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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2022March 31, 2023
 
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission File Number 1-15839
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ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)
Delaware95-4803544
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2701 Olympic Boulevard Building BSanta Monica,CA90404
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.000001 per shareATVIThe 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 ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒Non-accelerated Filer☐Accelerated Filer☐
Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒
The number of shares of the registrant’s Common Stock outstanding at October 31, 2022April 28, 2023 was 782,625,319.786,158,727.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
 
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CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, 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 and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; (4) statements regarding the proposed transaction between Activision Blizzard, Inc. (“Activision Blizzard”) and Microsoft Corporation (“Microsoft”) (suchpursuant to the Agreement and Plan of Merger, dated as of January 18, 2022, by and among Activision Blizzard, Microsoft, and Anchorage Merger Sub Inc., a wholly owned subsidiary of Microsoft (the “Merger Agreement” and 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,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimates,“estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “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.

We caution that a number of important factors, many of which are beyond our control, could cause 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: 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;approvals (which may or may not be received on a timely basis or at all); 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., a wholly owned subsidiary of Microsoft (the “Merger Agreement”);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 and recruitment 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 impactuncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the ongoing COVID-19 pandemicmajor countries in which we do business; decline in demand for our products and other macroeconomic factors (including, without limitation, the potential for significant short- and long-term global unemployment andservices if general 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 onconditions decline; fluctuations in currency exchange rates; our ability to release ourdeliver popular, high-quality content in a timely manner and with effective quality control; effectsmanner; negative impacts on our business resulting from concerns regarding our workplace, including associated legal proceedings; our ability to prevent cyber-security incidents while our workforce is dispersed; effects onattract, retain, and motivate skilled personnel; future impacts from COVID-19; the operationslevel 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);products; our ability to consistently deliver popular, high-quality titles in a timely manner, which has been made more difficult as a result of the COVID-19 pandemic; our ability to satisfy themeet customer expectations of consumers with respect to our brands, games, services, and/or business practices; competition; our reliance on a relatively small number of franchises for a significant portion of our revenues and profits; negative impacts onfrom the results of collective bargaining, legal proceedings related to unionization, or campaigns by unions directed at our business from concerns regarding our workplace;workforce; our ability to attract, retain,adapt to rapid technological change and motivate skilled personnel; competition; concentration of revenue among a small number of franchises; negative impacts from unionization or attempts to unionize byallocate our workforce; rapid changes in technology and industry standards;resources accordingly; the increasing importance of revenues derived from digital distribution channels;sales and the risks of that business model; our ability to effectively manage growth in the scope and complexity of our business; substantial influencebusiness, including risks related to our professional esports business model; our reliance on third-party platforms, which are also our competitors, for the distribution of third-party platform providers overproducts; our products and costs;dependence on the success and availability of video game consoles manufactured by third parties includingand our ability to predict the consoles that will be mostdevelop commercially successful in the marketplace and develop commercially-successful products for thosethese consoles; the increasing importance of free-to-play games and the risks associated withof that business model; the free-to-play business model, including our dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; risks and 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 for our intellectual property rights, and the impact of cultural differences on consumer preferences; risks associated withinsolvency or business failure of any of our business partners; the importance of retail sales to our business and the risks of that business model; any 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 behaviorthe risk of our distributors, retailers, development, and licensing partners or other affiliated third parties that may harmbeing unable to honor their commitments or otherwise putting our brands or business operations;brand at risk; our reliance on tools and 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 withgames; the impact of objectionable consumer- or other third-party-created content;content on our operating results or reputation; outages, disruptions, or degradations in our services, products, and/or technological infrastructure;infrastructure; cybersecurity-related attacks, significant data breaches,, fraudulent activity, and other cybersecurity risks; or disruption of our information technology systems or networks; significant disruption during our live events; risks related to the impacts of catastrophic events; climate change; provisionsprovisions in our corporate documents and Delaware state law that may make it more difficult for any person to acquire controlcould delay or prevent a change of our company; ongoingcontrol; other legal proceedings related to workplace concerns and otherwise, including the impact of the 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;proceedings; increasing regulation in key territories;territories over our business, products, and distribution; changes in government regulation relating to the Internet, including potential harm from laws impacting “net neutrality;” regulation concerningInternet; our compliance with evolving data privacy including China’s Personal Information Protection Law;laws and regulations; scrutiny regarding the appropriateness of the content in our games’ content, includinggames and our ability to receive target ratings assigned by third parties;for certain titles; changes in tax rates and/or tax laws orand exposure to additional tax liabilities; fluctuations in currency exchange rates; impacts of changes in financial accounting standards; insolvencystandards or business failurethe application of any ofexisting or future standards as 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;evolves; and the other factors included in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20212022, 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. As such, you should not rely on forward-looking statements 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 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 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 U.S. dollars unless otherwise explicitly stated to the contrary.


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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, 2022At December 31, 2021
Assets
Current assets:
Cash and cash equivalents$7,743 $10,423 
Held-to-maturity investments2,945 — 
Accounts receivable, net658 972 
Software development1,011 449 
Other current assets753 712 
Total current assets13,110 12,556 
Software development156 211 
Property and equipment, net171 169 
Deferred income taxes, net1,266 1,377 
Other assets541 497 
Intangible assets, net448 447 
Goodwill9,928 9,799 
Total assets$25,620 $25,056 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$229 $285 
Deferred revenues979 1,118 
Accrued expenses and other liabilities1,070 1,008 
Total current liabilities2,278 2,411 
Long-term debt, net3,610 3,608 
Deferred income taxes, net98 506 
Other liabilities826 932 
Total liabilities6,812 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 capital12,192 11,715 
Less: Treasury stock, at cost, 428,676,471 shares at September 30, 2022 and December 31, 2021(5,563)(5,563)
Retained earnings12,768 12,025 
Accumulated other comprehensive loss(589)(578)
Total shareholders’ equity18,808 17,599 
Total liabilities and shareholders’ equity$25,620 $25,056 

At March 31, 2023At December 31, 2022
Assets
Current assets:
Cash and cash equivalents$9,236 $7,060 
Held-to-maturity investments3,280 4,932 
Accounts receivable, net764 1,204 
Software development715 640 
Other current assets524 633 
Total current assets14,519 14,469 
Software development622 641 
Property and equipment, net199 193 
Deferred income taxes, net1,180 1,201 
Other assets507 508 
Intangible assets, net437 442 
Goodwill9,929 9,929 
Total assets$27,393 $27,383 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$177 $324 
Deferred revenues1,653 2,088 
Accrued expenses and other liabilities987 1,143 
Total current liabilities2,817 3,555 
Long-term debt, net3,611 3,611 
Deferred income taxes, net32 158 
Other liabilities818 816 
Total liabilities7,278 8,140 
Commitments and contingencies (Note 13)
Shareholders’ equity:  
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,214,763,143 and 1,212,894,055 shares issued at March 31, 2023 and December 31, 2022, respectively— — 
Additional paid-in capital12,396 12,260 
Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2023 and December 31, 2022(5,563)(5,563)
Retained earnings13,911 13,171 
Accumulated other comprehensive loss(629)(625)
Total shareholders’ equity20,115 19,243 
Total liabilities and shareholders’ equity$27,393 $27,383 

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 OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)

For the Three Months Ended September 30,For the Nine Months Ended September 30, For the Three Months Ended March 31,
2022202120222021 20232022
Net revenuesNet revenuesNet revenues
Product salesProduct sales$231 $423 $921 $1,666 Product sales$695 $386 
In-game, subscription, and other revenuesIn-game, subscription, and other revenues1,551 1,647 4,273 4,974 In-game, subscription, and other revenues1,688 1,382 
Total net revenuesTotal net revenues1,782 2,070 5,194 6,640 Total net revenues2,383 1,768 
Costs and expensesCosts and expensesCosts and expenses
Cost of revenues—product sales:Cost of revenues—product sales:Cost of revenues—product sales:
Product costsProduct costs107 120 279 375 Product costs136 91 
Software royalties and amortizationSoftware royalties and amortization9 72 153 272 Software royalties and amortization101 81 
Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:
Game operations and distribution costsGame operations and distribution costs343 307 948 925 Game operations and distribution costs363 288 
Software royalties and amortizationSoftware royalties and amortization43 28 86 87 Software royalties and amortization65 19 
Product developmentProduct development277 329 935 1,016 Product development402 346 
Sales and marketingSales and marketing287 244 801 727 Sales and marketing278 252 
General and administrativeGeneral and administrative229 143 693 614 General and administrative238 212 
Restructuring and related costs2 3 (3)46 
Total costs and expensesTotal costs and expenses1,297 1,246 3,892 4,062 Total costs and expenses1,583 1,289 
Operating incomeOperating income485 824 1,302 2,578 Operating income800 479 
Interest and other (income) expense, net (Note 13)
(15)65 16 52 
Interest expense from debtInterest expense from debt27 27 
Other (income) expense, net (Note 10)
Other (income) expense, net (Note 10)
(122)(13)
Income before income tax expenseIncome before income tax expense500 759 1,286 2,526 Income before income tax expense895 465 
Income tax expenseIncome tax expense65 120 176 391 Income tax expense155 70 
Net incomeNet income$435 $639 $1,110 $2,135 Net income$740 $395 
Earnings per common shareEarnings per common shareEarnings per common share
BasicBasic$0.56 $0.82 $1.42 $2.75 Basic$0.94 $0.51 
DilutedDiluted$0.55 $0.82 $1.41 $2.72 Diluted$0.93 $0.50 
Weighted-average number of shares outstandingWeighted-average number of shares outstandingWeighted-average number of shares outstanding
BasicBasic782 778 781 777 Basic785 780 
DilutedDiluted789 783 788 784 Diluted792 786 

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 COMPREHENSIVE INCOME
(Unaudited)
(Amounts in millions)

For the Three Months Ended September 30,For the Nine Months Ended September 30, For the Three Months Ended March 31,
2022202120222021 20232022
Net incomeNet income$435 $639 $1,110 $2,135 Net income$740 $395 
Other comprehensive income (loss):
Other comprehensive (loss) income:Other comprehensive (loss) income:
Foreign currency translation adjustments, net of taxForeign currency translation adjustments, net of tax(38)(14)(64)(8)Foreign currency translation adjustments, net of tax7 (4)
Unrealized gains (losses) on forward contracts designated as hedges, net of taxUnrealized gains (losses) on forward contracts designated as hedges, net of tax26 14 34 40 Unrealized gains (losses) on forward contracts designated as hedges, net of tax(11)(5)
Unrealized gains (losses) on available-for-sale securities, net of taxUnrealized gains (losses) on available-for-sale securities, net of tax14 6 19 3 Unrealized gains (losses) on available-for-sale securities, net of tax— 1 
Total other comprehensive income (loss)$2 $6 $(11)$35 
Total other comprehensive (loss) incomeTotal other comprehensive (loss) income$(4)$(8)
Comprehensive incomeComprehensive income$437 $645 $1,099 $2,170 Comprehensive income$736 $387 

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 CASH FLOWS
(Unaudited)
(Amounts in millions)
 For the Nine Months Ended September 30,
 20222021
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 cost56 46 
Depreciation and amortization78 88 
Amortization of capitalized software development costs (1)141 256 
Share-based compensation expense (2)301 259 
Realized and unrealized gain on equity investment6 (36)
Other(38)(3)
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net297 462 
Software development(527)(303)
Other assets(30)(88)
Deferred revenues(124)(818)
Accounts payable(46)(46)
Accrued expenses and other liabilities175 (117)
Net cash provided by operating activities1,097 1,753 
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments36 120 
Proceeds from sale of available-for-sale investments26 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 employees41 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 period10,438 8,652 
Cash and cash equivalents and restricted cash at end of period$7,769 $9,736 

