UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark one)~~

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

For the Quarterly Period Ended September 30, ~~2017~~

2022

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

For the transition period from to

Commission File Number 1-15839

ACTIVISION BLIZZARD, INC.

(Exact name of registrant as specified in its charter)

~~Delaware~~

~~95-4803544~~

Delaware

95-4803544

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

~~3100 Ocean Park~~2701 Olympic Boulevard Building B

Santa Monica, CA

~~90405~~

90404

(Address of principal executive offices)

(Zip Code)

(310) 255-2000

(Registrant’s telephone number, including area code)

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

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

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

☐

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

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Filerx

☒

Non-accelerated Filer

☐

Accelerated Filero

☐

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

Smaller reporting companyo

☐

Emerging growth companyo

☐

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

☐

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

☒

The number of shares of the registrant’s Common Stock outstanding at October ~~26, 2017~~31, 2022 was ~~756,099,455.~~

782,625,319.

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Table of Contents


		Cautionary Statement	3

PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets at September 30, ~~2017~~2022 and December 31, ~~2016~~2021	4

		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021	5

		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021	6

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2022 and September 30, ~~2016~~2021	7

		Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, ~~2017~~2022 and September 30, 2021	8

		Notes to Condensed Consolidated Financial Statements	9 10

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28 35

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	54 59

Item 4.		Controls and Procedures	55 60

PART II.		OTHER INFORMATION	56

Item 1.		Legal Proceedings	56 61

Item 1A.		Risk Factors	56 61



Item 6.		Exhibits	56 62

~~EXHIBIT INDEX~~		57

SIGNATURE			58

~~CERTIFICATIONS~~	63

Table of Contents

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, ~~certain~~statements reflecting our views about our future performance that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or ~~services;~~services and restructuring activities; (3) statements of future financial or operating ~~performance;~~performance, including the impact of tax items thereon; (4) statements regarding the proposed transaction between Activision Blizzard, Inc. and ~~(4)~~Microsoft Corporation (“Microsoft”) (such transaction, “the proposed transaction with Microsoft”), including any statements regarding the expected timetable for completing the proposed transaction with Microsoft, the ability to complete the proposed transaction with Microsoft, and the expected benefits of the proposed transaction with Microsoft; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. (“Activision Blizzard”) generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” ~~“plans,~~“aims,” “believes,” “may,” “might,” “expects,” “intends,” ~~“intends as,~~“seeks,” “anticipates,” ~~“estimate,~~“estimates,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” ~~“upcoming”~~“upcoming,” and the negative version of these words and other similar words and expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

~~The company cautions~~

We caution that a number of important factors, many of which are beyond our control, could cause ~~Activision Blizzard, Inc.’s~~our actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: ~~sales levels~~the risk that the proposed transaction with Microsoft may not be completed in a timely manner or at all, which may adversely affect our business and the price of our common stock; the failure to satisfy the conditions to the consummation of the proposed transaction with Microsoft, including the receipt of certain governmental and regulatory approvals; the occurrence of any event, change, or other circumstance that could give rise to the termination of the Agreement and Plan of Merger, dated as of January 18, 2022, by and among Activision Blizzard, Microsoft, and Anchorage Merger Sub Inc.’s, a wholly owned subsidiary of Microsoft (the “Merger Agreement”); the effect of the announcement or pendency of the proposed transaction with Microsoft on our business relationships, operating results, and business generally; risks that the proposed transaction with Microsoft disrupts our current plans and operations and potential difficulties in employee retention as a result of the proposed transaction with Microsoft; risks related to diverting management’s attention from ongoing business operations; the outcome of any legal proceedings that have been or may be instituted against us related to the Merger Agreement or the transactions contemplated thereby; restrictions during the pendency of the proposed transaction with Microsoft that may impact our ability to pursue certain business opportunities or strategic transactions; the potential for receipt of alternative acquisition proposals from potential acquirors; the global impact of the ongoing COVID-19 pandemic and other macroeconomic factors (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; potential strain on the retailers, distributors, and manufacturers who sell our physical products to customers and the platform providers on whose networks and consoles certain of our games are available; effects on our ability to release our content in a timely manner and with effective quality control; effects on our ability to prevent cyber-security incidents while our workforce is dispersed; effects on the operations of our professional esports leagues; the impact of rising interest rates as a result of large-scale intervention by the Federal Reserve and other central banks around the world and other economic factors; increased demand for our games due to stay-at-home orders and curtailment of other forms of entertainment, which may not be sustained and may fluctuate as stay-at-home orders are reduced, lifted, and/or reinstated; macroeconomic impacts arising from the long duration of the COVID-19 pandemic, including labor shortages and supply chain disruptions; and volatility in foreign exchange rates); our ability to consistently deliver popular, high-quality titles ~~products,~~in a timely manner, which has been made more difficult as a result of the COVID-19 pandemic; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; negative impacts on our business from concerns regarding our workplace; our ability to attract, retain, and ~~services;~~motivate skilled personnel; competition; concentration of revenue among a small number of ~~titles; Activision Blizzard, Inc.’s ability~~franchises; negative impacts from unionization or attempts to ~~predict consumer preferences, including interest in specific genres and preferences among platforms; the diversion of management time and attention to issues relating to the operations of~~unionize by our acquired or newly started businesses; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the adoption rate and availability of new hardware (including peripherals) and related software; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain, and develop key personnel and developers that can create high-quality titles, products, and services; risks relating to the expansion into new businesses, including the potential impact on our existing businesses; changing business models within the video game industry, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from other forms of entertainment;workforce; rapid changes in technology and industry standards; ~~possible declines~~increasing importance of revenues derived from digital distribution channels; our ability to manage growth in ~~software pricing; product returns~~the scope and ~~price protection;~~complexity of our business; substantial influence of third-party platform providers over our products and costs; success and availability of video game consoles manufactured by third parties, including our ability to predict the ~~identification of suitable future acquisition opportunities~~consoles that will be most successful in the marketplace and ~~potential challenges~~develop commercially-successful products for those consoles; risks associated with ~~geographic expansion;~~ the ~~seasonal~~free-to-play business model, including our dependence on a relatively small number of consumers for a significant portion of revenues and ~~cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation~~profits from any given game; risks and ~~associated costs;~~uncertainties of conducting business outside the United States (the “U.S.”), including the need for regulatory approval to operate, impacts on our business arising from the current conflict between Russia and Ukraine, the relatively weaker protection ~~of proprietary rights; shifts in consumer spending trends; capital market risks;~~for our intellectual property rights, and the impact of ~~applicable regulations; domestic~~cultural differences on consumer preferences; risks associated with the retail sales business model; difficulties in integrating acquired businesses or otherwise realizing the anticipated benefits of strategic transactions; the seasonality in the sale of our products; fluctuation in our recurring business; risks relating to behavior of our distributors, retailers, development, and ~~international economic, financial,~~licensing partners, or other affiliated third parties that may harm our brands or business operations; our reliance on tools and ~~political conditions~~technologies owned by third parties; risks associated with our use of open source software; risks associated with undisclosed content or features that may result in consumers’ refusal to buy or retailers’ refusal to sell our products; risks associated with objectionable consumer- or other third-party-created content; outages, disruptions or degradations in our services, products, and/or technological infrastructure; data breaches, fraudulent activity, and ~~policies; tax rates~~other cybersecurity risks; significant disruption during our live events; risks related to the impacts of catastrophic events; climate change; provisions in our corporate documents that may make it more difficult for any person to acquire control of our company; ongoing legal proceedings related to workplace concerns and ~~foreign exchange rates;~~otherwise, including the impact of the ~~current macroeconomic environment;~~complaint filed in 2021 by the California Civil Rights Department (formerly known as the Department of Fair Employment and Housing) alleging violations of the California Fair Employment and Housing Act and the California Equal Pay Act and separate investigations and complaints by other parties and regulators related to certain employment practices and related disclosures; successful implementation of the requirements of the court-approved consent decree with the Equal Employment Opportunity Commission; intellectual property claims; increasing regulation in key territories; regulation relating to the Internet, including potential harm from laws impacting “net neutrality;” regulation concerning data privacy, including China’s Personal Information Protection Law; scrutiny regarding the appropriateness of our games’ content, including ratings assigned by third parties; changes in tax rates and/or tax laws or exposure to additional tax liabilities; fluctuations in currency exchange rates; impacts of changes in financial accounting standards; insolvency or business failure of any of our business partners, which has been magnified as a result of the COVID-19 pandemic; risks associated with our reliance on consumer discretionary spending; risks associated with increased inflation on our costs and the impacts on consumer discretionary spending; and the other factors ~~identified in “Risk Factors”~~ included in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2021, filed with the U.S. Securities and Exchange Commission (the “SEC”).

The forward-looking statements contained herein are based on information available to Activision Blizzard, Inc. as of the date of this filing, and we assume no obligation to update any such forward-looking statements. Actual events or results may differ from those expressed in forward-looking statements. ~~Although these~~As such, you should not rely on forward-looking statements ~~are believed to be true when made, they~~as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may ~~ultimately prove to be incorrect.~~affect our business, financial condition, operating results, prospects, strategy, and financial needs. These statements are not guarantees of our future performance and are subject to risks, uncertainties, ~~and~~and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

Activision Blizzard, Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard, Inc. All other product or service names are the property of their respective owners. All dollar amounts referred to in, or contemplated by, this Quarterly Report on Form 10-Q refer to ~~United States~~U.S. dollars unless otherwise explicitly stated to the contrary.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

(Unaudited)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

At September 30,
2017

At December 31,
2016
Assets

Current assets:

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

Liabilities and Shareholders’ Equity

Current liabilities:

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)

Shareholders’ equity:

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 September 30, 2022		At December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	7,743	$	10,423
Held-to-maturity investments	2,945		—
Accounts receivable, net	658		972

Software development	1,011		449
Other current assets	753		712
Total current assets	13,110		12,556

Software development	156		211
Property and equipment, net	171		169
Deferred income taxes, net	1,266		1,377
Other assets	541		497
Intangible assets, net	448		447
Goodwill	9,928		9,799
Total assets	$	25,620	$	25,056

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	229	$	285
Deferred revenues	979		1,118
Accrued expenses and other liabilities	1,070		1,008

Total current liabilities	2,278		2,411
Long-term debt, net	3,610		3,608
Deferred income taxes, net	98		506
Other liabilities	826		932
Total liabilities	6,812		7,457
Commitments and contingencies (Note 17)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,211,236,117 and 1,207,729,623 shares issued at September 30, 2022 and December 31, 2021, respectively	—		—
Additional paid-in capital	12,192		11,715
Less: Treasury stock, at cost, 428,676,471 shares at September 30, 2022 and December 31, 2021	(5,563)		(5,563)
Retained earnings	12,768		12,025
Accumulated other comprehensive loss	(589)		(578)
Total shareholders’ equity	18,808		17,599
Total liabilities and shareholders’ equity	$	25,620	$	25,056

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017

2016

2017

2016
Net revenues

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

Costs and expenses

Cost of revenues—product sales:

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:

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

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

Earnings per common share

Basic

  $
0.25

  $
0.27

  $
1.14

  $
0.96
Diluted

  $
0.25

  $
0.26

  $
1.12

  $
0.94

Weighted-average number of shares outstanding

Basic

755

742

753

739
Diluted

766

756

764

753

Dividends per common share

  $
—

  $
—

  $
0.30

  $
0.26


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenues
Product sales	$	231	$	423	$	921	$	1,666
In-game, subscription, and other revenues	1,551		1,647		4,273		4,974
Total net revenues	1,782		2,070		5,194		6,640

Costs and expenses
Cost of revenues—product sales:
Product costs	107		120		279		375
Software royalties and amortization	9		72		153		272
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs	343		307		948		925
Software royalties and amortization	43		28		86		87
Product development	277		329		935		1,016
Sales and marketing	287		244		801		727
General and administrative	229		143		693		614
Restructuring and related costs	2		3		(3)		46
Total costs and expenses	1,297		1,246		3,892		4,062

Operating income	485		824		1,302		2,578
Interest and other (income) expense, net (Note 13)	(15)		65		16		52

Income before income tax expense	500		759		1,286		2,526
Income tax expense	65		120		176		391
Net income	$	435	$	639	$	1,110	$	2,135

Earnings per common share
Basic	$	0.56	$	0.82	$	1.42	$	2.75
Diluted	$	0.55	$	0.82	$	1.41	$	2.72

Weighted-average number of shares outstanding
Basic	782		778		781		777
Diluted	789		783		788		784

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in millions)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017

2016

2017

2016
Net income

  $
188

  $
199

  $
858

  $
713
Other comprehensive income (loss):

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 September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	435	$	639	$	1,110	$	2,135
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	(38)		(14)		(64)		(8)
Unrealized gains (losses) on forward contracts designated as hedges, net of tax	26		14		34		40
Unrealized gains (losses) on available-for-sale securities, net of tax	14		6		19		3
Total other comprehensive income (loss)	$	2	$	6	$	(11)	$	35
Comprehensive income	$	437	$	645	$	1,099	$	2,170

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

For the Nine Months Ended September 30,

2017

2016
Cash flows from operating activities:

Net income

  $
858

  $
713
Adjustments to reconcile net income to net cash provided by operating activities:

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:

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

Cash flows from investing activities:

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)

Cash flows from financing activities:

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 Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	1,110	$	2,135
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	(302)		(82)

Non-cash operating lease cost	56		46
Depreciation and amortization	78		88
Amortization of capitalized software development costs (1)	141		256


Share-based compensation expense (2)	301		259
Realized and unrealized gain on equity investment	6		(36)
Other	(38)		(3)
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net	297		462

Software development	(527)		(303)
Other assets	(30)		(88)
Deferred revenues	(124)		(818)
Accounts payable	(46)		(46)
Accrued expenses and other liabilities	175		(117)
Net cash provided by operating activities	1,097		1,753
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments	36		120
Proceeds from sale of available-for-sale investments	26		66
Purchases of available-for-sale investments	(109)		(248)
Purchases of held-to-maturity investments	(2,944)		—
Acquisition of business, net of cash acquired (Note 4)	(135)		—

Capital expenditures	(67)		(59)
Other investing activities	—		20
Net cash used in investing activities	(3,193)		(101)
Cash flows from financing activities:
Proceeds from issuance of common stock to employees	41		78
Tax payment related to net share settlements on restricted stock units	(147)		(246)
Dividends paid	(367)		(365)






Net cash used in financing activities	(473)		(533)
Effect of foreign exchange rate changes on cash and cash equivalents	(100)		(35)
Net (decrease) increase in cash and cash equivalents and restricted cash	(2,669)		1,084
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	$	7,769	$	9,736

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

expense, including liability awards accounted for under Accounting Standards Codification (“ASC”) 718.

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

expense, including liability awards accounted for under ASC 718.

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three and Nine Months Ended September 30, ~~2017~~

2022

(Unaudited)

(Amounts and shares in millions, except per share data)

Common Stock

Treasury Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Shareholders’

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:

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)
Settlement of liability-classified awards in restricted stock units (Note 11)	—	—		—	—		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
Components of comprehensive income:
Net income	—	—		—	—		—		280		—		280
Other comprehensive income (loss)	—	—		—	—		—��		—		(5)		(5)
Issuance of common stock pursuant to employee stock options	1	—		—	—		22		—		—		22
Restricted stock surrendered for employees’ tax liability	—	—		—	—		(9)		—		—		(9)
Share-based compensation expense related to employee stock options and restricted stock units	—	—		—	—		129		—		—		129
Balance at June 30, 2022	1,211	$	—	(429)	$	(5,563)	$	12,069	$	12,333	$	(591)	$	18,248
Components of comprehensive income:
Net income	—	—		—	—		—		435		—		435
Other comprehensive income (loss)	—	—		—	—		—		—		2		2
Issuance of common stock pursuant to employee stock options	—	—		—	—		4		—		—		4

Restricted stock surrendered for employees’ tax liability	—	—		—	—		(8)		—		—		(8)
Share-based compensation expense related to employee stock options and restricted stock units	—	—		—	—		127		—		—		127

Balance at September 30, 2022	1,211	$	—	(429)	$	(5,563)	$	12,192	$	12,768	$	(589)	$	18,808

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three and Nine Months Ended September 30, 2021

(Unaudited)

(Amounts and shares in millions, except per share data)

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
Components of comprehensive income:
Net income — — — — — 876 — 876
Other comprehensive income (loss) — — — — — — 7 7
Issuance of common stock pursuant to employee stock options — — — — 33 — — 33
Restricted stock surrendered for employees’ tax liability — — — — (7) — — (7)
Share-based compensation expense related to employee stock options and restricted stock units — — — — 46 — — 46
Balance at June 30, 2021 1,206 $ — (429) $ (5,563) $ 11,621 $ 10,821 $ (593) $ 16,286
Components of comprehensive income:
Net income — — — — — 639 — 639
Other comprehensive income (loss) — — — — — — 6 6
Issuance of common stock pursuant to employee stock options — — — — 12 — — 12
Issuance of common stock pursuant to restricted stock units 2 — — — — — — —
Restricted stock surrendered for employees’ tax liability (1) — — — (73) — — (73)
Share-based compensation expense related to employee stock options and restricted stock units — — — — 80 — — 80
Balance at September 30, 2021 1,207 $ — (429) $ (5,563) $ 11,640 $ 11,460 $ (587) $ 16,950

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Description of Business and Basis of Consolidation and Presentation

Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services ~~across all of the major gaming platforms, including~~on video game consoles, personal computers (“~~PC”~~PCs”), and mobile devices. We also operate esports leagues and offer digital advertising within some of our content. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

~~The~~

Merger Agreement

On January 18, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Microsoft Corporation (“Microsoft”) and Anchorage Merger Sub Inc. (“Merger Sub”), a wholly owned subsidiary of Microsoft. Subject to the terms and conditions of the Merger Agreement, Microsoft agreed to acquire the Company ~~was originally incorporated~~for $95.00 per issued and outstanding share of our common stock, par value $0.000001 per share, in ~~California in 1979~~an all-cash transaction. Pursuant to the Merger Agreement, following consummation of the merger of Merger Sub with and ~~was reincorporated in Delaware in December 1992. We are~~into the Company (the “Merger”), the Company will be a wholly-owned subsidiary of Microsoft. As a result of the ~~2008~~Merger, we will cease to be a publicly traded company. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business ~~combination~~in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Merger (the ~~“Business Combination”~~“Effective Time”). We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs or capital expenditure requirements. The consummation of the Merger remains subject to customary closing conditions, including satisfaction of certain regulatory approvals. On April 28, 2022, the Company’s stockholders adopted the Merger Agreement at a special meeting of stockholders. The Merger is currently expected to close in Microsoft’s fiscal year ending June 30, 2023.

