(Mark one)
x
March 31, 2022
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Delaware | 95-4803544 | |||||||||||||
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||||||||||
| Santa Monica, | CA |
| 90404 | ||||||||||
(Address of principal executive offices) | (Zip Code) | |||||||||||||
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. (310) 255-2000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.000001 per share ATVI The Nasdaq Global Select Market x☒ No o☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large Accelerated Filer x☒ Non-accelerated Filer ☐ Accelerated Filer o☐ Non-accelerated filer o (Do not check if a smaller reporting company)Smaller reporting company o☐ Emerging growth company o☐ oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒The number of shares of the registrant’s Common Stock outstanding at OctoberApril 26, 20172022 was 756,099,455.781,881,472.
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The company cautions
2021, filed with the U.S. Securities and Exchange Commission (the “SEC”).
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| At September 30, |
| At December 31, | ||
Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 3,576 |
| $ | 3,245 |
Accounts receivable, net of allowances of $172 and $261, at September 30, 2017 and December 31, 2016, respectively |
| 888 |
| 732 | ||
Inventories, net |
| 94 |
| 49 | ||
Software development |
| 377 |
| 412 | ||
Other current assets |
| 451 |
| 392 | ||
Total current assets |
| 5,386 |
| 4,830 | ||
Software development |
| 114 |
| 54 | ||
Property and equipment, net |
| 254 |
| 258 | ||
Deferred income taxes, net |
| 439 |
| 283 | ||
Other assets |
| 469 |
| 401 | ||
Intangible assets, net |
| 1,292 |
| 1,858 | ||
Goodwill |
| 9,764 |
| 9,768 | ||
Total assets |
| $ | 17,718 |
| $ | 17,452 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 313 |
| $ | 222 |
Deferred revenues |
| 1,373 |
| 1,628 | ||
Accrued expenses and other liabilities |
| 703 |
| 806 | ||
Total current liabilities |
| 2,389 |
| 2,656 | ||
Long-term debt, net |
| 4,388 |
| 4,887 | ||
Deferred income taxes, net |
| 40 |
| 44 | ||
Other liabilities |
| 934 |
| 746 | ||
Total liabilities |
| 7,751 |
| 8,333 | ||
Commitments and contingencies (Note 13) |
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Shareholders’ equity: |
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Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,184,733,296 and 1,174,163,069 shares issued at September 30, 2017 and December 31, 2016, respectively |
| — |
| — | ||
Additional paid-in capital |
| 10,671 |
| 10,442 | ||
Less: Treasury stock, at cost, 428,676,471 shares at September 30, 2017 and December 31, 2016 |
| (5,563) |
| (5,563) | ||
Retained earnings |
| 5,501 |
| 4,869 | ||
Accumulated other comprehensive loss |
| (642) |
| (629) | ||
Total shareholders’ equity |
| 9,967 |
| 9,119 | ||
Total liabilities and shareholders’ equity |
| $ | 17,718 |
| $ | 17,452 |
| At March 31, 2022 | At December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 10,967 | $ | 10,423 | |||||||
| Accounts receivable, net of allowances of $31 and $36, at March 31, 2022 and December 31, 2021, respectively | 530 | 972 | |||||||||
| Software development | 433 | 449 | |||||||||
| Other current assets | 556 | 712 | |||||||||
| Total current assets | 12,486 | 12,556 | |||||||||
| Software development | 289 | 211 | |||||||||
| Property and equipment, net | 174 | 169 | |||||||||
| Deferred income taxes, net | 1,308 | 1,377 | |||||||||
| Other assets | 511 | 497 | |||||||||
| Intangible assets, net | 445 | 447 | |||||||||
| Goodwill | 9,799 | 9,799 | |||||||||
| Total assets | $ | 25,012 | $ | 25,056 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 207 | $ | 285 | |||||||
| Deferred revenues | 835 | 1,118 | |||||||||
| Accrued expenses and other liabilities | 1,249 | 1,008 | |||||||||
| Total current liabilities | 2,291 | 2,411 | |||||||||
| Long-term debt, net | 3,608 | 3,608 | |||||||||
| Deferred income taxes, net | 375 | 506 | |||||||||
| Other liabilities | 907 | 932 | |||||||||
| Total liabilities | 7,181 | 7,457 | |||||||||
| 0 | 0 | ||||||||||
| Shareholders’ equity: | |||||||||||
| Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,210,312,481 and 1,207,729,623 shares issued at March 31, 2022 and December 31, 2021, respectively | — | — | |||||||||
| Additional paid-in capital | 11,927 | 11,715 | |||||||||
| Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2022 and December 31, 2021 | (5,563) | (5,563) | |||||||||
| Retained earnings | 12,053 | 12,025 | |||||||||
| Accumulated other comprehensive loss | (586) | (578) | |||||||||
| Total shareholders’ equity | 17,831 | 17,599 | |||||||||
| Total liabilities and shareholders’ equity | $ | 25,012 | $ | 25,056 | |||||||
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net revenues |
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Product sales |
| $ | 384 |
| $ | 355 |
| $ | 1,373 |
| $ | 1,501 |
Subscription, licensing, and other revenues |
| 1,234 |
| 1,213 |
| 3,601 |
| 3,093 | ||||
Total net revenues |
| 1,618 |
| 1,568 |
| 4,974 |
| 4,594 | ||||
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Costs and expenses |
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Cost of revenues—product sales: |
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Product costs |
| 149 |
| 111 |
| 422 |
| 429 | ||||
Software royalties, amortization, and intellectual property licenses |
| 37 |
| 42 |
| 200 |
| 250 | ||||
Cost of revenues—subscription, licensing, and other revenues: |
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Game operations and distribution costs |
| 249 |
| 237 |
| 717 |
| 620 | ||||
Software royalties, amortization, and intellectual property licenses |
| 117 |
| 139 |
| 359 |
| 319 | ||||
Product development |
| 273 |
| 249 |
| 750 |
| 673 | ||||
Sales and marketing |
| 345 |
| 340 |
| 899 |
| 830 | ||||
General and administrative |
| 191 |
| 156 |
| 539 |
| 486 | ||||
Total costs and expenses |
| 1,361 |
| 1,274 |
| 3,886 |
| 3,607 | ||||
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Operating income |
| 257 |
| 294 |
| 1,088 |
| 987 | ||||
Interest and other expense (income), net |
| 37 |
| 63 |
| 121 |
| 181 | ||||
Income before income tax expense |
| 220 |
| 231 |
| 967 |
| 806 | ||||
Income tax expense |
| 32 |
| 32 |
| 109 |
| 93 | ||||
Net income |
| $ | 188 |
| $ | 199 |
| $ | 858 |
| $ | 713 |
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Earnings per common share |
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Basic |
| $ | 0.25 |
| $ | 0.27 |
| $ | 1.14 |
| $ | 0.96 |
Diluted |
| $ | 0.25 |
| $ | 0.26 |
| $ | 1.12 |
| $ | 0.94 |
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Weighted-average number of shares outstanding |
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Basic |
| 755 |
| 742 |
| 753 |
| 739 | ||||
Diluted |
| 766 |
| 756 |
| 764 |
| 753 | ||||
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Dividends per common share |
| $ | — |
| $ | — |
| $ | 0.30 |
| $ | 0.26 |
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Net revenues | |||||||||||||||||||||||||||||||||||||||||
| Product sales | $ | 386 | $ | 675 | |||||||||||||||||||||||||||||||||||||
| In-game, subscription, and other revenues | 1,382 | 1,600 | |||||||||||||||||||||||||||||||||||||||
| Total net revenues | 1,768 | 2,275 | |||||||||||||||||||||||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenues—product sales: | |||||||||||||||||||||||||||||||||||||||||
| Product costs | 91 | 140 | |||||||||||||||||||||||||||||||||||||||
| Software royalties, amortization, and intellectual property licenses | 81 | 112 | |||||||||||||||||||||||||||||||||||||||
| Cost of revenues—in-game, subscription, and other: | |||||||||||||||||||||||||||||||||||||||||
| Game operations and distribution costs | 288 | 296 | |||||||||||||||||||||||||||||||||||||||
| Software royalties, amortization, and intellectual property licenses | 19 | 30 | |||||||||||||||||||||||||||||||||||||||
| Product development | 346 | 353 | |||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 252 | 237 | |||||||||||||||||||||||||||||||||||||||
| General and administrative | 214 | 282 | |||||||||||||||||||||||||||||||||||||||
| Restructuring and related costs | (2) | 30 | |||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 1,289 | 1,480 | |||||||||||||||||||||||||||||||||||||||
| Operating income | 479 | 795 | |||||||||||||||||||||||||||||||||||||||
| 14 | 30 | ||||||||||||||||||||||||||||||||||||||||
| Income before income tax expense | 465 | 765 | |||||||||||||||||||||||||||||||||||||||
| Income tax expense | 70 | 146 | |||||||||||||||||||||||||||||||||||||||
| Net income | $ | 395 | $ | 619 | |||||||||||||||||||||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.51 | $ | 0.80 | |||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.50 | $ | 0.79 | |||||||||||||||||||||||||||||||||||||
| Weighted-average number of shares outstanding | |||||||||||||||||||||||||||||||||||||||||
| Basic | 780 | 775 | |||||||||||||||||||||||||||||||||||||||
| Diluted | 786 | 783 | |||||||||||||||||||||||||||||||||||||||
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| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income |
| $ | 188 |
| $ | 199 |
| $ | 858 |
| $ | 713 |
Other comprehensive income (loss): |
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Foreign currency translation adjustment |
| 9 |
| — |
| 36 |
| (20) | ||||
Unrealized gains (losses) on forward contracts designated as hedges, net of tax |
| (8) |
| (4) |
| (45) |
| — | ||||
Unrealized gains (losses) on investments, net of tax |
| (3) |
| — |
| (4) |
| — | ||||
Total other comprehensive loss |
| $ | (2) |
| $ | (4) |
| $ | (13) |
| $ | (20) |
Comprehensive income |
| $ | 186 |
| $ | 195 |
| $ | 845 |
| $ | 693 |
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 395 | $ | 619 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | (4) | (5) | |||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on forward contracts designated as hedges, net of tax | (5) | 29 | |||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on available-for-sale securities, net of tax | 1 | (2) | |||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | (8) | $ | 22 | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | $ | 387 | $ | 641 | |||||||||||||||||||||||||||||||||||||
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| For the Nine Months Ended September 30, | ||||
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| 2017 |
| 2016 | ||
Cash flows from operating activities: |
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Net income |
| $ | 858 |
| $ | 713 |
Adjustments to reconcile net income to net cash provided by operating activities: |
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Deferred income taxes |
| (138) |
| (200) | ||
Provision for inventories |
| 9 |
| 29 | ||
Depreciation and amortization |
| 670 |
| 584 | ||
Amortization of capitalized software development costs and intellectual property licenses (1) | 202 |
| 248 | |||
Amortization of debt discount, financing costs, and non-cash write-off due to extinguishment of debt |
| 22 |
| 26 | ||
Share-based compensation expense (2) |
| 118 |
| 107 | ||
Other |
| 15 |
| — | ||
Changes in operating assets and liabilities, net of effect from business acquisitions: |
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Accounts receivable, net |
| (140) |
| 395 | ||
Inventories |
| (50) |
| (32) | ||
Software development and intellectual property licenses |
| (227) |
| (295) | ||
Other assets |
| (70) |
| 85 | ||
Deferred revenues |
| (320) |
| (396) | ||
Accounts payable |
| 78 |
| (76) | ||
Accrued expenses and other liabilities |
| 28 |
| 108 | ||
Net cash provided by operating activities |
| 1,055 |
| 1,296 | ||
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Cash flows from investing activities: |
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Purchases of available-for-sale investments |
| (80) |
| — | ||
Acquisition of King, net of cash acquired (see Note 14) |
| — |
| (4,588) | ||
Release of cash in escrow |
| — |
| 3,561 | ||
Capital expenditures |
| (86) |
| (99) | ||
Other investing activities |
| 10 |
| (24) | ||
Net cash used in investing activities |
| (156) |
| (1,150) | ||
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Cash flows from financing activities: |
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Proceeds from issuance of common stock to employees |
| 150 |
| 86 | ||
Tax payment related to net share settlements on restricted stock units |
| (44) |
| (76) | ||
Dividends paid |
| (226) |
| (195) | ||
Proceeds from debt issuances, net of discounts |
| 3,741 |
| 6,878 | ||
Repayment of long-term debt |
| (4,251) |
| (4,604) | ||
Other financing activities |
| (10) |
| (6) | ||
Net cash (used in) provided by financing activities |
| (640) |
| 2,083 | ||
Effect of foreign exchange rate changes on cash and cash equivalents |
| 72 |
| (23) | ||
Net increase in cash and cash equivalents |
| 331 |
| 2,206 | ||
Cash and cash equivalents at beginning of period |
| 3,245 |
| 1,823 | ||
Cash and cash equivalents at end of period |
| $ | 3,576 |
| $ | 4,029 |
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||||||||
| Net income | $ | 395 | $ | 619 | |||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||
| Deferred income taxes | (64) | 3 | |||||||||||||||||||||||||||
| Non-cash operating lease cost | 18 | 16 | |||||||||||||||||||||||||||
| Depreciation and amortization | 24 | 33 | |||||||||||||||||||||||||||
| Amortization of capitalized software development costs and intellectual property licenses (1) | 75 | 106 | |||||||||||||||||||||||||||
| Share-based compensation expense (2) | 98 | 151 | |||||||||||||||||||||||||||
| Realized and unrealized gain on equity investment | (11) | — | |||||||||||||||||||||||||||
| Other | (11) | (11) | |||||||||||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||||||||
| Accounts receivable, net | 440 | 276 | |||||||||||||||||||||||||||
| Software development and intellectual property licenses | (104) | (84) | |||||||||||||||||||||||||||
| Other assets | 125 | (2) | |||||||||||||||||||||||||||
| Deferred revenues | (278) | (204) | |||||||||||||||||||||||||||
| Accounts payable | (76) | (70) | |||||||||||||||||||||||||||
| Accrued expenses and other liabilities | 11 | 11 | |||||||||||||||||||||||||||
| Net cash provided by operating activities | 642 | 844 | |||||||||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||||||||
| Proceeds from maturities of available-for-sale investments | 22 | 16 | |||||||||||||||||||||||||||
| Purchases of available-for-sale investments | — | (80) | |||||||||||||||||||||||||||
| Capital expenditures | (15) | (22) | |||||||||||||||||||||||||||
| Net cash provided by (used in) investing activities | 7 | (86) | |||||||||||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||||||||
| Proceeds from issuance of common stock to employees | 16 | 29 | |||||||||||||||||||||||||||
| Tax payment related to net share settlements on restricted stock units | (113) | (124) | |||||||||||||||||||||||||||
| Net cash used in financing activities | (97) | (95) | |||||||||||||||||||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (10) | (28) | |||||||||||||||||||||||||||
| Net increase in cash and cash equivalents and restricted cash | 542 | 635 | |||||||||||||||||||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | 10,438 | 8,652 | |||||||||||||||||||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 10,980 | $ | 9,287 | |||||||||||||||||||||||||
| Supplemental cash flow information - Non-cash financing activities: | |||||||||||||||||||||||||||||
| Dividends payable | $ | 367 | $ | 365 | |||||||||||||||||||||||||
expense, including liability awards accounted for under ASC 718.
expense, including liability awards accounted for under ASC 718.