 For the Three Months Ended March 31,
 20232022
Cash flows from operating activities:
Net income$740 $395 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes(100)(64)
Non-cash operating lease cost21 18 
Depreciation and amortization21 24 
Amortization of capitalized software development costs (1)102 75 
Share-based compensation expense (2)124 98 
Other(35)(22)
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net443 440 
Software development(161)(104)
Other assets86 125 
Deferred revenues(447)(278)
Accounts payable(150)(76)
Accrued expenses and other liabilities(67)11 
Net cash provided by operating activities577 642 
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments— 22 
Proceeds from maturities of held-to-maturity investments1,700 — 
Capital expenditures(37)(15)
Net cash provided by investing activities1,663 7 
Cash flows from financing activities:
Proceeds from issuance of common stock to employees13 16 
Tax payment related to net share settlements on restricted stock units(84)(113)
Net cash used in financing activities(71)(97)
Effect of foreign exchange rate changes on cash and cash equivalents8 (10)
Net increase in cash and cash equivalents and restricted cash2,177 542 
Cash and cash equivalents and restricted cash at beginning of period7,086 10,438 
Cash and cash equivalents and restricted cash at end of period$9,263 $10,980 
Supplemental cash flow information - Non-cash financing activities:
Dividends payable$— $367 
(1)Excludes deferral and amortization of share-based compensation 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, 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,March 31, 2023 and March 31, 2022
(Unaudited)
(Amounts and shares in millions, except per share data)
Common StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity		 Common StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
SharesAmountSharesAmount SharesAmountSharesAmount
Balance at December 31, 20211,208 $— (429)$(5,563)$11,715 $12,025 $(578)$17,599 
Balance at December 31, 2022Balance at December 31, 20221,213 $— (429)$(5,563)$12,260 $13,171 $(625)$19,243 
Components of comprehensive income:Components of comprehensive income:Components of comprehensive income:
Net incomeNet income— — — — — 395 — 395 Net income— — — — — 740 — 740 
Other comprehensive income (loss)Other comprehensive income (loss)— — — — — — (8)(8)Other comprehensive income (loss)— — — — — — (4)(4)
Issuance of common stock pursuant to employee stock optionsIssuance of common stock pursuant to employee stock options— — — — 15 — — 15 Issuance of common stock pursuant to employee stock options— — — — 14 — — 14 
Issuance of common stock pursuant to restricted stock unitsIssuance of common stock pursuant to restricted stock units4 — — — — — — — Issuance of common stock pursuant to restricted stock units3 — — — — — — — 
Restricted stock surrendered for employees’ tax liabilityRestricted stock surrendered for employees’ tax liability(2)— — — (131)— — (131)Restricted stock surrendered for employees’ tax liability(1)— — — (92)— — (92)
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, 20221,210 $— (429)$(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 options1 — — — 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, 20221,211 $— (429)$(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)
Settlement of liability-classified awards in restricted stock units (Note 9)
Settlement of liability-classified awards in restricted stock units (Note 9)
— — — — 93 — — 93 
Share-based compensation expense related to employee stock options and restricted stock unitsShare-based compensation expense related to employee stock options and restricted stock units— — — — 127 — — 127 Share-based compensation expense related to employee stock options and restricted stock units— — — — 121 — — 121 
Balance at September 30, 20221,211 $— (429)$(5,563)$12,192 $12,768 $(589)$18,808 
Balance at March 31, 2023Balance at March 31, 20231,215 $— (429)$(5,563)$12,396 $13,911 $(629)$20,115 
 Common StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 20211,208 $— (429)$(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 units4 — — — — — — — 
Restricted stock surrendered for employees’ tax liability(2)— — — (131)— — (131)
Settlement of liability-classified awards in restricted stock units (Note 9)
— — — — 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, 20221,210 $— (429)$(5,563)$11,927 $12,053 $(586)$17,831 
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 StockTreasury StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 20201,203 $— (429)$(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 options1 — — — 33 — — 33 
Issuance of common stock pursuant to restricted stock units4 — — — — — — — 
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, 20211,206 $— (429)$(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, 20211,206 $— (429)$(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 units2 — — — — — — — 
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, 20211,207 $— (429)$(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 on video game consoles, personal computers (“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.

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 for $95.00 per issued and outstanding share of our common stock, par value $0.000001 per share, in an all-cash transaction. Pursuant to the terms of the Merger Agreement, following consummation ofour acquisition will be accomplished through the merger of Merger Sub with and into the Company (the “Merger”), with the Company will besurviving the Merger as a wholly-ownedwholly owned subsidiary of Microsoft. As a result of the 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 in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Merger (the “Effective Time”).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

If the Merger Agreement is terminated under certain specified circumstances, we or Microsoft will be required to pay a termination fee. We will be required to pay Microsoft a termination fee of approximately $2.27 billion under specified circumstances, including termination of the Merger remains subjectAgreement due to customary closing conditions,our material breach of representations, warranties, covenants or agreements in the Merger Agreement. Microsoft will be required to pay us a reverse termination fee under specified circumstances, including satisfactiontermination of certain regulatory approvals. On April 28, 2022, the Company’s stockholders adopted the Merger Agreement due to a permanent injunction arising from Antitrust Laws (as defined in the Merger Agreement) when we are not then in material breach of any provision of the Merger Agreement and if certain other conditions are met, in an amount equal to $3.0 billion if the termination notice is provided at a special meeting of stockholders. The Merger is currently expected to close in Microsoft’s fiscal year ending June 30,any time after April 18, 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 the Current Report on Form 8-K filed with the SEC on April 15, 2022, as well as Part I Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 31, 20212022, and other relevant materials in connection with the proposed transaction with Microsoft that we will file with the SEC and that will contain important information about the Company and the Merger.

On December 8, 2022, the United States Federal Trade Commission (the “FTC”) issued an administrative complaint against the Company and Microsoft alleging that the Company and Microsoft executed the Merger Agreement in violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, which, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18 and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. For more information regarding the FTC complaint regarding the pending Merger, see Note 13 of the condensed consolidated consolidated financial statements.

On April 26, 2023, the United Kingdom Competition and Markets Authority ("CMA") announced a decision to block the Merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. The parties continue to fully engage with other regulators reviewing the transaction to obtain required regulatory approvals.

Our Segments

Based upon our organizational structure, we conduct our business through three reportable segments, each of which is a leading global developer and publisher of interactive entertainment content and services based primarily on our internally-developed intellectual properties.

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(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.league.

(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 Warcraft universe; 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.league.

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(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. King’s key product offerings include titles and content for Candy Crush™, a “match three” franchise.

Other

We also engage in other businesses that do not represent reportable segments, including theour 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 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. 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, 2021.2022.

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 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 amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.

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2. Held-to-Maturity Investments

The following tables summarizes the Company's held-to-maturity investments (amount in millions):

At March 31, 2023
 Amortized CostGross Unrealized GainsGross Unrealized lossesEstimated Fair Value
(Level 1)
U.S. treasuries and government agency securities$3,280 $— $(1)$3,279 

At December 31, 2022
 Amortized CostGross Unrealized GainsGross Unrealized lossesEstimated Fair Value
(Level 1)
U.S. treasuries and government agency securities$4,932 $1 $(3)$4,930 

At March 31, 2023 and December 31, 2022, all contractual maturities of held-to-maturity investments were less than 12 months.

2.3. Software Development

Our total capitalized software development costs of $1.2were $1.3 billion and $660 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and primarily relate to internal development costs.

Amortization of capitalized software development costs was as follows (amounts in millions):

 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2022202120222021
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, 2022
 Estimated
useful
lives		Gross
carrying
amount		Accumulated
amortization		Net
carrying
amount
Acquired definite-lived intangible assets (1):
Trade names and other1-10 years$90 $(75)$15 
Acquired indefinite-lived intangible assets: 
Activision trademarkIndefinite$386 
Acquired trade namesIndefinite47 
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 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 franchises3-11 years$1,154 $(1,154)$— 
Trade names and other1-10 years80 (66)14 
Total definite-lived intangible assets$1,234 $(1,220)$14 
Acquired indefinite-lived intangible assets: 
Activision trademarkIndefinite$386 
Acquired trade namesIndefinite47 
Total indefinite-lived intangible assets$433 
Total intangible assets, net$447 
 For the Three Months Ended March 31,
 20232022
Amortization of capitalized software development costs$125 $79 

4. Goodwill and Acquisitions

The carrying amount of goodwill by reportable segment at both September 30, 2022 and December 31, 2021, was as follows (amounts in millions):

 ActivisionBlizzardKingTotal
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) The Company completed the acquisition of two businesses to acquire 100% of the 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 condensed consolidated financial statements. Pro forma results of operations have not been presented because the effect of the acquisitions are not material to our condensed consolidated statements of operations, either individually or in the aggregate.

5. Fair Value Measurements

The Financial Accounting Standards Board 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, 2022 Using Fair Value Measurements at March 31, 2023 Using
As of September 30, 2022Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Balance Sheet
Classification		 As of March 31, 2023Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Balance Sheet
Classification
Financial Assets:Financial Assets:     Financial Assets:     
Recurring fair value measurements:Recurring fair value measurements:    Recurring fair value measurements:    
Money market fundsMoney market funds$7,367 $7,367 $— $— Cash and cash equivalentsMoney market funds$8,888 $8,888 $— $— Cash and cash equivalents
Available-for-sale foreign government treasury bills19 19 — — Cash and cash equivalents
Available-for-sale U.S. treasuries and government agency securities176 176 — — Other current assets
Equity securitiesEquity securities44 44 — — Other current assetsEquity securities47 47 — — Other current assets
Foreign currency forward contracts designated as hedgesForeign currency forward contracts designated as hedges64 — 64 — Other current assets & Other assetsForeign currency forward contracts designated as hedges3 — 3 — Other current assets
TotalTotal$7,670 $7,606 $64 $—  Total$8,938 $8,935 $3 $—  
Financial Liabilities:Financial Liabilities:
Foreign currency forward contracts designated as hedgesForeign currency forward contracts designated as hedges$(8)$— $(8)$— Accrued expenses and other liabilities

Fair Value Measurements at December 31, 2021 Using  Fair Value Measurements at December 31, 2022 Using 
As of December 31, 2021Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Balance Sheet
Classification		 As of December 31, 2022Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Balance Sheet
Classification
Financial Assets:Financial Assets:Financial Assets:
Recurring fair value measurements:Recurring fair value measurements:     Recurring fair value measurements:     
Money market fundsMoney market funds$10,035 $10,035 $— $— Cash and cash equivalentsMoney market funds$6,639 $6,639 $— $— Cash and cash equivalents
Available-for-sale foreign government treasury bills34 34 — — Cash and cash equivalents
Available-for-sale U.S. treasuries and government agency securities130 130 — — Other current assets
Equity securitiesEquity securities50 50 — — Other current assetsEquity securities49 49 — — Other current assets
Foreign currency forward contracts designated as hedgesForeign currency forward contracts designated as hedges20 — 20 — Other current assetsForeign currency forward contracts designated as hedges6 — 6 — Other current assets
TotalTotal$10,269 $10,249 $20 $— Total$6,694 $6,688 $6 $— 
Financial Liabilities:Financial Liabilities:
Foreign currency forward contracts designated as hedgesForeign currency forward contracts designated as hedges$(6)$— $(6)$— Accrued expenses and other liabilities

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Foreign Currency Forward Contracts

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

The total gross notional amounts and fair values of our Cash Flow Hedges, which generally had remaining maturities of 14nine months or less as of September 30, 2022,March 31, 2023, are as follows (amounts in millions):

As of September 30, 2022As of December 31, 2021As of March 31, 2023As of December 31, 2022
Notional amountFair value gain (loss)Notional amountFair value gain (loss)Notional amountFair value gain (loss)Notional amountFair value gain (loss)
Foreign Currency:Foreign Currency:Foreign Currency:
Buy USD, Sell EURBuy USD, Sell EUR$519 $64 $382 $20 Buy USD, Sell EUR$475 $(5)$509 $— 

For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of “Accumulated other comprehensive income (loss)” and into earnings were not material.

6. Held-to-Maturity Investments

We 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 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 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 CostGross Unrealized GainsGross Unrealized lossesEstimated 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.

7.5. Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated performance obligations. The aggregate of the current and non-current balances of deferred revenues as of September 30, 2022March 31, 2023 and December 31, 2021,2022, were $1.0$1.7 billion and $1.1$2.1 billion, respectively. For the ninethree months ended September 30, 2022,March 31, 2023, 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,March 31, 2023 and March 31, 2022, $30 million$1.3 billion and $1.0$0.7 billion, respectively, of revenues were 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,beginning of revenues were recognized that were included in the deferred revenues balance at December 31, 2020.period.

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As of September 30, 2022,March 31, 2023, the aggregate amount of contracted revenues allocated to our unsatisfied performance obligations was $1.5$1.8 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$1.8 billion over the next 12 months and approximately $0.1 billion in the subsequent 12-month period.months. 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 subject to constraint in accordance with the revenue accounting standard.

8.6. Debt

Credit Facilities

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, we had $1.5 billion available under a revolving credit facility (the “Revolver”) pursuant to a credit agreement entered into on October 11, 2013 (as amended thereafter and from time to time, the “Credit Agreement”). To date, we have not drawn on the Revolver and we were in compliance with the terms of the Credit Agreement as of September 30, 2022.March 31, 2023. The Revolver is scheduled to mature on August 24, 2023.

Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 for further details regarding the Credit Agreement and its key terms.

