented in “Other assets” and operating lease liabilities are presented in “Accrued expenses and other current liabilities” and “Other liabilities” on our consolidated balance sheet.

      Finance lease ROU assets are presented in “Property and equipment, net” and finance lease liabilities are presented in “Accrued expenses and other current liabilities” and “Other liabilities” on our consolidated balance sheet.

      F-13
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Revenue Recognition

      In May 2014, the FASB issued new accounting guidance related to revenue recognition. On January 1, 2018, we adopted the new accounting standard and related amendments.

      We generate revenue primarily through the sale of our interactive entertainment content and services, principally for the console, PC, and mobile platforms, as well as through the licensing of our intellectual property. Our products span various genres, including first- and third-person action/adventure, role-playing, strategy, and “match three.” We primarily offer the following products and services:

      •premium full games, which typically provide access to main game content after purchase;

      •free-to-play offerings, which allows players to download the game and engage with the associated content for free;

      •in-game content for purchase to enhance gameplay (i.e. microtransactions and downloadable content) available within both our full-game and free-to-play offerings; and

      •subscriptions to players in our World of Warcraft franchise that provide ongoing access to the game content.

      When control of the promised products and services is transferred to our customers, we recognize revenue in the amount that reflects the consideration we expect to receive in exchange for these products and services.

      We determine revenue recognition by:

      •identifying the contract, or contracts, with a customer;

      •identifying the performance obligations in each contract;

      •determining the transaction price;

      •allocating the transaction price to the performance obligations in each contract; and

      •recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

      Certain products are sold to customers with a “street date” (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later of the street date and the date the product is sold to our customer. For digital full-game downloads sold to customers, we recognize revenue when it is available for download or is activated for gameplay. Revenues are recorded net of taxes assessed by governmental authorities that are imposed at the time of the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.

      Payment terms and conditions vary by contract type, although terms generally include a requirement of payment immediately upon purchase or within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.

      F-14
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Product Sales

      Product sales consist of sales of our games, including digital full-game downloads and physical products. We recognize revenues from the sale of our products after both (1) control of the products has been transferred to our customers and (2) the underlying performance obligations have been satisfied. Such revenues, which include our software products with significant online functionality and our online hosted software arrangements, are recognized in "Product sales" on our consolidated statement of operations.

      Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and price protection are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

      Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are considered adjustments of the transaction price of our products and are reflected as reductions to revenues. Sales incentives and other consideration that represent costs incurred by us for distinct goods or services received, such as the appearance of our products in a customer’s national circular advertisement, are recorded as “Sales and marketing” expense when the benefit from the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the good or service.

      Products with Online Functionality

      For our software products that include both offline functionality (i.e., do not require an Internet connection to access) and significant online functionality, such as for most of our titles from the Call of Duty franchise, we evaluate whether the license of our intellectual property and the online functionality each represent separate and distinct performance obligations. In such instances, we typically have two performance obligations: (1) a license to the game software that is accessible without an Internet connection (predominantly the offline single player campaign or game mode) and (2) ongoing activities associated with the online components of the game, such as content updates, hosting of online content and gameplay, and online matchmaking (the “online functionality”). The online functionality generally operates to support the additional features and functionalities of the game that are only available online, not the offline license. This evaluation is performed for each software product or product add-on, including downloadable content. When we determine that our software products contain a license of intellectual property (i.e., the offline software license) that is separate and distinct from the online functionality, we consider market conditions and other observable inputs to estimate the standalone selling price for the performance obligations, since we do not generally sell the software license on a standalone basis. These products may be sold in a bundle with other products and services, which often results in the recognition of additional performance obligations.

      For arrangements that include both a license to the game software that is accessible offline and separate online functionality, we recognize revenue when control of the license transfers to our customers for the portion of the transaction price allocable to the offline software license and ratably over the estimated service period for the portion of the transaction price allocable to the online functionality. Similarly, we defer a portion of the cost of revenues on these arrangements and recognize the costs as the related revenues are recognized. The cost of revenues that are deferred include product costs, distribution costs, and software royalties, amortization, and intellectual property licenses, and excludes intangible asset amortization.

      Online Hosted Software Arrangements

      For our online hosted software arrangements, such as titles for the Overwatch, World of Warcraft, and Candy Crush franchises, substantially all gameplay and functionality are obtained through our continuous hosting of the game content for the player. In these instances, we typically have a single performance obligation related to our ongoing activities in the hosted arrangement, including content updates, hosting of the gameplay, online matchmaking, and access to the game content. Similar to our software products with online functionality, these arrangements may include other products and services, which often results in the recognition of additional performance obligations. Revenues related to online hosted software arrangements are generally recognized ratably over the estimated service period.

      F-15
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      In-game, Subscription, and Other Revenues

      In-game Revenues

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

      Subscription Revenues

      Subscription revenue arrangements are mostly derived from World of Warcraft, which is only playable online and is generally sold on a subscription-only basis. Revenues associated with the sales of subscriptions are deferred until the subscription service is activated by the consumer and are then recognized ratably over the subscription period as the performance obligations are satisfied.

      Revenues attributable to the purchase of World of Warcraft software by our customers, including expansion packs, are classified as “Product sales,” whereas revenues attributable to subscriptions and other in-game revenues are classified as “In-game, subscription, and other revenues.”

      Other Revenues

      Other revenues primarily include revenues from software licensing and licensing of intellectual property other than software. These revenues are recognized in "In-game, subscription, and other revenues" on our consolidated statement of operations.

      In certain countries we have software licensing arrangements where we utilize third-party licensees to distribute and host our games in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3) ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee.

      Revenues from the licensing of intellectual property other than software primarily include the licensing of our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our media content are generally recognized when control has transferred to the customer, which may be upfront or over time.

      F-16
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Significant Judgment around Revenue Arrangements with Multiple Deliverables

      Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency with the online functionality. In these cases, significant judgment is required to determine whether this license of our intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with the online functionality provided and recognized over time. Generally, for titles in which the software license is functional without the online functionality and a significant component of gameplay is available offline, we believe we have separate performance obligations for the license of the intellectual property and the online functionality.

      Significant judgment is also required to determine the standalone selling price for each distinct performance obligation and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the various products and services. To estimate the standalone selling price we generally consider market data, including our pricing strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is available, and the replayability design of both the offline and online components of our games. In limited instances, we may also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.

      Estimated Service Period

      We consider a variety of data points when determining the estimated service period for players of our games, including the weighted average number of days between players’ first and last days played online, the average total hours played, the average number of days in which player activity stabilizes, and the weighted-average number of days between players’ first purchase date and last date played online. We also consider known online trends, the service periods of our previously released games, and, to the extent publicly available, the service periods of our competitors’ games that are similar in nature to ours. We believe this provides a reasonable depiction of the transfer of services to our customers, as it is the best representation of the time period during which our customers play our games. Determining the estimated service period is subjective and requires management’s judgment. Future usage patterns may differ from historical usage patterns, and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are less than 12 months.

      Principal Agent Considerations

      We evaluate sales of our products and content via third-party digital storefronts, such as Microsoft’s Xbox Games Store, Sony’s PSN, the Apple App Store, and the Google Play Store, to determine whether revenues should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining whether we are the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to:

      •which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

      •which party has discretion in establishing the price for the specified good or service.

      Based on our evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via the Apple App Store and the Google Play Store, and we report revenues on a net basis (i.e., net of fees retained by the digital storefront) for sales arrangements via Microsoft’s Xbox Games Store and Sony’s PSN.

      F-17
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Allowances for Returns and Price Protection

      We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive price protection credits include, among other things, compliance with applicable trading and payment terms and delivery of sell-through reports to us. We may also consider the facilitation of slow-moving inventory and other market factors.

      Management uses judgment in estimates made with respect to potential future product returns and price protection related to current period product revenues and when establishing the allowance for returns and price protection. We estimate the amount of future returns and price protection for current period product revenues utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end consumer, and record revenue for the transferred products in the amount of consideration to which we expect to be entitled.

      Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could vary from our allowance estimates and therefore impactthe amount and timing of our revenues for any period if conditions change or if matters resolve in a manner that is inconsistent with management’s assumptions utilized in determining the allowances.

      Contract Balances

      We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and record deferred revenue when cash payments are received or due in advance of our performance, even if amounts are refundable.

      The allowance for doubtful accounts reflects our best estimate of expected credit losses inherent in our accounts receivable balance. In estimating the allowance for doubtful accounts, we analyze the age of current outstanding account balances, historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in our customers’ payment terms and their economic condition, as well as whether we can obtain sufficient credit insurance. Any significant changes in any of these criteria would affect management’s estimates in establishing our allowance for doubtful accounts.

      Deferred revenue is comprised primarily of unearned revenue related to the sale of products with online functionality or online hosted arrangements. We typically invoice, and collect payment for, these sales at the beginning of the contract period and recognize revenue ratably over the estimated service period. Deferred revenue also includes payments for: product sales pending delivery or activation; subscription revenues; licensing revenues with fixed minimum guarantees; and other revenues for which we have been paid in advance and earn the revenue when we transfer control of the product or service.

      Refer to Note 11 for further information, including changes in deferred revenue during the period.

      Shipping and Handling

      Shipping and handling costs consist primarily of packaging and transportation charges incurred to move finished goods to customers. We recognize all shipping and handling costs as an expense in “Cost of revenues-product costs,” including those incurred when control of the product has already transferred to the customer.

      F-18
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)

      Cost of Revenues

      Our cost of revenues consist of the following:

      Cost of revenues—product sales:

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

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

      Cost of revenues—in-game, subscription, and other revenues:

      (1)    “Game operations and distribution costs”—includes costs to operate our games, such as customer service, Internet bandwidth and server costs, platform provider fees, and payment provider fees, along with costs to associated with our esports activities.

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

      Advertising Expenses

      We expense advertising as incurred, except for production costs associated with media advertising, which are deferred and charged to expense when the related advertisement is run for the first time. Advertising expenses for the years ended December 31, 2020, 2019, and 2018 were $746 million, $587 million, and $631 million, respectively, and are included in “Sales and marketing” in the consolidated statements of operations.

      Income Taxes

      We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of “more likely than not” that they will be realized in the future, a valuation allowance is recorded.

      We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in “Income tax expense.”

      The Tax Cuts and Jobs Act (the “U.S. Tax Reform Act”) reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and imposed a one-time tax on deemed repatriated earnings of foreign subsidiaries. Among other things, the U.S. Tax Reform Act also created a new minimum tax that applies to certain foreign earnings (“GILTI”). We have elected to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years.
      F-19
      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
      Notes to Consolidated Financial Statements (continued)


      Excess tax benefits and tax deficiencies from share-based payments are recorded as an income tax expense or benefit in the consolidated statement of operations. The tax effects of exercised or vested equity awards are treated as discrete items in the reporting period in which they occur.

      Foreign Currency Translation

      All assets and liabilities of our foreign subsidiaries who have a functional currency other than U.S. dollars are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at average exchange rates during the period. The resulting translation adjustments are reflected as a component of “Accumulated other comprehensive loss” in shareholders’ equity.

      Earnings (Loss) Per Common Share

      “Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options. However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

      Share-Based Payments


      We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50.718-10. Share-based compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and is based on the


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      value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.


      We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.


      We generally determine the fair value of restricted stock units based on the closing market price of the Company'sCompany’s common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stock units holder will not participate.period. Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-established performance or market conditions.conditions, including those that are market-based. For performance-based restricted stock units not subject to market conditions, each quarter we update our assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

              For a detailed discussion of the application of these and other accounting policies, see Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

      Recently Issued Accounting Pronouncements

              Below are the recently issued accounting pronouncements that were most significant to our accounting policy activities for fiscal 2017. For a detailed discussion of recently issued accounting pronouncements, see Note 21 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

      Recently adopted accounting pronouncements

      Inventory

              In July 2015, the Financial Accounting Standards Board ("FASB") issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new standard as of January 1, 2017, and applied it prospectively. The adoption of this guidance did not have a material impact on our financial statements.

      Recent accounting pronouncements not yet adopted

      Revenue recognition

              In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific


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      guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for us beginning with the first quarter of 2018. We are adopting the accounting standard using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date. We will report our adoption in our Form 10-Q for the first quarter of 2018.

              The most significant impacts of the new revenue recognition standard are expected to be:

        •
        The accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified future updates and ongoing online services provided.  Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise, where we expect that approximately 20% of the sales price will be recognized as revenue upon delivery of the games to our customers. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are online hosted arrangements, and we do not expect any significant impact on the accounting for our sales of these games; and

        •
        The accounting for certain of our software licensing arrangements.  While the impacts of the new standard may differ on a contract-by-contract basis (the actual revenue recognition treatment required under the standard will depend on contract-specific terms), we generally expect earlier revenue recognition for these arrangements under the new revenue standard.

              We estimate that the cumulative effect of adopting this standard will result in an adjustment to retained earnings at the adoption date of approximately $60 million to $100 million, inclusive of the associated tax impacts. Additionally, we expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting, and we are in process of adjusting our processes and internal controls in preparation for adopting the new standard.

      Leases

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


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      Statement of Cash Flows-Restricted Cash

              In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be included with "Cash and cash equivalents" when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted.

              We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there will be a significant impact to the consolidated statements of cash flows for 2016, as this period includes, as an investing activity, the $3.6 billion movement in restricted cash resulting from the transfer of cash into escrow at December 31, 2015, to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King Acquisition. Under this new standard, the restricted cash balance will be included in the beginning and ending total cash, cash equivalents, and restricted cash balances and, hence, would not be included as an investing activity in the statement of cash flows.

      Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

      Foreign Currency Exchange Rate Risk

              We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include Euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions will result in reduced revenues, operating expenses, net income, and cash flows from our international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in the United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.

              To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

              The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.

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

              For a detailed discussion of our accounting policies for our foreign currency forward contracts, see Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.


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      Foreign Currency Forward Contracts Designated as Hedges ("Cash Flow Hedges")

              At December 31, 2017, the gross notional amount of outstanding Cash Flow Hedges was approximately $521 million. The fair value of these contracts, all of which have remaining maturities of 12 months or less, was $5 million of net unrealized losses. Additionally, at December 31, 2017, we had approximately $10 million of net realized but unrecognized losses recorded within "Accumulated other comprehensive income (loss)" associated with contracts that had settled but were deferred and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.

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

              During the years ended December 31, 2017 and 2016, there was no ineffectiveness relating to our Cash Flow Hedges. During the years ended December 31, 2017 and 2016, the amount of pre-tax net realized gains associated with these contracts that were reclassified out of "Accumulated other comprehensive loss" and into earnings was not material.

              In the absence of hedging activities for the year ended December 31, 2017, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines of our net income of approximately $134 million. This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however, all foreign currency exchange rates do not always move in such manner and actual results may differ materially.

      Interest Rate Risk

              Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt under our credit agreement. We do not currently use derivative financial instruments to manage interest rate risk. As of December 31, 2017 and 2016, a hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would have changed interest expense on an annual basis by approximately $10 million and $27 million, respectively. This estimate does not include a change in interest income from our investment portfolio that may result from such a hypothetical interest rate change nor does it include the effects of other actions that we may take in the future to mitigate this risk or any changes in our financial structure. Refer to Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding terms and interest rates associated with our debt obligations.

              Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents, or short-term securities is more subject to market fluctuations than a portfolio of longer-term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At December 31, 2017, our $4.7 billion of cash and cash equivalents was comprised primarily of money market funds.

              The Company has determined that, based on the composition of our investment portfolio as of December 31, 2017, there was no material interest rate risk exposure to the Company's consolidated financial condition, results of operations, or liquidity as of that date.


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      Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


      Report of Independent Registered Public Accounting Firm

      		F-1

      Consolidated Balance Sheets at December 31, 2017 and 2016


      F-3

      Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015


      F-4

      Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015


      F-5

      Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2017, 2016, and 2015


      F-6

      Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015


      F-7

      Notes to Consolidated Financial Statements


      F-8

      Schedule II—Valuation and Qualifying Accounts at December 31, 2017, 2016, and 2015


      F-60

              Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto.

      Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

              None.

      Item 9A.    CONTROLS AND PROCEDURES

      Definition and Limitations of Disclosure Controls and Procedures.

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

      Evaluation of Disclosure Controls and Procedures.

              Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at December 31, 2017, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2017, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported on a timely basis, and (2) accumulated and communicated to our


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      management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

      Management's Report on Internal Control Over Financial Reporting.

              Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness, as of December 31, 2017, of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

              Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

              The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.

      Changes in Internal Control Over Financial Reporting.

              There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

      Item 9B.    OTHER INFORMATION

              None.


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      PART III

      Item 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

              The information required by this Item, other than the information regarding executive officers, which is included in Item 1 of this report, is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Proposal 1—Election of Directors," "Beneficial Ownership Matters—Section 16(a) Beneficial Ownership Reporting Compliance," "Corporate Governance Matters—Code of Conduct," and "Corporate Governance Matters—Board of Directors and Committees—Board Committees" to be filed with the SEC.

      Item 11.    EXECUTIVE COMPENSATION

              The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Executive Compensation" and "Proposal 2—Director Compensation" to be filed with the SEC.

      Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

              The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Equity Compensation Plan Information" and "Beneficial Ownership Matters" to be filed with the SEC.

      Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

              The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Certain Relationships and Related Transactions" and "Corporate Governance Matters—Board of Directors and Committees" to be filed with the SEC.

      Item 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

              The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Audit-Related Matters" to be filed with the SEC.


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      PART IV

      Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULE

      (a)1Financial Statements See Item 8.—Consolidated Financial Statements and Supplementary Data for index to Financial Statements and Financial Statement Schedule on page 81 herein.



      2

      Financial Statement Schedule The following financial statement schedule of Activision Blizzard for the years ended December 31, 2017, 2016, and 2015 is filed as part of this report on page F-60 and should be read in conjunction with the consolidated financial statements of Activision Blizzard:

      Schedule II—Valuation and Qualifying Accounts





      Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto.



      3

      The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K.

      Item 16.    FORM 10-K SUMMARY

              Not applicable.


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      Report of Independent Registered Public Accounting Firm

              To the Board of Directors and Shareholders of Activision Blizzard, Inc.:

      Opinions on the Financial Statements and Internal Control over Financial Reporting

              We have audited the accompanying consolidated balance sheets of Activision Blizzard, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2), (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

              In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

      Change in Accounting Principle

              As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for income taxes related to share-based payments in 2016.

      Basis for Opinions

              The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

              We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

              Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and


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      evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

      Definition and Limitations of Internal Control over Financial Reporting

              A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

              Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      /s/ PricewaterhouseCoopers LLP

      Los Angeles, California
      February 27, 2018

      We have served as the Company's auditor since 2008.


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      CONSOLIDATED BALANCE SHEETS

      (Amounts in millions, except share data)

       
      		 At December 31,
      2017      		 At December 31,
      2016      		 

      Assets

      		       

      Current assets:

      		       

      Cash and cash equivalents

      		 $4,713 $3,245 

      Accounts receivable, net of allowances of $279 and $261, at December 31, 2017 and December 31, 2016, respectively

      		  918  732 

      Inventories, net

      		  46  49 

      Software development

      		  367  412 

      Other current assets

      		  476  392 
      ​​​ ​ ​​ ​​

      Total current assets

      		  6,520  4,830 

      Software development

      		  86  54 

      Property and equipment, net

      		  294  258 

      Deferred income taxes, net

      		  459  283 

      Other assets

      		  440  401 

      Intangible assets, net

      		  1,106  1,858 

      Goodwill

      		  9,763  9,768 
      ​​​ ​​​ ​ ​

      Total assets

      		 $18,668 $17,452 
      ​​​ ​ ​​ ​​
      ​​​​​​​​
      ​​​ ​ ​​ ​ ​

      Liabilities and Shareholders' Equity

      		       

      Current liabilities:

      		       

      Accounts payable

      		 $323 $222 

      Deferred revenues

      		  1,929  1,628 

      Accrued expenses and other liabilities

      		  1,411  806 
      ​​​ ​​​ ​ ​

      Total current liabilities

      		  3,663  2,656 

      Long-term debt, net

      		  4,390  4,887 

      Deferred income taxes, net

      		  21  44 

      Other liabilities

      		  1,132  746 
      ​​​ ​ ​​ ​​

      Total liabilities

      		  9,206  8,333 
      ​​​ ​​​ ​ ​

      Commitments and contingencies (Note 19)

      		       

      Shareholders' equity:

      		  
             		  
             		 

      Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,186,181,666 and 1,174,163,069 shares issued at December 31, 2017 and December 31, 2016, respectively

      		  —  — 

      Additional paid-in capital

      		  10,747  10,442 

      Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2017 and December 31, 2016

      		  (5,563) (5,563)

      Retained earnings

      		  4,916  4,869 

      Accumulated other comprehensive loss

      		  (638) (629)
      ​​​ ​​​ ​ ​

      Total shareholders' equity

      		  9,462  9,119 
      ​​​ ​ ​​ ​​

      Total liabilities and shareholders' equity

      		 $18,668 $17,452 
      ​​​ ​​​ ​ ​
      ​​​​​​​​
      ​​​ ​ ​​​ ​

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


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF OPERATIONS

      (Amounts in millions, except per share data)

       
      		 For the Years Ended
      December 31,      		 
       
      		 2017 2016 2015 

      Net revenues

      		          

      Product sales

      		 $2,110 $2,196 $2,447 

      Subscription, licensing, and other revenues

      		  4,907  4,412  2,217 
      ​​​​ ​​ ​ ​​ ​ ​

      Total net revenues

      		  7,017  6,608  4,664 

      Costs and expenses

      		  
             		  
             		  
             		 

      Cost of revenues—product sales:

      		          

      Product costs

      		  733  741  872 

      Software royalties, amortization, and intellectual property licenses

      		  300  331  370 

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

      		          

