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Activision Blizzard, Inc.
3100 Ocean Park Boulevard
Santa Monica, California 90405
activisionblizzard.com
2019 Annual Report
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To Our Shareholders
We are writing this letter at a time when societies
around the world are facing terrible disruption from
the spread of the coronavirus. Events are unfolding
quickly, but the virus has already exacted a tragic
toll among those directly exposed and caused
significant hardship for so many. Our first priority is
always the safety and well-being of our employees
and their families and we are committed to their
health and safety.
Corporate Information
Board of Directors
Officers
Annual Meeting
Domestic Offices
Reveta Bowers
Independent Governance and
Organizational Consultant
Robert A. Kotick
Chief Executive Officer,
Activision Blizzard
June 11, 2020, 9:00 am PDT
Boston Properties Offices
3200 Ocean Park Boulevard
Santa Monica, California 90405
Annual Report
on Form 10-K
Activision Blizzard’s Annual
Report on Form 10-K for the
year ended December 31, 2019,
is available to shareholders
without charge, upon request,
by calling our Investor Relations
department at (310) 255-2000
or by mailing a request to our
Corporate Secretary at our
corporate headquarters.
Non-incorporation
Portions of the Company’s 2019
Form 10-K, as filed with the
SEC, are included within this
Annual Report. Other than these
portions of the Form 10-K, all
other portions of this Annual
Report are not “filed” with the
SEC and shall not be deemed so.
Robert J. Corti
Retired Chief Financial Officer,
Avon Products
Hendrik J. Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners
Brian G. Kelly
Chairman of the Board,
Activision Blizzard
Robert A. Kotick
Chief Executive Officer,
Activision Blizzard
Barry Meyer
Retired Chairman and
Chief Executive Officer,
Warner Bros. Entertainment
Robert J. Morgado
Lead Independent Director,
Activision Blizzard
Former Chairman and
Chief Executive Officer,
Warner Music Group
Peter Nolan
Senior Advisor,
Leonard Green & Partners
Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman
Elaine Wynn
Co-founder,
Wynn Resorts
Daniel Alegre
President and Chief
Operating Officer,
Activision Blizzard
Dennis Durkin
Chief Financial Officer
and President of
Emerging Businesses,
Activision Blizzard
Claudine Naughton
Chief People Officer,
Activision Blizzard
Chris Walther
Chief Legal Officer,
Activision Blizzard
Special Advisors
Collister Johnson
Special Advisor to the CEO,
Activision Blizzard
Thomas Tippl
Vice Chairman,
Activision Blizzard
Transfer Agent
Broadridge Corporate
Issuer Solutions
(800) 685-4509
Auditor
PricewaterhouseCoopers LLP
Los Angeles, California
Corporate Headquarters
Activision Blizzard, Inc.
3100 Ocean Park Boulevard
Santa Monica, CA 90405
(310) 255-2000
Worldwide Website
www.activisionblizzard.com
E-mail
IR@activisionblizzard.com
Design: AndraDesignStudio.com
Printer: DG3 | Diversified Global Graphics Group
© Copyright 2020 Activision Blizzard, Inc.
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Amidst this turbulent backdrop, we are inspired and
of our large and growing communities. By increasing our
heartened by the fact that interactive entertainment is
investment in our biggest franchises, we are staying true to
bringing solace, joy and companionship to countless players
the approach of doing a few things very well, an approach
around the world. Throughout human history, games of all
that has driven much of our company’s historic success.
forms have brought people together to compete, team up
We also began removing complexity, bureaucracy and
and socialize. Many such activities have been curtailed as a
duplication of effort across our business units, and we
result of the pandemic, but we are fortunate to still be in a
adjusted our commercial operations to better reflect the
position to enable some of the world’s best entertainment
industry shift to digital sales. In doing so, we established the
experiences through our direct digital connection to
building blocks to continue generating sustainable, long-
hundreds of millions of people. Our mission is to connect
term growth for our shareholders.
and engage the world through epic entertainment, and we
believe our games have been helping our communities
2019 was a year of transition and investment for the
manage through an incredibly challenging time.
company. We demonstrated meaningful progress in
our growth initiatives for some of our most important
Since 1991, when we purchased our stake in the company
franchises, and we exited the year with momentum
and were given the privilege of managing it, the company’s
throughout the company. Our work delivered step changes
book value per share has grown at a compound annual rate
in reach and engagement for two of our biggest franchises,
of 30%. If you had invested $1,000 in our company 20 years
Call of Duty and World of Warcraft, which further adds to
ago, your investment would have been worth $51,620 at the
our confidence that we are pursuing the right course of
end of 2019, 16 times more than the S&P 500’s $3,242 over
action across our entire portfolio.
the same period.
Our creative teams are working on the biggest pipeline of
Delivering this level of long-term performance in a dynamic
new content in our history. And our commercial teams are
industry requires both a constant commitment to providing
exploring new business models and distribution channels to
superior returns to our shareholders and a willingness
ensure this content reaches even more players in the future.
to transform the business during pivotal periods in its
While some of these initiatives will need more time to bear
history. For Activision Blizzard, 2019 was such a period.
fruit, we see a clear path to unlock the vast potential within
We delivered net bookings1 of $6.4 billion, operating cash
our portfolio of fully owned intellectual property, delivering
flow of $1.8 billion, and non-GAAP EPS of $2.31 (it is
the growth and superior financial performance that our
important to understand the meaning of these terms and
stakeholders rightly expect.
how non-GAAP EPS reconcile to GAAP, and we explain this
in the tables at the end of this Annual Report). Our top and
Pointers To The Future
bottom-line results were down significantly from our prior
year performance, even though our industry grew during
Gamers are playing fewer games for longer, and we are
the same period. This isn’t the level of excellence we have
fortunate to fully own some of the most popular franchises
maintained for most of the last 30 years we have managed
in the world, including Call of Duty, Candy Crush, World of
the company. It is said, “Vision without execution is
Warcraft, Hearthstone, Overwatch and Diablo. Reflecting
hallucination”, and our 2019 results were impacted by poor
on 2019, we have seen early but improved returns from our
execution managing our content pipeline and not moving
increased investment in these franchises, including strong
quickly in the management of our costs. To address this, we
growth in reach, engagement and player investment for key
made important organizational changes to better position
content. These successes improved our financial results last
us for the continued delivery of games and better financial
year, but more importantly they highlight the potential and
performance, and we expect 2020 will begin to reflect the
future opportunities across our entire portfolio.
benefit of these changes.
In 2019, we increased investment and focus on our biggest
franchises and opportunities, in the service of delivering
1 Net bookings is an operating metric that is defined as the net amount of products
and services sold digitally or sold-in physically in the period, and includes license
more high-quality content faster, to meet the expectations
fees, merchandise, and publisher incentives, among others.
1
Activision 2019 AR LETTER | Andra Design Studio | Wednesday, April 8, 2020 12:30 PM PST
Mobile devices became our leading platform in 2019
action, role-playing and strategy games are particularly
following the October launch of Call of Duty: Mobile.
well-suited for mobile, making the combination of our
We see this successful launch as just the first phase in
globally-beloved IP and increasingly capable mobile devices
expanding our established console and PC franchises to
even more powerful. We intend to expand each of our
the largest and fastest growing gaming platform. The
most important console and PC franchises to mobile and
Call of Duty franchise has long been one of the most
expect the platform to be a significant growth driver for
successful in the entertainment industry, generating
the company in the coming years. With Diablo Immortal
more upfront sales on console than any other franchise
and new content from King planned to enter testing in the
worldwide for 10 of the last 11 years. But the franchise
coming quarters, we could not be more excited about the
reached unprecedented scale following the release of the
opportunities ahead.
mobile title, more than tripling its reach with over 150
million mobile downloads in the fourth quarter. The game
These mobile initiatives build on the leadership position
reached the top of the install charts in over 150 countries,
we already enjoy on the mobile platform through our King
reflecting Call of Duty’s global stature and awareness even
business. King’s Candy Crush Saga was once again the
in countries that we were previously unable to serve. And
top grossing title in the U.S. app stores last year and the
early monetization was strong, with the game entering the
Candy Crush franchise was again the top grossing franchise.
top 10 mobile grossing charts in over 100 countries.
Our advertising business continued to grow at a fast pace
with net bookings almost doubling year-over-year in 2019
Call of Duty continued to raise the bar on the core console
to over $150 million, as brands continued to embrace the
and PC platforms too, following the highly successful
opportunity to advertise within King’s large and highly
launch of Call of Duty: Modern Warfare in October.
engaged network. Again, this early success points to a much
We introduced some important changes with the title -
larger opportunity over the long term. We expect further
this is the first Call of Duty game in which the community
growth in the King ads business as we build our direct sales
can play with one another regardless of their console or
capability and create more competition for our inventory by
PC, and we are delivering major follow-on content to all
partnering with more ad agencies and networks. And having
players for free. Our intent was to create a single, large,
invested in building a scalable ad platform and expanding
highly-engaged community, delivering an even better
distribution, we are now pursuing opportunities to leverage
experience for our players while also creating more
these capabilities across other assets, including Call of Duty:
opportunity for investment in in-game items. The results
Mobile and our esports content.
were spectacular, with Modern Warfare recording strong
year-of-year growth in both unit sell-through and in-game
It was also a momentous year for World of Warcraft. Blizzard
net bookings in its launch quarter.
celebrated the 15th anniversary of World of Warcraft and
the 25th anniversary of the Warcraft IP by launching Classic,
And the first months of 2020 have seen us build on this
a recreation of the game as it all began 15 years ago. In
momentum even further. In March we expanded the Modern
the third quarter, World of Warcraft added more monthly
Warfare experience with Call of Duty: Warzone, a major
or longer-term subscribers than in any prior quarter in its
new way to enjoy this game that is cross-play enabled and
15-year history. And with strong retention, the franchise
free-to-play on console and PC. Warzone adds yet more
entered 2020 with great momentum, having doubled its
compelling content for our Modern Warfare community and
subscriber base in the second half of last year.
also enables an entire new set of players around the world
to experience Call of Duty for free. The response has been
The success of Classic highlighted how major releases can
excellent, with Warzone bringing in over 50 million players
invigorate our franchises, expand our communities and drive
in its first month and contributing to new highs in reach,
strong financial results. Last year, Blizzard unveiled more
engagement, and player investment for the franchise.
major content in its pipeline than ever before, including the
Call of Duty: Mobile’s success demonstrates the
Diablo, two of the biggest franchises in the industry. We
opportunity for many of our franchises to attract far bigger
intend these launches, along with other innovations across
audiences through the mobile platform. Our portfolio of
World of Warcraft and Hearthstone, to enable Blizzard to
eagerly anticipated next installments for Overwatch and
2
Activision 2019 AR LETTER | Andra Design Studio | Wednesday, April 15, 2020 9:30 AM PST deliver the consistent business growth that we know is
those friends traveled long distances to be by his side
possible in an industry with so many tailwinds.
and comfort him, making him forever appreciative of the
strength of the friendships forged through years of enjoying
We also continued to lead the way with our pioneering
Call of Duty together. They remain in touch through the
professional esports initiatives. While the early stage efforts
social experience of playing Call of Duty.
have shown promise, these are still incubation initiatives.
