| Delaware | 95-4803544 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| Santa Monica, | CA | 90404 | ||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
code) $73,721,746,854. 779,234,888. Form 10-K to the extent stated herein. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021. For a discussion of the history of the formation of our Company, including our year and form of incorporation, refer to League™, a global professional esports league with city-based teams. Overwatch League™, a global professional esports league with city-based teams. “match three” franchise. content. online. to connect regardless of which of our games on These products are sold primarily on a direct basis to mass-market retailers (e.g., Target, Walmart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop), and other stores (e.g., Amazon), or through third-party distribution and licensing arrangements. in those periods. in those periods. Name he became our President and Chief Executive an MBA degree from Harvard Business School. new titles. Any negative impact which occurs during key selling periods, particularly in the fourth quarter of the year, could be especially pronounced. software products for prior-generation consoles in anticipation of purchasing a next-generation console and products for that console. During these periods, sales of the game console entertainment software products we publish may decline until new platforms achieve wide consumer adoption. Console transitions may have a comparable impact on sales of add-on content, amplifying the impact on our revenues. This decline may not be offset by increased sales of products for the next-generation consoles. In addition, as console hardware moves through its life cycle, hardware manufacturers typically enact price reductions, and decreasing prices may put downward pressure on software prices. During console transitions, we may simultaneously incur costs both in continuing to develop, market, and operate titles for prior‑generation video game platforms, while also developing and supporting next‑generation platforms. As a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times. are unable to oversee the conduct of any such persons who are not our employees, potentially exposing us to greater risk from their actions. success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved. At the same time, if the media, consumers, or employees raise any concerns about our actions vis-à-vis third parties including consumers who play our games, this could also damage our reputation or our business. Further, should we terminate our relationship with a third-party affiliate for any reason, we may experience interruptions in our business and incur costs as we transition to a new partner. Additionally, the shared nature of open source software may increase the ability of cyber-attackers to discover and exploit vulnerabilities, which may increase the likelihood of a data breach, ransomware, network interruption, or other type of cyber-attack against us or against third parties who may use open source software, such as our platform partners or key vendors, any of which could negatively impact our business. lawsuits, governmental regulation or restrictions, and consumer backlash (including decreased sales and harmed reputation), as a result of consumers posting offensive content. business. based. We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging Corporate Offices Activision Product Development & Publishing Facilities (Activision segment) Blizzard Product Development & Publishing Facilities (Blizzard segment) King Product Development & Publishing Facilities (King segment) Distribution and Other Facilities Sales offices Total Barcelona, Spain. 2017 First Quarter Ended March 31, 2017 Second Quarter Ended June 30, 2017 Third Quarter Ended September 30, 2017 Fourth Quarter Ended December 31, 2017 2016 First Quarter Ended March 31, 2016 Second Quarter Ended June 30, 2016 Third Quarter Ended September 30, 2016 Fourth Quarter Ended December 31, 2016 Stock Performance Graph Activision Blizzard, Inc. Nasdaq Composite S&P 500 RDG Technology Composite 2018 2017 2016 2015 unreasonably withheld, conditioned, or delayed). Statement of Operations Data: Net revenues Net income(1) Basic net income per share Diluted net income per share Cash dividends declared per share Operating cash flows Balance Sheet Data: Cash and investments(2) Total assets Long-term debt, net(3) Long-term debt, gross Net debt(4) Business Overview also includes the activities of the Call of Duty League, a global professional esports league with city-based teams. Entertainment, Inc. 2020. operating segment results. economies. The key drivers of changes in our operating metrics are presented in the order of significance. MAUs for these third-party published games. Activision Blizzard King Total franchise. Net bookings significant rate. King is a leading developer of mobile and free-to-play games, and our other business units have mobile efforts underway that present the opportunity for us to expand the reach of, and drive additional player investment Duty: Warzone Pacific. our profits. For example, in 2021, the Call of Duty, Candy Crush, and Warcraft franchises, collectively, accounted for 82% of our consolidated net revenues—and a significantly higher percentage of our operating income. March 2021, as well as our plans for content, features, and services across King’s portfolio with an ongoing focus on the Candy Crush franchise. We will also continue to invest in Net revenues Product sales Subscription, licensing, and other revenues Total net revenues Costs and expenses Cost of revenues—product sales: Product costs Software royalties, amortization, and intellectual property licenses Cost of revenues—subscription, licensing, and other: Game operations and distribution costs Software royalties, amortization, and intellectual property licenses Product development Sales and marketing General and administrative Total costs and expenses Operating income Interest and other expense (income), net Loss on extinguishment of debt(1) Income before income tax expense Income tax expense Net income Consolidated net revenues Net effect from recognition (deferral) of deferred net revenues revenues recognized for microtransactions and downloadable content during the period. titles. this change, the Company determined to settle amounts not yet paid as of December 31, 2021 under its annual performance plans in stock as opposed to cash and further to provide such incentives, to eligible employees, at no less than target performance without regard to whether target performance was achieved, resulting in a year-end share-based compensation liability of $194 million. The changes during the three months ended December 31, 2021 resulted in $160 million of expense related to achievement against 2021 performance targets that would have otherwise been included in our reportable segment operating income to instead be excluded from our 2021 operating income as it is now part of share-based compensation, accounted for as a liability under ASC 718. The changes increased our Activision, Blizzard, King and non-reportable segment operating income by $43 million, $25 million, $65 million, and $27 million, respectively, for the three months and year ended December 31, 2021. In addition, going forward, to the extent certain of our previously cash-based bonus programs are instead issued as time-based equity or settled via equity, such amounts will be recorded as share-based compensation and will be excluded from segment operating income. Contents Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Reconciliation to consolidated net revenues: Segment net revenues Revenues from other segments(1) Net effect from recognition (deferral) of deferred net revenues(2) Elimination of intersegment revenues(3) Consolidated net revenues Reconciliation to consolidated income before income tax expense: Segment operating income Operating (loss) income from other segments(1) Net effect from recognition (deferral) of deferred net revenues and related cost of revenues(2) Share-based compensation expense Amortization of intangible assets(4) Fees and other expenses related to the King Acquisition(5) Restructuring costs(6) Other non-cash charges(7) Discrete tax-related items(8) Consolidated operating income Interest and other expense (income), net Loss on extinguishment of debt Consolidated income before income tax expense Results 2021, as compared to the year ended December 31, 2020, was primarily due to lower revenues from Net revenues by distribution channel Digital online channels(1) Retail channels Other(2) Total consolidated net revenues Geographic region net revenues: Americas EMEA(1) Asia Pacific Consolidated net revenues Net Revenues by Platform Platform net revenues: Console PC Mobile and ancillary(1) Other(2) Total consolidated net revenues Black Ops 4 Cost of revenues—product sales: Product costs Software royalties, amortization, intellectual property licenses Cost of revenues—subscription, licensing, and other revenues: Game operations and distribution costs Software royalties, amortization, intellectual property licenses Total cost of revenues lower retail channel revenues. storefront fees (e.g., fees retained by Apple and Google for our sales on their platforms) and payment processor fees, as a result of higher revenues. Duty: Mobile Product development Sales and marketing franchise. General and administrative Form 10-K for further discussion. Interest and other expense (income), net rates. Income tax expense 16% for the year ended December 31, 2020. The decrease is primarily due to a benefit resulting from deferred tax asset remeasurements. asset remeasurement. year ended December 31, 2020 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. certain restrictions. Cash and cash equivalents Short-term investments Percentage of total assets Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities Effect of foreign exchange rate changes Net increase (decrease) in cash and cash equivalents Net Cash Provided by Operating Activities year ended December 31, 2020. 2020. 2017 TLA 2021 Notes 2022 Notes 2023 Notes 2026 Notes 2027 Notes 2047 Notes Total debt 2016 TLA 2021 Notes 2023 Notes 2026 Notes Total long-term debt Refer to Note April 15, 2022. shareholders of record at the close of business on April 15, 2021. commitments, including a table showing contractual obligations. product downloadable content. Microtransaction revenues are derived from the sale of virtual selling price yields an appropriate profit margin. service. recognized in income in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of 2019. value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowances of $279 and $261, at December 31, 2017 and December 31, 2016, respectively Inventories, net Software development Other current assets Total current assets Software development Property and equipment, net Deferred income taxes, net Other assets Intangible assets, net Goodwill Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Deferred revenues Accrued expenses and other liabilities Total current liabilities Long-term debt, net Deferred income taxes, net Other liabilities Total liabilities Commitments and contingencies (Note 19) Shareholders' equity: Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,186,181,666 and 1,174,163,069 shares issued at December 31, 2017 and December 31, 2016, respectively Additional paid-in capital Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2017 and December 31, 2016 Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity Net revenues Product sales Subscription, licensing, and other revenues Total net revenues Costs and expenses Cost of revenues—product sales: Product costs Software royalties, amortization, and intellectual property licenses Cost of revenues—subscription, licensing, and other revenues: Game operations and distribution costs Software royalties, amortization, and intellectual property licenses Product development Sales and marketing General and administrative Total costs and expenses Operating income Interest and other expense (income), net Loss on extinguishment of debt Income before income tax expense Income tax expense Net income Earnings per common share Basic Diluted Weighted-average number of shares outstanding Basic Diluted Dividends per common share Net income Other comprehensive income (loss): Foreign currency translation adjustments Unrealized gains (losses) on forward contracts designated as hedges, net of tax Unrealized gains (losses) on investments, net of tax Total other comprehensive income (loss) Comprehensive income Balance at December 31, 2014 Components of comprehensive income: Net income Other comprehensive income (loss) Issuance of common stock pursuant to employee stock options Issuance of common stock pursuant to restricted stock units Restricted stock surrendered for employees' tax liability Tax benefit associated with employee stock awards Share-based compensation expense related to employee stock options and restricted stock units Dividends ($0.23 per common share) Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 15) Shareholder settlement in connection with the Purchase Transaction (see Note 19) Balance at December 31, 2015 Components of comprehensive income: Net income Other comprehensive income (loss) Issuance of common stock pursuant to employee stock options Issuance of common stock pursuant to restricted stock units Restricted stock surrendered for employees' tax liability Share-based compensation expense related to employee stock options and restricted stock units Share-based compensation assumed in acquisition (see Note 20) Dividends ($0.26 per common share) Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 15) Balance at December 31, 2016 Components of comprehensive income: Net income Other comprehensive income (loss) Issuance of common stock pursuant to employee stock options Issuance of common stock pursuant to restricted stock units Restricted stock surrendered for employees' tax liability Share-based compensation expense related to employee stock options and restricted stock units Dividends ($0.30 per common share) Balance at December 31, 2017 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes Provision for inventories Depreciation and amortization Amortization of capitalized software development costs and intellectual property licenses(1) Premium payment for early redemption of note Amortization of debt discount, financing costs, and non-cash write-off due to extinguishment of debts Share-based compensation expense(2) Other Changes in operating assets and liabilities, net of effect from business acquisitions: Accounts receivable, net Inventories Software development and intellectual property licenses Other assets Deferred revenues Accounts payable Accrued expenses and other liabilities Net cash provided by operating activities Cash flows from investing activities: Proceeds from maturities of available-for-sale investments Purchases of available-for-sale investments Acquisition of business, net of cash acquired (see Note 20) Release (deposit) of cash in escrow Capital expenditures Other investing activities Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of common stock to employees Tax payment related to net share settlements on restricted stock units Dividends paid Proceeds from debt issuances, net of discounts Repayment of long-term debt Premium payment for early redemption of note Proceeds received from shareholder settlement (see Note 19) Other financing activities Net cash (used in) provided by financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already rendered. Additionally, any obligations that are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, and are to be settled with a variable number of shares of our common stock, are liability classified with expense recognized ratably over the vesting period. Liability classified awards are subsequently reclassified to equity upon settlement in shares of our common stock. Internally-developed software costs Payments made to third-party software developers Total software development costs Amortization of capitalized software development costs and intellectual property licenses Land Buildings Leasehold improvements Computer equipment Office furniture and other equipment Total cost of property and equipment Less accumulated depreciation Property and equipment, net Acquired definite-lived intangible assets: Internally-developed franchises Developed software Customer base Trade names Other Total definite-lived intangible assets Acquired indefinite-lived intangible assets: Activision trademark Acquired trade names Total indefinite-lived intangible assets Total intangible assets, net Acquired definite-lived intangible assets: Internally-developed franchises Developed software Customer base Trade names Other Total definite-lived intangible assets Acquired indefinite-lived intangible assets: Activision trademark Acquired trade names Total indefinite-lived intangible assets Total intangible assets, net 2018 2019 2020 2021 2022 Thereafter Total Balance at December 31, 2015 Additions through acquisition Other Balance at December 31, 2016 Other Balance at December 31, 2017 not material. Financial Assets: Recurring fair value measurements: Money market funds Foreign government treasury bills U.S. treasuries and government agency securities Total recurring fair value measurements Financial Liabilities: Foreign currency forward contracts designated as hedges Financial Assets: Recurring fair value measurements: Money market funds Foreign government treasury bills Foreign currency forward contracts designated as hedges Auction rate securities Total recurring fair value measurements Foreign Currency Forward Contracts administrative expenses” and were not material. gains were recorded within “Interest and other expense (income), net” in our consolidated statement of operations (refer to 24, 2023. Borrowings under notes, a “make-whole” premium. 2017 TLA 2021 Notes 2022 Notes 2023 Notes 2026 Notes 2027 Notes 2047 Notes Total long-term debt 2016 TLA 2021 Notes 2023 Notes 2026 Notes Total long-term debt For the year ending December 31, 2018 2019 2020 2021 2022 Thereafter Total Balance at December 31, 2016 Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income (loss) into earnings Balance at December 31, 2017 Balance at December 31, 2015 Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive income (loss) into earnings Balance at December 31, 2016 Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Segment Revenues Net revenues from external customers Intersegment net revenues(1) Segment net revenues Segment operating income Reconciliation to consolidated net revenues: Segment net revenues Revenues from other segments(1) Net effect from recognition (deferral) of deferred net revenues Elimination of intersegment revenues(2) Consolidated net revenues Reconciliation to consolidated income before income tax expense: Segment operating income Operating (loss) income from other segments(1) Net effect from recognition (deferral) of deferred net revenues and related cost of revenues Share-based compensation expense Amortization of intangible assets Fees and other expenses related to the King Acquisition(3) Restructuring costs(4) Other non-cash charges(5) Discrete tax-related items(6) Consolidated operating income Interest and other expense (income), net Loss on extinguishment of debt Consolidated income before income tax expense Net revenues by distribution channel: Digital online channels(1) Retail channels Other(2) Total consolidated net revenues Net revenues by geographic region: Americas EMEA(1) Asia Pacific Total consolidated net revenues Net revenues by platform: Console PC Mobile and ancillary(1) Other(2) Total consolidated net revenues Long-lived assets* by geographic region: Americas EMEA Asia Pacific Total long-lived assets by geographic region measures, including those which are market-based. Achievement against such performance measures typically results in vesting of amounts that are different than the target shares at grant based on over- or under-achievement against the performance targets. Typically, performance-based RSUs provide for vesting up to 125% of the grant date target shares if performance targets are sufficiently overachieved (and will be cancelled without the vesting of any shares if the threshold level of performance measures is not met), but in certain instances some of our unvested performance-based RSUs can vest up to 250% of the grant date target amount based on achievement against the performance targets. Expected life (in years) Volatility Risk free interest rate Dividend yield Weighted-average grant date fair value Stock price volatility range: Low High next. We also grant market-based RSU awards, from time to time, the fair value of which is determined using a Monte Carlo simulation. Such market-based RSU awards include performance conditions based on our own stock price and may also include performance conditions that compare our stock price performance to an index, such as the S&P 500 Total Shareholder Return index. The valuation assumptions utilized in the Monte Carlo model are generally consistent with the inputs discussed in the valuation of stock options above. The weighted average risk free interest rate, volatility, and dividend yield utilized in the Monte Carlo model for market-based RSU awards in 2020 were 0.11%, 37.39%, and 0.47%, respectively. Outstanding stock options at December 31, 2016 Granted Exercised Forfeited Expired Outstanding stock options at December 31, 2017 Vested and expected to vest at December 31, 2017 Exercisable at December 31, 2017 that date. This amount changes based on the market value of our stock. The total intrinsic value of options actually exercised was Unvested RSUs at December 31, 2016 Granted Vested Forfeited Unvested RSUs at December 31, 2017 Certain of our performance-based RSUs did not have an accounting grant date as of December 31, Cost of revenues—product sales: Software royalties, amortization, and intellectual property licenses Cost of revenues—subscription, licensing, and other revenues: Game Operations and Distribution Costs Cost of revenues—subscription, licensing, and other revenues: Software royalties, amortization, and intellectual property licenses Product development Sales and marketing General and administrative Share-based compensation expense before income taxes Income tax benefit Total share-based compensation expense, net of income tax benefit Income before income tax expense: Domestic Foreign Income tax expense (benefit): Current: Federal State Foreign Total current Deferred: Federal State Foreign Total deferred Income tax expense Federal income tax provision at statutory rate State taxes, net of federal benefit Research and development credits Foreign rate differential Change in tax reserves Net operating loss tax attribute assumed from the Purchase Transaction Excess tax benefits related to share-based payments U.S. Tax Reform Act Other Income tax expense future cash flows, long-term growth rates, and discount rates. We recorded a expense. Deferred tax assets: Allowance for sales returns and price protection Inventory reserve Accrued expenses Deferred revenue Tax credit carryforwards Net operating loss carryforwards Share-based compensation Acquired intangibles State taxes Other Deferred tax assets Valuation allowance Deferred tax assets, net of valuation allowance Deferred tax liabilities: Acquired intangibles Prepaid royalties Capitalized software development expenses Other Deferred tax liabilities Net deferred tax assets As of December 31, would apply upon the realization of uncertain tax positions. In addition, we had foreign available. As of December 31, $989 million. jurisdictions in which King operates. 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. Unrecognized tax benefits balance at January 1 Gross increase for tax positions of prior-years Gross decrease for tax positions of prior-years Gross increase for tax positions of current year Settlement with taxing authorities Lapse of statute of limitations Unrecognized tax benefits balance at December 31 Numerator: Consolidated net income Less: Distributed earnings to unvested share-based awards that participate in earnings Less: Undistributed earnings allocated to unvested share-based awards that participate in earnings Numerator for basic and diluted earnings per common share—income available to common shareholders Denominator: Denominator for basic earnings per common share—weighted-average common shares outstanding Effect of dilutive stock options and awards under the treasury stock method Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method Basic earnings per common share Diluted earnings per common share the effective time of the Merger Agreement. April 15, 2022. Supplemental cash flow information: Cash paid for income taxes, net of refunds Cash paid for interest For the years ending December 31, 2018 2019 2020 2021 2022 Thereafter Total transaction. Tangible assets and liabilities assumed: Cash and cash equivalents Accounts receivable Other current assets Property and equipment Deferred income tax assets, net Other assets Accounts payable Accrued expenses and other liabilities Other liabilities Deferred income tax liabilities, net Intangible assets Internally-developed franchises Customer base Developed software Trade name Goodwill Total purchase price Net revenues Net loss Net revenues Net income Basic earnings per common share Diluted earnings per common share Net revenues Cost of revenues Operating income Net income (loss) Basic earnings (loss) per common share Diluted earnings (loss) per common share Net revenues Cost of revenues Operating income Net income(1) Basic earnings per common share(1) Diluted earnings per common share(1) At December 31, 2017 Allowances for sales returns and price protection and other allowances Allowance for doubtful accounts At December 31, 2016 Allowances for sales returns and price protection and other allowances Allowance for doubtful accounts At December 31, 2015 Allowances for sales returns and price protection and other allowances Allowance for doubtful accounts /s/ ROBERT A. KOTICKRegistrant'scode:(310) 255-2000Title of each Classclass Trading Symbol(s) Name of Each Exchangeeach exchange on Which Registeredwhich registeredCommon Stock, par value $.000001$0.000001 per shareATVI The Nasdaq Global Select Market ý☒ No o☐o☐ No ý☒registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý"large“large accelerated filer," "accelerated filer," "smallerfiler”, “accelerated filer”, “smaller reporting company,"company”, and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.Large Accelerated Filer ý☒ Accelerated Filer o☐ Non-accelerated Filer o(Do not check if asmaller☐ Smaller reporting company)company☐ Smaller Reporting CompanyoEmerging Growth Company ogrowth company☐ o☐o☐ No ý☒registrant'sregistrant’s Common Stock held by non-affiliates on June 30, 20172021 (based on the closing sale price as reported on the Nasdaq) was $42,587,342,045.registrant'sregistrant’s Common Stock outstanding at February 20, 201818, 2022 was 758,631,663.registrant's definitiveregistrant’s Proxy Statement to be filed withfor the Securities and Exchange Commission with respect to the 20182022 Annual Meeting of Shareholders which is expected to be held on June 26, 2018,Stockholders are incorporated herein by reference into Part III of this Annual Report.services;services, restructuring activities, and employee retention and recruitment; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as "outlook," "forecast," "will," "could," "should," "would," "to“outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be," "plan," "plans," "believes," "may," "might," "expects," "intends," "intends as," "anticipates," "estimate," "future," "positioned," "potential," "project," "remain," "scheduled," "set” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to," "subject” “subject to," "upcoming"” “upcoming,” and 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'smanagement’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.The company cautionsActivision Blizzard, Inc.'sour actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Some of the risk factors that could cause our actual results to differ from those stated in the forward-looking statements can be found in "Risk Factors"“Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K. The forward-looking statements contained herein are based uponon information available to usActivision Blizzard, Inc. as of the date of this Annual Report on Form 10-Kfiling, and we assume no obligation to update any such forward-looking statements. Actual events or results may differ from those expressed in forward-looking statements. Although theseAs such, you should not rely on forward-looking statements are believed to be true when made, theyas predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may ultimately prove to be incorrect.affect our business, financial condition, operating results, prospects, strategy, and financial needs. These statements are not guarantees of our future performance and are subject to risks, uncertainties, andand other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.'s’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard.Blizzard, Inc. All other product or service names are the property of their respective owners. All dollar amounts referred to in, or contemplated by, this Annual Report on Form 10-K refer to United States ("U.S.") dollars, unless otherwise explicitly stated to the contrary.("PC"(“PCs”), and mobile devices. We also operate esports events and leagues and create film and television content based onoffer digital advertising within some of our games.content. The terms "Activision“Activision Blizzard,"” the "Company," "we," "us,"“Company,” “we,” “us,” and "our"“our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.Company was originally incorporatedconsummation of the Merger remains subject to customary closing conditions, including satisfaction of certain regulatory approvals, approval by our stockholders and other customary closing conditions. The Merger is currently expected to close in CaliforniaMicrosoft’s fiscal year ending June 30, 2023. 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination (the "Business Combination") bytransaction that we will file with the SEC and amongthat will contain important information about the Company (then known as Activision, Inc.), Vivendi S.A. ("Vivendi"), and Vivendi Games, Inc. ("Vivendi Games"), an indirect wholly-owned subsidiary of Vivendi, we were renamed Activision Blizzard, Inc. The common stock of Activision Blizzard is traded on The Nasdaq Stock Market under the ticker symbol "ATVI."The King Acquisition On February 23, 2016 (the "King Closing Date"), we acquired King Digital Entertainment, a leading interactive mobile entertainment company ("King"), by purchasing all of its outstanding shares (the "King Acquisition"). We made this acquisition because we believed that the addition of King's highly complementary mobile business positioned us as a global leader in interactive entertainment across mobile, console, and PC platforms, and aligned us for future growth. The aggregate purchase price of approximately $5.8 billion was funded with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King's results of operations since the King Closing Date are included in our consolidated financial statements.continueconnect and engage the world through epic entertainment by continuing to be a worldwide leader in the development, publishing, and distribution of high-quality interactive entertainment content and services, as well as related media, that deliver engaging entertainment experiences to our network of connected players on a year-round basis. In pursuit of this objective, we focus on three strategic pillars: expanding audience reach; driving deepdeepening consumer engagement; and providing more opportunities forincreasing player investment.new content is at the core of our business. We endeavor to expand our network and reach as many consumers as possible either through: (1) the purchase ofby offering our content on multiple platforms, particularly mobile, the largest and services; (2) engagement in ourfastest growing platform, and delivering compelling experiences across multiple business models (e.g., premium, free-to-play, games, which allow consumers to play games with no up-front cost but provide for player investment through salessubscription-based).engagement.engagement. Our high-quality entertainment content not only expands our audience reach, but it also drives deep engagement with our franchises. We design our games, as well as related media, to provide a depth of content that keeps consumers engaged for a long period of time following a game's release,game’s release. In addition, our games are designed to provide players the ability to connect with each other socially within our franchise communities, thus delivering more value to our players and providing additional growth opportunities for our franchises. Providing more opportunities for Increasingly,The connected, online nature of our consumers are connected to our games online through consoles, PCs, and mobile devices. This allowsnetwork enables us to offer additional digitalcontent and player investment opportunities directly to our consumers on a year-round basis. In addition to purchasing full games or subscriptions, players can invest in certain of our games and franchises by purchasing incremental "in-game" content (including larger downloadable content or smaller content, via microtransactions).in-game content. These digital revenue streams tend to be more recurring and have relatively higher profit margins. Further, if executed properly, additional player investment can increase engagement as it provides more frequent and incremental content for our players. In addition, we believe there is an opportunity forgenerate revenue through offering advertising within certain of our franchises, as well asand we believe there are opportunities to drivegrow new forms of player investment through esports film and television, and consumer products. We are still in the early stages of developing these new revenue streams.strategy is ultimately aimed at creating shareholder value and enhancing returns. We strive to increase profitability, cash flows, and return on capital—and to do so while keeping our company a great place to work for our employees.Reportable Segments As part of the continued implementation of our esports strategy, we instituted changes to our internal organization and reporting structure such that the Major League Gaming ("MLG") business now operates as a division of Blizzard Entertainment, Inc. ("Blizzard"). As such, commencing with thesecond quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League™, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.as follows:(i) Activision Publishing, Inc. Activision Publishing, Inc. ("Activision"),each of which is a leading global developer and publisher of interactive software products and entertainment content particularly for the console platform.and services based primarily on our internally-developed intellectual properties.primarilyPublishing, Inc.retailboth premium and digital channels, includingfree-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties. We have also established a long-term alliance with Bungie to publish its game universe, Destiny. Activision'sActivision’s key product franchises include:franchise is Call of Duty®Dutyshooter foraction franchise. Activision also includes the console and PC platforms, and Destiny, an online universeactivities of first-person action gameplay (which we call a "shared-world shooter") for the console and PC platforms. Call of Duty Activision's leading franchise, has been the number one console franchise globally for eight of the last nine years, based on data from The NPD Group, GfK Chart-Track, and GSD, and our internal estimates.is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarilyEntertainment, Inc. (“Blizzard”) delivers content through retailboth premium and digital channels, including subscriptions,free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well assubscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®platform, Battle.net®, which facilitates digital distribution of Blizzard content along with Activision'sDestiny 2 PCand selected Activision content, online social connectivity, and the creation of user-generated content. As noted above, Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content. Blizzard'sBlizzard’s key product franchises include: WarcraftWarcraft®Warcraft®, a subscription-based massive multi-player online role-playing game ("MMORPG") for PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®Hearthstone®, an online collectible card franchise forgame based in the PCWarcraftuniverse; Diablo®, an action role-playing franchise; and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for PC; and Overwatch®Overwatch®, a team-based first-person shooter foraction franchise. Blizzard also includes the PC and console platforms. Worldactivities of Warcraft, which was initially launched in November 2004, is the leading subscription-based MMORPG in the world.is a leading global developerDigital Entertainment (“King”) delivers content through free-to-play offerings and publisher of interactive entertainment contentprimarily generates revenue from in-game sales and services, particularlyin-game advertising on mobile platforms, such as Google Inc.'s ("Google") Android and Apple Inc.'s ("Apple") iOS. King also distributes its content and services on the PC platform, primarily via Facebook, Inc. ("Facebook"). King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency. King'splatforms. King’s key product franchises, all of which are for the mobile and PC platforms, include:franchise is Candy Crush™, which features "match three" games; Farm Heroes™, which also features "match three" games; and Bubble Witch™, which features "bubble shooter" games. King had two of the top 10 highest-grossing titles in the U.S. mobile app stores for the last 17 quarters in a row, according to App Annie Intelligence and internal estimates for the Apple App Store and the Google Play Store combined.including:•the Activision Blizzard Studios ("Studios") business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV seriesSkylanders™ Academy on Netflix; and•("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. retail and digital distribution channels. Our products span various genres, including first-person shooter,first- and third-person action/adventure, role-playing, strategy, and "match“match three,"” among others. We primarily offer the following products and services:primarilyafter purchase;console or PC;downloadable content, which provides players with additional purchase following the purchase of a full game;•which typically provide relatively small pieces of additional in-game content or enhancements to gameplay, generally at relatively low price points; andour World of Warcraft franchise that provide for continualongoing access to the game content.purchasespurchases. This has allowed us to shift from our historical seasonality to a more consistently recurring and year-round revenue model. In addition, if executed properly, it allows us to increase player engagement as it provides more frequentwith our games and incremental content for our players.sequels, prequels and related new products and content that can be released over an extended period of time. We believe that the development and distribution of products and content based on provenestablished franchises enhances predictability of revenues and the probability of high unit volume sales and operating profits. We intend to continue development of content based on our owned franchises in the future.a group of creative, technical, and production professionals, including designers, producers, programmers, artists, and sound engineers, in coordination with our marketing, finance, analytics, sales, and other professionals, hasindividual game studios have responsibility for the entire development and production process, including the supervision and coordination of internal and, where appropriate, external resources. We believe this model allows us to deploy the best resources for a given task, including by supplementing our internal expertise with top-quality external resources on an as-needed basis.theour content for our franchises is developed by our internal studios, we periodically engage independent third-party developers to create content on our behalf. From time to time, we also acquire the license rights to publish and/or distribute software products that are, or will be, independently created by third-party developers. Since 2010, Activision has been in a long-term exclusive relationship with Bungie, the developer of game franchises including Halo, Myth, and Marathon, to publish games in the Destiny franchise. During the term of the agreement, Activision has exclusive, worldwide rights to publish and distribute on multiple platforms all future Bungie games based on Destiny.through various means, primarily online and by telephone. provides a significant marketing tool that allows us to communicate and market directly to our customers, including through customized advertising and in-game messaging based on customer preferences and trends. Our marketing efforts also includeinclude: activities on Facebook, Twitter, Twitch, YouTube andonline social networks; other online social networks, other online advertising, otheradvertising; public relations activity,activities; print and broadcast advertising,advertising; coordinated in-store and industry promotions (including merchandising and point of purchase displays),; participation in cooperative advertising programs,programs; direct response vehicles,vehicles; and product sampling through demonstration software distributed through the Internet or the digital online services provided by our partners.sampling. From time to time, we also receive marketing support from hardware manufacturers, producers of consumer products related to a game, and retailers in connection with their own promotional efforts, as well as co-marketing from promotional partners. Our physical products are available for sale in outlets around the world. These products are sold primarily on a direct basis to mass-market retailers (e.g., Target, Wal-Mart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop), and other stores (e.g., Amazon) or through third-party distribution and licensing arrangements. also available in a digital format, which allows consumers to purchase and download the content at their convenience directly to their console, PC, or mobile device through our platform partners, including Apple Inc. (“Apple”), Facebook, Inc. (“Facebook”), Google Inc. (“Google”), Microsoft, Corporation ("Microsoft"),and Sony Interactive Entertainment Inc. ("Sony"(“Sony”), Apple, Google, Nintendo Co., Ltd. ("Nintendo"), and Facebook.. Blizzard utilizes its proprietary online gaming service, Blizzardplatform, Battle.net, to distribute most of Blizzard'sBlizzard’s content and selected Activision content directly to PC consumers. Blizzard Battle.net offers players communications features, social networking, player matching, and digital content delivery and is designed to allow peopleBlizzard Battle.net they are playing. It attracts millions of active players, making it one oflargest online game-related services in the world.Sony, and Nintendo consoles,Sony, our disk duplication, packaging, printing, manufacturing, warehousing, assembly, and shipping are performed by third-party subcontractors or distribution facilities owned by us.Sony, and NintendoSony generally specify or control the manufacturing and assembly of finished products and license their hardware technologies to us for whichus. In return, we pay an applicable royalty per unit once the manufacturer fills the product order, even if the units do not ultimately sell. We deliver the master materials to the licensor or its approved replicator, who then manufactures the finished goods and delivers them to us for distribution under our label.Blizzard's proprietary online gaming service platform, Blizzard Battle.net, in other instances our customers may beare platform providers, such as Sony, Microsoft, Google, and Apple, or retailers, such as Wal-MartWalmart, Target, Best Buy, and GameStop, who act as distributors of our content to end consumers. ForFor the Years Ended December 31, 2021 December 31, 2020 December 31, 2019 Apple 17 % 15 % 17 % Google 17 % 14 % 13 % Sony 15 % 17 % 11 % Microsoft * 11 % * year ended December 31, 2017, wenoted period.threetwo customers—Apple, Sony,Microsoft and Google—Sony—who accounted for 16%, 14%,20% and 10%, respectively, of net revenues. For the year ended December 31, 2016, we had two customers—Sony and Apple—who each accounted for 13% of net revenues. For the year ended December 31, 2015, we had two customers—Sony and Microsoft—who accounted for 12% and 10%, respectively, of net revenues. We had three customers—Sony, Microsoft, and Apple—who accounted for 17%, 14%, and 10%22%, respectively, of consolidated gross receivables at December 31, 2017. We had three customers—Sony, Microsoft,2021, and Wal-Mart—who28% and 21%, respectively, at December 31, 2020. No other customer accounted for 17%, 10%, and 10%, respectively, or more of our consolidated gross receivables at December 31, 2016.20172021, 2020, and 2016,2019, our top fourthree franchises—Call of Duty, Candy Crush, World of Warcraft, and Overwatch—Warcraft—collectively accounted for 66%82%, 79%, and 69%72%, respectively, of our net revenues. No other franchise comprised 10% or more of our net revenues respectively. For the year ended December 31, 2015, our top four franchises—Call of Duty, World of Warcraft, Destiny, and Hearthstone—collectively accounted for 75% of our net revenues.price;price of content; marketing support; and quality of customer service. We compete with other publishers of video game console, PC, and mobile interactive entertainment software. platforms. A numberplatforms, while at the same time act as key distribution channels and payment gateways for our products and services through their digital storefronts. Apple and Google are similarly positioned on mobile devices.World of Warcraft, and Candy Crush, among others.Crush. In other cases, we obtain intellectual property through licenses and service agreements, such as for our Destiny franchise.agreements. Further, our products that play on consoles and mobile platforms include technology that is owned by the platform provider and is licensed non-exclusively to us for use in the relevant product. We also license technology from providers other than console manufacturers in developing our content and services. While we may have renewal rights for some licenses, our business is dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights on reasonable terms and at reasonable rates.NameAgePositionAge Position Robert A. Kotick 58 54Chief Executive Officer of Activision Blizzard Collister Johnson53 41President and Chief Operating Officer of Activision Blizzard Dennis Durkin52 47Chief Corporate Officer of Activision BlizzardSpencer Neumann48Chief Financial Officer of Activision Blizzard Eric Hirshberg48 49President and Chief Executive Officer of ActivisionMichael Morhaime50President and Chief Executive Officer of BlizzardBrian Stolz42Chief People Officer of Activision BlizzardChristopher Walther51Chief Legal Officer of Activision Blizzard Riccardo Zacconi57 50Chief ExecutiveAdministrative Officer of KingActivision BlizzardOfficer in connection with the Business Combination. Mr KotickOfficer. He served as our President from July 2008 until June 2017, when Mr. Johnson began serving as our President and Chief Operating Officer. Mr. Kotick remains the Chief Executive Officer of Activision Blizzard.2017. Mr. Kotick is also a member of the board of directors of The Coca-Cola Company, a multinational beverage corporation, and the boards of trustees for The Center for Early Education and the Harvard-Westlake School. He is also vice chairmanthe Vice Chairman of the boardBoard and chairmanChairman of the committeeCommittee of trustees of the Los Angeles County Museum of Art. In addition, Mr. Kotick is the founderco-founder and co-chairmanco-Chairman of the Call of Duty Endowment, a nonprofit, public benefit corporation that seeks to help organizations that provide job placement and training services for veterans.Collister Johnson, Collister "Coddy" JohnsonPresident and Chief Operating Officer since June 2017. Prior to that, he served as the chief operating officer and co-founder of Altschool, a public benefit, education technology company, from April 2016 until May 2017. Prior to joining Altschool, he held a number of positions of increasing responsibility at the Company from 2008 to 2016, serving as the chief financial officer and head of operations of Activision, one of our principal operating units, chief operating officer of Activision studios, and senior vice president and chief of staff to our Chief Executive Officer. Mr. Johnson holds a B.A. degree in ethics, politics and economics from Yale University and an M.B.A. degree from Stanford University.Dennis Durkin, Chief Corporate Officer of Activision Blizzard Dennis Durkin became our Chief Corporate Officer in June 2017. Prior to this, Mr. Durkin served as our Chief Financial Officer since joining the Company in March 2012.2020. Prior to joining the Company, Mr. DurkinAlegre held a number of leadership positions of increasing responsibility at Microsoft Corporation,Google, a computing hardwaretechnology company specializing in internet-related services and software manufacturer, most recentlyproducts, from 2004 to 2020, including serving as President of Global Retail and Shopping, where he led the corporate vice presidentinitiatives to embed e-commerce across all Google product areas and chief operating and financial officer of Microsoft Corporation's interactive entertainment business, which includedto help diversify beyond advertising into the Xbox consoleretail transactions business. Prior to that, Mr. Alegre was President of the Google’s Global and Strategic Partnerships organization, working across all of Google’s core business lines to create and foster key strategic relationships with some of the world’s largest partners. Mr. Alegre was also instrumental in Google’s international expansion, serving as President of Google’s Asia-Pacific and Japan businesses living in China, Singapore, and Tokyo and as Vice President of the Latin America business, overseeing a massive expansion in both regions. Prior to joining Microsoft Corporation's interactive entertainment businessGoogle, Mr. Alegre was Vice President at Bertelsmann Media, running a division of BMG Music in 2006,Latin America as well as Partnerships of the Bertelsmann eCommerce Group in New York City. Mr. Durkin worked on Microsoft Corporation's corporate development and strategy team, including two years where he was based in London, England, driving pan-European activity. Before joining Microsoft Corporation, Mr. Durkin was a financial analyst at Alex. Brown and Company. Mr. DurkinAlegre holds a B.A. degree in government from Dartmouth Collegethe Woodrow Wilson School of Public and anInternational Affairs at Princeton University, as well as dual M.B.A. degreeand J.D. degrees from Harvard University.Spencer Neumann,Business School and Harvard Law School. Spencer NeumannMay 2017.April 2021. Prior to joiningthat, he served as the Company,Company’s Chief Commercial Officer from 2019 to 2021, as the Chief Operating Officer of Blizzard from 2017 to 2019, and as Chief Financial Officer of Blizzard from 2015 to 2017. Mr. NeumannZerza joined Activision Blizzard in August 2015 with more than 20 years of senior leadership experience at Procter & Gamble, serving in North America, Europe, Asia, and Latin America. Mr. Zerza has held a number of positionssenior roles across multi-billion dollar businesses at Procter & Gamble, including as Director of increasing responsibility at The Walt Disney Company, most recently serving as the chief financial officerProcter & Gamble’s global M&A team and executive vice president of Global Guest Experience of Walt Disney Parks and Resorts, from 2012 until May 2017. From 2005 to 2012, Mr.