For additional information related to the Merger Agreement, please refer to the Definitive Proxy Statement on Schedule 14A filed with the SEC on March 21, 2022, as supplemented by ~~and among~~ the ~~Company (then known~~Current Report on Form 8-K filed with the SEC on April 15, 2022, as ~~Activision, Inc.), Vivendi S.A. (“Vivendi”)~~well as Part I Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 31, 2021, and ~~Vivendi Games, Inc. (“Vivendi Games”), an indirect wholly-owned subsidiary of Vivendi. In~~other relevant materials in connection with the ~~consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.~~

~~The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”~~

~~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 of~~SEC and that will contain important information about the ~~Blizzard operating segment. MLG is responsible for~~Company and the ~~operations of the Overwatch League~~TM~~, along with other esports events, and will also continue to serve as a multi-platform network for Activision Blizzard esports content.~~

Merger.

Our Segments

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

~~(i) Activision Publishing, Inc.~~

~~Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher~~each 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 ~~particularly~~based primarily on our internally-developed intellectual properties.

(i) Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product offerings include titles and content for Call of Duty®, a first-person action franchise. Activision also includes the activities of the Call of Duty League™, a global professional esports league with city-based teams.

(ii) Blizzard Entertainment, Inc.

Blizzard Entertainment, Inc. (“Blizzard”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, subscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming platform, Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. Blizzard’s key product offerings include titles and content for: the Warcraft® franchise, which includes World of Warcraft®, a subscription-based massive multi-player online role-playing game, and Hearthstone®, an online collectible card game based in the Warcraftuniverse; Diablo® in the action role-playing genre; and Overwatch® in the team-based first-person action genre. Blizzard also includes the activities of the Overwatch League™, a global professional esports league with city-based teams.

(iii) King Digital Entertainment

King Digital Entertainment (“King”) delivers content through free-to-play offerings and primarily generates revenue from in-game sales and in-game advertising on mobile platforms, such as Google’s Android and Apple’s iOS. King also distributes its content and services on online social platforms, such as Facebook and the king.com websites. King’s games are free-to-play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency.

platforms. King’s key product ~~franchises, all of which are~~offerings include titles and content for ~~the PC and mobile platforms, include:~~ Candy Crush™, ~~which features~~a “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.

Other

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

· the Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV 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.

Basis of Consolidation and Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the ~~Securities and Exchange Commission (the “SEC”)~~SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in our annual audited consolidated financial statements. ~~The~~Additionally, the year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2021.

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, all adjustments ~~(consisting of normal recurring accruals)~~ considered necessary for the fair statement of our financial position and results of operations in accordance with U.S. GAAP (consisting of normal recurring adjustments) have been included in the accompanying unaudited condensed consolidated financial statements. Actual results could differ from these estimates and assumptions.

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. ~~Certain reclassifications have been made to prior year amounts to conform to the current period presentation.~~

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

~~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.

2.~~Inventories, Net~~

~~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~~

Our total capitalized software development costs ~~(amounts in millions):~~

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

Asof $1.2 billion and $660 million as of September 30, ~~2017~~2022 and December 31, ~~2016, intellectual property licenses were not material~~2021, respectively, primarily relate to ~~our condensed consolidated balance sheets.~~

internal development costs.

Amortization of capitalized software development costs ~~and intellectual property licenses~~ was as follows (amounts in millions):

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017

2016

2017

2016

Amortization of capitalized software development costs and intellectual property licenses

  $
34

  $
47

  $
206

  $
260

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Amortization of capitalized software development costs $ 8 $ 71 $ 148 $ 270

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3. Intangible Assets, Net

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

At September 30, 2017

Estimated useful
lives

Gross carrying
amount

Accumulated
amortization

Net carrying
amount

Acquired definite-lived intangible assets:

Internally-developed franchises

3 - 11 years

  $
1,154

  $
(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
lives

Gross carrying
amount

Accumulated
amortization

Net carrying
amount

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 September 30, 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	$	90	$	(75)	$	15


Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite							$	386
Acquired trade names	Indefinite							47
Total indefinite-lived intangible assets								$	433
Total intangible assets, net								$	448

(1) Beginning with the first quarter of 2022, the balances of the internally-developed franchises intangible assets ~~was $188 million~~have been removed as such amounts were fully amortized in the 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

4. Goodwill and $573 million for the three and nine months ended September 30, 2017, respectively. Amortization expense of intangible assets was $211 million and $496 million for the three and nine months ended September 30, 2016, respectively.

~~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.~~Goodwill~~

Acquisitions

The ~~changes in the~~ carrying amount of goodwill by reportable segment ~~for the nine months ended~~at both September 30, ~~2017, are~~2022 and December 31, 2021, was as follows (amounts in millions):

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


	Activision		Blizzard		King		Total





Balance at December 31, 2021	$	6,933	$	190	$	2,676	$	9,799
Additions through acquisition (1)	—		98		33		131
Other	(2)		—		—		(2)
Balance at September 30, 2022	$	6,931	$	288	$	2,709	$	9,928

(1) ~~As a result~~ The Company completed the acquisition of two businesses to acquire 100% of the ~~change~~voting equity interests during June 2022:

•Proletariat Inc. (“Proletariat”), a privately held game development studio based in Boston, Massachusetts, was acquired by Blizzard to increase developer resources for the Warcraft franchise.

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•Peltarion AB (“Peltarion”), a privately held artificial intelligence (“AI”) software company based in Stockholm, Sweden, was acquired by King to acquire AI and machine learning talent and a machine learning operations platform that will accelerate the current use of AI and machine learning technology in King’s game platform.

The total purchase price for these acquisitions was $152 million utilizing cash on hand. The value to the Company of both of these acquisitions is primarily in the assembled workforce of the acquired businesses and therefore the majority of the value for each acquisition has been recognized as goodwill. Goodwill attributed to the acquired businesses is not expected to be tax-deductible. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of September 30, 2022 and are considered preliminary, pending finalization of our valuation of these assets and liabilities.

The results of operations of Proletariat and Peltarion, in each case, since the date of acquisition, are included in our ~~operating segments discussed in Note 1, goodwill~~condensed consolidated financial statements. Pro forma results of ~~$12 million previously reported within~~operations have not been presented because the ~~“Other segments” is now included~~effect of the acquisitions are not material to our condensed consolidated statements of operations, either individually or in the ~~“Blizzard” reportable segment. The prior period balance has been revised to reflect this change.~~

6.aggregate.

5. Fair Value Measurements

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

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

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

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

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Fair Value Measurements on a Recurring Basis

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

Fair Value Measurements at September 30, 2017
Using

As of
September 30,
2017

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

  $
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
Using

As of
December 31,
2016

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

  $
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 September 30, 2022 Using
	As of September 30, 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	$	7,367	$	7,367	$	—	$	—	Cash and cash equivalents
Available-for-sale foreign government treasury bills	19		19		—		—		Cash and cash equivalents
Available-for-sale U.S. treasuries and government agency securities	176		176		—		—		Other current assets
Equity securities	44		44		—		—		Other current assets
Foreign currency forward contracts designated as hedges	64		—		64		—		Other current assets & Other assets

Total	$	7,670	$	7,606	$	64	$	—


			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
Available-for-sale foreign government treasury bills	34		34		—		—		Cash and cash equivalents
Available-for-sale 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	$	—

Table of ~~December 31, 2016. During the nine months ended September 30, 2017, we sold our ARS investment. The realized gain on the sale of this investment was not material.~~

Contents

Foreign Currency Forward Contracts

~~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.~~

Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)

~~At September 30, 2017, the~~

The total gross notional ~~amount~~amounts and fair values of ~~outstanding~~our Cash Flow Hedges, ~~was approximately $328 million. The fair value of these contracts, all of~~ which ~~have~~generally had remaining maturities of 1514 months or less ~~was $10 million~~as 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~~2022, are as ~~of December 31, 2016.~~

~~During~~follows (amounts in millions):


	As of September 30, 2022				As of December 31, 2021
	Notional amount		Fair value gain (loss)		Notional amount		Fair value gain (loss)
Foreign Currency:
Buy USD, Sell EUR	$	519	$	64	$	382	$	20

For the three and nine months ended September 30, ~~2017~~2022 and ~~2016, there was no ineffectiveness relating to our Cash Flow Hedges. The amount of~~2021, pre-tax net realized gains (losses) associated with ~~these contracts~~our Cash Flow Hedges that were reclassified out of “Accumulated other comprehensive income (loss)” and into earnings ~~was~~were not material.

~~Fair Value Measurements on a Non-Recurring Basis~~

6. Held-to-Maturity Investments

We ~~measure~~determine the classification of investments (e.g. held-to-maturity, available-for-sale or trading) in debt securities at the time of purchase and reevaluate such designation as of each reporting period. Investments in debt securities are designated as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. Held-to-maturity investments are carried at amortized cost. Interest and amortization of discounts and premiums, which is computed under the effective interest method, are included in “Interest and other (income) expense, net” in our condensed consolidated statements of operations.

When the fair value of ~~certain assets on a non-recurring~~an investment classified as held-to-maturity is less than its amortized cost, we assess whether or not (i) we have the intent to sell the instrument or (ii) it is more likely than not that we will be required to sell the instrument before its anticipated recovery. If either of these conditions is met, we recognize an other-than-temporary impairment for the difference between the instrument’s amortized cost basis ~~generally annually~~and its fair value, and include such amounts in “Interest and other (income) expense, net” in our condensed consolidated statements of operations.

The following table summarizes the Company's held-to-maturity investments at September 30, 2022 (amount in millions):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized losses		Estimated Fair Value (Level 1)
U.S. treasuries and government agency securities	$	2,945	$	—	$	—	$	2,945

At September 30, 2022, all contractual maturities of held-to-maturity investments were less than 12 months and amortized costs of these investments approximates fair value.

7. Deferred Revenues

We record deferred revenues when cash payments are received or ~~when events or changes~~due in ~~circumstances indicate that the carrying amount~~advance of the ~~assets may not be recoverable.~~

fulfillment of our associated performance obligations. The aggregate of the current and non-current balances of deferred revenues as of September 30, 2022 and December 31, 2021, were $1.0 billion and $1.1 billion, respectively. For the nine months ended September 30, 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 and nine months ended September 30, ~~2017~~2022, $30 million and ~~2016, there~~$1.0 billion, respectively, of revenues were ~~no impairment charges related~~recognized that were included in the deferred revenues balance at December 31, 2021. During the three and nine months ended September 30, 2021, $87 million and $1.7 billion, respectively, of revenues were recognized that were included in the deferred revenues balance at December 31, 2020.

Table of Contents

As of September 30, 2022, the aggregate amount of contracted revenues allocated to ~~assets~~our unsatisfied performance obligations was $1.5 billion, which included our deferred revenues balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1.4 billion over the next 12 months and approximately $0.1 billion in the subsequent 12-month period. This balance did not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee or any estimated amounts of variable consideration that are ~~measured on a non-recurring basis.~~

7.subject to constraint in accordance with the revenue accounting standard.

8. Debt

Credit Facilities

As of September 30, 2022 and December 31, ~~2016,~~2021, we had ~~outstanding term loans “A” of approximately $2.7~~$1.5 billion ~~(the “2016 TLA”) and $250 million~~ available under a revolving credit facility (the “Revolver”) pursuant to a credit agreement ~~executed~~entered into on October 11, 2013 (as amended thereafter and from time to time, the “Credit Agreement”).

~~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%. We~~we were in compliance with the terms of the Credit ~~Facilities~~Agreement 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.~~

2022.

Refer to Note 1113 contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 for further details regarding the Credit Agreement and its key ~~terms, and amendments made to the Credit Agreement.~~

terms.

Unsecured Senior Notes

As of September 30, 2022 and December 31, ~~2016,~~2021, we had ~~the following~~$3.7 billion of gross unsecured senior notes ~~outstanding:~~

· ~~$750 million~~outstanding. 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 September 30, 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	$	807	$	850	$	912
2027 Notes	3.40%	Jun. 15 & Dec. 15	Jun. 2027	400		374		400		430
2030 Notes	1.35%	Mar. 15 & Sept. 15	Sept. 2030	500		380		500		463
2047 Notes	4.50%	Jun. 15 & Dec. 15	Jun. 2047	400		352		400		480
2050 Notes	2.50%	Mar. 15 & Sept. 15	Sept. 2050	1,500		924		1,500		1,320
Total gross long-term debt				$	3,650			$	3,650
Unamortized discount and deferred financing costs				(40)				(42)
Total net carrying amount				$	3,610			$	3,608

We were required to use commercially reasonable efforts to, within one year of the issue date of the Unregistered 2021 Notes and the Unregistered 2026 Notes, among other things, (1) file a registration statement with respect to an offer to exchange each series of the Unregistered 2021 Notes and the Unregistered 2026 Notes for new notes that were substantially identical in all material respects (except for the provisions relating to the transfer restrictions and payment of additional interest) (the “Exchange Offer”), and (2) cause that registration statement (the “Exchange Offer Registration Statement”) to be declared effective by the SEC under the Securities Act. The Exchange Offer Registration Statement was declared effective by the SEC on April 28, 2017, and we completed the Exchange Offer on June 1, 2017, such that all the Unregistered 2021 Notes and Unregistered 2026 Notes were exchanged for registered 2021 notes (the “2021 Notes”) and registered 2026 notes (the “2026 Notes”).

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 ~~Notes~~notes outstanding as of September 30, ~~2017.~~

Interest is payable semi-annually in arrears on March 15 and September 15 of each year for the 2021 Notes, the 2023 Notes, and 2026 Notes, and payable semi-annually in arrears on June 15 and December 15 of each year for the 2022 Notes, the 2027 Notes, and 2047 Notes. Accrued interest payable is recorded within “Accrued expenses and other liabilities” in our condensed consolidated balance sheets.2022. As of September 30, ~~2017~~2022, with the exception of our 2026 Notes and ~~December 31, 2016, we had accrued interest payable~~2027 Notes, which are scheduled to mature in September 2026 and June 2027, respectively, no other contractual principal repayments of ~~$18 million and $25 million, respectively, related to~~our long-term debt were due within the ~~Notes.~~

next five years.

Refer to Note 1113 contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 for further details regarding ~~our~~ key terms under our indentures that govern ~~the 2021 Notes, the 2023 Notes, and the 2026 Notes.~~

~~Interest Expense and Financing Costs~~

~~Fees and discounts associated with the issuance~~our outstanding notes.

Table 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
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

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
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

2016 TLA

  $
2,690

  $
(27)

  $
2,663

2021 Notes

650

(5)

645

2023 Notes

750

(11)

739

2026 Notes

850

(10)

840

Total long-term debt

  $
4,940

  $
(53)

  $
4,887

Contents

~~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.

9. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) ~~at September 30, 2017 and 2016,~~ were as follows (amounts in millions):

For the Nine Months Ended September 30, 2017

Foreign currency
translation
adjustments

Unrealized gain
(loss) on forward
contracts

Unrealized gain
(loss) on available-
for-sale securities

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
translation
adjustments

Unrealized gain
(loss) on forward
contracts

Unrealized gain
(loss) on available-
for-sale securities

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 Nine Months Ended September 30, 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 (64) 24 67 27
Amounts reclassified from accumulated other comprehensive income (loss) into earnings — (5) (33) (38)
Balance at September 30, 2022 $ (670) $ 22 $ 59 $ (589)

For the Nine Months Ended September 30, 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 (8) — 27 19
Amounts reclassified from accumulated other comprehensive income (loss) into earnings — 3 13 16
Balance at September 30, 2021 $ (597) $ (2) $ 12 $ (587)

10. Operating Segments and Geographic ~~Region~~

~~Currently, we~~Regions

We have three reportable ~~segments.~~segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation ~~expense;~~expense (including liability awards accounted for under ASC 718); amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

Table of 2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable “Other segments,” is now presented within the “Blizzard”Contents

Information on reportable ~~operating segment. Prior period amounts have been revised to reflect this change. The change had no impact on consolidated~~segment net revenues orand operating ~~income.~~

income for the three months ended September 30, 2022 and 2021, are presented below (amounts in millions):


	Three Months Ended September 30, 2022
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	480	$	534	$	692	$	1,706
Intersegment net revenues (1)	—		9		—		9
Segment net revenues	$	480	$	543	$	692	$	1,715

Segment operating income	$	153	$	166	$	297	$	616

	Three Months Ended September 30, 2021
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	641	$	478	$	652	$	1,771
Intersegment net revenues (1)	—		15		—		15
Segment net revenues	$	641	$	493	$	652	$	1,786

Segment operating income	$	244	$	188	$	303	$	735

Information on reportable segment net revenues and operating income for the ~~reportable segments~~nine months ended September 30, 2022 and ~~reconciliations~~2021, are presented below (amounts in millions):



	Nine Months Ended September 30, 2022
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	1,423	$	1,189	$	2,058	$	4,670
Intersegment net revenues (1)	—		29		—		29
Segment net revenues	$	1,423	$	1,218	$	2,058	$	4,699

Segment operating income	$	304	$	314	$	811	$	1,429

	Nine Months Ended September 30, 2021
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	2,321	$	1,347	$	1,896	$	5,564
Intersegment net revenues (1)	—		62		—		62
Segment net revenues	$	2,321	$	1,409	$	1,896	$	5,626

Segment operating income	$	1,049	$	537	$	755	$	2,341

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

Table of Contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Reconciliation to consolidated net revenues:
Segment net revenues	$	1,715	$	1,786	$	4,699	$	5,626
Revenues from non-reportable segments (1)	123		109		278		303
Net effect from recognition (deferral) of deferred net revenues (2)	(47)		190		246		773
Elimination of intersegment revenues (3)	(9)		(15)		(29)		(62)
Consolidated net revenues	$	1,782	$	2,070	$	5,194	$	6,640

Reconciliation to consolidated income before income tax expense:
Segment operating income	$	616	$	735	$	1,429	$	2,341
Operating income (loss) from non-reportable segments (1)	14		4		28		(12)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)	(25)		154		210		562
Share-based compensation expense (4)	(102)		(64)		(301)		(259)
Amortization of intangible assets	(6)		(2)		(9)		(8)
Restructuring and related costs	(2)		(3)		3		(46)
Merger and acquisition-related fees and other expenses (5)	(10)		—		(58)		—

Consolidated operating income	485		824		1,302		2,578
Interest and other (income) expense, net	(15)		65		16		52

Consolidated income before income tax expense	$	500	$	759	$	1,286	$	2,526

(1)Includes other income and expenses outside of our reportable segments, including our Distribution business and 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 $25 million and $54 million for the three and nine months ended September 30, ~~2017 and 2016, are presented below (amounts in millions):~~

For the Three Months Ended September 30,

2017

2016

2017

2016

Net revenues

Operating income and income
before income tax expense
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
before income tax expense
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

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

~~(2)~~2022, respectively, related to liability awards accounted for under ASC 718.

(5)Reflects fees and other expenses ~~such as legal, banking, and professional services fees,~~ related to ~~the King Acquisition~~our proposed transaction with Microsoft, which primarily consist of legal and ~~associated integration activities, inclusive~~advisory fees.

Table of ~~related debt financings.~~

~~(3)~~ ~~Reflects restructuring charges, primarily severance costs.~~

~~(4)~~ ~~Reflects~~Contents

Net revenues by distribution channel, including a ~~non-cash accounting charge~~reconciliation to ~~reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain~~each of our ~~foreign entities.~~

~~Geographic information presented below~~reportable segment’s revenues, for the three months ended September 30, 2022 and 2021, were as follows (amounts in millions):



	Three Months Ended September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	501	$	421	$	693	$	—	$	(9)	$	1,606
Retail channels	23		2		—		—		—		25
Other (2)	9		24		—		118		—		151
Total consolidated net revenues	$	533	$	447	$	693	$	118	$	(9)	$	1,782

Change in deferred revenues:
Digital online channels (1)	$	(36)	$	96	$	(1)	$	—	$	—	$	59
Retail channels	(17)		—		—		—		—		(17)
Other (2)	—		—		—		5		—		5
Total change in deferred revenues	$	(53)	$	96	$	(1)	$	5	$	—	$	47

Segment net revenues:
Digital online channels (1)	$	465	$	517	$	692	$	—	$	(9)	$	1,665
Retail channels	6		2		—		—		—		8
Other (2)	9		24		—		123		—		156
Total segment net revenues	$	480	$	543	$	692	$	123	$	(9)	$	1,829



	Three Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	723	$	493	$	651	$	—	$	(15)	$	1,852
Retail channels	63		6		—		—		—		69
Other (2)	8		33		—		108		—		149
Total consolidated net revenues	$	794	$	532	$	651	$	108	$	(15)	$	2,070

Change in deferred revenues:
Digital online channels (1)	$	(128)	$	(37)	$	1	$	—	$	—	$	(164)
Retail channels	(25)		(2)		—		—		—		(27)
Other (2)	—		—		—		1		—		1
Total change in deferred revenues	$	(153)	$	(39)	$	1	$	1	$	—	$	(190)

Segment net revenues:
Digital online channels (1)	$	595	$	456	$	652	$	—	$	(15)	$	1,688
Retail channels	38		4		—		—		—		42
Other (2)	8		33		—		109		—		150
Total segment net revenues	$	641	$	493	$	652	$	109	$	(15)	$	1,880

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Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, were as follows (amounts in millions):


	Nine Months Ended September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	1,643	$	994	$	2,060	$	—	$	(29)	$	4,668
Retail channels	170		7		—		—		—		177
Other (2)	31		47		—		271		—		349
Total consolidated net revenues	$	1,844	$	1,048	$	2,060	$	271	$	(29)	$	5,194

Change in deferred revenues:
Digital online channels (1)	$	(286)	$	171	$	(2)	$	—	$	—	$	(117)
Retail channels	(135)		—		—		—		—		(135)
Other (2)	—		(1)		—		7		—		6
Total change in deferred revenues	$	(421)	$	170	$	(2)	$	7	$	—	$	(246)

Segment net revenues:
Digital online channels (1)	$	1,357	$	1,165	$	2,058	$	—	$	(29)	$	4,551
Retail channels	35		7		—		—		—		42
Other (2)	31		46		—		278		—		355
Total segment net revenues	$	1,423	$	1,218	$	2,058	$	278	$	(29)	$	4,948


	Nine Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	2,625	$	1,426	$	1,894	$	—	$	(62)	$	5,883
Retail channels	334		20		—		—		—		354
Other (2)	38		71		—		294		—		403
Total consolidated net revenues	$	2,997	$	1,517	$	1,894	$	294	$	(62)	$	6,640

Change in deferred revenues:
Digital online channels (1)	$	(491)	$	(101)	$	2	$	—	$	—	$	(590)
Retail channels	(185)		(7)		—		—		—		(192)
Other (2)	—		—		—		9		—		9
Total change in deferred revenues	$	(676)	$	(108)	$	2	$	9	$	—	$	(773)

Segment net revenues:
Digital online channels (1)	$	2,134	$	1,325	$	1,896	$	—	$	(62)	$	5,293
Retail channels	149		13		—		—		—		162
Other (2)	38		71		—		303		—		412
Total segment net revenues	$	2,321	$	1,409	$	1,896	$	303	$	(62)	$	5,867

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

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(2)Net revenues from “Other” primarily include revenues from our Distribution business, the Overwatch League, and the Call of Duty League.

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

Geographic information presented below is based on the location of the paying customer. Net revenues ~~from external customers~~ by geographic region, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended September 30, 2022 and 2021, were as follows (amounts in millions):

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 September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	358	$	190	$	457	$	—	$	(6)	$	999
EMEA (1)	117		107		158		118		(2)		498
Asia Pacific	58		150		78		—		(1)		285
Total consolidated net revenues	$	533	$	447	$	693	$	118	$	(9)	$	1,782

Change in deferred revenues:
Americas	$	(33)	$	42	$	—	$	—	$	—	$	9
EMEA (1)	(17)		18		—		5		—		6
Asia Pacific	(3)		36		(1)		—		—		32
Total change in deferred revenues	$	(53)	$	96	$	(1)	$	5	$	—	$	47

Segment net revenues:
Americas	$	325	$	232	$	457	$	—	$	(6)	$	1,008
EMEA (1)	100		125		158		123		(2)		504
Asia Pacific	55		186		77		—		(1)		317
Total segment net revenues	$	480	$	543	$	692	$	123	$	(9)	$	1,829



	Three Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	515	$	243	$	417	$	—	$	(9)	$	1,166
EMEA (1)	187		166		163		108		(5)		619
Asia Pacific	92		123		71		—		(1)		285
Total consolidated net revenues	$	794	$	532	$	651	$	108	$	(15)	$	2,070

Change in deferred revenues:
Americas	$	(110)	$	(27)	$	1	$	—	$	—	$	(136)
EMEA (1)	(42)		(22)		—		1		—		(63)
Asia Pacific	(1)		10		—		—		—		9
Total change in deferred revenues	$	(153)	$	(39)	$	1	$	1	$	—	$	(190)

Segment net revenues:
Americas	$	405	$	216	$	418	$	—	$	(9)	$	1,030
EMEA (1)	145		144		163		109		(5)		556
Asia Pacific	91		133		71		—		(1)		294
Total segment net revenues	$	641	$	493	$	652	$	109	$	(15)	$	1,880

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Net revenues by geographic region, including a reconciliation to each of our reportable segment’s net revenues, for the nine months ended September 30, 2022 and 2021, were as follows (amounts in millions):


	Nine Months Ended September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	1,214	$	463	$	1,341	$	—	$	(19)	$	2,999
EMEA (1)	448		291		491		271		(8)		1,493
Asia Pacific	182		294		228		—		(2)		702
Total consolidated net revenues	$	1,844	$	1,048	$	2,060	$	271	$	(29)	$	5,194

Change in deferred revenues:
Americas	$	(258)	$	82	$	(2)	$	—	$	—	$	(178)
EMEA (1)	(141)		30		(1)		7		—		(105)
Asia Pacific	(22)		58		1		—		—		37
Total change in deferred revenues	$	(421)	$	170	$	(2)	$	7	$	—	$	(246)

Segment net revenues:
Americas	$	956	$	545	$	1,339	$	—	$	(19)	$	2,821
EMEA (1)	307		321		490		278		(8)		1,388
Asia Pacific	160		352		229		—		(2)		739
Total segment net revenues	$	1,423	$	1,218	$	2,058	$	278	$	(29)	$	4,948


	Nine Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	1,942	$	698	$	1,215	$	—	$	(36)	$	3,819
EMEA (1)	780		507		485		294		(21)		2,045
Asia Pacific	275		312		194		—		(5)		776
Total consolidated net revenues	$	2,997	$	1,517	$	1,894	$	294	$	(62)	$	6,640

Change in deferred revenues:
Americas	$	(420)	$	(57)	$	2	$	—	$	—	$	(475)
EMEA (1)	(213)		(55)		(1)		9		—		(260)
Asia Pacific	(43)		4		1		—		—		(38)
Total change in deferred revenues	$	(676)	$	(108)	$	2	$	9	$	—	$	(773)

Segment net revenues:
Americas	$	1,522	$	641	$	1,217	$	—	$	(36)	$	3,344
EMEA (1)	567		452		484		303		(21)		1,785
Asia Pacific	232		316		195		—		(5)		738
Total segment net revenues	$	2,321	$	1,409	$	1,896	$	303	$	(62)	$	5,867

(1) ~~Consists~~ “EMEA” consists of the Europe, Middle East, and Africa geographic regions.

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

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The Company’s net revenues in the U.S. were ~~43%~~49% of consolidated net revenues for both the three months ended September 30, ~~2017~~2022 and ~~2016.~~2021. The Company’s net revenues in the United Kingdom (“U.K.”) were ~~12% and~~ 10% of consolidated net revenues for both the three months ended September 30, ~~2017~~2022 and ~~2016, respectively.~~2021. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended September 30, ~~2017~~2022 or ~~2016.~~

2021.

The Company’s net revenues in the U.S. were ~~46%~~51% and 50% of consolidated net revenues for ~~both~~ the nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021, respectively. The Company’s net revenues in the U.K. were 10% of consolidated net revenues for both the nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021. No other country’s net revenues exceeded 10% of consolidated net revenues for the nine months ended September 30, ~~2017~~2022 or ~~2016.~~

2021.

Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended September 30, 2022 and 2021, were as follows (amounts in millions):

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 September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	313	$	23	$	—	$	—	$	—	$	336
PC	75		279		18		—		(9)		363
Mobile and ancillary (1)	136		121		675		—		—		932
Other (2)	9		24		—		118		—		151
Total consolidated net revenues	$	533	$	447	$	693	$	118	$	(9)	$	1,782

Change in deferred revenues:
Console	$	(43)	$	(6)	$	—	$	—	$	—	$	(49)
PC	(6)		35		—		—		—		29
Mobile and ancillary (1)	(4)		67		(1)		—		—		62
Other (2)	—		—		—		5		—		5
Total change in deferred revenues	$	(53)	$	96	$	(1)	$	5	$	—	$	47

Segment net revenues:
Console	$	270	$	17	$	—	$	—	$	—	$	287
PC	69		314		18		—		(9)		392
Mobile and ancillary (1)	132		188		674		—		—		994
Other (2)	9		24		—		123		—		156
Total segment net revenues	$	480	$	543	$	692	$	123	$	(9)	$	1,829

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	Three Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	480	$	43	$	—	$	—	$	—	$	523
PC	140		434		19		—		(15)		578
Mobile and ancillary (1)	166		22		632		—		—		820
Other (2)	8		33		—		108		—		149
Total consolidated net revenues	$	794	$	532	$	651	$	108	$	(15)	$	2,070

Change in deferred revenues:
Console	$	(119)	$	5	$	—	$	—	$	—	$	(114)
PC	(33)		(47)		—		—		—		(80)
Mobile and ancillary (1)	(1)		3		1		—		—		3
Other (2)	—		—		—		1		—		1
Total change in deferred revenues	$	(153)	$	(39)	$	1	$	1	$	—	$	(190)

Segment net revenues:
Console	$	361	$	48	$	—	$	—	$	—	$	409
PC	107		387		19		—		(15)		498
Mobile and ancillary (1)	165		25		633		—		—		823
Other (2)	8		33		—		109		—		150
Total segment net revenues	$	641	$	493	$	652	$	109	$	(15)	$	1,880

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Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the nine months ended September 30, 2022 and 2021, were as follows (amounts in millions):


	Nine Months Ended September 30, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	1,129	$	66	$	—	$	—	$	—	$	1,195
PC	297		760		52		—		(29)		1,080
Mobile and ancillary (1)	387		175		2,008		—		—		2,570
Other (2)	31		47		—		271		—		349
Total consolidated net revenues	$	1,844	$	1,048	$	2,060	$	271	$	(29)	$	5,194

Change in deferred revenues:
Console	$	(358)	$	(8)	$	—	$	—	$	—	$	(366)
PC	(84)		56		—		—		—		(28)
Mobile and ancillary (1)	21		123		(2)		—		—		142
Other (2)	—		(1)		—		7		—		6
Total change in deferred revenues	$	(421)	$	170	$	(2)	$	7	$	—	$	(246)

Segment net revenues:
Console	$	771	$	58	$	—	$	—	$	—	$	829
PC	213		816		52		—		(29)		1,052
Mobile and ancillary (1)	408		298		2,006		—		—		2,712
Other (2)	31		46		—		278		—		355
Total segment net revenues	$	1,423	$	1,218	$	2,058	$	278	$	(29)	$	4,948

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	Nine Months Ended September 30, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	1,971	$	90	$	—	$	—	$	—	$	2,061
PC	532		1,293		64		—		(62)		1,827
Mobile and ancillary (1)	456		63		1,830		—		—		2,349
Other (2)	38		71		—		294		—		403
Total consolidated net revenues	$	2,997	$	1,517	$	1,894	$	294	$	(62)	$	6,640

Change in deferred revenues:
Console	$	(530)	$	—	$	—	$	—	$	—	$	(530)
PC	(145)		(108)		—		—		—		(253)
Mobile and ancillary (1)	(1)		—		2		—		—		1
Other (2)	—		—		—		9		—		9
Total change in deferred revenues	$	(676)	$	(108)	$	2	$	9	$	—	$	(773)

Segment net revenues:
Console	$	1,441	$	90	$	—	$	—	$	—	$	1,531
PC	387		1,185		64		—		(62)		1,574
Mobile and ancillary (1)	455		63		1,832		—		—		2,350
Other (2)	38		71		—		303		—		412
Total segment net revenues	$	2,321	$	1,409	$	1,896	$	303	$	(62)	$	5,867

(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.~~

devices.

(2)Net revenues from “Other” primarily include revenues from our ~~Studios~~Distribution business, the Overwatch League, and ~~Distribution businesses, as well as~~the Call of Duty League.

(3)Intersegment revenues ~~from MLG.~~

reflect licensing and service fees charged between segments.

Long-lived assets by geographic region ~~at September 30, 2017 and December 31, 2016,~~ were as follows (amounts in millions):

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 September 30, 2022		At December 31, 2021
Long-lived assets* by geographic region:
Americas	$	264	$	264
EMEA	101		122
Asia Pacific	21		20
Total long-lived assets by geographic region	$	386	$	406

* The only long-lived assets that we classify by region are our long-term tangible fixed assets, which consist of property, plant, and equipment ~~assets; all~~assets and lease right-of-use assets. All other long-term assets are not allocated by location.

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~~10.~~

11. Share-Based Payments

Stock Option Activity

Stock option activity is as follows:

Number of shares (in thousands) Weighted-average
exercise price per stock option Weighted-average
remaining
contractual term (in years) Aggregate
intrinsic value (in millions)
Outstanding stock options at December 31, 2021 9,133 $ 57.77
Granted — —
Exercised (857) 46.74
Forfeited (162) 72.97
Expired (46) 74.37
Outstanding stock options at September 30, 2022 8,068 $ 58.54 6.38 $ 150
Vested and expected to vest at September 30, 2022 7,919 $ 58.06 6.35 $ 150
Exercisable at September 30, 2022 5,790 $ 50.89 5.77 $ 140

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between our closing stock price on the last trading day of the period and the exercise price, times the number of shares for options where the closing stock price is greater than the exercise price) that would have been received by the option holders had all option holders exercised their options on that date. This amount changes based on the market value of our stock.