The results of these efforts will likely be volatile and
Stories like this are a powerful reminder of how our titles
lumpy, but over the long term they will help solidify the
can impact, inspire and unite people around the world,
enduring appeal of our franchises and set the foundation
empowering them to achieve amazing things through
for substantial shareholder value creation. The Overwatch
their shared love of gaming. Although we have only just
League enjoyed a successful second season, with U.S.
started to scratch the surface of what’s possible for social
average minute audience viewership growing over 30%
networking around our games, we are already connecting
versus the first season and absolute viewership among the
people around the world in extraordinary ways. We are
hard-to-reach 18-34 demographic surpassing both Major
committed to exploring innovative ways to bring our
League Soccer and Major League Baseball. We are confident
players closer together, further deepening the experience
that our differentiated approach of city-based teams,
for communities and in turn widening the moats around our
professional players, structured economics, and premium
largest franchises.
content is the right model for fans and team owners alike.
We are now bringing this approach to our new Call of Duty
Caring For Our People And Our Communities
League. We sold 12 teams ahead of the inaugural 2020
season, all at a premium to the initial Overwatch League
We aim to bring our key franchises to more players in
franchise sales, with ten of the teams sold to existing
more countries on more platforms than ever before. This
Overwatch League team owners. We have ambitious
aspiration shines a light on the truly global and diverse
plans for esports, but like any unproven, new enterprise,
nature of our community, and we firmly believe that it takes
professional esports is in its first inning and requires
a diverse and engaged team to serve such an audience.
continued investment and refinement.
Redefining Social Spaces
We have made great strides in introducing more ways for
our employees to engage in the causes they care about
most. For the first time in 2019 we launched employee
Now more than ever, video games are redefining what it
affinity networks at the company level, with approximately
means to interact socially. Games empower players to take
2,000 employees already participating. And, with plans to
ownership of their interactive experiences and share those
launch more networks to serve our employee populations
experiences across a global community. They offer an
across each of our business units, we expect participation to
unparalleled storytelling capability, a multitude of options to
grow in 2020.
personalize the player experience and a massive number of
ways to compete or collaborate. The gaming ecosystem is
Our employees, and our players, also widely participate
ripe for social interactions that connect people more deeply
in our corporate responsibility programs. One of our most
than any other form of media.
successful initiatives is the Call of Duty Endowment, which
we founded in 2009 to help returning veterans transition to
We recently received a heartfelt letter from a Call of Duty
the civilian workforce. We help veterans find high-quality
fan in Ireland. He wrote to us explaining how he and three
careers by making grants to groups that prepare them for
schoolfriends had stayed in close contact by playing Call of
the job market and raise awareness of the value vets can
Duty even as they went to university, got jobs and moved
bring to the workplace. To date, we’ve funded the placement
around the world. He talked of the bond that they forged
of more than 66,000 former service members into high-
over many hours of gameplay over many years, and how
quality jobs, including 11,000 in 2019 alone. We’re on track
in turn his mother would see the enjoyment and warmth
to beat our goal of getting 100,000 veterans back to work by
that he felt from spending time online with his close friends.
2024. At Blizzard, the team continues to offer philanthropic
When his mother was tragically killed in March this year,
opportunities to employees and fans alike, partnering with
3
Activision 2019 AR LETTER | Andra Design Studio | Wednesday, April 15, 2020 9:30 AM PSTActivision 2019 AR LETTER | Andra Design Studio | Tuesday, April 14, 2020 3:00 PM PST Girls Who Code to host a STEM-focused summer immersion
We are committed to delivering more high-quality content
program for high school students, and launching a World
more frequently for our biggest franchises. And we are
of Warcraft in-game charitable campaign with proceeds
leveraging talent, expertise and scale across our business
supporting Make-A-Wish Foundation and We.org. And King
more than ever before, as we continue to improve the
once again partnered with Diversi on a global scholarship
operating excellence that has characterized the company for
program to offer internship opportunities across its studios
nearly three decades.
to aspiring women in games.
Our core principles will continue to guide us as we execute
We are honored to have been recognized for our progress
both near-term and long-term:
in these important areas of corporate responsibility. In
2019 we were named one of Fortune’s World’s Most
Admired Companies® for the fourth consecutive year,
Delivering innovative and compelling entertainment
experiences with continuous investment in our franchises
and were included in the Best Places to Work for LGBTQ
and communities;
Equality by the Human Rights Campaign Foundation and
Fast Company’s 50 Best Workplaces for Innovators.
Focusing on the largest and most promising
opportunities;
We also take our responsibility to protect the diversity of
our player communities very seriously. We want our
content and esports leagues to continue to be inclusive
Recruiting, rewarding and retaining diverse world-
class talent, emphasizing our shared common values and
commitment to excellence; and
and secure platforms where players are celebrated and
Remaining disciplined in our commitment to deliver
fans can come together over a shared passion for our
shareholder value.
games. This means creating an environment that is
inclusive for all and we hope to continue to live up to that
Our mission to connect and engage the world through epic
expectation as we push the boundaries further on what is
entertainment has never been more meaningful than it is
possible in gaming and esports.
today. Through our games, content, and the communities
we serve, we are uniquely positioned to make a meaningful
At the time of writing, we are of course very focused on
and positive impact for hundreds of millions of people
keeping our employees and fans safe in the wake of the
during an especially difficult period. We are only able to do
coronavirus pandemic, and on playing our part to slow
this due to our talented teams around the world and the
the spread of the virus. This has included adopting remote
exceptional work our employees deliver day in and day out.
work policies for all of our office locations around the world
We thank our employees for all they are continuing to do
and making numerous healthcare resources available to
under extremely challenging circumstances. We are so very
our employees through our world-class benefits program.
proud to work with such an extraordinary group of people.
For our esports fans, our league events are moving to
broadcast-only. We won’t have live audiences in our global
On behalf of all of us at Activision Blizzard, we would like
venues for the Overwatch League and Call of Duty League,
to thank each of our shareholders, partners and players for
but the digital nature of esports means we can still deliver
their continued support of our business, and to wish you and
great experiences to spectators. We are incredibly proud
your families health and safety through this difficult time.
of the tireless work of our teams to enact such measures
so swiftly. We continue to monitor the situation while
With appreciation,
identifying additional ways to promote safe work and
entertainment environments.
Strong Foundation For The Future
We entered 2020 with an excellent pipeline, increased
Bobby Kotick
Brian Kelly
focus on our biggest franchises and opportunities, and
Chief Executive Officer
Chairman of the Board
less complexity and duplication across our organization.
Activision Blizzard
Activision Blizzard
4
Activision 2019 AR LETTER | Andra Design Studio | Wednesday, April 15, 2020 9:30 AM PST
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Washington, D.C. 20549
Washington, D.C. 20549
FORM 10-K
FORM 10-K
FORM 10-K
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
For the Fiscal Year Ended December 31, 2019
For the Fiscal Year Ended December 31, 2019
For the Fiscal Year Ended December 31, 2019
OR
OR
OR
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
For the transition period from
For the transition period from
For the transition period from
Commission File Number 1-15839
Commission File Number 1-15839
Commission File Number 1-15839
Commission File Number 1-15839
to
to
to
to
ACTIVISION BLIZZARD, INC.
ACTIVISION BLIZZARD, INC.
ACTIVISION BLIZZARD, INC.
ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
Delaware
Delaware
Delaware
Delaware
(State or other jurisdiction of incorporation or organization)
(State or other jurisdiction of incorporation or organization)
(State or other jurisdiction of incorporation or organization)
(State or other jurisdiction of incorporation or organization)
Santa Monica, CA
Santa Monica, CA
Santa Monica, CA
Santa Monica, CA
3100 Ocean Park Boulevard
3100 Ocean Park Boulevard
3100 Ocean Park Boulevard
3100 Ocean Park Boulevard
(Address of principal executive offices)
(Address of principal executive offices)
(Address of principal executive offices)
(Address of principal executive offices)
95-4803544
95-4803544
95-4803544
95-4803544
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
90405
90405
90405
90405
(Zip Code)
(Zip Code)
(Zip Code)
(Zip Code)
(310) 255-2000
(310) 255-2000
(310) 255-2000
(310) 255-2000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Title of each class
Title of each class
Title of each class
Common Stock, par value $0.000001 per share
Common Stock, par value $0.000001 per share
Common Stock, par value $0.000001 per share
Common Stock, par value $0.000001 per share
Trading Symbol(s)
Trading Symbol(s)
Trading Symbol(s)
Trading Symbol(s)
ATVI
ATVI
ATVI
ATVI
Name of each exchange on which registered
Name of each exchange on which registered
Name of each exchange on which registered
Name of each exchange on which registered
The Nasdaq Global Select Market
The Nasdaq Global Select Market
The Nasdaq Global Select Market
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
None
None
None
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
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
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
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No ☐
registrant was required to submit such files). Yes ☒ No ☐
registrant was required to submit such files). Yes ☒ No ☐
registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated
Large Accelerated
Large Accelerated
Large Accelerated
Filer
Filer
Filer
Filer
☒
☒
☒
☒
Non-accelerated
Non-accelerated
Non-accelerated
Non-accelerated
Filer
Filer
Filer
Filer
☐ Accelerated Filer ☐
☐ Accelerated Filer ☐
☐ Accelerated Filer ☐
☐ Accelerated Filer ☐
Smaller reporting
Smaller reporting
Smaller reporting
Smaller reporting
company
company
company
company
☐
☐
☐
☐
Emerging growth
Emerging growth
Emerging growth
Emerging growth
company
company
company
company
☐
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s Common Stock held by non-affiliates on June 30, 2019 (based on the closing sale price
The aggregate market value of the registrant’s Common Stock held by non-affiliates on June 30, 2019 (based on the closing sale price
The aggregate market value of the registrant’s Common Stock held by non-affiliates on June 30, 2019 (based on the closing sale price
The aggregate market value of the registrant’s Common Stock held by non-affiliates on June 30, 2019 (based on the closing sale price
as reported on the Nasdaq) was $35,743,039,830.
as reported on the Nasdaq) was $35,743,039,830.
as reported on the Nasdaq) was $35,743,039,830.
as reported on the Nasdaq) was $35,743,039,830.