��Neumann worked at the private equity firms of Providence Equity Partners and Summit Partners. Prior to that, Mr. Neumann held several other roles with Disney, which he initially joined in 1992, including executive vice presidentCFO of the ABC Television Network from 2001 to 2004European Baby Care and chief financial officer of the Walt Disney Internet Group from 1999 to 2001. He isLatin America divisions. Mr. Zerza also served as a board member of the national board of directors of Make-A-Wish America.Italy Procter & Gamble-Fater and Spain Procter & Gamble-Arbora & Ausonia joint ventures. Mr. NeumannZerza holds a B.A. degree in economics from Harvard University and an M.B.A. degree from HarvardVienna University.Eric Hirshberg, President and Chief Executive Officer of Activision Eric Hirshberg became the President and Chief Executive Officer of Activision in September 2010. Prior to joining us, Mr. Hirshberg served in positions of increasing responsibility with Deutsch LA, a marketing and advertising agency, most recently serving as its co-chief executive officer and its chiefcreative officer. Prior to working at Deutsch LA, Mr. Hirshberg worked at Fattal & Collins, a marketing and advertising agency. Mr. Hirshberg holds a B.F.A. degree from the University of California at Los Angeles.Michael Morhaime, President and Chief Executive Officer of Blizzard Michael Morhaime became Chief Executive Officer of Blizzard and an executive officer of Activision Blizzard in July 2008 in connection with the Business Combination. Mr. Morhaime co-founded Blizzard in February 1991, and transitioned to the role of Blizzard's President in April 1998. Mr. Morhaime served on the executive committee of Vivendi Games from January 1999, when Blizzard became a subsidiary of Vivendi Games, until the consummation of the Business Combination, when Blizzard became a subsidiary of the Company. Mr. Morhaime holds a B.S. degree in electrical engineering from the University of California at Los Angeles.Brian Stolz, Chief People Officer of Activision Blizzard Brian Stolz became our Chief People Officer in May 2016. Prior to joining the Company, Mr. Stolz served as senior vice president of the neurology, dental, and generics businesses of Valeant Pharmaceuticals, a pharmaceutical company. Before that, Mr. Stolz served as Valeant's executive vice president of administration and its chief human capital officer. Prior to joining Valeant, Mr. Stolz held positions as a principal at ghSMART, a leadership consulting and advisory firm, and as an associate principal at McKinsey & Co., a strategy consulting firm. Mr. Stolz holds a B.S. degree in finance from Georgetown University and an M.B.A. degree from Harvard University.Christopher Walther, Christopher Walther becamein November 2009 and served as our Secretary from February 2010 until February 2011. Priorsince June 2021. From 2006 to joining us,2021, Mr. WaltherDixton held a number of positions of increasing responsibility within the legal department of The Procter & GambleBoeing Company, from 1992 to 2009, including serving as the general counsel for Centralan aerospace company and Eastern Europe, Middle Eastleading manufacturer in space and Africa, general counsel for Northeast Asia and,security systems, most recently as general counsel for Western Europe.Senior Vice President, General Counsel, and Corporate Secretary, in addition to serving as a member of the company’s Executive Council. Prior to joining The Boeing Company, Mr. Walther also led ProcterDixton served in the White House as Associate Counsel to the President. Earlier in his career, Mr. Dixton practiced law at Kirkland & Gamble's corporate and securities and mergers and acquisitions practices. Before joining Procter & Gamble, Mr. WaltherEllis in Washington, D.C. He served as a law clerk for Senior Judge Harry W. Wellfordthe Honorable Anthony M. Kennedy at the Supreme Court of the United States Sixth Circuitand for the Honorable J. Michael Luttig at the United States Court of Appeals. Since 2012,Appeals for the Fourth Circuit. Mr. Walther has served on the board of directors of the Alliance for Children's Rights. Mr. Walther has also served as our representative on the board of directors of the Entertainment Software Association since 2013. Mr. WaltherDixton holds a B.A.an A.B. degree in history and Spanish from Centre CollegeHarvard University and a J.D. degree from the University of Kentucky College of Law.Riccardo Zacconi,Harvard Law School.ExecutiveAdministrative Officer of King Riccardo Zacconi serves as the Chief Executive Officer of King and became an executive officer of Activision Blizzard in February 2016 in connection with the King Acquisition. Mr. Zacconi co-founded King in March 2003, and its chief executive officerChief Administrative Officer of Activision Blizzard since its founding. Prior to founding King, Mr. Zacconi served as vice president of European sales and marketing at uDate.com, an online dating service, from 2002 until that company's acquisition later that year. From 2001 to 2002, Mr. Zacconi served as entrepreneur in residence at Benchmark Capital Partners, a venture capital firm.March 2021. Prior to joining Benchmark Capital, he was managing directorthe Company, Mr. Bulatao served as the Under Secretary of State for Spray Network, an online messaging portalManagement from 2018to 2021, directly responsible for the budget, security, IT infrastructure, consular affairs and global talent management of the U.S. State Department’s 70,000 plus workforce based in Hamburg, Germany, from 1999 until its sale in 2000.190 countries around the world. Prior to 1999,that, Mr. ZacconiBulatao served as Chief Operating Officer at the Central Intelligence Agency from 2017 to 2018, where he also led diversity and inclusion initiatives. Before joining the CIA, Mr. Bulatao held a number of leadership positions in variousprivate equity and investment companies, having served as Senior Advisor at Highlander Partners from 2016 to 2017 and consulting positionsManaging Director at Pallas Capital Partners from 2015 to 2017, helping companies grow organically and through acquisitions and creating transformational value through strategic positioning. Prior to that, Mr. Bulatao held executive and CEO roles at The Nefab Group, co-founded Thayer Aerospace with fellow West Point graduates, and served as a consultant with McKinsey & Company. Mr. Bulatao is a retired Infantry Captain and a distinguished graduate of increasing responsibility with The Boston Consulting Group and LEK Consulting, both of which are management consulting firms.the US Army Ranger School. Mr. ZacconiBulatao holds a B.A.BS degree in economicsEngineering Management from LUISS University in Italy.Employees At December 31, 2017, we had approximately 9,800 total full-timethe United States Military Academy at West Point and part-time employees. At December 31, 2017, approximately 175 of our full-time employees were subject to fixed-term employment agreements with us. The majority of our employees in France, Germany, Spain, and Italy are subject to collective agreements as a part of normal business practices in those countries. In addition, certain employees in those countries are subject to collective bargaining agreements. To date, we have not experienced any labor-related work stoppages."Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 13 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for certain additional information regarding operating segments and geographic areas. See the Critical Accounting Policies section under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” for a discussion of our practices with regard to several working capital items, such as rights of return.items. See the "Management's“Management’s Overview of Business Trends"Trends” under Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” for a discussion of the impact of seasonality on our business. See Item 7 "Management's Discussion and Analysis"Exchange Act"“Exchange Act”). The information found on our website is not a part of, and is not incorporated by reference into, this or any other report that we file with or furnish to the Securities and Exchange Commission ("SEC"(“SEC”). Ourfilingsmaintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.availableour competitors, for the distribution of products;public over the Internet at the SEC's website at https://www.sec.gov. Additionally, the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.Internet;forward-forward‑looking statements contained in this document and elsewhere. These risks are not presented in order of importance or probability of occurrence. Further, the risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks may have a material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.high-qualityhigh‑quality content in a timely manner, or if consumers prefer competing products, our business may be negatively impacted.predict, and evenpredict. Even the most successful content remainsgames can lose consumer audiences over time, and remaining popular for only limited periods of time, unlessis increasingly dependent on the games being refreshed with new content or otherwise enhanced.other enhancements. In order to remain competitive and maximize the chances that consumers select our products as opposed to the various entertainment options available to them and with which we compete, we must continuously develop new products or new content for, or other enhancements to, our existing products. These products or enhancements may not be well-receivedwell‑received by consumers, even if well-reviewedwell‑reviewed and of high quality. Further, competitors may develop content that imitates or competes with our best-selling games, potentially taking sales away from them or reducing our ability to charge the same prices we have historically charged for our products. These competing products may take a larger share of consumer spending than anticipated, which could cause product sales to fall below expectations. If we do not continue to develop consistently high-quality and well-received games, if our marketing fails to resonate with our consumers, if consumers lose interest in a genre of games we produce, if the use of cross-promotion within our mobile games to retain consumers becomes less effective, or if our competitors develop more successful products or offer competitive products at lower prices, our revenues and profit margins could decline. Further, a failure by us to develop a high-quality product, or our development of a product that is otherwise not well-received, could potentially result in additional expenditures to respond to consumer demands, harm our reputation, and increase the likelihood that our future products will not be well-received. The increased importance of downloadable content to our business amplifies these risks, as downloadable content for poorly-received games typically generates lower-than-expected sales. In addition, our own best-selling products could compete with our other games, reducing sales for those other games.service,platform, do not function as consumers expect, whether because they fail to function as advertised or otherwise, our sales may suffer. The risk that this may occur is particularly pronounced with respect to our games with online features because they involve ongoing consumer expectations, which we may not be able to consistently satisfy. Our gamesonline features are also frequently updated, increasing the risk that a gameour products and services. Negative perceptions could arise despite our efforts, though, and may contain significant "bugs." Ifresult in loss of engagement with our products and services, increased scrutiny from government bodies and consumer groups, and/or litigation, any of these issues occur, consumers may stop playing the game and may be less likely to return to the game as often in the future, which maycould negatively impact our business. on our revenues and reputation and could cause our results of operations to be materially different from expectations. Our ability to meet development schedules depends on numerous factors, some of which are outside of our control, including our ability to attract and retain qualified personnel, the time-intensive nature of creative processes, the coordination of large and often dispersed development teams, the complexity of our products and the platforms for which they are developed, and third-party approvals. If we fail to release our products in a timely manner, or if we are unable to continue to extend the life of existing games by adding features and functionality that will encourage continued engagement with the game, our business may be negatively impacted.high-qualityhigh‑quality products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial resources to such product, the more critical it is that we accurately predict consumer demand for such product. If our future products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to recover the substantial up-frontup‑front development and marketing costs associated with those products.World ofand Warcraft and Overwatch franchises, collectively, accounted for approximately 66%82% of our net revenues—and a significantly higher percentage of our operating income—for 2017.income. We expect that a relatively limited number of popular franchises will continue to produce a disproportionately high percentage of our revenues and profits. Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises could negatively impact our business. Additionally, if the popularity of a franchise declines, as has happened in the past with other popular franchises, we may have to write off the unrecovered portion of the underlying intellectual property assets, which could negatively impact our business. the continued growth in the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors.the acquisition of Kingacquisitions and the development of our MLG, Studiosesports, advertising, and consumer products businesses, and remain ambitious as to the future growth in the scope and complexity of our business.businesses. Our future success depends, in part, on our ability to manage this expanded business and our aspirations for continued expansion.expansion and growth. We have dedicated resources both to new business models that are largely untested, as is the case with esports, and to adjacent business opportunities in which very large competitors have an established presence, as is the case with our Studiosadvertising and consumer products businesses. We do not know to what extent our future expansions will be successful. Further, even if successful, theour aspirations for growth ofin our businesscore businesses and these adjacent businesses could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses.resources. If not managed effectively, this growth could result in the over-extensionover‑extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure by these new businesses or failure to adequately manage our growth in any of these ways may cause damage to our brand or otherwise negatively impact our core business. Further, any failure bythe success of these new businesses is largely contingent on the success of our underlying franchises, and as such, delays in product releases or a decline in the popularity of a franchise may damageimpact the success of the new businesses adjacent to that franchise.reputationreliance on third‑party platforms, platform providers are frequently able to influence our products and costs.corebusiness.interactivevideo game consoles manufactured by third parties, as well as our ability to develop commercially successful products for these consoles.content.free-to-playfree‑to‑play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game. As a result of, among other things, the King Acquisition, wemoreincreasingly dependent on our ability to develop, enhance, and monetize free-to-playfree‑to‑play games, such as the games in our Candy Crush franchise, Hearthstone, Call of Duty: Warzone™,andHearthstone.Call of Duty: Mobile. As such, we are increasingly exposed to the risks of the free-to-playfree‑to‑play business model. For example, we may invest in the development of new free-to-playfree‑to‑play interactive entertainment products that doare not achievesuccessful in building and maintaining a significant commercial success,player base, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Further, our business may be negatively impacted if: (1) wecontinue to offer free-to-play games that encourage new and existing consumers to purchase our virtual currency and subsequently use it to buy our virtual items; (2) we fail to offer monetization features that appeal to these consumers; (3) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (4) our platform providers make it more difficult or expensive for players to purchase our virtual currency; items; and/or (5) we cannot encourage significant additional consumers to purchase virtual items in(4) our free-to-play releases reduce sales of our other games.may be negatively impacted. Furthermore, as there are relatively low barrierscould delays in the approval process. Additionally, in the past, legislation has been implemented in China that has required modifications to entryour products and our business model to developing mobile or online free-to-play or other casual games, we expect new competitors to enter the market and existing competitors to allocate more resources to developing and marketing competing games and applications. We compete, or may compete, with a vast number of small companies and individuals who are able to create and launch casual games and other content using relatively limited resources and with relatively limited start-up time or expertise. Competition for the attention of consumers on mobile devices is intense,satisfy regulatory requirements, such as Chinese regulations that limit the number of applicationshours per week children under the age of 18 can play video games. The future implementation of similar or new laws or regulations in China or any other country in which we have operations or sales may restrict or prohibit the sale of our products or may require engineering modifications to our products and our business model that are not cost‑effective, if even feasible at all, or could degrade the consumer experience to the point where consumers cease to purchase such products. Changes in Chinese game approval procedures in 2018 have resulted in reduced rates of approval for games and unclear approval timeframes, making it uncertain as to if and when our new products will be approved for release in China. mobile devices has been increasing dramatically,our business in China.turn, has required increased marketing to garner consumer awareness and attention. This increased competitionthe countries in which we sell our products, it could negatively impact our business. In addition, a continuing industry shift to free-to-play games could result in a deprioritization of our other products by traditional retailers and distributors.Our industry israpid technological change,risks that our operations outside the U.S. could be conducted by our employees, contractors, third‑party partners, representatives, or agents in ways that violate the Foreign Corrupt Practices Act, the U.K. Anti‑Bribery Act, or other similar anti‑bribery laws, as well as the 2017 U.K. Criminal Finances Act or other similar financial crime laws. While we have policies, procedures, and if we do not adapttraining for our employees, intended to and appropriately allocatesecure compliance with these laws, our resources among, emerging technologies and business models, our business may be negatively impacted. Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, distribution channels and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, distribution channels and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment productsemployees, contractors, third‑party partners, representatives, or distribution channels incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial "up front" costs of developing and marketing those products and distribution channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. Itagents may take significant time and resources to shift product development resources toactions that technology, platform or business model, as the case may be, andviolate our policies. Moreover, it may be more difficult to compete against existing products incorporating that technology or for that platform or against companies using that business model. increasing importance of digitalretail sales to our business exposes us to the risks of that business model, including greater competition. Themodel.digital content delivery,traditional retail sales, as compared to traditionalrevenue from digital distribution channels, continues to decline, retail sales continuesremain important to increase. The increased importance of digital content delivery in our industry increases our potential competition, as the minimum capital needed to produce and publish a digitally delivered game, particularly a new game for mobile platforms, may be significantly less than that needed to produce and publish one that is purchased through retail distribution and is playedbusiness. Such sales are made primarily on a game consolepurchase order basis without long‑term agreements or PC. Also, while digitally-distributed products generally have higher profit margins than retail sales, the risk profile for us, as the publisher, may be increased as business shifts to digital distribution, since the volume of initial orders from retailers for physical discs could be reduced.Further, the providers of the platforms through which we digitally distribute content are also publishers of their own content distributed on those platforms, and, therefore, a platform provider may give priority to its own products or those of our competitors.Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our sales. Within the interactive entertainment industry, we compete with other publishers of interactive entertainment software, both within and outside the United States. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. Our larger competitors may be able to leverage their greater financial, technical, personnel and other resources to provide larger budgets for development and marketing and make higher offers to licensors and developers for commercially desirable properties, as well as adopt more aggressive pricing policies to develop more commercially successful video game products than we do. In addition, competitors with large product lines and popular games typically have greater leverage with retailers, distributors and other customers, who may be willing to promote products with less consumer appeal in return for access to those competitors' more popular games. Additionally, we compete with other forms of entertainmentcommitments, and leisure activities. Asdue to the increased proportion of our revenue from digital distribution channels, our retail customers and distributors have generally been reducing the levels of inventory they are willing to carry. The loss of, or significant reduction in sales to, any of Activision’s principal retail customers or distributors, including digital distributors, could have adverse consequences.continueswill be more efficient or effective than prior to expandimplementation of the plan, and we do not expect to realize significant net savings as a result of the plan as cost reductions in complexityour selling, general and scope, we haveadministrative activities are expected to be offset by increased exposure to additional competitors, including those with access to large existing user bases and control over distribution channels. Further, it is difficult to predict and prepare for rapid changesinvestment in consumer demand that could materially alter public preferences for different formsproduct development. Any of entertainment and leisure activities. Failure to adequately identify and adapt to these competitive pressuresconsequences could negatively impact our business.If we are unable to sustain traditional pricing levels for our products, our business may In addition, there can be negatively impacted. If we are unable to sustain traditional pricing levels for our consoleno assurance that additional plans will not be required or PC titles or the associated downloadable content, whether due to competitive pressure, because retailers or other third parties elect to price these products at a lower price, or otherwise, it could have a negative impact on our business. Further, our decisions around the development of new game content are grounded in assumptions about eventual pricing levels. If there is price compressionimplemented in the market after these decisions are made, it could have a negative impact on our business.If we do not continue to attract and retain skilled personnel, we will be unable to effectively conduct our business. Our employees are our greatest asset. As such, our success depends to a significant extent on our ability to identify, attract, hire, retain, and utilize the abilities of qualified personnel, particularly personnel with the specialized skills needed to create and sell the high-quality, well-received content upon which our business is substantially dependent. Our industry is generally characterized by a high level of employee mobility, competitive compensation programs, and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative, and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs in order to do so. If we are unable to attract additional qualified employees or retain and utilize the services of key personnel, it could have a negative impact on our business.We rely on external developers to develop some of our software products. We rely on external software developers to develop some of our software products. Because we depend on these developers, we are subject to the following risks:•continuing strong demand for top-tier developers' resources, combined with the recognition they receive in connection with their work, may cause developers who worked for us in the past either to work for a competitor in the future or to renegotiate agreements with us on terms less favorable to us;•limited financial resources and business expertise and inability to retain skilled personnel may force developers out of business prior to completing products for us or require us to fund additional costs;•a competitor may acquire the business of one or more key developers or sign them to exclusive development arrangements and, in either case, we would not be able to continue to engage such developers' services for our products, except for any period of time for which the developer is contractually obligated to complete development for us; and•reliance on external developers reduces our visibility into, and control over, development schedules and operational outcomes compared to those when utilizing internal development resources. Increased competition for skilled third-party software developers also has compelled us to agree to make significant advance payments on royalties to game developers. If the products subject to these arrangements do not generate sufficient revenues to recover these royalty advances, we would have to write off unrecovered portions of these payments, which could negatively impact our business. Typically, we pay developers a royalty based on a percentage of net revenues from product sales, less agreed upon deductions, but from time to time, we have agreed to pay developers fixed per unit product royalties after royalty advances are fully recouped. To the extent that sales prices of products on which we have agreed to pay a fixed per unit royalty are marked down, it could negatively impact our business.thethese transactions.longer-term,longer‑term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of the acquired business'sbusiness’s operations going forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating the acquired business, its operations, and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of the acquired businesses,businesses; and (2) in the case of an investment, alliance, or joint venture, (i) our ability to cooperate with our partner, (ii) our partner having economic, business, or legal interests or goals that are inconsistent with ours, and (iii) the potential that our partner may be unable to meet its economic or other obligations, which may require us to fulfill those obligations alone.management'smanagement’s attention will be excessively diverted from our other operations, the risk that our industry does not evolve as anticipated, and that any intellectual property or personnel skills acquired do not prove to be those needed for our futureOur debt could adversely affect our business. As of December 31, 2017, the Company had approximately $4.4 billion of long-term debt outstanding. Our debt burden could have important consequences, including: increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; requiring the dedication of a substantial portion of any cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing the availability of cash flow to fund our operations, growth strategy, working capital, capital expenditures, future business opportunities, and other general corporate purposes; exposing us to the risk of increased interest rates with respect to any borrowings that are at floating rates of interest; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; limiting our ability to obtain additional financing for working capital, capital expenditures, research and development, acquisitions and general corporate or other purposes; limiting our ability to adjust to changing market conditions; and placing us at a competitive disadvantage relative to competitors who are less highly leveraged. Agreements governing our indebtedness, including our credit agreement and the indentures governing our notes, impose operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and ratios. In addition, under certain circumstances, our credit agreement and indentures may limit or prohibit other activities. In addition, we are required to maintain a maximum total net debt ratio calculated pursuant to a financial maintenance covenant under our credit agreement. Further, various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under our credit agreement or the indentures governing our notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. There can be no assurances that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.We may not be able to borrow funds under our revolving credit facility if we are not able to meet the conditions to borrowing under that facility. We view our revolving credit facility as a source of available liquidity. This facility contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds. We have not borrowed under the revolving credit facility to date, but if we wish to do so, there can be no assurance that we will be in compliance with these conditions, covenants and representations at such time.We may be involved in legal proceedings that have a negative impact on our business. From time to time, we are involved in claims, suits, government investigations, audits and proceedings arising in the ordinary course of our business, including actions with respect to intellectual property, competition and antitrust matters, privacy matters, tax matters, labor and employment matters, unclaimed property matters, compliance and commercial claims. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations fromregulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be damaging to our reputation. Claims, suits, government investigations, audits and proceedings are inherently difficult to predict and their results are subject to significant uncertainties, many of which are outside of our control. Regardless of the outcome, such legal proceedings can have a materially adverse impact on us due to legal costs, diversion of management resources and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in reputational harm, substantial settlements, judgments, fines or penalties, criminal sanctions, consent decrees or orders preventing us from offering certain features, functionalities, products or services, requiring us to change our development process or other business practices. There is also inherent uncertainty in determining reserves for these matters. There is significant judgment required in the analysis of these matters, including assessing the probability of potential outcomes and determining whether a potential exposure can be reasonably estimated. In making these determinations, we, in consultation with outside counsel, examine the relevant facts and circumstances on a quarterly basis assuming, as applicable, a combination of settlement and litigated outcomes and strategies. Further, it may take time to develop factors on which reasonable judgments and estimates can be based. If we fail to establish appropriate reserves, our business could be negatively impacted.Issues with the toys, accessories or hardware peripherals utilized in certain of our games may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities. We may experience issues with toys, accessories or peripherals that may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities. Any of these activities could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, decreased willingness by our customers to purchase, or by our partners to provide marketing support for, those products, denial or increased cost for insurance coverage, or additional safety and testing requirements, any of which could negatively impact our business.Lawsuits have been filed, and may continue to be filed, against publishers of interactive entertainment software products. In prior years, lawsuits have been filed against numerous interactive entertainment companies, including against us, by the families of victims of violence, alleging that interactive entertainment products influence the behavior of the perpetrators of such violence. These lawsuits have been dismissed, but similar additional lawsuits could be filed in the future. Although our general liability insurance carrier has agreed to defend lawsuits of this nature with respect to the prior lawsuits, it is uncertain whether insurance carriers would do so in the future, or if such insurance carriers would cover all or any amounts for which we might be liable if such future lawsuits are not decided in our favor. Further, any such lawsuit could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, or decreased willingness by our customers to purchase, or by our partners to provide marketing support for, those products. Such results could divert development and management resources, increase legal fees and other costs and have other negative impacts on our business.year-endcalendar year‑end holiday buying season inseason. As a result, our sales, particularly for our Activision segment, receivables, and credit risk, are higher during the fourth quarter of the calendar year. As a result, our sales have historically been highest during the second half of the year, particularly forour Activision segment. Receivables and credit risk are likewise higher during the second half of the year, as consumers and retailers increase their purchases of our products in anticipation of the holiday season. Delays in development, approvals or manufacturing could affect the timing of the release of products, causing us to miss key selling periods such as the year-endyear‑end holiday buying season, which could negatively impact our business.do businessare affiliated are unable to honor their commitments or act in ways that put our brand at risk.in order to provide services and support to our team. These third parties may misappropriate or misuse our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. Theit. Further, the failure of these third parties to provide adequate services and technologies the failure of third partiesor to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation and may negatively impact our business.open sourceopen-source software in connection with certainsome of ourthe games and the services we offer. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open source software. Were it determined that our use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineerre‑engineer our games or products, discontinue distribution in the event re-engineeringre‑engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our game development efforts, any of which could negatively impact our business.intellectual property claims.numberneeds of our players. We are investing, and expect to continue to invest, in our own technology, hardware, and software and the technology, hardware, and software of external service providers to support our business. It is possible that we may fail to scale effectively and grow this technical infrastructure to accommodate increased demands, which may adversely affect the reliable and stable performance of our games and services, therefore negatively impact our business.increasesand sensitive and confidential information with respect to our customers, consumers, and employees. A malicious cybersecurity‑related attack, intrusion, or disruption by hackers (including through spyware, ransomware, viruses, phishing, denial of service, and similar attacks) or other breach of the systems (including harm or improper access due to error by employees or third parties who have authorized access) on which such source code and assets, account information (including personal information), and other sensitive data is stored could lead to piracy of our software, fraudulent activity, disclosure, or misappropriation of, or access to, our customers’, consumers’, or employees’ personal information, or our own business data. Such incidents could also lead to product code‑base and game distribution platform exploitation, should undetected viruses, spyware, or other malware be inserted into our products, services, or networks, or systems used by our consumers. We have implemented cybersecurity programs and the tools, technologies, processes, and procedures intended to secure our data and systems, and prevent and detect unauthorized access to, or loss of, our data, or the data of our customers, consumers, or employees. However, because these cyberattacks may remain undetected for prolonged periods of time and the techniques used by criminal hackers and other third parties to breach systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. A data intrusion into a server for a game with online features or for our proprietary online gaming platform could also disrupt the operation of such game or platform. If we are subject to cybersecurity breaches, or a security‑related incident that materially disrupts the availability of our products and contentservices, we may have a loss in sales or subscriptions or be forced to pay damages or incur other costs, including from the implementation of additional cyber and physical security measures, or suffer reputational damage. Additionally, although we maintain insurance policies, they may be insufficient to reimburse us for all losses or all types of claims that may be caused by cyberbreaches or system or network disruptions, and it is uncertain whether we will be able to maintain our current level of coverage in the future. Moreover, if there were a public perception that our data protection measures are inadequate, whether or not the case, it could result in reputational damage and potential harm to our business relationships or the public perception of our business model. In addition, such cybersecurity breaches may subject us to legal claims or proceedings, like individual claims and regulatory investigations and actions, including fines, especially if there is loss, disclosure, or misappropriation of, or access to, our customers’ personal information or other sensitive information, or there is otherwise an intrusion into our customers’ privacy.products continuethings could harm our business.overlap, software developersresume operations and negatively impact our business. While we maintain insurance coverage for some of these events, the potential liabilities associated with such events could exceed the insurance coverage we maintain. Further, our system redundancy may be ineffective or inadequate to protect us against such events. Any such event could also limit the ability of retailers, distributors, or our other customers to sell or distribute our products.increasinglyan impact on our business.infringement claims. Further, manyadditional, similar legal proceedings in the future. If such matters are decided unfavorably to the Company, they could have a material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.productsgames, and existing and potential players may decide not to play our games in the future. Some existing sponsors, partners, and advertisers have also elected not to be associated with our brand due to this impact on our reputation, and others may so elect in the future. The outcome of these matters remains uncertain, though such matters could be decided unfavorably to the Company and could have a material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity, or stock price.highly realistic and feature materialsinvolved in legal proceedings that are basedcan have a negative impact on real-world things or people, which may also be the subject of claims of infringement of the intellectual property of others, including right of publicity, trademark, and unfair competition claims. In addition, our products often utilize complex, cutting-edge technology that may become subject to emerging intellectual property claims of others. Although we take steps to avoid knowingly violating the intellectual property rights of others, third parties may still claim infringement, particularly since there are many companies that focus exclusively on enforcing patent rights.receive communications from third parties regarding such claims. Existing or future infringementare involved in claims, against us, whether meritorious or not, may be time consuming, distractingsuits, investigations, audits, and proceedings arising in the ordinary course of our business, including with respect to management and expensive to defend. Further, intellectual property, litigation competition and antitrust, regulatory, tax, privacy, labor and employment, compliance, unclaimed property, liability and personal injury, product damage, collection, and/or claims could forcecommercial matters. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations from regulatory agencies and consumer groups, as well as litigation.doreputational harm, legal costs, diversion of management resources, and other factors. It is also possible that a resolution of one or more of the following:•cease selling, incorporating, supportingsuch proceedings could result in substantial settlements, judgments, fines or usingpenalties, injunctions, criminal sanctions, consent decrees, or orders preventing us from offering certain features, functionalities, products, or services, that incorporaterequiring us to change our development process or other business practices.challenged intellectual property;•obtainthese matters, including assessing the probability of potential outcomes and determining whether a license frompotential exposure can be reasonably estimated. In making these determinations, we, in consultation with outside counsel, examine the holderrelevant facts and circumstances on a quarterly basis assuming, as applicable, a combination of the infringed intellectual property,settlement and litigated outcomes and strategies. Further, it may take time to develop factors on which if available at all, may notreasonable judgments and estimates can be available on commercially favorable terms;•redesign the affected interactive entertainment software products, which could result in additional costs, delay introduction and possibly reduce commercial appeal of the affected products; or•pay damages to the holder of the infringed intellectual property for past infringements.Our products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent us from enforcing or defending our proprietary technologies. We may also face legal risks arising out of user-generated content. Further, the use of unauthorized "cheat" programs or the use of other unauthorized software modifications by users could impact multiplayer gameplay or lead to reductions in microtransactions in our games.third-party nondisclosurethird‑party non‑disclosure agreements, to protect our proprietary rights. We own or license various copyrights, patents, trademarks, and trade secrets. The process of registering and protecting these rights in various jurisdictions is expensive and time-consuming.time‑consuming. Further, we are aware that some unauthorized copying and piracy occurs, and if a significantly greater amount of unauthorized copying or piracy of our software products were to occur, it could negatively impact our business. Piracy is a persistent problem for us, and policing the unauthorized sale, distribution and use of our products is difficult, expensive, and time-consuming. Further, the laws of some countries in which our products are, or may be, distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. In addition, though we take steps to make the unauthorized sale, distribution and use of our products more difficult and to enforce and police our rights, as do the manufacturers of consoles and the operators of other platforms on which many of our games are played, our efforts and the efforts of the console manufacturers and platform operators may not be successful in controlling the piracy of our products in all instances. Technology designed to circumvent the protection measures used by console manufacturers and platform operators or by us in our products, the increasing availability of broadband access to the Internet, the refusal of Internet service providers to remove infringing content in certain instances and the ability to download pirated copies of games from various Internet sites and peer-to-peer networks could result in an expansion in piracy. In addition, "cheating" programs or other unauthorized software tools and modifications that enable consumers to cheat in games could negatively impact the volume of microtransactions or purchases of downloadable content. In addition, vulnerabilities in the design of our applications and of the platforms upon which they run could be discovered after their release, which may result in lost revenue opportunities. This may lead to lost revenues from paying consumers or increased cost of developing technological measures to respond to these, either of which could negatively impact our business.technologies.Due to our reliance on third-party platforms, platform providers are frequentlytechnologies or that we will be able to influenceeffectively protect our productsintellectual property through litigation and costs. Generally, when we develop interactive entertainment software products for hardware platforms offered by Sony, Microsoft, or Nintendo, the physical products are replicated exclusively by that hardware manufacturer or their approved replicator. The agreements with these manufacturers includecertain provisions, such as approval rights over all softwarerelated promotional materials and the abilitydistribution are subject to change the fee they charge for the manufacturing of products, which allow the hardware manufacturers substantial influence over the cost and the release schedule of such interactive entertainment software products. In addition, because each of the manufacturers is also a publisher of games for its own hardware platforms and manufactures products for all of its other licensees, a manufacturer may give priorityincreasing regulation in key territories. If we do not successfully respond to its own products or those of our competitors. Accordingly, Sony, Microsoft, or Nintendo could cause unanticipated delays in the release of our products, as well as increases to projected development, manufacturing, marketing or distribution costs, any of which could negatively impact our business. The platform providers also control the networks over which consumers purchase digital products and services for their platforms and through which we provide online game capabilities for our console platform products. The control that the platform providers have over the fee structures and/or retail pricing for products and services for their platforms and online networks could impact the volume of purchases of our products made over their networks and our profitability. With respect to certain downloadable content and microtransactions, the networks provided by these platform providers are the exclusive means of selling and distributing this content. Further, increased competition for limited premium "digital shelf space" has placed the platform providers in an increasingly better position to negotiate favorable terms of sale. If the platform provider establishes terms that restrict our offerings on its platform, or significantly impact the financial terms on which these products or services are offered to our customers, or does not renew our license or approve the inclusion of online capabilities in our console products,regulations, our business could be negatively impacted.derivesubject to laws in a number of jurisdictions concerning the operation and offering of tournaments and games, many of which are still evolving and could be interpreted in ways that could harm our business. Certain jurisdictions also have laws that restrict or prohibit certain types of esports tournament structures. These laws may have an impact on our ability to offer certain esports competitions and/or to offer consumers of our online and casual games various types of contests and promotional opportunities.revenueslevels of Internet bandwidth for the sale and digital delivery of our content and the functionality of our games with online features. Changes in laws or regulations that adversely affect the growth, popularity, or use of the Internet, including laws impacting “net neutrality” or the availability of bandwidth could impair our consumers’ online video game experiences, decrease the demand for our products and services or increase our cost of doing business. Although certain jurisdictions have implemented laws and regulations intended to prevent Internet service providers from discriminating against particular types of legal traffic on their networks, other jurisdictions may lack such laws and regulations or repeal existing laws or regulations. Given uncertainty around these rules relating to the Internet, including changing interpretations, amendments, or repeal of those rules, coupled with the potentially significant political and economic power of local Internet service providers and the relatively significant level of Internet bandwidth access our products and services require, we could experience discriminatory or anti‑competitive practices that could impede our growth, cause us to incur additional expenses, or otherwise negatively impact our business.distribution of free-to-play games on third-party mobilerespective governments and web platforms such asregulators regarding the Apple App Store, the Google Play Store, and Facebook, and mostinterpretation of the virtual currencylaw, which may create the risk of an inadvertent violation. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we sell is purchased using the payment processing systemsare dependent upon our platform providers and external data processors to assist us in ensuring compliance with these various types of regulations, and a violation by one of these platform providers. These platformsthird parties may also serve as significant online distribution platforms forsubject us to government investigations and result in substantial fines.games.games is subject to our privacy policies, end user license agreements (“EULAs”), and terms of service. If these platforms modify their current discovery mechanisms, communication channels availablewe fail to developers, operating systems,comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy‑related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition, and harm our business. If regulators, the media, consumers, or employees raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, or damage our business.policies (including fees),countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain third parties use other ratings systems. For example, Apple uses a proprietary “App Rating System” and certain online stores, including Google Play, use the International Age Rating Coalition (“IARC”) rating system, whereby ratings are assigned in participating regions through a single application. If we are unable to obtain the ratings we have targeted for our products, it could have a negative impact on our business. In some instances, we may be required to modify our products to meet the requirements of the rating systems, which could delay or disrupt the release of any given product or may prevent its sale altogether in certain territories. Further, if one of our games is “re‑rated” for any reason, a ratings organization could require corrective actions, which could include a recall, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies previously purchased.developjudge to be graphic violence or sexually explicit material or other content that they deem inappropriate for their own competitive offerings,businesses, whether because a product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our products or consumers decline to buy them based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material, or other generally objectionable content, we might be required to modify particular titles or forfeit the revenue opportunity of selling such titles.be negatively impacted. Further, if these platform providers are requiredhave a negative impact on our business or require us to change how they label free-to-play gamesthe manner in which we operate our business. The tax regimes we are subject to, or take paymentoperate under, are unsettled and may be subject to significant change. Furthermore, tax authorities may choose to examine or investigate our tax reporting or tax liability, including under transfer pricing or permanent establishment theories. These proceedings may lead to adjustments or proposed adjustments to our income taxes or provisions for in-app purchases or change howuncertain tax positions. Additionally, a number of countries, including the personal informationU.S., have been pursuing fundamental changes to the tax laws applicable to multinational companies like us, including changing the U.S. taxation of consumers is made availablenon-U.S. income, developing new global OECD guidelines, and enacting revenue-based taxes on digital services. If these developments lead to developers,enacted policy changes, it may have an adverse impact on our income tax expense and could negatively impact our business.could be negatively impacted.Our business is highly dependent onin various currencies other than the successU.S. dollar and availability of video game platforms manufactured by third parties, as well as our abilityhave significant international sales and expenses denominated in currencies other than the U.S. dollar, subjecting us to develop commercially successful products for these platforms. We derive acurrency exchange rate risks. A substantial portion of our revenues frominternational sales and expenses are denominated in local currencies, which could fluctuate against the sale of products for play on video game platforms manufactured by third parties, such as Sony's PS4, Microsoft's Xbox One, and Nintendo's Wii U and Switch. For example,U.S. dollar. Since we have significant international sales of products for consoles accounted for 34%but incur the majority of our consolidated net revenuescosts in 2017. The successthe U.S., the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our console business is drivenbusiness. We have, in large part bythe past, utilized currency derivative contracts to hedge certain foreign exchange exposures and managed these exposures with natural offsets. However, there can be no assurance that we will continue our ability to accurately predict which platformshedging programs, or that we will be successful in managing exposure to currency exchange rate risks whether or not we do so.marketplaceapplication of existing or future accounting standards to our business as it evolves.our ability to develop commercially successful products for these platforms. We also rely on the availability of an adequate supply of these video game consolesnational accounting standards bodies and the continued support for these consoles by their manufacturers.methods, estimates, and judgments that we use in applying our accounting policies. Policies affecting revenue recognition have affected, and could further significantly affect, the way we report revenues related to our products and services. We must make product development decisions and commit significant resources well in advancerecognize a majority of the anticipated introductionrevenues from video games that include an online service on a deferred basis over an estimated service period for such games. In addition, we defer the cost of arevenues of those products. Further, as we increase our add-on content and add new platform,features to our online services, our estimate of the service period may change, and development costs for new console platforms maywe could be greater than those costs for the then-current console platforms. If increased costs are not offset by higherrequired to recognize revenues, and other cost efficiencies,defer related costs, over a shorter or longer period of time. As we enhance, expand, and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and income taxes, could be negatively impacted. Ifhave a significant impact on our reported net revenues, net income, and earnings per share under generally accepted accounting principles in the platforms for which we develop new software products or modify existing products do not attain significant market acceptance, we may not be able to recover our development costs, which could be significant.U.S. in any given period.importanceinsolvency or business failure of retail sales toany of our business exposes us to the risks of that business model. In the United States and Canada, our "boxed" products are often sold on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses and game specialty stores. Our "boxed" products are sold internationally on a direct-to-retail basis, through third-party distribution and licensing arrangements, and through our wholly-owned European distribution subsidiaries. partners could negatively impact us.made primarily on a purchase order basis without long-term agreements or other forms of commitments, and our retail customers and distributors have generally been reducing the levels of inventory they are willing to carry. The loss of, or significant reduction in sales to, any of Activision's principal retail customers or distributors could have adverse consequences. In addition, having such a large portion of our retail total net revenues concentrated in a few customers reduces our negotiating leverage with these customers. Further, the concentration of sales in a small number of large customers, alsowhich makes us more vulnerable to collection risk if one or more of these large customers becomes unable to pay for our products or seeks protection under the bankruptcy laws. Retailers and distributors in the interactive entertainment industry have from time to time experienced significant fluctuations in their businesses and a number of them have failed. Challenging economic conditions may impair the ability of our customers to pay for products they have purchased and, as a result, our reserves for doubtful accounts and write-offwrite‑off of accounts receivable could increase and, even if increased, may turn out to be insufficient. Moreover, even in cases whereWhile we have insurance to protect against a customer'scustomer’s bankruptcy, insolvency, or liquidation, this insurance typically contains a significant deductible and co-paymentco‑payment obligation and does not cover all instances of non-payment.non‑payment. Further, a payment default or the insolvency or business failure of, other types of business partners could result in disruptions to the manufacturing or distribution of our products or the cancellation of contractual arrangements that we consider to be favorable. A payment default by, or the insolvency or business failure of, a significant business partnerfavorable and could negatively impact our business. Moreover, the importance of retail sales to our business exposes us to the risk of product returns and price protection with respect to our distributors and retailers. In some cases, return policies allow distributors and retailers to return defective, shelf-worn, damaged and certain other products in accordance with terms granted. Price protection, when granted and applicable, allows these distributors and retailersaddition, having such a credit against amounts owed with respect to merchandise unsold by them. We may permit product returns from, or grant price protection to, distributors and retail customers who meet certain conditions. These conditions may include compliance with applicable payment terms, delivery of weekly inventory and sales information and consistent participation in the launches of premium title releases. We may also consider other factors, including the facilitation of slow-moving inventory and other industry factors. Activision also offers a 90-day limited warranty to end users that Activision products will be free from manufacturing defects. Although we maintain a reserve for returns and price protection, and although we may place limits on product returns and price protection, we could be forced to accept substantial product returns and provide substantial price protection to maintain our relationships with retailers and our access to distribution channels. We face similar issues and risks, including exposure to risk of chargebacks, with respect to end users to whom we sell products directly, whether through our proprietary online gaming service or otherwise. Further, retailers typically have a limited amount of shelf space and promotional resources, and there is intense competition for high-quality retail shelf space and promotional support from retailers. Competition for shelf space may intensify and may require us to increase our marketing expenditures. Retailers with limited shelf space typically devote the most and highest quality shelf space to those products expected to be best sellers. We cannot be certain that our new products will consistently achieve such "best seller" status. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. Our productsconstitute a relatively small percentage of most retailers' sales volume. We cannot be certain that retailers will continue to purchase our products or provide those products with adequate levels of shelf space and promotional support on acceptable terms. Additionally, we make provisions for retail inventory price protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, it could similarly have a negative impact on our business. Further, because we pay a licensing fee to the console hardware manufacturer for each physical copy of a product manufactured for that manufacturer's game platform regardless of whether that product is actually sold, if we overestimate demand and make too many physical "boxed" copies of any title, we will incur unrecoverable manufacturing costs for unsold units.We are a global company and are subject to the risks and uncertainties of conducting business outside the U.S. We conduct business throughout the world, and we derive a substantial amount of our revenues and profits from international trade, particularly from Europe, Asia and Australia. Moving forward, we expect that international sales will continue to account for a significantlarge portion of our total net revenues and profits and, moreover, that sales in emerging markets in Asia and elsewhere will be an increasingly important part of our international sales. As such, we are, and may be increasingly, subject to risks inherent in foreign trade generally, as well as risks inherent in doing business in emerging markets, including increased tariffs and duties, compliance with economic sanctions, fluctuations in currency exchange rates, shipping delays, increases in transportation costs, international political, regulatory and economic developments, unexpected changes to laws, regulatory requirements and enforcement on us and our platform partners and differing local business practices, all of which may impact profit margins or make it more difficult, if not impossible, for us to conduct business in foreign markets. A deterioration in relations between either us or the United States and any country in which we have significant operations or sales, or the implementation of government regulations in such a country, could result in the adoption or expansion of trade restrictions, including economic sanctions, that could have a negative impact on our business. For instance, to operate in China, all games must have regulatory approval. A decision by the Chinese government to revoke its approval for any of our games or to decline to approve any products we desire to sell in China in the future could have a negative impact on our business. Additionally, in the past, legislation has been implemented in China that has required modifications to our software. The future implementation of similar laws or regulations in China or any other country in which we have operations or sales may restrict or prohibit the sale of our products or may require engineering modifications to our products that are not cost-effective, if even feasible at all, or could degrade the consumer experience to the point where consumers cease to purchase such products. Further, the enforcement of regulation of mobile and other games with an online element in China remains uncertain, and further changes, either in the regulations or their enforcement, could have a negative impact on our business in China. We are also subject to risks that our operations outside the United States could be conducted by our employees, contractors, third-party partners, representatives or agents in ways that violate the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act or other similar anti-bribery laws, as well as the 2017 U.K. Criminal Finances Act or other similar financial crime laws. While we have policies and procedures, as well as training for our employees, intended to secure compliance with these laws, our employees, contractors, third-party partners, representatives or agents may take actions that violate our policies. Moreover, it may be more difficult to oversee the conduct of any such persons who are not our employees, potentially exposing us to greater risk from their actions. Additionally, in June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union (the "E.U."), commonly referred to as "Brexit." The UnitedKingdom commenced withdrawal proceedings with the E.U. in March 2017. These proceedings have created political and economic uncertainty, particularly in the United Kingdom and the E.U., and this uncertainty may persist for years. The uncertainty surrounding the terms of the United Kingdom's withdrawal and its consequences could adversely impact consumer and investor confidence and the level of sales of discretionary items, including our products. Any of these effects could negatively impact our business. In addition, cultural differences may affect consumer preferences and limit the international popularity of games that are popular in the U.S, or require us to modify the content of the games or the method by which we charge our customers for the games to be successful. If we do not correctly assess consumer preferences in the countries in which we sell our products, or if the other risks discussed herein come to fruition, it could negatively impact our business.Changes in tax rates or exposure to additional tax liabilities could negatively impact our business. We are subject to income taxes in the United States and other jurisdictions. In the ordinary course of business there are many transactions and calculations where the ultimate income tax determination is uncertain. Significant judgment is required in determining our worldwide income tax provision. Although we believe our income tax estimates are reasonable, the ultimate outcomes may have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations. Our income tax liability and effective tax rate could be adversely affected by a variety of factors, including changes in our business, the mix of earnings in countries with differing statutory tax rates, changes in tax laws or tax rulings, changes in interpretations of existing laws, or developments in tax examinations or investigations. Any of these factors could have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations or require us to change the manner in which we operate our business. The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. The E.U. and its member states, and a number of other countries are actively pursuing fundamental changes to the tax laws applicable to multinational companies like us. Furthermore, tax authorities may choose to examine or investigate our tax reporting or tax liability, including under transfer pricing or permanent establishment theories. These proceedings may lead to adjustments or proposed adjustments to our income taxes or provisions for uncertain tax positions. On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act") was enacted in the United States. The U.S. Tax Reform Act introduces significant changes to U.S. income tax law that will have a meaningful impact on our financial position and effective tax rate. Accounting for the income tax effects of the U.S. Tax Reform Act requires complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different from our interpretation. Due to the timing of enactment and the complexity in determining the income tax effects of the U.S. Tax Reform Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take as a result of the U.S. Tax Reform Act. These adjustments could materially affect our financial position and results of operations as well as our effective tax rate in the period in which these adjustments are made. In late 2017, we received a Notice of Reassessment from the French Tax Authority ("FTA") related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. We disagree with the proposed assessment and intend to vigorouslycontest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities. We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes, in both the United States and various other jurisdictions. Tax authorities regularly examine these non-income taxes. The outcomes from these examinations, changes in the business, changes in applicable tax rules or other tax matters may have a negative impact on our business.Fluctuations in currency exchange rates could negatively impact our business. We transact business in various currencies other than the U.S. dollar and have significant international sales and expenses denominated in currencies other than the U.S. dollar, subjecting us to currency exchange rate risks. A substantial portion of our international sales and expenses are denominated in local currencies, including euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona, which could fluctuate against the U.S. dollar. Since we have significant international sales, but incur the majority of our costs in the United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We have, in the past, utilized currency derivative contracts to hedge certain foreign exchange exposures and managed these exposures with natural offsets. However, there can be no assurance that we will continue our hedging programs, or that we will be successful in managing exposure to currency exchange rate risks whether or not we do so.Our games are subject to scrutiny regarding the appropriateness of their content. If we fail to receive our target ratings for certain titles, or if our retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business. Our console and PC games are subject to ratings by the Entertainment Software Rating Board (the "ESRB"), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple's use of its proprietary "App Rating System" and Google Play's use of the International Age Rating Coalition (IARC) rating system. If we are unable to obtain the ratings we have targeted for our products, it could have a negative impact on our business. In some instances, we may be required to modify our products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories. Further, if one of our games is "re-rated" for any reason, a ratings organization could require corrective actions, which could include a recall, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies previously purchased. Additionally, retailers may decline to sell interactive entertainment software containing what they judge to be graphic violence or sexually explicit material or other content that they deem inappropriate for their businesses, whether because a product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our products based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material or other generallyobjectionable content, we might be required to modify particular titles or forfeit the revenue opportunity of selling such titles with that retailer. Further, throughout the history of the interactive entertainment industry, many interactive software products have included hidden content and/or hidden gameplay features, some of which have been accessible through the use of in-game codes or other technological means, that are intended to enhance the gameplay experience. In some cases, such undisclosed content or features have been considered to be objectionable. While publishers are required to disclose pertinent hidden content during the ESRB ratings process,concentrated in a few cases, publishers have failed to disclose hidden content, and the ESRB has required the recall of the game, changed the rating or associated content descriptors originally assigned to the product, required the publisher to change the game or game packaging and/or imposed fines on the publisher. Retailers have on occasion reacted to the discovery of such undisclosed content by removing these games from their shelves, refusing to sell them and demanding that their publishers accept them as product returns. Likewise, some interactive entertainment software consumers have reacted to the revelation of undisclosed content by refusing to purchase such games, demanding refunds for games they have already purchased, refraining from buying other games published by the company whose game contained the objectionable material, and, on at least one occasion, filing a lawsuit against the publisher of the product containing such content. We have implemented preventive measures designed to reduce the possibility of objectionable undisclosed content from appearing in the interactive software products we publish. Nonetheless, these preventive measures are subject to human error, circumvention, overriding and reasonable resource constraints. If an interactive software product we publish is found to contain undisclosed content, we could be subject to any of these consequences.Our business, products, and distribution are subject to increasing regulation in key territories. If we do not successfully respond to these regulations,customers reduces our business could be negatively impacted. Legislation is continually being introduced, and litigation and regulatory enforcement actions are taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute and advertise our products. The video game industry continues to evolve, and new and innovative business opportunities are often subject to new attempts at regulation. Many foreign countries, such as China and Germany, have laws that permit governmental entities to restrict or prohibit marketing or distribution of interactive entertainment software products because of the content therein (and similar legislation has been introduced at one time or another at the federal and state levels in the United States). Further, the growth and development of electronic commerce and virtual items and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens or limitations on operations of companies such as ours conducting business through the Internet and mobile devices. We are subject to laws and regulations related to protection of minors, consumer privacy, accessibility, advertising, taxation, payments, intellectual property, distribution, and antitrust, among others. Also, existing laws or new laws regarding the marketing of in-app purchases, regulation of currency, banking institutions, virtual currencies, unclaimed property, and money laundering may be interpreted to cover virtual currency or goods. Furthermore, the growth and development of electronic commerce and virtual items and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens or limitations on operations of companies such as ours conducting business through the Internet and mobile devices. The adoption and enforcement of legislation that restricts the marketing, content, business model, or sales of our products in countries in which we do business may harm the sales of our products, as the products we are able to offer to our customers and the size of the potential market for our products may be limited. We may be required to modify certain product development processes or products or alter our marketing strategies to comply with regulations, which could be costly or delay the release of our products. The laws and regulations affecting our products vary by territory and may be inconsistent with one another,imposing conflicting or uncertain restrictions. Failure to comply with any applicable legislation may also result in government-imposed fines or other penalties, as well as harm to our reputation. Moreover, the public dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers' willingness to purchase our products. Because the King Acquisition has significantly increased our user population, it may subject us to laws and regulations in additional jurisdictions and exacerbate the potential adverse impact on our business. Although we have structured and operate our skill tournaments with applicable laws in mind, including any applicable laws relating to gambling, and believe that playing these games does not constitute gambling, our skill tournaments could in the future become subject to gambling-related rules and regulations and expose us to civil and criminal penalties. We also sometimes offer consumers of our online and casual games various types of contests and promotional opportunities. We are subject to laws in a number of jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving and could be interpreted in ways that could harm our business. Further, some of our online games and other services include random digital item mechanics, which may become subject to regulations in various jurisdictions. If these were to occur, we might be required to seek licenses, authorizations, or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements, and we may be subject to additional regulation and oversight, such as reporting to regulators, all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the United States, Europe, or elsewhere regarding these activities may lessen the growth of casual game services and impair our business.Change in government regulations relating to the Internet could negatively impact our business. We rely on our consumers' access to significant levels of Internet bandwidth for the sale and digital delivery of our content and the functionality of our games with online features. Changes in laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws impacting "net neutrality," could decrease the demand for our products and services or increase our cost of doing business. Although certain jurisdictions have implemented laws and regulations intended to prevent Internet service providers from discriminating against particular types of legal traffic on their networks, other jurisdictions may lack such laws and regulations or repeal existing laws or regulations. For example, on December 14, 2017, the Federal Communications Commission voted to repeal net neutrality regulations in the U.S. Given uncertainty around these rules, including changing interpretations, amendments, or repeal, coupled with the potentially significant political and economic power of local Internet service providers and the relatively significant level of Internet bandwidth access our products and services require, we could experience discriminatory or anti-competitive practices that could impede our growth, cause us to incur additional expenses, or otherwise negatively impact our business.The laws and regulations concerning data privacy are continually evolving. Failure to complynegotiating leverage with these laws and regulations could harm our business. Consumers play certain of our games online using third-party platforms and networks, through online social platforms, and on mobile devices. We collect and store information about our consumers of these games—both personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this information. For example, the E.U. has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy regulations. The U.S. Children's Online Privacy Protection Act ("COPPA") also regulates the collection, use, and disclosure of personal information from children under 13 years of age. Failureto comply with COPPA may increase our costs, subject us to expensive and distracting government investigations, and result in substantial fines. Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future, which could impact our approach to operating and marketing our games. For example, the E.U.'s General Data Protection Regulation (the "GDPR"), which will come into effect in May 2018, imposes a range of new compliance obligations for us and other companies with European users, and increases financial penalties for noncompliance significantly. Regulators have not yet issued clear guidance for many of these new compliance obligations. The U.S. government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about consumer behavior on the Internet and on mobile devices, and the E.U. has proposed reforms to its existing data protection legal framework, including the GDPR. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our consumers that is necessary for compliance with these various types of regulations. Player interaction with our games is subject to our privacy policies, end user license agreements ("EULAs"), and terms of service. If we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If regulators, the media, or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, and damage our business.We depend on servers to operate our games with online features and our proprietary online gaming service. If we were to lose server functionality for any reason, our business may be negatively impacted. Our business relies on the continuous operation of servers, some of which are owned and operated by third parties. Although we strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games. This risk is particularly pronounced with respect to the mobile games published by King, which rely on a small number of third-party owned data centers located in one city, or with respect to the functioning of our proprietary online gaming service, Blizzard Battle.net, the disruption of which could prevent Blizzard from delivering content digitally or render all of Blizzard's games, as well asDestiny 2 PC content, unavailable. We also rely on networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam, for the sale and digital delivery of downloadable console and PC game content and the functionality of our games with online features. Similarly, we rely on the continued operation of the Apple App Store, the Google Play Store, and Facebook for the sale of virtual currency for our free-to-play games. An extended interruption to any of these services could adversely affect our ability to sell and distribute our digital products and operate our games with online features, negatively impacting our business. Further, insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.We rely on complex information technology systems and networks to operate our business. Any significant data breach or system or network disruption could negatively impact our business. In the course of our day-to-day business, we and third parties operating on our behalf create, store, and/or use commercially sensitive information, such as the source code and game assets for our interactive entertainment software products and confidential information with respect to our customers, consumers, and employees. A malicious intrusion by hackers or other breach of the systems on which such source code and assets, account information (including personally identifiable information) and other sensitive data (including credit card information maintained in a proprietary database) is stored could lead to piracy of our software, fraudulent activity, disclosure or misappropriation of, or access to, our customers', consumers' or employees' personally identifiable information or our own sensitive business data. We have implemented programs intended to secure our data and systems and prevent unauthorized access to, or loss of, sensitive data. However, because these attacks may remain undetected for prolonged periods of time and the techniques used by criminal hackers and other third parties to breach systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. A data intrusion into a server for a game with online features or for our proprietary online gaming service could also disrupt the operation of such game or platform. If we are subject to data security breaches, or a security-related incident that materially disrupts the availabilityBecause purchases of our products and services we may have a loss in sales or subscriptions or be forced to pay damages or incur other costs, including from the implementation of additional security measures, or suffer reputational damage. Additionally, while we maintain insurance policies, they may be insufficient to reimburse us for all losses or all types of claims that may be caused by data breaches or system or network disruptions. Moreover,are discretionary spending, if there were a public perception that our data protection measures are inadequate, whether or not the case, it could result in reputational damage and potential harm to our business relationships or the public perception of our business model. In addition, such data security breaches may subject us to legal claims or proceedings, including regulatory investigations and actions, especially if there is loss, disclosure, or misappropriation of, or access to, our customers' credit card or other sensitive or personally identifiable information.Our reported financial results could be significantly impacted by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves. Our reported financial results are impacted by the accounting policies promulgated by the SEC and national accounting standards bodies and the methods, estimates and judgments that we use in applying our accounting policies. Policies affecting revenue recognition have affected, and could further significantly affect, the way we report revenues related to our products and services. We recognize a majority of the revenues from bundled sales (i.e., video games that include an online service component) on a deferred basis over an estimated service period for such games. In addition, we defer the cost of revenues of those products. Further, as we increase our downloadable content and add new features to our online services, our estimate of the service period may change and we could be required to recognize revenues, and defer related costs, over a shorter or longer period of time. As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and taxes, could have a significant impact on our reported net revenues, net income and earnings per share under accounting principles generally accepted in the United States in any given period.Provisions in our corporate documents and Delaware state law could delay or prevent a change of control. Our Amended and Restated Bylaws contain a provision regulating the ability of shareholders to bring matters for action before annual and special meetings. The regulations on shareholder action could make it more difficult for any person seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. In addition, our Third Amended and Restated Certificate of Incorporation authorizes the issuance of so-called "blank check" preferred stock. This ability of our Board of Directors to issue and fix the rights and preferences of preferred stock could effectively dilute the interests of any person seeking control or otherwise make it more difficult to obtain control.Historically, our stock price has been highly volatile. The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to many factors, including for example, but without limitation:•quarter-to-quarter variations in the results of our operations;•the announcement of new products;•the announcement of lower prices on competing products;•product development or release schedules;•general conditions in the computer, software, entertainment, media or electronics industries, or in the worldwide economy;•announcements of developments in the overall worldwide market for interactive entertainment, including announcements of industry sales data;•the timing of the introduction of new platforms and delays in the actual release of new platforms;•hardware manufacturers' announcements of price changes for hardware platforms;•consumer acceptance of hardware platforms;•consumer spending trends;•the outcome of lawsuits or regulatory investigations in which we are, or may become, involved;•changes in earnings estimates or buy/sell recommendations by analysts;•sales or acquisitions of common stock by our directors or executive management; and•investor perceptions and expectations regarding our products, plans and strategic position, and those of our competitors and customers.Catastrophic events may disrupt our business. Our corporate headquarters and our primary corporate disaster center are located in the Los Angeles, California area and our primary corporate disaster recovery data center is in Las Vegas, Nevada, each of which is near a major earthquake fault. A major earthquake or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems, or otherwise prevents us from conducting our normal business operations, could require significant expenditures to resume operations and negatively impact our business. While we maintain insurance coverage for some of these events, the potential liabilities associated with such events could exceed the insurance coverage we maintain. Further, our system redundancy may be ineffective or inadequate and our disaster recovery planning may not be sufficient for all eventualities.Any such event could also limit the ability of retailers, distributors or our other customers to sell or distribute our products.If general economic conditions decline, demand for our products and services could decline.at 3100 Ocean Park Boulevard,in Santa Monica, California. The following is a summary ofOur Activision segment also leases office space for development studio personnel throughout the principal leased offices we maintained as of December 31, 2017: Americas EMEA(1) Asia Total Square footage of leased properties 152,431 1,147 — 153,578 724,122 48,343 25,838 798,303 904,773 99,922 102,898 1,107,593 83,885 401,469 4,189 489,543 23,557 101,583 — 125,140 12,267 34,747 8,055 55,069 1,901,035 687,211 140,980 2,729,226 (1)Consists of the Europe, Middle East,U.S., primarily in California, New York, and Africa geographic regions. In total, we have approximately 100 facility leasesWisconsin. We also lease office space in the following 20 countries: Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, theIrvine, CA for our Blizzard segment’s headquarters, which include administrative and development studio space. We lease office space in London, United Kingdom for our King segment’s headquarters, as well as office space for additional administrative and the United States. The only facilities currently owned by the Company are two European warehouses utilized by the Distribution segment, one locateddevelopment studio space in Burglengenfeld, GermanyStockholm, Sweden and the other in Venlo, the Netherlands. As further described in 1522 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K on December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one offor disclosures regarding our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities. In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights,contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.applicableapplicable.REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES"ATVI." The following table sets forth, for the periods indicated, the high and low reported sale prices for our common stock.“ATVI”. At February 20, 2018,18, 2022, there were 1,6631,482 holders of record of our common stock. High Low $ 50.40 $ 36.18 61.58 48.41 66.58 55.86 67.40 57.29 High Low $ 38.09 $ 26.49 39.99 33.03 45.12 39.28 45.55 35.12 "filed"“filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Activision Blizzard, Inc. under the Exchange Act or the Securities Act of 1933.2012,2016, and that dividends were reinvested daily. The stock price performance on the following graph and table is not necessarily indicative of future stock price performance.
12/12 12/13 12/14 12/15 12/16 12/17 $ 100.00 $ 170.11 $ 194.06 $ 376.61 $ 354.16 $ 624.78 100.00 141.63 162.09 173.33 187.19 242.29 100.00 132.39 150.51 152.59 170.84 208.14 100.00 132.51 155.05 161.00 181.12 247.79 Fiscal year ending December 31: 12/16 12/17 12/18 12/19 12/20 12/21 Activision Blizzard, Inc. $ 100.00 $ 176.41 $ 130.41 $ 167.75 $ 263.83 $ 189.96 Nasdaq Composite 100.00 129.64 125.96 172.17 249.51 304.85 S&P 500 100.00 121.83 116.49 153.17 181.35 233.41 RDG Technology Composite 100.00 137.44 141.58 210.04 311.64 400.39 2018: Per Share
Amount Record
Date Dividend
Payment
Date $ 0.34 3/30/2018 5/9/2018 $ 0.30 3/30/2017 5/10/2017 $ 0.26 3/30/2016 5/11/2016 $ 0.23 3/30/2015 5/13/2015 Year Per Share Amount Record Date Dividend Payment Date 2022 $0.47 4/15/2022 5/6/2022 2021 $0.47 4/15/2021 5/6/2021 2020 $0.41 4/15/2020 5/6/2020 2019 $0.37 3/28/2019 5/9/2019 Further, agreements governing certain of our indebtedness, as described in Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, may, under certain circumstances, limit our ability to pay distributions or dividends. There can be no assurances that dividends will be declared in the future.10b5-1 Stock Trading Plans The Company's directorsemployeespay one regular cash dividend not to exceed $0.47 per common share and consistent with the declaration, record, and payment date of our dividend from our most recent fiscal year. On February 3, 2022, our Board of Directors declared the regular cash dividend of $0.47 per common share permitted under the terms of the Merger Agreement, payable on May 6, 2022, to shareholders of record at the close of business on April 15, 2022. We may atnot declare, set aside, authorize, establish a time they are not awarerecord date for, or pay any further dividend or other distribution (whether in cash, shares, or property or any combination thereof) in respect of material non-public information, enter into plans to purchase or sellany shares of our commoncapital stock that satisfy the requirements of Exchange Act Rule 10b5-1 ("Rule 10b5-1 Plans"). Rule 10b5-1 Plans permit persons whose ability to purchase or sell our common stock may otherwise be substantially restricted (by quarterly and special stock-trading blackouts and by their possession from time to time of material nonpublic information) to trade on a pre-arranged, "automatic-pilot" basis. Trading under Rule 10b5-1 Plans is subject to certain conditions, including that the person for whom the plan is created (or anyone else aware of material non-public information acting on such person's behalf) not exerciseother equity or voting interest, or make any subsequent influence regarding the amount, price and dates of transactions under the plan. In addition, the Company requires Rule 10b5-1 Plans to be established and maintainedother actual, constructive, or deemed distribution in accordance with the Company's "Policy on Establishing and Maintaining 10b5-1 Trading Plans." Trades under a Rule 10b5-1 Plan by our directors and employees are not necessarily indicative of their respective opinions of our current or potential future performance at the timerespect of the trade. Trades by our directors and executive officers pursuant to a Rule 10b5-1 Plan willshares of capital stock or other equity or voting interest, without obtaining Microsoft's approval (which may not be disclosed publicly through Form 144 and Form 4 filings with the SEC, in accordance with applicable laws, rules, and regulations.February 2, 2017,January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1$4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, 2017 through February 12, 2019. As2023 and a determination by the Board of Directors to discontinue the repurchase program. To date, hereof, we have not repurchased any shares under this program and are restricted from making any repurchases during the period between the execution of the Merger Agreement and the effective time of the Merger without obtaining Microsoft’s approval (which may not be unreasonably withheld, conditioned, or delayed).asby the Board of Directors to if and when we makediscontinue the repurchase program. We did not repurchase any such stock repurchases will be dependent on market conditions and other factors.shares under this program.6. SELECTED FINANCIAL DATA The following table summarizes certain selected consolidated financial data, which should be read in conjunction with our Consolidated Financial Statements and Notes thereto and with Management's7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data presented below at and for each of the years in the five-year period ended December 31, 2017 is derived from our Consolidated Financial Statements and include the operations of King commencing on the King Acquisition Date. All amounts set forth in the following tables are in millions, except per share data. For the Years Ended December 31, 2017 2016 2015 2014 2013 $ 7,017 $ 6,608 $ 4,664 $ 4,408 $ 4,583 273 966 892 835 1,010 0.36 1.30 1.21 1.14 0.96 0.36 1.28 1.19 1.13 0.95 0.30 0.26 0.23 0.20 0.19
$
2,213
$
2,155
$
1,259
$
1,331
$
1,293