March 31, 2022 and March 31, 2021
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| Common Stock |
| Treasury Stock |
| Additional |
| Retained |
| Accumulated |
| Total | ||||||||||
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Equity | ||||||
Balance at December 31, 2016 |
| 1,174 |
| $ | — |
| (429) |
| $ | (5,563) |
| $ | 10,442 |
| $ | 4,869 |
| $ | (629) |
| $ | 9,119 |
Components of comprehensive income: |
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Net income |
| — |
| — |
| — |
| — |
| — |
| 858 |
| — |
| 858 | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (13) |
| (13) | ||||||
Issuance of common stock pursuant to employee stock options |
| 10 |
| — |
| — |
| — |
| 150 |
| — |
| — |
| 150 | ||||||
Issuance of common stock pursuant to restricted stock units |
| 2 |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Restricted stock surrendered for employees’ tax liability |
| (1) |
| — |
| — |
| — |
| (43) |
| — |
| — |
| (43) | ||||||
Share-based compensation expense related to employee stock options and restricted stock rights |
| — |
| — |
| — |
| — |
| 122 |
| — |
| — |
| 122 | ||||||
Dividends ($0.30 per common share) |
| — |
| — |
| — |
| — |
| — |
| (226) |
| — |
| (226) | ||||||
Balance at September 30, 2017 |
| 1,185 |
| $ | — |
| (429) |
| $ | (5,563) |
| $ | 10,671 |
| $ | 5,501 |
| $ | (642) |
| $ | 9,967 |
| Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 1,208 | $ | — | (429) | $ | (5,563) | $ | 11,715 | $ | 12,025 | $ | (578) | $ | 17,599 | |||||||||||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 395 | — | 395 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | (8) | (8) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock options | — | — | — | — | 15 | — | — | 15 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to restricted stock units | 4 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employees’ tax liability | (2) | — | — | — | (131) | — | — | (131) | |||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 204 | — | — | 204 | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock options and restricted stock units | — | — | — | — | 124 | — | — | 124 | |||||||||||||||||||||||||||||||||||||||
| Dividends ($0.47 per common share) | — | — | — | — | — | (367) | — | (367) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 1,210 | $ | — | (429) | $ | (5,563) | $ | 11,927 | $ | 12,053 | $ | (586) | $ | 17,831 | |||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 1,203 | $ | — | (429) | $ | (5,563) | $ | 11,531 | $ | 9,691 | $ | (622) | $ | 15,037 | |||||||||||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 619 | — | 619 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | 22 | 22 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to employee stock options | 1 | — | — | — | 33 | — | — | 33 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to restricted stock units | 4 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employees’ tax liability | (2) | — | — | — | (165) | — | — | (165) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock options and restricted stock units | — | — | — | — | 150 | — | — | 150 | |||||||||||||||||||||||||||||||||||||||
| Dividends ($0.47 per common share) | — | — | — | — | — | (365) | — | (365) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 1,206 | $ | — | (429) | $ | (5,563) | $ | 11,549 | $ | 9,945 | $ | (600) | $ | 15,331 | |||||||||||||||||||||||||||||||||
The
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”),proposed transaction with Microsoft that 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 14. Our condensed 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, commencingwill file with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component ofSEC and that will contain important information about the Blizzard operating segment. MLG is responsible forCompany and the operations of the Overwatch LeagueTM, along with other esports events, and will also continue to serve as a multi-platform network for Activision Blizzard esports content.
Merger.
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading global developer and publishereach of interactive software products and entertainment content, particularly in console gaming. Activision primarily delivers content through retail and digital channels, including full-game and in-game sales, as well as licenses of software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products which are principally 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; Destiny, an online universe of first-person action gameplay (which we call a “shared-world shooter”) for console and PC platforms; and Skylanders®, a franchise geared towards children that brings physical toys to life digitally in the game, primarily for console platforms.
(ii) Blizzard Entertainment, Inc.
Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly in PC gaming. Blizzard primarily delivers content through retail and digital channels, including subscriptions, full-game, and in-game sales, as well as licenses of software to third-party or related party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service which facilitates digital distribution of Blizzard content, online social connectivity across all Blizzard games, and the creation of user-generated content for Blizzard’s games. As noted above, Blizzard also includes the activities of our MLG business, which is devoted to esports.
Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game for the PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for the PC; and Overwatch®, a team-based first-person shooter for the PC and console platforms.
(iii) King Digital Entertainment
King is a leading global developer and publisher of interactive entertainment content and services particularlybased primarily on our internally-developed intellectual properties.
platforms. King’s key product franchises, all of which are for the PC and mobile platforms, include:franchise is Candy Crush™, which featuresa “match three” games; Farm Heroes™, which also features “match three” games; Pet Rescue™, which is a “clicker” game; and Bubble Witch™, which features “bubble shooter” games.
franchise.
· 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 series Skylanders™ Academy on Netflix; and
·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.
2021.
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.
Supplemental Cash Flow Information: Non-cash Investing and Financing activities
For the nine months ended September 30, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition. Refer to Note 14 for further discussion.
Inventories, net, consist of the following (amounts in millions):
|
| At September 30, 2017 |
| At December 31, 2016 |
| ||
Finished goods |
| $ | 80 |
| $ | 40 |
|
Purchased parts and components |
| 14 |
| 9 |
| ||
Inventories, net |
| $ | 94 |
| $ | 49 |
|
At September 30, 2017 and December 31, 2016, inventory reserves were $21 million and $45 million, respectively.
3.Software Development and Intellectual Property Licenses
The following table summarizes the components of our
|
| At September 30, 2017 |
| At December 31, 2016 |
| ||
Internally-developed software costs |
| $ | 266 |
| $ | 277 |
|
Payments made to third-party software developers |
| 225 |
| 189 |
| ||
Total software development costs |
| $ | 491 |
| $ | 466 |
|
As of September 30, 2017$722 million and $660 million as of March 31, 2022 and December 31, 2016,2021, respectively, primarily relate to internal development costs. As of both March 31, 2022 and December 31, 2021, capitalized intellectual property licenses were not material to our condensed consolidated balance sheets.
material.
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Amortization of capitalized software development costs and intellectual property licenses |
| $ | 34 |
| $ | 47 |
| $ | 206 |
| $ | 260 |
|
4.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of capitalized software development costs and intellectual property licenses | $ | 79 | $ | 112 | ||||||||||||||||||||||||||||||||||||||||
|
| At September 30, 2017 |
| |||||||||
|
| Estimated useful |
| Gross carrying |
| Accumulated |
| Net carrying |
| |||
Acquired definite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Internally-developed franchises |
| 3 - 11 years |
| $ | 1,154 |
| $ | (799) |
| $ | 355 |
|
Developed software |
| 2 - 5 years |
| 601 |
| (264) |
| 337 |
| |||
Customer base |
| 2 years |
| 617 |
| (497) |
| 120 |
| |||
Trade names |
| 7 - 10 years |
| 54 |
| (14) |
| 40 |
| |||
Other |
| 1 - 15 years |
| 19 |
| (12) |
| 7 |
| |||
Total definite-lived intangible assets |
|
|
| $ | 2,445 |
| $ | (1,586) |
| $ | 859 |
|
|
|
|
|
|
|
|
|
|
| |||
Acquired indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Activision trademark |
| Indefinite |
|
|
|
|
| 386 |
| |||
Acquired trade names |
| Indefinite |
|
|
|
|
| 47 |
| |||
Total indefinite-lived intangible assets |
|
|
|
|
|
|
| $ | 433 |
| ||
Total intangible assets, net |
|
|
|
|
|
|
| $ | 1,292 |
| ||
|
| At December 31, 2016 |
| |||||||||
|
| Estimated useful |
| Gross carrying |
| Accumulated |
| Net carrying |
| |||
Acquired definite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Internally-developed franchises |
| 3 - 11 years |
| $ | 1,154 |
| $ | (583) |
| $ | 571 |
|
Developed software |
| 3 - 5 years |
| 595 |
| (145) |
| 450 |
| |||
Customer base |
| 2 years |
| 617 |
| (266) |
| 351 |
| |||
Trade names |
| 7 - 10 years |
| 54 |
| (8) |
| 46 |
| |||
Other |
| 1 - 8 years |
| 18 |
| (11) |
| 7 |
| |||
Total definite-lived intangible assets |
|
|
| $ | 2,438 |
| $ | (1,013) |
| $ | 1,425 |
|
|
|
|
|
|
|
|
|
|
| |||
Acquired indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Activision trademark |
| Indefinite |
|
|
|
|
| 386 |
| |||
Acquired trade names |
| Indefinite |
|
|
|
|
| 47 |
| |||
Total indefinite-lived intangible assets |
|
|
|
|
|
|
| $ | 433 |
| ||
Total intangible assets, net |
|
|
|
|
|
|
| $ | 1,858 |
| ||
Amortization expense
| At March 31, 2022 | |||||||||||||||||||||||||||||
| Estimated useful lives | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||
| Acquired definite-lived intangible assets (1): | |||||||||||||||||||||||||||||
| Trade names and other | 1 | - | 10 years | $ | 80 | $ | (68) | $ | 12 | ||||||||||||||||||||
| Acquired indefinite-lived intangible assets: | |||||||||||||||||||||||||||||
| Activision trademark | Indefinite | $ | 386 | ||||||||||||||||||||||||||
| Acquired trade names | Indefinite | 47 | |||||||||||||||||||||||||||
| Total indefinite-lived intangible assets | $ | 433 | |||||||||||||||||||||||||||
| Total intangible assets, net | $ | 445 | |||||||||||||||||||||||||||
At September 30, 2017, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):
2017 (remaining three months) |
| $ | 186 |
|
2018 |
| 364 |
| |
2019 |
| 216 |
| |
2020 |
| 72 |
| |
2021 |
| 11 |
| |
Thereafter |
| 10 |
| |
Total |
| $ | 859 |
|
5.prior year.
| At December 31, 2021 | |||||||||||||||||||||||||||||
| Estimated useful lives | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||
| Acquired definite-lived intangible assets: | |||||||||||||||||||||||||||||
| Internally-developed franchises | 3 | - | 11 years | $ | 1,154 | $ | (1,154) | $ | — | ||||||||||||||||||||
| Trade names and other | 1 | - | 10 years | 80 | (66) | 14 | |||||||||||||||||||||||
| Total definite-lived intangible assets | $ | 1,234 | $ | (1,220) | $ | 14 | |||||||||||||||||||||||
| Acquired indefinite-lived intangible assets: | |||||||||||||||||||||||||||||
| Activision trademark | Indefinite | $ | 386 | ||||||||||||||||||||||||||
| Acquired trade names | Indefinite | 47 | |||||||||||||||||||||||||||
| Total indefinite-lived intangible assets | $ | 433 | |||||||||||||||||||||||||||
| Total intangible assets, net | $ | 447 | |||||||||||||||||||||||||||
|
| Activision |
| Blizzard (1) |
| King |
| Total |
| ||||
Balance at December 31, 2016 (1) |
| $ | 6,903 |
| $ | 190 |
| $ | 2,675 |
| $ | 9,768 |
|
Other |
| (4) |
| — |
| — |
| (4) |
| ||||
Balance at September 30, 2017 |
| $ | 6,899 |
| $ | 190 |
| $ | 2,675 |
| $ | 9,764 |
|
(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.
6.
| Activision | Blizzard | King | Total | ||||||||||||||||||||||||||
| Goodwill | $ | 6,933 | $ | 190 | $ | 2,676 | $ | 9,799 | |||||||||||||||||||||
Financial Accounting Standards Board (“FASB”)
·
·
·
|
|
|
| Fair Value Measurements at September 30, 2017 |
|
| ||||||||
|
| As of |
| Quoted |
| Significant |
| Significant |
| Balance Sheet Classification | ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
| ||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 3,355 |
| $ | 3,355 |
| $ | — |
| $ | — |
| Cash and cash equivalents |
Foreign government treasury bills |
| 49 |
| 49 |
| — |
| — |
| Cash and cash equivalents | ||||
U.S. treasuries and government agency securities |
| 80 |
| 80 |
| — |
| — |
| Other current assets | ||||
Total recurring fair value measurements |
| $ | 3,484 |
| $ | 3,484 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency forward contracts designated as hedges |
| $ | (10) |
| $ | — |
| $ | (10) |
| $ | — |
| Accrued expenses and other liabilities |
|
|
|
| Fair Value Measurements at December 31, 2016 |
|
|
| ||||||||
|
| As of |
| Quoted |
| Significant |
| Significant |
| Balance Sheet Classification |
| ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 2,921 |
| $ | 2,921 |
| $ | — |
| $ | — |
| Cash and cash equivalents |
|
Foreign government treasury bills |
| 38 |
| 38 |
| — |
| — |
| Cash and cash equivalents |
| ||||
Foreign currency forward contracts designated as hedges |
| 22 |
| — |
| 22 |
| — |
| Other current assets |
| ||||
Auction rate securities (“ARS”) |
| 9 |
| — |
| — |
| 9 |
| Other assets |
| ||||
Total recurring fair value measurements |
| $ | 2,990 |
| $ | 2,959 |
| $ | 22 |
| $ | 9 |
|
|
|
ARS represented the only Level 3 investment held by the Company as
| Fair Value Measurements at March 31, 2022 Using | |||||||||||||||||||||||||||||
| As of March 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance Sheet Classification | |||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||
| Recurring fair value measurements: | |||||||||||||||||||||||||||||
| Money market funds | $ | 10,583 | $ | 10,583 | $ | — | $ | — | Cash and cash equivalents | ||||||||||||||||||||
| Foreign government treasury bills | 46 | 46 | — | — | Cash and cash equivalents | ||||||||||||||||||||||||
| U.S. treasuries and government agency securities | 107 | 107 | — | — | Other current assets | ||||||||||||||||||||||||
| Equity securities | 61 | 61 | — | — | Other current assets | ||||||||||||||||||||||||
| Foreign currency forward contracts designated as hedges | 21 | — | 21 | — | Other current assets | ||||||||||||||||||||||||
| Total | $ | 10,818 | $ | 10,797 | $ | 21 | $ | — | |||||||||||||||||||||
| Fair Value Measurements at December 31, 2021 Using | |||||||||||||||||||||||||||||
| As of December 31, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance Sheet Classification | |||||||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||||||||
| Recurring fair value measurements: | |||||||||||||||||||||||||||||
| Money market funds | $ | 10,035 | $ | 10,035 | $ | — | $ | — | Cash and cash equivalents | ||||||||||||||||||||
| Foreign government treasury bills | 34 | 34 | — | — | Cash and cash equivalents | ||||||||||||||||||||||||
| U.S. treasuries and government agency securities | 130 | 130 | — | — | Other current assets | ||||||||||||||||||||||||
| Equity securities | 50 | 50 | — | — | Other current assets | ||||||||||||||||||||||||
| Foreign currency forward contracts designated as hedges | 20 | — | 20 | — | Other current assets | ||||||||||||||||||||||||
| Total | $ | 10,269 | $ | 10,249 | $ | 20 | $ | — | |||||||||||||||||||||
Foreign Currency Forward Contracts Not Designated as Hedges
At September 30, 2017 and December 31, 2016, we did not have any outstanding foreign currency forward contracts not designated as hedges.
At September 30, 2017, the
At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair value of these contracts was $22 million of net unrealized gains as of DecemberMarch 31, 2016.
During2022, are as follows (amounts in millions):
| As of March 31, 2022 | As of December 31, 2021 | ||||||||||||||||
| Notional amount | Fair value gain (loss) | Notional amount | Fair value gain (loss) | ||||||||||||||
| Foreign Currency: | |||||||||||||||||
| Buy USD, Sell EUR | $ | 441 | $ | 21 | $ | 382 | $ | 20 | |||||||||
Fair Value Measurements on a Non-Recurring Basis
fulfillment of our associated performance obligations. The aggregate of the current and non-current balances of deferred revenues as of March 31, 2022 and December 31, 2021, were $0.8 billion and $1.1 billion, respectively. For the three and nine months ended September 30, 2017March 31, 2022, the additions to our 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, all of which were in the ordinary course of business. During the three months ended March 31, 2022 and 2016, thereMarch 31, 2021, $0.7 billion and $1.1 billion, respectively, of revenues were no impairment charges relatedrecognized that were included in the deferred revenues balance at beginning of the period.
subject to constraint in accordance with the revenue accounting standard.
At
On February 3, 2017, To date, we entered into a sixth amendment (the “Sixth Amendment”) to the Credit Agreement. The Sixth Amendment: (i) provided for a new tranche of term loans “A” in an aggregate principal amount of $2.55 billion (the “2017 TLA” and, together withhave not drawn on the Revolver the “Credit Facilities”) and (ii) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the 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 fees incurred as a result of the Sixth Amendment were not material. The 2017 TLA will mature on August 23, 2021.
At September 30, 2017, the 2017 TLA bore interest at 2.49%. Wewe were in compliance with the terms of the Credit FacilitiesAgreement as of September 30, 2017. To date, we have not drawn on the Revolver.
During the nine months ended September 30, 2017, we reduced our total outstanding term loan balances by $1.7 billion. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with prepayments on the 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 “Interest and other expense (income), net” in the condensed consolidated statement of operations.
The prepayments made on our 2017 TLA have satisfied the remaining required quarterly principal repayments for the entire term of the Credit Agreement.
March 31, 2022.
terms.
At
· $750 millionoutstanding. A summary of 6.125%our outstanding unsecured senior notes due September 2023 that we issued on September 19, 2013 (the “2023 Notes”),is as follows (amounts in a private offering made 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.