The number of shares of the registrant’s Common Stock outstanding at February 20, 2020 was 769,221,524.
The number of shares of the registrant’s Common Stock outstanding at February 20, 2020 was 769,221,524.
The number of shares of the registrant’s Common Stock outstanding at February 20, 2020 was 769,221,524.
The number of shares of the registrant’s Common Stock outstanding at February 20, 2020 was 769,221,524.
Documents Incorporated by Reference
Documents Incorporated by Reference
Documents Incorporated by Reference
Documents Incorporated by Reference
Portions of the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange Commission with respect to the
Portions of the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange Commission with respect to the
Portions of the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange Commission with respect to the
Portions of the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange Commission with respect to the
2020 Annual Meeting of Shareholders which is expected to be held on June 11, 2020, are incorporated by reference into Part III of this
2020 Annual Meeting of Shareholders which is expected to be held on June 11, 2020, are incorporated by reference into Part III of this
2020 Annual Meeting of Shareholders which is expected to be held on June 11, 2020, are incorporated by reference into Part III of this
2020 Annual Meeting of Shareholders which is expected to be held on June 11, 2020, are incorporated by reference into Part III of this
Annual Report.
Annual Report.
Annual Report.
Annual Report.
1
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Table of Contents
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
Exhibit Index
SIGNATURES
Cautionary Statement
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page No.
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CAUTIONARY STATEMENT
PART I
This Annual Report on Form 10-K contains, or incorporates by reference, certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a
recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings
or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to
releases of products or services and restructuring activities; (3) statements of future financial or operating performance,
including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. Activision
Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,”
“plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,”
“potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar expressions to help
identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect
management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to
predict.
The company cautions that a number of important factors could cause Activision Blizzard, Inc.’s 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 forward-looking statements can be found in “Risk Factors”
included in Part I, Item 1A of this Annual Report on Form 10-K. The forward-looking statements contained herein are based
upon information available to us as of the date of this Annual Report on Form 10-K and we assume no obligation to update any
such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may
ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from
current expectations.
Activision Blizzard Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the
registered or unregistered trademarks or trade names of Activision Blizzard. 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 U.S.
dollars, unless otherwise explicitly stated to the contrary.
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Item 1. BUSINESS
Overview
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We
develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also
operate esports leagues and offer digital advertising within our content. The terms “Activision Blizzard,” the “Company,” “we,”
“us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.
The 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,
and Vivendi Games, Inc., pursuant to which we acquired Blizzard Entertainment, Inc. (“Blizzard”), we were renamed
Activision Blizzard, Inc. On February 23, 2016, we acquired King Digital Entertainment plc, a leading interactive mobile
entertainment company ("King"), by purchasing all of its outstanding shares.
Our Strategy and Vision
Our objective is to continue to be a worldwide leader in the development, publishing, and distribution of high-quality
interactive entertainment content and services, as well as related media, that deliver engaging entertainment experiences on a
year-round basis. In pursuit of this objective, we focus on three strategic pillars: expanding audience reach; driving deep
consumer engagement; and providing more opportunities for player investment.
Expanding audience reach. Building on our strong established franchises and creating new franchises through compelling
new content is at the core of our business. We endeavor to reach as many consumers as possible either through: (1) the purchase
of our content and services; (2) engagement in our free-to-play games, which allow consumers to play games with no up-front
cost but provide for player investment through sales of downloadable content or via microtransactions; or (3) engagement in
other types of media based on our franchises, such as esports.
Driving deep consumer 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, delivering more value to our players and
additional growth opportunities for our franchises.
Providing more opportunities for player investment. Increasingly, our consumers are connected to our games online
through consoles, PCs, and mobile devices. This allows us to offer additional digital player investment opportunities directly to
our consumers on a year-round basis. In addition to purchasing full games or subscriptions, players can invest in certain of our
games and franchises by purchasing incremental “in-game” content (including larger downloadable content or smaller content,
via microtransactions). These digital revenue streams tend to be more recurring and have relatively higher profit margins.
Further, if executed properly, additional player investment can increase engagement as it provides more frequent and
incremental content for our players. In addition, we generate revenue through offering advertising within certain of our
franchises, and we believe there are opportunities to grow new forms of player investment through esports and consumer
products. We are still in the early stages of developing these new revenue streams.
Reportable Segments
Based upon our organizational structure, we conduct our business through three reportable segments as follows:
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher 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 primarily based on our internally developed
intellectual properties. Activision also includes the activities of the Call of Duty League, a global professional esports league
with city-based teams for Call of Duty®.
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4
Activision’s key product franchise is Call of Duty, a first-person action title for the console and PC platforms and,
following the October 1, 2019 launch of Call of Duty: Mobile, the mobile platform, including for Google Inc.’s (“Google”)
Android and Apple Inc.’s (“Apple”) iOS. Call of Duty has been the number one console franchise globally for 10 of the last 11
years, based on data from The NPD Group, GfK Chart-Track, and GSD, and our internal estimates of upfront console sales.
Additionally, Call of Duty: Mobile installs exceeded 150 million, ending the fourth quarter of 2019 in the top-15 grossing
games in U.S. app stores per App Annie Intelligence and internal estimates.
(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 and selected Activision content, online social connectivity, and the creation of user-generated content.
Blizzard also includes the activities of the Overwatch LeagueTM, the first major global professional esports league with city-
based teams.
Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-
playing game for the PC platform; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an
online collectible card franchise for the PC and mobile platforms; and Overwatch®, a team-based first-person action title for the
PC and console platforms.
(iii) King Digital Entertainment
King is a leading global developer and publisher of interactive entertainment content and services, particularly for the
mobile platform, including for Google’s Android and Apple’s iOS. King also distributes its content 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 or real currency, and we continue to focus on in-game advertising as a growing source of additional revenue.
King’s key product franchise is Candy Crush™, which features “match three” games for the mobile and PC platforms.
Other
We also engage in other businesses that do not represent reportable segments, including the Activision Blizzard
Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales
distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and
manufacturers of interactive entertainment hardware.
Products
We develop interactive entertainment content and services, principally for console, PC, and mobile devices, and we
market and sell our games through retail and digital distribution channels. Our products span various genres, including first-
and third-person action/adventure, role-playing, strategy, and “match three,” among others. We primarily offer the following
products and services:
•
•
full-games, which typically provide access to main game content, primarily for console or PC;
downloadable content, which provides players with additional in-game content to purchase following the purchase
of a full game;
• microtransactions, which typically provide relatively small pieces of additional in-game content or enhancements
to gameplay, generally at relatively low price points; and
subscriptions for players in our World of Warcraft franchise that provide for continual access to the game content.
•
Providing additional opportunities for player investment outside of full-game purchases 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 with our games and content.
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5
Product Development and Support
We focus on developing enduring franchises backed by well-designed, high-quality games with regular content updates.
We build interactive entertainment content with the potential for broad reach, sustainable engagement and year-round player
investment. It is our experience that enduring franchises then serve as the basis for sequels, prequels, and related new products
and content that can be released over an extended period of time. We believe that the development and distribution of products
and content based on established 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.
We develop and produce our titles using a model in which a group of creative, technical, and production professionals,
including designers, producers, programmers, artists, and sound engineers, in coordination with our marketing, finance,
analytics, sales, and other professionals, has 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, by supplementing our internal expertise with top-quality external resources on an as-needed
basis.
While most of the 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.
We provide various forms of product support. Central technology and development teams review, assess, and provide
support to products throughout the development process. Quality assurance personnel are also involved throughout the
development and production of published content. We subject all such content to extensive testing before public release to
ensure compatibility with appropriate hardware systems and configurations and to minimize the number of bugs and other
defects found in the products. To support our content, we generally provide 24-hour game support to players through various
means, primarily online and by telephone.
Marketing, Sales, and Distribution
Many of our products contain software that enables us to connect with our gamers directly. This allows us to
communicate and market directly to our customers, including through customized advertising and in-game messaging based on
customer preferences and trends. Our marketing efforts also include activities on: online social networks; other online
advertising; other public relations activities; print and broadcast advertising; coordinated in-store and industry promotions
(including merchandising and point of purchase displays); participation in cooperative advertising programs; direct response
vehicles; and product sampling through demonstration software distributed through the Internet or the digital online services
provided by our partners. 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, 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.
Most of our products and content are also available in a digital format, which allows consumers to purchase and download
the content at their convenience directly to their console, PC, or mobile device through our platform partners, including Apple,
Facebook, Google, Microsoft Corporation (“Microsoft”), Nintendo Co., Ltd. (“Nintendo”), and Sony Interactive Entertainment
Inc. (“Sony”). Blizzard utilizes its proprietary online gaming service, Blizzard Battle.net, to distribute most of Blizzard’s
content and selected Activision content directly to PC consumers.
In addition to serving as a distribution platform, Blizzard Battle.net offers players communications features, social
networking, player matching and digital content delivery and is designed to allow people to connect regardless of which of our
games on Blizzard Battle.net they are playing. It attracts millions of active players, making it one of the largest online game-
related services in the world.
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Manufacturing
We prepare master program copies for our products on each release platform. With respect to products for Microsoft,
Sony, and Nintendo consoles, our disk duplication, packaging, printing, manufacturing, warehousing, assembly, and shipping
are performed by third-party subcontractors or distribution facilities owned by us.
Microsoft, Sony, and Nintendo generally specify or control the manufacturing and assembly of finished products and
license their hardware technologies to us. In return, we pay an applicable royalty per unit once the manufacturer fills the
product order, even if the units do not ultimately sell. We deliver the master materials to the licensor or its approved replicator,
who then manufactures the finished goods and delivers them to us for distribution under our label.
Significant Customers and Top Franchises
Customers
While the Company does sell directly to end consumers in certain instances, such as sales through Blizzard Battle.net, in
other instances our customers may be platform providers, such as Sony, Microsoft, Google, and Apple, or retailers, such as
Walmart and GameStop, who act as distributors of our content to end consumers. For the years ended December 31, 2019,
2018, and 2017, Apple, Google, and Sony have been our most significant customers with revenues of 17%, 13%, and 11%,
respectively, for 2019, 15%, 11%, and 13%, respectively, for 2018, and 16%, 10%, and 14%, respectively, for 2017. No other
customer accounted for 10% or more of our net revenues in the periods discussed above.