$ 4,775 $ 3,271 $ 1,840 $ 4,867 $ 4,452 18,668 17,452 15,246 14,637 13,947 4,390 4,887 4,074 4,319 4,687 4,440 4,940 4,119 4,369 4,744 — 1,669 2,279 — 292 (1)Net income includes the impact of significant discrete tax-related impacts, including incremental income tax expense due to the application of the U.S. Tax Reform Act. See further discussion in Note 15 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.(2)Cash and investments consists of cash and cash equivalents along with short-term and long-term investments. We had short-term investments of $62 million and did not have any long-term investments as of December 31, 2017. We had short-term and long-term investments of $13 million and $13 million, respectively, as of December 31, 2016, $8 million and $9 million, respectively, as of December 31, 2015, $10 million and $9 million, respectively, as of December 31, 2014, and $33 million and $9 million, respectively, as of December 31, 2013. Cash and investments as of December 31, 2015 excludes $3,561 million of cash placed in escrow for the King Acquisition.(3)For discussion on our debt obligations, see Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.(4)Net debt is defined as long-term debt, gross less cash and investments. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSPC,PCs, and mobile devices. We also operate esports events and leagues and create filmoffer digital advertising within some of our content. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and television content based on“our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.games.The King Acquisition On February 23, 2016,acquisition will be accomplished through the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Microsoft.completed the King Acquisition for an aggregate purchase priceor Microsoft will be required to pay a termination fee. We will be required to pay Microsoft a termination fee of approximately $5.8$2.27 billion under specified circumstances, including termination of the Merger Agreement in connection with our entry into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement) prior to us receiving stockholder approval of the Merger, or termination by Microsoft upon a Company Board Recommendation Change (as defined in the Merger Agreement), in each case, if certain other conditions are met. Microsoft will be required to pay us a reverse termination fee under specified circumstances, including termination of 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 (1) $2.0 billion if the termination notice is provided prior to January 18, 2023, (2) $2.5 billion if the termination notice is provided after January 18, 2023, and prior to April 18, 2023, or (3) $3.0 billion if the termination notice is provided at any time after April 18, 2023.further described in Note 20 of the signing date and the closing date.statements. statements included in Part II, Item 8 of this Annual Report on Form 10-K.consolidated financial statements include the operations of King commencing on February 23, 2016.Reportable Segments As part of the continued implementation of our esports strategy, we instituted changes to our internal organization and reporting structure such that the MLG business now operates as a division of Blizzard. As such, commencing with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content.segments: Activision, Blizzard, and King.(i) Activision Activisionsegments, each of which is a leading global developer and publisher of interactive software products and entertainment content particularly for the console platform.and services based primarily on our internally-developed intellectual properties.primarilyPublishing, Inc.retailboth premium and digital channels, includingfree-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product franchise is Call of Duty, a first-person action franchise. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties. is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retailboth premium and digital channels, including subscriptions,free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well assubscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzardplatform, Battle.net, which facilitates digital distribution of Blizzard content along with Activision'sDestiny 2and selected Activision content, online social connectivity, and the creation of user-generated content. As noted above,Blizzard’s key product franchises include: Warcraft, 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, an action role-playing franchise; and Overwatch, a team-based first-person action franchise. Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, alonga global professional esports league with other esports events,city-based teams.will also continue to serve as a multi-platform network for other Activision Blizzard esports content.(iii) King King is a leading global developerprimarily generates revenue from in-game sales and publisher of interactive entertainment content and services, particularlyin-game advertising on mobile platforms, such as Google's Android and Apple's iOS. King also distributes itscontent and services on the PC platform, primarily via Facebook. King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency.including:•the Studios business, which is devoted to creating original film and television content based onincluding our extensive library of globally recognized intellectual properties; and•the 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. The Company's 2017include:6%9% to $7.0$8.8 billion and consolidated operating income decreased 7%increased 19% to $1.3$3.3 billion, as compared to consolidated net revenues of $6.6$8.1 billion and consolidated operating income of $1.4$2.7 billion in 2016;revenues from digital online channels13%22% to $5.5 billion, or 78% of consolidated net revenues,$3.44, as compared to $4.9 billion, or 74% of consolidated net revenues,$2.82 in 2016;operating margin was 18.7%, as compared to 21.4% in 2016;•ofwere approximately $2.21$2.4 billion, an increase of 3%7%, as compared to $2.16$2.3 billion in 2016;•consolidated net income decreased 72% to $273 million, as compared to $966 million in 2016, primarily driven by the impact of significant discrete tax-related impacts, including incremental income tax expense due to the impacts from the U.S. Tax Reform Act, as discussed in "Consolidated Results" below;•consolidated net income included $113 million of excess tax benefits from share-based payments, as compared to $81 million in 2016; and•diluted earnings per common share decreased 72% to $0.36, as compared to $1.28 in 2016, primarily driven by incremental income tax expense due to the impacts from the U.S. Tax Reform Act.an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable,performance obligation, we initially defer the software-related revenuestransaction price allocable to the online functionality from the sale of these games and recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net revenues and operating income for the year ended December 31, 2017,2021, include a net effect of $139$449 million and $71$347 million, respectively, from the deferralsrecognition of deferred net revenues and related cost of revenues.For the Years Ended December 31, 2021 2020 Point-in-time (1) 14 % 16 % Over-time and other (2) 86 % 84 % Highlights Games and downloadableEvent Highlightsthat were releasedthrough seasonal and live services updates within our franchises, including Call of Duty, Candy Crush, and Warcraft. In addition to these updates, notable game releases during 2017, include:Activision's four downloadable content packs forInfinite Warfare™Vanguard; and one downloadable content pack forModern Warfare® RemasteredWarzone Pacific;Activision'sCallDuty: Black Ops III Zombies ChroniclesWarcraft: Burning Crusade Classic™;a downloadable content pack of remastered zombies maps fromCall of Duty: World at War, Call of Duty: Black Ops, andCall of Duty: Black Ops II;•Activision'sCrash Bandicoot™ N. Sane Trilogy, first three Crash Bandicoot gamesoriginal action role-playing game title Diablo II.Playstation 4;•Activision'sDestiny 2, the sequel toDestiny,titles that are discussed throughout our analysis for our operating metrics, our consolidated results, andCurse of Osiris, the first expansion toDestiny 2;•Activision'sCall of Duty: WWII;•Blizzard's latest expansions toHearthstone—Journey to Un'Goro™,Knights of the Frozen Throne™, andKobolds and Catacombs™;•Blizzard'sRise of the Necromancer™, a downloadable content pack forDiablo III; and•King'sBubble Witch 3 Saga™. We also completed the sale of 12 teams for the Overwatch League, the first major global professional esports league with city-based teams. The first preseason matches occurred in December 2017 and the inaugural regular season started in January 2018.Title Release Date Call of Duty: Vanguard Call of Duty: Black Ops Cold War Crash Bandicoot™ 4: It’s About Time October 2020. Tony Hawk’s™ Pro Skater™ 1 + 2 September 2020. Call of Duty: Modern Warfare Call of Duty: Mobile October 2019. Crash™ Team Racing Nitro-Fueled June 2019. Call of Duty: Black Ops 4 October 2018. Diablo II: Resurrected September 2021. World of Warcraft: Burning Crusade Classic June 2021. World of Warcraft: Shadowlands November 2020. 55%51%, 55%52%, and 52%54% of our total consolidated net revenues for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. The majority of our net revenues from foreign countries are generated by consumers in Australia, Canada, China, France, Germany, Italy, Japan, South Korea, Spain, Sweden, and the United Kingdom.U.K. Our international business is subject to risks typical of an international business, including, but not limited to, foreign currency exchange rate volatility and changes in local economies. Accordingly, our future results could be materially and adversely affected by changes in foreign currency exchange rates and changes in local economiesFor the Years Ended December 31, Increase
(Decrease)2021 2020 Net bookings $ 8,354 $ 8,419 $ (65) In-game net bookings $ 5,100 $ 4,852 $ 248 ("MAUs"(“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.trendingtrends in the number of MAUs can be a meaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends. The following table details our average MAUs on a sequential quarterly basis for each of our reportable segments (amounts in millions): December 31,
2017 September 30,
2017 June 30,
2017 March 31,
2017 December 31,
2016 September 30,
2016 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 55 49 47 48 51 46 Activision 107 119 127 150 128 40 42 46 41 41 42 Blizzard 24 26 26 27 29 290 293 314 342 355 394 King 240 245 255 258 240 385 384 407 431 447 482 Total 371 390 408 435 397 quarterthree months ended December 31, 2017 were comparable2021, as compared to the quarterthree months ended September 30, 2017.2021. The decrease in King's and Blizzard'swas primarily due to lower average MAUs is partially offset by an increase in Activision's average MAUsfor Activision, primarily driven by the Call of Duty franchise due to the launch ofCall of Duty: WWII in November 2017.6226 million or 14%,7% for the quarterthree months ended December 31, 2017,2021 as compared to the quarterthree months ended December 31, 2016.2020. The decrease in King's average MAUs is due to decreases across King's franchises that are largely attributable to less engaged users leaving the network and maturity of titles.Net Bookings We monitor net bookings as a key operating metric in evaluating the performance of our business. Net bookings is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings were as follows (amounts in millions): For the years ended
December 31, Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 2017 2016 2015 $ 7,156 $ 6,599 $ 4,621 $ 557 $ 1,978 2017 vs. 2016 The increase in net bookings for 2017, as compared to 2016, was primarily due to:•higher net bookings from King titles, as 2017 includes King net bookingsto lower average MAUs for the full year, while 2016 only included King net bookings for the partial period following the King Closing Date, as well as higher net bookings from the Candy Crush franchise, due to in-game events and features;•higher net bookings from the Destiny franchise, driven by the release ofDestiny 2 in September 2017;•higher net bookings fromCall of Duty: WWII, which was released in November 2017, as compared toCall of Duty: Infinite Warfare (which, when referred to herein, is inclusive ofCall of Duty: Modern Warfare Remastered), the comparable 2016 title;•higher net bookings from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions; and•net bookings fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017. The increase was partially offset by:•lower net bookings fromCall of Duty: Infinite Warfare, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title;•lower net bookings fromOverwatch, which was released in May 2016;•lower net bookings fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion™ in August 2016, with no comparable release in 2017; and•lower net bookings from the Skylanders® franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.2016 vs. 2015 The increase in net bookings for 2016, as compared to 2015, was primarily due to:•new net bookings from King titles following the King Closing Date,Activision, primarily driven by the Candy Crush franchise;•net bookings fromOverwatch, which was released in May 2016;•higher net bookings from digital content associated withCall of Duty: Black Ops III, which was released in November 2015, as compared toCallDuty franchise.Duty: Advanced Warfare, the comparable 2014 title; and•higher net bookings fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2015. The increase was partially offset by:•lower net bookings fromCall of Duty: Infinite Warfare, which was released in November 2016, as compared toCall of Duty: Black Ops III, the comparable 2015 title;•lower net bookings from the Destiny franchise, as there were two expansion packs in 2015—House of Wolves andThe Taken King—but only one in 2016—Rise of Iron;•lower net bookings fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower net bookings from standalone toys and accessories from the Skylanders franchise in 2016; and•lower net bookings fromGuitar Hero® Live, which was released in 2015, with no comparable release in 2016.Management'sContentsand Mobile Gaming Growth18% over the last three years.10% annually from 2018 to 2021. The industry continues to benefit from additional players entering the market as interactive entertainment becomes more common placecommonplace across age groups and as more developing regions gain access to this form of entertainment. Further, the widesmart phonessmartphones globally and the free-to-play business model on thosemobile platforms hashave increased the total addressable marketaudience for gaming significantly by introducing gaming to new age groups and new regions and allowing gaming to occur more widely outside the home. Mobile gaming is now estimated to be larger than console and PC gaming, and continues to grow at afrom,in, our franchises.Opportunities The 2019 launch of Expand Franchises Outsidetry a new game with no upfront cost, has begun to receive broader acceptance on PC and console platforms. This provides opportunities for us to increase the reach of Games Our fans spend significant time investing in our franchises through purchases of our game content, whether through purchases of full games or downloadable content or via microtransactions. Given the passion our players have for our franchises, we believe there are emergingfree-to-play offerings, which, in turn, provides opportunities to further drive additional engagementplayer investment, as was seen with our investment in our franchises outsidecontinuous content updates including the release of games. These opportunities include esports, film and television, and consumer products. Our efforts to build these adjacent opportunities are still relatively nascent, but we view them as potentially significant sourcesa completely new map with the launch of future revenues. As partour efforts to take advantage of the esports opportunity, during 2017 we completed the sale of 12 teams for the Overwatch League. The Overwatch League is the first major global professional esports league with city-based teams. The first preseason matches occurred in December 2017 and the inaugural regular season started in January 2018. The concentration of retail revenues among key titles has continued as a trend in the overall interactive entertainment industry. According to The NPD Group, the top 10 titles accounted for 36% of the retail sales in the U.S. interactive entertainment industry in 2017. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, Candy Crush, World of Warcraft, and Overwatch franchises, collectively, accounted for 66% of our consolidated net revenues—and a significantly higher percentage of our operating income—for 2017. Of the top 10 consolein 2017, all 10 are from established franchises. Similarly, according to U.S rankings for the Apple App Store and Google Play store per App Annie Intelligence as of December 2017, the top 10 mobilethese video games have an average tenurealso been responsible for a disproportionately higher percentage of 22 months.and developing sequels andnew content for our top titles,franchises, with the aim of releasing such content more frequently, we are continually exploring additional ways to expand those franchises. Further, while there is no guaranteefranchises, such as our release of success, we invest in new properties in an effort to develop future top franchises. In 2014, we releasedHearthstone andDestiny, in 2015, we releasedHeroesActivision’s Call of the Storm, and in 2016, we releasedOverwatchDuty: Warzone. Additionally, we have been increasing our development efforts to diversifyfocus on expanding our portfoliofranchises to mobile platforms, as demonstrated by the release of key franchises Call of Duty: Mobile and increase our presence recent release of Crash Bandicoot: On the Run! in the mobile market, on February 23, 2016, we completed the King Acquisition. do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry's,industry’s, revenues and profits in the near future. Accordingly, our ability to maintain our top franchises and our ability to successfully compete against our competitors'competitors’ top franchises can significantly impact our performance. and SeasonalityOffering downloadableWhile our business does continue to experience some periods of “seasonality” driven primarily by the timing of our releases of new premium full games, our in-game content and microtransactions, in addition to full games, allowsfree-to-play offerings allow our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenues, but it can also increase player engagement. Also, mobilefree-to-playin-game content. Given the passion our players have for our franchises, we believe there are emerging opportunities to drive additional engagement and investment in our franchises through adding non-gaming experiences within games more broadly,or by adding ways to engage outside of games, such as with our Overwatch and Call of Duty esports leagues. Our efforts to build these adjacent opportunities are generally less seasonal. Whilestill relatively nascent and have experienced negative impacts from COVID-19 on their growth.businesscontinued success and growth is transitioningdirectly related to a year-round engagement model, the interactive entertainment industry remains somewhat seasonal.our ability to attract, retain, and develop top talent. We have historically experienced our highest sales volume, particularly for Activision,seen increased competition in the year-end holiday buying season, which occursmarket for talent and expect the competitive environment to continue at least in the fourth quarter. Followingshort term. We have experienced challenges in both the acquisition of King, which focuses on free-to-play games which are generally less seasonal, and as we otherwise make the shift to a year-round model, lessretention of our revenues are generated duringexisting talent and attraction of new talent, with our average voluntary turnover rates being higher in the fourth quarter. For our reportable segments—Activision, Blizzard, and King—the percentage of our revenue represented by the fourth quarter in each of 2017 and 2016 was 36%,current year as compared to 46%the prior year in 2015.Expected many parts of our Company. This competition, voluntary turnover and recruiting difficulty, has negatively impacted our ability to deliver future game releases, and if they persist, could continue to negatively impact our ability to deliver content in a cadence that will be optimal for our business. We expectWorld of Warcraft: Battle for Azeroth in 2022 and our latest Call of Duty gamerecently completed public testing in February 2022. In the second half of 2018.2022, we also plan to release the next premium title in our Call of Duty franchise. In addition, throughout the year we expect to deliver ongoing content for our various franchises, including expansion packscontinued in-game content forHearthstone andDestiny 2, in-game events forOverwatch, and map packs forCall of Duty: WWIIVanguard, as well aswhich includes seasonal content updates for Call of Duty: Warzone, seasonal content updates for Call of Duty: Mobile, substantial new content for key Blizzard franchises, and continued releases of remastered versions of titles from our library of IP. We also expect to release at least two new mobile titles during 2018, including a social casino game from King.new opportunities that we think have the potential to drive our growth over the long-term, including new titles across our platforms, and continuecontinuing to build on our advertising initiatives and esports initiatives.dollarsmillions) and as a percentage of total net revenues, except for cost of revenues, which are presented as a percentage of associated revenues (amounts in millions): For the Years Ended December 31, 2017 2016 2015 $ 2,110 30 % $ 2,196 33 % $ 2,447 52 % 4,907 70 4,412 67 2,217 48 7,017 100 6,608 100 4,664 100 733 35 741 34 872 36 300 14 331 15 370 15
984
20
851
19
274
12 484 10 471 11 69 3 1,069 15 958 14 646 14 1,378 20 1,210 18 734 16 760 11 634 10 380 8 5,708 81 5,196 79 3,345 72 1,309 19 1,412 21 1,319 28 146 2 214 3 198 4 12 — 92 1 — — 1,151 16 1,106 17 1,121 24 878 13 140 2 229 5 $ 273 4 % $ 966 15 % $ 892 19 % For the Years Ended December 31, 2021 2020 Net revenues Product sales $ 2,311 26 % $ 2,350 29 % In-game, subscription, and other revenues 6,492 74 5,736 71 Total net revenues 8,803 100 8,086 100 Costs and expenses Cost of revenues—product sales: Product costs 649 28 705 30 Software royalties, amortization, and intellectual property licenses 346 15 269 11 Cost of revenues—in-game, subscription, and other: Game operations and distribution costs 1,215 19 1,131 20 Software royalties, amortization, and intellectual property licenses 107 2 155 3 Product development 1,337 15 1,150 14 Sales and marketing 1,025 12 1,064 13 General and administrative 788 9 784 10 Restructuring and related costs 77 1 94 1 Total costs and expenses 5,544 63 5,352 66 Operating income 3,259 37 2,734 34 Interest and other expense (income), net 95 1 87 1 Loss on extinguishment of debt (1) — — 31 — Income before income tax expense 3,164 36 2,616 32 Income tax expense 465 5 419 5 Net income $ 2,699 31 % $ 2,197 27 % associatedin connection with our refinancing activities. The 2017 loss on extinguishment is compriseddebt financing activities during the year ended December 31, 2020.a $12 million write-off of unamortized discount and deferred financing costs associated with refinancing activities on our tranche of term loans "A" and the 2016 loss on extinguishment was comprised of a premium payment of $63 million and a write-off of unamortized discount and financing costs of $29 million associated with the extinguishment of certain term loan and senior note facilities through our refinancing activities.Contentsthe increase/(decrease) in deferredin-game net revenues recognized (amounts in millions): For the Years Ended December 31, For the Years Ended December 31, 2017 2016 2015 Increase/
(decrease)
2017 v 2016 Increase/
(decrease)
2016 v 2015 % Change
2017 v 2016 % Change
2016 v 2015 2021 2020 Increase/
(decrease)% Change $ 7,017 $ 6,608 $ 4,664 $ 409 $ 1,944 6 % 42 % Consolidated net revenues $ 8,803 $ 8,086 $ 717 9 % (139 ) 9 43 (148 ) (34 ) In-game net revenues (1) In-game net revenues (1) $ 5,266 $ 4,571 $ 695 15 % TableContents2017 vs. 20162017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily driven by an increase in revenues of $1.3 billion due to:•from King titles, as 2017 includes King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date, as well as higher revenues from from:franchise, duefranchise;in-game events and features;•higher revenues recognized from the continued strength ofIII, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions;revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017; and•higher revenues recognized fromWWIIMobile;was released in November 2017, as compared toCallincludes the release of Duty: Infinite Warfare, the comparable 2016 title. Theby:•recognized fromCall of Duty: Infinite Warfare, as compared to the performance offrom:III, the comparable 2015 title; and•lower revenues from the Skylanders franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.2016 vs. 2015 The increase in consolidated net revenues for 2016,Cold War2015, was primarily due to:
Call of Duty: Modern Warfare;new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;•revenues recognized fromOverwatch, which was released in May 2016; and•higher revenues recognized in 2016 fromIII, whichCold War;released in the fourth quarterdriven by various other franchises and titles. recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content.was partially offset by:•lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015;•lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone toys and accessories from the Skylanders franchise in 2016; and•lower revenues recognized from the Diablo franchise due to the timing of releases.Change in Deferred Revenues Recognized2017 vs. 2016 The decrease inin-game net deferred revenues recognized for 2017, as compared to 2016, was primarily due to:•a net deferral of revenues for the Destiny franchise, primarily due toDestiny 2, which was released in September 2017, as compared to net deferred revenues recognized in the comparable prior period; and•a higher net deferral of revenues from the Call of Duty franchise, primarily due to the stronger performance ofCall of Duty: WWII in the fourth quarter of 2017, as compared toCall of Duty: Infinite Warfare in the fourth quarter of 2016. The decrease was partially offset by:•net deferred revenues recognized fromOverwatch in 2017, as compared to a net deferral of revenues in 2016 due to the release ofOverwatch in May 2016; and•net deferred revenues recognized fromWorld of Warcraft in 2017, as compared to a net deferral of revenues in 2016 due to the release ofWorld of Warcraft: Legion in August 2016.2016 vs. 2015 The decrease in net deferred revenues recognized for 2016, as compared to 2015, was primarily due to:•deferrals of revenues associated with the release ofWorld of Warcraft: Legion in August 2016,year ended December 31, 2021, as compared to the recognition of deferred revenues in 2015 from the release ofWorld of Warcraft: Warlords of Draenor® in November 2014; and•deferrals of revenues associated withOverwatch. The decreaseyear ended December 31, 2020, was partially offset by lower deferrals of revenues associated with the Call of Duty franchise,primarily driven by lower revenue deferrals froman increase in in-game net revenues of $924 million due to higher in-game net revenues from:InfiniteModern Warfare,, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, 4;comparable 2015 title.Foreign Exchange Impact ChangesCandy Crush franchise;foreign exchange rates had a positive impact of $42 million, a negative impact of $81 million, and a negative impact of $373 million on Activision Blizzard's consolidatedin-game net revenues in 2017, 2016, and 2015, respectively,of $120 million due to lower in-game net revenues from Call of Duty: Black Ops Cold War, as compared to the same periodsCall of Duty: Modern Warfare.the previous year. The changes are primarily due to changes in the valuein-game net revenues of the U.S. dollar relative to the euro$109 million was driven by various other franchises and the British pound. Currently, wesegments.segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"(“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense;expense (including liability awards accounted for under ASC 718); amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.TableContentsorganizationorganizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in the "Business Overview" above, commencing with the second quarter2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable "Other segments," is now presented within the Blizzard reportable segment. Prior period amounts have been revised to reflect this change. This change had no impact on consolidated net revenues or operating income.segmentssegment net revenues and segment operating income areis presented below (amounts in millions): For the Year Ended December 31, 2017 Increase / (decrease) 2017 v 2016 Activision Blizzard King Total Activision Blizzard King Total $ 2,628 $ 2,120 $ 1,998 $ 6,746 $ 408 $ (319 ) $ 412 $ 501 — 19 — 19 — 19 — 19 $ 2,628 $ 2,139 $ 1,998 $ 6,765 $ 408 $ (300 ) $ 412 $ 520
$
1,005
$
712
$
700
$
2,417
$
217
$
(283
)
$
163
$
97 For the Year Ended December 31, 2021 Increase / (decrease) Activision Blizzard King Total Activision Blizzard King Total Segment Revenues Net revenues from external customers $ 3,478 $ 1,733 $ 2,580 $ 7,791 $ (464) $ (61) $ 416 $ (109) Intersegment net revenues (1) — 94 — 94 — (17) — (17) Segment net revenues $ 3,478 $ 1,827 $ 2,580 $ 7,885 $ (464) $ (78) $ 416 $ (126) Segment operating income $ 1,667 $ 698 $ 1,140 $ 3,505 $ (201) $ 5 $ 283 $ 87 For the Year Ended December 31, 2020 Activision Blizzard King Total Segment Revenues Net revenues from external customers $ 3,942 $ 1,794 $ 2,164 $ 7,900 Intersegment net revenues (1) — 111 — 111 Segment net revenues $ 3,942 $ 1,905 $ 2,164 $ 8,011 Segment operating income $ 1,868 $ 693 $ 857 $ 3,418 For the Year Ended December 31, 2016 Increase / (decrease) 2016 v 2015 Activision Blizzard King Total Activision Blizzard King Total $ 2,220 $ 2,439 $ 1,586 $ 6,245 $ (480 ) $ 874 $ 1,586 $ 1,980 — — — — — — — — $ 2,220 $ 2,439 $ 1,586 $ 6,245 $ (480 ) $ 874 $ 1,586 $ 1,980
$
788
$
995
$
537
$
2,320
$
(80
)
$
434
$
537
$
891 For the Year Ended December 31, 2015 Activision Blizzard King Total $ 2,700 $ 1,565 $ — $ 4,265 — — — — $ 2,700 $ 1,565 $ — $ 4,265
$
868
$
561
$
—
$
1,429
from external customers and consolidated income before income tax expense are presented in the table below (amounts in millions): For the Years Ended
December 31, 2017 2016 2015 $ 6,765 $ 6,245 $ 4,265 410 354 356 (139 ) 9 43 (19 ) — — $ 7,017 $ 6,608 $ 4,664 $ 2,417 $ 2,320 $ 1,429 (19 ) 14 37 (71 ) (10 ) (39 ) (178 ) (159 ) (92 ) (757 ) (706 ) (11 ) (15 ) (47 ) (5 ) (15 ) — — (14 ) — — (39 ) — — 1,309 1,412 1,319 146 214 198 12 92 — $ 1,151 $ 1,106 $ 1,121 For the Year Ended December 31, 2021 2020 Reconciliation to consolidated net revenues: Segment net revenues $ 7,885 $ 8,011 Revenues from non-reportable segments (1) 563 519 Net effect from recognition (deferral) of deferred net revenues (2) 449 (333) Elimination of intersegment revenues (3) (94) (111) Consolidated net revenues $ 8,803 $ 8,086 Reconciliation to consolidated income before income tax expense: Segment operating income $ 3,505 $ 3,418 Operating income (loss) from non-reportable segments (1) 2 (55) Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2) 347 (238) Share-based compensation expense (4) (508) (218) Amortization of intangible assets (10) (79) (77) (94) Consolidated operating income 3,259 2,734 Interest and other expense (income), net 95 87 Loss on extinguishment of debt — 31 Consolidated income before income tax expense $ 3,164 $ 2,616 from operating segments managed outside theof our reportable segments, including our StudiosDistribution business and Distribution businesses. Also includes unallocated corporate income and expenses.(2)We have determined that someour titles' online functionality represents an essential component of gameplay and, as a result, represents a more-than-inconsequential separate deliverable. As such, we are required to recognize revenues from these titles over the estimated service periods, which are generally less than twelve months. The related cost of revenues are deferred and recognized when the related revenues are recognized. In the operating segment results table, we reflectContentsthe deferrals of revenues and (recognition)recognition (deferral) of deferred net revenues, along with the related cost of revenues, on certain of our online enabledonline-enabled products.We amortize intangible assets over their estimated useful lives based on the pattern of consumption of the underlying economic benefits. The amounts presented in the table represent the effect of the amortization of intangible assets in our consolidated statements of operations.(5)Reflects fees and other expensesthe King Acquisition, inclusive of related debt financings and integration costs.(6)Reflects restructuring charges, primarily severance costs.(7)Reflects a non-cash accounting chargeshare-based compensation, including liability awards accounted for under ASC 718. Refer to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.(8)Reflects the impact of other unusual or unique tax-related items and activities.Net Revenues2017 vs. 2016 The increase in Activision's net revenues for 2017, as compared to 2016, was primarily due to:•higher revenues from the Destiny franchise, driven by the release ofDestiny 2 in September 2017, with no comparable release in 2016;•higher revenues fromCall of Duty: WWII, which was released in November 2017, as compared toCall of Duty: Infinite Warfare, the comparable 2016 title;•higher revenues from from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions; and•revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017. The increase was partially offset by:•lower revenues fromCall of Duty: Infinite Warfare including its associated digital content, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title; and•lower revenues from the Skylanders franchise, due to the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017.2016 vs. 2015Activision'sActivision’s segment net revenues for 2016, as compared to 2015, was primarily due to:•lower revenues fromCall of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, the comparable 2015 title, which was the third game in our successful Black Ops series;•lower revenues from the Destiny franchise, as there were two expansion packs in 2015—House of WolvesandThe Taken King—but only one in 2016—Rise of Iron;•lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys and accessories in 2016; and•lower revenues fromGuitar Hero Live, which was released in 2015 with no comparable release in 2016. The decrease was partially offset by higher revenues from digital content associated withCall of Duty: Black Ops III, as compared toCall of Duty: Advanced Warfare, the comparable 2014 title.Blizzard2017 vs. 2016 The decrease in Blizzard's net revenues for 2017, as compared to 2016, was primarily due to:•lower revenues fromOverwatch, which was released in May 2016; and•lower revenues fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2017. The decrease was partially offset by:•revenues recognized from franchise sales of city-based teams for the Overwatch League; and•higher revenues fromDiablo III, primarily due to the release ofRise of the Necromancer, a downloadable content pack forDiablo III that was released in June 2017.2016 vs. 2015 The increase in Blizzard's net revenues for 2016, as compared to 2015, was primarily due to:•revenues fromOverwatch, which was released in May 2016; and•higher revenues fromWorld of Warcraft, driven by the release ofWorld of Warcraft: Legion in August 2016, with no comparable release in 2015.King2017 vs. 2016 The increase in King's net revenues for 2017, as compared to 2016, was primarily due to:•2017 including King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date; and•higher revenues from the Candy Crush franchise, due to in-game events and features.2016 vs. 2015 King's 2016 net revenues represent the net revenues from the King Closing Date through December 31, 2016. The revenues were primarily driven by the Candy Crush franchise, which included the release ofCandy Crush Jelly Saga™ in January 2016.Segment Income from OperationsActivision2017 vs. 2016 The increase in Activision's operating income for 2017, as compared to 2016, was primarily due to higher revenues, as discussed above, and lower costs associated with the Skylanders franchise, as there was not a new title released in 2017. The increase was partially offset by higher sales and marketing spend on the Destiny franchise due to the release ofDestiny 2.2016 vs. 2015 The decrease in Activision's operating income for 2016, as compared to 2015, was primarily due to lower revenues, as discussed above. This was partially offset by:•lower sales and marketing spend onGuitar Hero Live and the Destiny franchise given the timing of game launches; and•the relative increase in revenues coming from the digital online channel, which typically has a higher profit margin.Blizzard2017 vs. 2016 The decrease in Blizzard's operating income for 2017, as compared to 2016, was primarily due to lower revenues, as discussed above, along with higher product development costs resulting from lower capitalization of software development costs due to the timing of game development cycles. The decrease was partially offset by lower sales and marketing costs and software amortization forOverwatch andWorld of Warcraft: Legion, due to their respective launches in 2016, with no comparable releases in 2017.2016 vs. 2015 The increase in Blizzard's operating income for 2016, as compared to 2015, was primarily due to higher revenues. This was partially offset by:•new sales and marketing spending to supportOverwatch; and•higher personnel costs due to segment performance bonuses and increased headcount to support the business growth.King2017 vs. 2016 The increase in King's operating income for 2017, as compared to 2016, was primarily due to:•2017 including King's results of operations for the full year, while 2016 only included King's results of operations for the partial period following the King Closing Date; and•higher revenues from the Candy Crush franchise, as discussed above.2016 vs. 2015 King's operating income for the year ended December 31, 2016 represents2021, as compared to the year ended December 31, 2020, was primarily due to lower revenues from:King Closing Date throughyear ended December 31, 2016.$85 million, a negative impact of $30$100 million and a negative impact of $338$61 million on reportableActivision Blizzard’s segment net revenues for 2017, 2016,the years ended December 31, 2021 and 2015,2020, respectively, in each case as compared to the same periods in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound. For the Years Ended December 31, 2017 2016 2015 Increase/
(decrease)
2017 v 2016 Increase/
(decrease)
2016 v 2015 % Change
2017 v 2016 % Change
2016 v 2015 $ 5,479 $ 4,865 $ 2,502 $ 614 $ 2,363 13 % 94 % 1,033 1,386 1,806 (353 ) (420 ) (25 ) (23 ) 505 357 356 148 1 41 — $ 7,017 $ 6,608 $ 4,664 $ 409 $ 1,944 6 % 42 % For the Year Ended December 31, 2021 2020 Increase/
(decrease)% Change Net revenues by distribution channel: Digital online channels (1) $ 7,663 $ 6,658 $ 1,005 15 % Retail channels 479 741 (262) (35) Other (2) 661 687 (26) (4) Total consolidated net revenues $ 8,803 $ 8,086 $ 717 9 "Digital“Digital online channels"channels” include revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransactions, subscriptions, and products."Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.2017 vs. 20162017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to:•from King titles, as 2017 includes King revenues for the full year, while 2016 only included King revenues for the partial period following the King Closing Date, as well as higher revenues fromfrom:franchise duefranchise;in-game events and features; and•higher revenues recognized from the continued strength ofIII, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions. The increase was partially offset by lower revenues recognized from4Infinite WarfareMobile;was released in November 2016, as compared toincludes the performancerelease ofCall World of Duty: Black Ops III, the comparable 2015 title.2016 vs. 2015 The increase in net revenues from digital online channels for 2016, as compared to 2015, was primarily due to:
and•new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;•revenues recognized fromOverwatch, which was released in May 2016; Warcraft: Shadowlands •higher revenues recognized in 2016 from digital content associated withCallDuty: Black Ops III, as compared to revenues recognized in 2015 from digital content associated withCall of Duty: Advanced Warfare, the comparable 2015 title.Warcraft: Burning Crusade Classic.2017 vs. 20162017, as compared to 2016, was primarily due to:•lower revenues recognized fromCall of Duty: Infinite Warfare, which was released in November 2016,the year ended December 31, 2021, as compared to the performance ofyear ended December 31, 2020, was primarily due to lower revenues from:III, the comparable 2015 title; and•lower revenues from the Skylanders franchise, dueCold War the release ofSkylanders Imaginators in October 2016, with no comparable release in 2017. The decrease was partially offset by:
Call of Duty: •revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017; and•higher revenues recognized fromWWII, which was released in November 2017, as compared toCall of Duty: InfiniteModern Warfare, the comparable 2016 title.2016 vs. 2015 The decrease in net revenues from retail channels for 2016, as compared to 2015, was primarily due to:
;lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015;lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys accessories in 2016; andlower revenues recognized fromCall of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, which was released in the fourth quarter of 2015. The decrease was partially offset by:
Tony Hawk’s Pro Skater 1 + 2.•revenues recognized fromOverwatch, which was released in May 2016; and•higher revenues recognized in 2016 fromCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014.Net Revenues by Geographic Region The following table details our consolidated net revenues by geographic region (amounts in millions): For the Years Ended December 31, 2017 2016 2015 Increase/
(decrease)
2017 v 2016 Increase/
(decrease)
2016 v 2015 % Change
2017 v 2016 % Change
2016 v 2015 $ 3,607 $ 3,423 $ 2,409 $ 184 $ 1,014 5 % 42 % 2,464 2,221 1,741 243 480 11 28 946 964 514 (18 ) 450 (2 ) 88 $ 7,017 $ 6,608 $ 4,664 $ 409 $ 1,944 6 42 (1)Consists of the Europe, Middle East, and Africa geographic regions.Americas2017 vs. 2016 The increase in net revenues in the Americas region for 2017, as compared to 2016, was primarily due to:•higher revenues from King titles, as 2017 includes King's revenues for the full year, while 2016 only included King's revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to in-game events and features;•higher revenues recognized from the continued strength ofCall of Duty: Black Ops III, as compared to prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions; and•revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017. The increase was partially offset by lower revenues recognized fromCall of Duty: Infinite Warfare, which was released in November 2016, as compared to the performance ofCall of Duty: Black Ops III, the comparable 2015 title.2016 vs. 2015 The increase in net revenues in the Americas region for 2016, as compared to 2015, was primarily due to:•new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;•revenues recognized fromOverwatch, which was released in May 2016; and•higher revenues recognized in 2016 fromCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content. The increase was partially offset by:•lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015; and•lower revenues fromSkylanders Imaginators, which was released in October 2016, as compared toSkylanders Superchargers, the comparable 2015 title, as well as lower revenues from standalone toys and accessories from the Skylanders franchise in 2016.EMEA2017 vs. 2016 The increase in net revenues in the EMEA region for 2017, as compared to 2016, was primarily due to the same drivers and partially offsetting factors as those for the Americas region discussed above, as well as higher revenues from our Distribution business, primarily due to higher sales during the holiday season.2016 vs. 2015 The increase in net revenues in the EMEA region for 2016, as compared to 2015, was primarily due to the same drivers and partially offsetting factors as the Americas region, as discussed above.Asia Pacific2017 vs. 2016 The slight decrease in net revenues in the Asia Pacific region for 2017, as compared 2016, was primarily due to slightly lower revenues recognized fromOverwatch andHearthstone, mostly offset by higher revenues from King titles andCrash Bandicoot N. Sane Trilogy.2016 vs. 2015 The increase in net revenues in the Asia Pacific region for 2016, as compared to 2015, was primarily due to:•new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise;•revenues recognized fromOverwatch, which was released in May 2016; and•higher revenues recognized fromHearthstone. The increase was partially offset by lower revenues recognized from the Diablo franchise due to the timing of releases.and as a percentage of total consolidated net revenues (amounts in millions): Year Ended
December 31,
2017 % of
total(3)
consolidated
net revenues Year Ended
December 31,
2016 % of
total(3)
consolidated
net revenues Year Ended
December 31,
2015 % of
total(3)
consolidated
net revenues Increase/
(Decrease)
2017 v 2016 Increase/
(Decrease)
2016 v 2015 $ 2,389 34 % $ 2,453 37 % $ 2,391 51 % $ (64 ) $ 62 2,042 29 2,124 32 1,499 32 (82 ) 625 2,081 30 1,674 25 418 9 407 1,256 505 7 357 5 356 8 148 1 $ 7,017 100 % $ 6,608 100 % $ 4,664 100 % $ 409 $ 1,944 For the Year Ended December 31, 2021 2020 Increase/
(decrease)% Change Net revenues by platform: Console $ 2,637 $ 2,784 $ (147) (5) % PC 2,323 2,056 267 13 Mobile and ancillary (1) 3,182 2,559 623 24 Other (2) 661 687 (26) (4) Total consolidated net revenues $ 8,803 $ 8,086 $ 717 9 "Mobile“Mobile and ancillary"ancillary” include revenues from mobile devices, as well as non-platform-specific game-related revenues, such as standalone sales of toys and accessories from our Skylanders franchise and other physical merchandise and accessories."Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.(3)The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding. Net Revenues2017 vs. 20162017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to lower revenues recognized fromCall of Duty: Infinite Warfare, which was released November 2016, as compared to the performance offrom:III, the comparable 2015 title. The decrease is partially offset by:
as compared to Call of Duty: Modern Warfare;higher revenues recognized from the continued strengthIIICold War;prior catalog releases, driven by the downloadable content pack,Zombies Chronicles, which was released in May 2017, and the continued strength of microtransactions;•revenues fromCrash Bandicoot N. Sane Trilogy, which was released in June 2017; and•higher revenues recognized fromWWII, which was released in November 2017, as compared toCall of Duty: Infinite Warfare, the comparable 2016 title.2016 vs. 2015consolethe PC platform for 2016,the year ended December 31, 2021, as compared to 2015,the year ended December 31, 2020, was primarily due to:•recognized in 2016 fromfrom:III, which was released in the fourth quarter of 2015, as compared to revenues recognized in 2015 fromCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digital content; and•revenues recognized fromOverwatch, which was released in May 2016. The increase was partially offset by lower revenues recognized from the Destiny franchise, asDestiny debuted in September 2014 but had no comparable full-game release in 2015.PC Net Revenues2017 vs. 2016 The decrease in net revenues from PC for 2017, as compared to 2016, was primarily due to:•lower revenues recognized from the World of Warcraft franchise; and•lower revenues recognized fromOverwatch, which was released in May 2016.2016 vs. 2015 The increase in net revenues from PC for 2016, as compared to 2015, was primarily due to:•revenues recognized fromOverwatch, which was released in May 2016; and•revenues from King titles following the King Closing Date. Net Revenues2017 vs. 20162017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to higher revenues from King titles, as 2017 includes King's revenues for the full year, while 2016 only included King's revenues for the partial period following the King Closing Date, as well as higher revenues from the Candy Crush franchise due to from:eventsplayer purchases and features. The increase was partially offset by lower revenues from sales of standalone toys and accessories from the Skylanders franchise.2016 vs. 2015 The increaseadvertising in net revenues from mobile and ancillary for 2016, as compared to 2015, was primarily due to:•new revenues from King titles following the King Closing Date, which were primarily driven by the Candy Crush franchise; andhigher revenues recognized fromHearthstone, which was released on iPhone and Android smartphones in April 2015. The increase was partially offset by lower revenues from salesstandalone toys and accessories from the Skylanders franchise.Duty: Mobile.revenues (amounts in millions): Year Ended
December 31,
2017 % of
associated
net revenues Year Ended
December 31,
2016 % of
associated
net revenues Year Ended
December 31,
2015 % of
associated
net revenues Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 733 35 % $ 741 34 % $ 872 36 % $ (8 ) $ (131 ) 300 14 331 15 370 15 (31 ) (39 ) 984 20 851 19 274 12 133 577 484 10 471 11 69 3 13 402 $ 2,501 36 % $ 2,394 36 % $ 1,585 34 % $ 107 $ 809 Year Ended December 31, 2021 % of
associated
net revenuesYear Ended December 31, 2020 % of
associated
net revenuesIncrease
(Decrease)Cost of revenues—product sales: Product costs $ 649 28 % $ 705 30 % $ (56) Software royalties, amortization, and intellectual property licenses 346 15 269 11 77 Cost of revenues—in-game, subscription, and other: Game operations and distribution costs 1,215 19 1,131 20 84 Software royalties, amortization, and intellectual property licenses 107 2 155 3 (48) Total cost of revenues $ 2,317 26 % $ 2,260 28 % $ 57 Sales:2017 vs. 2016 ProductSales2017, were comparablethe year ended December 31, 2021, as compared to 2016, primarily due to lowerthe year ended December 31, 2020, was driven by a $51 million decrease in product costs from the Skylanders franchiseActivision, as there was no new release in 2017, offset by higher product costs resulting from the increased revenuesa result of our relatively lower-margin Distribution business.decreaseincrease in software royalties, amortization, and intellectual property licenses related to product sales for 2017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to:
World of Warcraft, following the release of World of Warcraft: Shadowlands, with no comparable amortization in the prior year, and (2) Diablo II: Resurrected.•associated withGuitar Hero Liveand royalties from (1) Tony Hawk’s Pro Skater 1 + 2, which was released in October 2015;•lower software amortization fromOverwatch(2) which was released in May 2016; and•lower software amortization from the Skylanders franchise (3) there was no new release in 2017. The decrease wascompared to associated withand royalties from Call of Duty: Black Ops Cold War, as compared to Call of Duty: Modern Warfare.Destiny franchise,year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to the release ofDestiny 2 in September 2017.2016 vs. 2015 The decrease in product costs for 2016, as compared to 2015, was primarily due to:•lower product costs associated with the Skylanders franchise; and•the relativea $114 million increase in revenues coming from theservice provider fees, such as digital online channel, which typically have relatively lower product costs.product sales for 2016, as compared to 2015, was primarily due to lower software amortization from the Destiny franchise, asDestiny was released in the third quarter of 2014, but had no comparable full-game release in 2015. This decrease was partially offset by:•software amortization fromOverwatch, which was released in May 2016 with no comparable 2015 title; and•higher software amortization associated withCall of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared toCall of Duty: Advanced Warfare, which was released in the fourth quarter of 2014.Cost of Revenues—Subscription, Licensing, and Other Revenues:2017 vs. 2016 The increase in game operations and distribution costs for 2017, as compared to 2016, was primarily due to platform provider fees associated with the increase in revenues from King. Software royalties, amortization, and intellectual property licenses related toin-game, subscription, licensing, and other revenues for 2017 were comparable to 2016.2016 vs. 2015 The increase in game operations and distribution costs for 2016,the year ended December 31, 2021, as compared to 2015, was primarily due to:•increased online costs and platform provider fees associated with revenues from King titles included following the King Closing Date; and•increased expenditures to support our growing online activity across our existing and new titles. The increase in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for 2016, as compared to 2015,year ended December 31, 2020, was primarily due to a full year-to-date perioddecrease of $61 million in amortization of internally-developed franchise and developed software intangible assets acquired as part of our 2016 acquisition of King. The decrease was partially offset by an increase in the King Acquisition, while the comparable prior period only included the partial periodsoftware amortization and royalties from Activision of amortization$23 million, driven by internally-developed franchise intangible assets following the King Closing Date. Year Ended
December 31,
2017 % of
consolidated
net revenues Year Ended
December 31,
2016 % of
consolidated
net revenues Year Ended
December 31,
2015 % of
consolidated
net revenues Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 1,069 15 % $ 958 14 % $ 646 14 % $ 111 $ 312 December 31, 2021 % of
consolidated
net revenuesDecember 31, 2020 % of
consolidated
net revenuesIncrease