At September 30, 2022, $15 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 0.75 years.

Restricted Stock Units (“RSUs”) Activity

We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs is generally contingent upon the holder’s continued employment with us and may be subject to other conditions (which may include the satisfaction of a performance measure). Also, certain of our performance-based RSUs, including those that are market-based, include a range of shares that may be released at vesting, which are above or below the targeted number of RSUs based on actual performance relative to the performance measure. If the vesting conditions are not met, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax withholding requirements.

The following table summarizes our RSU activity with performance-based RSUs, including those with market conditions, presented at 100% of the target level shares that may potentially vest (amounts in thousands, except per share data):

Number of shares Weighted-
average grant
date fair value per RSU
Unvested RSUs at December 31, 2021 13,258 $ 75.51
Granted 5,600 79.90
Vested (4,511) 77.09
Forfeited (1,359) 82.90
Unvested RSUs at September 30, 2022 12,988 $ 76.23

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As of December 31, 2021, we had recorded a share-based compensation liability related to compensation payments under our annual performance plans for 2021 which the Company determined to settle amounts not yet paid in stock as opposed to cash. During the nine months ended September 30, 2022, we settled the share-based compensation liability by granting 2,777 thousand RSUs that vested during the first quarter shortly after grant. The number of shares issued was based on the Company’s closing stock price on the date of grant. The impact of this settlement was recorded in “Additional Paid-In-Capital” in our condensed consolidated statement of changes in shareholders’ equity for the nine months ended September 30, 2022.

At September 30, 2022, $417 million of total unrecognized compensation cost related to RSUs is expected to be recognized over a weighted-average period of 1.28 years. Of the total unrecognized compensation cost, $63 million was related to performance-based RSUs, which is expected to be recognized over a weighted-average period of 0.89 years.

12. Restructuring

During 2019, we began implementing a plan aimed at refocusing our resources on our largest opportunities and removing unnecessary levels of complexity from certain parts of our business. We substantially completed all actions under our plan and accrued for these costs accordingly as of December 31, 2021. The remaining activity under the plan is primarily related to cash outlays to be made over time to impacted personnel.

The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other liabilities” and “Other liabilities” in our condensed consolidated balance sheet and the cumulative charges incurred (amounts in millions):

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 adjustments (3) — (3)
Balance at March 31, 2022 $ 49 $ 13 $ 62
Cash payments (12) — (12)
Non-cash charge and other adjustments (2) (5) (7)
Balance at June 30, 2022 $ 35 $ 8 $ 43
Cash payments (7) — (7)
Non-cash charge and other adjustments (1) (1) (2)
Balance at September 30, 2022 $ 27 $ 7 $ 34

13. Interest and Other (Income) Expense, Net

Interest and other (income) expense, net is comprised of the following (amounts in millions):

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Interest income $ (51) $ (1) $ (68) $ (4)
Interest expense from debt and amortization of debt discount and deferred financing costs 27 27 81 81
Realized and unrealized loss (gain) on equity investment 10 36 6 (35)
Other (income) expense, net (1) 3 (3) 10
Interest and other (income) expense, net $ (15) $ 65 $ 16 $ 52

29
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14. Income Taxes

��

~~The Company accounts~~

We account for ~~its~~our provision for income taxes in accordance with ~~ASC~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. The provision for income taxes represents federal, foreign, state, and local income taxes. Our effective tax rate ~~differs~~could be different from the statutory U.S. income tax rate due toto: the effect of state and local income ~~taxes,~~taxes; tax rates inthat apply to our foreign ~~jurisdictions,~~income (including U.S. tax on foreign income); research and development credits; and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of 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 quarter of the change.

The income tax expense of ~~$32~~$65 million for the three months ended September 30, ~~2017,~~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%~~13%, which is lower than the effective tax rate of ~~12%~~16% for the three months ended September 30, 2021. Our tax rate in the current quarter is lower than in the prior year due to changes in the mix of our pre-tax income between countries, partially offset by discrete tax benefits recognized in 2021, related to a favorable tax return to accrual adjustment and excess tax benefits from share-based payments.

The income tax expense of $176 million for the nine months ended September 30, ~~2016.~~2022, reflects an effective tax rate of 14%, which is lower than the effective tax rate of 15% for the nine months ended September 30, 2021. The decrease is primarily due to ~~higher excess tax benefits from share-based payments~~changes in the ~~current period,~~mix of our pre-tax income among countries, partially offset by ~~lower~~a discrete tax ~~benefits, primarily~~benefit recognized in 2021 related to ~~an audit settlement recognized in the prior period.~~

deferred tax remeasurement.

The effective tax rate of ~~15%~~13% and ~~11%~~14% for the three and nine months ended September 30, ~~2017,~~2022, respectively, isare 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 California~~U.S. research and development ~~credits, partially offset~~credits.

Activision Blizzard’s tax years after 2008 remain open to examination by ~~an increase of reserves for uncertain tax positions.~~

certain major taxing jurisdictions to which we are subject. The Internal Revenue Service ~~(“IRS”)~~ is currently examining ~~Activision Blizzard’s~~our federal tax returns for the ~~2009, 2010, and 2011~~2012 through 2019 tax years. ~~During the second quarter~~We 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 from~~matters. 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 review~~tax authorities in the relevant jurisdictions, which include the U.K. and Sweden. While the outcome of this process ~~to the IRS examination team. Their review~~remains uncertain, it could result in ~~a different allocation of profits and losses under~~an 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 included~~amount and timing of taxable income in the ~~consolidated federal and~~jurisdictions in which King operates.

In addition, certain foreign state and local income tax returns filed by Vivendi or its affiliates, while Vivendi Games’ results for the period from July 10, 2008 through December 31, 2008, are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. IRS Appeals proceedings concerning Vivendi Games’ tax return for the 2008 tax year were concluded during July 2016, but that year remains open to examination by other major taxing authorities. The resolution of the 2008 IRS Appeals process did not have a material impact to the Company’s condensed consolidated financial statements.

~~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.

We regularly assess the likelihood of adverse outcomes resulting from these examinations and monitor the progress of ongoing discussions with tax authorities in determining the appropriateness of our tax provisions. The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of ~~operations, except as noted above.~~

~~11.~~operations.

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15. Computation of Basic/Diluted Earnings Per Common Share

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

For the 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 September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Consolidated net income	$	435	$	639	$	1,110	$	2,135




Denominator:
Denominator for basic earnings per common share—weighted-average common shares outstanding	782		778		781		777
Effect of dilutive stock options and awards under the treasury stock method	7		5		7		7
Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method	789		783		788		784

Basic earnings per common share	$	0.56	$	0.82	$	1.42	$	2.75
Diluted earnings per common share	$	0.55	$	0.82	$	1.41	$	2.72

The vesting of certain of our employee-related restricted stock units ~~and options are~~is contingent upon the satisfaction of ~~pre-defined~~predefined performance measures. The shares underlying these equity awards are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Approximately 9 million and 8 million shares are not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2017, respectively, as their respective performance measures had not yet been met. Approximately 10 million shares are not included in the computation of diluted earnings per share for both the three and nine months ended September 30, 2016, as their respective performance measures had not yet been met.

~~Potential~~Additionally, 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~~

Weighted-average shares ~~of common stock were not included in~~excluded from the ~~calculation~~computation of diluted earnings per ~~common~~ share ~~for both the three and nine months ended September 30, 2017, and 1 million and 4 million options to acquire shares of common stock~~ were ~~not included~~as follows (amounts in ~~the calculation of diluted earnings per common share for the three and nine months ended September 30, 2016, respectively, as the effect of their inclusion would be anti-dilutive.~~

~~12.~~millions):

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Restricted stock units with performance measures not yet met 2 3 2 3
Anti-dilutive employee stock options 2 2 2 2

16. Capital Transactions

Repurchase ~~Program~~

Programs

On ~~February 2, 2017,~~January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1$4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, ~~2017 through February 12, 2019.~~2023 and a determination by the Board of Directors to discontinue the repurchase program. As of September 30, ~~2017,~~2022, we ~~have~~had not repurchased any shares under this ~~program.~~

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).

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Dividends

On February ~~2, 2017,~~3, 2022, our Board of Directors ~~approved~~declared a cash dividend of ~~$0.30~~$0.47 per common share. On May ~~10, 2017,~~6, 2022, we made an aggregate cash dividend payment of ~~$226~~$367 million to shareholders of record at the close of business on ~~March 30, 2017. On May 26, 2017, we made related dividend equivalent payments of less than $1 million to certain holders of restricted stock units.~~

April 15, 2022.

On February ~~2, 2016,~~4, 2021, our Board of Directors declared a cash dividend of ~~$0.26~~$0.47 per common share. On May ~~11, 2016,~~6, 2021, we made an aggregate cash dividend payment of ~~$192~~$365 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.

17. Commitments and Contingencies

Legal Proceedings

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

~~14.~~~~Acquisitions~~

~~King Digital~~ We are also party to the proceedings set forth below.

EEOC Settlement

In September 2021, the Company entered into a proposed consent decree with the U.S. Equal Employment Opportunity Commission (the “EEOC”) to settle claims regarding certain employment practices. The consent decree was approved by the United States District Court, Central District of California on March 29, 2022. The consent decree, among other things, provides for the creation of an $18 million settlement fund for eligible claimants; upgrading Company policies, practices, and training to further prevent and eliminate harassment and discrimination in its workplaces, including implementing an expanded performance review system with a new equal opportunity focus; and providing ongoing oversight and review of the Company’s training programs, investigation policies, disciplinary framework and compliance by appointing a third-party equal opportunity consultant for the next three years whose findings will be regularly reported to the EEOC and shared with our Board of Directors.

The California Civil Rights Department (formerly known as the Department of Fair Employment and Housing) (the “CRD”) filed a motion to intervene in the matter, seeking to object to the consent decree, including the amount of the settlement fund; that motion was denied. The CRD filed a notice of appeal of the order denying the CRD’s motion to intervene. The CRD filed its opening brief for its appeal of the Court’s order denying its motion to intervene with the United States Court of Appeals for the Ninth Circuit on May 18, 2022. On April 19, 2022, CRD filed a second motion to intervene with the United States District Court. The CRD’s second motion to intervene was denied on June 3, 2022. On June 7, 2022, CRD filed a notice of appeal of the order denying the CRD’s second motion to intervene with the United States Court of Appeals for the Ninth Circuit. On March 4, 2022, Jessica Gonzalez, a former Blizzard Entertainment

employee, filed a motion to intervene with the United States District Court; it was denied on March 22, 2022. On ~~February~~May 23, ~~2016, we completed~~2022, Gonzalez filed a notice of appeal of the ~~King Acquisition, purchasing all~~order denying her motion to intervene with the United States Court of ~~King’s outstanding shares. As~~Appeals for the Ninth Circuit. The CRD appeals and Gonzalez appeal are pending before the Ninth Circuit.

Pending Employment-Related Matters

On July 20, 2021, the CRD filed a ~~result, King became a wholly-owned subsidiary~~complaint (the “CRD Matter”) in California Superior Court, County of Los Angeles against Activision ~~Blizzard. King is a leading global developer~~Blizzard, Blizzard Entertainment and ~~publisher~~Activision Publishing (together, the “Defendants”) alleging violations of ~~interactive entertainment content~~the California Fair Employment and ~~services, particularly on mobile platforms, such as Android and iOS, and on online and social platforms, such as Facebook~~Housing Act and the ~~king.com websites. King’s~~California Equal Pay Act. The CRD filed a First Amended Complaint in the CRD 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 CRD did not amend with respect to the granted portion. On May 6, 2022, Defendants moved for partial summary adjudication seeking to dismiss claims asserted under the Fair Employment & Housing Act, which the Court denied. Defendants filed a Petition for Peremptory Writ or Other Appropriate Relief regarding the Court’s denial of Defendants’ motion for partial summary adjudication, which was denied. Defendants appealed the denial of their writ to the California Supreme Court. On October 27, 2022, CRD filed a Motion for Summary Adjudication on certain of Defendants’ affirmative defenses with a hearing date scheduled for January 10, 2023. The February 27, 2023 trial date has been vacated and a new trial date will be set by the Court. The Court set a conference for March 20, 2023 to discuss trial scheduling. In addition, in January 2022, the Company’s Board of Directors received notice of an investigation by the CRD and investigatory subpoenas.

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On August 3, 2021, a putative class action was filed in the United States District Court, Central District of California, entitled Gary Cheng v. Activision Blizzard, Inc., et al., Case No. 2:21-cv-06240-PA-JEM. Plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against the Company and five current or former officers. An amended complaint was filed on December 3, 2021, purportedly on behalf of a class of the Company’s shareholders who purchased stock between February 28, 2017 and November 16, 2021. In an order dated April 18, 2022, the Court granted defendants’ motion to dismiss the amended complaint with leave to amend. Plaintiffs filed a second amended complaint on May 18, 2022, on behalf of shareholders who purchased stock between November 8, 2018 and November 16, 2021, which defendants moved to dismiss on June 16, 2022. In an order dated August 30, 2022, the Court granted defendants’ motion to dismiss the second amended complaint with leave to amend. Plaintiff filed a third amended complaint on September 29, 2022. Defendants’ motion to dismiss the third amended complaint was filed October 31, 2022.

Beginning on August 6, 2021, three putative shareholder derivative actions were filed in California Superior Court, County of Los Angeles, and those cases have now been consolidated in an action entitled York County on Behalf of County of York Retirement Fund v. Robert A. Kotick, et al., Case No. 21STCV28949. Another related putative shareholder derivative action, entitled Lesley Warren Savage v. Robert A. Kotick, et al., Case No. 22STCV17478, was filed in California Superior Court, County of Los Angeles on May 23, 2022. These related shareholder derivative actions in California Superior Court are currently stayed. On November 15, 2021, a putative shareholder derivative action was filed in the United States District Court, Central District of California, entitled Luke Kahnert v. Robert A. Kotick, et al., Case No. 2:21-cv-08968-PA-JEM. The putative derivative actions collectively assert claims on the Company’s behalf against a number of current or former officers, employees and directors for breach of fiduciary duty, corporate waste, unjust enrichment, misappropriation, contribution, and alleged violation of Section 14(a) of the Exchange Act based on allegations similar to those in the CRD Matter and in the securities class action. The Company is named as a nominal defendant. An amended complaint in the Kahnert case was filed on January 7, 2022 and, in an order dated May 20, 2022, the Court granted defendants’ motion to dismiss the amended complaint with leave to amend. Plaintiffs filed a second amended complaint on June 1, 2022 in the Kahnert case. In an order dated September 8, 2022, the Court granted defendants’ motion to dismiss the second amended complaint with leave to amend. Plaintiffs in the Kahnert case filed a third amended complaint on September 23, 2022. Defendants motion to dismiss the third amended complaint in the Kahnert case was filed October 24, 2022.

The Company is cooperating with an investigation by the SEC regarding disclosures on employment matters and related issues including responding to subpoenas from the SEC. The SEC has also issued subpoenas to a number of current and former executives and other employees in connection with this matter.

We are unable to predict the impact of the above pending matters on our business, financial condition, results of operations, ~~since~~or liquidity at this time.

Legal Proceedings Regarding the ~~King Closing Date are included in our condensed consolidated financial statements.~~

~~We made this acquisition because we believe that~~Merger

Following the addition of King’s highly-complementary mobile business positions us as a global leader in interactive entertainment across console, PC, and mobile platforms, as well as positioning us for future growth.

~~The aggregate purchase price~~announcement of the ~~King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarily~~proposed 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):~~

	~~February 23, 2016~~		~~Estimated useful lives~~
~~Tangible assets and liabilities assumed:~~
~~Cash and cash equivalents~~	$	~~1,151~~
~~Accounts receivable~~	~~162~~
~~Other current assets~~	72
~~Property and equipment~~	57		~~2 - 7 years~~
~~Deferred income tax assets, net~~	27
~~Other assets~~	47
~~Accounts payable~~	~~(9)~~
~~Accrued expenses and other liabilities~~	~~(272)~~
~~Other liabilities~~	~~(110)~~
~~Deferred income tax liabilities, net~~	~~(52)~~
~~Intangible assets~~
~~Internally-developed franchises~~	~~845~~		~~3 - 5 years~~
~~Customer base~~	~~609~~		~~2 years~~
~~Developed software~~	~~580~~		~~3 - 4 years~~
~~Trade name~~	46		~~7 years~~
~~Goodwill~~	~~2,675~~
~~Total purchase price~~	$	~~5,828~~

~~During the 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 options~~Southern 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 period~~the 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
September 30, 2016

For the Nine Months Ended
September 30, 2016

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 of~~Delaware 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: Stein v. Activision Blizzard, Inc. et al., No. 1:22-cv-01560 (S.D.N.Y.); Perry v. Activision Blizzard, Inc. et al., No. 1:22-cv-02074 (S.D.N.Y.); Whitfield v. Activision Blizzard, Inc. et al., 2:22-cv-01182 (E.D.N.Y.); Lande v. Activision Blizzard, Inc. et al., No. 1:22-cv-01267 (E.D.N.Y.); Watson v. Activision Blizzard, Inc. et al., No. 2:22-cv-01268 (C.D. Cal.); Rubin v. Activision Blizzard, Inc. et al., No. 2:22-cv-01343 (C.D. Cal.); Baker v. Activision Blizzard, Inc. et al., No. 2:22-cv00875 (E.D. Pa.); and David v. Activision Blizzard, Inc. et al., No. 1:22-cv-00339 (D. Del.). The ~~2016 pro forma financial information presented includes the effects~~complaints each assert violations of ~~adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition~~Section 14(a) and ~~the profit-sharing bonus plan established as part~~Section 20(a) of the ~~King Acquisition,~~Exchange Act and interest expense from the new debt, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition related costs of approximately $69 million for the nine months ended September 30, 2016.