      Game operations and distribution costs

      		  984  851  274 

      Software royalties, amortization, and intellectual property licenses

      		  484  471  69 

      Product development

      		  1,069  958  646 

      Sales and marketing

      		  1,378  1,210  734 

      General and administrative

      		  760  634  380 
      ​​​ ​ ​​ ​ ​​ ​ ​

      Total costs and expenses

      		  5,708  5,196  3,345 
      ​​​ ​ ​​ ​ ​​ ​ ​

      Operating income

      		  
      1,309      		  
      1,412      		  
      1,319      		 

      Interest and other expense (income), net

      		  
      146      		  
      214      		  
      198      		 

      Loss on extinguishment of debt

      		  12  92  — 
      ​​​ ​ ​​ ​​​ ​ ​

      Income before income tax expense

      		  
      1,151      		  
      1,106      		  
      1,121      		 

      Income tax expense

      		  
      878      		  
      140      		  
      229      		 
      ​​​ ​ ​​ ​​​ ​ ​

      Net income

      		 $273 $966 $892 
      ​​​ ​ ​​​ ​​ ​ ​
      ​​​​​​​​​​​
      ​​​​ ​​ ​ ​​ ​ ​

      Earnings per common share

      		  
             		  
             		  
             		 

      Basic

      		 $0.36 $1.30 $1.21 
      ​​​ ​ ​​ ​​​ ​ ​
      ​​​​​​​​​​​
      ​​​ ​ ​​ ​ ​​ ​ ​

      Diluted

      		 $0.36 $1.28 $1.19 
      ​​​ ​​​ ​ ​​ ​​
      ​​​​​​​​​​​
      ​​​​ ​​ ​ ​​ ​ ​

      Weighted-average number of shares outstanding

      		  
             		  
             		  
             		 

      Basic

      		  754  740  728 

      Diluted

      		  766  754  739 

      Dividends per common share

      		 
      $
      0.30      		 
      $
      0.26      		 
      $
      0.23      		 

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


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

      (Amounts in millions)

       
      		 For the Years Ended
      December 31,      		 
       
      		 2017 2016 2015 

      Net income

      		 $273 $966 $892 

      Other comprehensive income (loss):

      		  
             		  
             		  
             		 

      Foreign currency translation adjustments

      		  36  (29) (326)

      Unrealized gains (losses) on forward contracts designated as hedges, net of tax          

      		  (44) 33  (4)

      Unrealized gains (losses) on investments, net of tax

      		  (1) —  — 
      ​​​ ​ ​​ ​ ​​​ ​

      Total other comprehensive income (loss)

      		 $(9)$4 $(330)
      ​​​ ​ ​​​ ​​ ​ ​

      Comprehensive income

      		 $264 $970 $562 
      ​​​ ​ ​​ ​ ​​​ ​
      ​​​​​​​​​​​
      ​​​ ​​​ ​ ​​ ​ ​

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


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

      For the Years Ended December 31, 2017, 2016, and 2015

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

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

      Balance at December 31, 2014

      		  1,151 $—  (429)$(5,762)$9,924 $3,374 $(303)$7,233 

      Components of comprehensive income:

      		                         

      Net income

      		  —  —  —  —  —  892  —  892 

      Other comprehensive income (loss)

      		  —  —  —  —  —  —  (330) (330)

      Issuance of common stock pursuant to employee stock options

      		  8  —  —  —  106  —  —  106 

      Issuance of common stock pursuant to restricted stock units

      		  7  —  —  —  —  —  —  — 

      Restricted stock surrendered for employees' tax liability

      		  (3) —  —  —  (83) —  —  (83)

      Tax benefit associated with employee stock awards

      		  —  —  —  —  65  —  —  65 

      Share-based compensation expense related to employee stock options and restricted stock units

      		  —  —  —  —  95  —  —  95 

      Dividends ($0.23 per common share)

      		  —  —  —  —  —  (170) —  (170)

      Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 15)

      		  —  —  —  58  —  —  —  58 

      Shareholder settlement in connection with the Purchase Transaction (see Note 19)

      		  —  —  —  67  135  —  —  202 
      ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

      Balance at December 31, 2015

      		  1,163 $—  (429)$(5,637)$10,242 $4,096 $(633)$8,068 

      Components of comprehensive income:

      		                         

      Net income

      		  —  —  —  —  —  966  —  966 

      Other comprehensive income (loss)

      		  —  —  —  —  —  —  4  4 

      Issuance of common stock pursuant to employee stock options

      		  7  —  —  —  105  —  —  105 

      Issuance of common stock pursuant to restricted stock units

      		  7  —  —  —  —  —  —  — 

      Restricted stock surrendered for employees' tax liability

      		  (3) —  —  —  (116) —  —  (116)

      Share-based compensation expense related to employee stock options and restricted stock units

      		  —  —  —  —  135  —  —  135 

      Share-based compensation assumed in acquisition (see Note 20)

      		              76        76 

      Dividends ($0.26 per common share)

      		  —  —  —  —  —  (193) —  (193)

      Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 15)

      		  —  —  —  74  —  —  —  74 
      ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

      Balance at December 31, 2016

      		  1,174 $—  (429)$(5,563)$10,442 $4,869 $(629)$9,119 

      Components of comprehensive income:

      		                         

      Net income

      		  —  —  —  —  —  273  —  273 

      Other comprehensive income (loss)

      		  —  —  —  —  —  —  (9) (9)

      Issuance of common stock pursuant to employee stock options

      		  11  —  —  —  178  —  —  178 

      Issuance of common stock pursuant to restricted stock units

      		  2  —  —  —  —  —  —  — 

      Restricted stock surrendered for employees' tax liability

      		  (1) —  —  —  (54) —  —  (54)

      Share-based compensation expense related to employee stock options and restricted stock units

      		  —  —  —  —  181  —  —  181 

      Dividends ($0.30 per common share)

      		  —  —  —  —  —  (226) —  (226)
      ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​​

      Balance at December 31, 2017

      		  1,186 $—  (429)$(5,563)$10,747 $4,916 $(638)$9,462 
      ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
      ​​​​​​​​​​​​​​​​​​​​​​​​​​
      ​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

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


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CASH FLOWS

      (Amounts in millions)

       
      		 For the Years Ended
      December 31,      		 
       
      		 2017 2016 2015 

      Cash flows from operating activities:

      		          

      Net income

      		 $273 $966 $892 

      Adjustments to reconcile net income to net cash provided by operating activities:

      		          

      Deferred income taxes

      		  (181) (9) (27)

      Provision for inventories

      		  33  42  43 

      Depreciation and amortization

      		  888  829  95 

      Amortization of capitalized software development costs and intellectual property licenses(1)

      		  311  321  399 

      Premium payment for early redemption of note

      		  —  63  — 

      Amortization of debt discount, financing costs, and non-cash write-off due to extinguishment of debts

      		  24  50  7 

      Share-based compensation expense(2)

      		  176  147  92 

      Other

      		  28  4  — 

      Changes in operating assets and liabilities, net of effect from business acquisitions:

      		          

      Accounts receivable, net

      		  (165) 84  (40)

      Inventories

      		  (26) 32  (54)

      Software development and intellectual property licenses

      		  (301) (362) (350)

      Other assets

      		  (97) (10) 21 

      Deferred revenues

      		  220  (35) (27)

      Accounts payable

      		  85  (50) (25)

      Accrued expenses and other liabilities

      		  945  83  233 
      ​​​​ ​​ ​ ​​ ​​

      Net cash provided by operating activities

      		  2,213  2,155  1,259 
      ​​​ ​ ​​ ​ ​​ ​ ​

      Cash flows from investing activities:

      		          

      Proceeds from maturities of available-for-sale investments

      		  80  —  145 

      Purchases of available-for-sale investments

      		  (135) —  (145)

      Acquisition of business, net of cash acquired (see Note 20)

      		  —  (4,588) (46)

      Release (deposit) of cash in escrow

      		  —  3,561  (3,561)

      Capital expenditures

      		  (155) (136) (111)

      Other investing activities

      		  13  (14) 2 
      ​​​ ​​​ ​ ​​ ​​

      Net cash used in investing activities

      		  (197) (1,177) (3,716)
      ​​​ ​ ​​ ​ ​​ ​ ​

      Cash flows from financing activities:

      		          

      Proceeds from issuance of common stock to employees

      		  178  106  106 

      Tax payment related to net share settlements on restricted stock units

      		  (56) (115) (83)

      Dividends paid

      		  (226) (195) (170)

      Proceeds from debt issuances, net of discounts

      		  3,741  6,878  — 

      Repayment of long-term debt

      		  (4,251) (6,104) (250)

      Premium payment for early redemption of note

      		  —  (63) — 

      Proceeds received from shareholder settlement (see Note 19)

      		  —  —  202 

      Other financing activities

      		  (10) (7) (7)
      ​​​ ​​​ ​ ​​ ​​

      Net cash (used in) provided by financing activities

      		  (624) 500  (202)
      ​​​ ​ ​​ ​ ​​ ​ ​

      Effect of foreign exchange rate changes on cash and cash equivalents

      		  76  (56) (366)
      ​​​ ​ ​​​ ​​ ​ ​

      Net increase (decrease) in cash and cash equivalents

      		  1,468  1,422  (3,025)

      Cash and cash equivalents at beginning of period

      		  3,245  1,823  4,848 
      ​​​​ ​​ ​ ​​ ​​

      Cash and cash equivalents at end of period

      		 $4,713 $3,245 $1,823 
      ​​​ ​ ​​ ​​​ ​ ​
      ​​​​​​​​​​​
      ​​​​ ​​ ​ ​​ ​ ​
      (1)
      Excludes deferral and amortization of share-based compensation expense.

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

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


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      Notes to Consolidated Financial Statements

      1. Description of Business

              Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers ("PC"), and mobile devices. We also operate esports events and leagues and create film and television content based on our games. The terms "Activision Blizzard," the "Company," "we," "us," and "our" are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

              The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination by and among the Company (then known as Activision, Inc.), Vivendi S.A. ("Vivendi"), and Vivendi Games, Inc., an indirect wholly-owned subsidiary of Vivendi, we were renamed Activision Blizzard, Inc.

              The common stock of Activision Blizzard is traded on The Nasdaq Stock Market under the ticker symbol "ATVI."

      The King Acquisition

              On February 23, 2016 (the "King Closing Date"), we acquired King Digital Entertainment, a leading interactive mobile entertainment company ("King"), by purchasing all of its outstanding shares (the "King Acquisition"), as further described in Note 20. Our consolidated financial statements include the operations of King commencing on the King Closing Date.

      Our Segments

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

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

      (i) Activision Publishing, Inc.

              Activision Publishing, Inc. ("Activision") is a leading global developer and publisher of interactive software products and entertainment content, particularly for the console platform. Activision primarily delivers content through retail and digital channels, including full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties. We have also established a long-term alliance with Bungie to publish its game universe, Destiny.

              Activision's key product franchises include: Call of Duty®, a first-person shooter for the console and PC platforms, and Destiny, an online universe of first-person action gameplay (which we call a "shared-world shooter") for the console and PC platforms.


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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      Notes to Consolidated Financial Statements (Continued)

      1. Description of Business (Continued)

      (ii) Blizzard Entertainment, Inc.

              Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retail and digital channels, including subscriptions, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®, which facilitates digital distribution of Blizzard content, along with Activision'sDestiny 2 PC content, online social connectivity, and the creation of user-generated content. As noted above, Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.

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

      (iii) King Digital Entertainment

              King Digital Entertainment ("King") is a leading global developer and publisher of interactive entertainment content and services, particularly on mobile platforms, such as Google Inc.'s ("Google") Android and Apple Inc.'s ("Apple") iOS. King also distributes its content and services on the PC platform, primarily via Facebook, Inc. ("Facebook"). King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency.

              King's key product franchises, all of which are for the mobile and PC platforms, include: Candy Crush™, which features "match three" games; Farm Heroes™, which also features "match three" games; and Bubble Witch™, which features "bubble shooter" games.

      Other

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

        •
        the Activision Blizzard Studios ("Studios") business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV seriesSkylanders™Academy on Netflix; and

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

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      ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

      Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies

        Basis of Consolidation and Presentation

                The accompanying consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.

                Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.

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

        Cash and Cash Equivalents

                We consider all money market funds and highly liquid investments with original maturities of three months or less at the time of purchase to be "Cash and cash equivalents."

        Investment Securities

                Investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Unrealized gains and losses of the Company's available-for-sale securities are excluded from earnings and are reported as a component of "Other comprehensive income (loss)."

                Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified within "Other current assets." In addition, investments with maturities beyond one year may be classified within "Other current assets" if they are highly liquid in nature and represent the investment of cash that is available for current operations.

                The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in "Interest and other expense (income), net" in our consolidated statements of operations.

        Cash in Escrow

                As part of the King Acquisition, we were required to deposit $3.56 billion in cash to be held in an escrow account until the earlier of (1) the completion of the King Acquisition, or (2) the termination of the transaction agreement. The cash was not accessible to the Company for operating cash needs as its use had been administratively restricted for use in the consummation of the King Acquisition.

        Financial Instruments

                The carrying amounts of "Cash and cash equivalents," "Accounts receivable, net of allowances," "Accounts payable," and "Accrued expenses and other liabilities" approximate fair value due to the


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        short-term nature of these accounts. Our investments in U.S. treasuries, government agency securities, and corporate bonds, if any, are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.

                The Company transacts business in various foreign currencies and has significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

                We assess the nature of these derivatives under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 815 to determine whether such derivatives should be designated as hedging instruments. The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period. We report the fair value of these contracts within "Other current assets," "Accrued expense and other liabilities," "Other assets," or "Other liabilities," as applicable, in our consolidated balance sheets based on the prevailing exchange rates of the various hedged currencies as of the end of the relevant period.

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

                For foreign currency forward contracts which are not designated as hedging instruments under ASC 815, changes in the estimated fair value of these derivatives are recorded within "General and administrative expenses" and "Interest and other expense, net" in our consolidated statements of operations, consistent with the nature of the underlying transactions.

                For foreign currency forward contracts which have been designated as cash flow hedges in accordance with ASC 815, we assess the effectiveness of these cash flow hedges at inception and on an ongoing basis and determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. The Company records the effective portion of changes in the estimated fair value of these derivatives in "Accumulated other comprehensive loss" and subsequently reclassifies the related amount of accumulated other comprehensive income (loss) to earnings within "General and administrative" or "Net revenues" when the hedged item impacts earnings, consistent with the nature and timing of the underlying transactions. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, the Company will discontinue hedge accounting for the derivative.

        Concentration of Credit Risk

                Our concentration of credit risk relates to depositors holding the Company's cash and cash equivalents and customers with significant accounts receivable balances.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

                Our cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt instruments issued by governments and governmental organizations, financial institutions and industrial companies.

                Our customer base includes retailers and distributors, including mass-market retailers, first party digital storefronts, consumer electronics stores, discount warehouses, and game specialty stores in the U.S. and other countries worldwide. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. We generally do not require collateral or other security from our customers.

                For the year ended December 31, 2017, we had three customers—Apple, Sony Interactive Entertainment, Inc. ("Sony"), and Google—who accounted for 16%, 14%, and 10%, respectively, of net revenues. For the year ended December 31, 2016, we had two customers—Sony and Apple—who each accounted for 13% of net revenues. For the year ended December 31, 2015, we had two customers—Sony and Microsoft Corporation ("Microsoft")—who accounted for 12% and 10%, respectively, of net revenues.

                We had three customers—Sony, Microsoft, and Apple—who accounted for 17%, 14%, and 10%, respectively, of consolidated gross receivables at December 31, 2017. We had three customers—Sony, Microsoft, and Wal-Mart Stores, Inc.—who accounted for 17%, 10%, and 10%, respectively, of consolidated gross receivables at December 31, 2016.

        Software Development Costs and Intellectual Property Licenses

                Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized costs for products that are canceled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to "Product development."

                Commencing upon a product's release, capitalized software development costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years.

                Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products. Depending upon the agreement with the rights


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        holder, we may obtain the right to use the intellectual property in multiple products over a number of years, or alternatively, for a single product. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized intellectual property costs for products that are canceled or are expected to be abandoned are charged to "Product development" in the period of cancellation.

                Commencing upon a product's release, capitalized intellectual property license costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed property will be utilized. As intellectual property license contracts may extend for multiple years and can be used in multiple products to be released over a period beyond one year, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year.

                We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based. Further, as many of our capitalized intellectual property licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized intellectual property license costs based on certain qualitative factors, such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical releases or television series based on the intellectual property, and the rights holder's continued promotion and exploitation of the intellectual property.

                Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management's expectations.

        Inventories

                Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and freight-in and are stated at the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a weighted-average cost method.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        Allowance for Inventory Obsolescence

                We regularly review inventory quantities on-hand and in the retail channels. We write down inventory based on excess or obsolete inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and net realizable value, based upon assumptions about future demand, which are inherently difficult to assess and dependent on market conditions. At the point of a loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established basis.

        Long-Lived Assets

                Property and Equipment.    Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful life (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other equipment) of the asset. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.

                Goodwill and Other Indefinite-Lived Assets.    We account for goodwill in accordance with ASC Topic 350. Under ASC Topic 350, goodwill is considered to have an indefinite life, and is carried at cost. Acquired trade names are assessed as indefinite lived assets if there is no foreseeable limits on the periods of time over which they are expected to contribute cash flows. Goodwill and indefinite-lived assets are not amortized, but are subject to an annual impairment test, as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable. We perform our annual impairment testing at December 31.

                Our annual goodwill impairment test is performed at the reporting unit level. We have determined our reporting units based on the guidance within ASC Subtopic 350-20. As of December 31, 2017 and 2016, our reporting units are the same as our operating segments. We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including goodwill. The fair value of our reporting units is determined using an income approach based on discounted cash flow models. In the event the recorded net assets of the reporting unit exceed the estimated fair value of such assets, we perform a second step to measure the amount of the impairment, which is equal to the amount by which the recorded goodwill exceeds the implied fair value of the goodwill after assessing the fair value of each of the assets and liabilities within the reporting unit. We have determined that no impairment has occurred at December 31, 2017, 2016 and 2015 based upon a set of assumptions regarding discounted future cash flows, which represent our best estimate of future performance at this time.

                We test indefinite-lived acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. We have determined that no impairment has occurred at December 31, 2017, 2016 and 2015 based upon a set of assumptions regarding discounted future cash flows, which represent our best estimate of future performance at this time.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

                Changes in our assumptions underlying our estimates of fair value, which will be a function of our future financial performance and changes in economic conditions, could result in future impairment charges.

                Amortizable Intangible and Other Long-lived Assets.    Intangible assets subject to amortization are carried at cost less accumulated amortization, and amortized over the estimated useful life in proportion to the economic benefits received.

                We evaluate the recoverability of our definite-lived intangible assets and other long-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. We considered certain events and circumstances in determining whether the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in our stock price for a sustained period of time; and changes in our business strategy. If we determine that the carrying value may not be recoverable, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group to determine whether an impairment exists. If an impairment is indicated based on a comparison of the asset groups' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. We did not record an impairment charge to our definite-lived intangible assets as of December 31, 2017, 2016, and 2015.

        Revenue Recognition

                We recognize revenues when there is persuasive evidence of an arrangement, the product or service has been provided to the customer, the collection of our fees is reasonably assured and the amount of fees to be paid by the customer is fixed or determinable. Certain products are sold to customers with a "street date" (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later of the street date or the date the product is sold to the customer. Revenues are recorded net of taxes assessed by governmental authorities that are both imposed on and concurrent with the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.

          Revenue Arrangements with Multiple Deliverables

                Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with ASC Topic 605. These revenue arrangements include product sales consisting of both software, service (such as ongoing hosting arrangements), and hardware deliverables (such as peripherals or other ancillary collectors' items sold together with physical "boxed" software).

                When a revenue arrangement contains multiple elements, such as hardware and software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") if it is available, third-party evidence ("TPE") if VSOE is not available, or best estimated selling price ("BESP") if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as a group using


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue.

                As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue arrangements that required using BESP for the years ended December 31, 2017, 2016, and 2015. The inputs we use to determine the selling price of our significant deliverables include the actual price charged by the Company for deliverables that the Company sells separately (which represents VSOE) and the wholesale prices of the same or similar products for deliverables not sold separately (which represents TPE).

          Product Sales

                Product sales consist of sales of our games, including physical products and digital full-game downloads. We recognize revenues from the sale of our products after both (1) title and risk of loss have been transferred to our customers and (2) all performance obligations have been completed. With respect to digital full-game downloads, this is when the product is available for download or is activated for gameplay. Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection. Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are considered adjustments of the selling price of our products and are reflected as reductions to revenues. Sales incentives and other consideration that represent costs incurred by us for assets or services received, such as the appearance of our products in a customer's national circular ad, are reflected as sales and marketing expenses when the benefit from the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the benefit.

          Products with Online Functionality or Online Hosted Arrangements

                For our software products with online functionality or that are part of an online hosted arrangement, we evaluate whether that online functionality constitutes a more-than-inconsequential separate deliverable in addition to the software product. This evaluation is performed for each software product or product add-on (including downloadable content), when it is released. Determining whether the online functionality for a particular product constitutes a more-than-inconsequential deliverable is subjective and requires management's judgment. When we determine that the online functionality constitutes a more-than-inconsequential separate service deliverable in addition to the product, which is principally because of the online functionality's importance to gameplay, we consider our performance obligation for this title to extend beyond the sale of the game. In addition, VSOE of fair value does not exist for the online functionality of some products, as we do not separately charge for this component. As a result, we initially defer all of the software-related revenues from the sale of any such title (including downloadable content) and recognize the revenues ratably over the estimated service period. In addition, we initially defer the cost of revenues for the title and recognize the costs of sales as the related revenues are recognized. The cost of revenues that are initially deferred include product and distribution costs, software royalties and amortization, and intellectual property licenses and exclude intangible asset amortization.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

                For our software products with online functionality that we consider to be incidental to the overall product offering and are inconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met.

                For ourWorld of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with the related subscription service revenues ratably over the estimated service period, beginning upon the activation of the software and delivery of the related services. Revenues attributed to the sale ofWorld of Warcraft boxed software and related expansion packs are classified as "Product sales," whereas revenues attributable to subscriptions and other value-added services are classified as "Subscription, licensing, and other revenues."