(Decrease)Product development $ 1,337 15 % $ 1,150 14 % $ 187 2017 vs 20162017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to:•Blizzard productdevelopment spending of $275 million, driven by increased personnel costs and outside developer fees to support our franchises. The increase was partially offset by an $89 million increase in capitalization of development costs resulting from lower capitalization of software development costs due todriven by the timing of Activision’s game development cycles; and•increased product development costs for King, as 2017 includes King's costs for a full year, while 2016 only included King's costs for the partial period following the King Closing Date.2016 vs 2015 The increase in product development costs for 2016, as compared to 2015, was primarily due to:
cycles.•product development costs associated with King's titles for the period following the King Closing Date; and•increased product development costs for Activision and Blizzard's current and upcoming releases. Year Ended
December 31,
2017 % of
consolidated
net revenues Year Ended
December 31,
2016 % of
consolidated
net revenues Year Ended
December 31,
2015 % of
consolidated
net revenues Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 1,378 20 % $ 1,210 18 % $ 734 16 % $ 168 $ 476 December 31, 2021 % of
consolidated
net revenuesDecember 31, 2020 % of
consolidated
net revenuesIncrease
(Decrease)Sales and marketing $ 1,025 12 % $ 1,064 13 % $ (39) 2017 vs. 2016increasedecrease in sales and marketing expenses for 2017,the year ended December 31, 2021, as compared to 2016,the year ended December 31, 2020, was primarily due to:•higher sales and marketingto a decrease of $24 million in costs for the Destiny franchise, given the release ofDestiny 2 in September 2017;marketing personnel and•increased amortization of the customer base intangible assets acquired in the King Acquisition and increased sales and marketing costs to support King's titles, as 2017 includes a full year of costs, while 2016 only included King's costsservices. Marketing spending for the partial period followingyear ended December 31, 2021 was comparable to the King Closing Date. The increase was partiallyyear ended December 31, 2020, primarily due to lower spending for the Call of Duty franchise being offset by lower sales and marketing costshigher spending for the Skylanders franchise as there was no new title release in 2017.2016 vs. 2015 The increase in sales and marketing expenses for 2016, as compared to 2015, was primarily due to:•amortization of the customer base intangible assets acquired in the King Acquisition;•sales and marketing spending to support King's titles and new launches, includingCandy Crush Jelly Saga andFarm Heroes Super Saga™; and•sales and marketing spending to support Blizzard's new title,Overwatch. The increase was partially offset by lower sales and marketing expenditures onGuitar Hero Live and the Destiny franchise given the timing of game launches. Year Ended
December 31,
2017 % of
consolidated
net revenues Year Ended
December 31,
2016 % of
consolidated
net revenues Year Ended
December 31,
2015 % of
consolidated
net revenues Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 760 11 % $ 634 10 % $ 380 8 % $ 126 $ 254 December 31, 2021 % of
consolidated
net revenuesDecember 31, 2020 % of
consolidated
net revenuesIncrease
(Decrease)General and administrative $ 788 9 % $ 784 10 % $ 4 2017 vs. 2016 The increase in general2017,the year ended December 31, 2021 were comparable to the year ended December 31, 2020.December 31, 2021 % of
consolidated
net revenuesDecember 31, 2020 % of
consolidated
net revenuesIncrease
(Decrease)Restructuring and related costs $ 77 1 % $ 94 1 % $ (17) comparedwe execute against our plan for which, at the end of 2021, we had substantially completed the actions contemplated under our plan. The restructuring and related costs incurred during 2021 relate primarily to 2016, was primarily due to:•increased personnel costs, including stock compensation expenses,severance costs. We do not expect to support the growthrealize significant net savings in our business and adjacent areastotal operating expenses as a result of opportunity;•the inclusion of a non-cash accounting charge to reclassify certain losses includedour plan, as cost reductions in our cumulative translation adjustments into earnings due to the substantial liquidation of certain of our foreign entities, with no comparable activity in 2016;•restructuring charges, primarily severance costs, incurred in 2017 with no comparable activity in 2016; and•higher foreign currency transaction losses. The increase is partially offset by lower transaction costs as 2016 included the King Acquisition.2016 vs. 2015 The increase inselling, general and administrative expenses for 2016, as comparedactivities are expected to 2015, was primarily due to:
Note 17 of the •King's general and administrative costs, which are included from the King Closing Date;•higher Blizzard personnel costs duebe offset by increased investment in product development. Refer to segment performance bonuses and increased headcount to support the growthBlizzard business;•higher professional and transaction-related fees duenotes to the King Acquisition, which closedconsolidated financial statements included in Item 8 of this Annual Report on February 23, 2016; and•lower foreign currency transaction and derivative contract gains. Year Ended
December 31,
2017 % of
consolidated
net revenues Year Ended
December 31,
2016 % of
consolidated
net revenues Year Ended
December 31,
2015 % of
consolidated
net revenues Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 146 2 % $ 214 3 % $ 198 4 % $ (68 ) $ 16 December 31, 2021 % of
consolidated
net revenuesDecember 31, 2020 % of
consolidated
net revenuesIncrease
(Decrease)Interest and other expense (income), net $ 95 1 % $ 87 1 % $ 8 2017 vs. 2016 Theand other expense, net, for 2017, as compared to 2016, was primarily due to our lower total outstanding debt and lower interest rates on our current debt instrumentsincome as a result of our refinancing activities in 2016 and 2017. See further discussion below under "Liquidity and Capital Resources."2016 vs. 2015 The increase in interest and other expense, net, for 2016, as compared to 2015, was primarily due to interest expense associated with the new $2.3 billion tranche of term loans "A" that were incurred in connection with the King Acquisition. This increase was partially offset by lower interest expense related to our prior term loan because of voluntary prepayments on the principal we made throughout 2016, with the prior term loan being fully extinguished in September 2016. See further discussion below under "Liquidity and Capital Resources."(Benefit) (amounts in millions) Year Ended
December 31,
2017 % of
Pretax
income Year Ended
December 31,
2016 % of
Pretax
income Year Ended
December 31,
2015 % of
Pretax
income Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 878 76 % $ 140 13 % $ 229 20 % $ 738 $ (89 ) December 31, 2021 % of
Pretax
incomeDecember 31, 2020 % of
Pretax
incomeIncrease
(Decrease)Income tax expense $ 465 15 % $ 419 16 % $ 46 Foryearsyear ended December 31, 2017, 2016, and 2015, the Company's income before income tax expense was $1.15 billion, $1.11 billion, and $1.12 billion, respectively, and our income tax expense was $878 million (or a 76% effective tax rate), $140 million (or a 13% effective tax rate), and $229 million (or a 20% effective tax rate), respectively. Our full year 20172021 reflects an effective tax rate of 76%15%, which is higherlower thanTable the effective tax rate of Contents35%21%, primarily due to the one-time tax expense related to the U.S. Tax Reform Act (discussed further below) and changes in the Company's liability for uncertain tax positions, partially offset by earnings taxed at relatively lower rates in foreign jurisdictions, recognition of excess tax benefits from shared-based payments, and research and development ("R&D") credits. On December 22, 2017, the U.S. Tax Reform Act was enacted. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax"). On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement period of up to one year, until accounting is complete. We recorded a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate in the fourth quarter of 2017 resulting in a charge of $636 million. This includes current tax expense of $555 million related to the Transition Tax, which is payable over eight years, and deferred tax expense of $81 million related to the remeasurement of deferred taxes resulting from the U.S. corporate income tax rate reduction. Accounting for the income tax effects of the U.S. Tax Reform Act requires complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different from our interpretation. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take as a result of the U.S. Tax Reform Act. We continue to analyze the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as global intangible low-taxed income ("GILTI") of foreign subsidiaries, base erosion anti-abuse tax ("BEAT"), and foreign-derived intangible income ("FDII"), potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act. In 2017 and 2016, our U.S. income before income tax expense was $185 million and $228 million, respectively, and comprised 16% and 21%, respectively, of our consolidated income before income tax expense. In 2017 and 2016, our foreign income before income tax expense was $966 million and $878 million, respectively, and comprised 84% and 79%, respectively, of our consolidated income before income tax expense. In 2017, 2016 and 2015, earnings taxed at lower rates, in foreign jurisdictions, as compared to domestic earnings taxed at the U.S. federal statutoryresearch and development credits and a benefit resulting from a deferred tax rate, lowered our effective tax rate by 24 percentage points, 22 percentage points, and 20 percentage points, respectively. The increase in the foreign rate differential is due to the overall increase in foreign income, which is taxed at relatively lower rates in proportion to U.S. income.the mix ofpre-tax income or loss by tax jurisdiction, applicable accounting rules, applicable tax laws and regulations, and rulings and interpretations thereof, developments in tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income or loss. Further, the effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected by the extent that income (loss) before income tax expenses (benefit) is lower than anticipated in foreign regions, where taxes are levied at relatively lower statutory rates, and/or higher than anticipated in the United States, where taxes are levied at relatively higher statutory rates. On December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.1519 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.$27$107 million and $62 million on our consolidated net revenues in 2021 and 2020, respectively, as compared to the same periods in the previous year.$10$30 million and a negative impact of $242$35 million on Activision Blizzard'sour consolidated operating income in 2017, 20162021 and 2015, respectively. The changes are primarily due2020, respectively, as compared to changesthe same periods in the valueprevious year.U.S. dollar relativecomparison of 2020 to 2019, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the euro and British pound and its impact on our foreign operating income.InDespite the impacts of the COVID-19 pandemic on the global economy, in the near term, we expect our business and financial condition to remain strong and to continue to generate significant operating cash flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term investments of $4.8$10.6 billion, our access to debt and equity capital, and the availability of our $250 million$1.5 billion revolving credit facility, we believe will be sufficient to finance our operational and financing requirements for the next 12 months.months and beyond. Our primary sources of liquidity which are available to us to fund cash outflows such as our anticipated dividend payments, share repurchases, and scheduled debt maturities, include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities.2017,2021, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $3.0$3.9 billion, as compared to $1.9$2.5 billion as of December 31, 2016. Following the enactment of the U.S. Tax Reform Act and the current period expense on unrepatriated earnings, we no longer consider these available2020. These cash balances which primarily relateare generally available for use in the U.S., subject in some cases to undistributed earnings of our most significant foreign subsidiaries, to be indefinitely reinvested.weekly sales, which are generally highest in the fourth quarter due to seasonal and holiday-related sales patterns. OnWe consider, on a continuing basis, we consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, dividends, share repurchases, and other structural changes.changes, with certain of the foregoing actions, if we were to move forward with them, requiring Microsoft's approval under the Merger Agreement (which may not be unreasonably withheld, conditioned, or delayed), subject to certain exceptions. These transactions may result in future cash proceeds or payments.December 31, 2021 December 31, 2020 Increase
(Decrease)Cash and cash equivalents $ 10,423 $ 8,647 $ 1,776 Short-term investments 195 170 25 $ 10,618 $ 8,817 $ 1,801 Percentage of total assets 42 % 38 % For the Year Ended December 31, 2021 2020 Increase
(Decrease)Net cash provided by operating activities $ 2,414 $ 2,252 $ 162 Net cash used in investing activities (59) (178) 119 Net cash (used in) provided by financing activities (521) 711 (1,232) Effect of foreign exchange rate changes (48) 69 (117) Net increase in cash and cash equivalents and restricted cash $ 1,786 $ 2,854 $ (1,068) For the Years Ended
December 31, 2017 2016 Increase
(Decrease)
2017 v 2016 $ 4,713 $ 3,245 $ 1,468 62 13 49 $ 4,775 $ 3,258 $ 1,517 26 % 19 % For the Years Ended December 31, 2017 2016 2015 Increase
(Decrease)
2017 v 2016 Increase
(Decrease)
2016 v 2015 $ 2,213 $ 2,155 $ 1,259 $ 58 $ 896 (197 ) (1,177 ) (3,716 ) 980 2,539 (624 ) 500 (202 ) (1,124 ) 702 76 (56 ) (366 ) 132 310 $ 1,468 $ 1,422 $ (3,025 ) $ 46 $ 4,447 collection of customer receivablesincome generated from the sale of our products and services. These collections are typicallyThis is partially offset by: payments to vendors forworking capital requirements used in the manufacturing, distribution,development, sale, and marketingsupport of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.2017 vs 20162017the year ended December 31, 2021, was $2.21$2.4 billion, as compared to $2.16$2.3 billion for 2016.the year ended December 31, 2020. The increase was primarily due to:•increased earnings after excludingto higher net income and lower tax payments in the effects of charges due to impacts from the U.S. Tax Reform Act, which did not result in current year, cash outflows, and other non-cash chargesas the prior-year period included payments for depreciation and amortization and share-based compensation expenses;•full year of King operating cash flows; and•due toresulting from the timing of collections and payments. Net cash provided by operating activities for 2017 included $145 million of interest paid on our outstanding debt, as compared to $209 million paid in 2016.2016 vs 2015 Net cash provided by operating activities for 2016 was $2.2 billion, as compared to $1.3 billion for 2015. The increase was primarily due to:•new operating cash flows contributed by King following the King Closing Date; and•higher net income in 2016, as compared to 2015, along with larger adjustments to net income for non-cash charges, primarily associated with the amortization of the acquired intangibles in the King Acquisition, higher stock compensation expense due to converted equity awards for King personnel in the King Acquisition, and other non-cash or non-operating costs associated with our debt-related activities during the year. Net cash provided by operating activities for 2016 included $209 million of interest paid on our outstanding debt, as compared to $193 million paid in 2015.2017 vs 20162017the year ended December 31, 2021, was $197$59 million, as compared to $1.2 billion$178 million for 2016.the year ended December 31, 2020. The decrease in the cash used was primarily due to cash used for the King Acquisition in 2016, with no comparable transaction in 2017. The decrease was partially offset by purchases of available-for-sale investments, net of proceeds from maturities, of $55 million in 2017, with no comparable transaction in 2016.2016 vs 2015 Net cash used in investing activities for 2016 was $1.2 billion, as compared to $3.7 billion for 2015. The lower amount of cash used in investing activities in 2016 was primarily due to a 2015 cash outflownet proceeds from the sale and maturities of $3.6 billion for cash placed into escrow to facilitate the King Acquisition. In 2016, when we acquired King, the cash in escrow became a cash inflow. As a result, in 2016 we had a $2.2 billion cash outflowavailable-for-sale investments of $32 million for the King Acquisition in excessyear ended December 31, 2021, as compared to net purchases of available-for-sale investments of $100 million for the cash already in escrow, net of $1.15 billion of cash acquired from King.Provided by (Used in)Used in Financing Activities2017 vs 20162017the year ended December 31, 2021, was $624$521 million, as compared to net cash provided by financing activities of $500$711 million for 2016.the year ended December 31, 2020. The changes were primarily attributed to our debt financing activities. For 2017, we had net debt repayments of $500 million, as compared to approximately $700 million of net debt proceeds, inclusive of a premium payment, for 2016. Theincrease in cash flows used in financing activities was primarily due to:2017, were partially offset by:•higher proceedsthe year ended December 31, 2020, resulting from stock option exercises in 2017the issuance of $178 million, as compared to $106 millionan aggregate principal amount of $2.0 billion of new notes and the early redemption of $1.05 billion of our previously outstanding notes, with no comparable activity for 2016; andlower2017$246 million of $56 million,payments during the year ended December 31, 2021, as compared to $115$39 million in 2016.during the year ended December 31, 2020; andTableContents2016 vs 2015 Net cash provided by financing activities for 2016 was $500stock to employees, with $90 million received during the year ended December 31, 2021, as compared to cash flows used in financing activities of $202$170 million for 2015. The difference was primarily due to $6.9 billion of proceeds received fromduring the following debt issuances in 2016:•issuance of a $2.3 billion tranche of term loans "A" on February 23, 2016 to fund the King Acquisition;•issuance of an additional $250 million tranche of term loans "A" on March 31, 2016;•issuance of a new unsecured $2.9 billion tranche of term loans "A" in connection with the fifth amendment to our credit agreement on August 23, 2016;•issuance of $650 million of 2.3% unsecured senior notes due September 2021 on September 19, 2016; and•issuance of $850 million of 3.4% unsecured senior notes due September 2026 on September 19, 2016. These issuances were partially offset by:•repayments of $1.9 billion to extinguish our term loan outstanding atyear ended December 31, 2015 (the "Original Term Loan");•repayments of $2.5 billion in connection with the refinancing of our tranche of term loans "A" that were provided in the first quarter of 2016;•repayments of $185 million on our new tranche of term loans "A" that were provided on August 23, 2016, which included $167 million of voluntary prepayments, as compared to the $250 million partial repayment of our Original Term Loan in 2015;•a cash payment to redeem all $1.5 billion of our outstanding 5.625% unsecured senior notes due September 2021, as well as the associated $63 million premium; and•higher cash dividend payments made during 2016, as compared to 2015. Net cash used in financing activities for 2015 also included proceeds of $202 million received in the settlement of the litigation related to the October 11, 2013 repurchase of approximately 429 million shares of our common stock (the "Purchase Transaction"). There were no such proceeds received in 2016.$76 million, a negative impact of $56 million, and a negative impact of $366$69 million on our cash and cash equivalents for the years ended December 31, 2017, 2016,2021 and 2015,December 31, 2020, respectively. The change iswas primarily due to changes in the value of the U.S. dollar relative to the Euroeuro and the British pound. As of2016,2021 and December 31, 2020, our total gross unsecured senior notes outstanding debt was $4.9$3.7 billion, bearing interest at a weighted average rate of 2.92%2.87%. As a result of the activities described below, our total outstanding debt as of December 31, 2017, was $4.4 billion, bearing interest at a weighted average rate of 3.58%. On February 3, 2017, we entered into a sixth amendment (the "Sixth Amendment") to our credit agreement, which was originally executed on October 11, 2013 (as amended thereafter and from time to time, the "Credit Agreement"). The Sixth Amendment: (1) provided for a new tranche of term loans "A" in an aggregate principal amount of $2.55 billion (the "2017 TLA") and (2) released each ofour subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the term loans then outstanding (the "2016 TLA") under the Credit Agreement, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The fees incurred as a result of the Sixth Amendment were not material. The 2017 TLA will mature on August 23, 2021. On May 26, 2017, in a public underwritten offering, we issued three series of unsecured senior notes—$400 million of 2.6% unsecured senior notes due June 2022, $400 million of 3.4% unsecured senior notes due June 2027, and $400 million of 4.5% unsecured senior notes due June 2047. The proceeds from these unsecured senior notes, together with cash on hand, were used to make a prepayment of $1.2 billion on our 2017 TLA. During the year ended December 31, 2017, we reduced our total outstanding long-term debt by $500 million. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with a prepayment on the 2017 TLA of $361 million. The prepayment made on our 2017 TLA satisfied the remaining required quarterly principal repayments for the entire term of the Credit Agreement.as of December 31, 2017, is as follows (amounts in millions): December 31, 2017 Gross
Carrying
Amount Unamortized
Discount and Deferred
Financing Costs Net
Carrying
Amount $ 990 $ (8 ) $ 982 650 (4 ) 646 400 (4 ) 396 750 (9 ) 741 850 (9 ) 841 400 (6 ) 394 400 (10 ) 390 $ 4,440 $ (50 ) $ 4,390 A summary of our outstanding debt as of December 31, 2016, is as follows (amounts in millions): At December 31, 2021 At December 31, 2020 2026 Notes $ 850 $ 850 2027 Notes 400 400 2030 Notes 500 500 2047 Notes 400 400 2050 Notes 1,500 1,500 Total gross long-term debt $ 3,650 $ 3,650 Unamortized discount and deferred financing costs (42) (45) Total net carrying amount $ 3,608 $ 3,605 December 31, 2016 Gross
Carrying
Amount Unamortized
Discount and Deferred
Financing Costs Net
Carrying
Amount $ 2,690 $ (27 ) $ 2,663 650 (5 ) 645 750 (11 ) 739 850 (10 ) 840 $ 4,940 $ (53 ) $ 4,887 On February 1, 2018, our Board of Directors authorized repayments of up to $1.8 billion of the company's outstanding debt during 2018. As of the date hereof, we have not made any additional repayments on our outstanding debt and the determination as to if and when we make any such repayment will be dependent on market conditions and other factors.1113 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further disclosures regarding terms and activities associated with our debt obligations.1, 2018,3, 2022, our Board of Directors approveddeclared a cash dividend of $0.34$0.47 per common share, payable on May 9, 2018,6, 2022, to shareholders of record at the close of business on March 30, 2018.2, 2017,4, 2021, our Board of Directors approveddeclared a cash dividend of $0.30$0.47 per common share andshare. On May 6, 2021, we made an aggregate cash dividend payment on May 10, 2017 of $226$365 million to shareholders.$155$80 million in 2017,2021, as compared to $136$78 million in 2016.2020. In 2018,2022, we anticipate total capital expenditures of approximately $155$100 million, primarily for computer hardware, leasehold improvements, computer hardware, and software purchases.1922 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding our commitments.20172021 and 2016,December 31, 2020, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as "structured finance"“structured finance” or "special purpose"“special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The policies, estimates, and assumptions discussed below are considered by management to be critical because they are both important to the portrayal of our financial condition and results of operations and because their application places the most significant demands on management'smanagement’s judgment, with financial reporting results relying on estimates and assumptions about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies, estimates, and assumptions are described in the following paragraphs.recognize revenues when there is persuasive evidencegenerate revenue primarily through the sale of an arrangement,our interactive entertainment content and services, principally for the product or service has been providedconsole, PC, and mobile platforms, as well as through the licensing of our intellectual property. Our products span various genres, including first- and third-person action/adventure, role-playing, strategy, and “match three.” We primarily offer the following products and services:customer,game content.collection ofpromised products and services is transferred to our fees is reasonably assured, andcustomers, we recognize revenue in the amount of feesthat reflects the consideration we expect to be paidreceive in exchange for these products and services.customer is fixedpromised goods or determinable. services."street date"“street date” (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later of the street date orand the date the product is sold to theour customer.Revenue Arrangements with Multiple Deliverables �� Certain of our For digital full-game downloads sold to customers, we recognize revenue arrangements have multiple deliverables, which we account for in accordance with Accounting Standards Codification ("ASC") Topic 605. These revenue arrangements include product sales consisting of both software, service (such as ongoing hosting arrangements), and hardware deliverables (such as peripherals or other ancillary collectors' items sold together with physical "boxed" software). When a revenue arrangement contains multiple elements, such as hardware and software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") ifwhen it is available third-party evidence ("TPE") if VSOEfor download or is not available, or best estimated selling price ("BESP") if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverablesactivated for gameplay. Revenues are included, revenue is allocated to each separate unitrecorded net of accounting for eachtaxes assessed by governmental authorities that are imposed at the time of the non-software deliverablesspecific revenue-producing transaction between us and our customer, such as sales and value-added taxes.software deliverables as a group usingtiming of revenue recognition differs from the relative selling pricestiming of eachinvoicing, we do not adjust the promised amount of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue. As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue arrangements that required using BESP for the years ended December 31, 2017, 2016, and 2015. The inputseffects of a significant financing component when we use to determine the selling price of our significant deliverables include the actual price charged by the Company for deliverablesexpect, at contract inception, that the Company sells separately (which represents VSOE)period between our transfer of a promised product or service to our customer and the wholesale pricespayment for that product or service will be one year or less.consistsconsist of sales of our games, including physical products and digital full-game downloads.downloads and physical products. We recognize revenues from the sale of our products after both (1) title and riskcontrol of loss havethe products has been transferred to our customers and (2) allthe underlying performance obligations have been completed. With respect to digital full-game downloads, this is when the product is available for download or is activated for gameplay. satisfied. Such revenues, which include our software products with significant online functionality and our online hosted software arrangements, are recognized in "Product sales" on our consolidated statement of operations.protection.Productprotection, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and price protection are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. or Online Hosted Arrangementswiththat include both offline functionality (i.e., do not require an Internet connection to access) and significant online functionality, or that are partsuch as most of an online hosted arrangement,our titles from the Call of Duty franchise, we evaluate whether thatthe license of our intellectual property and the online functionality constituteseach represent separate and distinct performance obligations. In such instances, we typically have two performance obligations: (1) a more-than-inconsequential separate deliverable in additionlicense to the game software product.that is accessible without an Internet connection (predominantly the offline single player campaign or game mode) and (2) ongoing activities associated with the online components of the game, such as content updates, hosting of online content and gameplay, and online matchmaking (the “online functionality”). The online functionality generally operates to support the additional features and functionalities of the game that are only available online, not the offline license. This evaluation is performed for each software product or product add-on, (includingincluding downloadable content), when it is released. Determining whether the online functionality for a particular product constitutes a more-than-inconsequential deliverable is subjective and requires management's judgment.content. When we determine that our software products contain a license of intellectual property (i.e., the offline software license) that is separate and distinct from the online functionality, constitutes a more-than-inconsequential separate service deliverable in addition to the product, which is principally because of the online functionality's importance to gameplay, we consider our performance obligation for this titlemarket conditions and other observable inputs to extend beyondestimate the sale of the game. In addition, VSOE of fair value does not existstandalone selling price for the online functionality of some products, asperformance obligations, since we do not separately charge for this component. Asgenerally sell the software license on a result,standalone basis. These products may be sold in a bundle with other products and services, which often results in the recognition of additional performance obligations.initially defer allrecognize revenue when control of the software-related revenues fromlicense transfers to our customers for the saleportion of any such title (including downloadable content)the transaction price allocable to the offline software license and recognize the revenues ratably over the estimated service period. In addition,period for the portion of the transaction price allocable to the online functionality. Similarly, we initially defer a portion of the cost of revenues for the titleon these arrangements and recognize the cost of revenuescosts as the related revenues are recognized. The cost of revenues that are initially deferred includeandcosts, distribution costs, software royalties, and amortization, and intellectual property licenses, and excludeexcludes intangible asset amortization.thatthese arrangements may include other products and services, which often results in the recognition of additional performance obligations. Revenues related to online hosted software arrangements are considered to be incidental to the overall product offering and are inconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met. For ourWorld of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with the related subscription service revenuesgenerally recognized ratably over the estimated service period, beginning upon the activationperiod.delivery of the related services. ForOther Revenuesassociated with the sales of subscriptions, the revenues are deferred until the subscription service is activated by the consumerprimarily includes revenue from microtransactions and are then recognized ratably over the subscription period. Revenues attributed to the sale ofWorld of Warcraft boxed software and related expansion packs are classified as "Product sales," whereas revenues attributable to subscriptions and other value-added services are classified as "Subscription, licensing, and other revenues."Microtransaction Revenuesgoodscurrencies and currenciesgoods to our players to enhance their gameplay experience. Proceeds from thethese sales of virtual goodscurrencies and currenciesgoods are initially recorded in deferred revenues.revenue. Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with thea virtual currency. Proceeds from the direct sales of virtual goods directly are alsosimilarly recognized as revenues when a player uses the virtual goods. We categorize our virtual goods as either consumable“consumable” or durable.“durable.” Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed.consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual goods ratably over the estimated service period.of timeas the goodsperformance obligations are availablesatisfied.player,purchase of World of Warcraft software by our customers, including expansion packs, are classified as “Product sales,” whereas revenues attributable to subscriptions and other in-game revenues are classified as “In-game, subscription, and other revenues.service period.determineconsider a variety of data points when determining the estimated service period for players of our games, with consideration of various data points, including the weighted-averageweighted average number of days between players'players’ unique purchase or first and last dateday played online, the average total hours played, the average number of days in which player activity stabilizes, and the weighted-average numbertime at which players become inactive and cease engaging with our content for a period of days between players' first purchase date and last date played online.time. We also consider known online trends such as the cadence of content delivery in our games, the service periods of our previously released games, and, to the extent publicly available, the service periods of our competitors'competitors’ games that are similar in nature to ours,ours. We believe this provides a reasonable depiction of the transfer of services to our customers, as it is the extent they are publicly available.best representation of the time period during which our customers play our games. Determining the estimated service period is subjective and requires management'ssignificant management judgment. Future usage patterns may differ from historical usage patterns and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are generally less than twelve12 months.third partythird-party digital storefronts, such as Microsoft'sMicrosoft’s Xbox Games Store, Sony'sSony’s PSN, the Apple App Store, and the Google Play Store, to determine whether our revenues should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatmentwhether we are the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to, the following:thedelivery/fulfillment offulfilling the productpromise to provide the specified good or service to the consumer;•the party responsible for consumer billing, fee collection,service; and refunds;storefront and terms of sale that governprice for the consumer's purchase of the productspecified good or service; and•the party that sets the pricing with the consumer and has credit risk.Microsoft'sMicrosoft’s Xbox Games Store and SonySony’s PSN.Allowances for Returns and Price Protection We closely monitor and analyze the historical performance of our various titles, the performance of products released by other publishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles. Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We benchmark units to be shipped to our customers using historical and industry data. We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive price protection credits include, among other things, compliance with applicable trading and payment terms and consistent return of inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-through performance targets in certain instances, the facilitation of slow-moving inventory, and other market factors. Significant management judgments and estimates with respect to potential future product returns and price protection related to current period product revenues must be made and used when establishing the allowance for returns and price protection in any accounting period. We estimate the amount of future returns and price protection for current period product revenues utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historical performance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise; console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-hand retail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title's recent sell-through history (if available); marketing trade programs; and the performance of competing titles. The relative importance of these factors varies among titles depending upon, among other things, genre, platform, seasonality, and sales strategy. Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of a title, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of new hardware platforms. There may be material differences in the amount and timing of our revenues for any period if factors or market conditions change or if matters resolve in a manner that is inconsistent with management's assumptions utilized in determining the allowances for returns and price protection. For example, a 1% change in our December 31, 2017 allowance for sales returns, price protection, and other allowances would have impacted net revenues by approximately $3 million.Software Development Costs Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized costs for products that are cancelled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to "Product development." Commencing upon a product's release, capitalized software development costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years. We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based. Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management's expectations.ASCAccounting Standards Codification Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is"more“more likely than not"not” that they will be realized in the future, a valuation allowance is recorded.expensesexpense in the period such determination is made.management'smanagement’s expectations could have a material impact on our business and results of operations in an interim period in which the uncertainties are ultimately resolved. Our provision for income taxes is subject to volatility and could be adversely impacted by: (1) earnings being lower than anticipated in foreign regions where taxeslevied at relatively lower statutory rates and/or higher than anticipated in the United States where taxes are levied at relatively higher statutory rates; (2) changes in the valuation of our deferred tax assets and liabilities; (3) tax effects of nondeductible compensation; (4) tax costs related to intercompany realignments; (5) differences between amounts included in our tax filings and the estimate of such amounts included in our tax expenses; (6) changes in accounting principles; or (7) changes in tax laws, regulations, administrative practices, principles or interpretations, including fundamental changes to the tax laws applicable to multinational corporations. Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes. In addition, we arealso subject to the continuous examination of our income tax returns by the IRS and are regularly subject to audit by other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition. As further described For the year ended December 31, 2021, one percentage point increase in "Consolidated Results" above, onour effective tax rate would have resulted in an increase in our income tax expense of approximately $32 million.ReformCuts and Jobs Act was enacted. The U.S. Tax Reform Act, amongwhich also created a new minimum tax that applies to certain foreign earnings (“GILTI”). We have elected to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years.things, reducedaccounting policies, see Note 2 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.corporatedollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions will result in reduced revenues, operating expenses, net income, tax rateand cash flows from 35% to 21% beginningour international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales but incur the majority of our costs in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earningsthe U.S., the impact of foreign subsidiaries. On December 22, 2017,currency fluctuations, particularly the SEC staff issued SAB 118, which provides guidance on how to account for the effectsstrengthening of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companiesdollar, may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.recordfunctional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a provisional amountmaturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.effectsyear ended December 31, 2021, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in a theoretical decline of our net income of approximately $184 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.U.S. Tax Reformperiod covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2021, 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.(a) 1 2 Schedule II—Valuation and Qualifying Accounts Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto. 3 The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K. estimate, subjectbasis for our opinions.adjustment during a measurement periodprovide reasonable assurance regarding the reliability of up to one year, until accounting is complete. We continue to analyzefinancial reporting and the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as GILTI, BEAT, and FDII, potential limitations oninterest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act. The Company has elected to account for the U.S. Tax Reform Act provisions related to GILTI as period costs if and when incurred pursuant to the FASB Staff Q&A guidance issued in January 2018.Fair Value Estimates The preparation of financial statements oftenfor external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.At December 31, 2021 At December 31, 2020 Assets Current assets: Cash and cash equivalents $ 10,423 $ 8,647 Accounts receivable, net of allowances of $36 and $83, at December 31, 2021 and December 31, 2020, respectively 972 1,052 Software development 449 352 Other current assets 712 514 Total current assets 12,556 10,565 Software development 211 160 Property and equipment, net 169 209 Deferred income taxes, net 1,377 1,318 Other assets 497 641 Intangible assets, net 447 451 Goodwill 9,799 9,765 Total assets $ 25,056 $ 23,109 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 285 $ 295 Deferred revenues 1,118 1,689 Accrued expenses and other liabilities 1,008 1,116 Total current liabilities 2,411 3,100 Long-term debt, net 3,608 3,605 Deferred income taxes, net 506 418 Other liabilities 932 949 Total liabilities 7,457 8,072 0 0 Shareholders’ equity: Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,207,729,623 and 1,202,906,087 shares issued at December 31, 2021 and December 31, 2020, respectively — — Additional paid-in capital 11,715 11,531 Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2021 and December 31, 2020 (5,563) (5,563) Retained earnings 12,025 9,691 Accumulated other comprehensive loss (578) (622) Total shareholders’ equity 17,599 15,037 Total liabilities and shareholders’ equity $ 25,056 $ 23,109 For the Years Ended December 31, 2021 2020 2019 Net revenues Product sales $ 2,311 $ 2,350 $ 1,975 In-game, subscription, and other revenues 6,492 5,736 4,514 Total net revenues 8,803 8,086 6,489 Costs and expenses Cost of revenues—product sales: Product costs 649 705 656 Software royalties, amortization, and intellectual property licenses 346 269 240 Cost of revenues—in-game, subscription, and other: Game operations and distribution costs 1,215 1,131 965 Software royalties, amortization, and intellectual property licenses 107 155 233 Product development 1,337 1,150 998 Sales and marketing 1,025 1,064 926 General and administrative 788 784 732 Restructuring and related costs 77 94 132 Total costs and expenses 5,544 5,352 4,882 Operating income 3,259 2,734 1,607 95 87 (26) Loss on extinguishment of debt — 31 — Income before income tax expense 3,164 2,616 1,633 Income tax expense 465 419 130 Net income $ 2,699 $ 2,197 $ 1,503 Earnings per common share Basic $ 3.47 $ 2.85 $ 1.96 Diluted $ 3.44 $ 2.82 $ 1.95 Weighted-average number of shares outstanding Basic 777 771 767 Diluted 784 778 771 For the Years Ended December 31, 2021 2020 2019 Net income $ 2,699 $ 2,197 $ 1,503 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax (17) 35 5 Unrealized gains (losses) on forward contracts designated as hedges, net of tax 53 (36) (15) Unrealized gains (losses) on available-for-sale securities, net of tax 8 (2) (8) Total other comprehensive income (loss) $ 44 $ (3) $ (18) Comprehensive income $ 2,743 $ 2,194 $ 1,485 For the Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income $ 2,699 $ 2,197 $ 1,503 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 7 (94) (352) Non-cash operating lease cost 65 65 64 Depreciation and amortization 116 197 328 Amortization of capitalized software development costs and intellectual property licenses (1) 324 249 225 508 218 166 (28) (3) (38) Other 2 31 42 Changes in operating assets and liabilities: Accounts receivable, net 71 (194) 182 Software development and intellectual property licenses (426) (378) (275) Other assets (114) (88) 186 Deferred revenues (537) 216 (154) Accounts payable (7) (10) 31 Accrued expenses and other liabilities (266) (154) (77) Net cash provided by operating activities 2,414 2,252 1,831 Cash flows from investing activities: Proceeds from maturities of available-for-sale investments 214 121 153 Proceeds from sale of available-for-sale investments 66 — — Purchases of available-for-sale investments (248) (221) (65) Capital expenditures (80) (78) (116) Other investing activities (11) — 6 Net cash used in investing activities (59) (178) (22) Cash flows from financing activities: Proceeds from issuance of common stock to employees 90 170 105 Tax payment related to net share settlements on restricted stock units (246) (39) (59) Dividends paid (365) (316) (283) Proceeds from debt issuances, net of discounts — 1,994 — Repayment of long-term debt — (1,050) — Payment of financing costs — (20) — Premium payment for early redemption of note — (28) — Net cash (used in) provided by financing activities (521) 711 (237) Effect of foreign exchange rate changes on cash and cash equivalents (48) 69 (3) Net increase (decrease) in cash and cash equivalents and restricted cash 1,786 2,854 1,569 Cash and cash equivalents and restricted cash at beginning of period 8,652 5,798 4,229 Cash and cash equivalents and restricted cash at end of period $ 10,438 $ 8,652 $ 5,798 Supplemental cash flow information: Cash paid for income taxes, net of refunds $ 468 $ 806 $ 319 Cash paid for interest 109 82 86 Common Stock Treasury Stock Additional
Paid-In
CapitalRetained
EarningsAccumulated
Other
Comprehensive
Income (Loss)Total
Shareholders’