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
September 30, 2016

For the Nine Months Ended
September 30, 2016

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 the~~preliminary 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 included~~Company 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 activity in the statement of cash flows.~~

~~Goodwill~~

In January 2017, the FASB issued new guidance which eliminates Step 2 from the goodwill impairment test. Instead, if any entity forgoes a Step 0 test, an entity will be required to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit, as 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 astransaction. All of the ~~beginning~~complaints have been voluntarily dismissed.

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Following the announcement of the ~~fiscal year~~proposed transaction with Microsoft, the Company also received several demand letters from purported stockholders and two lawsuits, Sjunde AP-Fonden v. Activision Blizzard, Inc., No. 2022-0281-KSJM (Del. Ch.) and New York City Employees’ Retirement System et. al. v. Activision Blizzard, Inc., No. 2022-0365-KSJM (Del. Ch.) (together the “220 Complaints”), for books and records pursuant to 8 Del. C. § 220. Among other things, the demand letters and the 220 Complaints seek to investigate purported breaches of ~~adoption. We are evaluating the impact, if any, of adopting this new accounting guidance on our consolidated financial statements.~~

~~Derivatives and Hedging~~

~~In August 2017, the FASB issued new guidance~~fiduciary 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, aligns~~proposed transaction. Specifically, the ~~recognition and presentation~~demands seek to investigate Mr. Kotick’s role in the proposed transaction with one of the ~~effects~~demands 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 instruments~~Directors and ~~hedged items~~that our Board of Directors allowed Mr. Kotick to control the 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 that management may have attempted to validate the consideration through downward adjustments to the Company’s long-range plan.

On November 3, 2022 a lawsuit captioned, Sjunde AP-Fonden v. Activision Blizzard, Inc. et al., C.A. No. 2022-1001-CM (Del. Ch.) was filed under seal in the ~~financial statements, and includes certain targeted improvements to ease~~Court of Chancery of the ~~application~~State of ~~current guidance related to the assessment~~Delaware on behalf of a hedge’s effectiveness. The new standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. If early adopted, the new standard must generally be applied asclass of stockholders of the ~~beginning~~Company. The complaint names the Company, our directors, Microsoft and Merger Sub as defendants. The complaint alleges that the director defendants breached their fiduciary duty in connection with the initiation, timing, negotiation, approval and disclosure of the ~~fiscal year~~merger. The complaint also alleges that the merger was not approved in compliance with the requirements of ~~adoption.~~ 8 Del. C. § 251, and seeks a declaration that the Merger would be invalid if consummated. The complaint also asserts a claim against Microsoft and Merger Sub for aiding and abetting the purported breaches of fiduciary duty and conspiring with the director defendants in those breaches.

We are ~~evaluating~~unable to predict the impact of ~~this new accounting guidance~~the above pending matters on our business, financial ~~statements~~condition, results of operations, or liquidity at this time.

The Company has received voluntary requests for information from the SEC and a grand jury subpoena from the United States Department of Justice related ~~disclosures. We expect, based on our current outstanding derivative instruments,~~to their respective investigations into trading by third parties—including persons known to the ~~new guidance will not have a material impact on our financial statements.~~

Company’s CEO—in securities prior to the announcement of the proposed transaction with Microsoft. The Company is fully cooperating with these investigations.

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

Business Overview

~~The~~

Merger Agreement

On January 18, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Microsoft Corporation (“Microsoft”) and Anchorage Merger Sub Inc. (“Merger Sub”), a wholly owned subsidiary of Microsoft. Subject to the terms and conditions of the Merger Agreement, Microsoft agreed to acquire the Company ~~was originally incorporated~~for $95.00 per issued and outstanding share of our common stock, par value $0.000001 per share, in ~~California in 1979~~an all-cash transaction. Pursuant to the Merger Agreement, following consummation of the merger of Merger Sub with and ~~was reincorporated in Delaware in December 1992. We are~~into the Company (the “Merger”), the Company will be a wholly-owned subsidiary of Microsoft. As a result of the ~~2008~~Merger, we will cease to be a publicly traded company. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business ~~combination~~in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Merger. We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs or capital expenditure requirements. The consummation of the Merger remains subject to customary closing conditions, including satisfaction of certain regulatory approvals. On April 28, 2022, the Company’s stockholders adopted the Merger Agreement at a special meeting of stockholders. The Merger is currently expected to close in Microsoft’s fiscal year ending June 30, 2023.

For additional information related to the Merger Agreement, please refer to the Definitive Proxy Statement on Schedule 14A filed with the U.S. Securities and Exchange Commission (the ~~“Business Combination”~~“SEC”) on March 21, 2022, as supplemented by ~~and among~~ the ~~Company (then known~~Current Report on Form 8-K filed with the SEC on April 15, 2022, as ~~Activision, Inc.), Vivendi S.A. (“Vivendi”)~~well as Part I Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 31, 2021, and ~~Vivendi Games, Inc., an indirect wholly-owned subsidiary of Vivendi. In~~other relevant materials in connection with the ~~consummation~~proposed transaction with Microsoft that we will file with the SEC and that will contain important information about the Company and the Merger.

Employment Matters

We are subject to legal proceedings regarding our workplace and are experiencing adverse effects related to these proceedings and to concerns raised about our workplace. For information about these matters, see Note 17 of the ~~Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.~~

~~The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under~~notes 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 part~~statements included in Item 1 of ~~the continued implementation~~this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” of our ~~esports strategy, we instituted changes to~~Annual Report on Form 10-K for the year ended December 31, 2021.

In May 2022, a group of quality assurance workers at our ~~internal organization~~Raven Software studio in Wisconsin voted in favor of forming a union with the Communication Workers of America. In July 2022, a group of quality assurance workers for Blizzard in New York announced the formation of a union and ~~reporting structure such~~have filed for union representation with the U.S. National Labor Relations Board (the “NLRB”). The NLRB recently announced that the ~~Major League Gaming (“MLG”) business now operates as a division of Blizzard Entertainment, Inc. (“Blizzard”). As such, commencing with the second quarter of 2017, MLG,~~election will take place by mail-in ballot, which ~~was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League~~TM~~, along with other esports events, and~~ will ~~also continue to serve as a multi-platform network for Activision Blizzard esports content.~~

be counted on November 18, 2022.

Our Segments

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

~~(i) Activision Publishing, Inc.~~

~~Activision Publishing, Inc. (“Activision”),~~each of which is a leading global developer and publisher of interactive ~~software products and~~ entertainment content ~~particularly in console gaming.~~and services based primarily on our internally-developed intellectual properties.

(i) Activision ~~primarily~~Publishing, Inc.

Activision Publishing, Inc. (“Activision”) delivers content through ~~retail~~both premium and ~~digital channels, including~~free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as ~~licenses of~~by licensing 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:~~offerings include titles and content for Call of Duty®, a first-person ~~shooter for~~action franchise. Activision also includes the ~~console and PC platforms; Destiny, an online universe~~activities of ~~first-person action gameplay (which we call a “shared-world shooter”) for console and PC platforms; and Skylanders~~®the Call of Duty League™, 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.

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(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~~Entertainment, Inc. (“Blizzard”) delivers content through ~~retail~~both premium and ~~digital channels, including subscriptions,~~free-to-play offerings and primarily generates revenue from full-game and in-game sales, ~~as well as licenses of~~subscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming ~~service~~platform, Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision 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.~~

content. Blizzard’s key product ~~franchises include:~~offerings include titles and content for: the Warcraft® franchise, 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 for~~game based in the PCWarcraftuniverse; Diablo® in the action role-playing genre; and ~~mobile platforms; Heroes~~Overwatch® in the team-based first-person action genre. Blizzard also includes the activities of the ~~Storm~~®Overwatch League™, a ~~free-to-play team brawler for the PC; and Overwatch~~®~~, a team-based first-person shooter for the PC and console platforms.~~

global professional esports league with city-based teams.

(iii) King Digital Entertainment

King ~~is a leading global developer~~Digital Entertainment (“King”) delivers content through free-to-play offerings and ~~publisher of interactive entertainment content~~primarily generates revenue from in-game sales and ~~services, particularly~~in-game advertising on mobile platforms, such as Google’s Android and Apple’s iOS. King also distributes its content and services on online social platforms, such as Facebook and the king.com websites. King’s games are free-to-play, however, players can acquire in-game items, either with virtual currency the players purchase, or directly using real currency.

franchise.

Other

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

· ~~the Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content based on~~including 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.

Business Results and Highlights

Financial Results

~~During~~

For the three months ended September 30, ~~2017:~~

·2022:

•consolidated net revenues ~~increased 3%~~decreased 14% to ~~$1.62~~$1.8 billion ~~while~~and consolidated operating income decreased ~~13%~~41% to ~~$257~~$485 million, as compared to consolidated net revenues of ~~$1.57~~$2.1 billion and consolidated operating income of ~~$294~~$824 million ~~for the three months ended September 30, 2016;~~

· ~~revenues from digital online channels were $1.35 billion, or 84% of consolidated net revenues,~~in 2021; 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~~

•diluted earnings per common share decreased 4%33% to ~~$0.25,~~$0.55, as compared to ~~$0.26 for the three months ended September 30, 2016.~~

~~During~~$0.82 in 2021.

For the nine months ended September 30, ~~2017:~~

·2022:

•consolidated net revenues ~~increased 8%~~decreased 22% to ~~$4.97~~$5.2 billion and consolidated operating income ~~increased 10%~~decreased 49% to ~~$1.09~~$1.3 billion, as compared to consolidated net revenues of ~~$4.59~~$6.6 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~~$2.6 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;~~

· ~~cash flows generated from operating activities were $1.06 billion, a decrease of 19%, as compared to $1.30 billion for the nine months ended September 30, 2016;~~

· ~~consolidated net income increased 20% to $858 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~~

·in 2021;

•diluted earnings per common share ~~increased 19%~~decreased 48% to ~~$1.12,~~$1.41, as compared to ~~$0.94 for the nine months ended September 30, 2016.~~

$2.72 in 2021; and

•cash flows from operating activities were approximately $1.1 billion, a decrease of 37%, as compared to $1.8 billion in 2021.

Since certain of our games are hosted online or include significant online functionality that represents ~~an essential component of gameplay and, as~~ a ~~result, a more-than-inconsequential~~ separate ~~deliverable,~~performance obligation, we ~~initially~~ defer the ~~software-related revenues~~transaction price allocable to the online functionality from the sale of these games and recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net revenues and operating income for the three months ended September 30, ~~2017,~~2022, include a net effect of ~~$284~~$47 million and ~~$132~~$25 million, respectively, from the deferral of net revenues and related cost of revenues. Net revenues and operating income for the nine months ended September 30, ~~2017,~~2022, include a net effect of ~~$458~~$246 million and ~~$370~~$210 million, respectively, from the recognition of deferred net revenues and related cost of revenues.

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The percentages of our consolidated net revenues from revenue sources that are recognized at a “point-in-time” and from sources that are recognized “over-time and other” were as follows:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Point-in-time (1) 12 % 14 % 10 % 11 %
Over-time and other (2) 88 % 86 % 90 % 89 %

(1)Revenues recognized at a “point-in-time” are primarily comprised of the portion of revenues from software products that are recognized when the customer takes control of the product (i.e., upon delivery of the software product) and revenues from our Distribution business.

(2)Revenues recognized “over-time and other revenue” are primarily comprised of revenues associated with the online functionality of our games, in-game purchases, and subscriptions.

Summary of Title Release ~~Highlights~~

~~Games~~Dates

Below is a summary of release dates for certain of our titles, including those discussed throughout our analysis for our operating metrics, consolidated results, and operating segment results.


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
Call of Duty: Mobile						October 2019


World of Warcraft: Wrath of the Lich King Classic						September 2022
Diablo Immortal						June 2022
Diablo II: Resurrected						September 2021
World of Warcraft: Burning Crusade Classic						June 2021
World of Warcraft: Shadowlands						November 2020

Operating Metrics

The following operating metrics are key performance indicators that we use to evaluate our business. The key drivers of changes in our operating metrics are presented in the order of significance.

Net bookings and in-game net bookings

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

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Net bookings and in-game net bookings were ~~released during~~as follows (amounts in millions):


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022		2021		Increase (Decrease)		2022		2021		Increase (Decrease)
Net bookings	$	1,829	$	1,880	$	(51)	$	4,948	$	5,867	$	(919)
In-game net bookings	$	1,356	$	1,198	$	158	$	3,564	$	3,859	$	(295)

Q3 2022 vs. Q3 2021

Net bookings

The decrease in net bookings for the three months ended September 30, ~~2017, include:~~

· ~~Activision’s~~ ~~Absolution~~,2022, as compared to the ~~third downloadable content pack for~~ three months ended September 30, 2021, was primarily due to a $161 million decrease in Activision net bookings, driven by lower net bookings from Call of Duty: ~~Infinite Warfare™~~;

· ~~Activision’s~~ ~~Destiny 2~~~~, the sequel~~Vanguard as compared to ~~Destiny~~;

· ~~Activision’s~~ ~~Retribution~~ ~~on PlayStation 4, the fourth downloadable content pack for~~ Call of Duty: ~~Infinite Warfare~~Black Ops Cold War.

The decrease in net bookings was partially offset by:

•a $50 million increase in Blizzard net bookings, driven by net bookings from Diablo Immortal, partially offset by lower net bookings from Diablo II: Resurrected; and

· ~~Blizzard’s~~ ~~Knights~~

•a $40 million increase in King net bookings, driven by higher net bookings from in-game player purchases in the Candy Crush franchise.

In-game net bookings

The increase in in-game net bookings for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to:

•a $192 million increase in Blizzard in-game net bookings, driven by Diablo Immortal; and

•a $44 million increase in King in-game net bookings, driven by the Candy Crush franchise.

The increase in in-game net bookings was partially offset by a $77 million decrease in Activision in-game net bookings, driven by lower in-game net bookings from Call of Duty: Vanguard, as compared to Call of Duty: Black Ops Cold War.

YTD Q3 2022 vs. YTD Q3 2021

The decrease in net bookings for the ~~Frozen Throne™~~nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to:

•a $898 million decrease in Activision net bookings, driven by lower net bookings from (1) Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold War, and (2) Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare, partially offset by higher net bookings from prior Call of Duty franchise catalog titles; and

•a $191 million decrease in Blizzard net bookings, driven by lower net bookings from (1) World of Warcraft and (2) Diablo II: Resurrected, partially offset by net bookings from Diablo Immortal.

The decrease in net bookings was partially offset by a $162 million increase in King net bookings, driven by higher net bookings from in-game player purchases in the ~~latest expansion~~Candy Crush franchise.

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In-game net bookings

The decrease in in-game net bookings for the nine months ended September 30, 2022, as compared to ~~Hearthstone.~~

the nine months ended September 30, 2021, was primarily due to a $543 million decrease in Activision in-game net bookings, driven by lower in-game net bookings from Call of Duty: Vanguard, as compared to Call of Duty: Black Ops Cold War.

The decrease in in-game net bookings was partially offset by:

•a $133 million increase in Blizzard in-game net bookings, driven by in-game net bookings from Diablo Immortal; and

•a $116 million increase in King in-game net bookings, driven by the Candy Crush franchise.

Monthly Active ~~Users: Measuring the Size of Our User Base~~

Users

We monitor monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who ~~played~~accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who ~~plays~~accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who ~~plays~~accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who ~~plays~~accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.

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.

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

September 30,
2017

June 30, 2017

March 31,
2017

December 31,
2016

September 30,
2016

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


	September 30, 2022	June 30, 2022	March 31, 2022	December 31, 2021	September 30, 2021
Activision	97	94	100	107	119
Blizzard	31	27	22	24	26
King	240	240	250	240	245
Total	368	361	372	371	390

Average MAUs ~~decreased by 23 million, or 6%,~~ for the three months ended September 30, ~~2017, as compared~~2022 are comparable to the three months ended June 30, ~~2017. The decrease in King’s average MAUs is~~2022, with the slight increase primarily due to decreases across franchises reflecting the maturity of King’s titles, as well as a decrease in Bubble Witch 3 Saga MAUs during the current quarter given the launch of the title earlier in 2017. The decrease in Blizzard’s average MAUs is due primarily to lowerhigher MAUs for ~~the Heroes of the Storm franchise, in part due to content and feature releases during the prior quarter without comparable releases in the current quarter.~~

Blizzard, driven by Diablo Immortal.

Average MAUs decreased by 9822 million or ~~20%,~~6% for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016.~~2021. The decrease ~~in King’s~~was primarily due to lower average MAUs ~~is due to decreases across King’s franchises that are largely attributable to~~for Activision, driven by the ~~maturity~~Call of ~~King’s titles and less engaged users leaving the network.~~

Duty franchise, partly offset by higher MAUs for Blizzard, driven by Diablo Immortal.

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Management’s Overview of Business Trends

~~Interactive Entertainment~~

Increased Competition for Talent

We believe that our continued success and ~~Mobile Gaming Growth~~

~~Our business participates~~growth 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 phones~~talent and ~~associated free-to-play games~~expect 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 outside~~experienced 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 purchases~~retention of our ~~game~~existing talent and attraction of new talent. If competition, voluntary turnover, and recruiting difficulty persist, 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 have~~in 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,business but we ~~view them as potentially significant sources~~have seen some recent positive trends in retention and attraction of ~~future revenues.~~

~~As part of our efforts to take advantage of~~talent.