In connection with the issuance of the Unregistered 2021 Notes and the Unregistered 2026 Notes, we entered into a registration rights agreement (the “Registration Rights Agreement”), among the Company, and the representatives of the initial purchasers of the Unregistered 2021 Notes and the Unregistered 2026 Notes. Under the Registration Rights Agreement, wemillions):
| At March 31, 2022 | At December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Unsecured Senior Notes | Interest Rate | Semi-Annual Interest Payments Due On | Maturity | Principal | Fair Value (Level 2) | Principal | Fair Value (Level 2) | |||||||||||||||||||||||||||||||||||||
| 2026 Notes | 3.40% | Mar. 15 & Sept. 15 | Sept. 2026 | $ | 850 | $ | 866 | $ | 850 | $ | 912 | |||||||||||||||||||||||||||||||||
| 2027 Notes | 3.40% | Jun. 15 & Dec. 15 | Jun. 2027 | 400 | 406 | 400 | 430 | |||||||||||||||||||||||||||||||||||||
| 2030 Notes | 1.35% | Mar. 15 & Sept. 15 | Sept. 2030 | 500 | 435 | 500 | 463 | |||||||||||||||||||||||||||||||||||||
| 2047 Notes | 4.50% | Jun. 15 & Dec. 15 | Jun. 2047 | 400 | 455 | 400 | 480 | |||||||||||||||||||||||||||||||||||||
| 2050 Notes | 2.50% | Mar. 15 & Sept. 15 | Sept. 2050 | 1,500 | 1,238 | 1,500 | 1,320 | |||||||||||||||||||||||||||||||||||||
| Total gross long-term debt | $ | 3,650 | $ | 3,650 | ||||||||||||||||||||||||||||||||||||||||
| Unamortized discount and deferred financing costs | (42) | (42) | ||||||||||||||||||||||||||||||||||||||||||
| Total net carrying amount | $ | 3,608 | $ | 3,608 | ||||||||||||||||||||||||||||||||||||||||
In addition, on May 26, 2017, in a public underwritten offering, we issued $400 million of 2.6% unsecured senior notes due June 2022 (the “2022 Notes”), $400 million of 3.4% unsecured senior notes due June 2027 (the “2027 Notes”), and $400 million of 4.5% unsecured senior notes due June 2047 (the “2047 Notes”, and together with the 2021 Notes, the 2022 Notes, the 2023 Notes, the 2026 Notes, and the 2027 Notes, the “Notes”), which were outstanding at September 30, 2017.
We may redeem some or all of the 2022 Notes, the 2027 Notes and the 2047 Notes, in whole or in part, at any time on or after May 15, 2022, March 15, 2027, and December 15, 2046, respectively, and in each case at 100% of the aggregate principal amount thereof plus accrued and unpaid interest. In addition, we may redeem some or all of the 2022 Notes, the 2027 Notes, and the 2047 Notes prior to May 15, 2022, March 15, 2027, and December 15, 2046, respectively, and in each case at a price equal to 100% of the aggregate principal amount thereof plus a “make-whole” premium and accrued and unpaid interest.
Upon the occurrence of certain change of control events, we will be required to offer to repurchase the 2022 Notes, the 2027 Notes, and the 2047 Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest. These repurchase requirements are considered clearly and closely related to the 2022 Notes, the 2027 Notes, and the 2047 Notes and were not accounted for separately upon issuance.
The 2022 Notes, the 2027 Notes, and the 2047 Notes contain 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 Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future senior indebtedness, including the Credit Facilities described above. The Notes are not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured. The Company was in compliance with the terms of each of the Notesnotes outstanding as of September 30, 2017.
Interest is payable semi-annually in arrears on March 15 and September 1531, 2022. As of each year forMarch 31, 2022, with the 2021 Notes, the 2023 Notes, andexception of our 2026 Notes, and payable semi-annuallywhich are scheduled to mature in arrears on June 15 and December 15September 2026, no other contractual principal repayments of each year forour long-term debt were due within the 2022 Notes, the 2027 Notes, and 2047 Notes. Accrued interest payable is recorded within “Accrued expenses and other liabilities” in our condensed consolidated balance sheets. As of September 30, 2017 and December 31, 2016, we had accrued interest payable of $18 million and $25 million, respectively, related to the Notes.
next five years.
Interest Expense and Financing Costs
Fees and discounts associated with the issuance of our debt instruments are recorded as debt discount, which reduces their respective carrying values, and is amortized over their respective terms. Amortization expense is recorded within “Interest and other expense (income), net” in our condensed consolidated statement 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 condensed consolidated balance sheet.
For the three and nine months ended September 30, 2017, interest expense was $39 million and $110 million, respectively; amortization of the debt discount and deferred financing costs was $2 million and $10 million, respectively; and commitment fees for the Revolver were not material. For the three and nine months ended September 30, 2016, interest expense was $50 million and $158 million, respectively; amortization of the debt discount and deferred financing costs was $4 million and $16 million, respectively; and commitment fees for the Revolver were not material.
A summary of our debt is as follows (amounts in millions):
|
| At September 30, 2017 |
| |||||||
|
| Gross Carrying |
| Unamortized |
| Net Carrying |
| |||
2017 TLA |
| $ | 990 |
| $ | (8) |
| $ | 982 |
|
2021 Notes |
| 650 |
| (5) |
| 645 |
| |||
2022 Notes |
| 400 |
| (4) |
| 396 |
| |||
2023 Notes |
| 750 |
| (10) |
| 740 |
| |||
2026 Notes |
| 850 |
| (9) |
| 841 |
| |||
2027 Notes |
| 400 |
| (6) |
| 394 |
| |||
2047 Notes |
| 400 |
| (10) |
| 390 |
| |||
Total long-term debt |
| $ | 4,440 |
| $ | (52) |
| $ | 4,388 |
|
|
| At December 31, 2016 |
| |||||||
|
| Gross Carrying |
| Unamortized |
| Net Carrying |
| |||
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 September 30, 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, |
|
|
| |
2017 (remaining three months) |
| $ | — |
|
2018 |
| — |
| |
2019 |
| — |
| |
2020 |
| — |
| |
2021 |
| 1,640 |
| |
Thereafter |
| 2,800 |
| |
Total |
| $ | 4,440 |
|
With the exception of the 2023 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active markets), the carrying values of our debt instruments approximated their fair value as of September 30, 2017, as the interest rates are similar to current rates at which we can borrow funds over the selected interest periods. At September 30, 2017, based on Level 2 inputs, the fair value of the 2023 Notes was $804 million.
At December 31, 2016, the carrying value of the 2016 TLA approximated its fair value, based on Level 2 inputs. At December 31, 2016, based on Level 2 inputs, the fair values of the 2021 Notes, 2023 Notes, and 2026 Notes were $635 million, $818 million, and $808 million, respectively.
outstanding notes.
|
| For the Nine Months Ended September 30, 2017 |
| ||||||||||
|
| Foreign currency |
| Unrealized gain |
| Unrealized gain |
| Total |
| ||||
Balance at December 31, 2016 |
| $ | (659) |
| $ | 29 |
| $ | 1 |
| $ | (629) |
|
Other comprehensive income (loss) before reclassifications |
| 20 |
| (38) |
| (2) |
| (20) |
| ||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings |
| 16 |
| (7) |
| (2) |
| 7 |
| ||||
Balance at September 30, 2017 |
| $ | (623) |
| $ | (16) |
| $ | (3) |
| $ | (642) |
|
|
| For the Nine Months Ended September 30, 2016 |
| ||||||||||
|
| Foreign currency |
| Unrealized gain |
| Unrealized gain |
| Total |
| ||||
Balance at December 31, 2015 |
| $ | (630) |
| $ | (4) |
| $ | 1 |
| $ | (633) |
|
Other comprehensive income (loss) before reclassifications |
| (20) |
| (1) |
| — |
| (21) |
| ||||
Amounts reclassified from accumulated other comprehensive income (loss) into earnings |
| — |
| 1 |
| — |
| 1 |
| ||||
Balance at September 30, 2016 |
| $ | (650) |
| $ | (4) |
| $ | 1 |
| $ | (653) |
|
Income taxes were not provided for foreign currency translation items as these are considered indefinite investments in non-U.S. subsidiaries.
| For the Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Foreign currency translation adjustments | Unrealized gain (loss) on available-for- sale securities | Unrealized gain (loss) on forward contracts | Total | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | (606) | $ | 3 | $ | 25 | $ | (578) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | (4) | 2 | 6 | 4 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) into earnings | — | (1) | (11) | (12) | |||||||||||||||||||
| Balance at March 31, 2022 | $ | (610) | $ | 4 | $ | 20 | $ | (586) | |||||||||||||||
| For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Foreign currency translation adjustments | Unrealized gain (loss) on available-for- sale securities | Unrealized gain (loss) on forward contracts | Total | ||||||||||||||||||||
| Balance at December 31, 2020 | $ | (589) | $ | (5) | $ | (28) | $ | (622) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | (5) | (3) | 20 | 12 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) into earnings | — | 1 | 9 | 10 | |||||||||||||||||||
| Balance at March 31, 2021 | $ | (594) | $ | (7) | $ | 1 | $ | (600) | |||||||||||||||
Currently, weRegions
Information on the reportable segmentsincome are presented below (amounts in millions):
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||
| Activision | Blizzard | King | Total | |||||||||||||||||||||||
| Segment Revenues | ||||||||||||||||||||||||||
| Net revenues from external customers | $ | 453 | $ | 265 | $ | 682 | $ | 1,400 | ||||||||||||||||||
| Intersegment net revenues (1) | — | 9 | — | 9 | ||||||||||||||||||||||
| Segment net revenues | $ | 453 | $ | 274 | $ | 682 | $ | 1,409 | ||||||||||||||||||
| Segment operating income | $ | 59 | $ | 53 | $ | 243 | $ | 355 | ||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||
| Activision | Blizzard | King | Total | |||||||||||||||||||||||
| Segment Revenues | ||||||||||||||||||||||||||
| Net revenues from external customers | $ | 891 | $ | 458 | $ | 609 | $ | 1,958 | ||||||||||||||||||
| Intersegment net revenues (1) | — | 25 | — | 25 | ||||||||||||||||||||||
| Segment net revenues | $ | 891 | $ | 483 | $ | 609 | $ | 1,983 | ||||||||||||||||||
| Segment operating income | $ | 442 | $ | 208 | $ | 203 | $ | 853 | ||||||||||||||||||
|
| For the Three Months Ended September 30, | ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
| Net revenues |
| Operating income and income | ||||||||
Activision |
| $ | 759 |
| $ | 377 |
| $ | 261 |
| $ | 123 |
Blizzard |
| 531 |
| 729 |
| 168 |
| 316 | ||||
King |
| 528 |
| 459 |
| 208 |
| 138 | ||||
Reportable segments total |
| 1,818 |
| 1,565 |
| 637 |
| 577 | ||||
|
|
|
|
|
|
|
|
| ||||
Reconciliation to consolidated net revenues / consolidated income before income tax expense: |
|
|
|
|
|
|
|
| ||||
Other segments (1) |
| 84 |
| 65 |
| (12) |
| (2) | ||||
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues |
| (284) |
| (62) |
| (132) |
| (33) | ||||
Share-based compensation expense |
| — |
| — |
| (47) |
| (33) | ||||
Amortization of intangible assets |
| — |
| — |
| (187) |
| (211) | ||||
Fees and other expenses related to the King Acquisition (2) |
| — |
| — |
| (3) |
| (4) | ||||
Other non-cash charges (4) |
| — |
| — |
| 1 |
| — | ||||
Consolidated net revenues / operating income |
| $ | 1,618 |
| $ | 1,568 |
| $ | 257 |
| $ | 294 |
Interest and other expense (income), net |
|
|
|
|
| 37 |
| 63 | ||||
Consolidated income before income tax expense |
|
|
|
|
| $ | 220 |
| $ | 231 | ||
|
| For the Nine Months Ended September 30, | ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
| Net revenues |
| Operating income and income | ||||||||
Activision |
| $ | 1,291 |
| $ | 1,069 |
| $ | 371 |
| $ | 309 |
Blizzard |
| 1,539 |
| 1,767 |
| 552 |
| 730 | ||||
King |
| 1,482 |
| 1,149 |
| 538 |
| 381 | ||||
Reportable segments total |
| 4,312 |
| 3,985 |
| 1,461 |
| 1,420 | ||||
|
|
|
|
|
|
|
|
| ||||
Reconciliation to consolidated net revenues / consolidated income before income tax expense: |
|
|
|
|
|
|
|
| ||||
Other segments (1) |
| 204 |
| 162 |
| (15) |
| (5) | ||||
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues |
| 458 |
| 447 |
| 370 |
| 228 | ||||
Share-based compensation expense |
| — |
| — |
| (120) |
| (118) | ||||
Amortization of intangible assets |
| — |
| — |
| (571) |
| (495) | ||||
Fees and other expenses related to the King Acquisition (2) |
| — |
| — |
| (12) |
| (43) | ||||
Restructuring costs (3) |
| — |
| — |
| (11) |
| — | ||||
Other non-cash charges (4) |
| — |
| — |
| (14) |
| — | ||||
Consolidated net revenues / operating income |
| $ | 4,974 |
| $ | 4,594 |
| $ | 1,088 |
| $ | 987 |
Interest and other expense (income), net |
|
|
|
|
| 121 |
| 181 | ||||
Consolidated income before income tax expense |
|
|
|
|
| $ | 967 |
| $ | 806 | ||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Reconciliation to consolidated net revenues: | |||||||||||||||||||||||||||||||||||||||||
| Segment net revenues | $ | 1,409 | $ | 1,983 | |||||||||||||||||||||||||||||||||||||
| Revenues from non-reportable segments (1) | 81 | 108 | |||||||||||||||||||||||||||||||||||||||
| Net effect from recognition (deferral) of deferred net revenues (2) | 287 | 209 | |||||||||||||||||||||||||||||||||||||||
| Elimination of intersegment revenues (3) | (9) | (25) | |||||||||||||||||||||||||||||||||||||||
| Consolidated net revenues | $ | 1,768 | $ | 2,275 | |||||||||||||||||||||||||||||||||||||
| Reconciliation to consolidated income before income tax expense: | |||||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 355 | $ | 853 | |||||||||||||||||||||||||||||||||||||
| Operating income (loss) from non-reportable segments (1) | 19 | (4) | |||||||||||||||||||||||||||||||||||||||
| Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2) | 235 | 132 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense (4) | (98) | (151) | |||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | (2) | (5) | |||||||||||||||||||||||||||||||||||||||
| Restructuring and related costs | 2 | (30) | |||||||||||||||||||||||||||||||||||||||
| Merger and acquisition-related fees and other expenses (5) | (32) | — | |||||||||||||||||||||||||||||||||||||||
| Consolidated operating income | 479 | 795 | |||||||||||||||||||||||||||||||||||||||
| Interest and other expense (income), net | 14 | 30 | |||||||||||||||||||||||||||||||||||||||
| Consolidated income before income tax expense | $ | 465 | $ | 765 | |||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (3) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by distribution channel: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | 616 | $ | 300 | $ | 682 | $ | — | $ | (9) | $ | 1,589 | ||||||||||||||||||||||||||
| Retail channels | 83 | 2 | — | — | — | 85 | ||||||||||||||||||||||||||||||||
| Other (2) | 11 | 2 | — | 81 | — | 94 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 710 | $ | 304 | $ | 682 | $ | 81 | $ | (9) | $ | 1,768 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | (192) | $ | (30) | $ | — | $ | — | $ | — | $ | (222) | ||||||||||||||||||||||||||
| Retail channels | (65) | 1 | — | — | — | (64) | ||||||||||||||||||||||||||||||||
| Other (2) | — | (1) | — | — | — | (1) | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (257) | $ | (30) | $ | — | $ | — | $ | — | $ | (287) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | 424 | $ | 270 | $ | 682 | $ | — | $ | (9) | $ | 1,367 | ||||||||||||||||||||||||||
| Retail channels | 18 | 3 | — | — | — | 21 | ||||||||||||||||||||||||||||||||
| Other (2) | 11 | 1 | — | 81 | — | 93 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 453 | $ | 274 | $ | 682 | $ | 81 | $ | (9) | $ | 1,481 | ||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (3) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by distribution channel: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | 965 | $ | 461 | $ | 605 | $ | — | $ | (25) | $ | 2,006 | ||||||||||||||||||||||||||
| Retail channels | 143 | 6 | — | — | — | 149 | ||||||||||||||||||||||||||||||||
| Other (2) | 15 | 3 | — | 102 | — | 120 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 1,123 | $ | 470 | $ | 605 | $ | 102 | $ | (25) | $ | 2,275 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | (162) | $ | 17 | $ | 4 | $ | — | $ | — | $ | (141) | ||||||||||||||||||||||||||
| Retail channels | (70) | (4) | — | — | — | (74) | ||||||||||||||||||||||||||||||||
| Other (2) | — | — | — | 6 | — | 6 | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (232) | $ | 13 | $ | 4 | $ | 6 | $ | — | $ | (209) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Digital online channels (1) | $ | 803 | $ | 478 | $ | 609 | $ | — | $ | (25) | $ | 1,865 | ||||||||||||||||||||||||||
| Retail channels | 73 | 2 | — | — | — | 75 | ||||||||||||||||||||||||||||||||
| Other (2) | 15 | 3 | — | 108 | — | 126 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 891 | $ | 483 | $ | 609 | $ | 108 | $ | (25) | $ | 2,066 | ||||||||||||||||||||||||||
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net revenues by geographic region: |
|
|
|
|
|
|
|
|
| ||||
Americas |
| $ | 798 |
| $ | 796 |
| $ | 2,586 |
| $ | 2,411 |
|
EMEA (1) |
| 593 |
| 499 |
| 1,684 |
| 1,528 |
| ||||
Asia Pacific |
| 227 |
| 273 |
| 704 |
| 655 |
| ||||
Total consolidated net revenues |
| $ | 1,618 |
| $ | 1,568 |
| $ | 4,974 |
| $ | 4,594 |
|
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (2) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by geographic region: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | 460 | $ | 125 | $ | 437 | $ | — | $ | (6) | $ | 1,016 | ||||||||||||||||||||||||||
| EMEA (1) | 184 | 94 | 170 | 81 | (2) | 527 | ||||||||||||||||||||||||||||||||
| Asia Pacific | 66 | 85 | 75 | — | (1) | 225 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 710 | $ | 304 | $ | 682 | $ | 81 | $ | (9) | $ | 1,768 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | (164) | $ | (11) | $ | 1 | $ | — | $ | — | $ | (174) | ||||||||||||||||||||||||||
| EMEA (1) | (80) | (13) | — | — | — | (93) | ||||||||||||||||||||||||||||||||
| Asia Pacific | (13) | (6) | (1) | — | — | (20) | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (257) | $ | (30) | $ | — | $ | — | $ | — | $ | (287) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | 296 | $ | 114 | $ | 438 | $ | — | $ | (6) | $ | 842 | ||||||||||||||||||||||||||
| EMEA (1) | 104 | 81 | 170 | 81 | (2) | 434 | ||||||||||||||||||||||||||||||||
| Asia Pacific | 53 | 79 | 74 | — | (1) | 205 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 453 | $ | 274 | $ | 682 | $ | 81 | $ | (9) | $ | 1,481 | ||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (2) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by geographic region: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | 725 | $ | 210 | $ | 386 | $ | — | $ | (14) | $ | 1,307 | ||||||||||||||||||||||||||
| EMEA (1) | 311 | 167 | 160 | 102 | (9) | 731 | ||||||||||||||||||||||||||||||||
| Asia Pacific | 87 | 93 | 59 | — | (2) | 237 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 1,123 | $ | 470 | $ | 605 | $ | 102 | $ | (25) | $ | 2,275 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | (131) | $ | 5 | $ | 5 | $ | — | $ | — | $ | (121) | ||||||||||||||||||||||||||
| EMEA (1) | (77) | 7 | (1) | 6 | — | (65) | ||||||||||||||||||||||||||||||||
| Asia Pacific | (24) | 1 | — | — | — | (23) | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (232) | $ | 13 | $ | 4 | $ | 6 | $ | — | $ | (209) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | 594 | $ | 215 | $ | 391 | $ | — | $ | (14) | $ | 1,186 | ||||||||||||||||||||||||||
| EMEA (1) | 234 | 174 | 159 | 108 | (9) | 666 | ||||||||||||||||||||||||||||||||
| Asia Pacific | 63 | 94 | 59 | — | (2) | 214 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 891 | $ | 483 | $ | 609 | $ | 108 | $ | (25) | $ | 2,066 | ||||||||||||||||||||||||||
The Company’s net revenues in the U.S. were 46%2021.