We had two customers—Sony and Microsoft—who accounted for 18% and 11%, respectively, of consolidated gross
receivables at December 31, 2019. We had two customers—Sony and NetEase, Inc.—who accounted for 15% and 12%,
respectively, of consolidated gross receivables at December 31, 2018. No other customer accounted for 10% or more of our
consolidated gross receivables in the periods discussed above.
Top Franchises
For the year ended December 31, 2019, our top three franchises—Call of Duty, Candy Crush, and World of Warcraft—
collectively accounted for 67% of our net revenues. For the year ended December 31, 2018, our top three franchises—Call of
Duty, Candy Crush, and World of Warcraft—collectively accounted for 58% of our net revenues. For the year ended December
31, 2017, our top four franchises—Call of Duty, Candy Crush, World of Warcraft, and Overwatch—collectively accounted for
66% of our net revenues. No other franchise comprised 10% or more of our net revenues in the periods discussed above.
Competition
We compete for the leisure time and discretionary spending of consumers with other interactive entertainment companies,
as well as with providers of different forms of entertainment, such as film, television, social networking, music and other
consumer products.
The interactive entertainment industry is intensely competitive and new interactive entertainment software products and
platforms are regularly introduced. We believe that the main competitive factors in the interactive entertainment industry
include: product features, game quality, and playability; brand name recognition; compatibility of products with popular
platforms; access to distribution channels; online capability and functionality; ease of use; price of content; marketing support;
and quality of customer service.
We compete with other publishers of video game console, PC, and mobile interactive entertainment software. In addition
to third-party software competitors, integrated video game console hardware and software companies, such as Microsoft, Sony,
and Nintendo, compete directly with us in the development of software titles for their respective platforms.
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Intellectual Property
Like other interactive entertainment companies, our business is significantly dependent on the creation, acquisition, use
and protection of intellectual property. Some of this intellectual property is in the form of copyrighted software code, patented
technology, and other technology and trade secrets that we use to develop and run our games. Other intellectual property is in
the form of copyrighted audio-visual elements that consumers can see, hear, and interact with when they are playing our games.
We develop a majority of our products based on wholly-owned intellectual properties, such as Call of Duty, World of
Warcraft, and Candy Crush. In other cases, we obtain intellectual property through licenses and service agreements. Further,
our products that play on consoles and mobile platforms include technology that is owned by the platform provider and is
licensed non-exclusively to us for use in the relevant product. We also license technology from providers other than console
manufacturers in developing our content and services. While we may have renewal rights for some licenses, our business is
dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights on reasonable
terms and at reasonable rates.
We are actively engaged in enforcement of our copyright, trademark, patent, and trade secret rights against potential
infringers of those rights along with other protective activities, including monitoring online channels for distribution of pirated
copies and participating in various enforcement initiatives, education programs and legislative activity around the world. For
our PC products, we use technological protection measures to prevent piracy and the use of unauthorized copies of our
products. For other platforms, the platform providers typically incorporate technological protections and other security
measures in their platforms to prevent the use of unlicensed products on those platforms.
Information about our Executive Officers
Our executive officers and their biographical summaries are provided below:
Name
Robert A. Kotick
Collister Johnson
Dennis Durkin
Claudine Naughton
Christopher Walther
Age
56
Position
Chief Executive Officer of Activision Blizzard
43
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53
President and Chief Operating Officer of Activision Blizzard
Chief Financial Officer of Activision Blizzard and President of Emerging Businesses
Chief People Officer of Activision Blizzard
Chief Legal Officer of Activision Blizzard
Robert A. Kotick, Chief Executive Officer of Activision Blizzard
Robert A. Kotick, who serves as our Chief Executive Officer, has been a director of Activision Blizzard since February
1991, following his purchase of a significant interest in the Company, which was then on the verge of insolvency. Mr. Kotick
was our Chairman and Chief Executive Officer from February 1991 until July 2008, when he became our President and Chief
Executive Officer. 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 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 Harvard-Westlake
School. He is also the Vice Chairman of the Board and Chairman of the Committee of trustees of the Los Angeles County
Museum of Art. In addition, Mr. Kotick is the co-founder and co-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, President and Chief Operating Officer of Activision Blizzard
Collister “Coddy” Johnson has served as our President and Chief Operating Officer since June 2017. From April 2016
until May 2017, he served as the chief operating officer and co-founder of Altschool, a public benefit, education technology
company, where he continues to serve on the board of directors. Prior to joining Altschool, he held a number of positions of
increasing responsibility at our Company from 2008 to 2016, serving as the Chief Financial Officer and Head of Operations of
Activision, one of our principal operating units, the Chief Operating Officer of studios for Activision, and the 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.
8
8
Dennis Durkin, Chief Financial Officer of Activision Blizzard and President of Emerging Businesses
Dennis Durkin, Chief Financial Officer of Activision Blizzard and President of Emerging Businesses
Dennis Durkin, Chief Financial Officer of Activision Blizzard and President of Emerging Businesses
Dennis Durkin, Chief Financial Officer of Activision Blizzard and President of Emerging Businesses
Dennis Durkin has served as our Chief Financial Officer and President of Emerging Businesses since January 2019. Mr.
Dennis Durkin has served as our Chief Financial Officer and President of Emerging Businesses since January 2019. Mr.
Dennis Durkin has served as our Chief Financial Officer and President of Emerging Businesses since January 2019. Mr.
Dennis Durkin has served as our Chief Financial Officer and President of Emerging Businesses since January 2019. Mr.
Durkin joined the Company in March 2012 as our Chief Financial Officer and served in that role until May 2017. He served as
Durkin joined the Company in March 2012 as our Chief Financial Officer and served in that role until May 2017. He served as
Durkin joined the Company in March 2012 as our Chief Financial Officer and served in that role until May 2017. He served as
Durkin joined the Company in March 2012 as our Chief Financial Officer and served in that role until May 2017. He served as
our Chief Corporate Officer from May 2017 until January 2019. Prior to joining the Company in 2012, Mr. Durkin held a
our Chief Corporate Officer from May 2017 until January 2019. Prior to joining the Company in 2012, Mr. Durkin held a
our Chief Corporate Officer from May 2017 until January 2019. Prior to joining the Company in 2012, Mr. Durkin held a
our Chief Corporate Officer from May 2017 until January 2019. Prior to joining the Company in 2012, Mr. Durkin held a
number of positions of increasing responsibility at Microsoft, a computing software and hardware manufacturer, most recently
number of positions of increasing responsibility at Microsoft, a computing software and hardware manufacturer, most recently
number of positions of increasing responsibility at Microsoft, a computing software and hardware manufacturer, most recently
number of positions of increasing responsibility at Microsoft, a computing software and hardware manufacturer, most recently
serving as the Corporate Vice President and Chief Operating and Financial Officer of Microsoft’s interactive entertainment
serving as the Corporate Vice President and Chief Operating and Financial Officer of Microsoft’s interactive entertainment
serving as the Corporate Vice President and Chief Operating and Financial Officer of Microsoft’s interactive entertainment
serving as the Corporate Vice President and Chief Operating and Financial Officer of Microsoft’s interactive entertainment
business, which included the Xbox console business. Prior to joining Microsoft’s interactive entertainment business in 2006,
business, which included the Xbox console business. Prior to joining Microsoft’s interactive entertainment business in 2006,
business, which included the Xbox console business. Prior to joining Microsoft’s interactive entertainment business in 2006,
business, which included the Xbox console business. Prior to joining Microsoft’s interactive entertainment business in 2006,
Mr. Durkin spent seven years on Microsoft’s corporate development and strategy team, including two years where he was based
Mr. Durkin spent seven years on Microsoft’s corporate development and strategy team, including two years where he was based
Mr. Durkin spent seven years on Microsoft’s corporate development and strategy team, including two years where he was based
Mr. Durkin spent seven years on Microsoft’s corporate development and strategy team, including two years where he was based
in London, England, driving pan-European activity. Before joining Microsoft, Mr. Durkin was a financial analyst at Alex.
in London, England, driving pan-European activity. Before joining Microsoft, Mr. Durkin was a financial analyst at Alex.
in London, England, driving pan-European activity. Before joining Microsoft, Mr. Durkin was a financial analyst at Alex.
in London, England, driving pan-European activity. Before joining Microsoft, Mr. Durkin was a financial analyst at Alex.
Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from
Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from
Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from
Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from
Harvard University.
Harvard University.
Harvard University.
Harvard University.
Claudine Naughton, Chief People Officer of Activision Blizzard
Claudine Naughton, Chief People Officer of Activision Blizzard
Claudine Naughton, Chief People Officer of Activision Blizzard
Claudine Naughton, Chief People Officer of Activision Blizzard
Claudine Naughton has served as our Chief People Officer since August 2019. Prior to joining the Company, Ms.
Claudine Naughton has served as our Chief People Officer since August 2019. Prior to joining the Company, Ms.
Claudine Naughton has served as our Chief People Officer since August 2019. Prior to joining the Company, Ms.
Claudine Naughton has served as our Chief People Officer since August 2019. Prior to joining the Company, Ms.
Naughton held a number of positions of increasing responsibility within the human resources department of American
Naughton held a number of positions of increasing responsibility within the human resources department of American
Naughton held a number of positions of increasing responsibility within the human resources department of American
Naughton held a number of positions of increasing responsibility within the human resources department of American
International Group, Inc. (AIG) from 1997 to 2018, including serving as the company's Executive Vice President and Chief
International Group, Inc. (AIG) from 1997 to 2018, including serving as the company's Executive Vice President and Chief
International Group, Inc. (AIG) from 1997 to 2018, including serving as the company's Executive Vice President and Chief
International Group, Inc. (AIG) from 1997 to 2018, including serving as the company's Executive Vice President and Chief
Human Resources Officer. Prior to joining AIG, Ms. Naughton served as the Regional Manager and Director of Training for
Human Resources Officer. Prior to joining AIG, Ms. Naughton served as the Regional Manager and Director of Training for
Human Resources Officer. Prior to joining AIG, Ms. Naughton served as the Regional Manager and Director of Training for
Human Resources Officer. Prior to joining AIG, Ms. Naughton served as the Regional Manager and Director of Training for
Fairways Golf Corporation. Ms. Naughton holds a B.A degree in political science from Stockton University.
Fairways Golf Corporation. Ms. Naughton holds a B.A degree in political science from Stockton University.
Fairways Golf Corporation. Ms. Naughton holds a B.A degree in political science from Stockton University.