Equity Shares Amount Shares Amount Balance at December 31, 2018 1,192 $ — (429) $ (5,563) $ 10,963 $ 6,593 $ (601) $ 11,392 Components of comprehensive income: Net income — — — — — 1,503 — 1,503 Other comprehensive income (loss) �� — — — — — (18) (18) Issuance of common stock pursuant to employee stock options 4 — — — 105 — — 105 Issuance of common stock pursuant to restricted stock units 2 — — — — — — — Restricted stock surrendered for employees’ tax liability (1) — — — (58) — — (58) Share-based compensation expense related to employee stock options and restricted stock units — — — — 164 — — 164 Dividends ($0.37 per common share) — — — — — (283) — (283) Balance at December 31, 2019 1,197 $ — (429) $ (5,563) $ 11,174 $ 7,813 $ (619) $ 12,805 Cumulative impact from adoption of new credit loss standard — — — — — (3) — (3) Components of comprehensive income: Net income — — — — — 2,197 — 2,197 Other comprehensive income (loss) — — — — — — (3) (3) Issuance of common stock pursuant to employee stock options 5 — — — 171 — — 171 Issuance of common stock pursuant to restricted stock units 1 — — — — — — — Restricted stock surrendered for employees’ tax liability — — — — (40) — — (40) Share-based compensation expense related to employee stock options and restricted stock units — — — — 226 — — 226 Dividends ($0.41 per common share) — — — — — (316) — (316) Balance at December 31, 2020 1,203 $ — (429) $ (5,563) $ 11,531 $ 9,691 $ (622) $ 15,037 Components of comprehensive income: Net income — — — — — 2,699 — 2,699 Other comprehensive income (loss) — — — — — — 44 44 Issuance of common stock pursuant to employee stock options 2 — — — 90 — — 90 Issuance of common stock pursuant to restricted stock units 6 — — — — — — — Restricted stock surrendered for employees’ tax liability (3) — — — (245) — — (245) Share-based compensation expense related to employee stock options and restricted stock units — — — — 339 — — 339 Dividends ($0.47 per common share) — — — — — (365) — (365) Balance at December 31, 2021 1,208 $ — (429) $ (5,563) $ 11,715 $ 12,025 $ (578) $ 17,599 a particular item to fairly presentthese contracts within “Other current assets,” “Accrued expense and other liabilities,” “Other assets,” or “Other liabilities,” as applicable, in our consolidated financial statements. Without an independent marketbalance sheets.another representative transaction, determiningpurchase foreign currency forward contracts for trading or speculative purposes.fair value of a particular item requires us to make several assumptions that are inherently difficult to predict and can have a material impact on the conclusion of the appropriate accounting. There are various valuation techniques used to estimate fair value. These include: (1) the market approach, where market transactions for identical or comparable assets or liabilities are used to determine the fair value; (2) the income approach, which uses valuation techniques to convert future amounts (for example, future cash flows or future earnings) to a single present amount; and (3) the cost approach, which is based on the amount that would be required to replace an asset. For many of our fair value estimates, including our estimates of the fair value of acquired intangible assets, we use the income approach. Using the income approach requires the use of financial models, which require us to make various estimates including, but not limited to: (1) the potential future cash flows for the asset, liability or equity instrument being measured; (2) the timing of receipt or payment of those future cash flows; (3) the time value of money associated with the delayed receipt or payment of such cash flows; and (4) the inherent risk associated with the cash flows (that is, the risk premium). Determining these cash flow estimates is inherently difficult and subjective, and, if any of the estimates used to determine the fair value using the income approach turns out to be inaccurate, our financial results may be negatively impacted. Furthermore, relatively small changes in many of these estimates can have a significant impact on the estimated fair value resulting from the financial models or the related accounting conclusion reached. For example, a relatively small change in the estimated fair value of an asset may change a conclusion as to whether an asset is impaired. While we are required to make certain fair value assessments associatedthese derivatives within “General and administrative expenses” in our consolidated statements of operations, consistent with the accounting for several types of transactions, the following areas are the most sensitive to the assessments: Business Combinations. Assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair value. Our assessmentnature of the estimated fair valueunderlying transactions.can have a material effectcash flow hedges at inception and on our reported results as intangible assetsan ongoing basis and determine if the hedges are amortized over various estimated useful lives. Furthermore, a changeeffective at providing offsetting changes in cash flows of the hedged items. The Company records the changes in the estimated fair value of an assetthese derivatives in “Accumulated other comprehensive loss” and subsequently reclassifies the related amount of accumulated other comprehensive income (loss) to earnings within “General and administrative” or liability often has a direct impact on“Net revenues” when the amount we recognize as goodwill, which is an asset that is not amortized. Often determininghedged item impacts earnings, consistent with the fair value of these assetsnature and liabilities assumed requires an assessmenttiming of the expected use of the asset, the expected cost to extinguish the liability or our expectations related to the timing and the successful completion of development of an acquired in-process technology. Such estimatesunderlying transactions. Cash flows from these foreign currency forward contracts are inherently difficult and subjective and can have a material impact on our financial statements. Assessment of Impairment of Definite-lived Intangible and Other Long-lived Assets. We evaluate the recoverability of our identifiable amortizable intangible assets and other long-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances (referred to as a "triggering event") indicate a potential impairment exists. We consider certain events and circumstances in determining whether a triggering event has occurred that could indicate the carrying value of identifiable definite-lived intangible assets and other long-lived assets, may not be recoverable, including, but not limited to: (1) significant changes in performance relative to expected operating results; (2) significant changesclassified in the usesame category as the cash flows associated with the hedged item in the consolidated statements of the assets; (3) significant negative industry or economic trends; (4) a significant decline in our stock price for asustained period of time;cash flows. We measure hedge ineffectiveness, if any, and (5) changes in our business strategy. Ifif it is determined that a triggering eventderivative has occurred,ceased to be a highly effective hedge, the Company will discontinue hedge accounting for the derivative.For the Years Ended December 31, 2021 December 31, 2020 December 31, 2019 Apple Inc. 17 % 15 % 17 % Google Inc. 17 % 14 % 13 % Sony Interactive Entertainment Inc. 15 % 17 % 11 % Microsoft Corporation * 11 % * determinebelieve capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization, and intellectual property licenses.” Capitalized costs for products that are canceled or are expected to be abandoned are charged to “Product development” in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to “Product development.”exists based on an estimatecharge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management’s expectations.undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If the undiscounted cash flows are lower than the carrying values of the related asset group, an impairment exists and the impairment loss is measured aspractical expedient has a limited effect on the amount by which the carrying amountand timing of the group's assets exceeds the fair value of the asset group. We did not record an impairment chargecost recognition. Total capitalized costs to any of our definite-lived intangible assetsobtain a contract were immaterial as of December 31, 2017, 2016,2021 and 2015. Assessment2020.Impairmentthe asset (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other equipment). When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.Indefinite-lived IntangibleOther Indefinite-Lived Assets. Werequiredassessed as indefinite lived assets if there are no foreseeable limits on the periods of time over which they are expected to test goodwillcontribute cash flows. Goodwill and other indefinite-lived intangible assets for impairment onare not amortized, but are subject to an annual basis and, if currentimpairment test, as well as between annual tests when events or circumstances require, on an interim basis. ASC Topic 350 provides companies an optionindicate that the carrying value may not be recoverable. We perform our annual impairment testing at December 31.performby performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value before performingvalue. If a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative two-step approach to testing goodwill for impairment. We perform our impairment test for each reporting unit as part of our annual impairment test performed as of December 31. Our reporting units are determined based on the guidance within ASC Subtopic 350-20. The first step of theis performed. If a quantitative test measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit. Tois performed, we determine the fair values of the reporting units used in the first step, we use a discounted cash flow approach. Each step requires us to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates based on our weighted average cost of capital, and future economic and market conditions. These estimates and assumptions must be made for each reporting unit evaluated for impairment. Our estimates for market growth, our market share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying business. If future forecasts are revised, they may indicate or require future impairment charges. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In determining the fair value of our significantthe related reporting units—namely Activision, Blizzard,unit and King—we assumed discount rates ranging from 8.5%compare this value to 11.5% and terminal growth ratesthe recorded net assets of 0.0% to 4.0%, depending on the reporting unit, and its specific characteristics and risk profiles. Basedincluding goodwill. The fair value of our reporting units is determined using an income approach based on our quantitative evaluation, we determineddiscounted cash flow models. In the event the recorded net assets of the reporting unit exceed the estimated fair value of all ofsuch assets, an impairment charge is recorded for this amount under revised accounting guidance we adopted during the reporting units exceeded their carrying values as ofyear ended December 31, 2017. Changes in2020, and is applicable for future periods. Based on our assumptions underlying our estimatesannual impairment assessment, no impairments of fair value, which will be a function of our future financial performancegoodwill were identified for the years ended December 31, 2021, 2020, and changes in economic conditions, could result in future impairment chargesvalue. Atvalue of our acquired trade names. Based on our annual impairment assessment, no impairments of our acquired trade names were identified for the years ended December 31, 20172021, 2020, and 2016, we concluded that no impairment had occurred and that no impairment was reasonably likely to occur. In determining the fair value of these trade names, we assumed a discount rate of 8.5%, and royalty saving rates of approximately 1.5%. 2019.of fair value, which will be a function of our future financial performance and changes in economic conditions, could result in future impairment charges.718-10 and ASC Subtopic 505-50.718-10. Share-based compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and is based on theactual and projected employee stock option exercise behaviors.Company'sCompany’s common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stock units holder will not participate.period. Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-established performance or market conditions.conditions, including those that are market-based. For performance-based restricted stock units not subject to market conditions, each quarter we update our assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria. For a detailed discussion of the application of these and other accounting policies, see Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.Recently Issued Accounting Pronouncements Below are the recently issued accounting pronouncements that were most significant to our accounting policy activities for fiscal 2017. For a detailed discussion of recently issued accounting pronouncements, see Note 21 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.Recently adopted accounting pronouncementsInventory In July 2015, the Financial Accounting Standards Board ("FASB") issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new standard as of January 1, 2017, and applied it prospectively. The adoption of this guidance did not have a material impact on our financial statements.Recent accounting pronouncements not yet adoptedRevenue recognition In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specificguidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for us beginning with the first quarter of 2018. We are adopting the accounting standard using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date. We will report our adoption in our Form 10-Q for the first quarter of 2018. The most significant impacts of the new revenue recognition standard are expected to be:•The accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise, where we expect that approximately 20% of the sales price will be recognized as revenue upon delivery of the games to our customers. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are online hosted arrangements, and we do not expect any significant impact on the accounting for our sales of these games; and•The accounting for certain of our software licensing arrangements. While the impacts of the new standard may differ on a contract-by-contract basis (the actual revenue recognition treatment required under the standard will depend on contract-specific terms), we generally expect earlier revenue recognition for these arrangements under the new revenue standard. We estimate that the cumulative effect of adopting this standard will result in an adjustment to retained earnings at the adoption date of approximately $60 million to $100 million, inclusive of the associated tax impacts. Additionally, we expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting, and we are in process of adjusting our processes and internal controls in preparation for adopting the new standard.Leases In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease, and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease incentives received, and any prepaid lease payments. Operating leases will result in a straight-line expense pattern, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented, with certain transition practical expedients available to provide relief in adopting the new standard. We are evaluating the impact of this new accounting guidance on our financial statements. Currently, we do not plan to early adopt this new standard but we do expect to elect and apply the available transition practical expedients upon adoption.Statement of Cash Flows-Restricted Cash In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be included with "Cash and cash equivalents" when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there will be a significant impact to the consolidated statements of cash flows for 2016, as this period includes, as an investing activity, the $3.6 billion movement in restricted cash resulting from the transfer of cash into escrow at December 31, 2015, to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King Acquisition. Under this new standard, the restricted cash balance will be included in the beginning and ending total cash, cash equivalents, and restricted cash balances and, hence, would not be included as an investing activity in the statement of cash flows. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in foreign currency exchange rates and interest rates.Foreign Currency Exchange Rate Risk We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include Euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions will result in reduced revenues, operating expenses, net income, and cash flows from our international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in the United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year. To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks. The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period. We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes. For a detailed discussion of our accounting policies for our foreign currency forward contracts, see Note 2 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.Foreign Currency Forward Contracts Designated as Hedges ("Cash Flow Hedges") At December 31, 2017, the gross notional amount of outstanding Cash Flow Hedges was approximately $521 million. The fair value of these contracts, all of which have remaining maturities of 12 months or less, was $5 million of net unrealized losses. Additionally, at December 31, 2017, we had approximately $10 million of net realized but unrecognized losses recorded within "Accumulated other comprehensive income (loss)" associated with contracts that had settled but were deferred and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months. At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair value of these contracts was $22 million of net unrealized gains. During the years ended December 31, 2017 and 2016, there was no ineffectiveness relating to our Cash Flow Hedges. During the years ended December 31, 2017 and 2016, the amount of pre-tax net realized gains associated with these contracts that were reclassified out of "Accumulated other comprehensive loss" and into earnings was not material. In the absence of hedging activities for the year ended December 31, 2017, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines of our net income of approximately $134 million. This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however, all foreign currency exchange rates do not always move in such manner and actual results may differ materially.Interest Rate Risk Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt under our credit agreement. We do not currently use derivative financial instruments to manage interest rate risk. As of December 31, 2017 and 2016, a hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would have changed interest expense on an annual basis by approximately $10 million and $27 million, respectively. This estimate does not include a change in interest income from our investment portfolio that may result from such a hypothetical interest rate change nor does it include the effects of other actions that we may take in the future to mitigate this risk or any changes in our financial structure. Refer to Note 11 of the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding terms and interest rates associated with our debt obligations. Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents, or short-term securities is more subject to market fluctuations than a portfolio of longer-term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At December 31, 2017, our $4.7 billion of cash and cash equivalents was comprised primarily of money market funds. The Company has determined that, based on the composition of our investment portfolio as of December 31, 2017, there was no material interest rate risk exposure to the Company's consolidated financial condition, results of operations, or liquidity as of that date. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAReport of Independent Registered Public Accounting FirmF-1Consolidated Balance Sheets at December 31, 2017 and 2016F-3Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015F-4Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015F-5Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2017, 2016, and 2015F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015F-7Notes to Consolidated Financial StatementsF-8Schedule II—Valuation and Qualifying Accounts at December 31, 2017, 2016, and 2015F-60 Other financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURESDefinition and Limitations of Disclosure Controls and Procedures. Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at December 31, 2017, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2017, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported on a timely basis, and (2) accumulated and communicated to ourmanagement, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness, as of December 31, 2017, of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.Changes in Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. None. Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information required by this Item, other than the information regarding executive officers, which is included in Item 1 of this report, is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Proposal 1—Election of Directors," "Beneficial Ownership Matters—Section 16(a) Beneficial Ownership Reporting Compliance," "Corporate Governance Matters—Code of Conduct," and "Corporate Governance Matters—Board of Directors and Committees—Board Committees" to be filed with the SEC. Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Executive Compensation" and "Proposal 2—Director Compensation" to be filed with the SEC. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Equity Compensation Plan Information" and "Beneficial Ownership Matters" to be filed with the SEC. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Certain Relationships and Related Transactions" and "Corporate Governance Matters—Board of Directors and Committees" to be filed with the SEC. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders entitled "Audit-Related Matters" to be filed with the SEC. Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE(a)1Financial Statements See Item 8.—Consolidated Financial Statements and Supplementary Data for index to Financial Statements and Financial Statement Schedule on page 81 herein.2Financial Statement Schedule The following financial statement schedule of Activision Blizzard for the years ended December 31, 2017, 2016, and 2015 is filed as part of this report on page F-60 and should be read in conjunction with the consolidated financial statements of Activision Blizzard:Schedule II—Valuation and Qualifying AccountsOther financial statement schedules are omitted because the information called for is not applicable or is shown either in the Consolidated Financial Statements or the Notes thereto.3The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K. Not applicable.Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Activision Blizzard, Inc.:Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Activision Blizzard, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2), (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for income taxes related to share-based payments in 2016.Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 27, 2018We have served as the Company's auditor since 2008.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Amounts in millions, except share data) At December 31,
2017 At December 31,
2016 $ 4,713 $ 3,245 918 732 46 49 367 412 476 392 6,520 4,830 86 54 294 258 459 283 440 401 1,106 1,858 9,763 9,768 $ 18,668 $ 17,452 $ 323 $ 222 1,929 1,628 1,411 806 3,663 2,656 4,390 4,887 21 44 1,132 746 9,206 8,333
— — 10,747 10,442 (5,563 ) (5,563 ) 4,916 4,869 (638 ) (629 ) 9,462 9,119 $ 18,668 $ 17,452 The accompanying notes are an integral part of these Consolidated Financial Statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in millions, except per share data) For the Years Ended
December 31, 2017 2016 2015 $ 2,110 $ 2,196 $ 2,447 4,907 4,412 2,217 7,017 6,608 4,664
733 741 872 300 331 370 984 851 274 484 471 69 1,069 958 646 1,378 1,210 734 760 634 380 5,708 5,196 3,345
1,309
1,412
1,319
146
214
198 12 92 —
1,151
1,106
1,121
878
140
229 $ 273 $ 966 $ 892
$ 0.36 $ 1.30 $ 1.21 $ 0.36 $ 1.28 $ 1.19
754 740 728 766 754 739
$
0.30
$
0.26
$
0.23 The accompanying notes are an integral part of these Consolidated Financial Statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in millions) For the Years Ended
December 31, 2017 2016 2015 $ 273 $ 966 $ 892
36 (29 ) (326 ) (44 ) 33 (4 ) (1 ) — — $ (9 ) $ 4 $ (330 ) $ 264 $ 970 $ 562 The accompanying notes are an integral part of these Consolidated Financial Statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYFor the Years Ended December 31, 2017, 2016, and 2015(Amounts and shares in millions, except per share data) Common Stock Treasury Stock Accumulated
Other
Comprehensive
Income (Loss) Additional
Paid-In
Capital Retained
Earnings Total
Shareholders'
Equity Shares Amount Shares Amount 1,151 $ — (429 ) $ (5,762 ) $ 9,924 $ 3,374 $ (303 ) $ 7,233 — — — — — 892 — 892 — — — — — — (330 ) (330 ) 8 — — — 106 — — 106 7 — — — — — — — (3 ) — — — (83 ) — — (83 ) — — — — 65 — — 65 — — — — 95 — — 95 — — — — — (170 ) — (170 ) — — — 58 — — — 58 — — — 67 135 — — 202 1,163 $ — (429 ) $ (5,637 ) $ 10,242 $ 4,096 $ (633 ) $ 8,068 — — — — — 966 — 966 — — — — — — 4 4 7 — — — 105 — — 105 7 — — — — — — — (3 ) — — — (116 ) — — (116 ) — — — — 135 — — 135 76 76 — — — — — (193 ) — (193 ) — — — 74 — — — 74 1,174 $ — (429 ) $ (5,563 ) $ 10,442 $ 4,869 $ (629 ) $ 9,119 — — — — — 273 — 273 — — — — — — (9 ) (9 ) 11 — — — 178 — — 178 2 — — — — — — — (1 ) — — — (54 ) — — (54 ) — — — — 181 — — 181 — — — — — (226 ) — (226 ) 1,186 $ — (429 ) $ (5,563 ) $ 10,747 $ 4,916 $ (638 ) $ 9,462 The accompanying notes are an integral part of these Consolidated Financial Statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in millions) For the Years Ended
December 31, 2017 2016 2015 $ 273 $ 966 $ 892 (181 ) (9 ) (27 ) 33 42 43 888 829 95 311 321 399 — 63 — 24 50 7 176 147 92 28 4 — (165 ) 84 (40 ) (26 ) 32 (54 ) (301 ) (362 ) (350 ) (97 ) (10 ) 21 220 (35 ) (27 ) 85 (50 ) (25 ) 945 83 233 2,213 2,155 1,259 80 — 145 (135 ) — (145 ) — (4,588 ) (46 ) — 3,561 (3,561 ) (155 ) (136 ) (111 ) 13 (14 ) 2 (197 ) (1,177 ) (3,716 ) 178 106 106 (56 ) (115 ) (83 ) (226 ) (195 ) (170 ) 3,741 6,878 — (4,251 ) (6,104 ) (250 ) — (63 ) — — — 202 (10 ) (7 ) (7 ) (624 ) 500 (202 ) 76 (56 ) (366 ) 1,468 1,422 (3,025 ) 3,245 1,823 4,848 $ 4,713 $ 3,245 $ 1,823 (1)Excludes deferral and amortization of share-based compensation expense.(2)Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense. The accompanying notes are an integral part of these Consolidated Financial Statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements1. Description of Business Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers ("PC"), and mobile devices. We also operate esports events and leagues and create film and television content based on our games. The terms "Activision Blizzard," the "Company," "we," "us," and "our" are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries. The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination by and among the Company (then known as Activision, Inc.), Vivendi S.A. ("Vivendi"), and Vivendi Games, Inc., an indirect wholly-owned subsidiary of Vivendi, we were renamed Activision Blizzard, Inc. The common stock of Activision Blizzard is traded on The Nasdaq Stock Market under the ticker symbol "ATVI."The King Acquisition On February 23, 2016 (the "King Closing Date"), we acquired King Digital Entertainment, a leading interactive mobile entertainment company ("King"), by purchasing all of its outstanding shares (the "King Acquisition"), as further described in Note 20. Our consolidated financial statements include the operations of King commencing on the King Closing Date.Our Segments As part of the continued implementation of our esports strategy, we instituted changes to our internal organization and reporting structure such that the Major League Gaming ("MLG") business now operates as a division of Blizzard Entertainment, Inc. ("Blizzard"). As such, commencing with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG is responsible for the operations of the Overwatch League™, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content. Based upon our organizational structure, we conduct our business through three reportable operating segments as follows:(i) Activision Publishing, Inc. Activision Publishing, Inc. ("Activision") is a leading global developer and publisher of interactive software products and entertainment content, particularly for the console platform. Activision primarily delivers content through retail and digital channels, including full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products based on our internally developed intellectual properties, as well as some licensed properties. We have also established a long-term alliance with Bungie to publish its game universe, Destiny. Activision's key product franchises include: Call of Duty®, a first-person shooter for the console and PC platforms, and Destiny, an online universe of first-person action gameplay (which we call a "shared-world shooter") for the console and PC platforms.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)1. Description of Business (Continued)(ii) Blizzard Entertainment, Inc. Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retail and digital channels, including subscriptions, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®, which facilitates digital distribution of Blizzard content, along with Activision'sDestiny 2 PC content, online social connectivity, and the creation of user-generated content. As noted above, Blizzard also includes the activities of our MLG business, which is responsible for the operations of the Overwatch League, along with other esports events, and will also continue to serve as a multi-platform network for other Activision Blizzard esports content. Blizzard's key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game for PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for PC; and Overwatch®, a team-based first-person shooter for the PC and console platforms.(iii) King Digital Entertainment King Digital Entertainment ("King") is a leading global developer and publisher of interactive entertainment content and services, particularly on mobile platforms, such as Google Inc.'s ("Google") Android and Apple Inc.'s ("Apple") iOS. King also distributes its content and services on the PC platform, primarily via Facebook, Inc. ("Facebook"). King's games are free to play, however, players can acquire in-game items, either with virtual currency the players purchase or directly using real currency. King's key product franchises, all of which are for the mobile and PC platforms, include: Candy Crush™, which features "match three" games; Farm Heroes™, which also features "match three" games; and Bubble Witch™, which features "bubble shooter" games.Other We also engage in other businesses that do not represent reportable segments, including:•the Activision Blizzard Studios ("Studios") business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in October 2017, released the second season of the animated TV seriesSkylanders™Academy on Netflix; and•the Activision Blizzard Distribution ("Distribution") business, which consists of operations in Europe that provide warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting PoliciesBasis of Consolidation and Presentation The accompanying consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions. Certain reclassifications have been made to prior-year amounts to conform to the current period presentation. The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.Cash and Cash Equivalents We consider all money market funds and highly liquid investments with original maturities of three months or less at the time of purchase to be "Cash and cash equivalents."Investment Securities Investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Unrealized gains and losses of the Company's available-for-sale securities are excluded from earnings and are reported as a component of "Other comprehensive income (loss)." Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified within "Other current assets." In addition, investments with maturities beyond one year may be classified within "Other current assets" if they are highly liquid in nature and represent the investment of cash that is available for current operations. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in "Interest and other expense (income), net" in our consolidated statements of operations.Cash in Escrow As part of the King Acquisition, we were required to deposit $3.56 billion in cash to be held in an escrow account until the earlier of (1) the completion of the King Acquisition, or (2) the termination of the transaction agreement. The cash was not accessible to the Company for operating cash needs as its use had been administratively restricted for use in the consummation of the King Acquisition.Financial Instruments The carrying amounts of "Cash and cash equivalents," "Accounts receivable, net of allowances," "Accounts payable," and "Accrued expenses and other liabilities" approximate fair value due to theACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)short-term nature of these accounts. Our investments in U.S. treasuries, government agency securities, and corporate bonds, if any, are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. The Company transacts business in various foreign currencies and has significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks. We assess the nature of these derivatives under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 815 to determine whether such derivatives should be designated as hedging instruments. The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period. We report the fair value of these contracts within "Other current assets," "Accrued expense and other liabilities," "Other assets," or "Other liabilities," as applicable, in our consolidated balance sheets based on the prevailing exchange rates of the various hedged currencies as of the end of the relevant period. We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes. For foreign currency forward contracts which are not designated as hedging instruments under ASC 815, changes in the estimated fair value of these derivatives are recorded within "General and administrative expenses" and "Interest and other expense, net" in our consolidated statements of operations, consistent with the nature of the underlying transactions. For foreign currency forward contracts which have been designated as cash flow hedges in accordance with ASC 815, we assess the effectiveness of these cash flow hedges at inception and on an ongoing basis and determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. The Company records the effective portion of changes in the estimated fair value of these derivatives in "Accumulated other comprehensive loss" and subsequently reclassifies the related amount of accumulated other comprehensive income (loss) to earnings within "General and administrative" or "Net revenues" when the hedged item impacts earnings, consistent with the nature and timing of the underlying transactions. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, the Company will discontinue hedge accounting for the derivative.Concentration of Credit Risk Our concentration of credit risk relates to depositors holding the Company's cash and cash equivalents and customers with significant accounts receivable balances.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued) Our cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt instruments issued by governments and governmental organizations, financial institutions and industrial companies. Our customer base includes retailers and distributors, including mass-market retailers, first party digital storefronts, consumer electronics stores, discount warehouses, and game specialty stores in the U.S. and other countries worldwide. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. We generally do not require collateral or other security from our customers. For the year ended December 31, 2017, we had three customers—Apple, Sony Interactive Entertainment, Inc. ("Sony"), and Google—who accounted for 16%, 14%, and 10%, respectively, of net revenues. For the year ended December 31, 2016, we had two customers—Sony and Apple—who each accounted for 13% of net revenues. For the year ended December 31, 2015, we had two customers—Sony and Microsoft Corporation ("Microsoft")—who accounted for 12% and 10%, respectively, of net revenues. We had three customers—Sony, Microsoft, and Apple—who accounted for 17%, 14%, and 10%, respectively, of consolidated gross receivables at December 31, 2017. We had three customers—Sony, Microsoft, and Wal-Mart Stores, Inc.—who accounted for 17%, 10%, and 10%, respectively, of consolidated gross receivables at December 31, 2016.Software Development Costs and Intellectual Property Licenses Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and game design documentation, or the completed and tested product design and a working model. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized costs for products that are canceled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Amounts related to software development which are not capitalized are charged immediately to "Product development." Commencing upon a product's release, capitalized software development costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of six months to approximately two years. Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products. Depending upon the agreement with the rightsACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)holder, we may obtain the right to use the intellectual property in multiple products over a number of years, or alternatively, for a single product. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of revenues—software royalties, amortization, and intellectual property licenses." Capitalized intellectual property costs for products that are canceled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Commencing upon a product's release, capitalized intellectual property license costs are amortized to "Cost of revenues—software royalties, amortization, and intellectual property licenses" based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed property will be utilized. As intellectual property license contracts may extend for multiple years and can be used in multiple products to be released over a period beyond one year, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year. We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is the actual performance of the title to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product on which the sequel is based. Further, as many of our capitalized intellectual property licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized intellectual property license costs based on certain qualitative factors, such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical releases or television series based on the intellectual property, and the rights holder's continued promotion and exploitation of the intellectual property. Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management's expectations.Inventories Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and freight-in and are stated at the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a weighted-average cost method.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)Allowance for Inventory Obsolescence We regularly review inventory quantities on-hand and in the retail channels. We write down inventory based on excess or obsolete inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and net realizable value, based upon assumptions about future demand, which are inherently difficult to assess and dependent on market conditions. At the point of a loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established basis.Long-Lived Assets Property and Equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful life (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other equipment) of the asset. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred. Goodwill and Other Indefinite-Lived Assets. We account for goodwill in accordance with ASC Topic 350. Under ASC Topic 350, goodwill is considered to have an indefinite life, and is carried at cost. Acquired trade names are assessed as indefinite lived assets if there is no foreseeable limits on the periods of time over which they are expected to contribute cash flows. Goodwill and indefinite-lived assets are not amortized, but are subject to an annual impairment test, as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable. We perform our annual impairment testing at December 31. Our annual goodwill impairment test is performed at the reporting unit level. We have determined our reporting units based on the guidance within ASC Subtopic 350-20. As of December 31, 2017 and 2016, our reporting units are the same as our operating segments. We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including goodwill. The fair value of our reporting units is determined using an income approach based on discounted cash flow models. In the event the recorded net assets of the reporting unit exceed the estimated fair value of such assets, we perform a second step to measure the amount of the impairment, which is equal to the amount by which the recorded goodwill exceeds the implied fair value of the goodwill after assessing the fair value of each of the assets and liabilities within the reporting unit. We have determined that no impairment has occurred at December 31, 2017, 2016 and 2015 based upon a set of assumptions regarding discounted future cash flows, which represent our best estimate of future performance at this time. We test indefinite-lived acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. We have determined that no impairment has occurred at December 31, 2017, 2016 and 2015 based upon a set of assumptions regarding discounted future cash flows, which represent our best estimate of future performance at this time.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued) Changes in our assumptions underlying our estimates of fair value, which will be a function of our future financial performance and changes in economic conditions, could result in future impairment charges. Amortizable Intangible and Other Long-lived Assets. Intangible assets subject to amortization are carried at cost less accumulated amortization, and amortized over the estimated useful life in proportion to the economic benefits received. We evaluate the recoverability of our definite-lived intangible assets and other long-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. We considered certain events and circumstances in determining whether the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in our stock price for a sustained period of time; and changes in our business strategy. If we determine that the carrying value may not be recoverable, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group to determine whether an impairment exists. If an impairment is indicated based on a comparison of the asset groups' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. We did not record an impairment charge to our definite-lived intangible assets as of December 31, 2017, 2016, and 2015.Revenue Recognition We recognize revenues when there is persuasive evidence of an arrangement, the product or service has been provided to the customer, the collection of our fees is reasonably assured and the amount of fees to be paid by the customer is fixed or determinable. Certain products are sold to customers with a "street date" (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later of the street date or the date the product is sold to the customer. Revenues are recorded net of taxes assessed by governmental authorities that are both imposed on and concurrent with the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.Revenue Arrangements with Multiple Deliverables Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with ASC Topic 605. These revenue arrangements include product sales consisting of both software, service (such as ongoing hosting arrangements), and hardware deliverables (such as peripherals or other ancillary collectors' items sold together with physical "boxed" software). When a revenue arrangement contains multiple elements, such as hardware and software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") if it is available, third-party evidence ("TPE") if VSOE is not available, or best estimated selling price ("BESP") if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as a group usingACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance for recognizing software revenue. As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue arrangements that required using BESP for the years ended December 31, 2017, 2016, and 2015. The inputs we use to determine the selling price of our significant deliverables include the actual price charged by the Company for deliverables that the Company sells separately (which represents VSOE) and the wholesale prices of the same or similar products for deliverables not sold separately (which represents TPE).Product Sales Product sales consist of sales of our games, including physical products and digital full-game downloads. We recognize revenues from the sale of our products after both (1) title and risk of loss have been transferred to our customers and (2) all performance obligations have been completed. With respect to digital full-game downloads, this is when the product is available for download or is activated for gameplay. Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection. Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are considered adjustments of the selling price of our products and are reflected as reductions to revenues. Sales incentives and other consideration that represent costs incurred by us for assets or services received, such as the appearance of our products in a customer's national circular ad, are reflected as sales and marketing expenses when the benefit from the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the benefit.Products with Online Functionality or Online Hosted Arrangements For our software products with online functionality or that are part of an online hosted arrangement, we evaluate whether that online functionality constitutes a more-than-inconsequential separate deliverable in addition to the software product. This evaluation is performed for each software product or product add-on (including downloadable content), when it is released. Determining whether the online functionality for a particular product constitutes a more-than-inconsequential deliverable is subjective and requires management's judgment. When we determine that the online functionality constitutes a more-than-inconsequential separate service deliverable in addition to the product, which is principally because of the online functionality's importance to gameplay, we consider our performance obligation for this title to extend beyond the sale of the game. In addition, VSOE of fair value does not exist for the online functionality of some products, as we do not separately charge for this component. As a result, we initially defer all of the software-related revenues from the sale of any such title (including downloadable content) and recognize the revenues ratably over the estimated service period. In addition, we initially defer the cost of revenues for the title and recognize the costs of sales as the related revenues are recognized. The cost of revenues that are initially deferred include product and distribution costs, software royalties and amortization, and intellectual property licenses and exclude intangible asset amortization.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued) For our software products with online functionality that we consider to be incidental to the overall product offering and are inconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met. For ourWorld of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with the related subscription service revenues ratably over the estimated service period, beginning upon the activation of the software and delivery of the related services. Revenues attributed to the sale ofWorld of Warcraft boxed software and related expansion packs are classified as "Product sales," whereas revenues attributable to subscriptions and other value-added services are classified as "Subscription, licensing, and other revenues."Subscription Revenues Subscription revenues are mostly derived fromWorld of Warcraft.World of Warcraft is a game that is playable through Blizzard's servers and is generally sold on a subscription-only basis. ForWorld of Warcraft, after the first month of free usage that is included with theWorld of Warcraft boxed software, theWorld of Warcraft end user may enter into a subscription agreement for additional future access. Revenues associated with the sales of subscriptions via boxed software and prepaid subscription cards, as well as prepaid subscriptions sales, are deferred until the subscription service is activated by the consumer and are then recognized ratably over the subscription period. Value-added service revenues associated with subscriptions are recognized ratably over the estimated service periods.Licensing Revenues In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license agreements, for which the licensees pay the Company a royalty. We recognize these royalties as revenues based on usage by the end user and over the estimated service period when we have continuing service obligations. We recognize any upfront licensing fees received over the term of the agreements. With respect to license agreements that provide customers the right to make multiple copies in exchange for guaranteed amounts, revenues are generally recognized upon delivery of a master copy if all other performance obligations have been completed or over the estimated service period when we have continuing service obligations. Per copy royalties on sales that exceed the guarantee are recognized as earned. In addition, persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.Other Revenues Other revenues primarily include revenues from digital downloadable content (e.g., multi-player content packs), microtransactions and the licensing of intellectual property other than software to third-parties. Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with the virtual currency. Proceeds from theACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)sales of virtual goods directly are also recognized as revenues when a player uses the virtual goods. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player, which is generally the estimated service period. Revenues from the licensing of intellectual property other than software to third-parties are recorded upon the receipt of licensee statements, or upon the receipt of cash, provided the license period has begun and all performance obligations have been completed.Estimated Service Period We determine the estimated service period for players of our games with consideration of various data points, including the weighted average number of days between players' first and last days played online, the average total hours played, the average number of days in which player activity stabilizes, and the weighted-average number of days between players' first purchase date and last date played online. We also consider known online trends, the service periods of our previously released games, and the service periods of our competitors' games that are similar in nature to ours, to the extent they are publicly available. Determining the estimated service period is subjective and requires management's judgment. Future usage patterns may differ from historical usage patterns and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are generally less than 12 months.Principal Agent Considerations We evaluate sales of our products and content via third party digital storefronts, such as Microsoft's Xbox Games Store, Sony's PSN, the Apple App Store, and the Google Play Store, to determine whether revenues should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following:•the party responsible for delivery/fulfillment of the product or service to the consumer;•the party responsible for consumer billing, fee collection, and refunds;•the storefront and terms of sale that govern the consumer's purchase of the product or service; and•the party that sets the pricing with the consumer and has credit risk. Based on evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via Apple App Store and Google Play Store, and we report revenues on a net basis (i.e. net of fees retained by the storefront) for sales arrangements via Microsoft's Xbox Games Store and Sony PSN.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)Allowances for Returns, Price Protection, and Doubtful Accounts We closely monitor and analyze the historical performance of our various titles, the performance of products released by other publishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles. Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We benchmark units to be shipped to our customers using historical and industry data. We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive price protection credits include, among other things, compliance with applicable trading and payment terms and consistent return of inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-through performance targets in certain instances, the facilitation of slow-moving inventory, and other market factors. Significant management judgments and estimates with respect to potential future product returns and price protection related to current period product revenues must be made and used when establishing the allowance for returns and price protection in any accounting period. We estimate the amount of future returns and price protection for current period product revenues utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historical performance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise; console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-hand retail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title's recent sell-through history (if available); marketing trade programs; and the performance of competing titles. The relative importance of these factors varies among titles depending upon, among other things, genre, platform, seasonality, and sales strategy. Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of a title, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of new hardware platforms. There may be material differences in the amount and timing of our revenues for any period if factors or market conditions change or if matters resolve in a manner that is inconsistent with management's assumptions utilized in determining the allowances for returns and price protection. Similarly, management must make estimates as to the collectability of our accounts receivable. In estimating the allowance for doubtful accounts, we analyze the age of current outstanding account balances, historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in our customers' payment terms and their economic condition, as well as whetherACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)we can obtain sufficient credit insurance. Any significant changes in any of these criteria would affect management's estimates in establishing our allowance for doubtful accounts.Shipping and Handling Shipping and handling costs, which consist primarily of packaging and transportation charges incurred to move finished goods to customers, are included in "Cost of revenues—product costs."Cost of Revenues Our cost of revenues consist of the following:Cost of revenues—product sales:(1)"Product costs"—includes the manufacturing costs of goods produced and sold. These generally include product costs, manufacturing royalties, net of volume discounts, personnel-related costs, warehousing, and distribution costs. We generally recognize volume discounts when they are earned (typically in connection with the achievement of unit-based milestones).(2)"Software royalties, amortization, and intellectual property licenses"—includes the amortization of capitalized software costs and royalties attributable to product sales revenues. These are costs capitalized on the balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also included is amortization of intangible assets recognized in purchase accounting attributable to product sales revenues.Cost of revenues—subscription, licensing, and other revenues:(1)"Game operations and distribution costs"—includes costs to operate our games, such as customer service, internet bandwidth and server costs, platform provider fee, and payment provider fees.(2)"Software royalties, amortization, and intellectual property licenses"—includes the amortization of capitalized software costs and royalties attributable to subscription, licensing and other revenues. These are costs capitalized on the balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also included is amortization of intangible assets recognized in purchase accounting attributable to subscription, licensing and other revenues.Advertising Expenses We expense advertising as incurred, except for production costs associated with media advertising, which are deferred and charged to expense when the related advertisement is run for the first time. Advertising expenses for the years ended December 31, 2017, 2016, and 2015 were $708 million, $641 million, and $523 million, respectively, and are included in "Sales and marketing" in the consolidated statements of operations.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)Income Taxes We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of "more likely than not" that they will be realized in the future, a valuation allowance is recorded. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in "Income tax expense." On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act") was enacted in the United States. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax"). On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement period of up to one year, until accounting is complete. We continue to analyze the prospective effects of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as global intangible low-taxed income ("GILTI") of foreign subsidiaries, base erosion anti-abuse tax ("BEAT"), and foreign-derived intangible income ("FDII"), potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act. The Company has elected to account for the U.S. Tax Reform Act provisions related to GILTI as period costs if and when incurred pursuant to the FASB Staff Q&A guidance issued in January 2018. In March 2016, the FASB issued new guidance to simplify accounting for share-based payments. The new standard, amongst other things:•requires that all excess tax benefits and tax deficiencies be recorded as an income tax expense or benefit in the consolidated statement of operations and that the tax effects of exercised or vested awards be treated as discrete items in the reporting period in which they occur;•requires excess tax benefits from share-based payments to be reported as operating activities on the statement of cash flows; andACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)•permits an accounting policy election to either estimate the number of awards that are expected to vest using an estimated forfeiture rate, as currently required, or account for forfeitures when they occur. We elected to early adopt this new standard in the third quarter of 2016, which required us to reflect any adjustments as of January 1, 2016. As part of the adoption, we made certain elections, including the following:•to apply the presentation requirements for our consolidated statement of cash flows related to excess tax benefits retrospectively to all periods presented; and•to continue to estimate the number of awards that are expected to vest using an estimated forfeiture rate. As a result of the adoption, we recognized excess tax benefits of $113 million and $81 million as a reduction to income tax expense in our consolidated statement of operations for the years ended December 31, 2017 and 2016, respectively. For periods prior to 2016, such excess tax benefits were recorded to shareholders equity.Foreign Currency Translation All assets and liabilities of our foreign subsidiaries who have a functional currency other than U.S. dollars are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at average exchange rates during the period. The resulting translation adjustments are reflected as a component of "Accumulated other comprehensive loss" in shareholders' equity.Earnings (Loss) Per Common Share "Basic (loss) earnings per common share" is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the periods presented. "Diluted earnings (loss) per common share" is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options. However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded. When we determine whether instruments granted in share-based payment transactions are participating securities, unvested share-based awards which include the right to receive non-forfeitable dividends or dividend equivalents are considered to participate with common stock in undistributed earnings. With participating securities, we are required to calculate basic and diluted earnings (loss) per common share amounts under the two-class method. The two-class method excludes from the earnings (loss) per common share calculation any dividends paid or owed to participating securities and any undistributed earnings considered to be attributable to participating securities.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)2. Summary of Significant Accounting Policies (Continued)Share-Based Payments We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50. Share-based compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We generally determine the fair value of restricted stock units based on the closing market price of the Company's common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stock units holder will not participate. Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-established performance or market conditions. For performance-based restricted stock units, each quarter we update our assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.(amounts in millions): At
December 31, 2017 2016 $ 270 $ 277 183 189 $ 453 $ 466 Asof $660 million and $512 million, as of December 31, 20172021 and December 31, 2016,2020, respectively, primarily relate to internal development costs. As of both December 31, 2021 and December 31, 2020, capitalized intellectual property licenses were not material.the followingas follows (amounts in millions): For the Years Ended December 31, 2021 2020 2019 Amortization of capitalized software development costs and intellectual property licenses $ 341 $ 263 $ 241 For the Years Ended
December 31, 2017 2016 2015 $ 314 $ 335 $ 410 Write-offs and impairments of capitalized software development costs and intellectual property licenses were not material for the years ended December 31, 2017, 2016, and 2015. (Continued) At December 31, At December 31, 2017 2016 2021 2020 $ 1 $ 1 Land $ 1 $ 1 4 4 Buildings 4 4 224 162 Leasehold improvements 227 246 658 560 Computer equipment 703 704 92 78 Office furniture and other equipment 90 95 979 805 Total cost of property and equipment 1,025 1,050 (685 ) (547 ) Less accumulated depreciation (856) (841) $ 294 $ 258 Property and equipment, net $ 169 $ 209 2017, 2016,2021, 2020, and 20152019 was $130$105 million, $121$117 million, and $82$124 million, respectively. Rental expense was $71 million, $65 million and $39 million for the years ended December 31, 2017, 2016, and 2015, respectively. At December 31, 2017 Estimated
useful
lives Gross
carrying
amount Accumulated
amortization Net
carrying
amount 3 - 11 years $ 1,154 $ (869 ) $ 285 2 - 5 years 601 (301 ) 300 2 years 617 (573 ) 44 7 - 10 years 54 (16 ) 38 1 - 15 years 19 (13 ) 6 $ 2,445 $ (1,772 ) $ 673 Indefinite 386 Indefinite 47 $ 433 $ 1,106 At December 31, 2021 Estimated
useful
livesGross
carrying
amountAccumulated
amortizationNet
carrying
amountAcquired definite-lived intangible assets: Internally-developed franchises 3 - 11 years $ 1,154 $ (1,154) $ — Trade names and other 1 - 10 years 80 (66) 14 Total definite-lived intangible assets (1) $ 1,234 $ (1,220) $ 14 Acquired indefinite-lived intangible assets: Activision trademark Indefinite $ 386 Acquired trade names Indefinite 47 Total indefinite-lived intangible assets $ 433 Total intangible assets, net $ 447 TableContentsACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)7. Intangible Assets, Net (Continued) At December 31, 2016 Estimated
useful
lives Gross
carrying
amount Accumulated
amortization Net
carrying
amount 3 - 11 years 1,154 (583 ) 571 3 - 5 years 595 (145 ) 450 2 years 617 (266 ) 351 7 - 10 years 54 (8 ) 46 1 - 8 years 18 (11 ) 7 $ 2,438 $ (1,013 ) $ 1,425 Indefinite 386 Indefinite 47 $ 433 $ 1,858 At December 31, 2020 Estimated
useful
livesGross
carrying
amountAccumulated
amortizationNet carrying
amountAcquired definite-lived intangible assets: Internally-developed franchises 3 - 11 years $ 1,154 $ (1,151) $ 3 Developed software 2 - 5 years 601 (601) — Trade names and other 1 - 10 years 73 (58) 15 Total definite-lived intangible assets $ 1,828 $ (1,810) $ 18 Acquired indefinite-lived intangible assets: Activision trademark Indefinite $ 386 Acquired trade names Indefinite 47 Total indefinite-lived intangible assets $ 433 Total intangible assets, net $ 451 $759$11 million, $708$80 million, and $13$204 million for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. At2017, future amortization of definite-lived intangible assets is estimated2021 and December 31, 2020, was as follows (amounts in millions): $ 369 209 72 12 7 4 $ 673 Activision Blizzard King Total Balance at December 31, 2019 $ 6,898 $ 190 $ 2,676 $ 9,764 Other 1 — — 1 Balance at December 31, 2020 $ 6,899 $ 190 $ 2,676 $ 9,765 Additions through acquisition (1) 34 — — 34 Balance at December 31, 2021 $ 6,933 $ 190 $ 2,676 $ 9,799 We did not record any impairment charges againstintangible assets for the years ended December 31, 2017, 2016, and 2015.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)8. Goodwill The changes in the carrying amount of goodwill by operating segment are as follows (amounts in millions): Activision Blizzard(1) King Total $ 6,905 $ 190 $ — $ 7,095 — — 2,675 2,675 (2 ) — — (2 ) $ 6,903 $ 190 $ 2,675 $ 9,768 (5 ) — — (5 ) $ 6,898 $ 190 $ 2,675 $ 9,763 (1)As a result of the change in our operating segments discussed in Note 1, goodwill of $12 million previously reported within the "Other segments" is now included in the "Blizzard" reportableActivision segment. The prior period balance has been revised to reflect this change. For 2016, the addition to goodwill through acquisition is attributed to the King Acquisition (see Note 20). At December 31, 2017, 2016, and 2015, theretotal net assets acquired were no accumulated impairment losses."Accrued“Accrued expenses and other liabilities" ofliabilities” in our consolidated balance sheets are accrued payroll-related costs of $441$364 million and $393$406 million at December 31, 20172021 and 2016, respectively. Included in "Other liabilities"2020, respectively, and the current portion of our consolidated balance sheets are income taxtaxes payable of $473$144 million and $49$100 million at December 31, 20172021 and 2016,2020, respectively."observable inputs"“observable inputs” and minimize the use of "unobservable“unobservable inputs."” The three levels of inputs used to measure fair value are as follows:ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)10. Fair Value Measurements (Continued)generally including money market funds, treasury bills, available-for-sale and derivative financial instruments, and other investments (amounts in millions): Fair Value Measurements at December 31, 2021 Using As of December 31, 2021 Quoted Prices in Active Markets for Identical Assets
(Level 1)Significant Other Observable Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Balance Sheet
ClassificationFinancial Assets: Recurring fair value measurements: Money market funds $ 10,035 $ 10,035 $ — $ — Cash and cash equivalents Foreign government treasury bills 34 34 — — Cash and cash equivalents U.S. treasuries and government agency securities 130 130 — — Other current assets Equity securities 50 50 — — Other current assets Foreign currency forward contracts designated as hedges 20 — 20 — Other current assets Total $ 10,269 $ 10,249 $ 20 $ — Fair Value Measurements at December 31, 2020 Using As of December 31, 2020 Quoted Prices in Active Markets for Identical Assets
(Level 1)Significant Other Observable Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Balance Sheet
ClassificationFinancial Assets: Recurring fair value measurements: Money market funds $ 8,345 $ 8,345 $ — $ — Cash and cash equivalents Foreign government treasury bills 34 34 — — Cash and cash equivalents U.S. treasuries and government agency securities 164 164 — — Other current assets Total $ 8,543 $ 8,543 $ — $ — Financial Liabilities: Foreign currency forward contracts not designated as hedges $ (2) $ — $ (2) $ — Accrued expenses and other liabilities Foreign currency forward contracts designated as hedges (24) — (24) — Accrued expenses and other liabilities Total $ (26) $ — $ (26) $ — Fair Value Measurements at
December 31, 2017 Using Quoted
Prices in
Active
Markets for
Identical
Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs As of
December 31,
2017 Balance Sheet
Classification (Level 1) (Level 2) (Level 3) $ 4,405 $ 4,405 $ — $ — Cash and cash equivalents 39 39 — — Cash and cash equivalents 55 55 — — Other current assets $ 4,499 $ 4,499 $ — $ — $ (5 ) $ — $ (5 ) $ — Accrued expenses and other liabilities ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)10. Fair Value Measurements (Continued) Fair Value Measurements at
December 31, 2016 Using Quoted
Prices in
Active
Markets for
Identical
Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs As of
December 31,
2016 Balance Sheet
Classification (Level 1) (Level 2) (Level 3) $ 2,921 $ 2,921 $ — $ — Cash and cash equivalents 38 38 — — Cash and cash equivalents 22 — 22 — Other current assets 9 — — 9 Other assets $ 2,990 $ 2,959 $ 22 $ 9 ("(“Cash Flow Hedges"Hedges”) At December 31, 2017, theamountamounts and fair values of outstandingour Cash Flow Hedges, was approximately $521 million. The fair value of these contracts, all of which havehad remaining maturities of 12 months or less was $5 millionas of net unrealized losses. Additionally, at December 31, 2017, we had approximately $10 million of2021, are as follows (amounts in millions):As of December 31, 2021 As of December 31, 2020 Notional amount Fair value gain (loss) Notional amount Fair value gain (loss) Foreign Currency: Buy USD, Sell EUR $ 382 $ 20 $ 542 $ (24) but unrecognized losses recorded within "Accumulatedgains (losses) associated with our Cash Flow Hedges that were reclassified out of “Accumulated other comprehensive income (loss)"” and into earnings were not material.As of December 31, 2021 As of December 31, 2020 Notional amount Fair value gain (loss) Notional amount Fair value gain (loss) Foreign Currency: Buy USD, Sell GBP $ — $ — $ 116 $ (2) that had settled but were deferredrecorded in “General and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.2016, the gross notional amount2020, we held an investment in equity securities with a carrying value of outstanding Cash Flow Hedges was approximately $346$45 million. The investment did not have a readily-determinable fair value and was carried at cost, less impairment, and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investments in the same issuer. During June 2021, the investee completed a merger with a special purpose acquisition company (“SPAC”) and, as a result, our investment was converted into common shares of these contracts wasthe publicly traded company.net$16 million during the three months ended June 30, 2021. Our remaining investment is now measured at fair value at the end of each reporting period. As of December 31, 2021, the carrying value of the investment was $50 million and was classified within “Other current assets” in our consolidated balance sheets. The realized and unrealized gains.2017 and 2016, there was no ineffectiveness relating to our Cash Flow Hedges. During the years ended2021, December 31, 20172020, and 2016, the amountDecember 31, 2019, $1.7 billion, $1.3 billion, and $1.5 billion of pre-tax net realized gains associated with these contractsrevenues, respectively, were recognized that were reclassified out of "Accumulated other comprehensive income (loss)" and into earnings was not material.Fair Value Measurements on a Non-Recurring Basis We measureincluded in the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amountdeferred revenues balance at beginning of the assets may not be recoverable.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)10. Fair Value Measurements (Continued) For the years ended2017, 2016,2021, the aggregate amount of contracted revenues allocated to our unsatisfied performance obligations was $1.6 billion, which included our deferred revenues balances and 2015, there were no impairment chargesamounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1.3 billion over the next 12 months, $0.1 billion in the subsequent 12-month period, and the remainder thereafter. 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.Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Operating leases Operating lease costs $ 78 $ 75 $ 75 Variable lease costs 18 20 20 assets that are measured onour operating leases is as follows (amounts in millions):Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Supplemental Operating Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities $ 75 $ 77 $ 80 ROU assets obtained in exchange for new lease obligations 64 80 65 At December 31, 2021 At December 31, 2020 Weighted Average Lease terms and discount rates Remaining lease term 4.10 years 4.48 years Discount rate 3.01 % 3.40 % non-recurring basis.11. DebtCredit Facilities Atreconciliation of these payments to our operating lease liabilities at December 31, 2016,2021, are as follows (amounts in millions):For the years ending December 31, 2022 $ 84 2023 81 2024 63 2025 43 2026 21 Thereafter 15 Total future lease payments $ 307 Less imputed interest (18) Total lease liabilities $ 289 At December 31, 2021 At December 31, 2020 Balance Sheet Classification ROU assets $ 237 $ 243 Other assets Current lease liabilities $ 77 $ 66 Accrued expenses and other current liabilities Non-current lease liabilities 212 224 Other liabilities $ 289 $ 290 Total lease liabilities outstanding term loans "A" of approximately $2.7$1.5 billion (the "2016 TLA") and $250 million available under a revolving credit facility (the "Revolver"“Revolver”) pursuant to a credit agreement executedentered into on October 11, 2013 (as amended thereafter and from time to time, the "Credit Agreement"“Credit Agreement”). On February 3, 2017, To date, we entered into a sixth amendment (the "Sixth Amendment")have not drawn on the Revolver. the Credit Agreement. The Sixth Amendment: (1) provided for a new tranche of term loans "A" in an aggregate principal amount of $2.55 billion (the "2017 TLA" and, together with the Revolver, the "Credit Facilities") and (2) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the 2016 TLA, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The 2017 TLA will mature on August 23, 2021. the 2017 TLA and the Revolver will bear interest, at the Company'sCompany’s option, at either (1) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the London Interbank Offered Rate ("LIBOR"(“LIBOR”) for an interest period of one month beginning on such day plus 1.00%, or (2) LIBOR, in each case, plus an applicable interest margin. LIBOR will be subject to a floor of 0% and the base rate will be subject to an effective floor of 1.00%. The applicable interest margin for borrowings under the 2017 TLA and Revolver will range from 1.125%0.875% to 2.00%1.375% for LIBOR borrowings and from 0.125%0% to 1.00%0.375% for base rate borrowings and will be determined by reference to a pricing grid based on the Company'sCompany’s credit ratings. At December 31, 2017, the 2017 TLA bore interest at 2.73%. Borrowings under the Revolver may be borrowed, repaid, and re-borrowed by the Company, and are available for working capital and other general corporate purposes. Up to $50 million of the Revolver may be used for letters of credit. To date, we have not drawn on the Revolver. During the year ended December 31, 2017, we reduced our total outstanding term loan balances by $1.7 billion. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with prepayments on the 2017 TLA of $361 million made on February 15, 2017, and $1.2 billion made on May 26, 2017. The May prepayment was made using proceeds from a concurrent issuance of $1.2 billion in notes, as discussed further below. As part of that refinancing, we wrote-off unamortized discount and deferred financing costs of $12 million, which is included in "Loss on extinguishment of debt" in the consolidated statement of operations. The prepayments made on our 2017 TLA have satisfied the remaining required quarterly principal repayments for the entire term ofAgreement. As a result of these prepayments, at December 31, 2017, the outstanding balance of our 2017 TLA was $990 million. The Company isAgreement, we are subject to a financial covenant requiring the Company'sCompany’s Consolidated Total Net3.50:1.00.3.75:1.00 (or, at the Company’s option and for a limited period of time upon the consummation of a Qualifying Acquisition (as defined in the Credit Agreement), 4.25:1.00). The Credit Agreement contains other covenants that are customary for transactions of this type for issuers with similar credit ratings. A violationThese include those restricting liens, debt of anynon-guarantor subsidiaries and certain fundamental changes, in each case with exceptions, including exceptions for secured debt and debt ofTable non-guarantor subsidiaries of ContentsACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotesthe Company, in each case up to Consolidated Financial Statements (Continued)11. Debt (Continued)these covenants could resultan amount not exceeding 7.5% of Total Assets (as defined in an event of default under the Credit Agreement. Upon the occurrence of an event of default, payment of any outstanding amounts under the Credit Agreement may be accelerated, and the lenders' commitments to extend credit under the Credit Agreement may be terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding unsecured debt, including the debt holders described below, to accelerate the repayment of such obligations. The Company wasAgreement). We were in compliance with the terms of the Credit FacilitiesAgreement as of December 31, 2017. On February 1, 2018, our Board2021.Directors authorized repayments of up to $1.8December 31, 2021 and December 31, 2020, we had $3.7 billion of the company's outstanding debt during 2018. As of the date hereof, we have not made any additional repayments on our outstanding debt and the determination as to if and when we make any such repayment will be dependent on market conditions and other factors.Unsecured Senior Notes At December 31, 2016, we had the followinggross unsecured senior notes outstanding:•$750 millionoutstanding. A summary of 6.125%our outstanding unsecured senior notes due September 2023 that we issued on September 19, 2013 (the "2023 Notes"),is as follows (amounts in a private offering made in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"); and•$650 million of 2.3% unsecured senior notes due September 2021 (the "Unregistered 2021 Notes") and $850 million of 3.4% unsecured senior notes due September 2026 (the "Unregistered 2026 Notes") that we issued on September 19, 2016, in a private offering made in accordance with Rule 144A and Regulation S under the Securities Act. In connection with the issuance of the Unregistered 2021 Notes and the Unregistered 2026 Notes, we entered into a registration rights agreement (the "Registration Rights Agreement"), among the Company, and the representatives of the initial purchasers of the Unregistered 2021 Notes and the Unregistered 2026 Notes. Under the Registration Rights Agreement, we were required to use commercially reasonable efforts to, within one year of the issue date of the Unregistered 2021 Notes and the Unregistered 2026 Notes, among other things, (1) file a registration statement with respect to an offer to exchange each series of the Unregistered 2021 Notes and the Unregistered 2026 Notes for new notes that were substantially identical in all material respects (except for the provisions relating to the transfer restrictions and payment of additional interest) (the "Exchange Offer"), and (2) cause that registration statement (the "Exchange Offer Registration Statement") to be declared effective by the SEC under the Securities Act. The Exchange Offer Registration Statement was declared effective by the SEC on April 28, 2017, and we completed the Exchange Offer on June 1, 2017, such that all the Unregistered 2021 Notes and Unregistered 2026 Notes were exchanged for registered 2021 notes (the "2021 Notes") and registered 2026 notes (the "2026 Notes"), respectively. In addition, on May 26, 2017, in a public underwritten offering, we issued $400 million of 2.6% unsecured senior notes due June 2022 (the "2022 Notes"), $400 million of 3.4% unsecured senior notes due June 2027 (the "2027 Notes"), and $400 million of 4.5% unsecured senior notes due June 2047 (the "2047 Notes", and together with the 2021 Notes, the 2022 Notes, the 2023 Notes, the 2026 Notes, and the 2027 Notes, the "Notes"), which were outstanding at December 31, 2017. We may redeem the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. In addition, we may At December 31, 2021 At December 31, 2020 Unsecured Senior Notes Interest Rate Semi-Annual Interest Payments Due On Maturity Principal Fair Value
(Level 2)Principal Fair Value
(Level 2)2026 Notes 3.40% Mar. 15 & Sept. 15 Sept. 2026 $ 850 $ 912 $ 850 $ 970 2027 Notes 3.40% Jun. 15 & Dec. 15 Jun. 2027 400 430 400 454 2030 Notes 1.35% Mar. 15 & Sept. 15 Sept. 2030 500 463 500 490 2047 Notes 4.50% Jun. 15 & Dec. 15 Jun. 2047 400 480 400 525 2050 Notes 2.50% Mar. 15 & Sept. 15 Sept. 2050 1,500 1,320 1,500 1,462 Total gross long-term debt $ 3,650 $ 3,650 Unamortized discount and deferred financing costs (42) (45) Total net carrying amount $ 3,608 $ 3,605 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)11. Debt (Continued)2023 Notes prior to September 15, 2018,unsecured senior notes. Any such redemption will be at a price equal to 100% of the aggregate principal amount thereof plus a "make-whole premium" and accrued and unpaid interest. Further, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of the 2023 Notes outstanding with the net cash proceeds from such offerings. We may redeem some or all of the 2021 Notes, the 2022 Notes, the 2026 Notes, the 2027 Notes, and the 2047 Notesinterest as well as, for a redemption prior to August 15, 2021, May 15, 2022, June 15, 2026, March 15, 2027, and December 15, 2046, respectively, and in each case at a price equal to 100% of the aggregate principal amount thereof plus a "make-whole" premium and accrued and unpaid interest. Anypermitted redemption of all or a portion of the applicabledate for that class of note after the applicable date would be at 100% of aggregate principal amount plus accrued and unpaid interest.Notesnotes outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. These repurchase requirements are considered clearly and closely related to the Notesunsecured notes and are not accounted for separately upon issuance.Notesoutstanding notes are general senior obligations of the Company and rankpari passu in right of payment to all of the Company'sCompany’s existing and future senior indebtedness, including the Credit FacilitiesRevolver described above. The Notesnotes are not secured and are effectively subordinatedjunior to any of the Company'sCompany’s existing orand future indebtedness that is secured. The 2023 Notes contain customary covenants that place restrictions in certain circumstances on, among other things,secured to the incurrence of debt, granting of liens, payment of dividends, sales of assets, and certain merger and consolidation transactions. The Notes, with the exceptionextent of the 2023 Notes,value of the collateral securing such indebtedness. The notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of secured debt, entry into sale or leaseback transactions, and certain merger or consolidation transactions. The Company wasWe were in compliance with the terms of the Notesnotes outstanding as of December 31, 2017. Interest is payable semi-annually in arrears on March 15 and September 15 of each year for the 2021 Notes, the 2023 Notes, and 2026 Notes, and payable semi-annually in arrears on June 15 and December 15 of each year for the 2022 Notes, the 2027 Notes, and 2047 Notes. Accrued interest payable is recorded within "Accrued expenses and other liabilities" in our consolidated balance sheets. 2021.2017 and December 31, 2016, we had accrued interest payable of $28 million and $25 million, respectively, related to the Notes.Interest expense and financing costs Fees and discounts associated2021, with the issuanceexception of our debt instruments2026 Notes, which are recorded as debt discount, which reduces their respective carrying values, and is amortized over their respective terms. Amortization expense is recorded within "Interest andscheduled to mature in September 2026, no other expense (income), net" in our condensed consolidated statement of operations. In connection with the May 2017 note issuances, we incurred approximately $20 million of discounts and financing costs that were capitalized and recorded within "Long-term debt, net" in our consolidated balance sheet.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)11. Debt (Continued) For the years ended December 31, 2017, 2016, and 2015: interest expense was $150 million, $197 million, and $193 million, respectively; amortization of the debt discount and deferred financing costs was $12 million, $20 million, and $7 million, respectively; and commitment fees for the Revolver were not material. A summary of our outstanding debt is as follows (amounts in millions): At December 31, 2017 Gross Carrying
Amount Unamortized
Discount and
Deferred
Financing Costs Net Carrying
Amount $ 990 $ (8 ) $ 982 650 (4 ) 646 400 (4 ) 396 750 (9 ) 741 850 (9 ) 841 400 (6 ) 394 400 (10 ) 390 $ 4,440 $ (50 ) $ 4,390 At December 31, 2016 Gross Carrying
Amount Unamortized
Discount and
Deferred
Financing Costs Net Carrying
Amount $ 2,690 $ (27 ) $ 2,663 650 (5 ) 645 750 (11 ) 739 850 (10 ) 840 $ 4,940 $ (53 ) $ 4,887 As of December 31, 2017 the scheduled maturities and contractual principal repayments of our long-term debt for each ofwere due within the next five succeeding years are as follows (amounts in millions): $ — — — 1,640 400 2,400 $ 4,440 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)11. Debt (Continued) With the exception of the 2023 Notes and the 2047 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active markets), the carrying values of our debt instruments approximated their fair values as of December 31, 2017, as the interest rates are similar to current rates at which we can borrow funds over the selected interest periods. At December 31, 2017, based on Level 2 inputs, the fair values of the 2023 Notes and the 2047 Notes were $795 million and $421 million, respectively. At December 31, 2016, the carrying value of the 2016 TLA approximated its fair value, based on Level 2 inputs. At December 31, 2016, based on Level 2 inputs, the fair values of the 2021 Notes, 2023 Notes, and 2026 Notes were $635 million, $818 million, and $808 million, respectively.12.14. Accumulated Other Comprehensive Income (Loss)For the Year Ended December 31, 2021 Foreign currency
translation
adjustmentsUnrealized gain (loss)
on available-for-
sale securitiesUnrealized gain (loss)
on forward
contractsTotal Balance at December 31, 2020 $ (589) $ (5) $ (28) $ (622) Other comprehensive income (loss) before reclassifications (17) (2) 44 25 Amounts reclassified from accumulated other comprehensive income (loss) into earnings — 10 9 19 Balance at December 31, 2021 $ (606) $ 3 $ 25 $ (578) For the Year Ended December 31, 2020 Foreign currency
translation
adjustmentsUnrealized gain (loss)
on available-for-
sale securitiesUnrealized gain (loss)
on forward
contractsTotal Balance at December 31, 2019 $ (624) $ (3) $ 8 $ (619) Other comprehensive income (loss) before reclassifications 37 (6) (39) (8) Amounts reclassified from accumulated other comprehensive income (loss) into earnings (2) 4 3 5 Balance at December 31, 2020 $ (589) $ (5) $ (28) $ (622) For the Year Ended December 31, 2017 Foreign currency
translation
adjustments Unrealized gain
(loss)
on available-for-
sale securities Unrealized gain
(loss)
on forward
contracts Total $ (659 ) $ 1 $ 29 $ (629 ) 20 (1 ) (45 ) (26 ) 16 — 1 17 $ (623 ) $ — $ (15 ) $ (638 ) For the Year Ended December 31, 2016 Foreign currency
translation
adjustments Unrealized gain
(loss)
on available-for-
sale securities Unrealized gain
(loss)
on forward
contracts Total $ (630 ) $ 1 $ (4 ) $ (633 ) (29 ) — 37 8 — — (4 ) (4 ) $ (659 ) $ 1 $ 29 $ (629 ) Income taxes were not provided for foreign currency translation items, as these are considered indefinite investments in non-U.S. subsidiaries. Due to the U.S. Tax Reform Act, we are re-evaluating our indefinite reinvestment assertions, but we have not yet completed this evaluation. In accordance with SAB 118, we intend to complete this evaluation during the measurement period of up to one year and will record adjustments, if any, during those respective periods.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)13.15. Operating Segments and Geographic Region Currently, weRegionsthree3 reportable segments.segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"(“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense;expense (including liability awards accounted for under ASC 718); amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.organizationorganizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in Note 1, commencing with the second quarter of 2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable "Other segments," is now presented within the "Blizzard"segment. Prior period amounts have been revised to reflect this change. The change had no impact on consolidatedsegment net revenues or operating income. Information on the reportable segments net revenues and segment operating income are presented below (amounts in millions): Year Ended December 31, 2017 Activision Blizzard King Total $ 2,628 $ 2,120 $ 1,998 $ 6,746 — 19 — 19 $ 2,628 $ 2,139 $ 1,998 $ 6,765 $ 1,005 $ 712 $ 700 $ 2,417 Year Ended December 31, 2021 Activision Blizzard King Total Segment Revenues Net revenues from external customers $ 3,478 $ 1,733 $ 2,580 $ 7,791 Intersegment net revenues (1) — 94 — 94 Segment net revenues $ 3,478 $ 1,827 $ 2,580 $ 7,885 Segment operating income $ 1,667 $ 698 $ 1,140 $ 3,505 Year Ended December 31, 2020 Activision Blizzard King Total Segment Revenues Net revenues from external customers $ 3,942 $ 1,794 $ 2,164 $ 7,900 Intersegment net revenues (1) — 111 — 111 Segment net revenues $ 3,942 $ 1,905 $ 2,164 $ 8,011 Segment operating income $ 1,868 $ 693 $ 857 $ 3,418 Year Ended December 31, 2019 Activision Blizzard King Total Segment Revenues Net revenues from external customers $ 2,219 $ 1,676 $ 2,031 $ 5,926 Intersegment net revenues (1) — 43 — 43 Segment net revenues $ 2,219 $ 1,719 $ 2,031 $ 5,969 Segment operating income $ 850 $ 464 $ 740 $ 2,054 Year Ended December 31, 2016 Activision Blizzard King Total $ 2,220 $ 2,439 $ 1,586 $ 6,245 — — — — $ 2,220 $ 2,439 $ 1,586 $ 6,245 $ 788 $ 995 $ 537 $ 2,320 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)13. Operating Segments and Geographic Region (Continued) Year Ended December 31, 2015 Activision Blizzard King Total $ 2,700 $ 1,565 $ — $ 4,265 — — — — $ 2,700 $ 1,565 $ — $ 4,265 $ 868 $ 561 $ — $ 1,429 from external customers and consolidated income before income tax expense are presented in the table below (amounts in millions): Years Ended December 31, 2017 2016 2015 $ 6,765 $ 6,245 $ 4,265 410 354 356 (139 ) 9 43 (19 ) — — $ 7,017 $ 6,608 $ 4,664 $ 2,417 $ 2,320 $ 1,429 (19 ) 14 37 (71 ) (10 ) (39 ) (178 ) (159 ) (92 ) (757 ) (706 ) (11 ) (15 ) (47 ) (5 ) (15 ) — — (14 ) — — (39 ) — — 1,309 1,412 1,319 146 214 198 12 92 — $ 1,151 $ 1,106 $ 1,121 Years Ended December 31, 2021 2020 2019 Reconciliation to consolidated net revenues: Segment net revenues $ 7,885 $ 8,011 $ 5,969 Revenues from non-reportable segments (1) 563 519 462 Net effect from recognition (deferral) of deferred net revenues (2) 449 (333) 101 Elimination of intersegment revenues (3) (94) (111) (43) Consolidated net revenues $ 8,803 $ 8,086 $ 6,489 Reconciliation to consolidated income before income tax expense: Segment operating income $ 3,505 $ 3,418 $ 2,054 Operating income (loss) from non-reportable segments (1) 2 (55) 24 Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2) 347 (238) 52 Share-based compensation expense (4) (508) (218) (166) Amortization of intangible assets (10) (79) (203) (77) (94) (137) Discrete tax-related items (5) — — (17) Consolidated operating income 3,259 2,734 1,607 Interest and other expense (income), net 95 87 (26) Loss on extinguishment of debt — 31 — Consolidated income before income tax expense $ 3,164 $ 2,616 $ 1,633 from operating segments managed outside theof our reportable segments, including our StudiosDistribution business and Distribution businesses. Also includes unallocated corporate income and expenses.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)13. Operating Segments and Geographic Region (Continued)(3)Reflects fees and other expenses, such as legal, banking, and professional services fees,(4)Expenses related to the King Acquisition and associated integration activities, inclusive of related debt financings.(4)Reflects restructuring charges, primarily severance costs.(5)Reflects a non-cash accounting chargeshare-based compensation, including liability awards accounted for under ASC 718. Refer to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.(6)channelschannel, including a reconciliation to each of our reportable segment’s revenues, were as follows (amounts in millions):Year Ended December 31, 2021 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by distribution channel: Digital online channels (1) $ 3,287 $ 1,873 $ 2,597 $ — $ (94) $ 7,663 Retail channels 449 30 — — — 479 Other (2) 40 72 — 549 — 661 Total consolidated net revenues $ 3,776 $ 1,975 $ 2,597 $ 549 $ (94) $ 8,803 Change in deferred revenues: Digital online channels (1) $ (264) $ (140) $ (17) $ — $ — $ (421) Retail channels (34) (8) — — — (42) Other (2) — — — 14 — 14 Total change in deferred revenues $ (298) $ (148) $ (17) $ 14 $ — $ (449) Segment net revenues: Digital online channels (1) $ 3,023 $ 1,733 $ 2,580 $ — $ (94) $ 7,242 Retail channels 415 22 — — — 437 Other (2) 40 72 — 563 — 675 Total segment net revenues $ 3,478 $ 1,827 $ 2,580 $ 563 $ (94) $ 8,354 Year Ended December 31, 2020 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by distribution channel: Digital online channels (1) $ 2,930 $ 1,672 $ 2,167 $ — $ (111) $ 6,658 Retail channels 702 39 — — — 741 Other (2) 57 92 — 538 — 687 Total consolidated net revenues $ 3,689 $ 1,803 $ 2,167 $ 538 $ (111) $ 8,086 Change in deferred revenues: Digital online channels (1) $ 365 $ 102 $ (3) $ — $ — $ 464 Retail channels (112) — — — — (112) Other (2) — — — (19) — (19) Total change in deferred revenues $ 253 $ 102 $ (3) $ (19) $ — $ 333 Segment net revenues: Digital online channels (1) $ 3,295 $ 1,774 $ 2,164 $ — $ (111) $ 7,122 Retail channels 590 39 — — — 629 Other (2) 57 92 — 519 — 668 Total segment net revenues $ 3,942 $ 1,905 $ 2,164 $ 519 $ (111) $ 8,419 Years Ended December 31, 2017 2016 2015 $ 5,479 $ 4,865 $ 2,502 1,033 1,386 1,806 505 357 356 $ 7,017 $ 6,608 $ 4,664 Year Ended December 31, 2019 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by distribution channel: Digital online channels (1) $ 1,366 $ 1,580 $ 2,029 $ — $ (43) $ 4,932 Retail channels 818 91 — — — 909 Other (2) 3 181 — 464 — 648 Total consolidated net revenues $ 2,187 $ 1,852 $ 2,029 $ 464 $ (43) $ 6,489 Change in deferred revenues: Digital online channels (1) $ 122 $ (128) $ 2 $ — $ — $ (4) Retail channels (90) (5) — — — (95) Other (2) — — — (2) — (2) Total change in deferred revenues $ 32 $ (133) $ 2 $ (2) $ — $ (101) Segment net revenues: Digital online channels (1) $ 1,488 $ 1,452 $ 2,031 $ — $ (43) $ 4,928 Retail channels 728 86 — — — 814 Other (2) 3 181 — 462 — 646 Total segment net revenues $ 2,219 $ 1,719 $ 2,031 $ 462 $ (43) $ 6,388 Includesubscriptions, licensing royalties, value-added services, downloadable content, microtransactions, subscriptions, and products.IncludeStudios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League.Year Ended December 31, 2021 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (2) Total Net revenues by geographic region: Americas $ 2,446 $ 876 $ 1,664 $ — $ (55) $ 4,931 EMEA (1) 976 638 665 549 (31) 2,797 Asia Pacific 354 461 268 — (8) 1,075 Total consolidated net revenues $ 3,776 $ 1,975 $ 2,597 $ 549 $ (94) $ 8,803 Change in deferred revenues: Americas $ (198) $ (79) $ (11) $ — $ — $ (288) EMEA (1) (80) (65) (5) 14 — (136) Asia Pacific (20) (4) (1) — — (25) Total change in deferred revenues $ (298) $ (148) $ (17) $ 14 $ — $ (449) Segment net revenues: Americas $ 2,248 $ 797 $ 1,653 $ — $ (55) $ 4,643 EMEA (1) 896 573 660 563 (31) 2,661 Asia Pacific 334 457 267 — (8) 1,050 Total segment net revenues $ 3,478 $ 1,827 $ 2,580 $ 563 $ (94) $ 8,354 Year Ended December 31, 2020 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (2) Total Net revenues by geographic region: Americas $ 2,316 $ 794 $ 1,384 $ — $ (60) $ 4,434 EMEA (1) 1,061 550 568 538 (37) 2,680 Asia Pacific 312 459 215 — (14) 972 Total consolidated net revenues $ 3,689 $ 1,803 $ 2,167 $ 538 $ (111) $ 8,086 Change in deferred revenues: Americas $ 228 $ 58 $ (1) $ — $ — $ 285 EMEA (1) 36 43 (1) (19) — 59 Asia Pacific (11) 1 (1) — — (11) Total change in deferred revenues $ 253 $ 102 $ (3) $ (19) $ — $ 333 Segment net revenues: Americas $ 2,544 $ 852 $ 1,383 $ — $ (60) $ 4,719 EMEA (1) 1,097 593 567 519 (37) 2,739 Asia Pacific 301 460 214 — (14) 961 Total segment net revenues $ 3,942 $ 1,905 $ 2,164 $ 519 $ (111) $ 8,419 Years Ended December 31, 2017 2016 2015 $ 3,607 $ 3,423 $ 2,409 2,464 2,221 1,741 946 964 514 $ 7,017 $ 6,608 $ 4,664 Year Ended December 31, 2019 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (2) Total Net revenues by geographic region: Americas $ 1,286 $ 822 $ 1,254 $ — $ (21) $ 3,341 EMEA (1) 691 543 557 464 (16) 2,239 Asia Pacific 210 487 218 — (6) 909 Total consolidated net revenues $ 2,187 $ 1,852 $ 2,029 $ 464 $ (43) $ 6,489 Change in deferred revenues: Americas $ 16 $ (62) $ 2 $ — $ — $ (44) EMEA (1) 12 (57) — (2) — (47) Asia Pacific 4 (14) — — — (10) Total change in deferred revenues $ 32 $ (133) $ 2 $ (2) $ — $ (101) Segment net revenues: Americas $ 1,302 $ 760 $ 1,256 $ — $ (21) $ 3,297 EMEA (1) 703 486 557 462 (16) 2,192 Asia Pacific 214 473 218 — (6) 899 Total segment net revenues $ 2,219 $ 1,719 $ 2,031 $ 462 $ (43) $ 6,388 Consists “EMEA” consists of the Europe, Middle East, and Africa geographic regions.Company'sCompany’s net revenues in the U.S. were 45%49%, 45%48%, and 48%46% of consolidated net revenues for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. The Company'sCompany’s net revenues in the United Kingdom ("(“U.K."”) were 12%11%, 11%12%, and 14%12% of consolidated net revenues for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. No other country'scountry’s net revenues exceeded 10% of consolidated net revenues for the years ended December 31, 2017, 2016,2021, 2020, or 2015.2019.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)13. Operating Segments and Geographic Region (Continued)Year Ended December 31, 2021 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by platform: Console $ 2,502 $ 135 $ — $ — $ — $ 2,637 PC 660 1,673 84 — (94) 2,323 Mobile and ancillary (1) 574 95 2,513 — — 3,182 Other (2) 40 72 — 549 — 661 Total consolidated net revenues $ 3,776 $ 1,975 $ 2,597 $ 549 $ (94) $ 8,803 Change in deferred revenues: Console $ (248) $ (6) $ — $ — $ — $ (254) PC (82) (145) (1) — — (228) Mobile and ancillary (1) 32 3 (16) — — 19 Other (2) — — — 14 — 14 Total change in deferred revenues $ (298) $ (148) $ (17) $ 14 $ — $ (449) Segment net revenues: Console $ 2,254 $ 129 $ — $ — $ — $ 2,383 PC 578 1,528 83 — (94) 2,095 Mobile and ancillary (1) 606 98 2,497 — — 3,201 Other (2) 40 72 — 563 — 675 Total segment net revenues $ 3,478 $ 1,827 $ 2,580 $ 563 $ (94) $ 8,354 Years Ended December 31, 2017 2016 2015 $ 2,389 $ 2,453 $ 2,391 2,042 2,124 1,499 2,081 1,674 418 505 357 356 $ 7,017 $ 6,608 $ 4,664 Year Ended December 31, 2020 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by platform: Console $ 2,668 $ 116 $ — $ — $ — $ 2,784 PC 582 1,489 96 — (111) 2,056 Mobile and ancillary (1) 382 106 2,071 — — 2,559 Other (2) 57 92 — 538 — 687 Total consolidated net revenues $ 3,689 $ 1,803 $ 2,167 $ 538 $ (111) $ 8,086 Change in deferred revenues: Console $ 140 $ (8) $ — $ — $ — $ 132 PC 64 115 — — — 179 Mobile and ancillary (1) 49 (5) (3) — — 41 Other (2) — — — (19) — (19) Total change in deferred revenues $ 253 $ 102 $ (3) $ (19) $ — $ 333 Segment net revenues: Console $ 2,808 $ 108 $ — $ — $ — $ 2,916 PC 646 1,604 96 — (111) 2,235 Mobile and ancillary (1) 431 101 2,068 — — 2,600 Other (2) 57 92 — 519 — 668 Total segment net revenues $ 3,942 $ 1,905 $ 2,164 $ 519 $ (111) $ 8,419 Year Ended December 31, 2019 Activision Blizzard King Non-reportable segments Elimination of intersegment revenues (3) Total Net revenues by platform: Console $ 1,783 $ 137 $ — $ — $ — $ 1,920 PC 298 1,346 117 — (43) 1,718 Mobile and ancillary (1) 103 188 1,912 — — 2,203 Other (2) 3 181 — 464 — 648 Total consolidated net revenues $ 2,187 $ 1,852 $ 2,029 $ 464 $ (43) $ 6,489 Change in deferred revenues: Console $ (36) $ (18) $ — $ — $ — $ (54) PC 57 (110) — — — (53) Mobile and ancillary (1) 11 (5) 2 — — 8 Other (2) — — — (2) — (2) Total change in deferred revenues $ 32 $ (133) $ 2 $ (2) $ — $ (101) Segment net revenues: Console $ 1,747 $ 119 $ — $ — $ — $ 1,866 PC 355 1,236 117 — (43) 1,665 Mobile and ancillary (1) 114 183 1,914 — — 2,211 Other (2) 3 181 — 462 — 646 Total segment net revenues $ 2,219 $ 1,719 $ 2,031 $ 462 $ (43) $ 6,388 "Mobile“Mobile and ancillary"ancillary” include revenues from mobile devices, as well as non-platform specific game-related revenues, such as standalone sales of toys and accessories from our Skylanders® franchise and other physical merchandise and accessories."Other" include“Other” primarily includes revenues from our Studios and Distribution businesses, as well as revenues from MLGbusiness, the Overwatch League, and the OverwatchCall of Duty League. At December 31, 2017 2016 2015 $ 197 $ 154 $ 138 75 87 42 22 17 9 $ 294 $ 258 $ 189 At December 31, 2021 2020 2019 Long-lived assets* by geographic region: Americas $ 264 $ 270 $ 322 EMEA 122 166 142 Asia Pacific 20 17 21 Total long-lived assets by geographic region $ 406 $ 453 $ 485 assets; allassets and lease right-of-use assets. All other long-term assets are not allocated by location."Concentration“Concentration of Credit Risk"Risk” in Note 2.14.2"2014 Plan"“2014 Plan”) became effective. Under the 2014 Plan, the Compensation Committee of our Board of Directors is authorized to provide share-based compensation in the form of stock options, share appreciation rights, restricted stock, restricted stock units, performance shares, and other performance- or value-based awards structured by the Compensation Committee within parameters set forth in the 2014 Plan. UponAs of the effective date of the 2014 Plan, we had ceased making awards under our prior equity incentive plansACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)14. Share-Based Payments (Continued)(collectively, (collectively, the "Prior Plans"“Prior Plans”), although such plans will remain in effect andto the extent that they continue to govern outstanding awards.currentlygenerally utilizes a combination of options and restricted stock units. The majority of our options have time-based vesting schedules, generally vesting annually over a period of three years to five years, and expire ten10 years from the grant date. In addition, under the terms of the 2014 Plan, the exercise price for the options must be equal to or greater than the closing price per share of our common stock on the date the award is granted, as reported on Nasdaq. Restricted stock units have time-based vesting schedules, generally vesting in their entirety on an anniversary of the date of grant, or vest annually over a period of three years to five years, and may also be contingent on the achievement of specified performance measures.2017,2021, we had approximately 3013 million shares of our common stock reserved for future issuance under the 2014 Plan. Shares issued in connection with awards made under the 2014 Plan are generally issued as new stock issuances. Additionally, in connection with the King Acquisition, a majority of the outstanding options and awards with respect to King shares that were unvested as of the King Closing Date were converted into equivalent options and awards with respect to shares of the Company's common stock (see Note 20 for further discussion). As part of the conversion, we assumed King's equity incentive plan (the "King Plan") and amended the King Plan to convert it to a plan with respect to shares of the Company's common stock for the King shares assumed. No future shares can be granted from the King Plan, but it continues to govern outstanding awards.employees' cancellations,employees’ cancellation, exercise, and post-vesting termination behavior. Statistical methods are used to estimate employee rank-specific termination rates.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)14. Share-Based Payments (Continued)volatilities: Employee and Director