Upcoming Content Releases

Upcoming and recently released titles in the ~~esports opportunity, and as announced during the third~~fourth quarter of ~~2017, we completed~~2022 are:

•Overwatch® 2, a free-to-play live experience within the ~~sale~~world of ~~12 teams for~~Overwatch, which launched on October 4, 2022;

•Call of Duty: Modern Warfare II, the ~~Overwatch League. The Overwatch League is~~sequel to Call of Duty: Modern Warfare, which launched on October 28, 2022, with Call of Duty: WarzoneTM 2.0 expected to launch on November 16, 2022; and

•World of Warcraft: Dragonflight, the ~~first major global professional esports league with city-based teams. The first preseason game~~next expansion to World of Warcraft, which is expected to ~~occur in December 2017, with the inaugural season starting in January 2018.~~

~~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~~launch on November 28, 2022.

We also expect to ~~The NPD Group, the top 10 titles accounted~~continue to deliver ongoing content for ~~32% of the retail sales in the U.S. interactive entertainment industry in 2016. Similarly, a significant portion~~various of our ~~revenues have historically been derived from video games based on a few popular franchises~~games. Additionally, as publicly announced, we expect 2023 to include the releases of Diablo IV and ~~these video games were responsible for a disproportionately high percentage of our profits. For example, the~~ Call of ~~Duty, Candy Crush, World~~Duty: Warzone MobileTM. We will also continue to invest in opportunities that we believe have the potential to drive our growth over the long-term, including continuing to build on our advertising initiatives and investments in mobile titles.

China License Agreements

Currently, we have licensing agreements with a third party covering the publication of ~~Warcraft, and Overwatch franchises, collectively, accounted for 69%~~several Blizzard titles in China. These agreements, which contributed approximately 3% of ~~our~~Activision Blizzard’s consolidated net revenues in 2021, expire in January 2023. We are in discussions regarding the renewal of these agreements, but a mutually-satisfactory deal may not be reached. The co-development and publishing of Diablo Immortal is covered by a ~~significantly higher percentage~~separate long-term agreement between the two parties.

Table of ~~our operating income, for 2016.~~

Contents

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 to investing in and developing sequels and content for our top titles, we are continually exploring additional ways to expand those franchises. Further, we invest in new properties in an effort to develop future top franchises. In 2014, we released ~~Hearthstone~~ ~~and~~ ~~Destiny~~~~, in 2015, we released~~ ~~Heroes of the Storm~~~~, and in 2016, we released~~ ~~Overwatch~~. There is no guarantee investments like these will result in established franchises. Additionally, to diversify our portfolio of key franchises and increase our presence in the mobile market, on February 23, 2016, we acquired King.

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.

Consolidated Statements of Operations Data

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

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

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 September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Net revenues
Product sales $ 231 13 % $ 423 20 % $ 921 18 % $ 1,666 25 %
In-game, subscription, and other revenues 1,551 87 1,647 80 4,273 82 4,974 75
Total net revenues 1,782 100 2,070 100 5,194 100 6,640 100
Costs and expenses
Cost of revenues—product sales:
Product costs 107 46 120 28 279 30 375 23
Software royalties and amortization 9 4 72 17 153 17 272 16
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs 343 22 307 19 948 22 925 19
Software royalties and amortization 43 3 28 2 86 2 87 2
Product development 277 16 329 16 935 18 1,016 15
Sales and marketing 287 16 244 12 801 15 727 11
General and administrative 229 13 143 7 693 13 614 9
Restructuring and related costs 2 — 3 — (3) — 46 1
Total costs and expenses 1,297 73 1,246 60 3,892 75 4,062 61
Operating income 485 27 824 40 1,302 25 2,578 39
Interest and other (income) expense, net (15) (1) 65 3 16 — 52 1
Income before income tax expense 500 28 759 37 1,286 25 2,526 38
Income tax expense 65 4 120 6 176 3 391 6
Net income $ 435 24 % $ 639 31 % $ 1,110 21 % $ 2,135 32 %

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Consolidated Net Revenues

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

The following table summarizes our consolidated net revenues and in-game net revenues (amounts in millions):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2022		2021		Increase (Decrease)		% Change		2022		2021		Increase (Decrease)		% Change
Consolidated net revenues	$	1,782	$	2,070	$	(288)	(14)	%	$	5,194	$	6,640	$	(1,446)	(22)	%

In-game net revenues (1)	$	1,275	$	1,316	$	(41)	(3)	%	$	3,499	$	4,058	$	(559)	(14)	%

(1) In-game net revenues primarily includes the ~~increase (decrease) in deferred~~ net amount of revenues recognized for microtransactions and downloadable content during the ~~three and nine months ended September 30, 2017 and 2016 (amounts in millions):~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

Increase
(decrease)

% Change

2017

2016

Increase
(decrease)

% 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

~~Consolidated Net Revenues~~

period.

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

Consolidated net revenues

The ~~increase~~decrease in consolidated net revenues for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily driven by a decrease in revenues of $429 million due ~~to:~~

·to lower revenues ~~recognized from the continued strength~~from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops ~~III~~~~, driven~~Cold War;

•World of Warcraft; and

•Diablo II: Resurrected.

This decrease was partially offset by ~~the downloadable content pack,~~ ~~Zombies Chronicles~~~~, which was released~~an increase in ~~May 2017, and continued strength~~revenues of ~~microtransactions;~~

·$189 million due to higher revenues ~~from~~ from:

•Diablo Immortal; and

•the Candy Crush ~~franchise,~~franchise.

The remaining net decrease in revenues of $48 million was driven by various other franchises and titles.

In-game net revenues

The decrease in in-game ~~events and features, such as~~net revenues for the ~~live events across the franchise that coincided with the broadcasting of the game show; and~~

· ~~revenues from~~ ~~Crash Bandicoot~~TM ~~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: Legion~~TM ~~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,~~three months ended September 30, 2022, as compared to the ~~performance~~three months ended September 30, 2021, was primarily driven by a decrease in in-game net revenues of $227 million due to lower in-game net revenues from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops ~~III~~, Cold War; and

•World of Warcraft.

This decrease was partially offset by an increase in in-game net revenues of $184 million due to higher in-game net revenues from:

•Diablo Immortal; and

•the ~~comparable 2015 title.~~

Candy Crush franchise.

The remaining net increase in in-game net revenues of $2 million was driven by various other franchises and titles.

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YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

Consolidated net revenues

The ~~increase~~decrease in consolidated net revenues for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily ~~due to:~~

· ~~higher~~driven by a decrease in 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,of $1.6 billion due to ~~in-game events and features;~~

·lower revenues ~~recognized from the continued strength~~from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops ~~III~~~~, driven by the downloadable content pack,~~ ~~Zombies Chronicles~~~~, and continued strength~~Cold War;

•World of ~~microtransactions;~~

· ~~higher revenues recognized from~~ ~~Overwatch~~Warcraft; 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~~

~~The decrease in net deferred revenues recognized for the three months ended September 30, 2017,~~Cold War as compared to ~~the three months ended September 30, 2016, was primarily due to the deferral~~Call of ~~revenues associated with the Destiny franchise, due to the release of~~ ~~Destiny 2~~ ~~in September 2017, the revenues from which are largely deferred and will be recognized in future periods over an estimated service period~~. ~~The~~Duty: Modern Warfare.

This decrease was partially offset by ~~net deferred~~an increase in revenues ~~recognized from~~ ~~World~~ of ~~Warcraft~~~~, as compared to a net deferral of revenues in the comparable prior period~~$359 million due to higher revenues from:

•the ~~release~~Candy Crush franchise; and

•Diablo Immortal.

The remaining net decrease in revenues of ~~World of Warcraft: Legion~~ $234 million was driven by various other franchises and titles.

In-game net revenues

The decrease in ~~August 2016.~~

~~YTD Q3 2017 vs. YTD Q3 2016~~

~~The increase in~~in-game net ~~deferred~~ revenues ~~recognized~~ for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily driven by a decrease in in-game net revenues of $814 million due ~~to:~~

·to lower in-game net ~~deferred~~ revenues ~~recognized from~~ ~~Overwatch~~,from:

•Call of Duty: Vanguard 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 Call of Duty franchise, primarily due to the performance of~~ ~~Call of Duty: Infinite Warfare~~~~, as compared to~~ Call of Duty: Black Ops ~~III.~~

Cold War;

•World of Warcraft; and

•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.

This decrease was partially offset by an increase in in-game net revenues of $303 million due to higher in-game net revenues from:

•the Candy Crush franchise; and

•Diablo Immortal.

The remaining net decrease in in-game net revenues of $48 million was driven by various other franchises and titles.

Foreign Exchange Impact

Changes in foreign exchange rates had a ~~positive impact of $28 million and a~~ negative impact of ~~$34~~approximately $93 million and $195 million on ~~Activision Blizzard’s~~our consolidated net revenues for the three and nine months ended September 30, ~~2017,~~2022, respectively, as compared to the ~~impact on net revenues for~~same periods in 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 ~~Euro~~euro and the British pound.

Operating Segment Results

~~Currently, we~~

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financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

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

Information on the reportable ~~segments~~segment net revenues and ~~reconciliations~~segment operating income is presented below (amounts in millions):



	For the Three Months Ended September 30, 2022								Increase / (decrease)
	Activision		Blizzard		King		Total		Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	480	$	534	$	692	$	1,706	$	(161)	$	56	$	40	$	(65)
Intersegment net revenues (1)	—		9		—		9		—		(6)		—		(6)
Segment net revenues	$	480	$	543	$	692	$	1,715	$	(161)	$	50	$	40	$	(71)

Segment operating income	$	153	$	166	$	297	$	616	$	(91)	$	(22)	$	(6)	$	(119)

	For the Three Months Ended September 30, 2021
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	641	$	478	$	652	$	1,771
Intersegment net revenues (1)	—		15		—		15
Segment net revenues	$	641	$	493	$	652	$	1,786

Segment operating income	$	244	$	188	$	303	$	735


	For the Nine Months Ended September 30, 2022								Increase / (decrease)
	Activision		Blizzard		King		Total		Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	1,423	$	1,189	$	2,058	$	4,670	$	(898)	$	(158)	$	162	$	(894)
Intersegment net revenues (1)	—		29		—		29		—		(33)		—		(33)
Segment net revenues	$	1,423	$	1,218	$	2,058	$	4,699	$	(898)	$	(191)	$	162	$	(927)

Segment operating income	$	304	$	314	$	811	$	1,429	$	(745)	$	(223)	$	56	$	(912)

	For the Nine Months Ended September 30, 2021
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	2,321	$	1,347	$	1,896	$	5,564
Intersegment net revenues (1)	—		62		—		62
Segment net revenues	$	2,321	$	1,409	$	1,896	$	5,626

Segment operating income	$	1,049	$	537	$	755	$	2,341

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

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Reconciliation to consolidated net revenues:
Segment net revenues	$	1,715	$	1,786	$	4,699	$	5,626
Revenues from non-reportable segments (1)	123		109		278		303
Net effect from recognition (deferral) of deferred net revenues (2)	(47)		190		246		773
Elimination of intersegment revenues (3)	(9)		(15)		(29)		(62)
Consolidated net revenues	$	1,782	$	2,070	$	5,194	$	6,640

Reconciliation to consolidated income before income tax expense:
Segment operating income	$	616	$	735	$	1,429	$	2,341
Operating income (loss) from non-reportable segments (1)	14		4		28		(12)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)	(25)		154		210		562
Share-based compensation expense (4)	(102)		(64)		(301)		(259)
Amortization of intangible assets	(6)		(2)		(9)		(8)
Merger and acquisition-related fees and other expenses (5)	(10)		—		(58)		—
Restructuring and related costs	(2)		(3)		3		(46)


Consolidated operating income	485		824		1,302		2,578
Interest and other (income) expense, net	(15)		65		16		52

Consolidated income before income tax expense	$	500	$	759	$	1,286	$	2,526

(1)Includes other income and expenses outside of our reportable segments, including our Distribution business and 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 $25 million and $54 million for the three and nine months ended September 30, ~~2017 and 2016, are presented in the table below (amounts in millions):~~

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017

2016

Increase
(Decrease)

2017

2016

Increase
(Decrease)

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

2022, respectively, related to liability awards accounted for under ASC 718.

~~(2)~~

(5)Reflects fees and other expenses ~~such as legal, banking, and professional services fees,~~ related to our proposed transaction with Microsoft, which primarily consist of legal and advisory fees.

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Segment Results

Q3 2022 vs. Q3 2021

Activision

The 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 September 30, 2022, as compared to the three months ended September 30, 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 liquidation~~lower revenues from:

•Call of ~~certain~~Duty: Vanguard as compared to Call of ~~our foreign entities.~~

~~Segment Net Revenues~~

~~Activision~~

~~Q3 2017 vs. Q3 2016~~

Duty: Black Ops Cold War;

•Call of Duty: Mobile; and

•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.

This decrease in segment net revenues and operating income was partially offset by an increase in revenues from:

•prior Call of Duty franchise catalog titles; and

•in-game content delivered to customers upon pre-purchase of Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard.

The decrease in segment operating income was further offset by lower product development costs, primarily driven by (1) higher capitalization of development costs and (2) lower bonuses as a result of lower business performance, in addition to lower cost of sales for Call of Duty: Mobile as a result of lower revenues. These were partially offset by increased costs due to expanded development teams.

Blizzard

The increase in ~~Activision’s~~Blizzard’s segment net revenues for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily due ~~to:~~

· ~~higher~~to revenues from ~~the Destiny franchise, driven by the release of~~ ~~Destiny 2~~ ~~in September 2017~~;

· ~~revenues from the continued strength of~~ ~~Call of Duty: Black Ops III~~Diablo Immortal, ~~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 increase was~~ partially offset by lower revenues from ~~Call of Duty: Infinite Warfare~~~~, which was released~~Diablo II: Resurrected.

Despite the increase in ~~November 2016,~~segment net revenues, Blizzard’s segment operating income decreased for the three months ended September 30, 2022, as compared to ~~Call~~the three months ended September 30, 2021, primarily due to higher cost of ~~Duty: Black Ops III~~,sales and marketing costs for Diablo Immortal, partially offset by lower software amortization and royalties on Diablo II: Resurrected.

King

The increase in King’s segment net revenues for the ~~comparable 2015 title.~~

three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to higher revenues from in-game player purchases in the Candy Crush franchise.

Despite the increase in segment net revenues, King’s segment operating income decreased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to lower insurance claim proceeds, as the prior year included receipt of insurance proceeds relating to a network outage which occurred in 2018 from changes made by a third-party partner which inadvertently impacted some users’ ability to play and spend money in King games.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

Activision

The ~~increase~~decrease in Activision’s segment net revenues and operating income for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due to lower revenues from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold War; and

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•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.

This decrease in segment net revenues and operating income was partially offset by an increase in revenues from prior Call of Duty franchise catalog titles.

The decrease in segment operating income was also partially offset by:

•lower product development costs primarily driven by (1) higher capitalization of development costs and (2) lower bonuses as a result of lower business performance, partially offset by increased costs due to expanded development teams; and

•lower cost of sales driven by the ~~same drivers and partially offsetting factors as for the three months ended September 30, 2017, as discussed above.~~

lower revenues.

Blizzard

~~Q3 2017 vs. Q3 2016~~

The decrease in Blizzard’s segment net revenues ~~for the three months ended September 30, 2017, 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 2016~~

~~The decrease in Blizzard’s net revenues~~ operating income for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due to lower revenues from:

•World of Warcraft; and

•Diablo II: Resurrected.

This decrease in segment net revenues and operating income was partially offset by:

•revenues from Diablo Immortal; however, the ~~same drivers as for the three months ended September 30, 2017, as discussed above.~~

benefit to segment operating income from these revenues was partially offset by associated cost of sales and marketing costs;

•lower product development costs, driven by higher capitalized development costs due to product development cycles, partially offset by increased costs due to expanded development teams; and

•lower software amortization and royalties on Diablo II: Resurrected.

King

~~Q3 2017 vs. Q3 2016~~

The increase in King’s segment 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 2016~~

~~The increase in King’s net revenues~~operating income for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, 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 in-game player purchases in the Candy Crush ~~franchise, due to in-game events and features.~~

~~Segment Income from Operations~~

~~Activision~~

~~Q3 2017 vs. Q3 2016~~

franchise.

The resulting increase in ~~Activision’s~~segment 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 2016~~

~~The increase in Activision’s operating income~~primarily 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.

~~Blizzard~~

~~Q3 2017 vs. Q3 2016~~

The 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 2016~~

The 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.~~

~~King~~

~~Q3 2017 vs. Q3 2016~~

The 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 Saga~~TM ~~at the end of June 2016 with no comparable launch in the current period.~~

~~YTD Q3 2017 vs. YTD Q3 2016~~

The 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.

Candy Crush franchise.

Foreign Exchange Impact

Changes in foreign exchange rates had a ~~positive~~negative impact of ~~$34~~$76 million and $1$156 million on ~~reportable~~Activision Blizzard’s segment net revenues for the three and nine months ended September 30, ~~2017,~~2022, respectively, as compared to the ~~impact on reportable segment net revenues for~~same period in 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 ~~Euro~~euro and the British pound.

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Consolidated Results

Net Revenues by Distribution Channel

The 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):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

Increase
(decrease)

2017

2016

Increase
(decrease)

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

~~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):~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

Increase
(decrease)

2017

2016

Increase
(decrease)

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022		2021		Increase/ (decrease)		2022		2021		Increase/ (decrease)
Net revenues by distribution channel:
Digital online channels (1)	$	1,606	$	1,852	$	(246)	$	4,668	$	5,883	$	(1,215)
Retail channels	25		69		(44)		177		354		(177)
Other (2)	151		149		2		349		403		(54)
Total consolidated net revenues	$	1,782	$	2,070	$	(288)	$	5,194	$	6,640	$	(1,446)

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

products, as well as licensing royalties.