Fairways Golf Corporation. Ms. Naughton holds a B.A degree in political science from Stockton University.
Christopher Walther, Chief Legal Officer of Activision Blizzard
Christopher Walther, Chief Legal Officer of Activision Blizzard
Christopher Walther, Chief Legal Officer of Activision Blizzard
Christopher Walther, Chief Legal Officer of Activision Blizzard
Christopher Walther has served as our Chief Legal Officer since November 2009 and served as our Secretary from
Christopher Walther has served as our Chief Legal Officer since November 2009 and served as our Secretary from
Christopher Walther has served as our Chief Legal Officer since November 2009 and served as our Secretary from
Christopher Walther has served as our Chief Legal Officer since November 2009 and served as our Secretary from
February 2010 until February 2011. Prior to joining us, Mr. Walther held a number of positions of increasing responsibility
February 2010 until February 2011. Prior to joining us, Mr. Walther held a number of positions of increasing responsibility
February 2010 until February 2011. Prior to joining us, Mr. Walther held a number of positions of increasing responsibility
February 2010 until February 2011. Prior to joining us, Mr. Walther held a number of positions of increasing responsibility
within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the General Counsel
within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the General Counsel
within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the General Counsel
within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the General Counsel
for Central and Eastern Europe, Middle East, and Africa, General Counsel for Northeast Asia and, most recently, as General
for Central and Eastern Europe, Middle East, and Africa, General Counsel for Northeast Asia and, most recently, as General
for Central and Eastern Europe, Middle East, and Africa, General Counsel for Northeast Asia and, most recently, as General
for Central and Eastern Europe, Middle East, and Africa, General Counsel for Northeast Asia and, most recently, as General
Counsel for Western Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and mergers and acquisitions
Counsel for Western Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and mergers and acquisitions
Counsel for Western Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and mergers and acquisitions
Counsel for Western Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and mergers and acquisitions
practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the
practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the
practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the
practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the
United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for
United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for
United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for
United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for
Children’s Rights and currently serves as its co-chair. Mr. Walther has also served as our representative on the board of
Children’s Rights and currently serves as its co-chair. Mr. Walther has also served as our representative on the board of
Children’s Rights and currently serves as its co-chair. Mr. Walther has also served as our representative on the board of
Children’s Rights and currently serves as its co-chair. Mr. Walther has also served as our representative on the board of
directors of the Entertainment Software Association since 2013 and on its executive committee. Mr. Walther holds a B.A.
directors of the Entertainment Software Association since 2013 and on its executive committee. Mr. Walther holds a B.A.
directors of the Entertainment Software Association since 2013 and on its executive committee. Mr. Walther holds a B.A.
directors of the Entertainment Software Association since 2013 and on its executive committee. Mr. Walther holds a B.A.
degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.
degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.
degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.
degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.
Employees
Employees
Employees
Employees
At December 31, 2019, we had approximately 9,200 total full-time and part-time employees. At December 31, 2019,
At December 31, 2019, we had approximately 9,200 total full-time and part-time employees. At December 31, 2019,
At December 31, 2019, we had approximately 9,200 total full-time and part-time employees. At December 31, 2019,
At December 31, 2019, we had approximately 9,200 total full-time and part-time employees. At December 31, 2019,
approximately 120 of our full-time employees were subject to fixed-term employment agreements with us.
approximately 120 of our full-time employees were subject to fixed-term employment agreements with us.
approximately 120 of our full-time employees were subject to fixed-term employment agreements with us.
approximately 120 of our full-time employees were subject to fixed-term employment agreements with us.
The majority of our employees in France, Germany, and Spain are subject to collective agreements as a part of normal
The majority of our employees in France, Germany, and Spain are subject to collective agreements as a part of normal
The majority of our employees in France, Germany, and Spain are subject to collective agreements as a part of normal
The majority of our employees in France, Germany, and Spain 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
business practices in those countries. In addition, certain employees in those countries are subject to collective bargaining
business practices in those countries. In addition, certain employees in those countries are subject to collective bargaining
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.
agreements. To date, we have not experienced any labor-related work stoppages.
agreements. To date, we have not experienced any labor-related work stoppages.
agreements. To date, we have not experienced any labor-related work stoppages.
Additional Financial Information
Additional Financial Information
Additional Financial Information
Additional Financial Information
See the “Critical Accounting Policies and Estimates” section under Item 7 “Management’s Discussion and Analysis of
See the “Critical Accounting Policies and Estimates” section under Item 7 “Management’s Discussion and Analysis of
See the “Critical Accounting Policies and Estimates” section under Item 7 “Management’s Discussion and Analysis of
See the “Critical Accounting Policies and Estimates” section under Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for a discussion of our practices with regard to several working capital items,
Financial Condition and Results of Operations” for a discussion of our practices with regard to several working capital items,
Financial Condition and Results of Operations” for a discussion of our practices with regard to several working capital items,
Financial Condition and Results of Operations” for a discussion of our practices with regard to several working capital items,
such as rights of return. See the “Management’s Overview of Business Trends” under Item 7 “Management’s Discussion and
such as rights of return. See the “Management’s Overview of Business Trends” under Item 7 “Management’s Discussion and
such as rights of return. See the “Management’s Overview of Business Trends” under Item 7 “Management’s Discussion and
such as rights of return. See the “Management’s Overview of Business Trends” under Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for a discussion of the impact of seasonality on our business.
Analysis of Financial Condition and Results of Operations” for a discussion of the impact of seasonality on our business.
Analysis of Financial Condition and Results of Operations” for a discussion of the impact of seasonality on our business.
Analysis of Financial Condition and Results of Operations” for a discussion of the impact of seasonality on our business.
Available Information
Available Information
Available Information
Available Information
Our website, located at https://www.activisionblizzard.com, allows free-of-charge access to our annual reports on
Our website, located at https://www.activisionblizzard.com, allows free-of-charge access to our annual reports on
Our website, located at https://www.activisionblizzard.com, allows free-of-charge access to our annual reports on
Our website, located at https://www.activisionblizzard.com, allows free-of-charge access to our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those
documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The information found on our website is not a part of, and is not incorporated by reference into, this or any
“Exchange Act”). The information found on our website is not a part of, and is not incorporated by reference into, this or any
“Exchange Act”). The information found on our website is not a part of, and is not incorporated by reference into, this or any
“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”).
other report that we file with or furnish to the Securities and Exchange Commission (“SEC”).
other report that we file with or furnish to the Securities and Exchange Commission (“SEC”).
other report that we file with or furnish to the Securities and Exchange Commission (“SEC”).
Our SEC filings are also available to the public over the Internet at the SEC’s website at https://www.sec.gov.
Our SEC filings are also available to the public over the Internet at the SEC’s website at https://www.sec.gov.
Our SEC filings are also available to the public over the Internet at the SEC’s website at https://www.sec.gov.
Our SEC filings are also available to the public over the Internet at the SEC’s website at https://www.sec.gov.
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Item 1A. RISK FACTORS
We wish to caution the reader that the following important risk factors, and those risk factors described elsewhere
in this report or in our other filings with the SEC, could cause our actual results to differ materially from those stated in
forward-looking statements contained in this document or 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.
If we do not consistently deliver popular, high-quality content in a timely manner, or if consumers prefer competing
products, our business may be negatively impacted.
Consumer preferences for games are usually cyclical and difficult to predict. Even the most successful games remain
popular for only limited periods of time, and this popularity is increasingly dependent on the games being refreshed with new
content or other enhancements. In order to remain competitive, 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‑received by consumers, even
if well‑reviewed and of high quality. Further, competitors may develop content that imitates or competes with our best‑selling
games, potentially reducing our sales or 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 or enhancements to
those games, if our marketing fails to resonate with our consumers, or if consumers lose interest in a genre of games we
produce, our revenues and profit margins could decline. In addition, our own best‑selling products could compete with our
other games, reducing sales for those other games. Further, a failure by us to develop a high‑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. The increased demand for consistent enhancement to our
products also requires a greater allocation of financial resources to those products.
Additionally, consumer expectations regarding the quality, performance and integrity of our products and services are
high. Consumers may be critical of our brands, games, services, and/or business practices for a wide variety of reasons, and
such negative reactions may not be foreseeable or within our control to manage effectively. For example, if our games or
services, such as our proprietary online gaming service, do not function as consumers expect, whether because they fail to
function as advertised or otherwise, our sales may suffer. The risk that this may occur is particularly pronounced with respect to
our games with online features because they involve ongoing consumer expectations, which we may not be able to consistently
satisfy. Our games with online features are also frequently updated, increasing the risk that a game may contain significant
errors, or “bugs.” If any of these issues occur, consumers may stop playing the game and may be less likely to return to the
game as often in the future, which may negatively impact our business.
Further, delays in product releases or disruptions following the commercial release of one or more new products could
negatively impact our business and reputation and could cause our results of operations to be materially different from
expectations. If we fail to release our products in a timely manner, or if we are unable to continue to extend the life of existing
games by adding features and functionality that will encourage continued engagement with the game, our business may be
negatively impacted.
Additionally, the amount of lead time and cost involved in the development of high-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-front
development and marketing costs associated with those products.
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We depend on a relatively small number of franchises for a significant portion of our revenues and profits.
We follow a franchise model, and a significant portion of our revenues has historically been derived from products based
on a relatively small number of popular franchises. These products are also responsible for a disproportionately high percentage
of our profits. For example, in 2019, revenues associated with the Call of Duty, Candy Crush, and World of Warcraft franchises,
collectively, accounted for approximately 67% of our net revenues—and a significantly higher percentage of our operating
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, we may have to write off the unrecovered portion of the underlying intellectual property
assets, which could negatively impact our business.
If we do not continue to attract, retain, and motivate skilled personnel, we will be unable to effectively conduct our business.
Our success depends significantly on our ability to identify, attract, hire, retain, motivate, 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 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.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources
among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt to
emerging technologies, such as cloud-based game streaming, and business models, such as subscription-based access to a
portfolio of interactive content, to stay competitive. Forecasting the financial impact of these emerging technologies and
business models is inherently uncertain and volatile. Supporting a new technology or business model may require partnering
with a new platform, business, or technology partner, which may be on terms that are less favorable to us than those for
traditional technologies or business models. If we invest in the development of interactive entertainment products for
distribution channels that incorporate a new technology or business model that does not achieve significant commercial success,
whether because of competition or otherwise, we may not recover the often substantial up-front costs of developing and
marketing those products, or recover the opportunity cost of diverting management and financial resources away from other
products or opportunities. Further, our competitors may adapt to an emerging technology or business model more quickly or
effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.