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net revenues by platform: |
|
|
|
|
|
|
|
|
| ||||
Console |
| $ | 527 |
| $ | 452 |
| $ | 1,710 |
| $ | 1,867 |
|
PC |
| 461 |
| 609 |
| 1,534 |
| 1,421 |
| ||||
Mobile and ancillary (1) |
| 534 |
| 440 |
| 1,502 |
| 1,137 |
| ||||
Other (2) |
| 96 |
| 67 |
| 228 |
| 169 |
| ||||
Total consolidated net revenues |
| $ | 1,618 |
| $ | 1,568 |
| $ | 4,974 |
| $ | 4,594 |
|
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (3) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by platform: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | 460 | $ | 24 | $ | — | $ | — | $ | — | $ | 484 | ||||||||||||||||||||||||||
| PC | 124 | 251 | 17 | — | (9) | 383 | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | 115 | 27 | 665 | — | — | 807 | ||||||||||||||||||||||||||||||||
| Other (2) | 11 | 2 | — | 81 | — | 94 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 710 | $ | 304 | $ | 682 | $ | 81 | $ | (9) | $ | 1,768 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | (216) | $ | (5) | $ | — | $ | — | $ | — | $ | (221) | ||||||||||||||||||||||||||
| PC | (62) | (18) | — | — | — | (80) | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | 21 | (6) | — | — | — | 15 | ||||||||||||||||||||||||||||||||
| Other (2) | — | (1) | — | — | — | (1) | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (257) | $ | (30) | $ | — | $ | — | $ | — | $ | (287) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | 244 | $ | 19 | $ | — | $ | — | $ | — | $ | 263 | ||||||||||||||||||||||||||
| PC | 62 | 233 | 17 | — | (9) | 303 | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | 136 | 21 | 665 | — | — | 822 | ||||||||||||||||||||||||||||||||
| Other (2) | 11 | 1 | — | 81 | — | 93 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 453 | $ | 274 | $ | 682 | $ | 81 | $ | (9) | $ | 1,481 | ||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Non-reportable segments | Elimination of intersegment revenues (3) | Total | |||||||||||||||||||||||||||||||||
| Net revenues by platform: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | 774 | $ | 25 | $ | — | $ | — | $ | — | $ | 799 | ||||||||||||||||||||||||||
| PC | 201 | 422 | 24 | — | (25) | 622 | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | 133 | 20 | 581 | — | — | 734 | ||||||||||||||||||||||||||||||||
| Other (2) | 15 | 3 | — | 102 | — | 120 | ||||||||||||||||||||||||||||||||
| Total consolidated net revenues | $ | 1,123 | $ | 470 | $ | 605 | $ | 102 | $ | (25) | $ | 2,275 | ||||||||||||||||||||||||||
| Change in deferred revenues: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | (167) | $ | (6) | $ | — | $ | — | $ | — | $ | (173) | ||||||||||||||||||||||||||
| PC | (61) | 17 | (1) | — | — | (45) | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | (4) | 2 | 5 | — | — | 3 | ||||||||||||||||||||||||||||||||
| Other (2) | — | — | — | 6 | — | 6 | ||||||||||||||||||||||||||||||||
| Total change in deferred revenues | $ | (232) | $ | 13 | $ | 4 | $ | 6 | $ | — | $ | (209) | ||||||||||||||||||||||||||
| Segment net revenues: | ||||||||||||||||||||||||||||||||||||||
| Console | $ | 607 | $ | 19 | $ | — | $ | — | $ | — | $ | 626 | ||||||||||||||||||||||||||
| PC | 140 | 439 | 23 | — | (25) | 577 | ||||||||||||||||||||||||||||||||
| Mobile and ancillary (1) | 129 | 22 | 586 | — | — | 737 | ||||||||||||||||||||||||||||||||
| Other (2) | 15 | 3 | — | 108 | — | 126 | ||||||||||||||||||||||||||||||||
| Total segment net revenues | $ | 891 | $ | 483 | $ | 609 | $ | 108 | $ | (25) | $ | 2,066 | ||||||||||||||||||||||||||
devices.
reflect licensing and service fees charged between segments.
|
| At September 30, 2017 |
| At December 31, 2016 |
| ||
Long-lived assets (1) by geographic region: |
|
|
|
|
| ||
Americas |
| $ | 160 |
| $ | 154 |
|
EMEA |
| 77 |
| 87 |
| ||
Asia Pacific |
| 17 |
| 17 |
| ||
Total long-lived assets by geographic region |
| $ | 254 |
| $ | 258 |
|
(1)
| At March 31, 2022 | At December 31, 2021 | ||||||||||||||||||||||||||||
| Long-lived assets* by geographic region: | |||||||||||||||||||||||||||||
| Americas | $ | 266 | $ | 264 | |||||||||||||||||||||||||
| EMEA | 114 | 122 | |||||||||||||||||||||||||||
| Asia Pacific | 19 | 20 | |||||||||||||||||||||||||||
| Total long-lived assets by geographic region | $ | 399 | $ | 406 | |||||||||||||||||||||||||
| 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, 2021 | 9,133 | $ | 57.77 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Exercised | (314) | 46.45 | |||||||||||||||||||||
| Forfeited | (53) | 67.06 | |||||||||||||||||||||
| Expired | (21) | 65.84 | |||||||||||||||||||||
| Outstanding stock options at March 31, 2022 | 8,745 | $ | 58.10 | 6.69 | $ | 205 | |||||||||||||||||
| Vested and expected to vest at March 31, 2022 | 8,484 | $ | 57.39 | 6.63 | $ | 204 | |||||||||||||||||
| Exercisable at March 31, 2022 | 6,041 | $ | 50.03 | 5.95 | $ | 183 | |||||||||||||||||
| Number of shares | Weighted- average grant date fair value per RSU | ||||||||||
| Unvested RSUs at December 31, 2021 | 13,258 | $ | 75.51 | ||||||||
| Granted | 4,337 | 80.55 | |||||||||
| Vested | (3,891) | 76.81 | |||||||||
| Forfeited | (742) | 85.47 | |||||||||
| Unvested RSUs at March 31, 2022 | 12,962 | $ | 76.30 | ||||||||
| Severance and employee related costs | Other costs | Total | |||||||||||||||||||||
| Balance at December 31, 2021 | $ | 64 | $ | 21 | $ | 85 | |||||||||||||||||
| Cash payments | (12) | (8) | (20) | ||||||||||||||||||||
| Non-cash charge and other adjustment | (3) | — | (3) | ||||||||||||||||||||
| Balance at March 31, 2022 | $ | 49 | $ | 13 | $ | 62 | |||||||||||||||||
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | (1) | $ | (1) | |||||||||||||||||||||||||||||||||||||
| Interest expense from debt and amortization of debt discount and deferred financing costs | 27 | 28 | |||||||||||||||||||||||||||||||||||||||
| (11) | — | ||||||||||||||||||||||||||||||||||||||||
| Other expense (income), net | (1) | 3 | |||||||||||||||||||||||||||||||||||||||
| Interest and other expense (income), net | $ | 14 | $ | 30 | |||||||||||||||||||||||||||||||||||||
��
The Company accounts
The income tax expense of $109 million for the nine months ended September 30, 2017, reflects an effective tax rate of 11%, which is lower than the effective tax rate of 12%19% for the ninethree months ended September 30, 2016. The decrease isMarch 31, 2021, primarily due to higherlower taxes on foreign earnings, a decrease in non-deductible compensation and lower state taxes, partially offset by a reduction of excess tax benefits from share-based payments in the current period, partially offset by lower discrete tax benefits, primarily related to an audit settlement recognized in the prior period.
payments.
certain major taxing jurisdictions to which we are subject. The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard’sour federal tax returns for the 2009, 2010, and 20112012 through 2019 tax years. During the second quarterWe also have several state and non-U.S. audits pending. In addition, King’s pre-acquisition tax returns remain open in various jurisdictions, primarily as a result of 2015, the Company transitioned the review of its transfer pricing methodology frommatters. We anticipate resolving King’s transfer pricing for both pre- and post-acquisition tax years through a collaborative multilateral process with the advanced pricing agreement reviewtax authorities in the relevant jurisdictions, which include the U.K. and Sweden. While the outcome of this process to the IRS examination team. Their reviewremains uncertain, it could result in a different allocation of profits and losses underan agreement that changes the Company’s transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for uncertain tax positions for the period in which such a determination is reached and the relevant periods thereafter. The Company also has several state level and non-U.S. audits pending.
As part of purchase price accounting for the King Acquisition, the Company assumed $74 million of uncertain tax positions, primarily related to the transfer pricing on King tax years occurring prior to the King Acquisition. The Company is currently in negotiations with the relevant jurisdictions and taxing authorities with respect to King’s transfer pricing, which could result in a different allocation of profits and losses between these and other relevant jurisdictions or a failure to reach an agreement that results in unilateral adjustments to the relevant jurisdictions.
Vivendi Games’ results for the period from January 1, 2008 through July 9, 2008, are includedamount and timing of taxable income in the consolidated federal andjurisdictions in which King operates.
Certain of our subsidiaries are under examination or investigation, or may be subject to examination or investigation, by tax authorities in various jurisdictions, including France.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’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 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.
11.operations.
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Consolidated net income |
| $ | 188 |
| $ | 199 |
| $ | 858 |
| $ | 713 |
|
Less: Distributed earnings to unvested share-based awards that participate in earnings |
| — |
| — |
| — |
| (2) |
| ||||
Less: Undistributed earnings allocated to unvested share-based awards that participate in earnings |
| — |
| (1) |
| — |
| (2) |
| ||||
Numerator for basic and diluted earnings per common share—income available to common shareholders |
| $ | 188 |
| $ | 198 |
| $ | 858 |
| $ | 709 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Denominator for basic earnings per common share—weighted-average common shares outstanding |
| 755 |
| 742 |
| 753 |
| 739 |
| ||||
Effect of potential dilutive common shares under the treasury stock method: |
|
|
|
|
|
|
|
|
| ||||
Employee stock options and awards |
| 11 |
| 14 |
| 11 |
| 14 |
| ||||
Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method |
| 766 |
| 756 |
| 764 |
| 753 |
| ||||
Basic earnings per common share |
| $ | 0.25 |
| $ | 0.27 |
| $ | 1.14 |
| $ | 0.96 |
|
Diluted earnings per common share |
| $ | 0.25 |
| $ | 0.26 |
| $ | 1.12 |
| $ | 0.94 |
|
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 both the three and nine months ended September 30, 2017, on a weighted-average basis, we had outstanding unvested restricted stock units of less than 1 million shares of common stock that are participating in earnings. For the three and nine months ended September 30, 2016, on a weighted-average basis, we had outstanding unvested restricted stock units of 2 million and 3 million shares of common stock, respectively, that participated in earnings.
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||||||||||||||
| Consolidated net income | $ | 395 | $ | 619 | |||||||||||||||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||||||||||||||
| Denominator for basic earnings per common share—weighted-average common shares outstanding | 780 | 775 | |||||||||||||||||||||||||||||||||||||||
| Effect of dilutive stock options and awards under the treasury stock method | 6 | 8 | |||||||||||||||||||||||||||||||||||||||
| Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method | 786 | 783 | |||||||||||||||||||||||||||||||||||||||
| Basic earnings per common share | $ | 0.51 | $ | 0.80 | |||||||||||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 0.50 | $ | 0.79 | |||||||||||||||||||||||||||||||||||||
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, approximately 1 million options to acquire
12.millions):
| For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock units with performance measures not yet met | 3 | 3 | |||||||||||||||||||||||||||||||||||||||
| Anti-dilutive employee stock options | 2 | 2 | |||||||||||||||||||||||||||||||||||||||
Programs
program and are restricted from making any such repurchases during the period between the execution of the Merger Agreement with Microsoft and the Effective Time without Microsoft’s approval (which may not be unreasonably withheld, conditioned, or delayed).
On February 2, 2016, our Board of Directors declared 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.
13.April 15, 2021.
14.Acquisitions
King Digital We are also party to the proceedings set forth below.
and Activision Publishing (together, the “Defendants”) alleging violations of the California Fair Employment and Housing Act and the California Equal Pay Act. The DFEH filed a First Amended Complaint in the DFEH Matter on August 23, 2021. The Defendants moved to dismiss the First Amended Complaint; the motion was heard on February 15, 2022. The Defendants’ motion was denied in part and granted in part, and the DFEH did not amend with respect to the granted portion. The DFEH has moved to strike the Company’s answer. In addition, in January 2022, the Company’s Board of Directors received notice of an investigation by the DFEH and investigatory subpoenas.
We made this acquisition because we believe thatMerger
The aggregate purchase priceannouncement of the King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarilyproposed transaction 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 (amounts in millions):
|
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| |||||
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During the nine months ended September 30, 2016, the Company incurred $38 million of expenses related to the King Acquisition, which are included within “General and administrative”Microsoft, complaints were filed in the condensed 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 condensed consolidated balance sheet.
Share-Based Compensation
In connection with the King Acquisition, a majority of the outstanding King options and awards that were unvested as of the King Closing Date were converted into equivalent options and awards with respect to shares of the Company’s common stock, using an equity award exchange ratio calculated in accordance with the transaction agreement. As a result, replacement stock options and 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 expenseUnited States District Court for the converted King unvested stock optionsSouthern District of New York, the United States District Court for the Eastern District of New York, the United States District Court for the Central District of California, the United States District Court for the Eastern District of Pennsylvania and equity awards was approximately $40 million, which will be recognized over a weighted average service periodthe United States District Court for the District 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 occurring as future services are rendered in accordance with the awards’ original vesting schedules. The cash associated with these awards is recorded in “Other current assets” and “Other assets” in our condensed consolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in the purchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods.