          Subscription Revenues

                Subscription revenues are mostly derived fromWorld of Warcraft.World of Warcraft is a game that is playable through Blizzard's servers and is generally sold on a subscription-only basis.

                ForWorld of Warcraft, after the first month of free usage that is included with theWorld of Warcraft boxed software, theWorld of Warcraft end user may enter into a subscription agreement for additional future access. Revenues associated with the sales of subscriptions via boxed software and prepaid subscription cards, as well as prepaid subscriptions sales, are deferred until the subscription service is activated by the consumer and are then recognized ratably over the subscription period. Value-added service revenues associated with subscriptions are recognized ratably over the estimated service periods.

          Licensing Revenues

                In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license agreements, for which the licensees pay the Company a royalty. We recognize these royalties as revenues based on usage by the end user and over the estimated service period when we have continuing service obligations. We recognize any upfront licensing fees received over the term of the agreements.

                With respect to license agreements that provide customers the right to make multiple copies in exchange for guaranteed amounts, revenues are generally recognized upon delivery of a master copy if all other performance obligations have been completed or over the estimated service period when we have continuing service obligations. Per copy royalties on sales that exceed the guarantee are recognized as earned. In addition, persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.

          Other Revenues

                Other revenues primarily include revenues from digital downloadable content (e.g., multi-player content packs), microtransactions and the licensing of intellectual property other than software to third-parties.

                Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with the virtual currency. Proceeds from the


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        sales of virtual goods directly are also recognized as revenues when a player uses the virtual goods. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player, which is generally the estimated service period.

                Revenues from the licensing of intellectual property other than software to third-parties are recorded upon the receipt of licensee statements, or upon the receipt of cash, provided the license period has begun and all performance obligations have been completed.

          Estimated Service Period

                We determine the estimated service period for players of our games with consideration of various data points, including the weighted average number of days between players' first and last days played online, the average total hours played, the average number of days in which player activity stabilizes, and the weighted-average number of days between players' first purchase date and last date played online. We also consider known online trends, the service periods of our previously released games, and the service periods of our competitors' games that are similar in nature to ours, to the extent they are publicly available. Determining the estimated service period is subjective and requires management's judgment. Future usage patterns may differ from historical usage patterns and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are generally less than 12 months.

          Principal Agent Considerations

                We evaluate sales of our products and content via third party digital storefronts, such as Microsoft's Xbox Games Store, Sony's PSN, the Apple App Store, and the Google Play Store, to determine whether revenues should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following:

          •
          the party responsible for delivery/fulfillment of the product or service to the consumer;

          •
          the party responsible for consumer billing, fee collection, and refunds;

          •
          the storefront and terms of sale that govern the consumer's purchase of the product or service; and

          •
          the party that sets the pricing with the consumer and has credit risk.

                Based on evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via Apple App Store and Google Play Store, and we report revenues on a net basis (i.e. net of fees retained by the storefront) for sales arrangements via Microsoft's Xbox Games Store and Sony PSN.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        Allowances for Returns, Price Protection, and Doubtful Accounts

                We closely monitor and analyze the historical performance of our various titles, the performance of products released by other publishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles. Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We benchmark units to be shipped to our customers using historical and industry data.

                We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive price protection credits include, among other things, compliance with applicable trading and payment terms and consistent return of inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-through performance targets in certain instances, the facilitation of slow-moving inventory, and other market factors.

                Significant management judgments and estimates with respect to potential future product returns and price protection related to current period product revenues must be made and used when establishing the allowance for returns and price protection in any accounting period. We estimate the amount of future returns and price protection for current period product revenues utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historical performance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise; console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-hand retail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title's recent sell-through history (if available); marketing trade programs; and the performance of competing titles. The relative importance of these factors varies among titles depending upon, among other things, genre, platform, seasonality, and sales strategy.

                Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of a title, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of new hardware platforms. There may be material differences in the amount and timing of our revenues for any period if factors or market conditions change or if matters resolve in a manner that is inconsistent with management's assumptions utilized in determining the allowances for returns and price protection.

                Similarly, management must make estimates as to the collectability of our accounts receivable. In estimating the allowance for doubtful accounts, we analyze the age of current outstanding account balances, historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in our customers' payment terms and their economic condition, as well as whether


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        we can obtain sufficient credit insurance. Any significant changes in any of these criteria would affect management's estimates in establishing our allowance for doubtful accounts.

        Shipping and Handling

                Shipping and handling costs, which consist primarily of packaging and transportation charges incurred to move finished goods to customers, are included in "Cost of revenues—product costs."

        Cost of Revenues

                Our cost of revenues consist of the following:

        Cost of revenues—product sales:

          (1)
          "Product costs"—includes the manufacturing costs of goods produced and sold. These generally include product costs, manufacturing royalties, net of volume discounts, personnel-related costs, warehousing, and distribution costs. We generally recognize volume discounts when they are earned (typically in connection with the achievement of unit-based milestones).

          (2)
          "Software royalties, amortization, and intellectual property licenses"—includes the amortization of capitalized software costs and royalties attributable to product sales revenues. These are costs capitalized on the balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also included is amortization of intangible assets recognized in purchase accounting attributable to product sales revenues.

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

          (1)
          "Game operations and distribution costs"—includes costs to operate our games, such as customer service, internet bandwidth and server costs, platform provider fee, and payment provider fees.

          (2)
          "Software royalties, amortization, and intellectual property licenses"—includes the amortization of capitalized software costs and royalties attributable to subscription, licensing and other revenues. These are costs capitalized on the balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also included is amortization of intangible assets recognized in purchase accounting attributable to subscription, licensing and other revenues.

        Advertising Expenses

                We expense advertising as incurred, except for production costs associated with media advertising, which are deferred and charged to expense when the related advertisement is run for the first time. Advertising expenses for the years ended December 31, 2017, 2016, and 2015 were $708 million, $641 million, and $523 million, respectively, and are included in "Sales and marketing" in the consolidated statements of operations.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        Income Taxes

                We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of "more likely than not" that they will be realized in the future, a valuation allowance is recorded.

                We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in "Income tax expense."

                On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act") was enacted in the United States. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax").

                On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement period of up to one year, until accounting is complete.

                We continue to analyze the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as global intangible low-taxed income ("GILTI") of foreign subsidiaries, base erosion anti-abuse tax ("BEAT"), and foreign-derived intangible income ("FDII"), potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act. The Company has elected to account for the U.S. Tax Reform Act provisions related to GILTI as period costs if and when incurred pursuant to the FASB Staff Q&A guidance issued in January 2018.

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

          •
          requires that all excess tax benefits and tax deficiencies be recorded as an income tax expense or benefit in the consolidated statement of operations and that the tax effects of exercised or vested awards be treated as discrete items in the reporting period in which they occur;

          •
          requires excess tax benefits from share-based payments to be reported as operating activities on the statement of cash flows; and

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

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

                We elected to early adopt this new standard in the third quarter of 2016, which required us to reflect any adjustments as of January 1, 2016. As part of the adoption, we made certain elections, including the following:

          •
          to apply the presentation requirements for our consolidated statement of cash flows related to excess tax benefits retrospectively to all periods presented; and

          •
          to continue to estimate the number of awards that are expected to vest using an estimated forfeiture rate.

                As a result of the adoption, we recognized excess tax benefits of $113 million and $81 million as a reduction to income tax expense in our consolidated statement of operations for the years ended December 31, 2017 and 2016, respectively. For periods prior to 2016, such excess tax benefits were recorded to shareholders equity.

        Foreign Currency Translation

                All assets and liabilities of our foreign subsidiaries who have a functional currency other than U.S. dollars are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at average exchange rates during the period. The resulting translation adjustments are reflected as a component of "Accumulated other comprehensive loss" in shareholders' equity.

        Earnings (Loss) Per Common Share

                "Basic (loss) earnings per common share" is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the periods presented. "Diluted earnings (loss) per common share" is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options. However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

                When we determine whether instruments granted in share-based payment transactions are participating securities, unvested share-based awards which include the right to receive non-forfeitable dividends or dividend equivalents are considered to participate with common stock in undistributed earnings. With participating securities, we are required to calculate basic and diluted earnings (loss) per common share amounts under the two-class method. The two-class method excludes from the earnings (loss) per common share calculation any dividends paid or owed to participating securities and any undistributed earnings considered to be attributable to participating securities.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        2. Summary of Significant Accounting Policies (Continued)

        Share-Based Payments

                We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50. Share-based compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

                We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

                We generally determine the fair value of restricted stock units based on the closing market price of the Company's common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stock units holder will not participate. Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-established performance or market conditions. For performance-based restricted stock units, each quarter we update our assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

        For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already rendered.


        F-20
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Loss Contingencies


        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.



        3. Recently Issued Accounting Pronouncements

        Recently adopted accounting pronouncements

        Cloud Computing Arrangements

        In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs associated with the arrangement. We adopted the new standard under a prospective approach during the first quarter of 2020 and it did not have a material impact on our consolidated financial statements.

        Goodwill

        In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1) comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We adopted the new standard under a prospective approach during the first quarter of 2020 and it did not have a material impact on our consolidated financial statements.

        Financial Instruments - Credit Losses

        In June 2016, the FASB issued new guidance related to accounting for credit losses on financial instruments. The update replaces the existing incurred loss impairment model with a methodology that reflects a current expected credit losses model which requires the use of historical and forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will generally result in earlier recognition of credit losses. We adopted the new standard under a modified retrospective basis, with the cumulative effect of adoption recorded as an adjustment to retained earnings during the first quarter of 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.
        F-21
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        3.(continued)


        Recent Accounting Pronouncements Not Yet Adopted

        Simplifying the Accounting for Income Taxes

        In December 2019, the FASB issued new guidance which is intended to simplify various aspects to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for recognizing deferred taxes for investments, performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends certain areas of existing guidance to reduce complexity and improve consistency in the application of Topic 740. The new standard is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Generally the topics must be applied prospectively upon adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective basis. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

        4. Cash and Cash Equivalents


        The following table summarizes the components of our cash and cash equivalents (amounts in millions):

         At December 31,
         20202019
        Cash$268 $437 
        Foreign government treasury bills34 37 
        Money market funds8,345 5,320 
        Cash and cash equivalents$8,647 $5,794 

         
        		 At December 31, 
         
        		 2017 2016 

        Cash

        		 $269 $286 

        Foreign government treasury bills

        		  39  38 

        Money market funds

        		  4,405  2,921 
        ​​​ ​ ​​​ ​

        Cash and cash equivalents

        		 $4,713 $3,245 
        ​​​ ​ ​​ ​ ​
        ​​​​​​​​
        ​​​ ​ ​​ ​ ​

        4. Inventories, Net

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

         
        		 At
        December 31,        		 
         
        		 2017 2016 

        Finished goods

        		 $45 $40 

        Purchased parts and components

        		  1  9 
        ​​​ ​ ​​ ​ ​

        Inventories, net

        		 $46 $49 
        ​​​ ​ ​​ ​ ​
        ​​​​​​​​
        ​​​ ​ ​​ ​ ​

                At December 31, 2017 and 2016, inventory reserves were $36 million and $45 million, respectively.

        5. Software Development and Intellectual Property Licenses


        The following table summarizes the components of our capitalized software development costs (amounts in millions):

        At December 31,
         20202019
        Internally-developed software costs$485 $345 
        Payments made to third-party software developers27 31 
        Total software development costs$512 $376 
         
        		 At
        December 31,        		 
         
        		 2017 2016 

        Internally-developed software costs

        		 $270 $277 

        Payments made to third-party software developers

        		  183  189 
        ​​​ ​ ​​ ​ ​

        Total software development costs

        		 $453 $466 
        ​​​ ​ ​​​ ​
        ​​​​​​​​
        ​​​ ​ ​​ ​ ​

        As of both December 31, 20172020 and December 31, 2016,2019, capitalized intellectual property licenses were not material.


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

         For the Years Ended December 31,
         202020192018
        Amortization of capitalized software development costs and intellectual property licenses$263 $241 $501 

        F-22
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Amortization of capitalized software development costs and intellectual property licenses

        		 $314 $335 $410 

                Write-offs and impairments of capitalized software development costs and intellectual property licenses were not material for the years ended December 31, 2017, 2016, and 2015.



        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        6. Property and Equipment, Net


        Property and equipment, net was comprised of the following (amounts in millions):

         At December 31,
         20202019
        Land$1 $1 
        Buildings4 4 
        Leasehold improvements246 252 
        Computer equipment704 654 
        Office furniture and other equipment95 91 
        Total cost of property and equipment1,050 1,002 
        Less accumulated depreciation(841)(749)
        Property and equipment, net$209 $253 
         
        		 At December 31, 
         
        		 2017 2016 

        Land

        		 $1 $1 

        Buildings

        		  4  4 

        Leasehold improvements

        		  224  162 

        Computer equipment

        		  658  560 

        Office furniture and other equipment

        		  92  78 
        ​​​ ​ ​​ ​​

        Total cost of property and equipment

        		  979  805 

        Less accumulated depreciation

        		  (685) (547)
        ​​​ ​ ​​ ​ ​

        Property and equipment, net

        		 $294 $258 
        ​​​ ​ ​​ ​ ​
        ​​​​​​​​
        ​​​ ​ ​​ ​ ​

        Depreciation expense for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 was $130$117 million, $121$124 million, and $82$138 million, respectively.

                Rental expense was $71 million, $65 million and $39 million for the years ended December 31, 2017, 2016, and 2015, respectively.


        7. Intangible Assets, Net


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

         At December 31, 2020
         Estimated
        useful
        lives        		Gross
        carrying
        amount        		Accumulated
        amortization        		Net
        carrying
        amount
        Acquired definite-lived intangible assets:
        Internally-developed franchises3-11 years$1,154 $(1,151)$3 
        Developed software2-5 years601 (601)0 
        Trade names7 years54 (40)14 
        Other1-10 years19 (18)1 
        Total definite-lived intangible assets$1,828 $(1,810)$18 
        Acquired indefinite-lived intangible assets: 
        Activision trademarkIndefinite$386 
        Acquired trade namesIndefinite47 
        Total indefinite-lived intangible assets$433 
        Total intangible assets, net$451 
        F-23
         
        		 At December 31, 2017 
         
        		 Estimated
        useful
        lives        		 Gross
        carrying
        amount        		 Accumulated
        amortization        		 Net
        carrying
        amount        		 

        Acquired definite-lived intangible assets:

        		            

        Internally-developed franchises

        		 3 - 11 years $1,154 $(869)$285 

        Developed software

        		 2 - 5 years  601  (301) 300 

        Customer base

        		 2 years  617  (573) 44 

        Trade names

        		 7 - 10 years  54  (16) 38 

        Other

        		 1 - 15 years  19  (13) 6 
        ​​​​​ ​​​ ​ ​​ ​​

        Total definite-lived intangible assets

        		   $2,445 $(1,772)$673 
        ​​​​​ ​ ​​​ ​​ ​ ​
        ​​​​​​​​​​​​​
        ​​​​​ ​ ​​​ ​​ ​ ​

        Acquired indefinite-lived intangible assets:

        		            

        Activision trademark

        		 Indefinite        386 

        Acquired trade names

        		 Indefinite        47 
        ​​​​​​​​​​​ ​ ​

        Total indefinite-lived intangible assets

        		         $433 
        ​​​​​​​​​​​ ​ ​

        Total intangible assets, net

        		         $1,106 
        ​​​​​​​​​​​ ​​
        ​​​​​​​​​​​​​
        ​​​​​​​​​​​ ​ ​

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        7. Intangible Assets, Net (Continued)


        (continued)


        		 At December 31, 2016  At December 31, 2019

        		 Estimated
        useful
        lives        		 Gross
        carrying
        amount        		 Accumulated
        amortization        		 Net
        carrying
        amount        		  Estimated
        useful
        lives        		Gross
        carrying
        amount        		Accumulated
        amortization        		Net carrying
        amount

        Acquired definite-lived intangible assets:

        		       Acquired definite-lived intangible assets:

        Internally-developed franchises

        		 3 - 11 years 1,154 (583) 571 Internally-developed franchises3-11 years$1,154 $(1,105)$49 

        Developed software

        		 3 - 5 years 595 (145) 450 Developed software2-5 years601 (579)22 

        Customer base

        		 2 years 617 (266) 351 

        Trade names

        		 7 - 10 years 54 (8) 46 Trade names7-10 years54 (30)24 

        Other

        		 1 - 8 years 18 (11) 7 Other1-15 years19 (16)3 
        ​​ ​​​ ​ ​​ ​​

        Total definite-lived intangible assets

        		 $2,438 $(1,013)$1,425 Total definite-lived intangible assets$1,828 $(1,730)$98 
        ​​ ​ ​​​ ​​ ​ ​
        ​​​​​​​
        ​​ ​ ​​​ ​​ ​ ​

        Acquired indefinite-lived intangible assets:

        		       Acquired indefinite-lived intangible assets: 

        Activision trademark

        		 Indefinite     386 Activision trademarkIndefinite$386 

        Acquired trade names

        		 Indefinite     47 Acquired trade namesIndefinite47 
        ​​​​​​ ​ ​

        Total indefinite-lived intangible assets

        		     $433 Total indefinite-lived intangible assets$433 
        ​​​​​​ ​ ​

        Total intangible assets, net

        		     $1,858 Total intangible assets, net$531 
        ​​​​​​ ​​
        ​​​​​​​
        ​​​​​​ ​ ​


        Amortization expense of intangible assets was $759$80 million, $708$204 million, and $13$371 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively.


        At December 31, 2017,2020, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):

        2021$10 
        20226 
        20232 
        20240 
        20250 
        Thereafter0 
        Total$18 

        2018

        		 $369 

        2019

        		  209 

        2020

        		  72 

        2021

        		  12 

        2022

        		  7 

        Thereafter

        		  4 
        ​​​ ​ ​

        Total

        		 $673 
        ​​​ ​ ​
        ​​​​​
        ​​​​ ​

                We did not record any impairment charges against our intangible assets for the years ended December 31, 2017, 2016, and 2015.


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        8. Goodwill


        The changes in the carrying amount of goodwill by operating segment are as follows (amounts in millions):

         
        		 Activision Blizzard(1) King Total 

        Balance at December 31, 2015

        		 $6,905 $190 $— $7,095 

        Additions through acquisition

        		  —  —  2,675  2,675 

        Other

        		  (2) —  —  (2)
        ​​​ ​​​ ​ ​​ ​​​ ​ ​

        Balance at December 31, 2016

        		 $6,903 $190 $2,675 $9,768 
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​​​ ​ ​​ ​​

        Other

        		  (5) —  —  (5)
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​

        Balance at December 31, 2017

        		 $6,898 $190 $2,675 $9,763 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​​​ ​ ​​ ​ ​
         ActivisionBlizzardKingTotal
        Balance at December 31, 2018$6,897 $190 $2,675 $9,762 
        Other1 0 1 2 
        Balance at December 31, 2019$6,898 $190 $2,676 $9,764 
        Other1 0 0 1 
        Balance at December 31, 2020$6,899 $190 $2,676 $9,765 
        (1)
        As a result of the change in our operating segments discussed in Note 1, goodwill of $12 million previously reported within the "Other segments" is now included in the "Blizzard" reportable segment. The prior period balance has been revised to reflect this change.

                For 2016, the addition to goodwill through acquisition is attributed to the King Acquisition (see Note 20).

        At December 31, 2017, 2016,2020, 2019, and 2015,2018, there were no0 accumulated impairment losses.


        F-24

        9. Other Assets and Liabilities


        Included in "Accrued“Accrued expenses and other liabilities" ofliabilities” in our consolidated balance sheets are accrued payroll-related costs of $441$406 million and $393$395 million at December 31, 20172020 and 2016, respectively.

                Included in "Other liabilities"2019, respectively, and the current portion of our consolidated balance sheets are income taxtaxes payable of $473$100 million and $49$436 million at December 31, 20172020 and 2016,2019, respectively.


        10. Fair Value Measurements


        The FASB literature regarding fair value measurements for certain assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs"“observable inputs” and minimize the use of "unobservable“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.