Options Employee Stock Options For the Years Ended
December 31, For the Years Ended December 31, 2017 2016 2015 2021 2020 2019 7.01 6.86 6.26 Expected life (in years) 7.61 7.70 7.85 35.00 % 35.31 % 36.13 % Volatility 31.06 % 30.89 % 30.00 % 2.14 % 1.56 % 1.90 % Risk free interest rate 1.29 % 0.70 % 1.90 % 0.50 % 0.67 % 0.72 % Dividend yield 0.51 % 0.53 % 0.76 % $ 21.11 $ 12.83 $ 9.87 Weighted-average grant date fair value $ 30.65 $ 25.93 $ 17.12 Stock price volatility range: 28.19 % 29.20 % 26.96 % Low 31.00 % 30.00 % 30.00 % 35.00 % 36.00 % 37.00 % High 35.00 % 39.00 % 38.17 % can be viewed as assumingassumes that employees will exercise their options when the stock price equals or exceeds an exercise multiple, of which themultiple. The exercise multiple is based on historical employee exercise behaviors.option'soption’s contractual term to estimate long-term volatility, and a statistical model to estimate the transition from short-term volatility to long-term volatility.option'soption’s contractual term. The risk-free interest rate, which is based on U.S. Treasury yield curves, reflects the expected movement in the interest rate from one time period to the next ("forward rate").forfeitures in the consolidated statement of operations for the years ended December 31, 2017, 2016, and 2015.forfeitures. Forfeitures are estimated at the time of grant based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)14. Share-Based Payments (Continued)("RSUs"(“RSUs”)Company'sCompany’s RSU awards granted is principallyare generally based upon the closing price of the Company'sCompany’s common stock price on the date of grant reduced by the present value of dividends expected to be paid on our common stock prior to vesting.model inputs and measures of employees'employees’ exercise and post-vesting termination behavior. Our ability to accurately estimate the fair value of share-based payment awards at the grant date depends upon the accuracy of the model and our ability to accurately forecast model inputs for as long as 10 years into the future. These inputs include, but are not limited to, expected stock price volatility, risk-free rate, dividend yield, and employee termination rates. Although the fair value of employee stock options is determined using an option-pricing model, the estimates that are produced by this model may not be indicative of the fair value observed between a willing buyer and a willing seller. Unfortunately, it is difficult to determine if this isseller as there are not current active markets for the case, as markets do not currently exist that permit the active trading of employee stock optionoptions and other share-based instruments. Number of
Shares
(in thousands) Weighted-
average
exercise price Weighted-
average
remaining
contractual
term (in years) Aggregate
intrinsic value
(in millions) 31,485 $ 26.79 2,579 59.89 (10,861 ) 16.44 (2,650 ) 41.32 (9 ) 16.41 20,544 $ 34.54 7.07 $ 591 16,077 $ 31.79 7.26 $ 507 6,747 $ 21.36 5.79 $ 283 Number of shares (in thousands) Weighted-average
exercise price per stock optionWeighted-average
remaining
contractual term (in years)Aggregate
intrinsic value (in millions)Outstanding stock options at December 31, 2020 11,297 $ 53.84 Granted 754 92.56 Exercised (1,954) 45.84 Forfeited (866) 65.23 Expired (98) 45.15 Outstanding stock options at December 31, 2021 9,133 $ 57.77 7.04 $ 125 Vested and expected to vest at December 31, 2021 8,798 $ 56.96 6.98 $ 124 Exercisable at December 31, 2021 5,711 $ 48.90 6.26 $ 107 For options assumed in the King Acquisition, 0.4 million of the options are based on performance conditions which do not have an accounting grant date as of December 31, 2017, as there is not a mutual understanding between the Company and the employee of the performance terms.valuesvalue 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 onACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)14. Share-Based Payments (Continued)$372$88 million, $161$174 million, and $125$80 million for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. The total grant date fair value of options that vested was $47 million, $40 million, and $19 million forduring the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019 was $57 million, $62 million, and $94 million, respectively.2017, $802021, $32 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.271.14 years.holders'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 grant date performance measure. If the vesting conditions are not met, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax withholding requirements.maximum potentialtarget level shares that could be earned and issued at vestingmay potentially vest (amounts in thousands, except per share amounts)data): Number of shares Weighted-
average grant
date fair value per RSUUnvested RSUs at December 31, 2020 7,102 $ 82.50 Granted 10,856 77.17 Vested (3,187) 96.58 Forfeited (1,513) 75.73 Unvested RSUs at December 31, 2021 13,258 $ 75.51 Number of
shares Weighted-
Average Grant
Date Fair Value 11,977 $ 17.44 3,298 63.75 (2,233 ) 29.50 (1,221 ) 26.41 11,821 $ 27.20 2017,2021, as for each such grant there is not a mutual understanding between the Company and the employee of the performance terms. Generally, these performance terms relate to operating income performance for future years, where the performance goals for which have not yet beento be set. As of December 31, 2017,2021, based on the target potential shares that could be earned, there were 4.42.0 million performance-based RSUs outstanding for which the accounting grant date hashad not been set, of which 1.91.3 million were 20172021 grants. Accordingly, no grant date fair value was established and the weighted average grant date fair valuevalues calculated above for 2017 grants excludes these RSUs.2017,2021, approximately $111$505 million of total unrecognized compensation cost was related to RSUs and is expected to be recognized over a weighted-average period of 1.441.79 years. Of the total unrecognized compensation cost, $102$62 million was related to performance-based RSUs, which is expected to be recognized over a weighted-average period of 1.54 years.1.00 year. The total grant date fair value of RSUs that vested RSUs was $64 million, $123 million and $93 million forduring the years ended December 31, 2017, 20162021, 2020, and 2015,2019 was $306 million, $82 million, and $147 million, respectively.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)14. Share-Based Payments (Continued)$160$70 million, $134$61 million, and $109$47 million for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. For the Years Ended December 31, 2021 2020 2019 Cost of revenues—product sales: Software royalties, amortization, and intellectual property licenses $ 17 $ 14 $ 19 Cost of revenues—in-game, subscription, and other: Game Operations and Distribution Costs 7 1 1 Cost of revenues—in-game, subscription, and other: Software royalties, amortization, and intellectual property licenses — — 1 Product development 211 42 53 Sales and marketing 44 21 10 General and administrative 229 140 82 Share-based compensation expense before income taxes 508 218 166 Income tax benefit (36) (28) (29) Total share-based compensation expense, net of income tax benefit $ 472 $ 190 $ 137 For the Years Ended
December 31, 2017 2016 2015 $ 10 $ 20 $ 12 1 2 — 3 2 3 57 47 25 15 15 9 92 73 43 178 159 92 (34 ) (42 ) (27 ) $ 144 $ 117 $ 65 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotesConsolidated Financial Statements (Continued)15.cash outlays to be made to impacted personnel.Severance and employee related costs Facilities and related costs Other costs Total Balance at December 31, 2019 $ 32 $ — $ 3 $ 35 Costs charged to expense 76 6 5 87 Cash payments (20) — (5) (25) Non-cash charge adjustment (1) — (6) — (6) Balance at December 31, 2020 $ 88 $ — $ 3 $ 91 Costs charged to expense 36 16 27 79 Cash payments (55) — (6) (61) Non-cash charge adjustment (1) (5) (16) (3) (24) Balance at December 31, 2021 $ 64 $ — $ 21 $ 85 Cumulative charges incurred through December 31, 2021 $ 188 $ 51 $ 59 $ 298 Years Ended December 31, 2021 December 31, 2020 December 31, 2019 Activision $ 2 $ 13 $ 19 Blizzard 70 71 68 King 1 (1) 20 Other segments (1) 6 4 25 Total $ 79 $ 87 $ 132 Total charges incurred through December 31, 2021 Activision $ 34 Blizzard 214 King 21 Other segments (1) 34 Total $ 303 For the Years Ended December 31, 2021 2020 2019 Interest income $ (5) $ (21) $ (79) Interest expense from debt and amortization of debt discount and deferred financing costs 108 99 90 (28) (3) (38) Other expense (income), net 20 12 1 Interest and other expense (income), net $ 95 $ 87 $ (26) For the Years Ended
December 31, For the Years Ended December 31, 2017 2016 2015 2021 2020 2019 Income before income tax expense: $ 185 $ 228 $ 355 Domestic $ 1,451 $ 1,160 $ 328 966 878 766 Foreign 1,713 1,456 1,305 $ 1,151 $ 1,106 $ 1,121 $ 3,164 $ 2,616 $ 1,633 Income tax expense (benefit): Current: $ 696 $ (15 ) $ 169 Federal $ 189 $ 206 $ 136 26 16 31 State 35 92 24 335 150 40 Foreign 229 218 323 1,057 151 240 Total current 453 516 483 Deferred: (111 ) 40 1 Federal 73 (84) 781 (32 ) (13 ) (21 ) State 12 (10) (16) (36 ) (38 ) 9 Foreign (73) (3) (1,118) (179 ) (11 ) (11 ) Total deferred 12 (97) (353) $ 878 $ 140 $ 229 Income tax expense $ 465 $ 419 $ 130 For the year ended December 31, 2017 and 2016, excess tax benefits attributable to share-based compensation transactions are recognized to the extent that tax deduction on share-based compensation exceeds the corresponding compensation cost recorded on the financial statement. For the years ended December 31, 2017 and 2016, we recognized $113 million and $81 million, respectively, of excess tax benefits from share-based payments as a reduction to income tax expense due to our adoption of a new accounting standard in 2016. For periods prior to 2016, such excess tax benefits were recorded to shareholders' equity.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)15. Income Taxes (Continued) For the Years Ended December 31, 2017 2016 2015 $ 403 35 % $ 387 35 % $ 392 35 % 4 — 9 1 5 — (26 ) (2 ) (36 ) (3 ) (26 ) (2 ) (271 ) (24 ) (239 ) (22 ) (228 ) (20 ) 291 25 210 19 136 12 (36 ) (3 ) (114 ) (10 ) (63 ) (6 ) (113 ) (10 ) (81 ) (7 ) — — 636 55 — — — — (10 ) — 4 — 13 1 $ 878 76 % $ 140 13 % $ 229 20 % For the Years Ended December 31, 2021 2020 2019 Federal income tax provision at statutory rate $ 664 21 % $ 549 21 % $ 343 21 % State taxes, net of federal benefit 67 2 43 2 21 1 Research and development credits (81) (2) (70) (3) (38) (2) Foreign earnings taxed at different rates (120) (4) (93) (4) (118) (7) Foreign-derived intangible income (50) (1) (40) (2) (1) — Change in tax reserves 43 1 60 2 96 6 Audit settlements — — — — 54 3 Change in Tax Legislation (53) (2) (23) (1) — — Change in valuation allowance 11 — 35 2 11 — Intra-entity IP Transfer — — (31) (1) (230) (14) Other (16) — (11) — (8) — Income tax expense $ 465 15 % $ 419 16 % $ 130 8 % Company'sCompany’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, the relative amountsome of income earned by jurisdiction, and the jurisdictions withwhich have a statutory tax rate less than the U.S. rate and the relative amount of 35%. On December 22, 2017,income earned in each jurisdiction.U.S. Tax Reform Act was enacted.U.K., aligning the ownership of these rights with our evolving business. The U.S. Tax Reform Act, among other things, reducedtransfer did not result in a taxable gain; however, our U.K. subsidiary received a step-up in tax basis based on the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax"). On December 22, 2017, the SEC staff issued SAB 118, which provides guidance on how to account for the effectsfair value of the U.S. Tax Reform Act under ASC 740. SAB 118 enables companies to record a provisional amount for the effects of the U.S. Tax Reform Acttransferred intellectual property rights. Such fair value was determined based on a reasonable estimate, subject to adjustment during a measurement periodour expectations of up to one year, until accounting is complete.provisional amountone-time benefit of $230 million in the quarter ended December 31, 2019 for the effectsrecognition of the U.S. Tax Reform Act based on a reasonable estimate$1.1 billion deferred tax asset in the fourth quarter of 2017 resulting in a charge of $636 million. This includes current tax expense of $555 millionU.K. related to the Transition Tax, which is payableamortizable tax basis in the transferred intellectual property, net of uncertain tax positions and a valuation allowance, partially offset by a related $920 million deferred tax liability for U.S. taxes on foreign earnings. The U.K. amortizable tax basis will be recovered over eighta period of three years to 25 years and the related deferred tax expenseasset was measured using the enacted U.K. corporate tax rates for the years in which the amortization will be realized. We recorded a valuation allowance of $81$110 million in 2019 for the portion of the deferred tax asset for which it is more-likely-than-not that a benefit will not be realized. During the year ended December 31, 2021, we recognized a one-time net benefit of $53 million from remeasuring this deferred tax asset due to the enactment of a change in the UK corporate tax rate. We will update the measurement and realizability analysis going forward and record the impact from any change in determination in the period of the change.the remeasurement of deferred taxes resulting from the U.S. corporate income tax rate reduction. Accounting for the income tax effects of the U.S. Tax Reform Act requires complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the U.S. Tax Reform Act will be applied or otherwise administered that is different fromthese rights with our interpretation. We may make adjustments to the provisional amounts as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued, and consider the effects of any additional actions we may take asevolving business activities. As a result, a significant portion of the U.S. Tax Reform Act. We continue to analyze the prospective effectsthese earnings began qualifying for preferential treatment as foreign-derived intangible income during 2020. The transfer resulted in a one-time benefit of the U.S. Tax Reform Act, including new provisions impacting certain foreign income, such as GILTI, BEAT, and FDII, potential limitations on interest expense deductions, and changes to the provisions of Section 162(m) of the Internal Revenue Code, among other provisions of the U.S. Tax Reform Act.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)15. Income Taxes (Continued) In 2013,$31 million in connection with the October 11, 2013 repurchaseremeasurement of approximately 429 million sharesa U.S. deferred tax asset related to foreign earnings. our common stock ("Purchase Transaction"), we assumed certain tax attributes, generally consisting of net operating loss ("NOL") carryforwards of approximately $760 million, which represent a potentialelections and comparable changes the Company intends to include in its 2021 income tax benefit of approximately $266 million. The Company also obtained indemnification from Vivendi against losses attributablereturns and related statutory filings. To take these actions, the Merger Agreement requires Microsoft’s approval (which may not be unreasonably withheld, conditioned, or delayed), subject to the disallowance of claimed utilization of such NOL carryforwards of upcertain exceptions. Failure to $200 million in unrealizedobtain this approval could have an adverse effect on our income tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction. As of December 31, 2017, we had utilized approximately $760 million of the original NOL and had recorded an indemnification asset of $200 million in "Other assets." Correspondingly, the same amount was recorded as a reduction to the consideration paid for the shares repurchased in "Treasury stock." In each of the years ended December 31, 2017, 2016, and 2015, we utilized $103 million, $326 million, and $180 million of the NOL and recognized a corresponding reserve of $36 million, $114 million, and $63 million in each of those years ended, respectively. As of December 31, 2021 2020 Deferred tax assets: Deferred revenue $ 210 $ 274 Tax attributes carryforwards 143 123 Share-based compensation 46 51 Intangibles 1,458 1,287 Capitalized software development expenses — 21 Other 141 160 Deferred tax assets 1,998 1,916 Valuation allowance (278) (228) Deferred tax assets, net of valuation allowance 1,720 1,688 Deferred tax liabilities: Intangibles (158) (147) Capitalized software development expenses (10) — U.S. deferred taxes on foreign earnings (603) (577) Other (78) (63) Deferred tax liabilities (849) (787) Net deferred tax assets $ 871 $ 901 As of December 31, 2017 2016 $ 47 $ 64 5 9 26 25 245 233 60 48 11 10 59 61 149 111 22 24 39 28 663 613 — — 663 613 (146 ) (219 ) (19 ) (60 ) (55 ) (91 ) (5 ) (4 ) (225 ) (374 ) $ 438 $ 239 2017,2021, we had gross tax credit carryforwards of $152$263 million for state purposes. The tax credit carryforwards are presentedincluded in "Deferreddeferred tax assets"assets net of unrealized tax benefits thatACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)15. Income Taxes (Continued)NOLnet operating loss carryforwards of $33$11 million at December 31, 2017, attributed mainly to losses in France2021, most of which can be carriedcarry forward indefinitely. our deferred tax assets including net operating losses and tax credits, to determine ifeach period for recoverability. We record a valuation allowance is required. We assess whether a valuation allowance shouldfor assets that do not meet the threshold of “more likely than not” to be established or releasedrealized in the future. To make that determination, we evaluate the likelihood of realization based on the considerationweight of all availablepositive and negative evidence using a "more-likely-than-not" standard. Realization of the U.S. deferred tax assets is dependent upon the continued generation of sufficient taxable income. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization is not assured, management believes it is more likely than not that the net carrying value of the U.S. deferred tax assets will be realized. At December 31, 2017 and 2016, there are no valuation allowances on deferred tax assets.2017,2021 and December 31, 2020, we no longer consider the available cash balancesmaintained a valuation allowance related to undistributed earningsour California research and development credit carryforwards of our most significant foreign subsidiaries to be indefinitely reinvested. As$118 million and $107 million, respectively. We will reassess this determination quarterly and record a resulttax benefit if and when future evidence allows for a partial or full release of this valuation allowance.U.S. Tax Reform Act, we continue to assess and may change our intentionsU.K. deferred tax asset related to previously transferred intellectual property rights and corresponding U.S. deferred tax liability due to the indefinite reinvestment assertion. Any impact resulting from such a change in this assertionthe U.K.'s corporate income tax rate during 2021. As of December 31, 2021, the SAB 118 measurement period will be recorded as an adjustment toU.K. deferred tax asset net of valuation allowance is $1.2 billion and the provisional amount recorded for the effects of thecorresponding U.S. Tax Reform Act in the period in which such determinationdeferred tax liability is made.Blizzard'sBlizzard’s tax years 2009 through 2016after 2008 remain open to examination by thecertain major taxing jurisdictions to which we are subject. The IRSInternal Revenue Service is currently examining the Company'sour federal tax returns for the 20092012 through 20112019 tax years. 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 and during February 2018,through a collaborative multilateral process with the Company was notified that our tax returns for 2012 through 2016 tax years will be subject to examination. The Company also has several state and non-U.S. audits pending. In addition, as part of purchase price accounting for the King Acquisition, the Company assumed $74 million of uncertain tax positions primarily related to the transfer pricing on King tax years occurring prior to the King Acquisition. The Company is currentlyauthorities in negotiations with the relevant jurisdictions, which include the U.K. and taxing authorities with respect to King's transfer pricing, whichSweden. While the outcome of this process remains uncertain, it could result in a differentan agreement that changes the allocation of profits and losses between thethese and other relevant jurisdictions. On December 28, 2017, we receivedjurisdictions or a Notice of Reassessment from the French Tax Authority ("FTA") relatedfailure to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In additionreach an agreement that results in unilateral adjustments to the riskamount and timing of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or iftaxable income in the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.Company'sCompany’s consolidated financial position, liquidity, or results of operations in the earlier of the period or periods in which the matters are resolved orand in which appropriate tax provisions are taken into account in our financial statements. If we were to receive aACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)15. Income Taxes (Continued)2017,2021, we had approximately $1,138 million$1.3 billion of gross unrecognized tax benefits, $784 million of which $1,114 million would affect our effective tax rate, if recognized. A reconciliation of total gross unrecognized tax benefits is as follows (amounts in millions): For the Years Ended
December 31, 2017 2016 2015 $ 846 $ 552 $ 419 66 89 8 — (17 ) (11 ) 229 240 136 (1 ) (18 ) — (2 ) — — $ 1,138 $ 846 $ 552 For the Years Ended December 31, 2021 2020 2019 Unrecognized tax benefits balance at January 1 $ 1,166 $ 1,037 $ 926 Gross increase for tax positions taken during a prior year 98 97 151 Gross decrease for tax positions taken during a prior year (18) (1) (168) Gross increase for tax positions taken during the current year 52 38 291 Settlement with taxing authorities (6) (3) (163) Lapse of statute of limitations (3) (2) — Unrecognized tax benefits balance at December 31 $ 1,289 $ 1,166 $ 1,037 20172021, 2020, and 2016,2019, we had approximately $121$102 million, $93 million, and $71$72 million, respectively, of accrued interest and penalties related to uncertain tax positions. For the yearyears ended December 31, 2017, 2016,2021, 2020, and 2015,2019, we recorded $28$11 million, $17$19 million, and $10$14 million, respectively, of interest expense related to uncertain tax positions.Company'sCompany’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company'sCompany’s management, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company'sCompany’s consolidated financial position, liquidity or results of operations, except as noted above.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)16. For the Years Ended
December 31, 2017 2016 2015 $ 273 $ 966 $ 892 — (2 ) (4 ) — (2 ) (7 ) $ 273 $ 962 $ 881 754 740 728 12 14 11 766 754 739 $ 0.36 $ 1.30 $ 1.21 $ 0.36 $ 1.28 $ 1.19 For the Years Ended December 31, 2021 2020 2019 Numerator: Consolidated net income $ 2,699 $ 2,197 $ 1,503 Denominator: Denominator for basic earnings per common share—weighted-average common shares outstanding 777 771 767 Effect of dilutive stock options and awards under the treasury stock method 7 7 4 Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method 784 778 771 Basic earnings per common share $ 3.47 $ 2.85 $ 1.96 Diluted earnings per common share $ 3.44 $ 2.82 $ 1.95 Certain of our unvested restricted stock units meet the definition of participating securities as they participate in earnings based on their rights to dividends or dividend equivalents. Therefore, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the years ended December 31, 2017, 2016, and 2015, on a weighted-average basis, we had outstanding unvested restricted stock units of less than 1 million, 3 million, and 8 million shares of common stock, respectively, that are participating in earnings.and options areis contingent upon the satisfaction of pre-definedpredefined performance measures. The shares underlying these equity awards are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Approximately 7 million, 8 million, and 3 million shares are not included in the computation of diluted earnings per common share for the years ended December 31, 2017, 2016, and 2015, respectively, as their respective performance measures had not yet been met. PotentialAdditionally, potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive. Therefore, options to acquire 1 million, 5 million, and 1 millionof common stock were not included inexcluded from the calculationcomputation of diluted earnings per common share for the years ended December 31, 2017, 2016, and 2015, respectively,were as the effect of their inclusion would be anti-dilutive.follows (amounts in millions):ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)17.For the For the Years Ended December 31, 2021 2020 2019 Restricted stock units with performance measures not yet met 2 2 2 Anti-dilutive employee stock options 2 1 6 February 2, 2017,January 27, 2021, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1$4 billion of our common stock during the two-year period from February 14, 2021 until the earlier of February 13, 2017 through February 12, 2019.2023 and a determination by the Board of Directors to discontinue the repurchase program. As of the date hereof,December 31, 2021, we havehad not repurchased any shares under this program and the determination as to if and when we makeare restricted from making any such stock repurchases will be dependent on market conditionsduring the period between the execution of the Merger Agreement with Microsoft and other factors.1, 2018,3, 2022, our Board of Director approvedDirectors declared a cash dividend of $0.34$0.47 per common share. Such dividend is payable on May 9, 2018,6, 2022 to shareholders of record at the close of business on March 30, 2018.2, 2017,4, 2021, our Board of Directors approveddeclared a cash dividend of $0.30$0.47 per common share. On May 10, 2017,6, 2021, we made an aggregate cash dividend payment of $226$365 million to shareholders of record at the close of business on April 15, 2021.30, 2017. On May 26, 2017, we made related dividend equivalent payments of less than $1 million to certain holders of restricted stock units. On February 2, 2016, our Board of Directors approved a cash dividend of $0.26 per common share. On May 11, 2016, we made an aggregate cash dividend payment of $192 million to shareholders of record at the close of business on March 30, 2016. On May 27, 2016, we made related dividend equivalent payments of $3 million to certain holders of restricted stock units. On February 3, 2015, our Board of Directors approved a cash dividend of $0.23 per common share. On May 13, 2015, we made an aggregate cash dividend payment of $167 million to shareholders of record at the close of business on March 30,2015. On May 29, 2015, we made related dividend equivalent payments of $3 million to certain holders of restricted stock units.18. Supplemental Cash Flow Information Supplemental cash flow information is as follows (amounts in millions): For the Years Ended
December 31, 2017 2016 2015 $ 176 $ 121 $ 20 145 209 193 For the year ended December 31, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition. Refer to Note 20 for further discussion.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)19.22. Commitments and Contingenciesand for thewhich may include obtaining rights to intellectual property.property, and for hosting services to support our games and our administrative functions. Under these agreements, we commit to provide specified payments to a lessor, developer, or intellectual property holder,hosting provider, as the case may be, based upon contractual arrangements. The payments to third-party developers are generally conditioned upon the achievement by the developers of contractually specified development milestones. Further, these payments to third-party developers and intellectual property holders typically are deemed to be advances and, as such, are recoupable against future royalties earned by the developer or intellectual property holder based on sales of the related game. Additionally, we also enter into arrangements in connection with certain intellectual property rights, acquisitions and development agreements,which we commit to spend specified amounts for marketing to support for the game(s) which is (are) to be developed or in which the intellectual property will be utilized.and promote our content and services. Assuming all contractual provisions are met, the total future minimum commitments for these and other contractual arrangements in place at December 31, 20172021, are scheduled to be paid as follows (amounts in millions): Contractual Obligations(1) Facility and
Equipment
Leases Developer and
Intellectual
Properties Marketing Long-Term
Debt
Obligations(2) Total $ 81 $ 202 $ 19 $ 159 $ 461 70 2 — 159 231 61 1 — 159 221 48 — — 1,790 1,838 41 — — 512 553 88 — — 3,064 3,152 $ 389 $ 205 $ 19 $ 5,843 $ 6,456 Contractual Obligations (1) Facility and
Equipment
LeasesDeveloper and Hosting Marketing Long-Term Debt Obligations (2) Total For the years ending December 31, 2022 $ 86 $ 149 $ 167 $ 105 $ 507 2023 81 104 115 105 405 2024 64 12 — 105 181 2025 43 — — 105 148 2026 21 — — 955 976 Thereafter 15 — — 4,102 4,117 Total $ 310 $ 265 $ 282 $ 5,477 $ 6,334 2017,2021, we had $455 million and $495$483 million of net unrecognized tax benefits included in "Accrued expenses and other liabilities" and "Other“Other liabilities," respectively,” in our consolidated balance sheet.asat December 31, 2021, we have a resultremaining net Transition Tax liability of $142 million associated with the U.S. Tax Reform Act, we recorded a liability at December 31, 2017, of $467 million which reflects our estimated Transition Tax net payments. This provisional amount is subject to change as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued.Act. The remaining Transition Tax liability is payable over up to eightthe next five years and is not reflected in our Contractual Obligations table above. We expect to pay $77 million of the Transition Tax during 2018.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)19. Commitments and Contingencies (Continued)under the 2017 TLA and the Notesfor our outstanding unsecured notes, which are subject to fixed interest rates, as of December 31, 2017.2021. There was no outstanding balance under our Revolver as of December 31, 2017. The Notes are subject to fixed interest rates and we have calculated the interest obligation based on the applicable rates and payment dates. The 2017 TLA bears a variable interest rate and interest is payable at least quarterly.2021. We have calculated the expected interest obligation based on the outstanding principal balance and interest rate applicable at December 31, 2017.2021. Refer to Note 1113 for additional information on our debt obligations. As described in Note 15, on December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities. In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant, and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.Purchase Transaction We are also party to the proceedings set forth below.prior periods,addition, the Company’s Board of Directors recently received notice of an investigation by the DFEH and investigatory subpoenas.reportedand five current or former officers. Beginning on litigationAugust 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. 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 thirteen current or former officers 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 DFEH Matter and in the securities class action. The Company is named as a nominal defendant. In addition, the plaintiffs in the Kahnert action have sought leave to amend their complaint to assert putative class claims for breach of fiduciary duty against the Company’s directors in connection with the proposed acquisition by Microsoft, along with an aiding and abetting claim against Microsoft.Purchase Transaction. During the period ended June 30, 2015, the cases were resolved and dismissed with prejudice. As partconsummation of the resolution of the claims, we received a settlement payment of $202 million in July 2015 from Vivendi, ASAC LP, and our insurers. We recorded the settlement within "Shareholders' equity" in our consolidated balance sheet as of December 31, 2015.11,13, a portion of our Revolver can be used to issue letters of credit of up to $50 million, subject to the availability of the Revolver. At December 31, 2017,2021, we did not have any letters of credit issued or outstanding under the Revolver.Notes to Consolidated Financial Statements (Continued)20. AcquisitionsKing Digital Entertainment On February 23, 2016, we completed the King Acquisition, purchasing all of its outstanding shares. As a result, King became a wholly-owned subsidiary of Activision Blizzard. King is a leading global developer and publisher of interactive entertainment content and services, particularly on mobile platforms, such as Android and iOS, and on online and social platforms, such as Facebook and the king.com websites. King's results of operations since the King Closing Date are included in our consolidated financial statements. We made this acquisition because we believed that the addition of King's highly-complementary mobile business positioned the Company as a global leader in interactive entertainment across console, PC, and mobile platforms, and aligned us for future growth. The aggregate purchase price of the King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. We identified and recorded assets acquired and liabilities assumed at their estimated fair values at the King Closing Date, and allocated the remaining value of approximately $2.7 billion to goodwill. The final purchase price allocation was as follows (in millions): February 23,
2016 Estimated
useful lives $ 1,151 162 72 57 2 - 7 years 27 47 (9 ) (272 ) (110 ) (52 ) 845 3 - 5 years 609 2 years 580 3 - 4 years 46 7 years 2,675 $ 5,828 During the year ended December 31, 2016, the Company incurred $38 million of expenses related to the King Acquisition, which are included within "General and administrative" in the consolidated statements of operations. In connection with the debt financing that occurred on the King Closing Date, we incurred $38 million of discounts and financing costs that were capitalized and recorded within "Long-term debt, net" on our consolidated balance sheet. The amortization of these capitalizedACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)20. Acquisitions (Continued)costs was not material to our consolidated statement of operations for the year ended December 31, 2016.Share-Based Compensation In connection with the King Acquisition, a majority of the outstanding King options and other equity awards that were unvested as of the King Closing Date were converted into equivalent options and awards with respect to shares of the Company's common stock, using an equity award exchange ratio calculated in accordance with the transaction agreement. As a result, replacement options and other equity awards of 10 million and 3 million, respectively, were issued. The portion of the fair value related to pre-combination services of $76 million was included in the purchase price, while the remaining fair value will be recognized over the remaining service periods. As of December 31, 2016, the future expense for the converted King unvested stock options and equity awards was approximately $40 million, which will be recognized over a weighted average service period of approximately 1.6 years. The remaining portion of outstanding unvested awards that were assumed were replaced with deferred cash awards. The cash proceeds were placed in an escrow-like account with the cash releases to occur based on the awards' original vesting schedule upon future service being rendered. The cash associated with these awards is recorded in "Other current assets" and "Other assets" in our consolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in the purchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods.Identifiable Intangible Assets Acquired and Goodwill The internally-developed franchises, customer base, developed software, and trade name intangible assets from the acquisition of King will be amortized to "Cost of revenues—subscription, licensing, and other revenues—Software royalties, amortization, and intellectual property licenses," "Sales and marketing," "Cost of revenues—subscription, licensing, and other revenues—Software royalties, amortization, and intellectual property licenses," and "General and administrative," respectively. The intangible assets will be amortized over their estimated useful lives in proportion to the economic benefits received. The $2.7 billion of goodwill recognized is primarily attributable to the benefits the Company expects to derive from accelerated expansion as an interactive entertainment provider in the mobile sector, future franchises, and technology, as well as the management team's proven ability to create future games and franchises. Approximately $620 million of the goodwill is expected to be deductible for tax purposes in the U.S.King Net Revenue and Earnings The amount of net revenue and earnings attributable to King in the Company's consolidated statement of operations during the year ended December 31, 2016, the period of the King Acquisition, are included in the table below. The amounts presented represent the net revenues and earnings afterACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)20. Acquisitions (Continued)adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferrals of revenues and related cost of revenues.(in millions) For the Year
Ended
December 31, 2016 $ 1,523 $ (230 ) Pro Forma Financial Information The unaudited financial information in the table below summarizes the combined results of operations of the Company and King, on a pro forma basis, as though the acquisition had occurred on January 1, 2015. The 2016 pro forma financial information presented includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition and the profit sharing bonus plan established as part of the King Acquisition, and interest expense from the new debt issued in connection with the King Acquisition, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition-related costs of approximately $74 million incurred for the year ended December 31, 2016. The 2015 pro forma financial information for the year ended December 31, 2015 were adjusted to include these charges. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the King Acquisition, and any borrowings undertaken to finance the King Acquisition, had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results. For the Year
Ended
December 31, (in millions) 2016 2015 $ 6,888 $ 6,677 $ 1,005 $ 639 $ 1.35 $ 0.87 $ 1.32 $ 0.85 21. Recently Issued Accounting PronouncementsRecently adopted accounting pronouncementsInventory In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new standard as of January 1, 2017, and applied it prospectively. The adoption of this guidance did not have a material impact on our financial statements.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)21. Recently Issued Accounting Pronouncements (Continued)Recent accounting pronouncements not yet adoptedRevenue recognition In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for us beginning with the first quarter of 2018. We are adopting the accounting standard using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date. We will report our adoption in our Form 10-Q for the first quarter of 2018. The most significant impacts of the new revenue recognition standard are expected to be:•The accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated service period. We expect this difference to primarily impact revenues from our Call of Duty franchise, where we expect that approximately 20% of the sales price will be recognized as revenue upon delivery of the games to our customers. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are online hosted arrangements, and we do not expect any significant impact on the accounting for our sales of these games; and•The accounting for certain of our software licensing arrangements. While the impacts of the new standard may differ on a contract-by-contract basis (the actual revenue recognition treatment required under the standard will depend on contract-specific terms), we generally expect earlier revenue recognition for these arrangements under the new revenue standard. We estimate that the cumulative effect of adopting this standard will result in an adjustment to retained earnings at the adoption date of approximately $60 million to $100 million, inclusive of the associated tax impacts. Additionally, we expect that the new disclosure requirements will require us to design and implement additional internal controls over financial reporting, and we are in process of adjusting our processes and internal controls in preparation for adopting the new standard.Leases In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease, and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease incentives received, and any prepaid lease payments. Operating leases will result in a straight-line expense pattern, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current leaseACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)21. Recently Issued Accounting Pronouncements (Continued)accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented, with certain transition practical expedients available to provide relief in adopting the new standard. We are evaluating the impact of this new accounting guidance on our financial statements. Currently, we do not plan to early adopt this new standard but we do expect to elect and apply the available transition practical expedients upon adoption.Financial Instruments In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial liabilities. The new standard, among other things, generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard also simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard is effective for fiscal years beginning after December 15, 2017, and the guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. Based on our current financial instruments held, we do not anticipate this new guidance will have a material impact on our financial statements.Statement of Cash Flows—Restricted Cash In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be included with "Cash and cash equivalents" when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there will be a significant impact to the consolidated statements of cash flows for the years ended December 31, 2015 and 2016, as those years include, as an investing activity, the $3.6 billion movement in restricted cash as a result of transferring cash into escrow at December 31, 2015 to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King Acquisition. Under this new standard, the restricted cash balance will be included in the beginning and ending total cash, cash equivalents, and restricted cash balances and hence would not be included as an investing activity in the statement of cash flows.Goodwill In January 2017, the FASB issued new guidance which eliminates Step 2 from the goodwill impairment test. Instead, if any entity forgoes a Step 0 test, an entity will be required to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit, asACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)21. Recently Issued Accounting Pronouncements (Continued)determined in Step 1 from the goodwill impairment test, with its carrying amount and recognize an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. We are evaluating the impact, if any, of adopting this new accounting guidance on our consolidated financial statements.Derivatives and Hedging In August 2017, the FASB issued new guidance related to the accounting for derivatives and hedging. The new guidance expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of a hedge's effectiveness. The new standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. If early adopted, the new standard must generally be applied as of the beginning of the fiscal year of adoption. We are evaluating the impact of this new accounting guidance on our financial statements and related disclosures. We expect, based on our current outstanding derivative instruments, the new guidance will not have a material impact on our financial statements.22. Quarterly Financial Information (Unaudited) For the Quarters Ended December 31,
2017 September 30,
2017 June 30,
2017 March 31,
2017 (Amounts in millions, except per share data) $ 2,043 $ 1,618 $ 1,631 $ 1,726 803 552 561 585 221 257 339 493 (584 ) 188 243 426 (0.77 ) 0.25 0.32 0.57 (0.77 ) 0.25 0.32 0.56 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)22. Quarterly Financial Information (Unaudited) (Continued) For the Quarters Ended December 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 (Amounts in millions, except per share data) $ 2,014 $ 1,568 $ 1,570 $ 1,455 776 529 598 491 425 294 232 461 254 199 151 363 0.34 0.27 0.20 0.49 0.33 0.26 0.20 0.48 (1)During the third quarter of 2016, we early adopted an accounting standard which simplifies the accounting for share-based payments. The standard, among other things, requires all excess tax benefits and tax deficiencies to be recorded as an income tax expense or benefit in the consolidated statement of operations. The adoption of the standard impacted our previously reported results for the quarters ended June 30, 2016 and March 31, 2016. As a result of the adoption of this standard, our net income, basic earnings per common share, and diluted earnings per common share increased by $24 million, $0.03, and $0.03, respectively, for the quarter ended June 30, 2016, and $27 million, $0.04, and $0.03, respectively, for the quarter ended March 31, 2016.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS Col. B
Balance at
Beginning of
Period Col. C
Additions(A) Col. D
Deductions(B) Col. E
Balance at End
of Period $ 257 $ 83 $ (66 ) $ 274 4 1 — 5 $ 339 $ 119 $ (201 ) $ 257 4 2 (2 ) 4 $ 379 $ 114 $ (154 ) $ 339 4 1 (1 ) 4 Col. A Description Col. B
Balance at
Beginning of
PeriodCol. C
Additions(A)Col. D
Deductions(B)Col. E
Balance at End
of PeriodAt December 31, 2021 Allowances for sales returns and price protection and other allowances $ 63 $ 3 $ (49) $ 17 Valuation allowance for deferred tax assets $ 228 $ 52 $ (2) $ 278 At December 31, 2020 Allowances for sales returns and price protection and other allowances $ 118 $ (29) $ (26) $ 63 Valuation allowance for deferred tax assets $ 181 $ 49 $ (2) $ 228 At December 31, 2019 Allowances for sales returns and price protection and other allowances $ 186 $ 11 $ (79) $ 118 Valuation allowance for deferred tax assets $ 61 $ 127 $ (7) $ 181 doubtful accountsvaluation allowance for deferred tax assets due to normal reserving terms.uncollectible accounts receivable, netreleases of recoveries,income tax valuation allowances and foreign currency translation and other adjustments.(i)(1) may have been qualified by disclosures made to such other party or parties, (ii)(2) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company'sCompany’s public disclosure, (iii)(3) may reflect the allocation of risk among the parties to such agreements, and (iv)(4) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the Company'sCompany’s actual state of affairs at the date hereof and should not be relied upon.Exhibit Number Exhibit 2.1 3.13.1
3.23.2
4.14.1Indenture, dated as of September 19, 2013, among Activision Blizzard, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K, filed September 19, 2013).4.2
4.24.3
4.34.4
4.44.54.5
4.64.6
4.74.74.8
4.910.1*
4.1010.2*10.1* 10.22* Exhibit NumberExhibit10.23* 10.39*
10.24*10.40*10.25*
10.26*10.41*10.27* 10.28* 10.29* Exhibit NumberExhibit21.1Subsidiaries of the Company.
23.123.1
24.124.1
31.131.1
31.231.2
32.132.1
32.232.2
101.INS101.INS
Inline XBRL Instance Document.Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH101.SCH
Inline XBRL Taxonomy Extension Schema Document.
Exhibit Number101.CAL
Exhibit101.CAL Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB101.LAB
Inline XBRL Taxonomy Label Linkbase Document.
101.PRE101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document.
101.DEF101.DEF
Inline XBRL Taxonomy Extension Definition Document.104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). †Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.SIGNATUREActivision Blizzard, Inc.the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.27, 2018ACTIVISION BLIZZARD, INC.
By:
/s/ ROBERT A. KOTICKSpencer NeumannArmin Zerza and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his, her, or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.By:/s/ ROBERT A. KOTICK(Robert A. Kotick)Director,Chief Executive Officer, andPrincipal Executive OfficerFebruary 27, 2018By:/s/ SPENCER NEUMANN(Spencer Neumann)Chief Financial Officer andPrincipal Financial OfficerFebruary 27, 2018By:/s/ STEPHEN WEREB(Stephen Wereb)Deputy Chief Financial Officer,Chief Accounting Officer, andPrincipal Accounting OfficerFebruary 27, 2018By:/s/ REVETA BOWERS(Reveta Bowers)DirectorFebruary 27, 2018By: Director, Chief Executive Officer (Principal Executive Officer) February 25, 2022 (Robert A. Kotick) By: /s/ ARMIN ZERZA Chief Financial Officer
(Principal Financial Officer)February 25, 2022 (Armin Zerza) By: /s/ JESSE YANG Chief Accounting Officer
(Principal Accounting Officer)February 25, 2022 (Jesse Yang) By: /s/ REVETA BOWERS Director February 25, 2022 (Reveta Bowers) By: /s/ ROBERT J. CORTI Director February 25, 2022 (Robert J. Corti) DirectorFebruary 27, 2018
By:/s/ BRIAN G. KELLY(Brian G. Kelly)Chairman and DirectorFebruary 27, 2018By:
/s/ HENDRIK J. HARTONG IIIDirector February 25, 2022 (Hendrik J. Hartong III) DirectorFebruary 27, 2018
By:
/s/ BRIAN G. KELLY
Chairman of the Board and DirectorFebruary 25, 2022 (Brian G. Kelly) By: /s/ BARRY MEYER Director February 25, 2022 (Barry Meyer) DirectorFebruary 27, 2018
By:/s/ /s/ ROBERT J. MORGADODirector February 25, 2022 (Robert J. Morgado) DirectorFebruary 27, 2018
By:/s/ /s/ PETER NOLANDirector February 25, 2022 (Peter Nolan) DirectorFebruary 27, 2018
By:
/s/ DAWN OSTROFFDirector February 25, 2022 (Dawn Ostroff) By: /s/ CASEY WASSERMAN Director February 25, 2022 (Casey Wasserman) DirectorFebruary 27, 2018By:/s/ ELAINE P. WYNN(Elaine P. Wynn)DirectorFebruary 27, 2018