Identifiable Intangible Assets Acquired and Goodwill
The internally-developed franchises, customer base, developed software, and trade name intangible assets 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 condensed consolidated statement of operations during the three and nine months ended September 30, 2016, the period of the King Acquisition, are included in the table below. The amounts presented represent the net revenues and earnings after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of revenues.
(in millions) |
| For the Three Months Ended |
| For the Nine Months Ended |
| ||
Net revenues |
| $ | 447 |
| $ | 1,088 |
|
Net loss |
| $ | (72) |
| $ | (171) |
|
Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined results of operations ofDelaware against the Company and King for the nine months ended September 30, 2016, on a pro forma basis, as though the acquisition had occurred on January 1, 2015.its directors:
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.
(in millions) |
| For the Three Months Ended |
| For the Nine Months Ended |
| ||
Net revenues |
| $ | 1,568 |
| $ | 4,873 |
|
Net income |
| $ | 218 |
| $ | 739 |
|
Basic earnings per common share |
| $ | 0.29 |
| $ | 0.99 |
|
Diluted earnings per common share |
| $ | 0.29 |
| $ | 0.97 |
|
15.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.
Recent Accounting Pronouncements Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. We anticipate adopting the accounting standard on January 1, 2018, using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date.
We believe the adoption of the new revenue recognition standard may have a significant impact in the following areas:
· The accounting for our sales of our games with significant online functionality for which we do not have vendor-specific objective evidence (“VSOE”) for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are hosted service arrangements, and we do not expect any significant impact on the accounting for our sales of these games.
· 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 expectallege that the new standard will generally result in earlier revenue recognition for these arrangements.
We are continuing to evaluate the additional impacts this new accounting guidance may have on our financial statements and related disclosures, including the impacts of these changes to our processes and internal controls. We expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting.
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. 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.
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. We are evaluating the impact of this new accounting guidance 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 thepreliminary proxy 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 would be a significant impact to the condensed 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 2016filed in connection with the King Acquisition. Under this new standard,proposed transaction between the restricted cash balance would be includedCompany and Microsoft omitted certain purportedly material information which rendered the preliminary proxy statement incomplete and misleading. Specifically, the complaints allege that the preliminary proxy statement failed to disclose material information regarding the sales process, the Company’s projections and the financial analyses of the Company’s financial advisor. The complaints sought, among other things, an order to enjoin the transaction unless additional disclosures were issued; and, if the transaction closes, damages. The Watson complaint also alleges that the Company’s directors entered into the transaction for self-interested reasons, including receipt of personal benefits in the beginning and ending total cash, cash equivalents, and restricted cash balances and, hence, would not be included as an investing activitytransaction. As of May 3, 2022, plaintiffs filed notices to voluntarily dismiss the complaints in
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 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 asannouncement of the beginningproposed transaction with Microsoft, the Company also received several demand letters from purported stockholders and two lawsuits,
Derivatives and Hedging
In August 2017, the FASB issued new guidancefiduciary duty related to the accounting for derivatives and hedging. The new guidance expands and refines hedge accounting for both financial and non-financial risk components, alignsproposed transaction. Specifically, the recognition and presentationdemands seek to investigate Mr. Kotick’s role in the proposed transaction with one of the effectsdemands alleging that Mr. Kotick’s position at the Company was at risk given workplace issues and he chose to pursue a transaction rather than resign. Such demand further alleges that Mr. Kotick agreed to a price range without authorization from our Board of hedging instrumentsDirectors and hedged items inthat our Board of Directors allowed Mr. Kotick to control the financial statements,transaction process. Such demand also alleges that the transaction price is inadequate because Microsoft’s opportunistic offer took advantage of the Company’s purportedly depressed stock price and includes certain targeted improvementsthat management may have attempted to easevalidate the application of current guidance relatedconsideration through downward adjustments to the assessmentCompany’s long-range plan.
The
The common stock of Activision Blizzard is traded on The NASDAQ Stock Market undernotes to 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”). We made this acquisition because we believe that the addition of King’s highly complementary mobile business positions us as a global leader in interactive entertainment across mobile, console, and PC platforms, as well as positioning us for future growth. The aggregate purchase price of approximately $5.8 billion was funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.
Our Segments
As partstatements included in Item 1 of the continued implementation ofthis Quarterly Report on Form 10-Q and
year ended December
31, 2021.(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 in console gaming.and services based primarily on our internally-developed intellectual properties.
Activision’s key product franchises include:franchise is Call of Duty,®, a first-person shooter foraction franchise. Activision also includes the console and PC platforms; Destiny, an online universeactivities of first-person action gameplay (which we callthe Call of Duty League, a “shared-world shooter”) for console and PC platforms; and Skylanders®, a franchise geared towards children that brings physical toys to life digitally in the game, primarily for console platforms.
global professional esports league with city-based teams.
content. Blizzard’s key product franchises include: Warcraft, which includes World of Warcraft,®, a subscription-based massive multi-player online role-playing game, for the PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone,®, an online collectible card franchise forgame based in the PCWarcraft universe; Diablo, an action role-playing franchise; and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for the PC; and Overwatch,®, a team-based first-person shooter foraction franchise. Blizzard also includes the PC and console platforms.
activities of the Overwatch League, a global professional esports league with city-based teams.
platforms. King’s key product franchises, all of which are for the PC and mobile platforms, include:franchise is Candy Crush™, which featuresa “match three” games; Farm Heroes™, which also features “match three” games; Pet Rescue™, which is a “clicker” game; and Bubble Witch™, which features “bubble shooter” games.
franchise.
· the Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content based onincluding our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV series Skylanders™ 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.
During
·March 31, 2022, financial results included:
· revenues from digital online channels were $1.35 billion, or 84% of consolidated net revenues, and were comparable to the $1.34 billion, or 86% of consolidated net revenues, for the three months ended September 30, 2016;
· operating margin was 15.9%, as compared with 18.8% for the three months ended September 30, 2016, with the lower margin primarily due to an increased percentage of revenues coming from our lower-margin Distribution business and higher personnel costs to support the growth of our business and expanding areas of opportunity;
· consolidated net income decreased 6% to $188 million, as compared to $199 million for the three months ended September 30, 2016;
· consolidated net income included $15 million of excess tax benefits from share-based payments, as compared to $12 million for the three months ended September 30, 2016; and
·in 2021;
During the nine months ended September 30, 2017:
· consolidated net revenues increased 8% to $4.97 billion$0.79 in 2021; and consolidated operating income increased 10% to $1.09 billion, as compared to consolidated net revenues of $4.59 billion and consolidated operating income of $987 million for the nine months ended September 30, 2016;
· revenues from digital online channels increased 19% to $4.05 billion, which was 81% of consolidated net revenues, as compared to $3.41 billion, which was 74% of consolidated net revenues, for the nine months ended September 30, 2016;
· operating margin was 21.9%, which was comparable with 21.5% for the nine months ended September 30, 2016;
·
· consolidated net income increased 20% to $858$844 million as compared to $713 million for the nine months ended September 30, 2016;
· consolidated net income included $97 million of excess tax benefits from share-based payments, as compared to $63 million for the nine months ended September 30, 2016; and
· diluted earnings per common share increased 19% to $1.12, as compared to $0.94 for the nine months ended September 30, 2016.
in 2021.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Point-in-time (1) | 9 | % | 11 | % | ||||||||||||||||||||||
| Over-time and other (2) | 91 | % | 89 | % | ||||||||||||||||||||||
GamesDates
| Title | Release Date | |||||||
| Call of Duty: Vanguard | November 2021, and when referred to herein, is inclusive of Call of Duty: Warzone from the release of Call of Duty: Vanguard Season 1 content and Call of Duty: Warzone Pacific on December 8, 2021 | |||||||
| Call of Duty: Black Ops Cold War | November 2020, and when referred to herein, is inclusive of Call of Duty: Warzone from the release of Call of Duty: Black Ops Cold War Season 1 content on December 16, 2020 through December 8, 2021 | |||||||
| Call of Duty: Modern Warfare | October 2019, and when referred to herein, is inclusive of Call of Duty: Warzone from its release in March 2020 through December 16, 2020 | |||||||
| Diablo II: Resurrected | September 2021 | |||||||
| World of Warcraft: Burning Crusade Classic | June 2021 | |||||||
| World of Warcraft: Shadowlands | November 2020 | |||||||
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net bookings | $ | 1,481 | $ | 2,066 | $ | (585) | ||||||||||||||||||||||||||||||||||||||||||||
| In-game net bookings | $ | 1,011 | $ | 1,343 | $ | (332) | ||||||||||||||||||||||||||||||||||||||||||||
· Activision’s Absolution,March 31, 2022, as compared to the third downloadable content pack for three months ended March 31, 2021, was primarily due to:
· Activision’s Destiny 2, the sequelVanguard
· Activision’s Retribution on PlayStation 4, the fourth downloadable content pack for
· Blizzard’s Knights
Candy Crush franchise.
Users
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 MAUs for these third-party published games.
|
| September 30, |
| June 30, 2017 |
| March 31, |
| December 31, |
| September 30, |
| June 30, 2016 |
|
Activision |
| 49 |
| 47 |
| 48 |
| 51 |
| 46 |
| 49 |
|
Blizzard |
| 42 |
| 46 |
| 41 |
| 41 |
| 42 |
| 33 |
|
King |
| 293 |
| 314 |
| 342 |
| 355 |
| 394 |
| 409 |
|
Total |
| 384 |
| 407 |
| 431 |
| 447 |
| 482 |
| 491 |
|
| March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Activision | 100 | 107 | 119 | 127 | 150 | ||||||||||||||||||||||||||||||||||||
| Blizzard | 22 | 24 | 26 | 26 | 27 | ||||||||||||||||||||||||||||||||||||
| King | 250 | 240 | 245 | 255 | 258 | ||||||||||||||||||||||||||||||||||||
| Total | 372 | 371 | 390 | 408 | 435 | ||||||||||||||||||||||||||||||||||||
Interactive Entertainment
Our business participatesgrowth is directly related to our ability to attract, retain, and develop top talent. We have seen increased competition in the global interactive entertainment industry. Games have become an increasingly popular form of entertainment, and we estimate the total industry has grown, on average, 19% annually over the last four calendar years. The industry continues to benefit from additional players entering the market as interactive entertainment becomes more commonplace across age groups and as more developing regions increasingly gain access to this form of entertainment.
Further, the wide adoption of smart phones globally and the free-to-play business model on those platforms has increased the total addressable market for gaming significantly. Smart phonestalent and associated free-to-play gamesexpect the competitive environment to continue at least in the short term. We have introduced gaming to new age groups and new regions and allowed gaming to occur more widely outsideexperienced challenges in both the home. Mobile gaming is now estimated to be larger than console and PC gaming and continues to grow at a significant rate. King is a leading developer of mobile and free-to-play games. In addition, our other business units have mobile efforts underway that present the opportunity for us to drive additional player investment from our franchises.
Opportunities to Expand Franchises Outside of Games
Our fans spend significant time investing in our franchises through purchasesretention of our gameexisting talent and attraction of new talent, with our current annualized average voluntary turnover rates being higher than the prior year. If this competition, voluntary turnover, and recruiting difficulty persists, it could continue to negatively impact our ability to deliver content whether through purchases of full games or downloadable content, or via microtransactions. Given the passion our players havein a cadence that will be optimal for our franchises, we believe there are emerging opportunities to drive player investment outside of game purchases. These opportunities include esports, film and television, and consumer products. Our efforts to build these additional opportunities are still relatively nascent, but we view them as potentially significant sources of future revenues.
As part of our efforts to take advantage ofbusiness.
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 software industry. According to The NPD Group, the top 10 titles accounted for 32% of the retail sales in the U.S. interactive entertainment industry in 2016. Similarly, a significant portion of our revenues have historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty Candy Crush, World of Warcraft, and Overwatch franchises, collectively, accounted for 69% of our consolidated net revenues, and a significantly higher percentage of our operating income, for 2016.
The top titles in the industry are also becoming more consistent as players and revenues concentrate more heavily in established franchises. Each of the top 10 console franchises in 2016 was a previously established franchise. Similarly, according to U.S rankings for the Apple App Store and Google Play Store, per App Annie Intelligence as of September 2017, the top 10 mobile games have an average tenure of 27 months.
In addition, throughout the year, we expect to investing in and developing sequels anddeliver ongoing content for our top titles, we are continually exploring additional waysvarious franchises, including continued in-game content for
Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry’s, revenues and profits in the near future. Accordingly, our ability to maintain our top franchises and our ability to successfully compete against our competitors’ top franchises can significantly impact our performance.
Recurring Revenue Business Models
Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our business to a more recurring and year-round model. Offering downloadable content and microtransactions, in addition to full games, allows our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenues, it can also increase engagement. Also, mobile games, and free-to-play games more broadly, are generally less seasonal.
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales |
| $ | 384 |
| 24% |
| $ | 355 |
| 23% |
| $ | 1,373 |
| 28% |
| $ | 1,501 |
| 33% |
|
Subscription, licensing, and other revenues |
| 1,234 |
| 76 |
| 1,213 |
| 77 |
| 3,601 |
| 72 |
| 3,093 |
| 67 |
| ||||
Total net revenues |
| 1,618 |
| 100 |
| 1,568 |
| 100 |
| 4,974 |
| 100 |
| 4,594 |
| 100 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues—product sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product costs |
| 149 |
| 39 |
| 111 |
| 31 |
| 422 |
| 31 |
| 429 |
| 29 |
| ||||
Software royalties, amortization, and intellectual property licenses |
| 37 |
| 10 |
| 42 |
| 12 |
| 200 |
| 15 |
| 250 |
| 17 |
| ||||
Cost of revenues—subscription, licensing, and other revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Game operations and distribution costs |
| 249 |
| 20 |
| 237 |
| 20 |
| 717 |
| 20 |
| 620 |
| 20 |
| ||||
Software royalties, amortization, and intellectual property licenses |
| 117 |
| 9 |
| 139 |
| 11 |
| 359 |
| 10 |
| 319 |
| 10 |
| ||||
Product development |
| 273 |
| 17 |
| 249 |
| 16 |
| 750 |
| 15 |
| 673 |
| 15 |
| ||||
Sales and marketing |
| 345 |
| 21 |
| 340 |
| 22 |
| 899 |
| 18 |
| 830 |
| 18 |
| ||||
General and administrative |
| 191 |
| 12 |
| 156 |
| 10 |
| 539 |
| 11 |
| 486 |
| 11 |
| ||||
Total costs and expenses |
| 1,361 |
| 84 |
| 1,274 |
| 81 |
| 3,886 |
| 78 |
| 3,607 |
| 79 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 257 |
| 16 |
| 294 |
| 19 |
| 1,088 |
| 22 |
| 987 |
| 21 |
| ||||
Interest and other expense (income), net | 37 |
| 2 |
| 63 |
| 4 |
| 121 |
| 3 |
| 181 |
| 3 |
| |||||
Income before income tax expense |
| 220 |
| 14 |
| 231 |
| 15 |
| 967 |
| 19 |
| 806 |
| 18 |
| ||||
Income tax expense |
| 32 |
| 2 |
| 32 |
| 2 |
| 109 |
| 2 |
| 93 |
| 2 |
| ||||
Net income |
| $ | 188 |
| 12% |
| $ | 199 |
| 13% |
| $ | 858 |
| 17% |
| $ | 713 |
| 16% |
|
revenues:
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product sales | $ | 386 | 22 | % | $ | 675 | 30 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In-game, subscription, and other revenues | 1,382 | 78 | 1,600 | 70 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenues | 1,768 | 100 | 2,275 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenues—product sales: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product costs | 91 | 24 | 140 | 21 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software royalties, amortization, and intellectual property licenses | 81 | 21 | 112 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenues—in-game, subscription, and other: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Game operations and distribution costs | 288 | 21 | 296 | 19 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software royalties, amortization, and intellectual property licenses | 19 | 1 | 30 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product development | 346 | 20 | 353 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 252 | 14 | 237 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 214 | 12 | 282 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and related costs | (2) | — | 30 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 1,289 | 73 | 1,480 | 65 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 479 | 27 | 795 | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other expense (income), net | 14 | 1 | 30 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income tax expense | 465 | 26 | 765 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 70 | 4 | 146 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 395 | 22 | % | $ | 619 | 27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Increase (Decrease) | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated net revenues | $ | 1,768 | $ | 2,275 | $ | (507) | (22) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In-game net revenues (1) | $ | 1,134 | $ | 1,323 | $ | (189) | (14) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| ||||||||||||||||||
|
| 2017 |
| 2016 |
| Increase |
| % Change |
| 2017 |
| 2016 |
| Increase |
| % Change |
| ||||||
Consolidated net revenues |
| $ | 1,618 |
| $ | 1,568 |
| $ | 50 |
| 3% |
| $ | 4,974 |
| $ | 4,594 |
| $ | 380 |
| 8% |
|
Net effect from recognition (deferral) of deferred net revenues |
| (284) |
| (62) |
| (222) |
|
|
| 458 |
| 447 |
| 11 |
|
|
| ||||||
period.