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        10. Fair Value Measurements (Continued)

        Fair Value Measurements on a Recurring Basis


        The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date generally including money market funds, treasury bills, available-for-sale and derivative financial instruments, and other investments (amounts in millions):

         Fair Value Measurements at December 31, 2020 Using
         As of December 31, 2020Quoted Prices in Active Markets for Identical Assets
        (Level 1)        		Significant Other Observable Inputs
        (Level 2)        		Significant Unobservable Inputs
        (Level 3)        		Balance Sheet
        Classification
        Financial Assets:     
        Recurring fair value measurements:     
        Money market funds$8,345 $8,345 $0 $0 Cash and cash equivalents
        Foreign government treasury bills34 34 0 0 Cash and cash equivalents
        U.S. treasuries and government agency securities164 164 0 0 Other current assets
        Total recurring fair value measurements$8,543 $8,543 $0 $0  
        Financial Liabilities:
        Foreign currency forward contracts not designated as hedges$(2)$0 $(2)$0 Accrued expenses and other liabilities
        Foreign currency forward contracts designated as hedges$(24)$0 $(24)$0 Accrued expenses and other liabilities
        F-25
         
        		  
        		 Fair Value Measurements at
        December 31, 2017 Using        		  
         
        		  
        		 Quoted
        Prices in
        Active
        Markets for
        Identical
        Assets        		  
        		  
        		  
         
        		  
        		 Significant
        Other
        Observable
        Inputs        		  
        		  
         
        		  
        		 Significant
        Unobservable
        Inputs        		  
         
        		 As of
        December 31,
        2017        		 Balance Sheet
        Classification
         
        		 (Level 1) (Level 2) (Level 3)

        Financial Assets:

        		              

        Recurring fair value measurements:

        		              

        Money market funds

        		 $4,405 $4,405 $— $— Cash and cash equivalents

        Foreign government treasury bills

        		  39  39  —  — Cash and cash equivalents

        U.S. treasuries and government agency securities

        		  55  55  —  — Other current assets
        ​​​ ​​​ ​ ​​ ​​​ ​ ​​

        Total recurring fair value measurements

        		 $4,499 $4,499 $— $—  
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​
        ​​​​​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​​

        Financial Liabilities:

        		              

        Foreign currency forward contracts designated as hedges

        		 $(5)$— $(5)$— Accrued expenses and other liabilities

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        10. Fair Value Measurements (Continued)


        (continued)


        		  
        		 Fair Value Measurements at
        December 31, 2016 Using        		  

        		  
        		 Quoted
        Prices in
        Active
        Markets for
        Identical
        Assets        		  
        		  
        		  

        		  
        		 Significant
        Other
        Observable
        Inputs        		  
        		  

        		  
        		 Significant
        Unobservable
        Inputs        		  

        		 As of
        December 31,
        2016        		 Balance Sheet
        Classification        		 Fair Value Measurements at December 31, 2019 Using 

        		 (Level 1) (Level 2) (Level 3) As of December 31, 2019Quoted Prices in Active Markets for Identical Assets
        (Level 1)        		Significant Other Observable Inputs
        (Level 2)        		Significant Unobservable Inputs
        (Level 3)        		Balance Sheet
        Classification

        Financial Assets:

        		         Financial Assets:

        Recurring fair value measurements:

        		         Recurring fair value measurements:     

        Money market funds

        		 $2,921 $2,921 $— $— Cash and cash equivalentsMoney market funds$5,320 $5,320 $0 $0 Cash and cash equivalents

        Foreign government treasury bills

        		 38 38 — — Cash and cash equivalentsForeign government treasury bills37 37 0 0 Cash and cash equivalents
        U.S. treasuries and government agency securitiesU.S. treasuries and government agency securities65 65 0 0 Other current assets
        Total recurring fair value measurementsTotal recurring fair value measurements$5,422 $5,422 $0 $0 
        Financial Liabilities:Financial Liabilities:
        Foreign currency forward contracts not designated as hedgesForeign currency forward contracts not designated as hedges$(2)$0 $(2)$0 Accrued expenses and other liabilities

        Foreign currency forward contracts designated as hedges

        		 22 — 22 — Other current assetsForeign currency forward contracts designated as hedges$(2)$0 $(2)$0 Accrued expenses and other liabilities

        Auction rate securities

        		 9 — — 9 Other assets
        ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

        Total recurring fair value measurements

        		 $2,990 $2,959 $22 $9 
        ​​ ​ ​​ ​​​ ​ ​​ ​​
        ​​​​​​​​​
        ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​


        Foreign Currency Forward Contracts


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

                At December 31, 2017, the


        The total gross notional amountamounts and fair values of outstandingour Cash Flow Hedges, was approximately $521 million. The fair value of these contracts, all of which have remaining maturities of 1211 months or less, was $5 millionare as follows (amounts in millions):
        As of December 31, 2020As of December 31, 2019
        Notional amountFair value gain (loss)Notional amountFair value gain (loss)
        Foreign Currency:
        Buy USD, Sell Euro$542 $(24)$350 $(2)

        The amounts of net unrealized losses. Additionally, at December 31, 2017, we had approximately $10 million ofpre-tax net realized but unrecognized losses recorded within "Accumulatedgains (losses) associated with our Cash Flow Hedges that were reclassified out of “Accumulated other comprehensive income (loss)" associated with contracts that had settled but were deferred” and will be amortized into earnings along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.

                At December 31, 2016, theare as follows (amounts in millions):

        For the Years Ended December 31,
        202020192018Statement of Operations Classification
        Cash Flow Hedges$(3)$39 $7 Net revenues

        Foreign Currency Forward Contracts Not Designated as Hedges

        The total gross notional amountamounts and fair values of outstanding Cash Flow Hedges was approximately $346 million. The fair value of theseour foreign currency forward contracts was $22 million of net unrealized gains.

        not designated as hedges are as follows (amounts in millions):

        As of December 31, 2020As of December 31, 2019
        Notional amountFair value gain (loss)Notional amountFair value gain (loss)
        Foreign Currency:
        Buy USD, Sell GBP$116 $(2)$25 $(2)

        During the years ended December 31, 20172020, 2019, and 2016, there was no ineffectiveness relating2018, pre-tax net gains and losses associated with these forward contracts were recorded in “General and administrative expenses” and were not material.

        F-26
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        11. Deferred Revenues

        We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated performance obligations. The aggregate of the current and non-current balances of deferred revenues as of December 31, 2019 and December 31, 2020, were $1.4 billion and $1.7 billion, respectively. For the year ended December 31, 2020, the additions to our Cash Flow Hedges.deferred revenues balance were primarily due to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course of business. During the years ended December 31, 20172020, December 31, 2019, and 2016,December 31, 2018, $1.3 billion, $1.5 billion, and $1.7 billion of revenues, respectively, were recognized that were included in the deferred revenues balance at the beginning of the period.

        As of December 31, 2020, the aggregate amount of pre-tax net realized gains associated with these contracts that were reclassified out of "Accumulated other comprehensive income (loss)"contracted revenues allocated to our unsatisfied performance obligations is $2.5 billion, which includes our deferred revenues balances and into earnings wasamounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1.9 billion over the next 12 months, $0.4 billion in the subsequent 12-month period, and the remainder thereafter. This balance does not material.

        Fair Value Measurements on a Non-Recurring Basis

                We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changesinclude an estimate for variable consideration arising from sales-based royalty license revenue in circumstances indicate that the carrying amountexcess of the assets may not be recoverable.

        contractual minimum guarantee or any estimated amounts of variable consideration that are subject to constraint in accordance with the new revenue standard.


        12. Leases

        Our lease arrangements are primarily for: (1) corporate, administrative, and development studio offices; and (2) data centers and server equipment. Our existing leases have remaining lease terms ranging from one to nine years. In certain instances, such leases include one or more options to renew, with renewal terms that generally extend the lease term by one to five years for each option. The exercise of lease renewal options is generally at our sole discretion. All of our existing leases are classified as operating leases.

        Components of our lease costs are as follows (amounts in millions):
        Year Ended December 31, 2020Year Ended December 31, 2019
        Operating leases
        Operating lease costs$75 $75 
        Variable lease costs20 20 

        Rental expense prior to our adoption of the new lease standard was $75 million for the year ended December 31, 2018.

        Supplemental information related to our operating leases is as follows (amounts in millions):

        Year Ended December 31, 2020Year Ended December 31, 2019
        Supplemental Operating Cash Flows Information
        Cash paid for amounts included in the measurement of lease liabilities$77 $80 
        ROU assets obtained in exchange for new lease obligations80 65 
        At December 31, 2020At December 31, 2019
        Weighted Average Lease terms and discount rates
        Remaining lease term4.48 years5.00 years
        Discount rate3.40 %4.02 %

        F-27
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        10. Fair Value Measurements (Continued)

                For the years ended(continued)


        Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at December 31, 2017, 2016,2020, are as follows (amounts in millions):

        For the years ending December 31, 
        2021$75 
        202271 
        202364 
        202453 
        202533 
        Thereafter18 
        Total future lease payments$314 
        Less imputed interest(24)
        Total lease liabilities$290 

        Operating lease ROU assets and 2015, there were no impairment charges related to assets that are measuredliabilities recorded on a non-recurring basis.

        11. Debt

        Credit Facilities

                Atour consolidated balance sheet as of December 31, 2016,2020 and December 31, 2019, were as follows (amounts in millions):


        At December 31, 2020At December 31, 2019Balance Sheet Classification
        ROU assets$243 $232 Other assets
        Current lease liabilities$66 $63 Accrued expenses and other current liabilities
        Non-current lease liabilities224 210 Other liabilities
        $290 $273 Total lease liabilities

        13. Debt

        Credit Facilities

        As of December 31, 2020 and December 31, 2019, we had outstanding term loans "A" of approximately $2.7$1.5 billion (the "2016 TLA") and $250 million available under a revolving credit facility (the "Revolver"“Revolver”) pursuant to a credit agreement executedentered into on October 11, 2013 (as amended thereafter and from time to time, the "Credit Agreement"“Credit Agreement”).

                On February 3, 2017, To date, we entered into a sixth amendment (the "Sixth Amendment")have 0t drawn on the Revolver.


        The Revolver is scheduled to the Credit Agreement. The Sixth Amendment: (1) provided for a new tranche of term loans "A" in an aggregate principal amount of $2.55 billion (the "2017 TLA" and, together with the Revolver, the "Credit Facilities") and (2) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the 2016 TLA, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The 2017 TLA will mature on August 23, 2021.

        24, 2023. Borrowings under the 2017 TLA and the Revolver will bear interest, at the Company'sCompany’s option, at either (1) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the London Interbank Offered Rate ("LIBOR"(“LIBOR”) for an interest period of one month beginning on such day plus 1.00%, or (2) LIBOR, in each case, plus an applicable interest margin. LIBOR will be subject to a floor of 0% and the base rate will be subject to an effective floor of 1.00%.  The applicable interest margin for borrowings under the 2017 TLA and Revolver will range from 1.125%0.875% to 2.00%1.375% for LIBOR borrowings and from 0.125%0% to 1.00%0.375% for base rate borrowings and will be determined by reference to a pricing grid based on the Company'sCompany’s credit ratings. At December 31, 2017, the 2017 TLA bore interest at 2.73%.

                Borrowings under the Revolver may be borrowed, repaid, and re-borrowed by the Company, and are available for working capital and other general corporate purposes. Up to $50 million of the Revolver may be used for letters of credit. To date, we have not drawn on the Revolver.

                During the year ended December 31, 2017, we reduced our total outstanding term loan balances by $1.7 billion. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with prepayments on the 2017 TLA of $361 million made on February 15, 2017, and $1.2 billion made on May 26, 2017. The May prepayment was made using proceeds from a concurrent issuance of $1.2 billion in notes, as discussed further below. As part of that refinancing, we wrote-off unamortized discount and deferred financing costs of $12 million, which is included in "Loss on extinguishment of debt" in the consolidated statement of operations. The prepayments made on our 2017 TLA have satisfied the remaining required quarterly principal repayments for the entire term of


        Under the Credit Agreement. As a result of these prepayments, at December 31, 2017, the outstanding balance of our 2017 TLA was $990 million.

                The Company isAgreement, we are subject to a financial covenant requiring the Company'sCompany’s Consolidated Total Net

        Debt Ratio (as defined in the Credit Agreement) not to exceed 3.50:3.75:1.00 (or, at the Company’s option and for a limited period of time upon the consummation of a Qualifying Acquisition (as defined in the Credit Agreement), 4.25:1.00. The Credit Agreement contains other covenants that are customary for issuerstransactions of this type for issuer with similar credit ratings. A violationThese include those restricting liens, debt of anynon-guarantor subsidiaries and certain fundamental changes, in each case with exceptions, including exceptions for secured debt and debt of


        Table non-guarantor subsidiaries of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notesthe Company, in each case up to Consolidated Financial Statements (Continued)

        11. Debt (Continued)

        these covenants could resultan amount not exceeding 7.5% of Total Assets (as defined in an event of default under the Credit Agreement. Upon the occurrence of an event of default, payment of any outstanding amounts under the Credit Agreement may be accelerated, and the lenders' commitments to extend credit under the Credit Agreement may be terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding unsecured debt, including the debt holders described below, to accelerate the repayment of such obligations. The Company wasAgreement). We were in compliance with the terms of the Credit FacilitiesAgreement as of December 31, 2017.

                On February 1, 2018, our Board2020.


        F-28
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to $1.8 billion of the company's outstanding debt during 2018. As of the date hereof, we have not made any additional repayments on our outstanding debt and the determination as to if and when we make any such repayment will be dependent on market conditions and other factors.

        Consolidated Financial Statements (continued)


        Unsecured Senior Notes

                At


        As of December 31, 2016,2020 and December 31, 2019, we had the following$3.7 billion and $2.7 billion, respectively, of gross unsecured senior notes outstanding:

          •
          $750 millionoutstanding. A summary of 6.125%our outstanding unsecured senior notes due September 2023 thatis as follows (amounts in millions):

         At December 31, 2020At December 31, 2019
        Unsecured Senior NotesInterest RateSemi-Annual Interest Payments Due OnMaturityPrincipalFair Value
        (Level 2)        		PrincipalFair Value
        (Level 2)
        2021 Notes2.30%Mar. 15 & Sept. 15Sept. 2021$— $— $650 $653 
        2022 Notes2.60%Jun. 15 & Dec. 15Jun. 2022— — 400 405 
        2026 Notes3.40%Mar. 15 & Sept. 15Sept. 2026850 970 850 893 
        2027 Notes3.40%Jun. 15 & Dec. 15Jun. 2027400 454 400 417 
        2030 Notes1.35%Mar. 15 & Sept. 15Sept. 2030500 490 — — 
        2047 Notes4.50%Jun. 15 & Dec. 15Jun. 2047400 525 400 456 
        2050 Notes2.50%Mar. 15 & Sept. 15Sept. 20501,500 1,462 — — 
        Total gross long-term debt$3,650 $2,700 
        Unamortized discount and deferred financing costs(45)(25)
        Total net carrying amount$3,605 $2,675 

        On August 5, 2020, we issued on September 19, 2013 (the "2023 Notes"),the 2030 Notes and 2050 Notes in a privatepublic underwritten offering, madefor an aggregate principal amount of $2.0 billion in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); and

        •
        $650 million of 2.3% unsecured senior notes due September 2021 (the "Unregistered 2021 Notes") and $850 million of 3.4% unsecured senior notes due September 2026 (the "Unregistered 2026 Notes") that we issued on September 19, 2016, in a private offering made in accordance with Rule 144A and Regulation S under the Securities Act.

        new debt. In connection with the issuance, we incurred approximately $26 million of the Unregistereddebt discount and financing costs that were capitalized and recorded within “Long-term debt, net” in our consolidated balance sheet.


        On September 4, 2020, we redeemed all of our outstanding 2021 Notes and 2022 Notes at a redemption price equal to 100% of their respective principal amounts plus (1) a “make-whole” premium of $28 million and (2) accrued and unpaid interest to the Unregistered 2026 Notes, we entered into a registration rights agreement (the "Registration Rights Agreement"), among the Company, and the representativesredemption date. The redemption of the initial purchasers of the Unregistered 2021 Notes and the Unregistered 2026 Notes. Under the Registration Rights Agreement, we were required to use commercially reasonable efforts to, within one year of the issue date of the Unregistered 20212022 Notes and the Unregistered 2026 Notes, among other things, (1) file a registration statement with respect to an offer to exchange each series of the Unregistered 2021 Notes and the Unregistered 2026 Notes for new notes that were substantially identical in all material respects (except for the provisions relating to the transfer restrictions and payment of additional interest) (the "Exchange Offer"), and (2) cause that registration statement (the "Exchange Offer Registration Statement") to be declared effective by the SEC under the Securities Act. The Exchange Offer Registration Statement was declared effective by the SEC on April 28, 2017, and we completed the Exchange Offer on June 1, 2017, such that all the Unregistered 2021 Notes and Unregistered 2026 Notes were exchanged for registered 2021 notes (the "2021 Notes") and registered 2026 notes (the "2026 Notes"), respectively.

                In addition, on May 26, 2017,resulted in a public underwritten offering, we issued $400 million“Loss on extinguishment of 2.6% unsecured senior notes due June 2022 (the "2022 Notes"), $400 milliondebt” recorded in the consolidated statement of 3.4% unsecured senior notes due June 2027 (the "2027 Notes"), and $400 millionoperations of 4.5% unsecured senior notes due June 2047 (the "2047 Notes", and together with the 2021 Notes, the 2022 Notes, the 2023 Notes, the 2026 Notes, and the 2027 Notes, the "Notes"), which were outstanding at December 31, 2017.

        $31 million.


        We may redeem 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. In addition, we may


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        11. Debt (Continued)

        redeem some or all of each class of the 2023 Notes prior to September 15, 2018,unsecured senior notes. Any such redemption will be at a price equal to 100% of the aggregate principal amount thereof plus a "make-whole premium" and accrued and unpaid interest. Further, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of the 2023 Notes outstanding with the net cash proceeds from such offerings.

                We may redeem some or all of the 2021 Notes, the 2022 Notes, the 2026 Notes, the 2027 Notes, and the 2047 Notesinterest as well as, for a redemption prior to August 15, 2021, May 15, 2022, June 15, 2026, March 15, 2027, and December 15, 2046, respectively, and in each case at a price equal to 100% of the aggregate principal amount thereof plus a "make-whole" premium and accrued and unpaid interest. Anypermitted redemption of all or a portion of the applicabledate for that class of note after the applicable date would be at 100% of aggregate principal amount plus accrued and unpaid interest.

        notes, a “make-whole” premium.


        Upon the occurrence of certain change of control events, we will be required to offer to repurchase the Notesnotes outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. These repurchase requirements are considered clearly and closely related to the Notesunsecured notes and are not accounted for separately upon issuance.


        The Notesoutstanding notes are general senior obligations of the Company and rankpari passu in right of payment to all of the Company'sCompany’s existing and future senior indebtedness, including the Credit FacilitiesRevolver described above. The Notesnotes are not secured and are effectively subordinatedjunior to any of the Company'sCompany’s existing orand future indebtedness that is secured.

                The 2023 Notes contain customary covenants that place restrictions in certain circumstances on, among other things,secured to the incurrence of debt, granting of liens, payment of dividends, sales of assets, and certain merger and consolidation transactions. The Notes, with the exceptionextent of the 2023 Notes,value of the collateral securing such indebtedness. The notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of secured debt, entry into sale or leaseback transactions, and certain merger or consolidation transactions. The Company wasWe were in compliance with the terms of the Notesnotes outstanding as of December 31, 2017.

                Interest is payable semi-annually in arrears on March 15 and September 15 of each year for the 2021 Notes, the 2023 Notes, and 2026 Notes, and payable semi-annually in arrears on June 15 and December 15 of each year for the 2022 Notes, the 2027 Notes, and 2047 Notes. Accrued interest payable is recorded within "Accrued expenses and other liabilities" in our consolidated balance sheets. 2020.


        As of December 31, 2017 and December 31, 2016,2020, we had accrued interest payable of $28 million and $25 million, respectively, related to the Notes.

        Interest expense and financing costs

                Fees and discounts associated with the issuancehave no contractual principal repayments of our long-term debt instruments are recorded as debt discount, which reduces their respective carrying values, and is amortized over their respective terms. Amortization expense is recorded within "Interest and other expense (income), net" in our condensed consolidated statement of operations.

                In connection with the May 2017 note issuances, we incurred approximately $20 million of discounts and financing costs that were capitalized and recorded within "Long-term debt, net" in our consolidated balance sheet.

        next five years.


        F-29
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        11. Debt (Continued)

                For the years ended December 31, 2017, 2016, and 2015: interest expense was $150 million, $197 million, and $193 million, respectively; amortization of the debt discount and deferred financing costs was $12 million, $20 million, and $7 million, respectively; and commitment fees for the Revolver were not material.

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

        (continued)

         
        		 At December 31, 2017 
         
        		 Gross Carrying
        Amount        		 Unamortized
        Discount and
        Deferred
        Financing Costs        		 Net Carrying
        Amount        		 

        2017 TLA

        		 $990 $(8)$982 

        2021 Notes

        		  650  (4) 646 

        2022 Notes

        		  400  (4) 396 

        2023 Notes

        		  750  (9) 741 

        2026 Notes

        		  850  (9) 841 

        2027 Notes

        		  400  (6) 394 

        2047 Notes

        		  400  (10) 390 
        ​​​ ​ ​​ ​​​ ​ ​

        Total long-term debt

        		 $4,440 $(50)$4,390 
        ​​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​


         
        		 At December 31, 2016 
         
        		 Gross Carrying
        Amount        		 Unamortized
        Discount and
        Deferred
        Financing Costs        		 Net Carrying
        Amount        		 

        2016 TLA

        		 $2,690 $(27)$2,663 

        2021 Notes

        		  650  (5) 645 

        2023 Notes

        		  750  (11) 739 

        2026 Notes

        		  850  (10) 840 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total long-term debt

        		 $4,940 $(53)$4,887 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​

                As of December 31, 2017 the scheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts in millions):

        For the year ending December 31,

        		    

        2018

        		 $— 

        2019

        		  — 

        2020

        		  — 

        2021

        		  1,640 

        2022

        		  400 

        Thereafter

        		  2,400 
        ​​​ ​ ​

        Total

        		 $4,440 
        ​​​ ​ ​
        ​​​​​
        ​​​ ​ ​

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        11. Debt (Continued)

                With the exception of the 2023 Notes and the 2047 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active markets), the carrying values of our debt instruments approximated their fair values as of December 31, 2017, as the interest rates are similar to current rates at which we can borrow funds over the selected interest periods. At December 31, 2017, based on Level 2 inputs, the fair values of the 2023 Notes and the 2047 Notes were $795 million and $421 million, respectively.

                At December 31, 2016, the carrying value of the 2016 TLA approximated its fair value, based on Level 2 inputs. At December 31, 2016, based on Level 2 inputs, the fair values of the 2021 Notes, 2023 Notes, and 2026 Notes were $635 million, $818 million, and $808 million, respectively.