If, on the other hand, we elect not to pursue the development of products incorporating a new technology, or otherwise
elect not to pursue new business models that achieve significant commercial success, it may have adverse consequences. It may
take significant time and expenditures to shift product development resources to that technology or business model, and it may
be more difficult to compete against existing products incorporating that technology or using that business model.
Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our
sales.
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 portfolios and popular games typically have greater influence with
platform providers, retailers, distributors and other customers who may, in turn, provide more favorable support to those
competitors’ games.
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Additionally, we compete with other forms of entertainment and leisure activities. As our business continues to expand in
complexity and scope, we have increased exposure to additional competitors, including those with access to large existing user
bases and control over distribution channels. Further, it is difficult to predict and prepare for rapid changes in consumer demand
that could materially alter public preferences for different forms of entertainment and leisure activities. Failure to adequately
identify and adapt to these competitive pressures could negatively impact our business.
The increasing importance of digital sales to our business exposes us to the risks of that business model, including greater
competition.
The proportion of our revenues derived from digital distribution channels, as compared to traditional retail sales,
continues to increase. The increased importance of digital channels in our industry increases our potential competition, as the
minimum capital needed to produce and publish a digitally delivered game, particularly a game for a mobile platform, may be
significantly less than that needed to produce and publish one that is purchased through retail distribution and is played on a
game console or PC. Also, while digitally-distributed products generally have higher profit margins than retail sales, as business
shifts to digital distribution, the volume of orders from retailers for physical discs has been, and may continue to be, reduced.
Further, some of the providers of the platforms through which we digitally distribute content are also publishers of their own
content distributed on those platforms, and, therefore, a platform provider may give priority to its own products or those of our
competitors.
The importance of retail sales to our business exposes us to the risks of that business model.
While the proportion of our revenues derived from digital distribution channels, as compared to traditional retail sales,
continues to increase, retail sales remain important to our business. In the United States and Canada, our “boxed” products are
often sold on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses, and game specialty
stores. Our “boxed” products are sold internationally on a direct-to-retail basis, through third-party distribution and licensing
arrangements, and through our wholly-owned European distribution subsidiaries. Our sales are made primarily on a purchase
order basis without long-term agreements or other forms of commitments, and due 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 could have adverse consequences.
Moreover, the importance of retail sales to our business exposes us to the risk of product returns and price protection with
respect to our distributors and retailers. In some cases, return policies allow distributors and retailers to return defective, shelf-
worn, damaged, and certain other products in accordance with terms granted. Price protection, when granted and applicable,
allows these distributors and retailers a credit against amounts owed with respect to merchandise unsold by them. We may
permit product returns from, or grant price protection to, distributors and retail customers who meet certain conditions. These
conditions may include compliance with applicable payment terms, delivery of weekly inventory and sales information and
consistent participation in the launches of premium title releases. We may also consider other factors, including the facilitation
of slow-moving inventory and other industry factors. Activision also offers a 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 “brick and mortar” shelf space and promotional resources, and there
is intense competition for high-quality retail shelf space and promotional support from retailers. Similarly, for online retail
sales, there is increasing competition for premium placements on websites. Competition for shelf space or premium online
placement may intensify and may require us to increase our marketing expenditures. Further, retailers with limited shelf space
typically devote the most and highest quality shelf space to those products expected to be best sellers. We cannot be certain that
our new products will consistently achieve such “best seller” status. Due to increased competition for limited shelf space,
retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts,
price protection, marketing and display fees, and product return policies. Our products constitute a relatively small percentage
of most retailers’ sales volume. We cannot be certain that retailers will continue to purchase our products or provide those
products with adequate levels of shelf space and promotional support on acceptable terms.
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We may be unable to effectively manage the continued growth in the scope and complexity of our business, including our
expansion into new business models that are untested and into adjacent business opportunities with large, established
competitors.
We have experienced significant growth in the scope and complexity of our business, including through acquisitions and
the development of our esports, advertising, and consumer products businesses. Our future success depends, in part, on our
ability to manage this expanded business and our aspirations for continued expansion. We have dedicated resources both to new
business models that are largely untested, as is the case with esports, and to adjacent business opportunities in which very large
competitors have an established presence, as is the case with our advertising and consumer products businesses. We do not
know to what extent our future expansions will be successful. Further, even if successful, the growth of 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. If not managed effectively, this growth could result in the
over‑extension of our operating infrastructure, and our management systems, information technology systems, and internal
controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these
ways may cause damage to our brand or otherwise negatively impact our business. Further, any failure by these new businesses
may damage our reputation or otherwise negatively impact our core business of interactive software products and entertainment
content. Conversely, the success of these new businesses is, in large part, contingent on the success of our underlying franchises
and, as such, a decline in the popularity of a franchise may impact the success of the new businesses adjacent to that franchise.
Due to our reliance on third-party platforms, platform providers are frequently able to influence our products and costs.
Generally, when we develop interactive entertainment software products for hardware platforms offered by companies
such as Sony, Microsoft, or Nintendo, the physical products are replicated exclusively by that hardware manufacturer or their
approved replicator. The agreements with these manufacturers include certain provisions, such as approval rights over all
software products and related promotional materials and the ability to change the fee they charge for the manufacturing of
products, which allow the hardware manufacturers substantial influence over the cost and the release schedule of such
interactive entertainment software products. During a console transition, like the one that is expected to occur in 2020, as
described below, these manufacturers may seek to change the terms governing our relationships with them. In addition, because
each of the manufacturers is also a publisher of games for its own hardware platforms and may manufacture products for other
licensees, a manufacturer may give priority to its own products or those of our competitors. Accordingly, console manufacturers
could cause 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.
Sony, Microsoft and Nintendo are also platform providers which control the networks over which consumers purchase
digital products and services for their platforms and through which we provide online game capabilities for our products. The
control that these platform providers have over consumer access to our games and 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, significantly alters the
financial terms on which these products or services are offered, or does not approve the inclusion of online capabilities in our
console products, our business could be negatively impacted.
We also derive significant revenues from distribution on third-party mobile and web platforms, such as the Apple App
Store, the Google Play Store, and Facebook, some of which are also our direct competitors, and most of the virtual currency we
sell is purchased using the payment processing systems of these platform providers. These platforms also serve as significant
online distribution platforms for, and/or provide other services critical for the operation of, a number of our games. If these
platforms deny access to our games, modify their current discovery mechanisms, communication channels available to
developers, operating systems, terms of service or other policies (including fees), or they develop their own competitive
offerings, our business could be negatively impacted. Additionally, if these platform providers are required to change how they
label free-to-play games or take payment for in-app purchases or change how the personal information of consumers is made
available to developers, our business could be negatively impacted. These platform providers or their services may be
unavailable or experience issues with their in-app purchasing functionality. If either of these events occurs on a prolonged, or
even short-term, basis or other similar issues arise that impact players’ ability to access our games, access social features or
make purchases, it may result in lost revenues and otherwise negatively impact our business.
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Transitions to next-generation consoles could adversely affect the market for interactive entertainment software.
Each of Sony and Microsoft is each expected to launch its next‑generation console later this year, and we may develop
games for these new console systems. When next-generation consoles are announced or introduced into the market, consumers
have typically reduced their purchases of game console entertainment software products for prior-generation consoles in
anticipation of purchasing a next-generation console and products for that console. During these periods, sales of the game
console entertainment software products we publish may decline until new platforms achieve wide consumer acceptance.
Console transitions may have a comparable impact on sales of downloadable content, amplifying the impact on our revenues.
This decline may not be offset by increased sales of products for the next-generation consoles. In addition, as console hardware
moves through its life cycle, hardware manufacturers typically enact price reductions, and decreasing prices may put downward
pressure on software prices. During console transitions, we may simultaneously incur costs both in continuing to develop and
market new titles for prior‑generation video game platforms, which may not sell at premium prices, and also in developing
products for next‑generation platforms, which may not generate immediate or near‑term revenues. As a result, our business and
operating results may be more volatile and difficult to predict during console transitions than during other times.
Our business is highly dependent on the success and availability of video game consoles manufactured by third parties, as
well as our ability to develop commercially successful products for these consoles.
We derive a substantial portion of our revenues from the sale of products for play on video game consoles manufactured
by third parties, such as Sony’s PS4, Microsoft’s Xbox One, and Nintendo’s Switch. Sales of products for consoles accounted
for 30% of our consolidated net revenues in 2019. The success of our console business is driven in large part by our ability to
accurately predict which consoles will be successful in the marketplace and our ability to develop commercially successful
products for these consoles. We also rely on the availability of an adequate supply of these video game consoles and the
continued support for these consoles by their manufacturers, including our ability to reach consumers via the online networks
operated by these console manufacturers. If increased costs are not offset by higher revenues and other cost efficiencies, our
business could be negatively impacted. If the consoles for which we develop new software products or modify existing products
do not attain significant consumer acceptance, we may not be able to recover our development costs, which could be
significant.
The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including
the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given
game.
We are increasingly dependent on our ability to develop, enhance, and monetize free‑to‑play games, such as the games in
our Candy Crush franchise, Hearthstone and Call of Duty: Mobile. As such, we are increasingly exposed to the risks of the
free‑to‑play business model. For example, we may invest in the development of new free‑to‑play interactive entertainment
products that do not achieve significant commercial success, in which case our revenues from those products likely will be
lower than anticipated and we may not recover our development costs. Further, our business may be negatively impacted if: (1)
we are unable to continue to encourage consumers to purchase our virtual items; (2) we fail to offer monetization features that
appeal to these consumers; (3) these consumers do not continue to play our game or purchase virtual items at the same rate;
(4) our platform providers make it more difficult or expensive for players to purchase our virtual items; (5) we cannot
encourage significant additional consumers to purchase virtual items in our game; and/or (6) our free-to-play releases reduce
sales of our other games. In addition, a continuing industry shift to free‑to‑play games could result in fewer consumers of
premium versions of our games.
The increasing importance of mobile gaming to our business exposes us to increased competition.
We have seen, and expect to continue to see new competitors enter the market for mobile games and existing competitors
to allocate more resources to developing and marketing competing mobile games and applications. We compete, or may
compete, with a vast number of small companies and individuals who are able to create and launch casual games and other
content using relatively limited resources and with relatively limited start‑up time or expertise. Competition for the attention of
consumers on mobile devices is intense, as the number of applications on mobile devices has been increasing dramatically,
which, in turn, has required increased marketing to garner consumer awareness and attention. This increased competition has
negatively impacted, and is expected to continue to negatively impact, our business.