Q3 2017 vs. Q3 2016
net revenues
·to lower revenues recognized from the continued strengthfrom:
·$91 million due to higher revenues from the Candy Crush franchise,franchise.
· revenues from Crash BandicootTM N. Sane Trilogy,which was released in June 2017.
The increase was partially offset by:
· lower revenues recognized from Overwatch, which was released in May 2016;
· lower revenues recognized from World of Warcraft, driven by the release of World of Warcraft: LegionTM in August 2016, with no comparable release in 2017; and
· lower revenues recognized from Call of Duty: Infinite Warfare (which, when referred to herein, is inclusive of Call of Duty: Modern Warfare® Remastered), which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.
YTD Q3 2017 vs. YTD Q3 2016
The increase in consolidatedtitles.
· higher revenues from King titles as the current period includes King revenues for the full year-to-date period, while the comparable prior period only included King revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise, due to in-game events and features;
· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, and continued strength of microtransactions;
· higher revenues recognized from Overwatch; and
· revenues from Crash Bandicoot N. Sane Trilogy.
The increase was partially offset by lower revenues recognized from Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III.
Change in Deferred Revenues Recognized
Q3 2017 vs. Q3 2016
YTD Q3 2017 vs. YTD Q3 2016
The increase inhigher in-game net deferred revenues recognized for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:
· net deferred revenues recognized from Overwatch, as compared to a net deferral of revenues in the comparable prior period due to the release of Overwatch in May 2016; and
· net deferred revenues recognized from World of Warcraft, as compared to a net deferral of revenues in the comparable prior period due to the release of World of Warcraft: Legion in August 2016.
The increase was partially offset by:
· a net deferral of revenues for the Destiny franchise due to the release of Destiny 2, as compared to net deferred revenues recognized in the comparable prior period; and
· lower net deferred revenues recognized from the CallCandy Crush franchise
Currently, we
| For the Three Months Ended March 31, 2022 | Increase / (decrease) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Total | Activision | Blizzard | King | Total | |||||||||||||||||||||||||||||||||||||||||||
| Segment Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | 453 | $ | 265 | $ | 682 | $ | 1,400 | $ | (438) | $ | (193) | $ | 73 | $ | (558) | ||||||||||||||||||||||||||||||||||
| Intersegment net revenues (1) | — | 9 | — | 9 | — | (16) | — | (16) | ||||||||||||||||||||||||||||||||||||||||||
| Segment net revenues | $ | 453 | $ | 274 | $ | 682 | $ | 1,409 | $ | (438) | $ | (209) | $ | 73 | $ | (574) | ||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 59 | $ | 53 | $ | 243 | $ | 355 | $ | (383) | $ | (155) | $ | 40 | $ | (498) | ||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Activision | Blizzard | King | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | 891 | $ | 458 | $ | 609 | $ | 1,958 | ||||||||||||||||||||||||||||||||||||||||||
| Intersegment net revenues (1) | — | 25 | — | 25 | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment net revenues | $ | 891 | $ | 483 | $ | 609 | $ | 1,983 | ||||||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 442 | $ | 208 | $ | 203 | $ | 853 | ||||||||||||||||||||||||||||||||||||||||||
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||||
|
| 2017 |
| 2016 |
| Increase |
| 2017 |
| 2016 |
| Increase |
| ||||||
Segment net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Activision |
| $ | 759 |
| $ | 377 |
| $ | 382 |
| $ | 1,291 |
| $ | 1,069 |
| $ | 222 |
|
Blizzard |
| 531 |
| 729 |
| (198) |
| 1,539 |
| 1,767 |
| (228) |
| ||||||
King |
| 528 |
| 459 |
| 69 |
| 1,482 |
| 1,149 |
| 333 |
| ||||||
Reportable segments net revenues total |
| 1,818 |
| 1,565 |
| 253 |
| 4,312 |
| 3,985 |
| 327 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reconciliation to consolidated net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other segments (1) |
| 84 |
| 65 |
|
|
| 204 |
| 162 |
|
|
| ||||||
Net effect from recognition (deferral) of deferred net revenues |
| (284) |
| (62) |
|
|
| 458 |
| 447 |
|
|
| ||||||
Consolidated net revenues |
| $ | 1,618 |
| $ | 1,568 |
|
|
| $ | 4,974 |
| $ | 4,594 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Segment income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Activision |
| $ | 261 |
| $ | 123 |
| $ | 138 |
| $ | 371 |
| $ | 309 |
| $ | 62 |
|
Blizzard |
| 168 |
| 316 |
| (148) |
| 552 |
| 730 |
| (178) |
| ||||||
King |
| 208 |
| 138 |
| 70 |
| 538 |
| 381 |
| 157 |
| ||||||
Reportable segment income from operations total |
| 637 |
| 577 |
| 60 |
| 1,461 |
| 1,420 |
| 41 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reconciliation to consolidated operating income and consolidated income before income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other segments (1) |
| (12) |
| (2) |
|
|
| (15) |
| (5) |
|
|
| ||||||
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues |
| (132) |
| (33) |
|
|
| 370 |
| 228 |
|
|
| ||||||
Share-based compensation expense |
| (47) |
| (33) |
|
|
| (120) |
| (118) |
|
|
| ||||||
Amortization of intangible assets |
| (187) |
| (211) |
|
|
| (571) |
| (495) |
|
|
| ||||||
Fees and other expenses related to the King Acquisition (2) |
| (3) |
| (4) |
|
|
| (12) |
| (43) |
|
|
| ||||||
Restructuring costs (3) |
| — |
| — |
|
|
| (11) |
| — |
|
|
| ||||||
Other non-cash charges (4) |
| 1 |
| — |
|
|
| (14) |
| — |
|
|
| ||||||
Consolidated operating income |
| 257 |
| 294 |
|
|
| 1,088 |
| 987 |
|
|
| ||||||
Interest and other expense (income), net |
| 37 |
| 63 |
|
|
| 121 |
| 181 |
|
|
| ||||||
Consolidated income before income tax expense |
| $ | 220 |
| $ | 231 |
|
|
| $ | 967 |
| $ | 806 |
|
|
| ||
product development cycles and lower personnel bonuses due to lower business performance. compared to the three months ended March 31, 2021, was primarily due to higher revenues from in-game player purchases and advertising in the Candy Crush franchise. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Increase 2017 2016 Increase Net revenues by distribution channel Digital online channels (1) $ 1,354 $ 1,344 $ 10 $ 4,048 $ 3,412 $ 636 Retail channels 168 157 11 698 1,013 (315) Other (2) 96 67 29 228 169 59 Total consolidated net revenues $ 1,618 $ 1,568 $ 50 $ 4,974 $ 4,594 $ 380 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Increase 2017 2016 Increase Increase/(decrease) in deferred revenues recognized by distribution channel: Digital online channels (1) $ (114) $ (158) $ 44 $ 236 $ (288) $ 524 Retail channels (177) 96 (273) 208 735 (527) Other (2) 7 — 7 14 — 14 Net effect from recognition (deferral) of deferred net revenues $ (284) $ (62) $ (222) $ 458 $ 447 $ 11 products, as well as licensing royalties. the Call of Duty League. Candy Crush franchise. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Increase 2017 2016 Increase Geographic region net revenues: Americas $ 798 $ 796 $ 2 $ 2,586 $ 2,411 $ 175 EMEA (1) 593 499 94 1,684 1,528 156 Asia Pacific 227 273 (46) 704 655 49 Consolidated net revenues $ 1,618 $ 1,568 $ 50 $ 4,974 $ 4,594 $ 380 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Increase 2017 2016 Increase Platform net revenues: Console $ 527 $ 452 $ 75 $ 1,710 $ 1,867 $ (157) PC 461 609 (148) 1,534 1,421 113 Mobile and ancillary (1) 534 440 94 1,502 1,137 365 Other (2) 96 67 29 228 169 59 Total consolidated net revenues $ 1,618 $ 1,568 $ 50 $ 4,974 $ 4,594 $ 380 devices. the Call of Duty League. Duty: Modern Warfare franchise. Three Months % of associated Three Months % of associated Increase Cost of revenues—product sales: Product costs $ 149 39% $ 111 31% $ 38 Software royalties, amortization, and intellectual property licenses 37 10 42 12 (5) Cost of revenues—subscription, licensing, and other revenues: Game operations and distribution costs 249 20 237 20 12 Software royalties, amortization, and intellectual property licenses 117 9 139 11 (22) Total cost of revenues $ 552 34% $ 529 34% $ 23 Nine Months % of associated net revenues Nine Months % of associated Increase Cost of revenues—product sales: Product costs $ 422 31% $ 429 29% $ (7) Software royalties, amortization, and intellectual property licenses 200 15 250 17 (50) Cost of revenues—subscription, licensing, and other revenues: Game operations and distribution costs 717 20 620 20 97 Software royalties, amortization, and intellectual property licenses 359 10 319 10 40 Total cost of revenues $ 1,698 34% $ 1,618 35% $ 80 revenues: Sales the current period. March 31, 2021. September 30, % of September 30, % of Increase Three Months Ended $ 273 17% $ 249 16% $ 24 Nine Months Ended $ 750 15% $ 673 15% $ 77 September 30, % of September 30, % of Increase Three Months Ended $ 345 21% $ 340 22% $ 5 Nine Months Ended $ 899 18% $ 830 18% $ 69 millions) Candy Crush franchise. September 30, % of September 30, % of Increase Three Months Ended $ 191 12% $ 156 10% $ 35 Nine Months Ended $ 539 11% $ 486 11% $ 53 plan is primarily related to cash outlays to be made over time to impacted personnel. September 30, % of September 30, % of Increase Three Months Ended $ 37 2% $ 63 4% $ (26 ) Nine Months Ended $ 121 3% $ 181 3% $ (60 ) equity investments. September 30, % of pretax September 30, % of pretax Increase Three Months Ended $ 32 15% $ 32 14% $ — Nine Months Ended $ 109 11% $ 93 12% $ 16 benefit from share-based payments. September 30, 2017 December 31, 2016 Increase Cash and cash equivalents $ 3,576 $ 3,245 $ 331 Short-term investments 89 13 76 $ 3,665 $ 3,258 $ 407 Percentage of total assets 21% 19% For the Nine Months Ended September 30, 2017 2016 Increase Net cash provided by operating activities $ 1,055 $ 1,296 $ (241 ) Net cash used in investing activities (156) (1,150) 994 Net cash (used in) provided by financing activities (640) 2,083 (2,723 ) Effect of foreign exchange rate changes 72 (23) 95 Net increase in cash and cash equivalents $ 331 $ 2,206 $ (1,875 ) payments and settlement in equity of amounts otherwise payable in cash for 2021 under the Company’s annual incentive compensation plans. March 31, 2021. March 31, 2021. At September 30, 2017 Gross Carrying Unamortized Net Carrying 2017 TLA $ 990 $ (8) $ 982 2021 Notes 650 (5) 645 2022 Notes 400 (4) 396 2023 Notes 750 (10) 740 2026 Notes 850 (9) 841 2027 Notes 400 (6) 394 2047 Notes 400 (10) 390 Total long-term debt $ 4,440 $ (52) $ 4,388 At December 31, 2016 Gross Carrying Unamortized Net Carrying 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 31, 2022. Costs. foreign currency forward contracts. 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 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 proceedings. 3.2 10.1* 31.2 32.1 32.2 101.INS XBRL Instance 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. May 3, 2022 Armin Zerza Principal Financial Officer Deputy Chief Financial Officer and Comptroller, and Principal Accounting Officer of Activision Blizzard, Inc. of Activision Blizzard, Inc.For the Three Months Ended March 31, 2022 2021 Reconciliation to consolidated net revenues: Segment net revenues $ 1,409 $ 1,983 Revenues from non-reportable segments (1) 81 108 Net effect from recognition (deferral) of deferred net revenues (2) 287 209 Elimination of intersegment revenues (3) (9) (25) Consolidated net revenues $ 1,768 $ 2,275 Reconciliation to consolidated income before income tax expense: Segment operating income $ 355 $ 853 Operating income (loss) from non-reportable segments (1) 19 (4) Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2) 235 132 Share-based compensation expense (4) (98) (151) Amortization of intangible assets (2) (5) Merger and acquisition-related fees and other expenses (5) (32) — Restructuring and related costs 2 (30) Consolidated operating income 479 795 Interest and other expense (income), net 14 30 Consolidated income before income tax expense $ 465 $ 765 (1)Includes other income and expenses from operating segments managed outside theof our reportable segments, including our StudiosDistribution business and Distribution businesses. 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.(4)Expenses related to share-based compensation, including $15 million for outstanding liability awards accounted for under ASC 718.(5)Reflects fees and other expenses such as legal, banking, and professional services fees, related to our proposed transaction with Microsoft, primarily legal and advisory fees.Segment ResultsActivisionThe decrease in Activision’s segment net revenues and operating income for the King Acquisition and associated integration activities, inclusive of related debt financings.(3) Reflects restructuring charges,three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily severance costs.(4) Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidationlower revenues from:•Call of certainDuty: Vanguard as compared to Call of our foreign entities.Duty: Black Ops Cold War; and•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.36Table of ContentsSegment Net RevenuesActivisionQ3 2017 vs. Q3 2016The increaseresulting decrease in Activision’s segment operating income was partially offset by:•lower cost of sales driven by the lower revenues; and•lower product development costs primarily driven by lower bonuses as a result of lower business performance and higher capitalization of development costs, partially offset by increased costs from expanded development personnel.BlizzardThe decrease in Blizzard’s segment net revenues for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarily due to:· higherto lower revenues from the Destiny franchise, driven by the releasefrom:•World of Destiny 2Warcraft; and•Hearthstone.The resulting decrease in September 2017;· revenues from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, which was released in May 2017, and continued strength of microtransactions; and· revenues from Crash Bandicoot N. Sane Trilogy, which was released in June 2017.The increaseBlizzard’s segment operating income was partially offset by lower revenues from Call of Duty: Infinite Warfare, which was releasedproduct development costs, driven by an increase in November 2016, as comparedcapitalized development costs due to Call of Duty: Black Ops III, the comparable 2015 title.YTD Q3 2017 vs. YTD Q3 2016KingThe increase in Activision’sKing’s segment net revenues for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the same drivers and partially offsetting factors asoperating income for the three months ended September 30, 2017,March 31, 2022, as discussed above.BlizzardQ3 2017 vs. Q3 2016The decreaseresulting increase in King’s segment operating income was partially offset by:•higher sales and marketing costs, primarily for the Candy Crush franchise; and•higher service provider fees, primarily digital storefront fees, driven by the higher revenues from in-game player purchases.Foreign Exchange ImpactChanges in foreign exchange rates had a negative impact of $26 million on Activision Blizzard’s segment net revenues for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016, was primarily due to:· lower revenues from World of Warcraft, driven by the release of World of Warcraft: Legion in August 2016, with no comparable release in 2017; and· lower revenues from Overwatch, which was released in May 2016.The decrease was partially offset by:· higher revenues from Hearthstone; and· higher revenues from Diablo III, primarily due to the release of Rise of the Necromancer™, a downloadable content pack for Diablo III which was released in June 2017.YTD Q3 2017 vs. YTD Q3 2016The decrease in Blizzard’s net revenues for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the same drivers as for the three months ended September 30, 2017, as discussed above.KingQ3 2017 vs. Q3 2016The increase in King’s net revenues for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to higher revenues from the Candy Crush franchise driven by in-game events and features.YTD Q3 2017 vs. YTD Q3 2016The increase in King’s net revenues for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the current period including King revenues for the full year-to-date period, while the comparable prior period only included King revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise, due to in-game events and features.Segment Income from OperationsActivisionQ3 2017 vs. Q3 2016The increase in Activision’s operating income for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to the higher revenues discussed above. The increase was partially offset by higher amortization of capitalized software costs and higher product costs primarily due to the release of Destiny 2 in September 2017, along with higher sales and marketing costs to support that release.YTD Q3 2017 vs. YTD Q3 2016The increase in Activision’s operating income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the higher revenues discussed above and lower costs associated with the Skylanders franchise, as there will not be a new release title in 2017. The increase was partially offset by the same factors discussed above as for the three months ended September 30, 2017.BlizzardQ3 2017 vs. Q3 2016The decrease in Blizzard’s operating income for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to the lower revenues discussed above. The decrease was partially offset by lower amortization of capitalized software costs due to the release of World of Warcraft: Legion in August 2016, with no comparable release in 2017.YTD Q3 2017 vs. YTD Q3 2016The decrease in Blizzard’s operating income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the lower revenues 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 and marketing costs for Overwatch and World of Warcraft: Legion, due to their respective launches in 2016, with no comparable releases in 2017; and· lower amortization of capitalized software costs due to the release of Overwatch and World of Warcraft: Legion in 2016.KingQ3 2017 vs. Q3 2016The increase in King’s operating income for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to the higher revenues discussed above, along with lower sales and marketing costs from the Farm Heroes franchise given the launch of Farm Heroes Super SagaTM at the end of June 2016 with no comparable launch in the current period.YTD Q3 2017 vs. YTD Q3 2016The increase in King’s operating income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the current period including King’s results of operations for the full year-to-date period, while the comparable prior period only included King’s results of operations for the partial period following the King Closing Date.Foreign Exchange ImpactChanges in foreign exchange rates had a positive impact of $34 million and $1 million on reportable segment net revenues for the three and nine months ended September 30, 2017, respectively, as compared to the impact on reportable segment net revenues for the three and nine months ended September 30, 2016.previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the Euroeuro and the British pound.37Consolidated ResultsNet Revenues by Distribution ChannelThe following table details our consolidated net revenues by distribution channel for the three and nine months ended September 30, 2017 and 2016 (amounts in millions):
(decrease)
(decrease)The increase (decrease) in deferred revenues recognized by distribution channel for the three and nine months ended September 30, 2017 and 2016, was as follows (amounts in millions):
(decrease)
(decrease) For the Three Months Ended March 31, 2022 2021 Increase/