        12.14. Accumulated Other Comprehensive Income (Loss)


        The components of accumulated other comprehensive income (loss) were as follows (amounts in millions):

        For the Year Ended December 31, 2020
        Foreign currency
        translation
        adjustments        		Unrealized gain (loss)
        on available-for-
        sale securities        		Unrealized gain (loss)
        on forward
        contracts        		Total
        Balance at December 31, 2019$(624)$(3)$8 $(619)
        Other comprehensive income (loss) before reclassifications37 (6)(39)(8)
        Amounts reclassified from accumulated other comprehensive income (loss) into earnings(2)4 3 5 
        Balance at December 31, 2020$(589)$(5)$(28)$(622)

         For the Year Ended December 31, 2019
         Foreign currency
        translation
        adjustments        		Unrealized gain (loss)
        on available-for-
        sale securities        		Unrealized gain (loss)
        on forward
        contracts        		Total
        Balance at December 31, 2018$(629)$5 $23 $(601)
        Other comprehensive income (loss) before reclassifications5 0 24 29 
        Amounts reclassified from accumulated other comprehensive income (loss) into earnings0 (8)(39)(47)
        Balance at December 31, 2019$(624)$(3)$8 $(619)

         
        		 For the Year Ended December 31, 2017 
         
        		 Foreign currency
        translation
        adjustments        		 Unrealized gain
        (loss)
        on available-for-
        sale securities        		 Unrealized gain
        (loss)
        on forward
        contracts        		 Total 

        Balance at December 31, 2016

        		 $(659)$1 $29 $(629)

        Other comprehensive income (loss) before reclassifications

        		  20  (1) (45) (26)

        Amounts reclassified from accumulated other comprehensive income (loss) into earnings

        		  16  —  1  17 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

        Balance at December 31, 2017

        		 $(623)$— $(15)$(638)
        ​​​ ​ ​​ ​​​ ​ ​​ ​​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​​ ​​ ​ ​


         
        		 For the Year Ended December 31, 2016 
         
        		 Foreign currency
        translation
        adjustments        		 Unrealized gain
        (loss)
        on available-for-
        sale securities        		 Unrealized gain
        (loss)
        on forward
        contracts        		 Total 

        Balance at December 31, 2015

        		 $(630)$1 $(4)$(633)

        Other comprehensive income (loss) before reclassifications

        		  (29) —  37  8 

        Amounts reclassified from accumulated other comprehensive income (loss) into earnings

        		  —  —  (4) (4)
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

        Balance at December 31, 2016

        		 $(659)$1 $29 $(629)
        ​​​ ​ ​​ ​​​ ​ ​​ ​​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​​ ​​ ​ ​

                Income taxes were not provided for foreign currency translation items, as these are considered indefinite investments in non-U.S. subsidiaries. Due to the U.S. Tax Reform Act, we are re-evaluating our indefinite reinvestment assertions, but we have not yet completed this evaluation. In accordance with SAB 118, we intend to complete this evaluation during the measurement period of up to one year and will record adjustments, if any, during those respective periods.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        13.15. Operating Segments and Geographic Region

                Currently, weRegions


        We have three3 reportable segments.segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"(“CODM”). 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 games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.


        Our operating segments are also consistent with our internal organizationorganizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in Note 1, commencing with the second quarter

        F-30
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable "Other segments," is now presented within the "Blizzard" reportable segment. Prior period amounts have been revised to reflect this change. The change had no impact on consolidated net revenues or operating income.

        Consolidated Financial Statements (continued)


        Information on the reportable segmentssegment net revenues and segment operating income are presented below (amounts in millions):

        Year Ended December 31, 2020
        ActivisionBlizzardKingTotal
        Segment Revenues
        Net revenues from external customers$3,942 $1,794 $2,164 $7,900 
        Intersegment net revenues (1)0 111 0 111 
        Segment net revenues$3,942 $1,905 $2,164 $8,011 
        Segment operating income$1,868 $693 $857 $3,418 
        Year Ended December 31, 2019
        ActivisionBlizzardKingTotal
        Segment Revenues
        Net revenues from external customers$2,219 $1,676 $2,031 $5,926 
        Intersegment net revenues (1)0 43 0 43 
        Segment net revenues$2,219 $1,719 $2,031 $5,969 
        Segment operating income$850 $464 $740 $2,054 
        Year Ended December 31, 2018
        ActivisionBlizzardKingTotal
        Segment Revenues
        Net revenues from external customers$2,458 $2,238 $2,086 $6,782 
        Intersegment net revenues (1)0 53 0 53 
        Segment net revenues$2,458 $2,291 $2,086 $6,835 
        Segment operating income$1,011 $685 $750 $2,446 
         
        		 Year Ended December 31, 2017 
         
        		 Activision Blizzard King Total 

        Segment Revenues

        		             

        Net revenues from external customers

        		 $2,628 $2,120 $1,998 $6,746 

        Intersegment net revenues(1)

        		  —  19  —  19 
        ​​​ ​ ​​ ​​​ ​ ​​ ​​

        Segment net revenues

        		 $2,628 $2,139 $1,998 $6,765 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​

        Segment operating income

        		 $1,005 $712 $700 $2,417 



         
        		 Year Ended December 31, 2016 
         
        		 Activision Blizzard King Total 

        Segment Revenues

        		             

        Net revenues from external customers

        		 $2,220 $2,439 $1,586 $6,245 

        Intersegment net revenues(1)

        		  —  —  —  — 
        ​​​ ​ ​​ ​​​ ​ ​​ ​​

        Segment net revenues

        		 $2,220 $2,439 $1,586 $6,245 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​

        Segment operating income

        		 $788 $995 $537 $2,320 

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        13. Operating Segments and Geographic Region (Continued)


         
        		 Year Ended December 31, 2015 
         
        		 Activision Blizzard King Total 

        Segment Revenues

        		             

        Net revenues from external customers

        		 $2,700 $1,565 $— $4,265 

        Intersegment net revenues(1)

        		  —  —  —  — 
        ​​​​ ​​ ​ ​​ ​ ​​ ​ ​

        Segment net revenues

        		 $2,700 $1,565 $— $4,265 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​​​ ​ ​​ ​​

        Segment operating income

        		 $868 $561 $— $1,429 
        (1)
        Intersegment revenues reflect licensing and service fees charged between segments.


        F-31
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense are presented in the table below (amounts in millions):

         
        		 Years Ended December 31, 
         
        		 2017 2016 2015 

        Reconciliation to consolidated net revenues:

        		          

        Segment net revenues

        		 $6,765 $6,245 $4,265 

        Revenues from other segments(1)

        		  410  354  356 

        Net effect from recognition (deferral) of deferred net revenues

        		  (139) 9  43 

        Elimination of intersegment revenues(2)

        		  (19) —  — 
        ​​​ ​ ​​ ​ ​​​ ​

        Consolidated net revenues

        		 $7,017 $6,608 $4,664 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​​ ​​ ​ ​​​ ​

        Reconciliation to consolidated income before income tax expense:

        		          

        Segment operating income

        		 $2,417 $2,320 $1,429 

        Operating (loss) income from other segments(1)

        		  (19) 14  37 

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

        		  (71) (10) (39)

        Share-based compensation expense

        		  (178) (159) (92)

        Amortization of intangible assets

        		  (757) (706) (11)

        Fees and other expenses related to the King Acquisition(3)

        		  (15) (47) (5)

        Restructuring costs(4)

        		  (15) —  — 

        Other non-cash charges(5)

        		  (14) —  — 

        Discrete tax-related items(6)

        		  (39) —  — 
        ​​​ ​​​ ​ ​​ ​​

        Consolidated operating income

        		  1,309  1,412  1,319 

        Interest and other expense (income), net

        		  146  214  198 

        Loss on extinguishment of debt

        		  12  92  — 
        ​​​ ​ ​​ ​ ​​​ ​

        Consolidated income before income tax expense

        		 $1,151 $1,106 $1,121 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​

        Years Ended December 31,
        202020192018
        Reconciliation to consolidated net revenues:
        Segment net revenues$8,011 $5,969 $6,835 
        Revenues from non-reportable segments (1)519 462 480 
        Net effect from recognition (deferral) of deferred net revenues (2)(333)101 238 
        Elimination of intersegment revenues (3)(111)(43)(53)
        Consolidated net revenues$8,086 $6,489 $7,500 
        Reconciliation to consolidated income before income tax expense:
        Segment operating income$3,418 $2,054 $2,446 
        Operating income from non-reportable segments (1)(55)24 31 
        Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)(238)52 100 
        Share-based compensation expense (Note 16)
        		(218)(166)(209)
        Amortization of intangible assets(79)(203)(370)
        Restructuring and related costs (Note 17)
        		(94)(137)(10)
        Discrete tax-related items (4)0 (17)0 
        Consolidated operating income2,734 1,607 1,988 
        Interest and other expense (income), net87 (26)71 
        Loss on extinguishment of debt31 0 40 
        Consolidated income before income tax expense$2,616 $1,633 $1,877 

        (1)
        Includes other income and expenses from operating segments managed outside the reportable segments, including our Studios and Distribution businesses.business. Also includes unallocated corporate income and expenses.


        (2)
        Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain of our online-enabled products.

        (3)Intersegment revenues reflect licensing and service fees charged between segments.


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        13. Operating Segments and Geographic Region (Continued)

        (3)
        Reflects fees and other expenses, such as legal, banking, and professional services fees, related to the King Acquisition and associated integration activities, inclusive of related debt financings.

        (4)
        Reflects restructuring charges, primarily severance costs.

        (5)
        Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.

        (6)
        Reflects the impact of other unusual or unique tax-related items and activities.




        F-32
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Net revenues by distribution channelschannel, including a reconciliation to each of our reportable segment’s net revenues, were as follows (amounts in millions):

        Year Ended December 31, 2020
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by distribution channel:
        Digital online channels (1)$2,930 $1,672 $2,167 $0 $(111)$6,658 
        Retail channels702 39 0 0 0 741 
        Other (2)57 92 0 538 0 687 
        Total consolidated net revenues$3,689 $1,803 $2,167 $538 $(111)$8,086 
        Change in deferred revenues:
        Digital online channels (1)$365 $102 $(3)$0 $0 $464 
        Retail channels(112)0 0 0 0 (112)
        Other (2)0 0 0 (19)0 (19)
        Total change in deferred revenues$253 $102 $(3)$(19)$0 $333 
        Segment net revenues:
        Digital online channels (1)$3,295 $1,774 $2,164 $0 $(111)$7,122 
        Retail channels590 39 0 0 0 629 
        Other (2)57 92 0 519 0 668 
        Total segment net revenues$3,942 $1,905 $2,164 $519 $(111)$8,419 

        Year Ended December 31, 2019
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by distribution channel:
        Digital online channels (1)$1,366 $1,580 $2,029 $0 $(43)$4,932 
        Retail channels818 91 0 0 0 909 
        Other (2)3 181 0 464 0 648 
        Total consolidated net revenues$2,187 $1,852 $2,029 $464 $(43)$6,489 
        Change in deferred revenues:
        Digital online channels (1)$122 $(128)$2 $0 $0 $(4)
        Retail channels(90)(5)0 0 0 (95)
        Other (2)0 0 0 (2)0 (2)
        Total change in deferred revenues$32 $(133)$2 $(2)$0 $(101)
        Segment net revenues:
        Digital online channels (1)$1,488 $1,452 $2,031 $0 $(43)$4,928 
        Retail channels728 86 0 0 0 814 
        Other (2)3 181 0 462 0 646 
        Total segment net revenues$2,219 $1,719 $2,031 $462 $(43)$6,388 
         
        		 Years Ended December 31, 
         
        		 2017 2016 2015 

        Net revenues by distribution channel:

        		          

        Digital online channels(1)

        		 $5,479 $4,865 $2,502 

        Retail channels

        		  1,033  1,386  1,806 

        Other(2)

        		  505  357  356 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total consolidated net revenues

        		 $7,017 $6,608 $4,664 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​
        F-33
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Year Ended December 31, 2018
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by distribution channel:
        Digital online channels (1)$1,740 $2,009 $2,090 $0 $(53)$5,786 
        Retail channels998 109 0 0 0 1,107 
        Other (2)0 148 0 459 0 607 
        Total consolidated net revenues$2,738 $2,266 $2,090 $459 $(53)$7,500 
        Change in deferred revenues:
        Digital online channels (1)$(96)$32 $(4)$0 $0 $(68)
        Retail channels(184)(7)0 0 0 (191)
        Other (2)0 0 0 21 0 21 
        Total change in deferred revenues$(280)$25 $(4)$21 $0 $(238)
        Segment net revenues:
        Digital online channels (1)$1,644 $2,041 $2,086 $0 $(53)$5,718 
        Retail channels814 102 0 0 0 916 
        Other (2)0 148 0 480 0 628 
        Total segment net revenues$2,458 $2,291 $2,086 $480 $(53)$7,262 

        (1)
        IncludeNet revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransactions, subscriptions, and products.

        products, as well as licensing royalties.

        (2)
        IncludeNet revenues from “Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.


        (3)Intersegment revenues reflect licensing and service fees charged between segments.

        F-34
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Geographic information presented below is based on the location of the paying customer. Net revenues by geographic region, including a reconciliation to each of our reportable segment’s net revenues, were as follows (amounts in millions):


        Year Ended December 31, 2020
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)Total
        Net revenues by geographic region:
        Americas$2,316 $794 $1,384 $0 $(60)$4,434 
        EMEA (1)1,061 550 568 538 (37)2,680 
        Asia Pacific312 459 215 0 (14)972 
        Total consolidated net revenues$3,689 $1,803 $2,167 $538 $(111)$8,086 
        Change in deferred revenues:
        Americas$228 $58 $(1)$0 $0 $285 
        EMEA (1)36 43 (1)(19)0 59 
        Asia Pacific(11)1 (1)0 0 (11)
        Total change in deferred revenues$253 $102 $(3)$(19)$0 $333 
        Segment net revenues:
        Americas$2,544 $852 $1,383 $0 $(60)$4,719 
        EMEA (1)1,097 593 567 519 (37)2,739 
        Asia Pacific301 460 214 0 (14)961 
        Total segment net revenues$3,942 $1,905 $2,164 $519 $(111)$8,419 

        Year Ended December 31, 2019
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)Total
        Net revenues by geographic region:
        Americas$1,286 $822 $1,254 $0 $(21)$3,341 
        EMEA (1)691 543 557 464 (16)2,239 
        Asia Pacific210 487 218 0 (6)909 
        Total consolidated net revenues$2,187 $1,852 $2,029 $464 $(43)$6,489 
        Change in deferred revenues:
        Americas$16 $(62)$2 $0 $0 $(44)
        EMEA (1)12 (57)0 (2)0 (47)
        Asia Pacific4 (14)0 0 0 (10)
        Total change in deferred revenues$32 $(133)$2 $(2)$0 $(101)
        Segment net revenues:
        Americas$1,302 $760 $1,256 $0 $(21)$3,297 
        EMEA (1)703 486 557 462 (16)2,192 
        Asia Pacific214 473 218 0 (6)899 
        Total segment net revenues$2,219 $1,719 $2,031 $462 $(43)$6,388 
         
        		 Years Ended December 31, 
         
        		 2017 2016 2015 

        Net revenues by geographic region:

        		          

        Americas

        		 $3,607 $3,423 $2,409 

        EMEA(1)

        		  2,464  2,221  1,741 

        Asia Pacific

        		  946  964  514 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total consolidated net revenues

        		 $7,017 $6,608 $4,664 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​
        F-35
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Year Ended December 31, 2018
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)Total
        Net revenues by geographic region:
        Americas$1,622 $1,004 $1,269 $13 $(28)$3,880 
        EMEA (1)897 692 599 446 (16)2,618 
        Asia Pacific219 570 222 0 (9)1,002 
        Total consolidated net revenues$2,738 $2,266 $2,090 $459 $(53)$7,500 
        Change in deferred revenues:
        Americas$(163)$15 $(3)$0 $0 $(151)
        EMEA (1)(127)16 (1)21 0 (91)
        Asia Pacific10 (6)0 0 0 4 
        Total change in deferred revenues$(280)$25 $(4)$21 $0 $(238)
        Segment net revenues:
        Americas$1,459 $1,019 $1,266 $13 $(28)$3,729 
        EMEA (1)770 708 598 467 (16)2,527 
        Asia Pacific229 564 222 0 (9)1,006 
        Total segment net revenues$2,458 $2,291 $2,086 $480 $(53)$7,262 

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

        (2)    Intersegment revenues reflect licensing and service fees charged between segments.
        The Company'sCompany’s net revenues in the U.S. were 45%48%, 45%46%, and 48%46% of consolidated net revenues for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The Company'sCompany’s net revenues in the United Kingdom ("(“U.K."”) were 12%, 11%, and 14%for each of consolidated net revenues for the years ended December 31, 2017, 2016,2020, 2019, and 2015, respectively.2018 were 12% of consolidated net revenues. No other country'scountry’s net revenues exceeded 10% of consolidated net revenues for the years ended December 31, 2017, 2016,2020, 2019, or 2015.

        2018.

        F-36

        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        13. Operating Segments and Geographic Region (Continued)

        (continued)


        Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, were as follows (amounts in millions):

        Year Ended December 31, 2020
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by platform:
        Console$2,668 $116 $0 $0 $0 $2,784 
        PC582 1,489 96 0 (111)2,056 
        Mobile and ancillary (1)382 106 2,071 0 0 2,559 
        Other (2)57 92 0 538 0 687 
        Total consolidated net revenues$3,689 $1,803 $2,167 $538 $(111)$8,086 
        Change in deferred revenues:
        Console$140 $(8)$0 $0 $0 $132 
        PC64 115 0 0 0 179 
        Mobile and ancillary (1)49 (5)(3)0 0 41 
        Other (2)0 0 0 (19)0 (19)
        Total change in deferred revenues$253 $102 $(3)$(19)$0 $333 
        Segment net revenues:
        Console$2,808 $108 $0 $0 $0 $2,916 
        PC646 1,604 96 0 (111)2,235 
        Mobile and ancillary (1)431 101 2,068 0 0 2,600 
        Other (2)57 92 0 519 0 668 
        Total segment net revenues$3,942 $1,905 $2,164 $519 $(111)$8,419 
         
        		 Years Ended December 31, 
         
        		 2017 2016 2015 

        Net revenues by platform:

        		          

        Console

        		 $2,389 $2,453 $2,391 

        PC

        		  2,042  2,124  1,499 

        Mobile and ancillary(1)

        		  2,081  1,674  418 

        Other(2)

        		  505  357  356 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total consolidated net revenues

        		 $7,017 $6,608 $4,664 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​
        F-37
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Year Ended December 31, 2019
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by platform:
        Console$1,783 $137 $0 $0 $0 $1,920 
        PC298 1,346 117 0 (43)1,718 
        Mobile and ancillary (1)103 188 1,912 0 0 2,203 
        Other (2)3 181 0 464 0 648 
        Total consolidated net revenues$2,187 $1,852 $2,029 $464 $(43)$6,489 
        Change in deferred revenues:
        Console$(36)$(18)$0 $0 $0 $(54)
        PC57 (110)0 0 0 (53)
        Mobile and ancillary (1)11 (5)2 0 0 8 
        Other (2)0 0 0 (2)0 (2)
        Total change in deferred revenues$32 $(133)$2 $(2)$0 $(101)
        Segment net revenues:
        Console$1,747 $119 $0 $0 $0 $1,866 
        PC355 1,236 117 0 (43)1,665 
        Mobile and ancillary (1)114 183 1,914 0 0 2,211 
        Other (2)3 181 0 462 0 646 
        Total segment net revenues$2,219 $1,719 $2,031 $462 $(43)$6,388 
        F-38
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Year Ended December 31, 2018
        ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
        Net revenues by platform:
        Console$2,351 $187 $0 $0 $0 $2,538 
        PC368 1,711 154 0 (53)2,180 
        Mobile and ancillary (1)19 220 1,936 0 0 2,175 
        Other (2)0 148 0 459 0 607 
        Total consolidated net revenues$2,738 $2,266 $2,090 $459 $(53)$7,500 
        Change in deferred revenues:
        Console$(257)$(8)$0 $0 $0 $(265)
        PC(23)33 (1)0 0 9 
        Mobile and ancillary (1)0 0 (3)0 0 (3)
        Other (2)0 0 0 21 0 21 
        Total change in deferred revenues$(280)$25 $(4)$21 $0 $(238)
        Segment net revenues:
        Console$2,094 $179 $0 $0 $0 $2,273 
        PC345 1,744 153 0 (53)2,189 
        Mobile and ancillary (1)19 220 1,933 0 0 2,172 
        Other (2)0 148 0 480 0 628 
        Total segment net revenues$2,458 $2,291 $2,086 $480 $(53)$7,262 

        (1)
        Net revenues from "Mobile“Mobile and ancillary"ancillary” include revenues from mobile devices, as well as non-platform specific game-related revenues, such as standalone sales of toys and accessories from our Skylanders® franchise and other physical merchandise and accessories.


        (2)
        Net revenues from "Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.


        (3)Intersegment revenues reflect licensing and service fees charged between segments.

        Long-lived assets by geographic region were as follows (amounts in millions):

         
        		 At December 31, 
         
        		 2017 2016 2015 

        Long-lived assets* by geographic region:

        		          

        Americas

        		 $197 $154 $138 

        EMEA

        		  75  87  42 

        Asia Pacific

        		  22  17  9 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total long-lived assets by geographic region

        		 $294 $258 $189 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​
         At December 31,
         202020192018
        Long-lived assets* by geographic region:   
        Americas$270 $322 $203 
        EMEA166 142 62 
        Asia Pacific17 21 17 
        Total long-lived assets by geographic region$453 $485 $282 

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


        For information regarding significant customers, see "Concentration“Concentration of Credit Risk"Risk” in Note 2.

        14.2.


        F-39
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        16. Share-Based Payments


        Activision Blizzard Equity Incentive Plans


        On June 5, 2014, the Activision Blizzard, Inc. 2014 Incentive Plan (the "2014 Plan"“2014 Plan”) became effective. Under the 2014 Plan, the Compensation Committee of our Board of Directors is authorized to provide share-based compensation in the form of stock options, share appreciation rights, restricted stock, restricted stock units, performance shares, and other performance- or value-based awards structured by the Compensation Committee within parameters set forth in the 2014 Plan. UponAs of the effective date of the 2014 Plan, we had ceased making awards under our prior equity incentive plans


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        14. Share-Based Payments (Continued)

        (collectively, (collectively, the "Prior Plans"“Prior Plans”), although such plans will remain in effect andto the extent that they continue to govern outstanding awards.