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We may not realize the expected financial and operational benefits of our recent restructuring actions, and implementation
of such actions may negatively impact our business.
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
removing unnecessary levels of complexity and duplication from certain parts of our business. While we believe this
restructuring plan enables us to provide better opportunities for talent, and greater expertise and scale over the long term, our
ability to achieve the desired and anticipated benefits from the restructuring plan is subject to many estimates and assumptions,
and the actual savings and timing for those savings may vary materially based on factors such as local labor regulations,
negotiations with third parties, and operational requirements. These estimates and assumptions are also subject to significant
economic, competitive, and other uncertainties, some of which are beyond our control.
Additionally, there can be no assurance that our business will be more efficient or effective than prior to implementation
of the plan. The implementation of the plan may be more costly than we anticipated or have other negative consequences, such
as attrition beyond our planned reduction in workforce or negative impacts on employee morale and productivity, or on our
ability to attract and retain highly skilled employees. Any of these consequences could negatively impact our business. In
addition, there can be no assurance that additional restructuring plans will not be required or implemented in the future.
We may not be able to adequately adjust our cost structure in a timely fashion in response to a sudden decrease in demand.
In the event of a significant decline in demand for one or more of our products, we may not be able to reduce personnel or
make other changes to our cost structure without disrupting our operations or incurring costs. Further, we may not be able to
implement such actions in a timely manner, if at all, to offset an immediate shortfall in revenues and profit.
We may be involved in legal proceedings that have a negative impact on our business.
From time to time, we are involved in claims, suits, investigations, audits and proceedings arising in the ordinary course
of our business, including with respect to intellectual property, competition and antitrust matters, regulatory matters, tax
matters, privacy matters, labor and employment matters, compliance matters, unclaimed property matters, liability and personal
injury claims, product damage claims, collection matters, and/or commercial claims. 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, which, regardless of outcome, may be damaging to our reputation.
Claims, suits, investigations, audits, and proceedings are inherently difficult to predict, and their results are subject to
significant uncertainties, many of which are outside of our control. Regardless of the outcome, such legal proceedings can have
a negative impact on us due to 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.
We may be subject to intellectual property claims.
As the number of interactive entertainment software products increases and the features and content of these products
continue to overlap, software developers have increasingly become subject to infringement claims. Further, many of our
products are highly realistic and feature materials that are based on real‑world things or people, which may also be the subject
of claims of infringement of the intellectual property of others, including right of publicity, trademark, and unfair competition
claims. In addition, our products often utilize complex, cutting‑edge technology that may become subject to emerging
intellectual property claims of others. Although we take steps to avoid knowingly violating the intellectual property rights of
others, third parties may still claim infringement, particularly since there are many companies that focus exclusively on
enforcing patent rights.
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From time to time, we receive communications from third parties regarding such claims. Existing or future infringement
claims against us, whether meritorious or not, may be time consuming, distracting to management, and expensive to defend.
Further, intellectual property litigation or claims could force us to do one or more of the following:
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cease selling, incorporating, supporting, or using products or services that incorporate the challenged intellectual
property;
obtain a license from the holder of the infringed intellectual property, which, if available at all, may not 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.
Additionally, although we maintain insurance policies, they may be insufficient to reimburse the Company for all losses or
all types of claims that may be caused by our actual or alleged infringement of the intellectual property rights of others.
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 negative impact on our business.
Our income tax liability and effective tax rate could be adversely affected by a variety of factors, including changes in our
business, the mix of earnings in countries with differing statutory tax rates, changes in tax laws or tax rulings, changes in
interpretations of existing laws, or developments in tax examinations or investigations. Any of these factors could have a
negative impact on our business or require us to change the manner in which we operate our business. The tax regimes we are
subject to, or operate under, are unsettled and may be subject to significant change. Furthermore, tax authorities may choose to
examine or investigate our tax reporting or tax liability, including under transfer pricing or permanent establishment theories.
These proceedings may lead to adjustments or proposed adjustments to our income taxes or provisions for uncertain tax
positions.
Additionally, a number of countries are actively pursuing fundamental changes to the tax laws applicable to multinational
companies like us, including an increasing number that have enacted, or are considering enacting, revenue-based taxes on
digital services. These digital services taxes target various business activities, including online advertising and, in some cases,
video game sales. While the scope and applicability of these taxes often remains unclear, digital services taxes that ultimately
apply to us could have an adverse impact on our business.
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 introduced significant changes to U.S. income tax law that have had a
meaningful impact on our financial position and effective tax rate. Accounting for the income tax effects of the U.S. Tax
Reform Act and subsequent guidance issued required 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, which could result in adjustments to the income tax
effects of the U.S. Tax Reform Act we previously recorded. These adjustments could have a negative impact on our business.
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.
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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, including Call of Duty: Mobile and
certain titles currently in development. Because we depend on external developers, we are subject to the following risks:
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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 or the 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 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.
We engage in strategic transactions and may encounter difficulties in integrating acquired businesses or otherwise realizing
the anticipated benefits of these transactions.
As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and
joint ventures with, complementary businesses. These transactions may involve significant risks and uncertainties, including:
(1) in the case of an acquisition, (i) the potential for the acquired business to underperform relative to our expectations and the
acquisition price, (ii) the potential for the acquired business to cause our financial results to differ from expectations in any
given period, or over the longer-term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of the
acquired business’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; and (2) in the case of an investment, alliance, or joint venture, (i) our ability to cooperate with our partner,
(ii) our partner having economic, business, or legal interests or goals that are inconsistent with ours, and (iii) the potential that
our partner may be unable to meet its economic or other obligations, which may require us to fulfill those obligations alone.
Further, any such transaction may involve the risk that our senior management’s attention will be excessively diverted from our
other operations, the risk that our industry does not evolve as anticipated, and that any intellectual property or personnel skills
acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other
anticipated benefits are otherwise not achieved.
Our debt could adversely affect our business.
As of December 31, 2019, the Company had approximately $2.7 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 flows 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; 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 have
lower levels of debt. Further, though our current long-term debt all bears fixed interest rates, if and when we have borrowings
at floating rates of interest, it could expose us to the risk of increased interest rates with respect to those borrowings.
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Agreements governing our indebtedness, including our credit agreement entered into on October 11, 2013 (as amended
thereafter and from time to time, the “Credit Agreement”) and the indentures governing our notes, impose operating and
financial restrictions on our activities. In addition, under certain circumstances, the Credit Agreement and our indentures may
limit or prohibit other activities. 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 the 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 $1.5 billion 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.
The London Interbank Offered Rate (“LIBOR’) calculation method may change and LIBOR is expected to be phased out
after 2021.
Interest on our revolving credit facility, which is scheduled to mature in 2023, is calculated based on LIBOR. On July 27,
2017, the United Kingdom (“U.K.”) Financial Conduct Authority (the “FCA”) announced that it will no longer require banks to
submit rates for the calculation of LIBOR after 2021. In the meantime, actions by the FCA, other regulators, or law
enforcement agencies may result in changes to the method by which LIBOR is calculated. At this time, it is not possible to
predict the effect of any such changes or any other reforms to LIBOR that may be enacted in the U.K. or elsewhere on our
revolving credit facility.
Lawsuits have been filed, and may continue to be filed, against publishers of interactive entertainment software products.
In prior years, lawsuits have been filed against numerous interactive entertainment companies, including against us, by the
families of victims of violence, alleging that interactive entertainment products influence the behavior of the perpetrators of
such violence. These lawsuits have been dismissed, but similar additional lawsuits could be filed in the future. Although our
general liability insurance carrier has agreed to defend lawsuits of this nature with respect to the prior lawsuits, it is uncertain
whether insurance carriers would do so in the future, or if such insurance carriers would cover all or any amounts for which we
might be liable if such future lawsuits are not decided in our favor. Further, any such lawsuit could result in increased
governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, or decreased willingness by our
customers to purchase, or by our partners to provide marketing support for, those products. Such results could divert
development and management resources, increase legal fees and other costs, and have other negative impacts on our business.
We are exposed to seasonality in the sale of our products.
The interactive entertainment industry is somewhat seasonal, with the highest levels of consumer demand occurring
during the calendar year-end holiday buying season. As a result, our sales have historically been highest during the fourth
quarter of the year, particularly for our Activision segment. Receivables and credit risk are likewise higher during the fourth
quarter of the year, as 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-end holiday buying season, which could negatively impact our business.
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Our business may be harmed if our distributors, retailers, development and licensing partners, or other third parties with
whom we are affiliated, act in ways that put our brand at risk.
In many cases, our business partners, which may include, among others, individuals or entities affiliated with the esports
leagues we operate, are given access to sensitive and proprietary information or control over our intellectual property to provide
services and support to our team. These third parties may misappropriate our information or intellectual property and engage in
unauthorized use of it. The failure of these third parties to provide adequate services and technologies, the failure of third
parties 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.
Similarly, actions taken by third parties with whom we may be affiliated, which may include, among others, individuals or
entities affiliated with the esports leagues we operate, may act in a way that places our brand at risk, which could have an
adverse effect on our reputation and may negatively impact our business. At the same time, if the media, consumers, or
employees raise any concerns about our actions vis-à-vis those third parties, this could also damage our reputation or our
business.
We use open source software in connection with certain of our games and services, which may pose particular risks to our
proprietary software, products, and services in a manner that could have a negative impact on our business.
We use open source software in connection with some of the games and 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-engineer our games or products, discontinue distribution in the event re-
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.
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. Further, the use of
unauthorized “cheat” programs or the use of other unauthorized software modifications by users could impact multiplayer
gameplay or lead to reductions in microtransactions in our games.
We regard our software as proprietary and rely on a variety of methods, including a combination of copyright, patent,
trademark and trade secret laws and employee and third-party non-disclosure agreements, to protect our proprietary rights. We
own or license various copyrights, patents, trademarks, and trade secrets. The process of registering and protecting these rights
in various jurisdictions is expensive and time-consuming. Further, we are aware that some unauthorized copying occurs, and if
a significantly greater amount of unauthorized copying of our software products were to occur, it could negatively impact our
business.
Piracy is a persistent problem for us, and policing the unauthorized sale, distribution and use of our products is difficult,
expensive, and time-consuming. Further, the laws of some countries in which our products are, or may be, distributed either do
not protect our products and intellectual property rights to the same extent as the laws of the United States, or are poorly
enforced. In addition, though we take steps to make the unauthorized sale, distribution and use of our products more difficult
and to enforce and police our rights, as do the manufacturers of consoles and the operators of other platforms on which many of
our games are played, these efforts 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 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.