(decrease)Net revenues by distribution channel: Digital online channels (1) $ 1,589 $ 2,006 $ (417) Retail channels 85 149 (64) Other (2) 94 120 (26) Total consolidated net revenues $ 1,768 $ 2,275 $ (507) (1)Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransactions, subscriptions, and products.(2)Net revenues from “Other” primarily include revenues from our StudiosDistribution business, the Overwatch League, and Distribution businesses, as well as revenues from MLG.Digital Online Channel Net RevenuesNet RevenuesQ3 2017 vs. Q3 2016NetThe decrease in net revenues from digital online channels for the three months ended September 30, 2017, were comparable to the three months ended September 30, 2016. This was primarily due to increases in revenues driven by:· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, which was released in May 2017, and continued strength of microtransactions; and· higher revenues from the Candy Crush franchise, driven by in-game events and features.The increase was partially offset by:· lower revenues recognized from Call of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title;· lower revenues recognized from Overwatch, which was released in May 2016; and· lower revenues recognized from World of Warcraft, driven by the release of World of Warcraft: Legion in August 2016, with no comparable release in 2017.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues from digital online channels for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· higher revenues from King titles, as the current period includes King revenues for the full year-to-date period, while the comparable prior period only included King revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to in-game events and features;· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, and continued strength of microtransactions; and· higher revenues recognized from Overwatch.The increase was partially offset by lower revenues recognized from Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.Change in Deferred Revenues RecognizedQ3 2017 vs. Q3 2016The increase in net deferred revenues recognized from digital online channels for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarily due to net deferredlower revenues recognized from Worldfrom:•Call of Warcraft,Duty: Vanguard as compared to a net deferralCall of revenues in the comparable prior period due to the release of Duty: Black Ops Cold War;•World of Warcraft: Legion in August 2016. The increaseWarcraft; and•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.This decrease was partially offset by a net deferral ofhigher revenues associated with new releases during the current period, including the release of Destiny 2 in September 2017from in-game player purchases and Knights of the Frozen Throne, the latest expansion to Hearthstone, in August 2017.YTD Q3 2017 vs. YTD Q3 2016The increase in net deferred revenues recognized from digital online channels for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· net deferred revenues recognized from Overwatch, as compared to a net deferral of revenuesadvertising in the comparable prior period due to the release of Overwatch in May 2016;· net deferred revenues recognized from World of Warcraft, as compared to a net deferral of revenues in the comparable prior period due to the release of World of Warcraft: Legion in August 2016; and· higher deferred revenues recognized from the Call of Duty franchise (the weaker performance of Call of Duty: Infinite Warfare digital content in the current period as compared to Call of Duty: Blacks Ops III in the prior period has resulted in less deferrals of revenues from digital content in 2017 as compared to 2016 and, as a result, higher deferred revenues recognized in the current period).The increase was partially offset by a deferral of revenues associated with the release of Destiny 2 in September 2017 and Knights of the Frozen Throne in August 2017.Retail Channel Net RevenuesNet RevenuesQ3 2017 vs. Q3 2016The increasedecrease in net revenues from retail channels for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016, was primarily due to revenues from Crash Bandicoot N. Sane Trilogy, which was released in June 2017. The increase was partially offset by:· lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title; and· lower revenues recognized from Overwatch, which was released in May 2016.YTD Q3 2017 vs. YTD Q3 2016The decrease in net revenues from retail channels for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016,March 31, 2021, was primarily due to lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Infinite Warfare,Vanguard as compared to the performance of Call of Duty: Black Ops IIICold War. The decrease was partially offset by revenues from Crash Bandicoot N. Sane Trilogy.Change in Deferred Revenues RecognizedQ3 2017 vs. Q3 2016The decrease in net deferred revenues recognized from retail channels for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to:· the deferral of revenues associated with the Destiny franchise given the release of Destiny 2 in September 2017; and· lower net deferred revenues recognized from Call of Duty: Infinite Warfare, as compared to Call of Duty: Black Ops III.YTD Q3 2017 vs. YTD Q3 2016The decrease in net deferred revenues recognized from retail channels for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to was primarily due to:· lower deferred revenues recognized from Call of Duty: Infinite Warfare, as compared to Call of Duty: Black Ops III; and· the deferral of revenues associated with the Destiny franchise, given the release of Destiny 2 in September 2017.The decrease was partially offset by net deferred revenues recognized from Overwatch, as compared to a net deferral of revenues in the comparable prior period, due to the release of Overwatch in May 2016.Net Revenues by Geographic RegionThe following table details our consolidated net revenues by geographic region for the three and nine months ended September 30, 2017 and 2016 (amounts in millions):
(decrease)
(decrease)(1) Consists of the Europe, Middle East, and Africa geographic regions.AmericasQ3 2017 vs. Q3 2016Net revenues in the Americas region for the three months ended September 30, 2017, were comparable to the three months ended September 30, 2016. Net revenues were comparable primarily due to increases in revenues from:· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, which was released in May 2017, and continued strength of microtransactions; and· higher revenues from the Candy Crush franchise, driven by in-game events and features.The increases were offset by:· lower revenues recognized from Overwatch, which was released in May 2016; and· lower revenues recognized from Call of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues in the Americas region for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· higher revenues from King titles, as the current period includes King’s revenues for the full year-to-date period, while the comparable prior period only included King’s revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to in-game events and features;· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, and continued strength of microtransactions; and· higher revenues recognized from Overwatch.The increases were partially offset by lower revenues recognized from Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III.EMEAQ3 2017 vs. Q3 2016The increase in net revenues in the EMEA region for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to:· revenues from Crash Bandicoot N. Sane Trilogy, which was released in June 2017;· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, which was released in May 2017, and continued strength of microtransactions;· higher revenues from our Distribution business; and· higher revenues from the Candy Crush franchise.The increases were offset by lower revenues recognized from Call of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues in the EMEA region for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to the same drivers and partially offsetting factors as those for the three months ended September 30, 2017, as discussed above.Asia PacificQ3 2017 vs. Q3 2016The decrease in net revenues in the Asia Pacific region for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to lower revenues recognized from Overwatch, which was released in May 2016.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues in the Asia Pacific region for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to higher revenues recognized from Overwatch, given the nine months ended September 30, 2017, benefited from the recognition of prior year deferred revenues generated during the launch year of Overwatch, most of which were recognized during the first six months of 2017.Net Revenues by PlatformThe following tables detail our consolidated net revenues by platform for the three and nine months ended September 30, 2017 and 2016 (amounts in millions):
(Decrease)
(Decrease)For the Three Months Ended March 31, 2022 2021 Increase/
(decrease)Net revenues by platform: Console $ 484 $ 799 $ (315) PC 383 622 (239) Mobile and ancillary (1) 807 734 73 Other (2) 94 120 (26) Total consolidated net revenues $ 1,768 $ 2,275 $ (507) 38(1)Net revenues from “Mobile and ancillary” primarily 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” primarily include revenues from our StudiosDistribution business, the Overwatch League, and Distribution businesses, as well as revenues from MLG.ConsoleQ3 2017 vs. Q3 2016The increasedecrease in net revenues from the console platform for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016, was primarily due to:· revenues recognized from the continued strength of Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, which was released in May 2017, and continued strength of microtransactions;· revenues from Crash Bandicoot N. Sane Trilogy, which was released in June 2017; and· higher revenues recognized from the Destiny franchise, driven by the release of Destiny 2 in September 2017.The increase was partially offset by lower revenues recognized from Call of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.YTD Q3 2017 vs. YTD Q3 2016The decrease in net revenues from the console platform for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016,March 31, 2021, was primarily due to lower revenues recognized from from:•Call of Duty: Infinite Warfare,Vanguard as compared to the performance of Call of Duty: Black Ops III. The decrease was partially offset by:· revenues recognized from the continued strength of Cold War•Call of Duty: Black Ops III, driven by the downloadable content pack, Zombies Chronicles, and continued strengthCold War as compared to Call of microtransactions;· revenues from Crash Bandicoot N. Sane Trilogy; and· higher revenues recognized from Overwatch, which was released in May 2016.PCQ3 2017 vs. Q3 2016The decrease in net revenues from the PC platform for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarily due to:·to lower revenues recognized from Overwatch, which was released in May 2016; and· lower revenues recognized from from:•World of Warcraft, driven by the release;•Call of World of Warcraft: Legion in August 2016, which drove higher subscription revenues in the prior period, with no comparable release in 2017.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues from the PC platform for the nine months ended September 30, 2017,Duty: Vanguardthe nine months ended September 30, 2016,Call of Duty: Black Ops Cold War; and•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.This decrease was primarily due to:·partially offset by higher revenues recognized from Overwatch, given the nine months ended September 30, 2017, benefited from the recognition of prior year deferred revenues generated during the launch year of Overwatch, most of which were recognized during the first six months of 2017; and· higher revenues recognized from World of WarcraftMobile and AncillaryQ3 2017 vs. Q3 2016The increase in net revenues from mobile and ancillary for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarily due to higher revenues from in-game player purchases and advertising in the Candy Crush franchise, driven by in-game events and features.YTD Q3 2017 vs. YTD Q3 2016The increase in net revenues from mobile and ancillary for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to higher revenues from King titles as the current period includes King’s revenues for the full year-to-date period, while the comparable prior period only included King’s revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to in-game events and features.Costs and ExpensesCost of RevenuesThe following tables detail the components of cost of revenues in dollars (amounts in millions) and as a percentage of associated net revenues for the three and nine months ended September 30, 2017 and 2016 (amounts in millions):
Ended
September 30,
2017
net revenues
Ended
September 30,
2016
net revenues
(Decrease)
Ended
September 30,
2017
Ended
September 30,
2016
net revenues
(Decrease) Three Months Ended March 31, 2022 % of
associated
net revenuesThree Months Ended March 31, 2021 % of
associated
net revenuesIncrease
(Decrease)Cost of revenues—product sales: Product costs $ 91 24 % $ 140 21 % $ (49) Software royalties, amortization, and intellectual property licenses 81 21 112 17 (31) Cost of revenues—in-game, subscription, and other: Game operations and distribution costs 288 21 296 19 (8) Software royalties, amortization, and intellectual property licenses 19 1 30 2 (11) Total cost of revenues $ 479 27 % $ 578 25 % $ (99) 39Cost of Revenues—Product Sales:Q3 2017 vs. Q3 2016The increasedecrease in product costs for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarilydriven by a $40 million decrease in product costs for our Distribution business due to the increaselower revenues.The decrease in product sales for the period, including from our relatively lower margin Distribution business.The software royalties, amortization, and intellectual property licenses related to product sales for the three months ended September 30, 2017, was comparableMarch 31, 2022, as compared to the three months ended September 30, 2016.YTD Q3 2017 vs. YTD Q3 2016The decrease in product costs for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016,March 31, 2021, was primarily due to the decrease in product sales for the period. This was partially offset by higher product costs resulting from the increased revenues of our relatively lower-margin Distribution business.Thea $16 million decrease in software royalties, amortization and intellectual property licenses related to product sales forroyalties from Blizzard, driven by lower software amortization and royalties from nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· lower developer royalties and softwareprior year included amortization associated with the Destiny franchise, due to the timingrelease of releases;· lower software amortization associated with Guitar Hero® Live, which was released in October 2015, releaseamortization in 2016; and· lower software amortization associated with Overwatch, which was released in May 2016.The decrease was partially offset by higher software amortization from World of Warcraft: Legion, which was released in August 2016.Cost of Revenues—In-game, Subscription, Licensing, and Other Revenues:Q3 2017 vs. Q3 2016The increase in gameGame operations and distribution costs for the three months ended September 30, 2017, as comparedMarch 31, 2022 were comparable to the three months ended September 30, 2016, was primarily due to higher platform provider fees associated with the increase in revenues from King.The decrease in softwareMarch 31, 2021.Software royalties, amortization, and intellectual property licenses related to in-game, subscription, licensing, and other revenues for the three months ended September 30, 2017, as comparedMarch 31, 2022 were comparable to the three months ended September 30, 2016, was primarily due to lower amortization of internally-developed franchise intangible assets acquired in the King Acquisition.YTD Q3 2017 vs. YTD Q3 2016The increase in game operations and distribution costs for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to higher online costs and platform provider fees associated with revenues from King, as the current period includes King’s costs for a full year-to-date period, while the comparable prior period only included King’s revenues and associated costs for the partial period following the King Closing Date.The increase in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to a full year-to-date period amortization of internally-developed franchise intangible assets acquired in the King Acquisition, while the comparable prior period only included a partial period of amortization of internally-developed franchise intangible assets following the King Closing Date.Product Development (amounts in millions)
2017
consolidated
net revenues
2016
consolidated
net revenues
(Decrease)Q3 2017 vs. Q3 2016The increase in productMarch 31, 2022 % of
consolidated
net revenuesMarch 31, 2021 % of
consolidated
net revenuesIncrease
(Decrease)Three Months Ended $ 346 20 % $ 353 16 % $ (7) Product development costs for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, was primarily due to higher product development costs resulting from lower capitalization of software development costs in the current period due to the timing of game development cycles. The increase was partially offset by lower accrued bonuses for Blizzard.YTD Q3 2017 vs. YTD Q3 2016The increase in product development costs for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· higher Blizzard product development costs resulting from lower capitalization of software development costs due to the timing of game development cycles; and· increased costs related to King, as the current period includes a full year-to-date period of costs, while the comparable prior period only included King’s costs for the partial period following the King Closing Date.The increase was partially offset by lower accrued bonuses for Activision and Blizzard.Sales and Marketing (amounts in millions)
2017
consolidated
net revenues
2016
consolidated
net revenues
(Decrease)Q3 2017 vs. Q3 2016Sales and marketing expenses for the three months ended September 30, 2017,March 31, 2022 were comparable to the three months ended September 30, 2016,March 31, 2021, as the higher salesdevelopment spend increase of $61 million, primarily as a result of increased development personnel and marketing costs for the Destiny franchise associated with the release of Destiny 2 in September 2017 wereshare-based compensation, but partially offset by lower sales and marketingbonuses as a result of lower business performance, was offset by a $69 million increase in capitalization of development costs for:·World of Warcraft, driven by Worldthe timing of Warcraft: Legion, which was releasedour game development cycles and higher development spend.Sales and Marketing (amounts in August 2016, with no comparable release in 2017;· King, due to the launch of Farm Heroes Super Saga at the end of June 2016 with no comparable launch in 2017; and· the Call of Duty franchise, primarily as the prior year included our Call of Duty XP event without a comparable event in the current period.YTD Q3 2017 vs. YTD Q3 2016March 31, 2022 % of
consolidated
net revenuesMarch 31, 2021 % of
consolidated
net revenuesIncrease
(Decrease)Three Months Ended $ 252 14 % $ 237 10 % $ 15 The increase in sales and marketing expenses for the ninethree months ended September 30, 2017,March 31, 2022, as compared to the ninethree months ended September 30, 2016,March 31, 2021, was primarily due to:· increased amortization of the customer base intangible assets acquired in the King Acquisition and increased sales andto higher marketing costs to support King’s titles, as the current period includes a full year-to-date period of costs, while the comparable prior period only included King’s costsspending for the partial period following the King Closing Date; and· higher sales and marketing costs for the Destiny franchise, given the release of Destiny 2.The increase was partially offset by lower sales and marketing costs for Overwatch and World of Warcraft: Legion, due to their launches in the prior year.General and Administrative (amounts in millions)
2017
consolidated
net revenues
2016
consolidated
net revenues
(Decrease)Q3 2017 vs. Q3 2016March 31, 2022 % of
consolidated
net revenuesMarch 31, 2021 % of
consolidated
net revenuesIncrease
(Decrease)Three Months Ended $ 214 12 % $ 282 12 % $ (68) The increasedecrease in general and administrative expenses for the three months ended September 30, 2017,March 31, 2022, as compared to the three months ended September 30, 2016,March 31, 2021, was primarily due to increaseda $105 million decrease in personnel costs including stock-basedas a result of lower share-based compensation expense, to support the growth of our business and expanding areas of opportunity.YTD Q3 2017 vs. YTD Q3 2016The increase in general and administrative expenses for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, was primarily due to:· increased personnel costs to support the growth of our business and expanding areas of opportunity; and· the inclusion in the current period of a non-cash accounting charge to reclassify certain losses included in our cumulative translation adjustments into earnings due to the substantial liquidation of certain of our foreign entities.The increase was partially offset by lowera $38 million increase in legal and other professional fees primarily driven by costs associated with the proposed transaction with Microsoft.40Restructuring and Related Costs (amounts in millions)March 31, 2022 % of
consolidated
net revenuesMarch 31, 2021 % of
consolidated
net revenuesIncrease
(Decrease)Three Months Ended $ (2) — % $ 30 1 % $ (32) 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. We substantially completed all actions under our plan and accrued for these costs asaccordingly in 2021. The remaining activity under the nine months ended September 30, 2016, included the King Acquisition.Interest and Other Expense (Income), Net (amounts in millions)
2017
consolidated
net revenues
2016