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Unsecured Senior Notes

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, we had $3.7 billion of gross unsecured senior notes outstanding. A summary of our outstanding unsecured senior notes is as follows (amounts in millions):

At September 30, 2022At December 31, 2021 At March 31, 2023At December 31, 2022
Unsecured Senior NotesUnsecured Senior NotesInterest RateSemi-Annual Interest Payments Due OnMaturityPrincipalFair Value
(Level 2)		PrincipalFair Value
(Level 2)		Unsecured Senior NotesInterest RateSemi-Annual Interest Payments Due OnMaturityPrincipalFair Value
(Level 2)		PrincipalFair Value
(Level 2)
2026 Notes2026 Notes3.40%Mar. 15 & Sept. 15Sept. 2026$850 $807 $850 $912 2026 Notes3.40%Mar. 15 & Sept. 15Sept. 2026$850 $823 $850 $810 
2027 Notes2027 Notes3.40%Jun. 15 & Dec. 15Jun. 2027400 374 400 430 2027 Notes3.40%Jun. 15 & Dec. 15Jun. 2027400 384 400 378 
2030 Notes2030 Notes1.35%Mar. 15 & Sept. 15Sept. 2030500 380 500 463 2030 Notes1.35%Mar. 15 & Sept. 15Sept. 2030500 406 500 391 
2047 Notes2047 Notes4.50%Jun. 15 & Dec. 15Jun. 2047400 352 400 480 2047 Notes4.50%Jun. 15 & Dec. 15Jun. 2047400 378 400 353 
2050 Notes2050 Notes2.50%Mar. 15 & Sept. 15Sept. 20501,500 924 1,500 1,320 2050 Notes2.50%Mar. 15 & Sept. 15Sept. 20501,500 1,009 1,500 936 
Total gross long-term debtTotal gross long-term debt$3,650 $3,650 Total gross long-term debt$3,650 $3,650 
Unamortized discount and deferred financing costsUnamortized discount and deferred financing costs(40)(42)Unamortized discount and deferred financing costs(39)(39)
Total net carrying amountTotal net carrying amount$3,610 $3,608 Total net carrying amount$3,611 $3,611 

We were in compliance with the terms of the notes outstanding as of September 30, 2022. As of September 30, 2022, with the exception of our 2026 Notes and 2027 Notes, which are scheduled to mature in September 2026 and June 2027, respectively, no other contractual principal repayments of our long-term debt were due within the next five years.

March 31, 2023. Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 for further details regarding key terms under our indentures that govern our outstanding notes.

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9.7. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) were as follows (amounts in millions):

For the Nine Months Ended September 30, 2022For the Three Months Ended March 31, 2023
Foreign currency
translation
adjustments		Unrealized gain (loss)
on available-for-
sale securities		Unrealized gain (loss)
on forward
contracts		TotalForeign currency
translation
adjustments		Unrealized gain (loss)
on forward
contracts		Total
Balance at December 31, 2021$(606)$3 $25 $(578)
Balance at December 31, 2022Balance at December 31, 2022$(636)$11 $(625)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(64)24 67 27 Other comprehensive income (loss) before reclassifications7 — 7 
Amounts reclassified from accumulated other comprehensive income (loss) into earningsAmounts reclassified from accumulated other comprehensive income (loss) into earnings— (5)(33)(38)Amounts reclassified from accumulated other comprehensive income (loss) into earnings— (11)(11)
Balance at September 30, 2022$(670)$22 $59 $(589)
Balance at March 31, 2023Balance at March 31, 2023$(629)$— $(629)

For the Nine Months Ended September 30, 2021 For the Three Months Ended March 31, 2022
Foreign currency
translation
adjustments		Unrealized gain (loss)
on available-for-
sale securities		Unrealized gain (loss)
on forward
contracts		Total 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)
Balance at December 31, 2021Balance at December 31, 2021$(606)$3 $25 $(578)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(8)— 27 19 Other comprehensive income (loss) before reclassifications(4)2 6 4 
Amounts reclassified from accumulated other comprehensive income (loss) into earningsAmounts reclassified from accumulated other comprehensive income (loss) into earnings— 3 13 16 Amounts reclassified from accumulated other comprehensive income (loss) into earnings— (1)(11)(12)
Balance at September 30, 2021$(597)$(2)$12 $(587)
Balance at March 31, 2022Balance at March 31, 2022$(610)$4 $20 $(586)

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8. Operating Segments and Geographic Regions

We have three reportable 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 (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; certain partnership wind down 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 organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.

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

Three Months Ended September 30, 2022Three Months Ended March 31, 2023
ActivisionBlizzardKingTotalActivisionBlizzardKingTotal
Segment RevenuesSegment RevenuesSegment Revenues
Net revenues from external customersNet revenues from external customers$480 $534 $692 $1,706 Net revenues from external customers$580 $435 $739 $1,754 
Intersegment net revenues (1)Intersegment net revenues (1)— 9 — 9 Intersegment net revenues (1)— 8 — 8 
Segment net revenuesSegment net revenues$480 $543 $692 $1,715 Segment net revenues$580 $443 $739 $1,762 
Segment operating incomeSegment operating income$153 $166 $297 $616 Segment operating income$179 $56 $241 $476 
Three Months Ended September 30, 2021Three Months Ended March 31, 2022
ActivisionBlizzardKingTotalActivisionBlizzardKingTotal
Segment RevenuesSegment RevenuesSegment Revenues
Net revenues from external customersNet revenues from external customers$641 $478 $652 $1,771 Net revenues from external customers$453 $265 $682 $1,400 
Intersegment net revenues (1)Intersegment net revenues (1)— 15 — 15 Intersegment net revenues (1)— 9 — 9 
Segment net revenuesSegment net revenues$641 $493 $652 $1,786 Segment net revenues$453 $274 $682 $1,409 
Segment operating incomeSegment operating income$244 $188 $303 $735 Segment operating income$59 $53 $243 $355 

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

Nine Months Ended September 30, 2022
ActivisionBlizzardKingTotal
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
ActivisionBlizzardKingTotal
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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Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues 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,Three Months Ended March 31,
202220212022202120232022
Reconciliation to consolidated net revenues:Reconciliation to consolidated net revenues:Reconciliation to consolidated net revenues:
Segment net revenuesSegment net revenues$1,715 $1,786 $4,699 $5,626 Segment net revenues$1,762 $1,409 
Revenues from non-reportable segments (1)Revenues from non-reportable segments (1)123 109 278 303 Revenues from non-reportable segments (1)101 81 
Net effect from recognition (deferral) of deferred net revenues (2)Net effect from recognition (deferral) of deferred net revenues (2)(47)190 246 773 Net effect from recognition (deferral) of deferred net revenues (2)528 287 
Elimination of intersegment revenues (3)Elimination of intersegment revenues (3)(9)(15)(29)(62)Elimination of intersegment revenues (3)(8)(9)
Consolidated net revenuesConsolidated net revenues$1,782 $2,070 $5,194 $6,640 Consolidated net revenues$2,383 $1,768 
Reconciliation to consolidated income before income tax expense:Reconciliation to consolidated income before income tax expense:Reconciliation to consolidated income before income tax expense:
Segment operating incomeSegment operating income$616 $735 $1,429 $2,341 Segment operating income$476 $355 
Operating income (loss) from non-reportable segments (1)Operating income (loss) from non-reportable segments (1)14 4 28 (12)Operating income (loss) from non-reportable segments (1)6 19 
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)(25)154 210 562 Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)471 235 
Share-based compensation expense (4)Share-based compensation expense (4)(102)(64)(301)(259)Share-based compensation expense (4)(124)(98)
Amortization of intangible assets(5)Amortization of intangible assets(5)(6)(2)(9)(8)Amortization of intangible assets(5)(4)(2)
Restructuring and related costs(6)Restructuring and related costs(6)(2)(3)3 (46)Restructuring and related costs(6)— 2 
Merger and acquisition-related fees and other expenses (5)(10)— (58)— 
Partnership wind down and related costs (7)Partnership wind down and related costs (7)(4)— 
Merger and acquisition-related fees and other expenses (8)Merger and acquisition-related fees and other expenses (8)(21)(32)
Consolidated operating incomeConsolidated operating income485 824 1,302 2,578 Consolidated operating income800 479 
Interest and other (income) expense, net(15)65 16 52 
Interest expense from debtInterest expense from debt27 27 
Other (income) expense, netOther (income) expense, net(122)(13)
Consolidated income before income tax expenseConsolidated income before income tax expense$500 $759 $1,286 $2,526 Consolidated income before income tax expense$895 $465 

(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)ExpensesReflects expenses related to share-based compensation, including $25 million and $54 million for the three and nine months ended September 30, 2022, respectively, related to liability awards accounted for under ASC 718.compensation.

(5)Reflects amortization of intangible assets from purchase price accounting.

(6)Reflects restructuring initiatives.

(7)Reflects expenses related to the wind down of our partnership with NetEase, Inc. in Mainland China in regards to licenses covering the publication of several Blizzard titles which expired in January 2023.

(8)Reflects fees and other expenses related to our proposed transaction with Microsoft, which primarily consist of legal and advisory fees.


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Net revenues by distribution channel, including a reconciliation to each of our 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, 2022Three Months Ended March 31, 2023
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)TotalActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by distribution channel:Net revenues by distribution channel:Net revenues by distribution channel:
Digital online channels (1)Digital online channels (1)$501 $421 $693 $— $(9)$1,606 Digital online channels (1)$902 $525 $738 $— $(8)$2,157 
Retail channelsRetail channels23 2 — — — 25 Retail channels102 2 — — — 104 
Other (2)Other (2)9 24 — 118 — 151 Other (2)6 4 — 112 — 122 
Total consolidated net revenuesTotal consolidated net revenues$533 $447 $693 $118 $(9)$1,782 Total consolidated net revenues$1,010 $531 $738 $112 $(8)$2,383 
Change in deferred revenues:Change in deferred revenues:Change in deferred revenues:
Digital online channels (1)Digital online channels (1)$(36)$96 $(1)$— $— $59 Digital online channels (1)$(362)$(87)$1 $— $— $(448)
Retail channelsRetail channels(17)— — — — (17)Retail channels(68)(1)— — — (69)
Other (2)Other (2)— — — 5 — 5 Other (2)— — — (11)— (11)
Total change in deferred revenuesTotal change in deferred revenues$(53)$96 $(1)$5 $— $47 Total change in deferred revenues$(430)$(88)$1 $(11)$— $(528)
Segment net revenues:Segment net revenues:Segment net revenues:
Digital online channels (1)Digital online channels (1)$465 $517 $692 $— $(9)$1,665 Digital online channels (1)$540 $438 $739 $— $(8)$1,709 
Retail channelsRetail channels6 2 — — — 8 Retail channels34 1 — — — 35 
Other (2)Other (2)9 24 — 123 — 156 Other (2)6 4 — 101 — 111 
Total segment net revenuesTotal segment net revenues$480 $543 $692 $123 $(9)$1,829 Total segment net revenues$580 $443 $739 $101 $(8)$1,855 

Three Months Ended September 30, 2021Three Months Ended March 31, 2022
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)TotalActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by distribution channel:Net revenues by distribution channel:Net revenues by distribution channel:
Digital online channels (1)Digital online channels (1)$723 $493 $651 $— $(15)$1,852 Digital online channels (1)$616 $300 $682 $— $(9)$1,589 
Retail channelsRetail channels63 6 — — — 69 Retail channels83 2 — — — 85 
Other (2)Other (2)8 33 — 108 — 149 Other (2)11 2 — 81 — 94 
Total consolidated net revenuesTotal consolidated net revenues$794 $532 $651 $108 $(15)$2,070 Total consolidated net revenues$710 $304 $682 $81 $(9)$1,768 
Change in deferred revenues:Change in deferred revenues:Change in deferred revenues:
Digital online channels (1)Digital online channels (1)$(128)$(37)$1 $— $— $(164)Digital online channels (1)$(192)$(30)$— $— $— $(222)
Retail channelsRetail channels(25)(2)— — — (27)Retail channels(65)1 — — — (64)
Other (2)Other (2)— — — 1 — 1 Other (2)— (1)— — — (1)
Total change in deferred revenuesTotal change in deferred revenues$(153)$(39)$1 $1 $— $(190)Total change in deferred revenues$(257)$(30)$— $— $— $(287)
Segment net revenues:Segment net revenues:Segment net revenues:
Digital online channels (1)Digital online channels (1)$595 $456 $652 $— $(15)$1,688 Digital online channels (1)$424 $270 $682 $— $(9)$1,367 
Retail channelsRetail channels38 4 — — — 42 Retail channels18 3 — — — 21 
Other (2)Other (2)8 33 — 109 — 150 Other (2)11 1 — 81 — 93 
Total segment net revenuesTotal segment net revenues$641 $493 $652 $109 $(15)$1,880 Total segment net revenues$453 $274 $682 $81 $(9)$1,481 
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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, 2022 and 2021, were as follows (amounts in millions):