        While the Compensation Committee has broad discretion to create equity incentives, our current share-based compensation program currentlygenerally utilizes a combination of options and restricted stock units. The majority of our options have time-based vesting schedules, generally vesting annually over a period of three years to five years, and expire ten10 years from the grant date. In addition, under the terms of the 2014 Plan, the exercise price for the options must be equal to or greater than the closing price per share of our common stock on the date the award is granted, as reported on Nasdaq. Restricted stock units have time-based vesting schedules, generally vesting in their entirety on an anniversary of the date of grant, or vest annually over a period of three years to five years, and may also be contingent on the achievement of specified performance measures.

        measures, including those which are market-based. Achievement against such performance measures typically results in vesting of amounts that are different than the target shares at grant based on over- or under-achievement against the performance targets. Typically, performance-based RSU’s provide for vesting up to 125% of the grant date target shares if performance targets are sufficiently overachieved (and will be cancelled without the vesting of any shares if the threshold level of performance measures is not met), but in certain instances performance-based RSU’s can vest up to 500% of the grant date target amount based on achievement against the performance targets.


        As of the date it was approved by our shareholders, there were 46 million shares available for issuance under the 2014 Plan. The number of shares of our common stock reserved for issuance under the 2014 Plan has been, and may be further, increased from time to time by: (1) the number of shares relating to awards outstanding under any Prior Plan that: (i) expire, or are forfeited, terminated or canceled, without the issuance of shares; (ii) are settled in cash in lieu of shares; or (iii) are exchanged, prior to the issuance of shares of our common stock, for awards not involving our common stock; (2) if the exercise price of any option outstanding under any Prior Plans is, or the tax withholding requirements with respect to any award outstanding under any Prior Plans are, satisfied by withholding shares otherwise then deliverable in respect of the award or the actual or constructive transfer to the Company of shares already owned, the number of shares equal to the withheld or transferred shares; and (3) if a share appreciation right is exercised and settled in shares, a number of shares equal to the difference between the total number of shares with respect to which the award is exercised and the number of shares actually issued or transferred. As of December 31, 2017,2020, we had approximately 3020 million shares of our common stock reserved for future issuance under the 2014 Plan. Shares issued in connection with awards made under the 2014 Plan are generally issued as new stock issuances.

                Additionally, in connection with the King Acquisition, a majority of the outstanding options and awards with respect to King shares that were unvested as of the King Closing Date were converted into equivalent options and awards with respect to shares of the Company's common stock (see Note 20 for further discussion). As part of the conversion, we assumed King's equity incentive plan (the "King Plan") and amended the King Plan to convert it to a plan with respect to shares of the Company's common stock for the King shares assumed. No future shares can be granted from the King Plan, but it continues to govern outstanding awards.


        Fair Value Valuation Assumptions


        Valuation of Stock Options


        The fair value of stock options granted are principally estimated using a binomial-lattice model. The inputs in our binomial-lattice model include expected stock price volatility, risk-free interest rate, dividend yield, contractual term, and vesting schedule, as well as measures of employees'employees’ cancellations, exercise, and post-vesting termination behavior. Statistical methods are used to estimate employee rank-specific termination rates.



        F-40
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        14. Share-Based Payments (Continued)

        (continued)


        The following table presents the weighted-average assumptions, weighted average grant date fair value, and the range of expected stock price volatilities:

        volatility:
         Employee Stock Options
         For the Years Ended December 31,
         202020192018
        Expected life (in years)7.707.857.64
        Volatility30.89 %30.00 %32.37 %
        Risk free interest rate0.70 %1.90 %3.10 %
        Dividend yield0.53 %0.76 %0.61 %
        Weighted-average grant date fair value$25.93 $17.12 $21.03 
        Stock price volatility range:
        Low30.00 %30.00 %31.72 %
        High39.00 %38.17 %36.73 %
         
        		 Employee and Director
        Options        		 
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Expected life (in years)

        		  7.01  6.86  6.26 

        Volatility

        		  35.00% 35.31% 36.13%

        Risk free interest rate

        		  2.14% 1.56% 1.90%

        Dividend yield

        		  0.50% 0.67% 0.72%

        Weighted-average grant date fair value

        		 $21.11 $12.83 $9.87 

        Stock price volatility range:

        		          

        Low

        		  28.19% 29.20% 26.96%

        High

        		  35.00% 36.00% 37.00%

          Expected life


        The expected life of employee stock options is a derived output of the binomial-lattice model and represents the weighted-average period the stock options are expected to remain outstanding. A binomial-lattice model can be viewed as assumingassumes that employees will exercise their options when the stock price equals or exceeds an exercise multiple, of which themultiple. The exercise multiple is based on historical employee exercise behaviors.


        Volatility


        To estimate volatility for the binomial-lattice model, we consider the implied volatility of exchange-traded options on our stock to estimate short-term volatility, the historical volatility of our common shares during the option'soption’s contractual term to estimate long-term volatility, and a statistical model to estimate the transition from short-term volatility to long-term volatility.


        Risk-free interest rate


        As is the case for volatility, the risk-free interest rate is assumed to change during the option'soption’s contractual term. The risk-free interest rate, which is based on U.S. Treasury yield curves, reflects the expected movement in the interest rate from one time period to the next ("forward rate").

          next.


        Dividend yield


        The expected dividend yield assumption is based on our historical and expected future amount of dividend payouts.


        Share-based compensation expense recognized is based on awards ultimately expected to vest and therefore has been reduced for estimated forfeitures in the consolidated statement of operations for the years ended December 31, 2017, 2016, and 2015.forfeitures. Forfeitures are estimated at the time of grant based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.



        F-41
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        14. Share-Based Payments (Continued)

        (continued)


        Valuation of Restricted Stock Units ("RSUs"(“RSUs”)


        The fair value of the Company'sCompany’s RSU awards granted is principallyare generally based upon the closing price of the Company'sCompany’s stock price on the date of grant reduced by the present value of dividends expected to be paid on our common stock prior to vesting.

        We also grant market-based RSU awards, from time to time, whose fair value is determined using a Monte Carlo simulation. Such market-based RSU awards include performance conditions based on our own stock price, and may also include performance conditions that compare our stock price performance to an index, such as the S&P 500 Total Shareholder Return index. The Monte Carlo model simulates performance of our stock, as well as any applicable stock index performance, over the performance measurement period to determine the performance payout, with the resulting achievement discounted back to the valuation date, at the risk-free rate, to arrive at the fair value of the awards. Additionally, the Monte Carlo simulation provides an output of the service period to achieve the market condition in instances where such market condition can impact the vesting date of the market-based RSU. The valuation assumptions utilized in the Monte Carlo model are generally consistent with those discussed in the valuation of stock options above. The weighted average risk free interest rate, volatility, and dividend yield utilized in the Monte Carlo model for market-based RSU awards in 2020 were 0.11%, 37.39%, and 0.47%, respectively.


        Accuracy of Fair Value Estimates


        We developed the assumptions used in the models above, including model inputs and measures of employees'employees’ exercise and post-vesting termination behavior. Our ability to accurately estimate the fair value of share-based payment awards at the grant date depends upon the accuracy of the model and our ability to accurately forecast model inputs for as long as 10 years into the future. These inputs include, but are not limited to, expected stock price volatility, risk-free rate, dividend yield, and employee termination rates. Although the fair value of employee stock options is determined using an option-pricing model, the estimates that are produced by this model may not be indicative of the fair value observed between a willing buyer and a willing seller. Unfortunately, it is difficult to determine if this isseller as there are not current active markets for the case, as markets do not currently exist that permit the active trading of employee stock optionoptions and other share-based instruments.


        Stock Option Activity


        Stock option activity is as follows:

         Number of shares (in thousands)Weighted-average
        exercise price per stock option        		Weighted-average
        remaining
        contractual term (in years)        		Aggregate
        intrinsic value (in millions)
        Outstanding stock options at December 31, 201914,029 $44.31 
        Granted2,419 78.19 
        Exercised(4,543)37.49 
        Forfeited(573)52.98 
        Expired(35)52.68 
        Outstanding stock options at December 31, 202011,297 $53.84 7.68$441 
        Vested and expected to vest at December 31, 202010,669 $53.05 7.60$425 
        Exercisable at December 31, 20203,710 $41.56 5.75$190 
         
        		 Number of
        Shares
        (in thousands)        		 Weighted-
        average
        exercise price        		 Weighted-
        average
        remaining
        contractual
        term (in years)        		 Aggregate
        intrinsic value
        (in millions)        		 

        Outstanding stock options at December 31, 2016

        		  31,485 $26.79       

        Granted

        		  2,579  59.89       

        Exercised

        		  (10,861) 16.44       

        Forfeited

        		  (2,650) 41.32       

        Expired

        		  (9) 16.41       
        ​​​ ​ ​​​​​​​​​​

        Outstanding stock options at December 31, 2017

        		  20,544 $34.54  7.07 $591 
        ​​​ ​ ​​​​​​​​​​
        ​​​​​​​​​​​​​​
        ​​​ ​ ​​​​​​​​​​

        Vested and expected to vest at December 31, 2017

        		  16,077 $31.79  7.26 $507 

        Exercisable at December 31, 2017

        		  6,747 $21.36  5.79 $283 

                For options assumed in the King Acquisition, 0.4 million of the options are based on performance conditions which do not have an accounting grant date as of December 31, 2017, as there is not a mutual understanding between the Company and the employee of the performance terms.

        The aggregate intrinsic values in the table above represents the total pretax intrinsic value (i.e., the difference between our closing stock price on the last trading day of the period and the exercise price, times the number of shares for options where the closing stock price is greater than the exercise price) that would have been received by the option holders had all option holders exercised their options on


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        14. Share-Based Payments (Continued)

        that date. This amount changes based on the market value of our stock. The total intrinsic value of options actually exercised was $372$174 million, $161$80 million, and $125$196 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The total grant date fair value of options that vested was $47 million, $40 million, and $19 million forduring the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018 was $62 million, $94 million, and $45 million, respectively.


        At December 31, 2017, $802020, $66 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.271.25 years.


        F-42
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        RSU Activity


        We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs is contingent upon the holders'holders’ continued employment with us and may be subject to other conditions (which may include the satisfaction of a performance measure). Also, certain of our performance-based RSUs, including those that are market-based, include a range of shares that may be released at vesting which are above or below the targeted number of RSUs based on actual performance relative to the grant date performance measure. If the vesting conditions are not met, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax withholding requirements.


        The following table summarizes our RSU activity with performance-based RSUs, including those with market conditions, presented at 100% of the maximum potentialtarget level shares that could be earned and issued at vestingmay potentially vest (amounts in thousands, except per share amounts)data):

         Number of sharesWeighted-
        average grant
        date fair value per RSU
        Unvested RSUs at December 31, 20197,181 $54.23 
        Granted2,254 201.25 
        Vested(1,513)49.76 
        Forfeited(820)55.39 
        Unvested RSUs at December 31, 20207,102 $82.50 
         
        		 Number of
        shares        		 Weighted-
        Average Grant
        Date Fair Value        		 

        Unvested RSUs at December 31, 2016

        		  11,977 $17.44 

        Granted

        		  3,298  63.75 

        Vested

        		  (2,233) 29.50 

        Forfeited

        		  (1,221) 26.41 
        ​​​​ ​​​​

        Unvested RSUs at December 31, 2017

        		  11,821 $27.20 
        ​​​​ ​​​​
        ​​​​​​​​
        ​​​ ​ ​​​​

        Certain of our performance-based RSUs did not have an accounting grant date as of December 31, 2017,2020, as there is not a mutual understanding between the Company and the employee of the performance terms. Generally, these performance terms relate to operating income performance for future years where the performance goals have not yet been set. As of December 31, 2017,2020, based on the target potential shares that could be earned, there were 4.42.4 million performance-based RSUs outstanding for which the accounting grant date hashad not been set, of which 1.91.4 million were 20172020 grants. Accordingly, no grant date fair value was established and the weighted average grant date fair valuevalues calculated above for 2017 grants excludes these RSUs.


        At December 31, 2017,2020, approximately $111$170 million of total unrecognized compensation cost was related to RSUs and is expected to be recognized over a weighted-average period of 1.440.75 years. Of the total unrecognized compensation cost, $102$154 million was related to performance-based RSUs, which is expected to be recognized over a weighted-average period of 1.540.75 years. The total grant date fair value of RSUs that vested RSUs was $64 million, $123 million and $93 million forduring the years ended December 31, 2017, 20162020, 2019, and 2015,2018 was $82 million, $147 million, and $120 million, respectively.



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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        14. Share-Based Payments (Continued)

        The income tax benefit from stock option exercises and RSU vestings was $160$61 million, $134$47 million, and $109$94 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively.


        F-43
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Share-Based Compensation Expense


        The following table sets forth the total share-based compensation expense included in our consolidated statements of operations (amounts in millions):

         For the Years Ended December 31,
        202020192018
        Cost of revenues—product sales: Software royalties, amortization, and intellectual property licenses$14 $19 $13 
        Cost of revenues—in-game, subscription, and other: Game Operations and Distribution Costs1 1 2 
        Cost of revenues—in-game, subscription, and other: Software royalties, amortization, and intellectual property licenses0 1 3 
        Product development42 53 61 
        Sales and marketing21 10 15 
        General and administrative140 82 115 
        Share-based compensation expense before income taxes218 166 209 
        Income tax benefit(28)(29)(46)
        Total share-based compensation expense, net of income tax benefit$190 $137 $163 

        17. Restructuring

        During 2019, we began implementing a plan aimed at refocusing our resources on our largest opportunities and removing unnecessary levels of complexity from certain parts of our business. We have been:

        •increasing our investment in development for our largest, internally-owned franchises—across upfront releases, in-game content, mobile, and geographic expansion;

        •reducing certain non-development and administrative-related costs across our business; and

        •integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and scale on behalf of our business units.

        Since initial implementation in 2019, we have expanded the scope of certain actions within our plan that are aimed at integrating our global and regional functions to allow continued focus on investing in our largest, internally-owned franchises and to provide us with the ability to better leverage our scale across the organization. The restructuring actions remain in progress as we continue to focus on these goals and will continue into 2021.

        F-44
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Cost of revenues—product sales: Software royalties, amortization, and intellectual property licenses

        		 $10 $20 $12 

        Cost of revenues—subscription, licensing, and other revenues: Game Operations and Distribution Costs

        		  1  2  — 

        Cost of revenues—subscription, licensing, and other revenues: Software royalties, amortization, and intellectual property licenses

        		  3  2  3 

        Product development

        		  57  47  25 

        Sales and marketing

        		  15  15  9 

        General and administrative

        		  92  73  43 
        ​​​ ​ ​​ ​ ​​​ ​

        Share-based compensation expense before income taxes

        		  178  159  92 

        Income tax benefit

        		  (34) (42) (27)
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total share-based compensation expense, net of income tax benefit

        		 $144 $117 $65 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​​ ​

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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        15.(continued)


        The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other liabilities” in our consolidated balance sheet (amounts in millions) related to this plan:

        Severance and employee related costsFacilities and related costsOther costsTotal
        Balance at December 31, 2018$0 $0 $0 $0 
        Costs charged to expense76 29 27 132 
        Cash payments(44)0 (12)(56)
        Non-cash charge adjustment (1)0 (29)(12)(41)
        Balance at December 31, 2019$32 $0 $3 $35 
        Costs charged to expense76 6 5 87 
        Cash payments(20)0 (5)(25)
        Non-cash charge adjustment (1)0 (6)0 (6)
        Balance at December 31, 2020$88 $0 $3 $91 
        Cumulative charges incurred through December 31, 2020$152 $35 $32 $219 

        (1)Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed assets, that were vacated.

        Total restructuring and related costs by segment are (amounts in millions):
        Year Ended December 31, 2020Year Ended December 31, 2019
        Activision$13 $19 
        Blizzard71 68 
        King(1)20 
        Other segments (1)4 25 
        Total$87 $132 
        (1)Includes charges for operating segments managed outside the reportable segments and our corporate and administrative functions.

        During the year ended December 31, 2020, we incurred additional restructuring charges that are not included in the plan discussed above. Such amounts were not material.

        During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales: Product costs” in our consolidated statement of operations.

        We expect to incur total aggregate pre-tax restructuring charges of approximately $310 million associated with the plan, of which the remaining charges that have not yet been incurred are expected to largely be incurred within the next 12 months. The charges associated with the plan are expected to relate to severance and employee-related costs (approximately 60% of the aggregate charge), facilities and related costs (approximately 20% of the aggregate charge), and other costs (approximately 20% of the aggregate charge), including charges for restructuring related fees and the write-down of assets. A substantial majority (approximately 70%) of the total pre-tax charge associated with the restructuring is expected to be paid in cash using amounts on hand, and such cash outlays are largely expected to be completed by the end of 2021. We do not expect to realize significant net savings in our total operating expenses as a result of our plan, as cost reductions in our selling, general and administrative activities is expected to be offset by increased investment in product development.
        F-45
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)


        The total charges incurred through December 31, 2020 and total expected pre-tax restructuring charges related to the plan by segment, inclusive of amounts already incurred and inclusive of the inventory write-down discussed above, are presented below (amounts in millions):
        Total Charges Incurred Through December 31, 2020Total Charges Expected as of December 31, 2020
        Activision$32 $42 
        Blizzard144 200 
        King19 25 
        Other segments (1)29 43 
        Total$224 $310 

        (1)Includes charges for operating segments managed outside the reportable segments and our corporate and administrative functions.

        18. Interest and Other Expense (Income), Net

        Interest and other expense (income), net is comprised of the following (amounts in millions):
        For the Years Ended December 31,
        202020192018
        Interest income$(21)$(79)$(65)
        Interest expense from debt and amortization of debt discount and deferred financing costs99 90 140 
        Unrealized gain on equity investment(3)(38)0 
        Other expense (income), net12 1 (4)
        Interest and other expense (income), net$87 $(26)$71 

        F-46
        Table of Contents
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)
        19. Income Taxes


        Domestic and foreign income (loss) before income taxes and details of the income tax expense (benefit) are as follows (amounts in millions):

         For the Years Ended December 31,
         202020192018
        Income before income tax expense:   
        Domestic$1,160 $328 $432 
        Foreign1,456 1,305 1,445 
        $2,616 $1,633 $1,877 
        Income tax expense (benefit): 
        Current: 
        Federal$206 $136 $(208)
        State92 24 (15)
        Foreign218 323 280 
        Total current516 483 57 
        Deferred:
        Federal(84)781 (153)
        State(10)(16)106 
        Foreign(3)(1,118)19 
        Total deferred(97)(353)(28)
        Income tax expense$419 $130 $29 
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Income before income tax expense:

        		          

        Domestic

        		 $185 $228 $355 

        Foreign

        		  966  878  766 
        ​​​​ ​​ ​ ​​ ​ ​

        		 $1,151 $1,106 $1,121 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​

        Income tax expense (benefit):

        		          

        Current:

        		          

        Federal

        		 $696 $(15)$169 

        State

        		  26  16  31 

        Foreign

        		  335  150  40 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total current

        		  1,057  151  240 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Deferred:

        		          

        Federal

        		  (111) 40  1 

        State

        		  (32) (13) (21)

        Foreign

        		  (36) (38) 9 
        ​​​ ​ ​​ ​ ​​ ​ ​

        Total deferred

        		  (179) (11) (11)
        ​​​ ​ ​​ ​ ​​ ​ ​

        Income tax expense

        		 $878 $140 $229 
        ​​​ ​ ​​ ​​​ ​ ​
        ​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​

                For the year ended December 31, 2017 and 2016, excess tax benefits attributable to share-based compensation transactions are recognized to the extent that tax deduction on share-based compensation exceeds the corresponding compensation cost recorded on the financial statement. For the years ended December 31, 2017 and 2016, we recognized $113 million and $81 million, respectively, of excess tax benefits from share-based payments as a reduction to income tax expense due to our adoption of a new accounting standard in 2016. For periods prior to 2016, such excess tax benefits were recorded to shareholders' equity.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        15. Income Taxes (Continued)

        The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate and the income tax expense (benefit) at the effective tax rate for each of the years are as follows (amounts in millions):

         For the Years Ended December 31,
         202020192018
        Federal income tax provision at statutory rate$549 21 %$343 21 %$394 21 %
        State taxes, net of federal benefit49 2 20 1 36 2 
        Research and development credits(70)(3)(38)(2)(46)(2)
        Foreign rate differential(103)(4)(104)(7)(198)(11)
        Foreign-derived intangible income(40)(2)(1)0 0 0 
        Change in tax reserves60 2 96 6 285 15 
        Audit settlements0 0 54 3 (115)(6)
        Excess tax benefits related to share-based payments(30)(1)(2)0 (58)(3)
        U.S. Tax Reform Act0 0 0 0 (340)(18)
        Change in valuation allowance35 2 11 1 61 3 
        Intra-entity IP Transfer(31)(1)(230)(14)0 0 
        Other0 0 (19)(1)10 1 
        Income tax expense$419 16 %$130 8 %$29 2 %
         
        		 For the Years Ended December 31, 
         
        		 2017 2016 2015 

        Federal income tax provision at statutory rate

        		 $403  35%$387  35%$392  35%

        State taxes, net of federal benefit

        		  4  —  9  1  5  — 

        Research and development credits

        		  (26) (2) (36) (3) (26) (2)

        Foreign rate differential

        		  (271) (24) (239) (22) (228) (20)

        Change in tax reserves

        		  291  25  210  19  136  12 

        Net operating loss tax attribute assumed from the Purchase Transaction

        		  (36) (3) (114) (10) (63) (6)

        Excess tax benefits related to share-based payments

        		  (113) (10) (81) (7) —  — 

        U.S. Tax Reform Act

        		  636  55  —  —  —  — 

        Other

        		  (10) —  4  —  13  1 
        ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

        Income tax expense

        		 $878  76%$140  13%$229  20%
        ​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​
        ​​​​​​​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

        The Company'sCompany’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, the relative amountsome of income earned by jurisdiction, and the jurisdictions withwhich have a statutory tax rate less than the U.S. rate and the relative amount of 35%income earned in each jurisdiction.