(2)Net revenues from “Other” primarily include revenues from our ~~Studios~~Distribution business, the Overwatch League, and ~~Distribution businesses, as well as revenues from MLG.~~

the Call of Duty League.

Q3 2022 vs. Q3 2021

Digital Online Channel Net Revenues

~~Net Revenues~~

~~Q3 2017 vs. Q3 2016~~

~~Net~~

The decrease in net revenues from digital online channels for the three months ended September 30, ~~2017, were comparable~~2022, as compared to the three months ended September 30, ~~2016. This~~2021, was primarily due to ~~increases in~~lower revenues ~~driven by:~~

· ~~revenues recognized from the continued strength~~from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops ~~III~~~~, driven~~Cold War;

•World of Warcraft; and

•Diablo II: Resurrected.

This decrease was partially offset by ~~the downloadable content pack,~~ ~~Zombies Chronicles~~~~, which was released in May 2017, and continued strength of microtransactions; and~~

· higher revenues ~~from~~ from:

•Diablo Immortal; and

•the Candy Crush ~~franchise, driven by in-game events and features.~~

franchise.

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Retail Channel Net Revenues

The ~~increase was partially offset by:~~

· ~~lower~~decrease in net revenues ~~recognized~~ from ~~Call of Duty: Infinite Warfare~~~~, which was released in November 2016,~~retail channels for the three months ended September 30, 2022, as compared to the ~~performance~~three months ended September 30, 2021, was primarily due to lower revenues from Call of Duty: Vanguard as compared to 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.~~

Cold War.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

Digital Online Channel Net Revenues

The ~~increase~~decrease in net revenues from digital online channels for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due ~~to:~~

· ~~higher~~to lower revenues ~~from King titles,~~from:

•Call of Duty: Vanguard 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 duecompared 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~~,Cold War;

•World of Warcraft; 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 Recognized~~

~~Q3 2017 vs. Q3 2016~~

~~The increase in net deferred revenues recognized from digital online channels for the three months ended September 30, 2017,~~Cold War as compared to ~~the three months ended September 30, 2016, was primarily due to net deferred revenues recognized from~~ ~~World~~ Call 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~~Duty: Modern Warfare.

This decrease was partially offset by ~~a net deferral of~~higher revenues ~~associated with new releases during~~ from:

•the ~~current period, including the release of~~ ~~Destiny 2~~ ~~in September 2017~~Candy Crush franchise;

•Diablo Immortal; and~~Knights of the Frozen Throne, the latest expansion to~~ ~~Hearthstone~~~~, in August 2017.~~

~~YTD Q3 2017 vs. YTD Q3 2016~~

The 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 revenues in the comparable~~

•prior ~~period due to the release of~~ ~~Overwatch~~ ~~in May 2016;~~

· ~~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.~~

catalog titles.

Retail Channel Net Revenues

~~Net Revenues~~

~~Q3 2017 vs. Q3 2016~~

~~The increase in net revenues 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 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 2016~~

The decrease in net revenues from retail channels for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due to lower revenues ~~recognized~~ from ~~the Call of Duty franchise, primarily due to the performance of~~ Call of Duty: ~~Infinite Warfare~~,Vanguard as compared to ~~the performance of~~ Call of Duty: Black Ops ~~III~~Cold War. ~~The decrease was partially offset by revenues from~~ ~~Crash Bandicoot N. Sane Trilogy~~.

~~Change in Deferred Revenues Recognized~~

~~Q3 2017 vs. Q3 2016~~

~~The 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 2016~~

The 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 Region~~

~~The 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):~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

Increase
(decrease)

2017

2016

Increase
(decrease)

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

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

~~Americas~~

~~Q3 2017 vs. Q3 2016~~

Net 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 2016~~

~~The 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~~.

~~EMEA~~

~~Q3 2017 vs. Q3 2016~~

~~The 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;~~

· ~~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 2016~~

The 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 Pacific~~

~~Q3 2017 vs. Q3 2016~~

The 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 2016~~

The 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 Platform

The following tables detail our ~~consolidated~~ net revenues by platform ~~for the three and nine months ended September 30, 2017 and 2016~~ (amounts in millions):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

Increase
(Decrease)

2017

2016

Increase
(Decrease)

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022		2021		Increase/ (decrease)		2022		2021		Increase/ (decrease)
Net revenues by platform:
Console	$	336	$	523	$	(187)	$	1,195	$	2,061	$	(866)
PC	363		578		(215)		1,080		1,827		(747)
Mobile and ancillary (1)	932		820		112		2,570		2,349		221
Other (2)	151		149		2		349		403		(54)
Total consolidated net revenues	$	1,782	$	2,070	$	(288)	$	5,194	$	6,640	$	(1,446)

(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.~~

devices.

(2)Net revenues from “Other” primarily include revenues from our ~~Studios~~Distribution business, the Overwatch League, and ~~Distribution businesses, as well as revenues from MLG.~~

the Call of Duty League.

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~~Console~~

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

Console

The ~~increase~~decrease in net revenues from the console platform for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily due ~~to:~~

·to lower revenues ~~recognized~~ from ~~the continued strength~~Call of Duty: Vanguard as compared to 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~~ Cold War, partially offset by ~~lower~~an increase in net revenues ~~recognized~~ from prior Call of ~~Duty: Infinite Warfare~~~~, which was released~~Duty franchise catalog titles.

The decrease in ~~November 2016,~~net revenues from the PC platform for the three months ended September 30, 2022, as compared to the ~~performance~~three months ended September 30, 2021, was primarily due to lower revenues from:

•World of Warcraft;

•Diablo II: Resurrected;

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops ~~III~~,Cold War; and

•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.

Mobile and Ancillary

The increase in net revenues from mobile and ancillary for the ~~comparable 2015 title.~~

three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily due to higher revenues from:

•Diablo Immortal; and

•the Candy Crush franchise.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

Console

The decrease in net revenues from the console platform for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~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; and

•Call of Duty: Black Ops ~~III~~~~, driven~~Cold War as compared to Call of Duty: Modern Warfare.

This decrease was partially offset by ~~the downloadable content pack,~~ ~~Zombies Chronicles~~~~, and continued strength of microtransactions;~~

· ~~revenues from~~ ~~Crash Bandicoot N. Sane Trilogy~~~~; and~~

· ~~higher revenues recognized from~~ ~~Overwatch~~~~, which was released in May 2016.~~

~~Q3 2017 vs. Q3 2016~~

~~The decrease~~an increase in net revenues from ~~the PC platform 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; and~~

· ~~lower revenues recognized from~~ ~~World~~prior Call of ~~Warcraft~~~~, driven by the release 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 2016~~

Duty franchise catalog titles.

The ~~increase~~decrease in net revenues from the PC platform for the nine months ended September 30, ~~2017,~~2022, 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; and~~

· ~~higher revenues recognized from~~ ~~World of Warcraft~~.

~~Mobile and Ancillary~~

~~Q3 2017 vs. Q3 2016~~

~~The increase in net revenues from mobile and ancillary for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016,~~2021, was primarily due to ~~higher~~lower revenues ~~from the Candy Crush franchise, driven by in-game events~~from:

•World of Warcraft;

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold War; and ~~features.~~

~~YTD Q3 2017 vs. YTD Q3 2016~~

•Call of Duty: Black Ops Cold War as compared to Call of Duty: Modern Warfare.

Table of Contents

Mobile and Ancillary

The increase in net revenues from mobile and ancillary for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, 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 from:

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

•Diablo Immortal.

Costs and Expenses

Cost of Revenues

The following tables detail the components of cost of revenues in dollars (amounts in millions) and as a percentage of associated net ~~revenues for the three and nine months ended September 30, 2017 and 2016 (amounts in millions):~~

Three Months
Ended
September 30,
2017

% of associated
net revenues

Three Months
Ended
September 30,
2016

% of associated
net revenues

Increase
(Decrease)

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
Ended
September 30,
2017

% of associated
net revenues

Nine Months
Ended
September 30,
2016

% of associated
net revenues

Increase
(Decrease)

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:

Three Months Ended September 30, 2022 % of
associated
net revenues Three Months Ended September 30, 2021 % of
associated
net revenues Increase
(Decrease)
Cost of revenues—product sales:
Product costs $ 107 46 % $ 120 28 % $ (13)
Software royalties and amortization 9 4 72 17 (63)
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs 343 22 307 19 36
Software royalties and amortization 43 3 28 2 15
Total cost of revenues $ 502 28 % $ 527 25 % $ (25)

Nine Months Ended September 30, 2022 % of
associated
net revenues Nine Months Ended September 30, 2021 % of
associated
net revenues Increase
(Decrease)
Cost of revenues—product sales:
Product costs $ 279 30 % $ 375 23 % $ (96)
Software royalties and amortization 153 17 272 16 (119)
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs 948 22 925 19 23
Software royalties and amortization 86 2 87 2 (1)
Total cost of revenues $ 1,466 28 % $ 1,659 25 % $ (193)

Table of Contents

Cost of Revenues—Product ~~Sales:~~

Sales:

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

The ~~increase~~decrease in product costs for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was ~~primarily~~driven by a $11 million decrease in product costs from Activision due to ~~the increase~~lower 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~~amortization related to product sales for the three months ended September 30, ~~2017, was comparable~~2022, as compared to the three months ended September 30, ~~2016.~~

2021, was primarily due to a $60 million decrease in software amortization and royalties from Blizzard, driven by lower software amortization and royalties from (1) Diablo II: Resurrected given the prior year launch and (2) World of Warcraft, as the prior year included amortization associated with the release of World of Warcraft: Shadowlands with no comparable amortization in the current period.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

The decrease in product costs for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was ~~primarily due to the~~driven by:

•a $65 million decrease in product ~~sales~~costs for ~~the period. This was partially offset by higher~~our Distribution business due to lower revenues; and

•a $51 million decrease in product costs ~~resulting~~ from ~~the increased revenues~~Activision, driven by lower product costs for Call of ~~our relatively lower-margin Distribution business.~~

Duty: Vanguard as compared to Call of Duty: Black Ops Cold War due to lower revenues.

The decrease in software royalties ~~amortization,~~ and ~~intellectual property licenses~~amortization related to product sales for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due to:

•a $105 million decrease in software amortization and royalties from Blizzard, driven by lower ~~developer~~software amortization and royalties ~~and software~~from (1) World of Warcraft, as the prior year included higher amortization associated with the ~~Destiny franchise, due to the timing~~release of ~~releases;~~

·World of Warcraft: Shadowlands, and (2) Diablo II: Resurrected; and

•a $15 million decrease in software amortization and royalties from Activision, driven by lower software amortization ~~associated with~~ ~~Guitar Hero~~® ~~Live~~~~, which was released in October 2015, with no comparable release in 2016;~~ and

· ~~lower software amortization associated with~~ ~~Overwatch~~~~, which was released in May 2016.~~

~~The decrease was partially offset by higher software amortization~~ royalties from ~~World~~Call of ~~Warcraft: Legion~~~~, which was released in August 2016.~~

Duty: Vanguard as compared to Call of Duty: Black Ops Cold War.

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

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

The increase in game operations and distribution costs for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily due to ~~higher platform~~a $37 million increase in service provider fees, ~~associated with the~~primarily digital storefront fees (e.g., fees retained by Apple and Google for our sales on their platforms), as a result of higher revenues.

The increase ~~in revenues from King.~~

~~The decrease~~ in software royalties ~~amortization,~~ and ~~intellectual property licenses~~amortization related to in-game, subscription, ~~licensing,~~ and other revenues for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily due to ~~lower~~a $17 million increase in software royalties and amortization ~~of internally-developed franchise intangible assets acquired in the King Acquisition.~~

from Blizzard, driven by Diablo Immortal.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

The increase in game operations and distribution costs for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due to ~~higher online costs and platform~~a $48 million increase in service provider fees, ~~associated with revenues from King,~~primarily digital storefront fees (e.g., fees retained by Apple and Google for our sales on their platforms), 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~~result of higher revenues.

Software royalties and ~~associated costs for the partial period following the King Closing Date.~~

~~The increase in software royalties,~~ amortization ~~and intellectual property licenses~~ related to in-game, subscription, ~~licensing,~~ and other revenues for the nine months ended September 30, ~~2017, as compared~~2022 were comparable to the nine months ended September 30, ~~2016, was primarily due to a full year-to-date period amortization~~2021.

Table 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.

Contents

Product Development (amounts in millions)

September 30,
2017

% of
consolidated
net revenues

September 30,
2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

  $
273

17%

  $
249

16%

  $
24

Nine Months Ended

  $
750

15%

  $
673

15%

  $
77


	September 30, 2022		% of consolidated net revenues		September 30, 2021		% of consolidated net revenues		Increase (Decrease)
Three Months Ended	$	277	16	%	$	329	16	%	$	(52)
Nine Months Ended	$	935	18	%	$	1,016	15	%	$	(81)

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

The ~~increase~~decrease in product development costs for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was driven by a $155 million increase in capitalization of development costs resulting from the timing of our game development cycles and higher development spending of $103 million. The higher development spending was primarily due to expanded development teams and 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~~share-based compensation, partially offset by lower ~~accrued~~ bonuses ~~for Blizzard.~~

as a result of lower business performance.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

The ~~increase~~decrease in product development costs for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was ~~primarily due to:~~

· ~~higher Blizzard product~~driven by a $344 million increase in capitalization of development costs, ~~resulting from lower capitalization~~partially offset by higher development spending of ~~software development costs~~$263 million, in both cases due to the ~~timing of game development cycles; and~~

· ~~increased costs related to King,~~same factors as ~~the current period includes a full year-to-date period of costs, while the comparable prior period only included King’s costs~~discussed for the ~~partial~~quarter-to-date period ~~following the King Closing Date.~~

~~The increase was partially offset by lower accrued bonuses for Activision and Blizzard.~~

above.

Sales and Marketing (amounts in millions)

September 30,
2017

% of
consolidated
net revenues

September 30,
2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

  $
345

21%

  $
340

22%

  $
5

Nine Months Ended

  $
899

18%

  $
830

18%

  $
69


	September 30, 2022		% of consolidated net revenues		September 30, 2021		% of consolidated net revenues		Increase (Decrease)
Three Months Ended	$	287	16	%	$	244	12	%	$	43
Nine Months Ended	$	801	15	%	$	727	11	%	$	74

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

~~Sales~~2021

The increase in sales and marketing expenses for the three months ended September 30, ~~2017, were comparable~~2022, as compared to the three months ended September 30, ~~2016, as the higher sales and marketing costs for the Destiny franchise associated with the release of~~ ~~Destiny 2~~ ~~in September 2017 were offset by lower sales and marketing costs for:~~

·~~World of Warcraft~~~~, driven by~~ ~~World of Warcraft: Legion~~~~, which~~2021, was ~~released in August 2016, with no comparable release in 2017;~~

· ~~King,~~primarily 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.~~

marketing spending for Diablo Immortal.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

The increase in sales and marketing expenses for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due ~~to:~~

· ~~increased amortization of the customer base intangible assets acquired in the King Acquisition and increased sales and~~to 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 costs~~spending for the ~~partial period following the King Closing Date;~~Candy Crush franchise 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.~~

Diablo Immortal.

General and Administrative (amounts in millions)

September 30,
2017

% of
consolidated
net revenues

September 30,
2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
191

12%

$
156

10%

$
35

Nine Months Ended

$
539

11%

$
486

11%

$
53


	September 30, 2022		% of consolidated net revenues		September 30, 2021		% of consolidated net revenues		Increase (Decrease)
Three Months Ended	$	229	13	%	$	143	7	%	$	86
Nine Months Ended	$	693	13	%	$	614	9	%	$	79

Table of Contents

Q3 ~~2017~~2022 vs. Q3 ~~2016~~

2021

The increase in general and administrative expenses for the three months ended September 30, ~~2017,~~2022, as compared to the three months ended September 30, ~~2016,~~2021, was primarily due to ~~increased~~lower insurance claim proceeds of $28 million, as the prior year included receipt of insurance proceeds relating to a network outage which occurred in 2018 from changes made by a third-party partner which inadvertently impacted some users’ ability to play and spend money in King games, and a $25 million increase in personnel costs ~~including stock-based~~as a result of higher share-based compensation ~~expense, to support the growth of our business and expanding areas of opportunity.~~

expense.

YTD Q3 ~~2017~~2022 vs. YTD Q3 ~~2016~~

2021

The increase in general and administrative expenses for the nine months ended September 30, ~~2017,~~2022, as compared to the nine months ended September 30, ~~2016,~~2021, was primarily due ~~to:~~

· ~~increased~~to a $128 million increase in legal and other professional fees, primarily driven by our proposed transaction with Microsoft and employment-related matters, partially offset by a $51 million decrease in personnel costs ~~to support the growth~~as a result of lower share-based compensation expense.

Restructuring and Related Costs (amounts in millions)


	September 30, 2022		% of consolidated net revenues		September 30, 2021		% of consolidated net revenues		Increase (Decrease)
Three Months Ended	$	2	—	%	$	3	—	%	$	(1)
Nine Months Ended	$	(3)	—	%	$	46	1	%	$	(49)

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~~business. We substantially completed all actions under our plan and ~~expanding areas~~accrued for these costs accordingly in 2021. The remaining activity under the plan is primarily related to cash outlays to be made over time to impacted personnel.