Nine Months Ended September 30, 2022
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by distribution channel:
Digital online channels (1)$1,643 $994 $2,060 $— $(29)$4,668 
Retail channels170 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 channels35 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
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by distribution channel:
Digital online channels (1)$2,625 $1,426 $1,894 $— $(62)$5,883 
Retail channels334 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 channels149 13 — — — 162 
Other (2)38 71 — 303 — 412 
Total segment net revenues$2,321 $1,409 $1,896 $303 $(62)$5,867 

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(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 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):

Three Months Ended September 30, 2022Three Months Ended March 31, 2023
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)TotalActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)Total
Net revenues by geographic region:Net revenues by geographic region:Net revenues by geographic region:
AmericasAmericas$358 $190 $457 $— $(6)$999 Americas$652 $257 $473 $1 $(5)$1,378 
EMEA (1)EMEA (1)117 107 158 118 (2)498 EMEA (1)256 153 181 111 (2)699 
Asia PacificAsia Pacific58 150 78 — (1)285 Asia Pacific102 121 84 — (1)306 
Total consolidated net revenuesTotal consolidated net revenues$533 $447 $693 $118 $(9)$1,782 Total consolidated net revenues$1,010 $531 $738 $112 $(8)$2,383 
Change in deferred revenues:Change in deferred revenues:Change in deferred revenues:
AmericasAmericas$(33)$42 $— $— $— $9 Americas$(280)$(44)$1 $— $— $(323)
EMEA (1)EMEA (1)(17)18 — 5 — 6 EMEA (1)(125)(28)— (11)— (164)
Asia PacificAsia Pacific(3)36 (1)— — 32 Asia Pacific(25)(16)— — — (41)
Total change in deferred revenuesTotal change in deferred revenues$(53)$96 $(1)$5 $— $47 Total change in deferred revenues$(430)$(88)$1 $(11)$— $(528)
Segment net revenues:Segment net revenues:Segment net revenues:
AmericasAmericas$325 $232 $457 $— $(6)$1,008 Americas$372 $213 $474 $1 $(5)$1,055 
EMEA (1)EMEA (1)100 125 158 123 (2)504 EMEA (1)131 125 181 100 (2)535 
Asia PacificAsia Pacific55 186 77 — (1)317 Asia Pacific77 105 84 — (1)265 
Total segment net revenuesTotal segment net revenues$480 $543 $692 $123 $(9)$1,829 Total segment net revenues$580 $443 $739 $101 $(8)$1,855 

Three Months Ended September 30, 2021
ActivisionBlizzardKingNon-reportable segmentsElimination 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 Pacific92 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 Pacific91 133 71 — (1)294 
Total segment net revenues$641 $493 $652 $109 $(15)$1,880 
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Three Months Ended March 31, 2022
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (2)Total
Net revenues by geographic region:
Americas$460 $125 $437 $— $(6)$1,016 
EMEA (1)184 94 170 81 (2)527 
Asia Pacific66 85 75 — (1)225 
Total consolidated net revenues$710 $304 $682 $81 $(9)$1,768 
Change in deferred revenues:
Americas$(164)$(11)$1 $— $— $(174)
EMEA (1)(80)(13)— — — (93)
Asia Pacific(13)(6)(1)— — (20)
Total change in deferred revenues$(257)$(30)$— $— $— $(287)
Segment net revenues:
Americas$296 $114 $438 $— $(6)$842 
EMEA (1)104 81 170 81 (2)434 
Asia Pacific53 79 74 — (1)205 
Total segment net revenues$453 $274 $682 $81 $(9)$1,481 
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
ActivisionBlizzardKingNon-reportable segmentsElimination 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 Pacific182 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 Pacific160 352 229 — (2)739 
Total segment net revenues$1,423 $1,218 $2,058 $278 $(29)$4,948 

Nine Months Ended September 30, 2021
ActivisionBlizzardKingNon-reportable segmentsElimination 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 Pacific275 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 Pacific232 316 195 — (5)738 
Total segment net revenues$2,321 $1,409 $1,896 $303 $(62)$5,867 
(1)    “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 49%was 51% of consolidated net revenues for both the three months ended September 30,March 31, 2023 and 2022, and 2021.respectively. The Company’s net revenues in the United Kingdom (“U.K.”) were was 10% of consolidated net revenues for both the three months ended September 30,March 31, 2023 and 2022, and 2021.respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended September 30, 2022March 31, 2023 or 2021.

The Company’s net revenues in the U.S. were 51% and 50% of consolidated net revenues for the nine months ended September 30, 2022 and 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, 2022 and 2021. No other country’s net revenues exceeded 10% of consolidated net revenues for the nine months ended September 30, 2022 or 2021.2022.

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):

Three Months Ended September 30, 2022
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by platform:
Console$313 $23 $— $— $— $336 
PC75 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 
PC69 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, 2021Three Months Ended March 31, 2023
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)TotalActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by platform:Net revenues by platform:Net revenues by platform:
ConsoleConsole$480 $43 $— $— $— $523 Console$597 $42 $— $— $— $639 
PCPC140 434 19 — (15)578 PC270 386 18 — (8)666 
Mobile and ancillary (1)Mobile and ancillary (1)166 22 632 — — 820 Mobile and ancillary (1)137 99 720 — — 956 
Other (2)Other (2)8 33 — 108 — 149 Other (2)6 4 — 112 — 122 
Total consolidated net revenuesTotal consolidated net revenues$794 $532 $651 $108 $(15)$2,070 Total consolidated net revenues$1,010 $531 $738 $112 $(8)$2,383 
Change in deferred revenues:Change in deferred revenues:Change in deferred revenues:
ConsoleConsole$(119)$5 $— $— $— $(114)Console$(278)$(4)$— $— $— $(282)
PCPC(33)(47)— — — (80)PC(151)(52)— — — (203)
Mobile and ancillary (1)Mobile and ancillary (1)(1)3 1 — — 3 Mobile and ancillary (1)(1)(32)1 — — (32)
Other (2)Other (2)— — — 1 — 1 Other (2)— — — (11)— (11)
Total change in deferred revenuesTotal change in deferred revenues$(153)$(39)$1 $1 $— $(190)Total change in deferred revenues$(430)$(88)$1 $(11)$— $(528)
Segment net revenues:Segment net revenues:Segment net revenues:
ConsoleConsole$361 $48 $— $— $— $409 Console$319 $38 $— $— $— $357 
PCPC107 387 19 — (15)498 PC119 334 18 — (8)463 
Mobile and ancillary (1)Mobile and ancillary (1)165 25 633 — — 823 Mobile and ancillary (1)136 67 721 — — 924 
Other (2)Other (2)8 33 — 109 — 150 Other (2)6 4 — 101 — 111 
Total segment net revenuesTotal segment net revenues$641 $493 $652 $109 $(15)$1,880 Total segment net revenues$580 $443 $739 $101 $(8)$1,855 


Three Months Ended March 31, 2022
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by platform:
Console$460 $24 $— $— $— $484 
PC124 251 17 — (9)383 
Mobile and ancillary (1)115 27 665 — — 807 
Other (2)11 2 — 81 — 94 
Total consolidated net revenues$710 $304 $682 $81 $(9)$1,768 
Change in deferred revenues:
Console$(216)$(5)$— $— $— $(221)
PC(62)(18)— — — (80)
Mobile and ancillary (1)21 (6)— — — 15 
Other (2)— (1)— — — (1)
Total change in deferred revenues$(257)$(30)$— $— $— $(287)
Segment net revenues:
Console$244 $19 $— $— $— $263 
PC62 233 17 — (9)303 
Mobile and ancillary (1)136 21 665 — — 822 
Other (2)11 1 — 81 — 93 
Total segment net revenues$453 $274 $682 $81 $(9)$1,481 
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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
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by platform:
Console$1,129 $66 $— $— $— $1,195 
PC297 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 
PC213 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
ActivisionBlizzardKingNon-reportable segmentsElimination of intersegment revenues (3)Total
Net revenues by platform:
Console$1,971 $90 $— $— $— $2,061 
PC532 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 
PC387 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.

(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.

Long-lived assets by geographic region were as follows (amounts in millions):

At September 30, 2022At December 31, 2021 At March 31, 2023At December 31, 2022
Long-lived assets* by geographic region:Long-lived assets* by geographic region:Long-lived assets* by geographic region:
AmericasAmericas$264 $264 Americas$289 $279 
EMEAEMEA101 122 EMEA102 103 
Asia PacificAsia Pacific21 20 Asia Pacific21 21 
Total long-lived assets by geographic regionTotal long-lived assets by geographic region$386 $406 Total long-lived assets by geographic region$412 $403 

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

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11.9. 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)		 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, 20219,133 $57.77 
Outstanding stock options at December 31, 2022Outstanding stock options at December 31, 20227,861 $58.85 
GrantedGranted— — Granted— — 
ExercisedExercised(857)46.74 Exercised(262)51.98 
ForfeitedForfeited(162)72.97 Forfeited(89)88.68 
ExpiredExpired(46)74.37 Expired(25)77.01 
Outstanding stock options at September 30, 20228,068 $58.54 6.38$150 
Vested and expected to vest at September 30, 20227,919 $58.06 6.35$150 
Exercisable at September 30, 20225,790 $50.89 5.77$140 
Outstanding stock options at March 31, 2023Outstanding stock options at March 31, 20237,485 $58.68 5.57$206 
Vested and expected to vest at March 31, 2023Vested and expected to vest at March 31, 20237,415 $58.41 5.55$206 
Exercisable at March 31, 2023Exercisable at March 31, 20236,656 $55.41 5.30$203 

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.
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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 sharesWeighted-
average grant
date fair value per RSU		 Number of sharesWeighted-
average grant
date fair value per RSU
Unvested RSUs at December 31, 202113,258 $75.51 
Unvested RSUs at December 31, 2022Unvested RSUs at December 31, 202213,754 $74.53 
GrantedGranted5,600 79.90 Granted1,667 78.73 
VestedVested(4,511)77.09 Vested(2,796)77.40 
ForfeitedForfeited(1,359)82.90 Forfeited(394)78.39 
Unvested RSUs at September 30, 202212,988 $76.23 
Unvested RSUs at March 31, 2023Unvested RSUs at March 31, 202312,231 $74.33 

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As of December 31, 2022 and 2021, we had recorded a share-based compensation liability related to compensation payments under our annual performance plans for 2022 and 2021, respectively, which the Company determined to settle certain amounts not yet paid in stock as opposed to cash. During the ninethree months ended September 30,March 31, 2023 and 2022, we settled the respective share-based compensation liability by granting 1,188 thousand and 2,777 thousand RSUs, respectively, 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 ninethree months ended September 30,March 31, 2023 and 2022.

At September 30, 2022, $417March 31, 2023, $405 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 0.891.35 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 costsOther costsTotal
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 and10. Other (Income) Expense, Net

Interest and otherOther (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,For the Three Months Ended March 31,
202220212022202120232022
Interest incomeInterest income$(51)$(1)$(68)$(4)Interest income$(126)$(1)
Interest expense from debt and amortization of debt discount and deferred financing costs27 27 81 81 
Realized and unrealized loss (gain) on equity investmentRealized and unrealized loss (gain) on equity investment10 36 6 (35)Realized and unrealized loss (gain) on equity investment2 (11)
Other (income) expenseOther (income) expense2 (1)
Other (income) expense, netOther (income) expense, net(1)3 (3)10 Other (income) expense, net$(122)$(13)
Interest and other (income) expense, net$(15)$65 $16 $52 

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14.11. Income Taxes

We account for our provision for income taxes in accordance with 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 could be different from the statutory U.S. income tax rate due to: the effect of state and local income taxes; tax rates that apply to our foreign 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 enacted tax laws and regulations, 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 $65$155 million for the three months ended September 30, 2022,March 31, 2023, reflects an effective tax rate of 13%17%, which is lowerhigher than the effective tax rate of 16%15% for the three months ended September 30, 2021.March 31, 2022. Our tax rate in the current quarter is lowerhigher than in the prior year due to changes in the mix of our pre-tax income between countries partially offset by discreteand an increase in the U.K. corporate tax benefits recognizedrate that became effective in 2021, related to a favorable tax return to accrual adjustment and excess tax benefits from share-based payments.2023.
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The income tax expense of $176 million for the nine months ended September 30, 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 changes in 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 14%17% for the three and nine months ended September 30, 2022, respectively, areMarch 31, 2023, is lower than the U.S. statutory rate of 21%, primarily due to lower taxes on foreign earnings and U.S. research and development credits.

Activision Blizzard’s tax years after 2008 remain open to examination by certain major taxing jurisdictions to which we are subject. The Internal Revenue Service is currently examining our federal tax returns for the 2012 through 2019 tax years. 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 transfer pricing matters. We anticipate resolving King’s transfer pricing for both pre- and post-acquisition tax years through a collaborative multilateral process with the tax authorities in the relevant jurisdictions, which include the U.K. and Sweden. While the outcome of this process remains uncertain, it could result in an agreement that changes the allocation of profits and losses between these and other relevant jurisdictions or a failure to reach an agreement that results in unilateral adjustments to the amount and timing of taxable income in the jurisdictions in which King operates.