consolidated
net revenues
(Decrease)March 31, 2022 % of
consolidated
net revenuesMarch 31, 2021 % of
consolidated
net revenuesIncrease
(Decrease)Three Months Ended $ 14 1 % $ 30 1 % $ (16) The decrease in interest and other expense (income), net, for the three and nine months ended September 30, 2017,March 31, 2022, as compared to the three and nine months ended September 30, 2016,March 31, 2021, was primarily due to our lower total outstanding debt and lower interest ratesdriven by an $11 million increase in gains 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.”Income Tax Expense (amounts in millions)
2017
income
2016
income
(Decrease)March 31, 2022 % of
Pretax
incomeMarch 31, 2021 % of
Pretax
incomeIncrease
(Decrease)Three Months Ended $ 70 15 % $ 146 19 % $ (76) The income tax expense of $32$70 million for the three months ended September 30, 2017,March 31, 2022 reflects an effective tax rate of 15%, which is higher than the effective tax rate of 14% for the three months ended September 30, 2016. The increase is due to lower discrete tax benefits recognized in the current quarter, partially offset by higher excess tax benefits from share-based payments.The income tax expense of $109 million for the nine months ended September 30, 2017, reflects an effective tax rate of 11%, which is lower than the effective tax rate of 12%19% for the ninethree months ended September 30, 2016. The decrease isMarch 31, 2021, primarily due to higher excess tax benefits from share-based paymentslower taxes on foreign earnings, a decrease in the current period,non-deductible compensation and lower state taxes, partially offset by lower discretea reduction of excess tax benefits, primarily related to an audit settlement recognized in the prior period.The effective tax rate of 15% and 11% for the three and nine months ended September 30, 2017, respectively,March 31, 2022, is lower than the U.S. statutory rate of 35%21%, primarily due to lower taxes on foreign earnings taxed at lower statutory rates, the recognition of excess tax benefits from share-based payments, and the recognition of federal and CaliforniaU.S. research and development credits, partially offset by an increase of reserves for uncertain tax positions.Ourcredits.The overall effective tax rate differs from the statutory U.S. income tax rate due to the effectin future periods will depend on a variety of statefactors, such as changes in pre-tax income or loss by jurisdiction, applicable accounting rules, applicable tax laws and local income taxes,regulations, and rulings and interpretations thereof, developments in tax rates in foreign jurisdictions,audits and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurringother matters, and nonrecurring factors including, but not limited to: variations in the estimated and actual level of annual pre-tax income or loss by jurisdiction; changes in the mix of income by tax jurisdiction (as taxes are levied at relatively lower statutory rates in foreign regions and relatively higher statutory rates in the U.S.); research and development credits; changes in enacted tax laws and regulations, rulings, and interpretations thereof, including with respect to tax credits, and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from share-based payments; and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarterloss.Further analysis of the change.Furtherdifferences 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 1013 of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.Liquidity and Capital ResourcesWe believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. In the near term, we expect our business and financial condition to remain strong and to continue to generate significant operating cash flows.flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term investments of $11.1 billion, and the availability of our $1.5 billion revolving credit facility, will be sufficient to finance our operational and financing requirements for the next 12 months and beyond. Our primary sources of liquidity which are available to us to fund cash outflows such as our anticipated dividend payments, share repurchases, and scheduled debt maturities, include our cash and cash equivalents, short- and long-termshort-term investments, and cash flows provided by operating activities. With ourOur material cash requirements include operating expenses, potential dividend payments and cash equivalentsshare repurchases, scheduled debt maturities (the next of which is in 2026), capital expenditures and short-term investmentsother commitments, as discussed below.41As of September 30, 2017,March 31, 2022, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $2.3$4.1 billion, as compared to $1.9$3.9 billion as of December 31, 2016. If the2021. These cash and cash equivalents held outside of the U.S.balances are needed in the futuregenerally available for our operationsuse in the U.S., we would accrue and pay the required U.S. taxessubject in some cases to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.Furthermore, ourcertain 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, dividends, share repurchases, and other structural changes.changes, with certain of the foregoing actions, if we were to move forward with them, requiring Microsoft's approval under the Merger Agreement (which may not be unreasonably withheld, conditioned, or delayed), subject to certain exceptions. These transactions may result in future cash proceeds or payments.Sources of Liquidity (amounts in millions)
(Decrease)
(Decrease)March 31, 2022 December 31, 2021 Increase
(Decrease)Cash and cash equivalents $ 10,967 $ 10,423 $ 544 Short-term investments 182 195 (13) $ 11,149 $ 10,618 $ 531 Percentage of total assets 45 % 42 % For the Three Months Ended March 31, 2022 2021 Increase
(Decrease)Net cash provided by operating activities $ 642 $ 844 $ (202) Net cash provided by (used in) investing activities 7 (86) 93 Net cash used in financing activities (97) (95) (2) Effect of foreign exchange rate changes (10) (28) 18 Net increase in cash and cash equivalents and restricted cash $ 542 $ 635 $ (93) Net Cash Provided by Operating ActivitiesThe primary driversdriver of net cash flows associated with our operating activities includeis the collection of customer receivablesincome generated from the sale of our products and services. These collections are typicallyThis is 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.Net cash provided by operating activities for the ninethree months ended September 30, 2017,March 31, 2022, was $1.1 billion,$642 million, as compared to $1.3 billion$844 million for the ninethree months ended September 30, 2016.March 31, 2021. The decrease was primarily due to the timing of the launches of our games, as the prior period included cash flows from two major launches—Overwatch in May 2016 and World of Warcraft: Legion in August 2016—while the current period included cash flows from only one major launch—Destiny 2—which did not occur until September 2017. The decrease waslower net income due to lower business performance, partially offset by:· higher net income for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, along with larger adjustments to net income for non-cash charges, primarily associated with the amortization of the acquired intangibles in the King Acquisition; and·by changes in our working capital due toresulting from the timing of collections and payments.Net Cash Used in Investing ActivitiesThe 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.Net cash provided by investing activities for the three months ended March 31, 2022, was $7 million, as compared to $86 million used in investing activities for the ninethree months ended September 30, 2017, was $156 million, as comparedMarch 31, 2021. The change from cash used in investing activities to $1.2 billion for the nine months ended September 30, 2016. The decrease in the cash usedprovided by investing activities was primarily due to cash usedproceeds from the sale and maturities of available-for-sale investments of $22 million for the King Acquisition in the ninethree months ended September 30, 2016, with no comparable transaction in the current period. The decrease was partially offset byMarch 31, 2022, as compared to net purchases of available-for-sale investments of $80$64 million for the ninethree months ended September 30, 2017, with no comparable transaction in the prior period.42Net Cash (Used in) Provided byUsed in Financing ActivitiesThe primary drivers of net cash flows associated with financing activities typically include the proceeds from, and repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise of stock options, as well as the payment of dividends.Net cash used in financing activities for the ninethree months ended September 30, 2017,March 31, 2022, of $97 million, was $640 million, as comparedcomparable to net cash provided by financing activities of $2.1 billion for the nine months ended September 30, 2016. The change was primarily attributed to our debt financing activities. For the nine months ended September 30, 2017, we had net debt repayments of $500 million, as compared to approximately $2.3 billion of net debt proceeds for the nine months ended September 30, 2016. The cash flows used in financing activities for the nine months ended September 30, 2017, were partially offset by higher proceeds from stock option exercises of $150 million, as compared to $86$95 million for the ninethree months ended September 30, 2016.Effect of Foreign Exchange Rate ChangesChanges in foreign exchange rates had a positive impact of $72 million and a negative impact of $23$10 million and $28 million on our cash and cash equivalents for the ninethree months ended September 30, 2017March 31, 2022 and 2016,March 31, 2021, respectively. The change was primarily due to changes in the value of the U.S. dollar relative to the Euroeuro and the British pound.DebtAs ofAt both March 31, 2022 and December 31, 2016,2021, our total gross unsecured senior notes outstanding debt was $4.9$3.7 billion, bearing interest at a weighted average rate of 2.92%2.87%.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 thereafter and from time to time, the “Credit Agreement”). The Sixth Amendment: (i) provided for a new tranche of term loans “A” in an aggregate principal amount of $2.55 billion (the “2017 TLA”) and (ii) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the term loans then outstanding (the “2016 TLA”) under the Credit Agreement, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The fees incurred as a result of the Sixth Amendment were not material. The 2017 TLA will mature on August 23, 2021.On May 26, 2017, in a public underwritten offering, we issued 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 nine months ended September 30, 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.As a result of the above activities, our total outstanding debt as of September 30, 2017, was $4.4 billion, bearing interest at a weighted average rate of 3.52%. A summary of our outstanding debt as of September 30, 2017, is as follows (amounts in millions):
Amount
Discount and
Deferred Financing
Costs
AmountA summary of our debt as of December 31, 2016, was as follows (amounts in millions):
Amount
Discount and
Deferred Financing
Costs
Amount At March 31, 2022 At December 31, 2021 2026 Notes $ 850 $ 850 2027 Notes 400 400 2030 Notes 500 500 2047 Notes 400 400 2050 Notes 1,500 1,500 Total gross long-term debt $ 3,650 $ 3,650 Unamortized discount and deferred financing costs (42) (42) Total net carrying amount $ 3,608 $ 3,608 Refer to Note 7 of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further disclosures regarding our debt obligations.DividendsOn February 2, 2017,3, 2022, our Board of Directors approveddeclared a cash dividend of $0.30$0.47 per common share. Onshare, payable on May 10, 2017, we made an aggregate cash dividend payment of $226 million6, 2022, to shareholders of record at the close of business on April 15, 2022. We have recorded $367 million of dividends payable in “Accrued expenses and other liabilities” on our condensed consolidated balance sheet as of 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.Capital ExpendituresForWe made capital expenditures of $15 million during the year ending Decemberthree months ended March 31, 2017,2022, as compared to $22 million during the three months ended March 31, 2021. In 2022, we anticipate total capital expenditures of approximately $135$100 million, primarily for computer hardware, leasehold improvements, computer hardware, and software purchases. During the nine months ended September 30, 2017, capital expenditures were $86 million.Off-BalanceOff-balance Sheet ArrangementsAt September 30, 2017each of March 31, 2022 and December 31, 2016,2021, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.43Critical Accounting Policies and EstimatesOur condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).America. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments, and assumptions, and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:·•Revenue Recognition including Revenue Arrangements with Multiple Deliverables;· Allowances for ReturnsRecognition;•Income Taxes; and Price Protection;· Allowance for Inventory Obsolescence;·•Software Development Costs;· Income Taxes;· Fair Value Estimates (including Business Combinations and Assessment of Impairment of Assets); and· Share-Based Payments.During the ninethree months ended September 30, 2017,March 31, 2022, there were no significant changes to the above critical accounting policies and estimates. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016,2021, for a more complete discussion of our critical accounting policies and estimates.44Recently Issued Accounting PronouncementsBelow are recently issued accounting pronouncements that were most significant to our accounting policy activities. For a detailed discussionTable of all relevant recently issued accounting pronouncements, see Note 15 of the notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.Recently Adopted Accounting PronouncementsInventoryIn 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 AdoptedRevenue RecognitionIn May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. We anticipate adopting the accounting standard on January 1, 2018, using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date.We believe the adoption of the new revenue recognition standard may have a significant impact in the following areas:· The accounting for our sales of our games with significant online functionality for which we do not have vendor-specific objective evidence (“VSOE”) for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are hosted service arrangements, and we do not expect any significant impact on the accounting for our sales of these games.· 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 expect that the new standard will generally result in earlier revenue recognition for these arrangements.We are continuing to evaluate the additional impacts this new accounting guidance may have on our financial statements and related disclosures, including the impacts of these changes to our processes and internal controls. We expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting.LeasesIn 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. 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.Statement of Cash Flows-Restricted CashIn 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 would be a significant impact to the condensed 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 would 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.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 RiskWe transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include Euros,euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions 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,U.S., 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 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.Foreign Currency Forward Contracts Not Designated as HedgesAt September 30, 2017 and December 31, 2016, we did not have any outstanding foreign currency forward contracts not designated as hedges.Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)At September 30, 2017,Refer to Note 5 of the gross notional amountnotes to the condensed consolidated financial statements included in Part I, Item 1 of outstanding Cash Flow Hedges was approximately $328 million. The fair value of these contracts, all of which have remaining maturities of 15 months or less, was $10 million of net unrealized losses. At September 30, 2017, we had approximately $6 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 as of December 31, 2016.During the three and nine months ended September 30, 2017 and 2016, there was no ineffectiveness relating tothis Quarterly Report on Form 10-Q for disclosures regarding our Cash Flow Hedges and the amount of pre-tax net realized gains (losses) associated with these contracts that were reclassified out of “Accumulated other comprehensive income (loss)” and into earnings was not material.In the absence of hedging activities for the ninethree months ended September 30, 2017,March 31, 2022, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in a theoretical decline of our net income of approximately $95$26 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 this manner, and actual results may differ materially.Interest Rate RiskOur exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, and variable rateas our outstanding debt under the Credit Agreement. We do not currently use derivative financial instruments to manage interest rate risk. As of September 30, 2017, and December 31, 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 7 of the notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for disclosures regarding interest rates associated with our debt obligations.September 30, 2017,March 31, 2022, our $3.58 billion of cash and cash equivalents waswere comprised primarily of money market funds.The Company has determined that, based on the composition45Definition and Limitations of Disclosure Controls and ProceduresOur disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at September 30, 2017,March 31, 2022, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at September 30, 2017,March 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i)(1) recorded, processed, summarized, and reported on a timely basis and (ii)(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.Changes in Internal Control Over Financial ReportingOur 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 fiscal quarter ended September 30, 2017.March 31, 2022. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at September 30, 2017,March 31, 2022, 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.46Refer to routine claims, suits, investigations, audits, and other proceedings arising fromNote 16 of the ordinary coursenotes to the condensed consolidated financial statements included in Part I, Item 1 of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation withthis Quarterly Report on Form 10-Q for further disclosures regarding our 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.Various risks associated with our business are described in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2016.The exhibits listed on2021 (the “2021 Form 10-K”).In addition to the accompanying Exhibit Index are hereby incorporated by reference intoother information set forth in this Quarterly Report on Form 10-Q.10-Q, you should carefully consider the factors discussed in “Risk Factors” in the 2021 Form 10-K, any of which could materially affect our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.47Item 6. ExhibitsExhibit NumberExhibitExhibit Number Exhibit 3.13.1 Notice of Stock Option Award, dated as of August 7, 2017, to Robert A. Kotick.10.2*10.3*10.4*10.4* 10.5†10.5*10.6†31.110.7†10.8†10.9†31.1 Document.48104 Cover 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.Attached as Exhibit 101† Portions of this exhibit have been omitted pursuant to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) condensed consolidated balance sheets at September 30, 2017 and December 31, 2016, (ii) condensed consolidated statementsItem 601(b)(10)(iv) of operations for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) condensed consolidated statementsRegulation S-K.49Table of comprehensive income (loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (iv) condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and September 30, 2016; (v) condensed consolidated statement of changes in shareholders’ equity for the nine months ended September 30, 2017; and (vi) notes to condensed consolidated financial statements.ContentsPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Date: November 2, 2017ACTIVISION BLIZZARD, INC./s/ SPENCER NEUMANN/s/ STEPHEN WEREBSpencer NeumannStephen WerebJesse Yang Chief Financial Officer and Chief Accounting Officer and of of50