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


	September 30, 2022		% of consolidated net revenues		September 30, 2021		% of consolidated net revenues		Increase (Decrease)
Three Months Ended	$	(15)	(1)	%	$	65	3	%	$	(80)
Nine Months Ended	$	16	—	%	$	52	1	%	$	(36)

Q3 2022 vs. Q3 2021

The change in interest and other (income) expense, net to an income balance for the three months ended September 30, 2022, as compared to an expense balance for the three months ended September 30, 2021, was primarily due to:

•a $49 million increase in interest income due to higher market interest rate yields compared to the prior year; and

•lower realized and unrealized losses on our equity investments, with unrealized losses of ~~opportunity; and~~

· ~~the inclusion~~$10 million in the current ~~period of a non-cash accounting charge~~year as compared to ~~reclassify certain losses included~~$36 million in ~~our cumulative translation adjustments into earnings due to~~ the ~~substantial liquidation of certain of our foreign entities.~~

prior year.

YTD Q3 2022 vs. YTD Q3 2021

The ~~increase was partially offset by lower transaction costs, as~~decrease in interest and other (income) expense, net, for the nine months ended September 30, ~~2016, included~~2022, as compared to the ~~King Acquisition.~~

~~Interest~~nine months ended September 30, 2021, was primarily due to:

•a $65 million increase in interest income due to higher market interest rate yields compared to the prior year; and ~~Other~~

•lower realized and unrealized gains on our equity investments, with unrealized losses of $6 million in the current year as compared to $35 million in realized and unrealized gains in the prior year.

Table of Contents

Income Tax Expense ~~(Income), Net~~ (amounts in millions)

September 30,
2017

% of
consolidated
net revenues

September 30,
2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
37

2%

$
63

4%

$
(26
)
Nine Months Ended

$
121

3%

$
181

3%

$
(60
)


	September 30, 2022		% of Pretax income		September 30, 2021		% of Pretax income		Increase (Decrease)
Three Months Ended	$	65	13	%	$	120	16	%	$	(55)
Nine Months Ended	$	176	14	%	$	391	15	%	$	(215)

The income tax expense of $65 million for the three months ended September 30, 2022 reflects an effective tax rate of 13%, which is comparable to the effective tax rate of 16% for the three months ended September 30, 2021. Our tax rate in the current quarter is lower than in the prior year due to changes in the mix of our pre-tax income between countries, partially offset by discrete tax benefits recognized in 2021, related to a favorable tax return to accrual adjustment and excess tax benefits from share-based payments.

The income tax expense of $176 million for the nine months ended September 30, 2022 reflects an effective tax rate of 14%, which is comparable to the effective tax rate of 15% for the nine months ended September 30, 2021. The decrease is primarily due to changes in ~~interest~~the mix of our pre-tax income among countries, partially offset by a discrete tax benefit recognized in 2021 related to deferred tax remeasurement.

The effective tax rate of 13% and ~~other expense (income), net,~~14% for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, was primarily due to our lower total outstanding debt and lower interest rates on our current debt instruments as a result of our refinancing activities in 2016 and 2017. See further discussion below under “Liquidity and Capital Resources.”

~~Income Tax Expense (amounts in millions)~~

September 30,
2017

% of pretax
income

September 30,
2016

% of pretax
income

Increase
(Decrease)

Three Months Ended

$
32

15%

$
32

14%

$
—

Nine Months Ended

$
109

11%

$
93

12%

$
16

The income tax expense of $32 million for the three months ended September 30, 2017, 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% for the nine months ended September 30, 2016. The decrease is due to higher 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.

~~The effective tax rate of 15% and 11% for the three and nine months ended September 30, 2017,~~2022, respectively, 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 California~~U.S. research and development ~~credits, partially offset by an increase of reserves for uncertain tax positions.~~

~~Our~~credits.

The overall effective ~~tax rate differs from the statutory U.S.~~ income tax rate ~~due to the effect~~in future periods will depend on a variety of ~~state~~factors, 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 recurring~~other 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 quarter of the change.

~~Further~~loss.

Other information about our income taxes is provided in Note 1014 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 Resources

We 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. We believe these operating cash flows, in combination with our existing balance of cash and cash equivalents and short-term investments of $10.9 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-term~~short-term investments, and cash flows provided by operating activities. ~~With our~~Our material cash requirements include operating expenses, potential dividend payments and ~~cash equivalents~~share repurchases, scheduled debt maturities (the next of which is in 2026), capital expenditures and short-term investments of $3.7 billion at September 30, 2017, and the expected cash flows provided by our operating activities, we believe that we have sufficient liquidity to meet daily operations for the foreseeable future. We also believe that we have sufficient working capital ($3.0 billion at September 30, 2017) to finance our operational and financing requirements for at least the next 12 months. Additionally, we have the availability of a $250 million revolving credit facility.

other commitments, as discussed below.

As of September 30, ~~2017,~~2022, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was ~~$2.3~~$4.5 billion, as compared to ~~$1.9~~$3.9 billion as of December 31, ~~2016. If the~~2021. These cash ~~and cash equivalents held outside of the U.S.~~balances are ~~needed in the future~~generally available for ~~our operations~~use in the U.S., ~~we would accrue and pay the required U.S. taxes~~subject 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, our~~certain restrictions.

Our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by ~~weekly~~ sales, which are generally highest in the fourth quarter due to ~~seasonal~~title release timing 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.

Table of Contents

Sources of Liquidity (amounts in millions)

September 30, 2017

December 31, 2016

Increase
(Decrease)

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
(Decrease)

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
)

September 30, 2022 December 31, 2021 Increase
(Decrease)
Cash and cash equivalents $ 7,743 $ 10,423 $ (2,680)
Short-term investments 3,189 195 2,994
$ 10,932 $ 10,618 $ 314
Percentage of total assets 43 % 42 %

For the Nine Months Ended September 30,
2022 2021 Increase
(Decrease)
Net cash provided by operating activities $ 1,097 $ 1,753 $ (656)
Net cash used in investing activities (3,193) (101) (3,092)
Net cash used in financing activities (473) (533) 60
Effect of foreign exchange rate changes (100) (35) (65)
Net (decrease) increase in cash and cash equivalents and restricted cash $ (2,669) $ 1,084 $ (3,753)

Net Cash Provided by Operating Activities

The primary ~~drivers~~driver of net cash flows associated with our operating activities ~~include~~is the ~~collection of customer receivables~~income generated from the sale of our products and services. ~~These collections are typically~~This is partially offset by: ~~payments to vendors for~~working capital requirements used in the ~~manufacturing, distribution,~~development, sale, and ~~marketing~~support 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 nine months ended September 30, ~~2017,~~2022, was $1.1 billion, as compared to ~~$1.3~~$1.8 billion for the nine months ended September 30, ~~2016.~~2021. The decrease was primarily due to ~~the timing of the launches of our games,~~lower net income from lower business performance 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 was~~well as higher capitalized software development spending. These were 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, including the settling in equity of amounts otherwise payable in cash for 2021 under the Company’s annual incentive compensation plans and lower tax payments due to ~~the timing of collections and payments.~~

lower profitability.

Net Cash Used in Investing Activities

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

Net cash used in investing activities for the nine months ended September 30, ~~2017,~~2022, was ~~$156 million,~~$3.2 billion, as compared to $1.2 billion for the nine months ended September 30, 2016. The decrease in the cash used was primarily due to cash used for the King Acquisition in the nine months ended September 30, 2016, with no comparable transaction in the current period. The decrease was partially offset by purchases of available-for-sale investments of $80$101 million for the nine months ended September 30, ~~2017,~~2021. The increase was primarily due to purchases of $2.9 billion of held-to-maturity investments and $135 million net cash used in business acquisitions during the nine months ended September 30, 2022 with no ~~comparable transaction~~similar activity in the prior ~~period.~~

year.

Net Cash ~~(Used in) Provided by~~Used in Financing Activities

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

Net cash used in financing activities for the nine months ended September 30, ~~2017,~~2022, was ~~$640~~$473 million, as compared 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$533 million for the nine months ended September 30, ~~2016.~~

2021. The decrease was primarily due to $99 million lower tax payments relating to net share settlements on restricted stock units, partially offset by $37 million lower proceeds from the issuance of common stock to employees.

Table of Contents

Effect of Foreign Exchange Rate Changes

Changes in foreign exchange rates had a ~~positive impact of $72 million and a~~ negative impact of ~~$23~~$100 million and $35 million on our cash and cash equivalents for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~September 30, 2021, respectively. The change was primarily due to changes in the value of the U.S. dollar relative to the ~~Euro~~euro and the British pound.

Debt

~~As of~~

At both September 30, 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):

At September 30, 2017

Gross Carrying
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

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

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

At December 31, 2016

Gross Carrying
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

2016 TLA

$
2,690

$
(27)

$
2,663

2021 Notes

650

(5)

645

2023 Notes

750

(11)

739

2026 Notes

850

(10)

840

Total long-term debt

$
4,940

$
(53)

$
4,887


	At September 30, 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	(40)		(42)
Total net carrying amount	$	3,610	$	3,608

Refer to Note 78 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.

Dividends

Capital Expenditures

We made capital expenditures of $67 million during the nine months ended September 30, ~~2017. On May 26, 2017, we made related dividend equivalent payments of less than $1~~2022, as compared to $59 million ~~to certain holders of restricted stock units.~~

~~Capital Expenditures~~

~~For~~during the ~~year ending December 31, 2017,~~nine months ended September 30, 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-Balance Sheet Arrangements~~

At September 30, 2017 and December 31, 2016, 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

Table 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.

Contents

Critical Accounting Policies and Estimates

Our 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 Returns~~Recognition;

•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.~~

Costs.

During the three and nine months ended September 30, ~~2017,~~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 ~~Operations~~Operations” 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.

~~Recently Issued Accounting Pronouncements~~

~~Below are recently issued accounting pronouncements that were most significant to our accounting policy activities. For a detailed discussion~~Table 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 Pronouncements~~

~~Inventory~~

In July 2015, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new standard as of January 1, 2017, and applied it prospectively. The adoption of this guidance did not have a material impact on our financial statements.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~Revenue Recognition~~

~~We believe the adoption of the new revenue recognition standard may have a significant impact in the following areas:~~

· 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.

Contents

~~Leases~~

~~Statement of Cash Flows-Restricted Cash~~

In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be included with “Cash and cash equivalents” when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include ~~Euros,~~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~~generally cause a 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 Hedges~~

~~At 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 amount~~notes 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 to~~this 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.

foreign currency forward contracts.

In the absence of hedging activities for the nine months ended September 30, ~~2017,~~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~~$107 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 Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, ~~and variable rate~~as 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.

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 September 30, ~~2017,~~2022, our ~~$3.58 billion of~~ cash and cash equivalents ~~was~~were comprised primarily of money market funds.

~~The Company has determined that,~~

As of September 30, 2022, based on the composition of our investment portfolio, aswe anticipate investment yields will continue to increase if the U.S. Federal Reserve continues to raise short-term interest rates, which would positively impact our future interest income.

Table of ~~September 30, 2017, there was no material interest rate risk exposure to the Company’s consolidated financial condition, results of operations, or liquidity as of that date.~~

Contents

Item 4.Controls and Procedures

Definition and Limitations of Disclosure Controls and Procedures

Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the 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 Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at September 30, ~~2017,~~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,~~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 Reporting

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated any changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, ~~2017.~~2022. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at September 30, ~~2017,~~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.

Table of Contents

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

~~We are party~~

Refer to ~~routine claims, suits, investigations, audits, and other proceedings arising from~~Note 17 of the ~~ordinary course~~notes 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.~~

proceedings.

Item 1A.Risk Factors

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.~~

~~Item 6.~~~~Exhibits~~2021

~~The exhibits listed on~~ (the “2021 Form 10-K”).

In addition to the ~~accompanying Exhibit Index are hereby incorporated by reference into~~other 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.

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

~~Exhibit Number~~	~~Exhibit~~
Exhibit Number		Exhibit
~~3.1~~
3.1		Third Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated June 5, 2014 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed June 6, 2014).

3.2		~~Third~~Fifth Amended and Restated Bylaws of Activision Blizzard, Inc., adopted as of ~~February 2, 2016~~January 17, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed ~~February 8, 2016)~~January 19, 2022).

10.1* 31.1		~~Notice of Stock Option Award, dated as of August 7, 2017, to Robert A. Kotick.~~

10.2*	~~Form of Notice of Performance Share Unit Award Regarding Operating Income to Robert A. Kotick.~~

10.3*	~~Form of Notice of Performance Share Unit Award Regarding Relative Total Shareholder Return to Robert A. Kotick.~~

10.4*	~~Notice of Stock Option Award, dated as of August 7, 2017, to Dennis Durkin.~~

10.5*	~~Notice of Stock Option Award, dated as of August 7, 2017, to Spencer Neumann.~~

~~31.1~~	Certification of Robert A. Kotick pursuant to Rule 13a-14(a) under the Securities ~~and~~ Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of ~~Spencer Neumann~~Armin Zerza pursuant to Rule 13a-14(a) under the Securities ~~and~~ Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Robert A. Kotick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of ~~Spencer Neumann~~Armin Zerza pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance ~~Document.~~ Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

104		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

Table of ~~the Company participates.~~

Attached as Exhibit 101 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 statements of operations for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) condensed consolidated statements 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.

Contents

SIGNATURE

Pursuant 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, 2017~~

7, 2022

ACTIVISION BLIZZARD, INC.

~~/s/ SPENCER NEUMANN~~	~~/s/ STEPHEN WEREB~~
~~Spencer Neumann~~ /s/ ARMIN ZERZA			~~Stephen Wereb~~ /s/ JESSE YANG
Armin Zerza			Jesse Yang
Chief Financial Officer and		~~Chief Accounting Officer and~~
Principal Financial Officer of		Deputy Chief Financial Officer and Comptroller, and Principal Accounting Officer of
of Activision Blizzard, Inc.			of Activision Blizzard, Inc.

	At September 30, 2017		At December 31, 2016
Assets
Current assets:
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

Liabilities and Shareholders’ Equity
Current liabilities:
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)
Shareholders’ equity:
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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues
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

Costs and expenses
Cost of revenues—product sales:
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:
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

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

Earnings per common share
Basic	$	0.25	$	0.27	$	1.14	$	0.96
Diluted	$	0.25	$	0.26	$	1.12	$	0.94

Weighted-average number of shares outstanding
Basic	755		742		753		739
Diluted	766		756		764		753

Dividends per common share	$	—	$	—	$	0.30	$	0.26

	Common Stock			Treasury Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Total Shareholders’
	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:
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

	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		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

	At September 30, 2017
	Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets:
Internally-developed franchises	3 - 11 years	$	1,154	$	(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

2017 (remaining three months)	$	186
2018	364
2019	216
2020	72
2021	11
Thereafter	10
Total	$	859

	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

			Fair Value Measurements at September 30, 2017 Using
	As of September 30, 2017		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	$	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 Using
	As of December 31, 2016		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	$	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

	At September 30, 2017
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
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

For the year ending December 31,
2017 (remaining three months)	$	—
2018	—
2019	—
2020	—
2021	1,640
Thereafter	2,800
Total	$	4,440

	For the Nine Months Ended September 30, 2017
	Foreign currency translation adjustments		Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on available- for-sale securities		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, 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	(64)		24		67		27
Amounts reclassified from accumulated other comprehensive income (loss) into earnings	—		(5)		(33)		(38)
Balance at September 30, 2022	$	(670)	$	22	$	59	$	(589)

	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


	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	(857)	46.74
Forfeited	(162)	72.97
Expired	(46)	74.37
Outstanding stock options at September 30, 2022	8,068	$	58.54	6.38	$	150
Vested and expected to vest at September 30, 2022	7,919	$	58.06	6.35	$	150
Exercisable at September 30, 2022	5,790	$	50.89	5.77	$	140


	Number of shares	Weighted- average grant date fair value per RSU
Unvested RSUs at December 31, 2021	13,258	$	75.51
Granted	5,600	79.90
Vested	(4,511)	77.09
Forfeited	(1,359)	82.90
Unvested RSUs at September 30, 2022	12,988	$	76.23


	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 adjustments	(3)		—		(3)
Balance at March 31, 2022	$	49	$	13	$	62

Cash payments	(12)		—		(12)
Non-cash charge and other adjustments	(2)		(5)		(7)
Balance at June 30, 2022	$	35	$	8	$	43

Cash payments	(7)		—		(7)
Non-cash charge and other adjustments	(1)		(1)		(2)
Balance at September 30, 2022	$	27	$	7	$	34

(in millions)	For the Three Months Ended September 30, 2016		For the Nine Months Ended September 30, 2016
Net revenues	$	447	$	1,088
Net loss	$	(72)	$	(171)

	September 30, 2017	June 30, 2017	March 31, 2017	December 31, 2016	September 30, 2016	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

	Three Months Ended September 30, 2017		% of associated net revenues	Three Months Ended September 30, 2016		% of associated net revenues	Increase (Decrease)
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 Ended September 30, 2017		% of associated net revenues	Nine Months Ended September 30, 2016		% of associated net revenues	Increase (Decrease)
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



	Three Months Ended September 30, 2022		% of associated net revenues		Three Months Ended September 30, 2021		% of associated net revenues		Increase (Decrease)
Cost of revenues—product sales:
Product costs	$	107	46	%	$	120	28	%	$	(13)
Software royalties and amortization	9		4		72		17		(63)
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs	343		22		307		19		36
Software royalties and amortization	43		3		28		2		15
Total cost of revenues	$	502	28	%	$	527	25	%	$	(25)

	September 30, 2017		% of pretax income	September 30, 2016		% of pretax income	Increase (Decrease)
Three Months Ended	$	32	15%	$	32	14%	$	—
Nine Months Ended	$	109	11%	$	93	12%	$	16

	September 30, 2017		December 31, 2016		Increase (Decrease)
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%