In addition, certain of our subsidiaries are under examination or investigation, or may be subject to examination or investigation, by tax authorities in various jurisdictions. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations in the earlier of the period or periods in which the matters are resolved and 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.

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15.12. 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,
 2022202120222021
Numerator:
Consolidated net income$435 $639 $1,110 $2,135 
Denominator:
Denominator for basic earnings per common share—weighted-average common shares outstanding782 778 781 777 
Effect of dilutive stock options and awards under the treasury stock method7 5 7 7 
Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method789 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 is contingent upon the satisfaction of 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. 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.

Weighted-average shares excluded from the computation of diluted earnings per share were as follows (amounts in millions):

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Restricted stock units with performance measures not yet met2 3 2 3 
Anti-dilutive employee stock options2 2 2 2 

16. Capital Transactions

Repurchase Programs

On January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, 2023 and a determination by the Board of Directors to discontinue the repurchase program. As of September 30, 2022, we had not repurchased any shares under this 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).
 For the Three Months Ended March 31,
 20232022
Numerator:
Consolidated net income$740 $395 
Denominator:
Denominator for basic earnings per common share—weighted-average common shares outstanding785 780 
Effect of dilutive stock options and awards under the treasury stock method7 6 
Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method792 786 
Basic earnings per common share$0.94 $0.51 
Diluted earnings per common share$0.93 $0.50 

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Dividends

On February 3, 2022, our Board of Directors declared a cash dividend of $0.47 per common share. On May 6, 2022, we made an aggregate cash dividend payment of $367 million to shareholders of record at the close of business on April 15, 2022.

On February 4, 2021, our Board of Directors declared a cash dividend of $0.47 per common share. On May 6, 2021, we made an aggregate cash dividend payment of $365 million to shareholders of record at the close of business on April 15, 2021.

17.13. 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, 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. 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, the 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, the 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 May 23, 2022, Gonzalez filed a notice of appeal of the order denying her motion to intervene with the United States Court of Appeals for the Ninth Circuit. The CRD appeals and Gonzalez appeal are pending before the Ninth Circuit. Oral argument for the CRD appeals and Gonzalez appeal is scheduled for June 13, 2023.

Pending Employment-Related Matters

On July 20, 2021, the CRD filed a complaint (the “CRD Matter”) in California Superior Court, County of Los Angeles against Activision Blizzard, Blizzard Entertainment and Activision Publishing (together, the “Defendants”) alleging violations of the California Fair Employment and Housing Act and the 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.Court, which was denied. On October 27, 2022, the CRD filed a Motion for Summary Adjudication on certain of Defendants’ affirmative defenseswith a hearing date scheduled for January 10, 2023. TheJune 29, 2023; the June 29, 2023 hearing date was vacated and has not been reset. On October 28, 2022, the February 27, 2023 trial date has beenwas vacated and a new trial date will be set by the Court. The Court setDefendants were granted leave to file a conference for Marchcross complaint against various staffing agencies implicated in CRD’s complaint on January 20, 2023. On January 24, 2023, Cross-Defendants Creative Circle and Apex challenged the judicial assignment. On February 7, 2023, Defendants sought reassignment to discuss trial scheduling.the complex courts, which was denied on April 26, 2023. In addition, in January 2022, the Company’s Board of Directors received notice of an investigation by the CRD and investigatory subpoenas.subpoenas; on February 8, 2023, the CRD issued a letter indicating that it had decided to close this matter.

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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, as amended (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. In an order entered January 23, 2023, the Court granted defendants’ motion to dismiss the third amended complaint without leave to amend and on the same date entered judgment in accordance with that order. Plaintiffs have filed an appeal in the United States Court of Appeals for the Ninth Circuit.

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. DefendantsDefendants’ motion to dismiss the third amended complaint in the Kahnert case was filed October 24, 2022.

The Company is cooperating In an order dated January 17, 2023, the Court granted defendants’ motion to dismiss the third amended complaint without leave to amend and on the same date entered judgment in accordance with an investigation by the SEC regarding disclosures on employment matters and related issues including responding to subpoenasthat order. No appeal from the SEC. The SECorder and judgment was filed and the time for doing so has also issued subpoenas to a number of current and former executives and other employees in connection with this matter.passed.

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

On February 3, 2023, the Company settled the previously-disclosed investigation by the SEC related to the Company’s disclosures on employment matters and related issues without admitting or denying the SEC’s findings. As part of the settlement, the Company consented to the entry of an order finding violations of Exchange Act Rule 13a-15, requiring issuers to maintain effective disclosure controls and procedures, and Exchange Act Rule 21F-17(a), providing certain whistleblower protections. The order requires the Company to cease and desist from future violations of these provisions and to pay a $35 million civil monetary penalty, which we have paid.



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Legal Proceedings Regarding the Merger

Following the announcement of the proposed transaction with Microsoft, complaints were filed in the United States District Court for the 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 the United States District Court for the District of Delaware against the Company and 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-cv0087522cv-00875 (E.D. Pa.); and David v. Activision Blizzard, Inc. et al., No. 1:22-cv-00339 (D. Del.). The complaints each assert violations of Section 14(a) and Section 20(a) of the Exchange Act and allege that the preliminary proxy statement filed in connection with the proposed transaction between the Company andwith 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 transaction. All of the complaints have been voluntarily dismissed.

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Following the announcement of the 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.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 fiduciary duty related to the proposed transaction.transaction with Microsoft. Specifically, the demands seek to investigate Mr. Kotick’s role in the proposed transaction with Microsoft with one of the 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 Directors and 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 Court of Chancery of the State of Delaware on behalf of a class of stockholders of the 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 merger.Merger. The complaint also alleges that the mergerMerger was not approved in compliance with the requirements of 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. On January 25, 2023, an amended complaint was filed in the Sjunde AP-Fonden action. On March 24, 2023, Activision Blizzard filed a motion to stay the action, which will be heard on May 16, 2023. On May 1, 2023, Plaintiff filed a motion for limited expedited proceedings and a motion for a preliminary injunction to enjoin defendants from amending, extending or waiving the termination date until the purported 8 Del. C. § 251 issues are addressed. The motion for limited expedited proceedings will be heard on May 16, 2023.

On December 8, 2022, the United States Federal Trade Commission (“FTC”) issued an administrative complaint against the Company and Microsoft alleging that the Company and Microsoft executed the Merger Agreement in violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, which, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18 and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. The Company filed an answer to the FTC’s administrative complaint on December 22, 2022, and thereafter filed an amended answer on January 4, 2023. The administrative trial is currently scheduled to take place before an FTC administrative law judge starting August 2, 2023.

On April 26, 2023, the United Kingdom Competition and Markets Authority ("CMA") announced a decision to block the merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal.

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We are unable to predict the impact of the above pending matters on our business, financial 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 to their respective investigations into trading by third parties—including persons known to the Company’s CEO—in securities prior to the announcement of the proposed transaction with Microsoft. The Company ishas fully cooperatingcooperated with these investigations.

Commitments and Obligations

Subsequent to March 31, 2023, we entered into certain agreements under which we have future minimum commitments of approximately $1.4 billion. The commitments relate primarily to advertising and hosting services which comprise approximately 60% and 40%, respectively, of the total future minimum commitments. Payments of these commitments will be made over the next three years.

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

Business Overview

Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“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.

Merger Agreement

On January 18, 2022, we entered into an Agreement and Plan of Merger (the “MergerAgreement (“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 for $95.00 per issued and outstanding share of our common stock, par value $0.000001 per share, in an all-cash transaction. Pursuant to the terms of the Merger Agreement, following consummation ofour acquisition will be accomplished through the merger of Merger Sub with and into the Company (the “Merger”), with the Company will besurviving the Merger as a wholly-ownedwholly owned subsidiary of Microsoft. As a result of the 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 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

If the Merger Agreement is terminated under certain specified circumstances, we or Microsoft will be required to pay a termination fee. We will be required to pay Microsoft a termination fee of approximately $2.27 billion under specified circumstances, including termination of the Merger remains subjectAgreement due to customary closing conditions,our material breach of representations, warranties, covenants or agreements in the Merger Agreement. Microsoft will be required to pay us a reverse termination fee under specified circumstances, including satisfactiontermination of certain regulatory approvals. On April 28, 2022, the Company’s stockholders adopted the Merger Agreement due to a permanent injunction arising from Antitrust Laws (as defined in the Merger Agreement) when we are not then in material breach of any provision of the Merger Agreement and if certain other conditions are met, in an amount equal to $3.0 billion if the termination notice is provided at a special meeting of stockholders. The Merger is currently expected to close in Microsoft’s fiscal year ending June 30,any time after April 18, 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 “SEC”) on March 21, 2022, as supplemented by the Current Report on Form 8-K filed with the SEC on April 15, 2022, as well as Part I, Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 31, 20212022, and other relevant materials in connection with the proposed transaction with Microsoft that we will file with the SEC and that will contain important information about the Company and the Merger.

On December 8, 2022, the United States Federal Trade Commission (the “FTC”) issued an administrative complaint against the Company and Microsoft alleging that the Company and Microsoft executed the Merger Agreement in violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, which, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18 and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. For more information regarding the FTC complaint regarding the pending Merger, see Note 13 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On April 26, 2023, the United Kingdom Competition and Markets Authority ("CMA") announced a decision to block the Merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. The parties continue to fully engage with other regulators reviewing the transaction to obtain required regulatory approvals.

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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, seeNote 17 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” of“Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 and Note 13 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In May 2022, a group of quality assurance workers at our 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 have filed for union representation with the U.S. National Labor Relations Board (the “NLRB”). The NLRB recently announced that the election will take place by mail-in ballot, which will be counted on November 18, 2022.

Our Segments

Based upon our organizational structure, we conduct our business through three reportable segments, each of which is a leading global developer and publisher of interactive entertainment content and services based primarily on our internally-developed intellectual properties.

(i) Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product 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.league.

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(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 Warcraft universe; 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.league.

(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. King’s key product offerings include titles and content for Candy Crush™, a “match three” franchise.

Other

We also engage in other businesses that do not represent reportable segments, including our Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

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Business Results and Highlights

Financial Results

For the three months ended September 30, 2022:March 31, 2023:

•consolidated net revenues decreased 14%increased 35% to $1.8$2.4 billion and consolidated operating income decreased 41%increased 67% to $485$800 million, as compared to consolidated net revenues of $2.1$1.8 billion and consolidated operating income of $824$479 million in 2021; and2022;

•diluted earnings per common share decreased 33%increased 86% to $0.55,$0.93, as compared to $0.82$0.50 in 2021.

For the nine months ended September 30, 2022:

•consolidated net revenues decreased 22% to $5.2 billion and consolidated operating income decreased 49% to $1.3 billion, as compared to consolidated net revenues of $6.6 billion and consolidated operating income of $2.6 billion in 2021;

•diluted earnings per common share decreased 48% to $1.41, as compared to $2.72 in 2021;2022; and

•cash flows from operating activities were approximately $1.1 billion,$577 million, a decrease of 37%10%, as compared to $1.8 billion$642 million in 2021.2022.

Since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation, we defer the 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, 2022,March 31, 2023, include a net effect of $47$528 million and $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, 2022, include a net effect of $246 million and $210$471 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,For the Three Months Ended March 31,
202220212022202120232022
Point-in-time (1)Point-in-time (1)12 %14 %10 %11 %Point-in-time (1)9 %9 %
Over-time and other (2)Over-time and other (2)88 %86 %90 %89 %Over-time and other (2)91 %91 %

(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.

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Summary of Title Release Dates

Throughout the year we regularly release new content through seasonal and live services updates within our franchises, including Call of Duty, Warcraft, and Candy Crush. 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.