        F-47
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        In October 2019, we completed an intra-entity transfer of certain intellectual property rights to one of our subsidiaries in the U.K., aligning the ownership of these rights with our evolving business. The transfer did not result in a taxable gain; however, our U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property rights. Such fair value was determined based on our expectations of future cash flows, long-term growth rates, and discount rates. We recorded a one-time benefit of $230 million in the quarter ended December 31, 2019 for the recognition of a $1.1 billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred intellectual property, net of uncertain tax positions and a valuation allowance, partially offset by a related $920 million deferred tax liability for U.S. taxes on foreign earnings. The U.K. amortizable tax basis will be recovered over a period of three years to 25 years and the related deferred tax asset was measured using the enacted U.K. corporate tax rates for the years in which the amortization will be realized. We recorded a valuation allowance of $110 million in 2019 for the portion of the deferred tax asset for which it is more-likely-than-not that a benefit will not be realized. We will update the measurement and realizability analysis going forward and record the impact from any change in determination in the period of the change.

        During the year ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights to the U.S. to better align the profits related to these rights with our evolving business activities. As a result, a significant portion of these earnings began qualifying for preferential treatment as foreign-derived intangible income during 2020. The transfer resulted in a one-time benefit of $31 million in connection with the remeasurement of a U.S. deferred tax asset related to foreign earnings.

        On June 27, 2018, we entered into a closing agreement with the Internal Revenue Service (“IRS”) to resolve certain intercompany transfer pricing arrangements for tax periods starting in 2009 (the “Closing Agreement”).

        The primary adjustments related to the Closing Agreement were recognized in the second quarter of 2018 and consisted of a tax expense of $70 million and a reduction in unrecognized tax benefits of $437 million. In addition, we recognized $185 million of tax benefits related to other tax adjustments resulting from the changes in U.S. tax attributes and taxable income caused by the primary adjustments. The Closing Agreement resulted in federal and state cash tax payments totaling approximately $345 million, of which federal tax payments of $334 million were made in October 2018.


        On December 22, 2017, the U.S. Tax Reform Act was enacted. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21%, beginning in 2018, and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earningsthe Transition Tax. In the fourth quarter of foreign subsidiaries ("Transition Tax").

                On December 22, 2017,2018, we completed our analysis of the SEC staff issued SAB 118, which provides guidance on how to account for the effectseffect of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement period of up to one year, until accounting is complete.

                Weand recorded a provisional amount for the effectsnet tax benefit of the U.S. Tax Reform Act based on a reasonable estimate in the fourth quarter of 2017 resulting in a charge of $636$340 million. This includes current tax expense of $555 millionis primarily related to the Transition Tax, which is payable over eight years, andadoption of GILTI deferred tax expense of $81 million related to theaccounting and remeasurement of deferred taxes resulting from the U.S. corporate income tax rate reduction. Accounting for the incomeassets and liabilities partially offset by tax effects of the U.S. Tax Reform Act requires complex new calculationsexpense related to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different from our interpretation. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take as a result of the U.S. Tax Reform Act.

                We continue to analyze the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as GILTI, BEAT, and FDII, potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act.

        Transition Tax.




        F-48
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        15. Income Taxes (Continued)

                In 2013, in connection with the October 11, 2013 repurchase of approximately 429 million shares of our common stock ("Purchase Transaction"), we assumed certain tax attributes, generally consisting of net operating loss ("NOL") carryforwards of approximately $760 million, which represent a potential tax benefit of approximately $266 million. 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 of December 31, 2017, we had utilized approximately $760 million of the original NOL and had recorded an indemnification asset of $200 million in "Other assets." Correspondingly, the same amount was recorded as a reduction to the consideration paid for the shares repurchased in "Treasury stock." In each of the years ended December 31, 2017, 2016, and 2015, we utilized $103 million, $326 million, and $180 million of the NOL and recognized a corresponding reserve of $36 million, $114 million, and $63 million in each of those years ended, respectively.

        (continued)


        Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for accounting purposes and the amounts used for income tax purposes. The components of the net deferred tax assets (liabilities) are as follows (amounts in millions):

         As of December 31,
         20202019
        Deferred tax assets:  
        Deferred revenue$274 $119 
        Tax attributes carryforwards123 93 
        Share-based compensation51 54 
        Intangibles1,287 1,289 
        Capitalized software development expenses21 67 
        Other160 156 
        Deferred tax assets1,916 1,778 
        Valuation allowance(228)(181)
        Deferred tax assets, net of valuation allowance1,688 1,597 
        Deferred tax liabilities: 
        Intangibles(147)(142)
        U.S. deferred taxes on foreign earnings(577)(594)
        Other(63)(73)
        Deferred tax liabilities(787)(809)
        Net deferred tax assets$901 $788 
         
        		 As of December 31, 
         
        		 2017 2016 

        Deferred tax assets:

        		       

        Allowance for sales returns and price protection

        		 $47 $64 

        Inventory reserve

        		  5  9 

        Accrued expenses

        		  26  25 

        Deferred revenue

        		  245  233 

        Tax credit carryforwards

        		  60  48 

        Net operating loss carryforwards

        		  11  10 

        Share-based compensation

        		  59  61 

        Acquired intangibles

        		  149  111 

        State taxes

        		  22  24 

        Other

        		  39  28 
        ​​​ ​ ​​​ ​

        Deferred tax assets

        		  663  613 

        Valuation allowance

        		  —  — 
        ​​​ ​ ​​ ​​

        Deferred tax assets, net of valuation allowance

        		  663  613 
        ​​​ ​ ​​ ​​

        Deferred tax liabilities:

        		       

        Acquired intangibles

        		  (146) (219)

        Prepaid royalties

        		  (19) (60)

        Capitalized software development expenses

        		  (55) (91)

        Other

        		  (5) (4)
        ​​​ ​ ​​ ​ ​

        Deferred tax liabilities

        		  (225) (374)
        ​​​ ​ ​​ ​ ​

        Net deferred tax assets

        		 $438 $239 
        ​​​ ​ ​​ ​ ​
        ​​​​​​​​
        ​​​ ​ ​​ ​ ​

        As of December 31, 2017,2020, we had gross tax credit carryforwards of $152$227 million for state purposes. The tax credit carryforwards are presentedincluded in "Deferreddeferred tax assets"assets net of unrealized tax benefits that


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        15. Income Taxes (Continued)

        would apply upon the realization of uncertain tax positions. In addition, we had foreign NOLnet operating loss carryforwards of $33$46 million at December 31, 2017, attributed mainly to losses in France2020, most of which can be carriedcarry forward indefinitely.


        We evaluate our deferred tax assets including net operating losses and tax credits, to determine ifeach period for recoverability. We record a valuation allowance is required. We assess whether a valuation allowance shouldfor assets that do not meet the threshold of “more likely than not” to be established or releasedrealized in the future. To make that determination, we evaluate the likelihood of realization based on the considerationweight of all availablepositive and negative evidence using a "more-likely-than-not" standard. Realization of the U.S. deferred tax assets is dependent upon the continued generation of sufficient taxable income. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, management believes it is more likely than not that the net carrying value of the U.S. deferred tax assets will be realized. At December 31, 2017 and 2016, there are no valuation allowances on deferred tax assets.

        available. As of December 31, 2017,2020 and December 31, 2019, we no longer consider the available cash balancesmaintained a valuation allowance related to undistributed earningsour California research and development credit carryforwards of our most significant foreign subsidiaries to be indefinitely reinvested. As$107 million and $71 million, respectively. We will reassess this determination quarterly and record a resulttax benefit if and when future evidence allows for a partial or full release of this valuation allowance.


        In addition, we remeasured the U.S. Tax Reform Act, we continue to assess and may change our intentionsU.K. deferred tax asset related to previously transferred intellectual property rights and corresponding U.S. deferred tax liability due to the indefinite reinvestment assertion. Any impact resulting from such a change in this assertionthe U.K.'s corporate income tax rate during 2020. As of December 31, 2020, the SAB 118 measurement period will be recorded as an adjustment toU.K. deferred tax asset net of valuation allowance is $1.1 billion and the provisional amount recorded for the effects of thecorresponding U.S. Tax Reform Act in the period in which such determinationdeferred tax liability is made.

        $881 million.


        Activision Blizzard'sBlizzard’s tax years 2009 through 2016after 2008 remain open to examination by thecertain major taxing jurisdictions to which we are subject. The IRSInternal Revenue Service is currently examining the Company'sour federal tax returns for the 2009 through 2011 tax years, and during February 2018, the Company was notified that our tax returns for 2012 through 2016 tax years will be subject to examination. The Companyyears. We also hashave several state and non-U.S. audits pending. In addition, King’s pre-acquisition tax returns remain open in various jurisdictions, primarily as parta result of purchase price accounting for the King Acquisition, the Company assumed $74 million of uncertain tax positions primarily related to the transfer pricing on Kingmatters. We anticipate resolving King’s transfer pricing for both pre- and post-acquisition tax years occurring prior tothrough a collaborative multilateral process with the King Acquisition. The Company is currentlytax authorities in negotiations with the relevant jurisdictions, which include the U.K. and taxing authorities with respect to King's transfer pricing, whichSweden. While the outcome of this process remains uncertain, it could result in a differentan agreement that changes the allocation of profits and losses between these and other relevant jurisdictions or a failure to reach an agreement that results in unilateral adjustments to the relevant jurisdictions.

                Onamount and timing of taxable income in the jurisdictions in which King operates.


        F-49
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        In December 28, 2017, we received a Notice of Reassessment from the French Tax Authority ("FTA"(the “FTA”) related to transfer pricing concerningfor intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680(approximately $638 million). We disagree withIn December 2019, the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remediesCompany reached a settlement with the FTA and judicial remedies, if necessary. While we believe ourfor the 2011 through 2018 tax provisions atyears, resulting in the recognition of $54 million of tax expense in the period ended December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional2019 and a tax liabilities. In addition to the riskpayment of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

        €161 million (approximately $179 million), including interest and penalties, in January 2020.


        In addition, certain of our subsidiaries are under examination or investigation, or may be subject to examination or investigation, by tax authorities in various jurisdictions. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company'sCompany’s consolidated financial position, liquidity, or results of operations in the earlier of the period or periods in which the matters are resolved orand in which appropriate tax provisions are taken into account in our financial statements. If we were to receive a


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        15. Income Taxes (Continued)

        materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.


        As of December 31, 2017,2020, we had approximately $1,138 million$1.2 billion of gross unrecognized tax benefits, $706 million of which $1,114 million would affect our effective tax rate, if recognized. A reconciliation of total gross unrecognized tax benefits is as follows (amounts in millions):

         For the Years Ended December 31,
         202020192018
        Unrecognized tax benefits balance at January 1$1,037 $926 $1,138 
        Gross increase for tax positions taken during a prior year97 151 103 
        Gross decrease for tax positions taken during a prior year(1)(168)(123)
        Gross increase for tax positions taken during the current year38 291 132 
        Settlement with taxing authorities(3)(163)(312)
        Lapse of statute of limitations(2)0 (12)
        Unrecognized tax benefits balance at December 31$1,166 $1,037 $926 
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Unrecognized tax benefits balance at January 1

        		 $846 $552 $419 

        Gross increase for tax positions of prior-years

        		  66  89  8 

        Gross decrease for tax positions of prior-years

        		  —  (17) (11)

        Gross increase for tax positions of current year

        		  229  240  136 

        Settlement with taxing authorities

        		  (1) (18) — 

        Lapse of statute of limitations

        		  (2) —  — 
        ​​​ ​ ​​ ​​​ ​ ​

        Unrecognized tax benefits balance at December 31

        		 $1,138 $846 $552 
        ​​​ ​ ​​​ ​​ ​ ​
        ​​​​​​​​​​​
        ​​​​ ​​ ​ ​​ ​ ​

        As of December 31, 20172020, 2019, and 2016,2018, we had approximately $121$93 million, $72 million, and $71$87 million, respectively, of accrued interest and penalties related to uncertain tax positions. For the yearyears ended December 31, 2017, 2016,2020, 2019, and 2015,2018, we recorded $28$19 million, $17$14 million, and $10$11 million, respectively, of interest expense related to uncertain tax positions.


        The final resolution of the Company'sCompany’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company'sCompany’s management, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company'sCompany’s consolidated financial position, liquidity or results of operations, except as noted above.



        F-50
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        16.(continued)


        20. Computation of Basic/Diluted Earnings Per Common Share


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

         For the Years Ended December 31,
         202020192018
        Numerator:   
        Consolidated net income$2,197 $1,503 $1,848 
        Denominator:
        Denominator for basic earnings per common share—weighted-average common shares outstanding771 767 762 
        Effect of dilutive stock options and awards under the treasury stock method7 4 9 
        Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method778 771 771 
        Basic earnings per common share$2.85 $1.96 $2.43 
        Diluted earnings per common share$2.82 $1.95 $2.40 
         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Numerator:

        		          

        Consolidated net income

        		 $273 $966 $892 

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

        		  —  (2) (4)

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

        		  —  (2) (7)
        ​​​ ​ ​​ ​​​ ​ ​

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

        		 $273 $962 $881 

        Denominator:

        		          

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

        		  754  740  728 

        Effect of dilutive stock options and awards under the treasury stock method

        		  12  14  11 
        ​​​ ​​​ ​ ​​ ​​

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

        		  766  754  739 
        ​​​ ​ ​​ ​​​ ​ ​

        Basic earnings per common share

        		 $0.36 $1.30 $1.21 
        ​​​ ​​​ ​ ​​ ​​
        ​​​​​​​​​​​
        ​​​ ​ ​​​ ​​ ​ ​

        Diluted earnings per common share

        		 $0.36 $1.28 $1.19 
        ​​​ ​ ​​ ​ ​​​ ​
        ​​​​​​​​​​​
        ​​​ ​​​ ​ ​​ ​ ​

                Certain of our unvested restricted stock units meet the definition of participating securities as they participate in earnings based on their rights to dividends or dividend equivalents. Therefore, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the years ended December 31, 2017, 2016, and 2015, on a weighted-average basis, we had outstanding unvested restricted stock units of less than 1 million, 3 million, and 8 million shares of common stock, respectively, that are participating in earnings.

        The vesting of certain of our employee-related restricted stock units and options areis contingent upon the satisfaction of pre-definedpredefined performance measures. The shares underlying these equity awards are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Approximately 7 million, 8 million, and 3 million shares are not included in the computation of diluted earnings per common share for the years ended December 31, 2017, 2016, and 2015, respectively, as their respective performance measures had not yet been met.

                PotentialAdditionally, potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive. Therefore, options to acquire 1 million, 5 million, and 1 million


        Weighted-average shares of common stock were not included inexcluded from the calculationcomputation of diluted earnings per common share for the years ended December 31, 2017, 2016, and 2015, respectively,were as the effect of their inclusion would be anti-dilutive.

        follows (amounts in millions):

        For the For the Years Ended December 31,
        202020192018
        Restricted stock units with performance measures not yet met2 2 4 
        Anti-dilutive employee stock options1 6 3 

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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        17.


        21. Capital Transactions


        Repurchase Programs


        On February 2, 2017,January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1of $4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, 2017 through February 12, 2019. As2023 and a determination by the Board of Directors to discontinue the repurchase program. To date, hereof, we have not repurchased any shares under this program and the determination as to if and when we make any such stock repurchases will be dependent on market conditions and other factors.

        Dividends

        program.


        On February 1, 2018,January 31, 2019, our Board of Director approvedDirectors authorized a stock repurchase program under which we were authorized to repurchase up to $1.5 billion of our common stock from February 14, 2019 until the earlier of February 13, 2021 and a determination by the Board of Directors to discontinue the repurchase program. We did not repurchase any shares under this program.

        Dividends

        On February 4, 2021, our Board of Directors declared a cash dividend of $0.34$0.47 per common share. Such dividend is payable on May 6, 2021, to shareholders of record at the close of business on April 15, 2021.

        F-51
        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        On February 6, 2020, our Board of Directors declared a cash dividend of $0.41 per common share. On May 6, 2020, made an aggregate cash dividend payment of $316 million to shareholders of record at the close of business on April 15, 2020.

        On February 12, 2019, our Board of Directors declared a cash dividend of $0.37 per common share. On May 9, 2019, we made an aggregate cash dividend payment of $283 million to shareholders of record at the close of business on March 28, 2019.

        On February 8, 2018, our Board of Directors declared a cash dividend of $0.34 per common share. On May 9, 2018, we made an aggregate cash dividend payment of $259 million to shareholders of record at the close of business on March 30, 2018.

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

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

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

        18. Supplemental Cash Flow Information

                Supplemental cash flow information is as follows (amounts in millions):


         
        		 For the Years Ended
        December 31,        		 
         
        		 2017 2016 2015 

        Supplemental cash flow information:

        		          

        Cash paid for income taxes, net of refunds

        		 $176 $121 $20 

        Cash paid for interest

        		  145  209  193 

                For the year ended December 31, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition. Refer to Note 20 for further discussion.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        19.22. Commitments and Contingencies


        Commitments and Obligations


        In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating lease agreements for our offices, for the development of products and for thewhich may include obtaining rights to intellectual property.property, and for hosting services to support our games and our administrative functions. Under these agreements, we commit to provide specified payments to a lessor, developer, or intellectual property holder,hosting provider, as the case may be, based upon contractual arrangements. The payments to third-party developers are generally conditioned upon the achievement by the developers of contractually specified development milestones. Further, these payments to third-party developers and intellectual property holders typically are deemed to be advances and, as such, are recoupable against future royalties earned by the developer or intellectual property holder based on sales of the related game. Additionally, we also enter into arrangements in connection with certain intellectual property rights, acquisitions and development agreements,which we commit to spend specified amounts for marketing to support for the game(s) which is (are) to be developed or in which the intellectual property will be utilized.and promote our content and services. Assuming all contractual provisions are met, the total future minimum commitments for these and other contractual arrangements in place at December 31, 20172020, are scheduled to be paid as follows (amounts in millions):

         
        		 Contractual Obligations(1) 
         
        		 Facility and
        Equipment
        Leases        		 Developer and
        Intellectual
        Properties        		 Marketing Long-Term
        Debt
        Obligations(2)        		 Total 

        For the years ending December 31,

        		                

        2018

        		 $81 $202 $19 $159 $461 

        2019

        		  70  2  —  159  231 

        2020

        		  61  1  —  159  221 

        2021

        		  48  —  —  1,790  1,838 

        2022

        		  41  —  —  512  553 

        Thereafter

        		  88  —  —  3,064  3,152 
        ​​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​

        Total

        		 $389 $205 $19 $5,843 $6,456 
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
        ​​​​​​​​​​​​​​​​​
        ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
         Contractual Obligations (1)
         Facility and
        Equipment
        Leases        		Developer and HostingMarketingLong-Term Debt Obligations (2)Total
        For the years ending December 31,    
        2021$77 $95 $158 $109 $439 
        202272 84 166 105 427 
        202365 85 66 105 321 
        202454 3 0 105 162 
        202533 0 0 105 138 
        Thereafter19 0 0 5,057 5,076 
        Total$320 $267 $390 $5,586 $6,563 

        (1)
        We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of the potential issue resolution of the underlying matters. Specifically, either (a) the underlying positions have not been fully developed under audit to quantify at this time or (b) the years relating to the matters for certain jurisdictions are not currently under audit. At December 31, 2017,2020, we had $455 million and $495$466 million of net unrecognized tax benefits included in "Accrued expenses and other liabilities" and "Other“Other liabilities," respectively,” in our consolidated balance sheet.


        Additionally, asat December 31, 2020, we have a resultremaining net Transition Tax liability of $153 million associated with the U.S. Tax Reform Act, we recorded a liability at December 31, 2017, of $467 million which reflects our estimated Transition Tax net payments. This provisional amount is subject to change as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued.Act. The remaining Transition Tax liability is payable over up to eightthe next six years and is not reflected in our Contractual Obligations table above. We expect to pay $77 million of the Transition Tax during 2018.



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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        19. Commitments and Contingencies (Continued)

        (2)
        Long-term debt obligations represent our obligations related to the contractual principal repayments and interest payments under the 2017 TLA and the Notesfor our outstanding unsecured notes, which are subject to fixed interest rates, as of December 31, 2017.2020. There was no outstanding balance under our Revolver as of December 31, 2017. The Notes are subject to fixed interest rates and we have calculated the interest obligation based on the applicable rates and payment dates. The 2017 TLA bears a variable interest rate and interest is payable at least quarterly.2020. We have calculated the expected interest obligation based on the outstanding principal balance and interest rate applicable at December 31, 2017.2020. Refer to Note 1113 for additional information on our debt obligations.


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        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
        Notes to Consolidated Financial Statements (continued)

        Legal Proceedings

                As described in Note 15, on December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million).


        We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

                In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising fromin the ordinary course of business, including with respect to intellectual property, rights, contractual claims, laborcompetition and employmentantitrust matters, regulatory matters, tax matters, privacy matters, labor and employment matters, compliance matters, unclaimed property matters, complianceliability and personal injury claims, product damage claims, collection matters, and collection matters.and/or commercial claims. 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.

        Purchase Transaction Matters

                In prior periods, the Company reported on litigation related to the Purchase Transaction. During the period ended June 30, 2015, the cases were resolved and dismissed with prejudice. As part of the resolution of the claims, we received a settlement payment of $202 million in July 2015 from Vivendi, ASAC LP, and our insurers. We recorded the settlement within "Shareholders' equity" in our consolidated balance sheet as of December 31, 2015.


        Letters of Credit


        As described in Note 11,13, a portion of our Revolver can be used to issue letters of credit of up to $50 million, subject to the availability of the Revolver. At December 31, 2017,2020, we did not have any letters of credit issued or outstanding under the Revolver.



        F-53
        SCHEDULE II

        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        20. Acquisitions

        King Digital Entertainment

                On February 23, 2016, we completed the King Acquisition, purchasing all of its outstanding shares. As a result, King became a wholly-owned subsidiary of Activision Blizzard. King is a leading global developer and publisher of interactive entertainment content and services, particularly on mobile platforms, such as Android and iOS, and on online and social platforms, such as Facebook and the king.com websites. King's results of operations since the King Closing Date are included in our consolidated financial statements.

                We made this acquisition because we believed that the addition of King's highly-complementary mobile business positioned the Company as a global leader in interactive entertainment across console, PC, and mobile platforms, and aligned us for future growth.