TitleRelease Date
Call of Duty: Modern Warfare® II
October 2022, and when referred to herein, is inclusive of Call of Duty: Warzone 2.0 from its release on November 16, 2022
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 through November 16, 2022
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: MobileOctober 2019
World of Warcraft: Dragonflight™
November 2022
Overwatch 2October 2022
World of Warcraft: Wrath of the Lich King® Classic
September 2022
Diablo ImmortalJune 2022
Diablo II: ResurrectedSeptember 2021
World of Warcraft: Burning Crusade ClassicJune 2021
World of Warcraft: ShadowlandsNovember 2020

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Operating Metrics

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

Net bookings and in-game net bookings

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

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

For the Three Months Ended September 30,For the Nine Months Ended September 30,
20222021Increase (Decrease)20222021Increase (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
For the Three Months Ended March 31,
20232022Increase (Decrease)
Net bookings$1,855 $1,481 $374 
In-game net bookings$1,289 $1,011 $278 

Net bookings

The decreaseincrease in net bookings for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to to:

•a $161$169 million decreaseincrease in Blizzard net bookings, driven by higher net bookings from (1) Diablo Immortal and(2) Overwatch 2;

•a $127 million increase in Activision net bookings, driven by higher net bookings from Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard, partially offset by lower net bookings from Call of Duty: Vanguard as compared to Call of Duty: 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

•a $40$57 millionincrease 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,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, 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 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 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 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$150 million increase in Blizzard in-game net bookings, driven by in-game net bookings from (1) Diablo Immortal and (2) Overwatch 2; and

•a $116$66 million increase in King in-game net bookings, driven by the Candy Crush franchise.franchise; and

•a $63 million increase in Activision in-game net bookings, driven by higher in-game net bookings from Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard.



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Monthly Active 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 accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. 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 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, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021March 31, 2023December 31, 2022September 30, 2022June 30, 2022March 31, 2022
ActivisionActivision97 94 100 107 119 Activision98 111 97 94 100 
BlizzardBlizzard31 27 22 24 26 Blizzard27 45 31 27 22 
KingKing240 240 250 240 245 King243 233 240 240 250 
TotalTotal368 361 372 371 390 Total368 389 368 361 372 

Average MAUs decreased by 21 million or 5% for the three months ended March 31, 2023, as compared to the three months ended December 31, 2022. The decrease was primarily due to lower average MAUs for (1) Blizzard, driven by lower average MAUs for Overwatch 2, and (2) Activision, driven by lower average MAUs for the Call of Duty franchise. These decreases werepartially offset by an increase in average MAUs for King, driven by the Candy Crush franchise.

Average MAUs for the three months ended September 30, 2022 areMarch 31, 2023, were comparable to the three months ended June 30,March 31, 2022, with the slight increase primarily due toas higher average MAUs for Blizzard, driven by the launch of Diablo ImmortalOverwatch 2.,

Average MAUs decreased by 22 million or 6% for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease was primarily due tolargely offset by lower average MAUs for Activision,King, driven by the Call of Dutydecreases in non-Candy Crush franchise partly offset by higher MAUs for Blizzard, driven by Diablo Immortaltitles.


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Management’s Overview of Business Trends

Mobile Gaming and Free-to-Play Games

Wide adoption of smartphones globally and the free-to-play business model, which allows players to try a new game with no upfront cost, on mobile platforms have increased the total addressable audience for gaming significantly by introducing gaming to new age groups and new regions and allowing gaming to occur more widely outside the home. Mobile gaming is estimated to be larger than console and PC gaming, and has grown at a significant rate over the last five years. All of our reportable segments now have successful live mobile titles in the market, and we continue to develop new mobile titles that present the opportunity for us to expand the reach of, and drive additional player investment in, our products. The June 2022 launch of Diablo Immortal is our most recent example of this continued expansion on the mobile platform and we expect 2023 to include the release of Call of Duty: Warzone Mobile.

In addition, the free-to-play business model has begun to receive broader acceptance on PC and console platforms. This has provided opportunities for us to increase the reach of our intellectual properties and games through free-to-play offerings, which, in turn, provides opportunities to further drive player investment, as was seen with our Call of Duty: Warzone release in March 2020. We have continued to invest in these opportunities, with 2022 including the free-to-play releases of Overwatch 2 in October 2022 and Call of Duty: Warzone 2.0 in November 2022.

Importance of our Franchises

A significant portion of our revenues historically has been derived from video games based on our franchises, and these video games have also been responsible for a disproportionately higher percentage of our profits. For example, in 2022, our three franchises—Call of Duty, Warcraft, and Candy Crush—collectively accounted for 79% of our consolidated net revenues—and a significantly higher percentage of our operating income.

In addition to investing in new content for our games, with the aim of releasing such content more frequently, we are continually exploring additional ways to expand our franchises and games. In recent years we have expanded the Call of Duty franchise with Call of Duty: Warzone and Call of Duty Mobile,as well as bringing Diablo content to mobile for the first time with Diablo Immortal. We have similar plans to bring the Warcraft franchise to mobile with Warcraft Arclight Rumble™, which is currently in development. Our collaborative arrangements for our professional esports leagues (i.e., the Overwatch League and the Call of Duty League) continue to face headwinds which are negatively impacting the operations and, potentially, the longevity of the leagues under the current business model. We continue to work to address these challenges, which could result in significant costs, and such efforts may prove unsuccessful.

Overall, we expect that our most popular franchises will continue to produce a disproportionately high percentage of our revenues and profits in the near future. Accordingly, our ability to maintain these franchises and to successfully compete against the wide range of competitive titles available in the industry could 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 further towards a more consistently recurring and year-round model through our live services. While our business does continue to experience some periods of “seasonality,” driven primarily by the timing of our new premium full game releases, our in-game content and free-to-play offerings allow our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenues, but it can also increase player engagement.

Increased Competition for Talent

We believe that our continued success and growth is directly related to our ability to attract, retain, and develop top talent. We have seen increased competition in the market for talent and expect the competitive environment to continue at least in the short term. We have experienced challenges in both the retention of our 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 in a cadence that will be optimal for our businesstalent, but we have also more recently seen some recentincreasingly positive trends in retention and attraction of talent.

Upcoming Content Releases

Upcoming and recently released titles inthese areas, which have continued into the fourth quarter of 2022 are:

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

•Call of Duty: Modern Warfare II, the 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 next expansion to World of Warcraft, which is expected to launch on November 28, 2022.

We also expect to continue to deliver ongoing content for various of our games. Additionally, as publicly announced, we expect 2023 to include the releases of Diablo IV and Call of 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 several Blizzard titles in China. These agreements, which contributed approximately 3% of 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 separate long-term agreement between the two parties.

current year.
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Consolidated Statements of Operations Data

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

For the Three Months Ended September 30,For the Nine Months Ended September 30,For the Three Months Ended March 31,
202220212022202120232022
Net revenuesNet revenuesNet revenues
Product salesProduct sales$231 13 %$423 20 %$921 18 %$1,666 25 %Product sales$695 29 %$386 22 %
In-game, subscription, and other revenuesIn-game, subscription, and other revenues1,551 87 1,647 80 4,273 82 4,974 75 In-game, subscription, and other revenues1,688 71 1,382 78 
Total net revenuesTotal net revenues1,782 100 2,070 100 5,194 100 6,640 100 Total net revenues2,383 100 1,768 100 
Costs and expensesCosts and expensesCosts and expenses
Cost of revenues—product sales:Cost of revenues—product sales:Cost of revenues—product sales:
Product costsProduct costs107 46 120 28 279 30 375 23 Product costs136 20 91 24 
Software royalties and amortizationSoftware royalties and amortization9 4 72 17 153 17 272 16 Software royalties and amortization101 15 81 21 
Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:
Game operations and distribution costsGame operations and distribution costs343 22 307 19 948 22 925 19 Game operations and distribution costs363 22 288 21 
Software royalties and amortizationSoftware royalties and amortization43 3 28 2 86 2 87 2 Software royalties and amortization65 4 19 1 
Product developmentProduct development277 16 329 16 935 18 1,016 15 Product development402 17 346 20 
Sales and marketingSales and marketing287 16 244 12 801 15 727 11 Sales and marketing278 12 252 14 
General and administrativeGeneral and administrative229 13 143 7 693 13 614 9 General and administrative238 10 212 12 
Restructuring and related costs2 — 3 — (3)— 46 1 
Total costs and expensesTotal costs and expenses1,297 73 1,246 60 3,892 75 4,062 61 Total costs and expenses1,583 66 1,289 73 
Operating incomeOperating income485 27 824 40 1,302 25 2,578 39 Operating income800 34 479 27 
Interest and other (income) expense, net(15)(1)65 3 16 — 52 1 
Interest expense from debtInterest expense from debt27 1 27 2 
Other (income) expense, netOther (income) expense, net(122)(5)(13)(1)
Income before income tax expenseIncome before income tax expense500 28 759 37 1,286 25 2,526 38 Income before income tax expense895 38 465 26 
Income tax expenseIncome tax expense65 4 120 6 176 3 391 6 Income tax expense155 7 70 4 
Net incomeNet income$435 24 %$639 31 %$1,110 21 %$2,135 32 %Net income$740 31 %$395 22 %

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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, For the Three Months Ended March 31,
20222021Increase (Decrease)% Change20222021Increase (Decrease)% Change 20232022Increase (Decrease)% Change
Consolidated net revenuesConsolidated net revenues$1,782 $2,070 $(288)(14)%$5,194 $6,640 $(1,446)(22)%Consolidated net revenues$2,383 $1,768 $615 35 %
In-game net revenues (1)In-game net revenues (1)$1,275 $1,316 $(41)(3)%$3,499 $4,058 $(559)(14)%In-game net revenues (1)$1,430 $1,134 $296 26 %

(1)    In-game net revenues primarily includes the net amount of revenues recognized for microtransactions and downloadable content during the period.

Q3 2022 vs. Q3 2021

Consolidated net revenues

The decreaseincrease in consolidated net revenues for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily driven by an increase in revenues of $734 million due to higher revenues from:

•Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard;

•Diablo Immortal;

•World of Warcraft;

•Overwatch 2; and

•the Candy Crush franchise.

This increase was partially offset by a decrease in revenues of $429$98 million due to lower revenues from:

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

•World of Warcraft; andIn-game net revenues

•Diablo II: Resurrected.

This decreaseThe increase in in-game net revenues for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was partially offsetprimarily driven by an increase in in-game net revenues of $189$369 million due to higher in-game net revenues from:

•Diablo Immortal;

•Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard;

•Overwatch 2; and

•the Candy Crush franchise.

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

In-game net revenues

The decrease in in-game net revenues for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, was primarily drivenpartially offset by a decrease in in-game net revenues of $227$80 million due to lower in-game net revenues from:

•from Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold WarWar.; 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 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 2022 vs. YTD Q3 2021

Consolidated net revenues

The decrease in consolidated net revenues for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily driven by a decrease in revenues of $1.6 billion due to lower revenues from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops 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 revenues of $359 million due to higher revenues from:

•the Candy Crush franchise; and

•Diablo Immortal.

The remaining net decrease in revenues of $234 million was driven by various other franchises and titles.

In-game net revenues

The decrease in in-game net revenues for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily driven by a decrease in in-game net revenues of $814 million due to lower in-game net revenues from:

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops 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 negative impact of approximately $93 million and $195$66 million on our consolidated net revenues for the three and nine months ended September 30, 2022, respectively,March 31, 2023, as compared to the same periodsperiod in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.

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Operating Segment Results

We have three reportable 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 (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
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financings; certain restructuring and related costs; certain partnership wind down 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 organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.

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

For the Three Months Ended September 30, 2022Increase / (decrease)
ActivisionBlizzardKingTotalActivisionBlizzardKingTotal
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
ActivisionBlizzardKingTotal
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, 2022Increase / (decrease)For the Three Months Ended March 31, 2023Increase / (decrease)
ActivisionBlizzardKingTotalActivisionBlizzardKingTotalActivisionBlizzardKingTotalActivisionBlizzardKingTotal
Segment RevenuesSegment RevenuesSegment Revenues
Net revenues from external customersNet revenues from external customers$1,423 $1,189 $2,058 $4,670 $(898)$(158)$162 $(894)Net revenues from external customers$580 $435 $739 $1,754 $127 $170 $57 $354 
Intersegment net revenues (1)Intersegment net revenues (1)— 29 — 29 — (33)— (33)Intersegment net revenues (1)— 8 — 8 — (1)— (1)
Segment net revenuesSegment net revenues$1,423 $1,218 $2,058 $4,699 $(898)$(191)$162 $(927)Segment net revenues$580 $443 $739 $1,762 $127 $169 $57 $353 
Segment operating incomeSegment operating income$304 $314 $811 $1,429 $(745)$(223)$56 $(912)Segment operating income$179 $56 $241 $476 $120 $3 $(2)$121 
For the Nine Months Ended September 30, 2021For the Three Months Ended March 31, 2022
ActivisionBlizzardKingTotalActivisionBlizzardKingTotal
Segment RevenuesSegment RevenuesSegment Revenues
Net revenues from external customersNet revenues from external customers$2,321 $1,347 $1,896 $5,564 Net revenues from external customers$453 $265 $682 $1,400 
Intersegment net revenues (1)Intersegment net revenues (1)— 62 — 62 Intersegment net revenues (1)— 9 — 9 
Segment net revenuesSegment net revenues$2,321 $1,409 $1,896 $5,626 Segment net revenues$453 $274 $682 $1,409 
Segment operating incomeSegment operating income$1,049 $537 $755 $2,341 Segment operating income$59 $53 $243 $355 

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

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

For the Three Months Ended September 30,For the Nine Months Ended September 30,For the Three Months Ended March 31,
202220212022202120232022
Reconciliation to consolidated net revenues:Reconciliation to consolidated net revenues:Reconciliation to consolidated net revenues:
Segment net revenuesSegment net revenues$1,715 $1,786 $4,699 $5,626 Segment net revenues$1,762 $1,409 
Revenues from non-reportable segments (1)Revenues from non-reportable segments (1)123 109 278 303 Revenues from non-reportable segments (1)101 81 
Net effect from recognition (deferral) of deferred net revenues (2)Net effect from recognition (deferral) of deferred net revenues (2)(47)190 246 773 Net effect from recognition (deferral) of deferred net revenues (2)528 287 
Elimination of intersegment revenues (3)Elimination of intersegment revenues (3)(9)(15)(29)(62)Elimination of intersegment revenues (3)(8)(9)
Consolidated net revenuesConsolidated net revenues$1,782 $2,070 $5,194 $6,640 Consolidated net revenues$2,383 $1,768 
Reconciliation to consolidated income before income tax expense:Reconciliation to consolidated income before income tax expense:Reconciliation to consolidated income before income tax expense:
Segment operating incomeSegment operating income$616 $735 $1,429 $2,341 Segment operating income$476 $355 
Operating income (loss) from non-reportable segments (1)Operating income (loss) from non-reportable segments (1)14 4 28 (12)Operating income (loss) from non-reportable segments (1)6 19 
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)(25)154 210 562 Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)471 235 
Share-based compensation expense (4)Share-based compensation expense (4)(102)(64)(301)(259)Share-based compensation expense (4)(124)(98)
Amortization of intangible assets(5)Amortization of intangible assets(5)(6)(2)(9)(8)Amortization of intangible assets(5)(4)(2)
Merger and acquisition-related fees and other expenses (5)(10)— (58)— 
Restructuring and related costs(2)(3)3 (46)
Restructuring and related costs (6)Restructuring and related costs (6)— 2 
Partnership wind down and related costs (7)Partnership wind down and related costs (7)(4)— 
Merger and acquisition-related fees and other expenses (8)Merger and acquisition-related fees and other expenses (8)(21)(32)
Consolidated operating incomeConsolidated operating income485 824 1,302 2,578 Consolidated operating income800 479 
Interest and other (income) expense, net(15)65 16 52 
Interest expense from debtInterest expense from debt27 27 
Other (income) expense, netOther (income) expense, net(122)(13)
Consolidated income before income tax expenseConsolidated income before income tax expense$500 $759 $1,286 $2,526 Consolidated income before income tax expense$895 $465 

(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)ExpensesReflects expenses related to share-based compensation, including $25 million and $54 million for the three and nine months ended September 30, 2022, respectively, related to liability awards accounted for under ASC 718.compensation.

(5)Reflects amortization of intangible assets from purchase price accounting.

(6)Reflects restructuring initiatives.

(7)Reflects expenses related to the wind down of our partnership with NetEase, Inc. in Mainland China in regards to licenses covering the publication of several Blizzard titles which expired in January 2023.

(8)Reflects fees and other expenses 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 decreaseincrease in Activision’s segment net revenues and operating income for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to lowerhigher revenues from:
from
Call of Duty: Modern Warfare II
• as compared to Call of Duty: Vanguard, partially offset by a decrease in revenues from Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold WarWar. ;Additionally, segment operating income also benefited from lower sales and marketing costs for

•Call of Duty: Mobile; and. Higher product development costs due to expanded development teams was offset by higher capitalization of development costs.

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

This decreaseThe increase in segment net revenues and operating income was partially offset by an increase inhigher cost of revenues from:

•priorfrom the 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.franchise.

Blizzard

The increase in Blizzard’s segment net revenues for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to higher revenues from from:

•Diablo Immortal, partially offset by lower revenues from Diablo II: Resurrected.Immortal;

•Overwatch 2; and

•World of Warcraft.

Despite the increase in segment net revenues, Blizzard’s segment operating income decreased for the three months ended September 30, 2022, as comparedMarch 31, 2023 was comparable to the three months ended September 30, 2021,March 31, 2022, primarily due to to:

•higher cost of revenues, primarily from Overwatch 2 and Diablo Immortal;

•higher product development costs due to expanded development teams; and

•higher sales and marketing costs, primarily for the upcoming release of Diablo Immortal, partially offset by lower software amortization and royalties on Diablo II: Resurrected.IV.

King

The increase in King’s segment net revenues for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, 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 comparedMarch 31, 2023, was comparable to the three months ended September 30, 2021,March 31, 2022, 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 2022 vs. YTD Q3 2021

Activision

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

•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 lower revenues.

Blizzard

The decrease in Blizzard’s segment net revenues and operating income for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 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 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

The increase in King’s segment net revenues and operating income for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to higher revenues from in-game player purchases in the Candy Crush franchise.

The resulting increase in segment operating income was partially offset by higher sales and marketing costs, primarily for the Candy Crush franchise.franchise; and

•higher service provider fees, primarily digital storefront fees, driven by the higher revenues from in-game player purchases.

Foreign Exchange Impact
 
Changes in foreign exchange rates had a negative impact of $76 million and $156$42 million on Activision Blizzard’s segment net revenues for the three and nine months ended September 30, 2022, respectively,March 31, 2023 as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.

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Consolidated Results

Net Revenues by Distribution Channel

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

For the Three Months Ended September 30,For the Nine Months Ended September 30, For the Three Months Ended March 31,
20222021Increase/
(decrease)		20222021Increase/
(decrease)		 20232022Increase/
(decrease)		% Change
Net revenues by distribution channel:Net revenues by distribution channel:   Net revenues by distribution channel:   
Digital online channels (1)Digital online channels (1)$1,606 $1,852 $(246)$4,668 $5,883 $(1,215)Digital online channels (1)$2,157 $1,589 $568 36 %
Retail channelsRetail channels25 69 (44)177 354 (177)Retail channels104 85 19 22 
Other (2)Other (2)151 149 2 349 403 (54)Other (2)122 94 28 30 
Total consolidated net revenuesTotal consolidated net revenues$1,782 $2,070 $(288)$5,194 $6,640 $(1,446)Total consolidated net revenues$2,383 $1,768 $615 35 

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

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

Q3 2022 vs. Q3 2021

Digital Online Channel Net Revenues

The decreaseincrease in net revenues from digital online channels for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to lowerhigher revenues from:

•Call of Duty: VanguardModern Warfare II as compared to Call of Duty: Black Ops Cold WarVanguard;

•Diablo Immortal;

•World of Warcraft; and

•Diablo II: Resurrected.

This decrease was partially offset by higher revenues from:

•Diablo ImmortalOverwatch 2; and

•the Candy Crush franchise.

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Retail Channel Net Revenues

The decrease in net revenues from retail channels for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021,This increase was primarily due topartially offset by lower revenues from Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold War.

YTD Q3 2022 vs. YTD Q3 2021

Digital Online Channel Net Revenues

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

•Call of Duty: Vanguard as compared to Call of Duty: Black Ops 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 higher revenues from:

•the Candy Crush franchise;

•Diablo Immortal; and

•prior Call of Duty franchise catalog titles.War.

Retail Channel Net Revenues

The decreaseincrease in net revenues from retail channels for the ninethree months ended September 30, 2022,March 31, 2023, as compared to the ninethree months ended September 30, 2021,March 31, 2022, was primarily due to lowerhigher revenues from Call of Duty: VanguardModern Warfare II as compared to Call of Duty: Black Ops Cold WarVanguard.

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Net Revenues by Platform

The following tables detail our net revenues by platform (amounts in millions):

For the Three Months Ended September 30,For the Nine Months Ended September 30,For the Three Months Ended March 31,
20222021Increase/
(decrease)		20222021Increase/
(decrease)		20232022Increase/
(decrease)		% Change
Net revenues by platform:Net revenues by platform:Net revenues by platform:
ConsoleConsole$336 $523 $(187)$1,195 $2,061 $(866)Console$639 $484 $155 32 %
PCPC363 578 (215)1,080 1,827 (747)PC666 383 283 74 
Mobile and ancillary (1)Mobile and ancillary (1)932 820 112 2,570 2,349 221 Mobile and ancillary (1)956 807 149 18 
Other (2)Other (2)151 149 2 349 403 (54)Other (2)122 94 28 30 
Total consolidated net revenuesTotal consolidated net revenues$1,782 $2,070 $(288)$5,194 $6,640 $(1,446)Total consolidated net revenues$2,383 $1,768 $615 35 

(1)Net revenues from “Mobile and ancillary” primarily include revenues from mobile devices.

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

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Q3 2022 vs. Q3 2021

Console

The decreaseincrease in net revenues from the console platform for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to lowerhigher revenues from:

•Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguard; and

•Overwatch 2.

The increase was partially offset by a decrease in net revenues from Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold Warpartially offset by an increase in net revenues from prior Call of Duty franchise catalog titles..

PC

The decreaseincrease in net revenues from the PC platform for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to lowerthe same drivers and offsets noted above for the console platform, along with higher revenues from:

•from World of Warcraft;

• and Diablo II: Resurrected;

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

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

Mobile and Ancillary

The increase in net revenues from mobile and ancillary for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to higher revenues from:

•Diablo Immortal; and

•the Candy Crush franchise.

YTD Q3 2022 vs. YTD Q3 2021
41

Console

The decrease in net revenues from the console platform for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to lower revenues from:

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

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

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

PC

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

•World of Warcraft;

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

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

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Mobile and Ancillary

The increase in net revenues from mobile and ancillary for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to higher revenues from:

•the Candy Crush franchise; and

•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:

Three Months Ended September 30, 2022% of
associated
net revenues		Three Months Ended September 30, 2021% of
associated
net revenues		Increase
(Decrease)		 Three Months Ended March 31, 2023% of
associated
net revenues		Three Months Ended March 31, 2022% of
associated
net revenues		Increase
(Decrease)
Cost of revenues—product sales:Cost of revenues—product sales:Cost of revenues—product sales:
Product costsProduct costs$107 46 %$120 28 %$(13)Product costs$136 20 %$91 24 %$45 
Software royalties and amortizationSoftware royalties and amortization9 4 72 17 (63)Software royalties and amortization101 15 81 21 20 
Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:Cost of revenues—in-game, subscription, and other:
Game operations and distribution costsGame operations and distribution costs343 22 307 19 36 Game operations and distribution costs363 22 288 21 75 
Software royalties and amortizationSoftware royalties and amortization43 3 28 2 15 Software royalties and amortization65 4 19 1 46 
Total cost of revenuesTotal cost of revenues$502 28 %$527 25 %$(25)Total cost of revenues$665 28 %$479 27 %$186 

 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 amortization153 17 272 16 (119)
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs948 22 925 19 23 
Software royalties and amortization86 2 87 2 (1)
Total cost of revenues$1,466 28 %$1,659 25 %$(193)

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Cost of Revenues—Product Sales:

Q3 2022 vs. Q3 2021

The decreaseincrease in product costs for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was driven by by:

•a $11$31 million decreaseincrease in product costs for our Distribution business due to higher revenues; and

•a $23 million increase in product costs from Activision, driven by higher product costs for Call of Duty: Modern Warfare II as compared to Call of Duty: Vanguarddue to lowerhigher revenues.

The decreaseincrease in software royalties and amortization related to product sales for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to a $60$13 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 2022 vs. YTD Q3 2021

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

•a $65 million decrease in product costs for our Distribution business due to lower revenues; and

•a $51 million decrease in product costs from Activision, driven by lower product costs for Call of Duty: Vanguard as compared to Call of Duty: Black Ops Cold War due to lower revenues.

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

•a $105 million decrease in software amortization and royalties from Blizzard, driven by lower software amortization and royalties from (1) World of Warcraft, as the prior year included higher amortization associated with the release of World of Warcraft: Shadowlands, and (2) Diablo II: Resurrected; and

•a $15 million decreaseincrease in software amortization and royalties from Activision, driven by lowerhigher software amortization and royalties from Call of Duty: VanguardModern Warfare II as compared toCall of Duty: Black Ops Cold War.Vanguard.

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

Q3 2022 vs. Q3 2021Other:

The increase in game operations and distribution costs for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to a $37$70 million increase in service provider fees, 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 software royalties and amortization related to in-game, subscription, and other revenues for the three months ended September 30, 2022,March 31, 2023 as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to a $17$39 million increase in software royaltiesamortization and amortizationroyalties from Blizzard, driven byOverwatch 2 and Diablo Immortal.

YTD Q3 2022 vs. YTD Q3 2021

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

Software royalties and amortization related to in-game, subscription, and other revenues for the nine months ended September 30, 2022 were comparable to the nine months ended September 30, 2021.