                The aggregate purchase price of the King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. We identified and recorded assets acquired and liabilities assumed at their estimated fair values at the King Closing Date, and allocated the remaining value of approximately $2.7 billion to goodwill.

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


         
        		 February 23,
        2016        		 Estimated
        useful lives

        Tangible assets and liabilities assumed:

        		     

        Cash and cash equivalents

        		 $1,151  

        Accounts receivable

        		  162  

        Other current assets

        		  72  

        Property and equipment

        		  57 2 - 7 years

        Deferred income tax assets, net

        		  27  

        Other assets

        		  47  

        Accounts payable

        		  (9) 

        Accrued expenses and other liabilities

        		  (272) 

        Other liabilities

        		  (110) 

        Deferred income tax liabilities, net

        		  (52) 

        Intangible assets

        		     

        Internally-developed franchises

        		  845 3 - 5 years

        Customer base

        		  609 2 years

        Developed software

        		  580 3 - 4 years

        Trade name

        		  46 7 years

        Goodwill

        		  2,675  
        ​​​ ​ ​​

        Total purchase price

        		 $5,828  
        ​​​​ ​​
        ​​​​​​
        ​​​ ​ ​​

                During the year ended December 31, 2016, the Company incurred $38 million of expenses related to the King Acquisition, which are included within "General and administrative" in the consolidated statements of operations. In connection with the debt financing that occurred on the King Closing Date, we incurred $38 million of discounts and financing costs that were capitalized and recorded within "Long-term debt, net" on our consolidated balance sheet. The amortization of these capitalized


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        20. Acquisitions (Continued)

        costs was not material to our consolidated statement of operations for the year ended December 31, 2016.

          Share-Based Compensation

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

                The remaining portion of outstanding unvested awards that were assumed were replaced with deferred cash awards. The cash proceeds were placed in an escrow-like account with the cash releases to occur based on the awards' original vesting schedule upon future service being rendered. The cash associated with these awards is recorded in "Other current assets" and "Other assets" in our consolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in the purchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods.

          Identifiable Intangible Assets Acquired and Goodwill

                The internally-developed franchises, customer base, developed software, and trade name intangible assets from the acquisition of King will be amortized to "Cost of revenues—subscription, licensing, and other revenues—Software royalties, amortization, and intellectual property licenses," "Sales and marketing," "Cost of revenues—subscription, licensing, and other revenues—Software royalties, amortization, and intellectual property licenses," and "General and administrative," respectively. The intangible assets will be amortized over their estimated useful lives in proportion to the economic benefits received.

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

          King Net Revenue and Earnings

                The amount of net revenue and earnings attributable to King in the Company's consolidated statement of operations during the year ended December 31, 2016, the period of the King Acquisition, are included in the table below. The amounts presented represent the net revenues and earnings after


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        20. Acquisitions (Continued)

        adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferrals of revenues and related cost of revenues.

        (in millions)
        		 For the Year
        Ended
        December 31, 2016        		 

        Net revenues

        		 $1,523 

        Net loss

        		 $(230)

          Pro Forma Financial Information

                The unaudited financial information in the table below summarizes the combined results of operations of the Company and King, on a pro forma basis, as though the acquisition had occurred on January 1, 2015. The 2016 pro forma financial information presented includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition and the profit sharing bonus plan established as part of the King Acquisition, and interest expense from the new debt issued in connection with the King Acquisition, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition-related costs of approximately $74 million incurred for the year ended December 31, 2016. The 2015 pro forma financial information for the year ended December 31, 2015 were adjusted to include these charges.

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

         
        		 For the Year
        Ended
        December 31,        		 
        (in millions)
        		 2016 2015 

        Net revenues

        		 $6,888 $6,677 

        Net income

        		 $1,005 $639 

        Basic earnings per common share

        		 $1.35 $0.87 

        Diluted earnings per common share

        		 $1.32 $0.85 

        21. Recently Issued Accounting Pronouncements

        Recently adopted accounting pronouncements

        Inventory

                In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new standard as of January 1, 2017, and applied it prospectively. The adoption of this guidance did not have a material impact on our financial statements.


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        21. Recently Issued Accounting Pronouncements (Continued)

        Recent accounting pronouncements not yet adopted

        Revenue recognition

                In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for us beginning with the first quarter of 2018. We are adopting the accounting standard using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date. We will report our adoption in our Form 10-Q for the first quarter of 2018.

                The most significant impacts of the new revenue recognition standard are expected to be:

          •
          The accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise, where we expect that approximately 20% of the sales price will be recognized as revenue upon delivery of the games to our customers. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are online hosted arrangements, and we do not expect any significant impact on the accounting for our sales of these games; and

          •
          The accounting for certain of our software licensing arrangements. While the impacts of the new standard may differ on a contract-by-contract basis (the actual revenue recognition treatment required under the standard will depend on contract-specific terms), we generally expect earlier revenue recognition for these arrangements under the new revenue standard.

                We estimate that the cumulative effect of adopting this standard will result in an adjustment to retained earnings at the adoption date of approximately $60 million to $100 million, inclusive of the associated tax impacts. Additionally, we expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting, and we are in process of adjusting our processes and internal controls in preparation for adopting the new standard.

        Leases

                In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease, and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease incentives received, and any prepaid lease payments. Operating leases will result in a straight-line expense pattern, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        21. Recently Issued Accounting Pronouncements (Continued)

        accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented, with certain transition practical expedients available to provide relief in adopting the new standard. We are evaluating the impact of this new accounting guidance on our financial statements. Currently, we do not plan to early adopt this new standard but we do expect to elect and apply the available transition practical expedients upon adoption.

        Financial Instruments

                In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial liabilities. The new standard, among other things, generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard also simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard is effective for fiscal years beginning after December 15, 2017, and the guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. Based on our current financial instruments held, we do not anticipate this new guidance will have a material impact on our financial statements.

        Statement of Cash Flows—Restricted Cash

                In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be included with "Cash and cash equivalents" when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted.

                We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there will be a significant impact to the consolidated statements of cash flows for the years ended December 31, 2015 and 2016, as those years include, as an investing activity, the $3.6 billion movement in restricted cash as a result of transferring cash into escrow at December 31, 2015 to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King Acquisition. Under this new standard, the restricted cash balance will be included in the beginning and ending total cash, cash equivalents, and restricted cash balances and hence would not be included as an investing activity in the statement of cash flows.

        Goodwill

                In January 2017, the FASB issued new guidance which eliminates Step 2 from the goodwill impairment test. Instead, if any entity forgoes a Step 0 test, an entity will be required to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit, as


        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        21. Recently Issued Accounting Pronouncements (Continued)

        determined in Step 1 from the goodwill impairment test, with its carrying amount and recognize an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. We are evaluating the impact, if any, of adopting this new accounting guidance on our consolidated financial statements.

        Derivatives and Hedging

                In August 2017, the FASB issued new guidance related to the accounting for derivatives and hedging. The new guidance expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of a hedge's effectiveness. The new standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. If early adopted, the new standard must generally be applied as of the beginning of the fiscal year of adoption. We are evaluating the impact of this new accounting guidance on our financial statements and related disclosures. We expect, based on our current outstanding derivative instruments, the new guidance will not have a material impact on our financial statements.

        22. Quarterly Financial Information (Unaudited)

         
        		 For the Quarters Ended 
         
        		 December 31,
        2017        		 September 30,
        2017        		 June 30,
        2017        		 March 31,
        2017        		 
         
        		 (Amounts in millions, except per share data)
        		 

        Net revenues

        		 $2,043 $1,618 $1,631 $1,726 

        Cost of revenues

        		  803  552  561  585 

        Operating income

        		  221  257  339  493 

        Net income (loss)

        		  (584) 188  243  426 

        Basic earnings (loss) per common share

        		  (0.77) 0.25  0.32  0.57 

        Diluted earnings (loss) per common share

        		  (0.77) 0.25  0.32  0.56 

        Table of Contents


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements (Continued)

        22. Quarterly Financial Information (Unaudited) (Continued)


         
        		 For the Quarters Ended 
         
        		 December 31,
        2016        		 September 30,
        2016        		 June 30,
        2016        		 March 31,
        2016        		 
         
        		 (Amounts in millions, except per share data)
        		 

        Net revenues

        		 $2,014 $1,568 $1,570 $1,455 

        Cost of revenues

        		  776  529  598  491 

        Operating income

        		  425  294  232  461 

        Net income(1)

        		  254  199  151  363 

        Basic earnings per common share(1)

        		  0.34  0.27  0.20  0.49 

        Diluted earnings per common share(1)

        		  0.33  0.26  0.20  0.48 
        (1)
        During the third quarter of 2016, we early adopted an accounting standard which simplifies the accounting for share-based payments. The standard, among other things, requires all excess tax benefits and tax deficiencies to be recorded as an income tax expense or benefit in the consolidated statement of operations. The adoption of the standard impacted our previously reported results for the quarters ended June 30, 2016 and March 31, 2016. As a result of the adoption of this standard, our net income, basic earnings per common share, and diluted earnings per common share increased by $24 million, $0.03, and $0.03, respectively, for the quarter ended June 30, 2016, and $27 million, $0.04, and $0.03, respectively, for the quarter ended March 31, 2016.

        Table of Contents


        SCHEDULE II


        ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

        VALUATION AND QUALIFYING ACCOUNTS


        (Amounts in millions)

        Col. A Description
        		 Col. B
        Balance at
        Beginning of
        Period        		 Col. C
        Additions(A)        		 Col. D
        Deductions(B)        		 Col. E
        Balance at End
        of Period        		 

        At December 31, 2017

        		             

        Allowances for sales returns and price protection and other allowances

        		 $257 $83 $(66)$274 

        Allowance for doubtful accounts

        		  4  1  —  5 

        At December 31, 2016

        		             

        Allowances for sales returns and price protection and other allowances

        		 $339 $119 $(201)$257 

        Allowance for doubtful accounts

        		  4  2  (2) 4 

        At December 31, 2015

        		             

        Allowances for sales returns and price protection and other allowances

        		 $379 $114 $(154)$339 

        Allowance for doubtful accounts

        		  4  1  (1) 4 
        Col. A DescriptionCol. B
        Balance at
        Beginning of
        Period        		Col. C
        Additions(A)        		Col. D
        Deductions(B)        		Col. E
        Balance at End
        of Period
        At December 31, 2020    
        Allowances for sales returns and price protection and other allowances$118 $(29)$(26)$63 
        Valuation allowance for deferred tax assets$181 $49 $(2)$228 
        At December 31, 2019   
        Allowances for sales returns and price protection and other allowances$186 $11 $(79)$118 
        Valuation allowance for deferred tax assets$61 $127 $(7)$181 
        At December 31, 2018   
        Allowances for sales returns and price protection and other allowances$274 $24 $(112)$186 
        Valuation allowance for deferred tax assets$0 $61 $0 $61 

        (A)
        Includes increases and reversals of allowances for sales returns, price protection, and doubtful accountsvaluation allowance for deferred tax assets due to normal reserving terms.


        (B)
        Includes actual write-offs and utilization of allowances for sales returns, price protection, and uncollectible accounts receivable, netreleases of recoveries,income tax valuation allowances and foreign currency translation and other adjustments.


        F-54
        Table of Contents


        EXHIBIT INDEX

        Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i)(1) may have been qualified by disclosures made to such other party or parties, (ii)(2) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company'sCompany’s public disclosure, (iii)(3) may reflect the allocation of risk among the parties to such agreements, and (iv)(4) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the Company'sCompany’s actual state of affairs at the date hereof and should not be relied upon.

        Exhibit NumberExhibit
        3.13.1

        3.2
        3.2


        4.1
        4.1

        Indenture, dated as of September 19, 2013, among Activision Blizzard, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K, filed September 19, 2013).


        4.2

        Indenture, dated as of September 19, 2016, among Activision Blizzard, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, with respect to the Company’s 2.300% Unsecured Senior Notes due 2021 and the Company’s 3.400% Unsecured Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 of the Company'sCompany’s Form 8-K, filed September 19, 2016).

        4.2
        4.3


        4.3
        4.4


        4.4
        4.5
        4.5


        4.6

        Form of certificate for the Company'sCompany’s 3.400% Unsecured Senior Notes due 2027 (incorporated by reference to Exhibit 4.44.2 of the Company'sCompany’s Form 8-K, filed May 26, 2017).

        4.6
        4.7

        4.7

        4.8
        10.1*


        4.9
        10.2*
        10.1*

        Table of Contents

        10.2*
        Exhibit NumberExhibit
        10.3*

        10.3*
        10.4*


        10.4*
        10.5*

        Form of Notice of Stock Option Award for grants to non-employee directors pursuant to the Activision, Inc. 2007 Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended September 30, 2008).


        10.6*

        Form of Notice of Stock Option Award for grants to persons other than non-employee directors pursuant to the Activision,  Inc. 2007 Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended September��30, 2008).


        10.7*

        Form of Notice of Restricted Share Unit Award for grants to officers pursuant to the Activision, Inc. 2007 Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended September 30, 2008).


        10.8*

        Form of Notice of Restricted Share Unit Award for grants to persons other than officers or directors pursuant to the Activision, Inc. 2007 Incentive Plan (incorporated by reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended September 30, 2008).


        10.9*

        Form of Notice of Restricted Share Award for grants to persons other than non-employee directors pursuant to the Activision, Inc. 2007 Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company's Form 10-Q for the quarter ended September 30, 2008).


        10.10*


        10.5*
        10.11*



        10.12*

        Form of Notice of Restricted Share Unit Award for grants to persons other than directors pursuant to the Activision Blizzard, Inc. 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to Exhibit 10.49 of the Company's Form 10-K for the year ended December 31, 2008).


        10.13*

        Form of Notice of Restricted Share Award for grants to persons other than directors pursuant to the Activision Blizzard,  Inc. 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to Exhibit 10.50 of the Company's Form 10-K for the year ended December 31, 2008).


        10.14*

        Form of Notice of Restricted Share Unit Award for grants under the Company's 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to Exhibit 10.12 of the Company's Form 10-Q for the quarter ended March 31, 2012).

        Table of Contents

        10.6*
        Exhibit NumberExhibit
        10.15*Form of Notice of Performance Share Award for grants under the Company's 2008 Incentive Plan (incorporated by reference to Exhibit 10.13 of the Company's Form 10-Q for the quarter ended March 31, 2012).


        10.16*


        10.7*
        10.17*

        E-1
        Table of Contents

        Exhibit Number
        10.18*

        Form of Notice of Restricted Share Unit Award for grants to affiliated non-employee directors and to unaffiliated directors upon their re-election to the board (other than in connection with 10 years of continuous service) pursuant to the Activision Blizzard, Inc. 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended March 31, 2013).

        10.8*
        10.19*

        Form of Notice of Restricted Share Unit Award for grants to persons other than directors pursuant to the Activision Blizzard, Inc. 2008 Incentive Plan (effective as of March 6, 2013) (incorporated by reference to Exhibit 10.9 of the Company's Form 10-Q for the quarter ended March 31, 2013).


        10.20*

        Form of Notice of Restricted Share Award for grants to persons other than directors pursuant to the Activision Blizzard,  Inc. 2008 Incentive Plan (effective as of March 6, 2013) (incorporated by reference to Exhibit 10.10 of the Company's Form 10-Q for the quarter ended March 31, 2013).


        10.21*


        10.9*
        10.22*


        10.10*
        10.23*


        10.11*
        10.24*


        10.12*
        10.25*


        Table of Contents

        10.13*
        Exhibit NumberExhibit
        10.26*

        10.14*
        10.27*


        10.15*
        10.28*


        10.16*
        10.29*


        10.17*
        10.30*


        10.18*
        10.31*


        10.19*
        10.32*


        10.20*
        10.33*
        10.21*
        10.22*
        10.23*
        10.24*
        10.25*
        10.26*

        10.27*
        10.34*


        10.28*
        10.35*

        E-2
        Table of Contents

        Exhibit Number
        10.36*
        Exhibit
        10.29*

        10.30*
        10.37*

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


        10.38*


        Table of Contents

        Exhibit NumberExhibit
        10.31*10.39*

        10.32*
        10.40*


        10.33*
        10.41*


        10.34*
        10.42*



        10.43*

        ServiceEmployment Agreement, dated November 2, 2015,as of July 24, 2019, between Riccardo ZacconiClaudine Naughton and the Company (incorporated by reference to Exhibit 10.4 of10.33 to the Company'sCompany’s Form 10-Q10-K for the quarteryear ended MarchDecember 31, 2017)2019).

        10.35*
        10.44*

        Individual Option and Subscription Agreement, dated as of January 31, 2014 (incorporated by reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter ended March 31, 2017).


        10.45*

        Option Exchange/Supplemental Subscription Agreement, dated as of March 21, 2014 (incorporated by reference to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended March 31, 2017).


        10.46*

        Notice of Share Option Grant, dated as of February 16, 2015, to Riccardo Zacconi (incorporated by reference to Exhibit 10.7 of the Company's Form 10-Q for the quarter ended March 31, 2017).


        10.47*

        Notice of Restricted Stock Unit Award, dated as of February 16, 2015, to Riccardo Zacconi (incorporated by reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended March 31, 2017).


        10.48*

        Notice of Restricted Stock Unit Award, dated as of November 10, 2015, to Riccardo Zacconi (incorporated by reference to Exhibit 10.9 of the Company's Form 10-Q for the quarter ended March 31, 2017).


        10.49*


        10.36*
        10.50*



        10.51*†

        King Profit Sharing Plan, effective as of February 23, 2016 (incorporated by reference to Exhibit 10.10 of the Company'sCompany’s Form 10-Q for the quarter ended March 31, 2017)June 30, 2018).

        Table of Contents

        Exhibit NumberExhibit
        10.3710.52

        10.38
        10.53


        10.39
        10.54


        10.40
        10.55


        10.41
        10.56


        10.42
        10.57


        10.43
        10.58


        10.44
        10.59


        21.1
        10.60*

        Non-Affiliated Director Compensation Program and Stock Ownership Guidelines, as amended and restated as of November 22, 2016 (incorporated by reference to Exhibit 10.90 of the Company's Form 10-K for the year ended December 31, 2016).

        Table of Contents

        E-3
        Table of Contents

        Exhibit Number
        31.2
        Exhibit
        31.2

        32.1
        32.1


        32.2
        32.2


        101.INS
        101.INS

        Inline XBRL Instance Document.Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

        101.SCH
        101.SCH

        Inline XBRL Taxonomy Extension Schema Document.

        101.CAL
        101.CAL

        Inline XBRL Taxonomy Calculation Linkbase Document.

        101.LAB
        101.LAB

        Inline XBRL Taxonomy Label Linkbase Document.

        101.PRE
        101.PRE

        Inline XBRL Taxonomy Presentation Linkbase Document.

        101.DEF
        101.DEF

        Inline XBRL Taxonomy Extension Definition Document.
        104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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

        †
        Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.


        E-4
        SIGNATURES
        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Activision Blizzard, Inc.the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Date: February 27, 2018

        23, 2021
        ACTIVISION BLIZZARD, INC.

        By:

        /s/ ROBERT A. KOTICK
        Robert A. Kotick
        Director and Chief Executive Officer of Activision Blizzard, Inc.
        (Principal Executive Officer)




        POWER OF ATTORNEY

        Each individual whose signature appears below constitutes and appoints Robert A. Kotick and Spencer NeumannDennis Durkin and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his, her, or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


        By:/s/ ROBERT A. KOTICK
        (Robert A. Kotick)        		Director,
        Chief Executive Officer, and
        Principal Executive Officer        		February 27, 2018

        By:


        /s/ SPENCER NEUMANN

        (Spencer Neumann)



        Chief Financial Officer and
        Principal Financial Officer



        February 27, 2018


        By:


        /s/ STEPHEN WEREB

        (Stephen Wereb)



        Deputy Chief Financial Officer,
        Chief Accounting Officer, and
        Principal Accounting Officer



        February 27, 2018


        By:


        /s/ REVETA BOWERS

        (Reveta Bowers)



        Director



        February 27, 2018


        Table of Contents

        By:

        /s/ ROBERT A. KOTICK

        		Director, Chief Executive Officer (Principal Executive Officer)February 23, 2021
        (Robert A. Kotick)
        By: /s/ DENNIS DURKINChief Financial Officer
        (Principal Financial Officer)        		February 23, 2021
        (Dennis Durkin)
        By:/s/ JESSE YANGChief Accounting Officer
        (Principal Accounting Officer)        		February 23, 2021
        (Jesse Yang)
        By:/s/ REVETA BOWERSDirectorFebruary 23, 2021
        (Reveta Bowers)
        By: /s/ ROBERT J. CORTI
        		DirectorFebruary 23, 2021
        (Robert J. Corti)

        Director

        February 27, 2018


        By:


        /s/ BRIAN G. KELLY

        (Brian G. Kelly)



        Chairman and Director



        February 27, 2018


        By:


        /s/ HENDRIK J. HARTONG III

        		DirectorFebruary 23, 2021
        (Hendrik J. Hartong III)



        Director



        February 27, 2018


        By:
         /s/ BRIAN G. KELLY


        Chairman of the Board and Director

        		February 23, 2021
        (Brian G. Kelly)
        By:/s/ BARRY MEYER
        		DirectorFebruary 23, 2021
        (Barry Meyer)



        Director



        February 27, 2018


        By:


        /s/ /s/ ROBERT J. MORGADO

        		DirectorFebruary 23, 2021
        (Robert J. Morgado)



        Director



        February 27, 2018


        By:


        /s/ /s/ PETER NOLAN

        		DirectorFebruary 23, 2021
        (Peter Nolan)



        Director



        February 27, 2018


        By:


        /s/ DAWN OSTROFF

        		DirectorFebruary 23, 2021
        (Dawn Ostroff)
        By: /s/ CASEY WASSERMAN
        		DirectorFebruary 23, 2021
        (Casey Wasserman)



        Director



        February 27, 2018


        By:


        /s/ ELAINE P. WYNN

        (Elaine P. Wynn)



        Director



        February 27, 2018


        E-5