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Product Development (amounts in millions)

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 2022 vs. Q3 2021
March 31, 2023% of
consolidated
net revenues		March 31, 2022% of
consolidated
net revenues		Increase
(Decrease)
Product development$402 17 %$346 20 %$56 

The decreaseincrease in product development costs for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was driven by a $155$79 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 share-based compensation, partially offset by lower bonuses as a result of lower business performance.

YTD Q3 2022 vs. YTD Q3 2021

The decrease in product development costs for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was driven by a $344 million increase inhigher capitalization of development costs partially offset by higher development spending of $263 million, in both cases due to the same factors as discussed for the quarter-to-date period above.$23 million.

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Sales and Marketing (amounts in millions)

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 2022 vs. Q3 2021
March 31, 2023% of
consolidated
net revenues		March 31, 2022% of
consolidated
net revenues		Increase
(Decrease)
Sales and marketing$278 12 %$252 14 %$26 

The increase in sales and marketing expenses for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021, was primarily due to marketing spending for Diablo Immortal.

YTD Q3March 31, 2022, vs. YTD Q3 2021

The increase in sales and marketing expenses for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to higher marketing spending for the Candy Crush franchise and our upcoming release of Diablo Immortal.IV, partially offset by lower marketing spending for Call of Duty: Mobile.

General and Administrative (amounts in millions)

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 

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Q3 2022 vs. Q3 2021
March 31, 2023% of
consolidated
net revenues		March 31, 2022% of
consolidated
net revenues		Increase
(Decrease)
General and administrative$238 10 %$212 12 %$26 

The increase in general and administrative expenses for the three months ended September 30, 2022,March 31, 2023, as compared to the three months ended September 30, 2021,March 31, 2022, was primarily due to 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 millionan increase in personnel costs as a result of higher share-based compensation expense.costs.

YTD Q3 2022 vs. YTD Q3 2021

The increase in general and administrative expenses for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due 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 as a result of lower share-based compensation expense.

Restructuring and Related CostsInterest Expense from Debt (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. We substantially completed all actions under our plan and 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.
March 31, 2023% of
consolidated
net revenues		March 31, 2022% of
consolidated
net revenues		Increase
(Decrease)
Interest expense from debt$27 1 %$27 2 %$— 

Interest and expense from debt for the three months ended March 31, 2023 was comparable to March 31, 2022.

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
March 31, 2023% of
consolidated
net revenues		March 31, 2022% of
consolidated
net revenues		Decrease
(Increase)
Other (income) expense, net$(122)(5)%$(13)(1)%$(109)

The changeincrease in interest and other (income) expense, net, to an income balance for the three months ended September 30, 2022,March 31, 2023, as compared to an expense balance for the three months ended September 30, 2021,March 31, 2022, was primarily due to:

•to a $49$125 million increase in interest income due to higher market interest rate yields compared to the prior year; andyear.

•lower realized and unrealized losses on our equity investments, with unrealized losses of $10 million in the current year as compared to $36 million in the prior year.

YTD Q3 2022 vs. YTD Q3 2021

The decrease in interest and other (income) expense, net, for the nine months ended September 30, 2022, as compared to the 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

•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.
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Income Tax Expense (amounts in millions)

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)
March 31, 2023% of
Pretax
income		March 31, 2022% of
Pretax
income		Increase
(Decrease)
Income tax expense$155 17 %$70 15 %$85 

The income tax expense of $65$155 million for the three months ended September 30, 2022March 31, 2023 reflects an effective tax rate of 13%17%, which is comparable tohigher than the effective tax rate of 16%15% for the three months ended September 30, 2021.March 31, 2022. Our tax rate in the current quarter is lowerhigher than in the prior year due to changes in the mix of our pre-tax income between countries partially offset by discrete tax benefits recognizedand an increase 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 effectiveU.K. corporate tax rate of 14%, which is comparable to thethat became effective tax rate of 15% for the nine months ended September 30, 2021. The decrease is primarily due to changes in the mix of our pre-tax income among countries, partially offset by a discrete tax benefit recognized in 2021 related to deferred tax remeasurement.2023.

The effective tax rate of 13% and 14%17% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, is lower than the U.S. statutory rate of 21%, primarily due to lower taxes on foreign earnings taxed at lower rates and U.S. research and development credits.

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The overall effective income tax rate in future periods will depend on a variety of factors, such as changes in pre-tax income or loss by jurisdiction, applicable accounting rules, applicable tax laws and regulations, and rulings and interpretations thereof, developments in tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income or loss.

Other information about our income taxes is provided in Note 1411 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$12.6 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 include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities. Our material cash requirements include operating expenses, potential dividend payments and share repurchases, scheduled debt maturities (the next of which is in 2026), capital expenditures and other commitments, as discussed below.

As of September 30, 2022,March 31, 2023, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $4.5$3.0 billion, as compared to $3.9$4.6 billion as of December 31, 2021.2022. These cash balances are generally available for use in the U.S., subject in some cases to certain restrictions.

Our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by sales, which are generally highest in the fourth quarter due to title release timing and holiday-related sales patterns. We consider, on a continuing basis, various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, dividends, share repurchases, and other structural 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.

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Sources of Liquidity (amounts in millions)

September 30, 2022December 31, 2021Increase
(Decrease)		March 31, 2023December 31, 2022Increase
(Decrease)
Cash and cash equivalentsCash and cash equivalents$7,743 $10,423 $(2,680)Cash and cash equivalents$9,236 $7,060 $2,176 
Short-term investmentsShort-term investments3,189 195 2,994 Short-term investments3,350 5,005 (1,655)
$10,932 $10,618 $314 $12,586 $12,065 $521 
Percentage of total assetsPercentage of total assets43 %42 % Percentage of total assets46 %44 % 

For the Nine Months Ended September 30, For the Three Months Ended March 31,
20222021Increase
(Decrease)		 20232022Increase
(Decrease)
Net cash provided by operating activitiesNet cash provided by operating activities$1,097 $1,753 $(656)Net cash provided by operating activities$577 $642 $(65)
Net cash used in investing activities(3,193)(101)(3,092)
Net cash provided by investing activitiesNet cash provided by investing activities1,663 7 1,656 
Net cash used in financing activitiesNet cash used in financing activities(473)(533)60 Net cash used in financing activities(71)(97)26 
Effect of foreign exchange rate changesEffect of foreign exchange rate changes(100)(35)(65)Effect of foreign exchange rate changes8 (10)18 
Net (decrease) increase in cash and cash equivalents and restricted cash$(2,669)$1,084 $(3,753)
Net increase in cash and cash equivalents and restricted cashNet increase in cash and cash equivalents and restricted cash$2,177 $542 $1,635 

Net Cash Provided by Operating Activities

The primary driver of net cash flows associated with our operating activities is the income generated from the sale of our products and services. This is partially offset by: working capital requirements used in the development, sale, and support of our products; payments for interest onto our debt;workforce; payments for tax liabilities; and payments tofor interest on our workforce.debt.
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Net cash provided by operating activities for the ninethree months ended September 30, 2022,March 31, 2023, was $1.1 billion,$577 million, as compared to $1.8 billion$642 million for the ninethree months ended September 30, 2021.March 31, 2022. The decrease was primarily due to lowercash flows generated as a result of higher net income from lower business performance as well as higher capitalized software development spending. These were partially offset by unfavorable working capital changes in accrued expenses and other liabilities, including a higher portion of our working capital, including the settling in equity of amounts otherwise payable in cash for 2021 under the Company’s2022 annual incentive compensation plans settled in cash instead of equity, and lower tax payments due to lower profitability.timing of settlements for accounts payable.

Net Cash Used inProvided by Investing Activities

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

Net cash used inprovided by investing activities for the ninethree months ended September 30, 2022,March 31, 2023, was $3.2$1.7 billion, as compared to $101$7 million for the ninethree months ended September 30, 2021.March 31, 2022. The increase was primarily due to purchasesproceeds received from the maturity of $2.9$1.7 billion of held-to-maturity investments and $135 million net cash used in business acquisitions during the ninethree months ended September 30, 2022March 31, 2023 with no similar activity in the prior year.

Net Cash 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 ninethree months ended September 30, 2022,March 31, 2023, was $473$71 million, as compared to $533$97 million for the ninethree months ended September 30, 2021.March 31, 2022. The decrease was primarily due to $99$29 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.units.

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Effect of Foreign Exchange Rate Changes

Changes in foreign exchange rates had a negativepositive impact of $100 million and $35$8 million on our cash and cash equivalents for the ninethree months ended September 30, 2022 and September 30, 2021, respectively.March 31, 2023 as compared to a negative impact of $10 million for the three months ended March 31, 2022. The change was primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.

Debt

At both September 30, 2022March 31, 2023 and December 31, 2021,2022, our total gross unsecured senior notes outstanding was $3.7 billion, bearing interest at a weighted average rate of 2.87%.

A summary of our outstanding debt is as follows (amounts in millions):

At September 30, 2022At December 31, 2021 At March 31, 2023At December 31, 2022
2026 Notes2026 Notes$850 $850 2026 Notes$850 $850 
2027 Notes2027 Notes400 400 2027 Notes400 400 
2030 Notes2030 Notes500 500 2030 Notes500 500 
2047 Notes2047 Notes400 400 2047 Notes400 400 
2050 Notes2050 Notes1,500 1,500 2050 Notes1,500 1,500 
Total gross long-term debtTotal gross long-term debt$3,650 $3,650 Total gross long-term debt$3,650 $3,650 
Unamortized discount and deferred financing costsUnamortized discount and deferred financing costs(40)(42)Unamortized discount and deferred financing costs(39)(39)
Total net carrying amountTotal net carrying amount$3,610 $3,608 Total net carrying amount$3,611 $3,611 

Refer to Note 86 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
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On February 3, 2022, our Board of Directors declared a cash dividend of $0.47 per common share. On May 6, 2022, we made an aggregate cash dividend payment of $367 million to shareholders of record at the close of business on April 15, 2022.

Capital Expenditures

We made capital expenditures of $67$37 million during the ninethree months ended September 30, 2022,March 31, 2023, as compared to $59$15 million during the ninethree months ended September 30, 2021.March 31, 2022. In 2022,2023, we anticipate total capital expenditures of approximately $100 million, primarily for computer hardware, leasehold improvements, and software purchases.

Commitments

57Refer to Note 13 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 updates to our commitments.

Off-Balance Sheet Arrangements
Table
At each of ContentsMarch 31, 2023 and December 31, 2022, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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. 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;
•Income Taxes; and
•Software Development Costs.

During the three and nine months ended September 30, 2022,March 31, 2023, 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” contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20212022, for a more complete discussion of our critical accounting policies and estimates.
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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, 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 U.S., the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, generally cause a disproportional impact on our business. We monitor currency volatility throughout the year.

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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, 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 Designated as Hedges (“Cash Flow Hedges”)

Refer to Note 54 of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for disclosures regarding our foreign currency forward contracts.

In the absence of hedging activities for the ninethree months ended September 30, 2022,March 31, 2023, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in a theoretical decline of our net income of approximately $107$41 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, as our outstanding debt is all at fixed rates. Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a 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, 2022,March 31, 2023, our cash and cash equivalents were comprised primarily of money market funds.funds and we had approximately $3.3 billion invested in securities classified as held-to-maturity investments which have fixed interest yields and will mature over the next six months.

As of September 30, 2022,March 31, 2023, based on the composition of our investment portfolio, we anticipate investment yields will continue to increase ifmaterial movements (higher or lower) of short-term interest rates by the U.S. Federal Reserve continues to raise short-term interest rates, which would positivelycan have a material impact on our future interest income.

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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, as amended (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’sSEC’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.

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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, 2022,March 31, 2023, 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, 2022,March 31, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported on a timely basis and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

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, 2022.March 31, 2023. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at September 30, 2022,March 31, 2023, 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.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

Refer to Note 1713 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 legal 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, 20212022 (the “2021“2022 Form 10-K”).

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” in the 20212022 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.

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Item 6.    Exhibits
EXHIBIT INDEX

Exhibit Number Exhibit
   
3.1 
3.2
10.1*
31.1 
   
31.2 
   
32.1 
   
32.2 
101.INS Inline XBRL Instance 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.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Management contract or compensatory plan, contract or arrangement in which a director or executive officer of the Company participates.


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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 7, 2022May 4, 2023

ACTIVISION BLIZZARD, INC.
 
/s/ ARMIN ZERZA/s/ JESSE YANG
Armin ZerzaJesse Yang
Chief Financial Officer and Principal Financial OfficerDeputy Chief Financial Officer and Comptroller, and Principal Accounting Officer
of Activision Blizzard, Inc.of Activision Blizzard, Inc.
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