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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 products or the platforms upon which they run could be discovered after their release, which
may result in lost revenues from paying consumers or increased cost of developing technological measures to respond to these,
either of which could negatively impact our business.
We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in
connection with emerging technologies.
The insolvency or business failure of any of our business partners could negatively impact us.
Our sales, whether digital or retail, are concentrated in a small number of large customers. This makes us more vulnerable
to collection risk if one or more of these large customers becomes unable to pay for our products or seeks protection under the
bankruptcy laws. Retailers and distributors in the interactive entertainment industry have from time to time experienced
significant fluctuations in their businesses and a number of them have failed. Challenging economic conditions may impair the
ability of our customers to pay for products they have purchased and, as a result, our reserves for doubtful accounts and write-
off of accounts receivable could increase and, even if increased, may turn out to be insufficient. Moreover, even in cases where
we have insurance to protect against a customer’s bankruptcy, insolvency, or liquidation, this insurance typically contains a
significant deductible and co-payment obligation and does not cover all instances of non-payment. Further, the insolvency or
business failure of other types of business partners could result in disruptions to the manufacturing or distribution of our
products or the cancellation of contractual arrangements that we consider to be favorable. A payment default by, or the
insolvency or business failure of, a significant business partner could negatively impact our business. In addition, having such
a large portion of our total net revenues concentrated in a few customers reduces our negotiating leverage with these customers.
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 and Asia. Moving forward, we expect that international sales will continue to
account for a significant portion of our total revenues and profits and, moreover, that sales in emerging markets in Asia and
elsewhere will continue to be an 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 products and
business model to satisfy regulatory requirements. The future implementation of similar or new laws or regulations in China or
any other country in which we have operations or sales may restrict or prohibit the sale of our products or may require
engineering modifications to our products and our business model that are not cost-effective, if even feasible at all, or could
degrade the consumer experience to the point where consumers cease to purchase such products. The Chinese game approval
procedure was suspended from March 2018 until December 2018 and, due to the large number of pending applications and
unclear approval timeframes, it remains uncertain as to if and when our new products will be approved for release in China.
Further, the enforcement of regulations relating to mobile and other games with an online element in China remains uncertain,
and further changes, either in the regulations or their enforcement, could have a negative impact on our business in China.
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.
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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 U.K. approved an advisory referendum to withdraw from the European Union
(the “E.U.”), commonly referred to as “Brexit.” The U.K. commenced withdrawal proceedings with the E.U. in March 2017,
and, on January 31, 2020, left the E.U. This withdrawal has created political and economic uncertainty, particularly in the U.K.
and the E.U., and this uncertainty may persist for years. The uncertainty surrounding the consequences of the U.K.’s withdrawal
could adversely impact consumer and investor confidence and the level of sales of discretionary items, including our products.
The terms of the U.K.’s future trade agreements with the E.U. or other nations could negatively impact global financial markets,
including currency exchange rates and interest rates, which could have a negative impact on our business, our suppliers and
business partners, or our lenders and financial counterparties. Further, the terms of the U.K.’s future trade agreements with the
E.U. or other nations could potentially cause adverse disruptions to our operations, including (1) for our workforce, or the
workforce of our suppliers, business partners, lenders or financial counterparties, in the U.K. or the E.U. as a result of potential
changes to applicable employment or immigration rules; and (2) to our systems and information technology infrastructure or
that of our suppliers, business partners, lenders or financial counterparties as a result of potential changes to regulations for data
security or other data protection rules. Given our extensive global operations, the potential widespread impacts triggered
through Brexit could adversely affect 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 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.
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Additionally, retailers may decline to sell interactive entertainment software containing what they judge to be graphic
violence or sexually explicit material or other content that they deem inappropriate for their businesses, whether because a
product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our
products based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material, or
other generally objectionable content, we might be required to modify particular titles or forfeit the revenue opportunity of
selling such titles with that retailer.
Our games may include undisclosed content or features. If our retailers refuse to sell such titles, or consumers refuse to
purchase such titles, due to what they perceive to be objectionable undisclosed content, it could have a negative impact on
our business.
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, 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 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 results of operations or reputation may be harmed as a result of objectionable consumer- or other third party-created
content.
Certain of our games and esports broadcasts support collaborative online features that allow consumers to post narrative
comments, in real time, that are visible to other consumers. Additionally, certain of our games allow consumers to create and
share “user‑generated content” that is visible to other consumers. From time to time, objectionable and offensive consumer
content may be distributed within our games and on our broadcasts through these features or to gaming websites or other sites
or forums with online chat features or that otherwise allow consumers to post comments. We may be subject to lawsuits,
governmental regulation or restrictions, and consumer backlash (including decreased sales and harmed reputation), as a result
of consumers posting offensive content.
Additionally, we have begun to generate revenue through offering advertising within certain of our franchises and in
connection with our esports broadcasts. The content of in‑game advertisements and esports broadcast advertisements is
generally created and delivered by third‑party advertisers without our pre‑approval, and, as such, objectionable content may be
published in our games or during our esports broadcasts by these advertisers. This objectionable third party‑created content may
expose us to regulatory action or claims related to content, or otherwise negatively impact our business. We may also be subject
to consumer backlash from comments made in response to postings we make on social media sites such as Facebook, YouTube
and Twitter.
Our business, products, and distribution are subject to increasing regulation in key territories. If we do not successfully
respond to these regulations, our business could be negatively impacted.
The video game industry continues to evolve, and new and innovative business opportunities are often subject to new
attempts at regulation. As such, legislation is continually being introduced, and litigation and regulatory enforcement actions are
taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute
and advertise our products. These laws, regulations, and investigations are related to protection of minors, gambling, consumer
privacy, accessibility, advertising, taxation, payments, intellectual property, distribution, and antitrust, among others.
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For example, many foreign countries have laws that permit governmental entities to restrict or prohibit marketing or
distribution of interactive entertainment software products because of the content therein (and similar legislation has been
introduced at one time or another at the federal and state levels in the United States, including legislation that attempts to
impose additional taxes based on content). In addition, certain jurisdictions have laws that restrict or prohibit marketing or
distribution of interactive entertainment software products with random digital item mechanics, which some of our online
games and services include, or subject such products to additional regulation and oversight, such as reporting to regulators.
Also, 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 tournaments and games, many of which
are still evolving and could be interpreted in ways that could harm our business. Further, the growth and development of
electronic commerce 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. Also, existing laws or new laws regarding the marketing of in-app purchases, regulation of currency, banking
institutions, unclaimed property, and money laundering may be interpreted to cover virtual currency or goods. In 2019, the
World Health Organization included “gaming disorder” in the 11th Revision of the International Classification of Diseases
(ICD-11) leading some countries to consider legislation and policies aimed at addressing this issue. Moreover, the public
dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers’ willingness to
purchase our products.
The adoption and enforcement of legislation that restricts the marketing, content, business model, or sales of our products
in countries in which we do business may harm the sales of our products, as the products we are able to offer to our customers
and the size of the potential audience for our products may be limited. We may be required to modify certain product
development processes or products or alter our marketing strategies to comply with regulations, which could be costly or delay
the release of our products. In addition, the laws and regulations affecting our products vary by territory and may be
inconsistent with one another, imposing conflicting or uncertain restrictions. Failure to comply with any applicable legislation
may also result in government-imposed fines or other penalties, as well as harm to our reputation.
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 impair our consumers’ online video game
experiences, decrease the demand for our products and services or increase our cost of doing business. Although certain
jurisdictions have implemented laws and regulations intended to prevent Internet service providers from discriminating against
particular types of legal traffic on their networks, other jurisdictions may lack such laws and regulations or repeal existing laws
or regulations. For example, in December 2017, the Federal Communications Commission voted to repeal net neutrality
regulations in the U.S. and, following that decision, several states enacted net neutrality regulations. Given uncertainty around
these rules relating to the Internet, including changing interpretations, amendments, or repeal of those rules, coupled with the
potentially significant political and economic power of local Internet service providers and the relatively significant level of
Internet bandwidth access our products and services require, we could experience discriminatory or anti-competitive practices
that could impede our growth, cause us to incur additional expenses, or otherwise negatively impact our business.
23
23
The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and
regulations could harm our business.
Consumers play certain of our games online using our own distribution platforms, including Blizzard Battle.net, third-
party platforms and networks, through online social platforms, and on mobile devices. We collect and store information about
our consumers, including consumers who play these games. In addition, we collect and store information about our employees.
We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this information, including the
E.U.’s General Data Protection Regulation (the “GDPR”), the U.S. Children’s Online Privacy Protection Act, which regulates
the collection, use, and disclosure of personal information from children under 13 years of age, and the California Consumer
Privacy Act (“CCPA”), among others. Failure to comply with any of these laws or regulations may increase our costs, subject
us to expensive and distracting government investigations, result in substantial fines, or result in lawsuits and claims against us
to the extent these laws include a private right of action.
Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future and may be
inconsistent from jurisdiction to jurisdiction. For example, the E.U. has traditionally taken a broader view than the United
States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under
data privacy and protection regulations, including those imposed under the GDPR. The U.S. government, including the Federal
Trade Commission and the Department of Commerce, as well as various U.S. state governments, are continuing to review the
need for greater regulation over the collection of personal information and information about consumer behavior on the Internet
and on mobile devices. Complying with emerging and changing laws could require us to incur substantial costs or impact our
approach to operating and marketing our games. Due to the rapidly changing nature of these data privacy protection laws, there
is not always clear guidance from the respective governments and regulators regarding the interpretation of the law, which may
create the risk of an inadvertent violation. Various government and consumer agencies worldwide have also called for new
regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers and
external data processors to assist us in ensuring compliance with these various types of regulations, and a violation by one of
these third parties may also subject us to government investigations and result in substantial fines.
Player interaction with our games is subject to our privacy policies, end user license agreements (“EULAs”), and terms of
service. If we fail to comply with our posted privacy policies, EULAs, or terms of service, or if we fail to comply with existing
privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental
authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition,
and harm our business. If regulators, the media, consumers, or employees raise any concerns about our privacy and data
protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage
our reputation, negatively impact our financial condition, or damage our business.
We depend on servers and networks to operate our games with online features and our proprietary online gaming service. If
we were to lose functionality in any of these areas for any reason, our business may be negatively impacted.
Our business relies on the continuous operation of servers, some of which are owned and operated by third parties.
Although we strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited
hardware failure, any broad-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. The risk is particularly pronounced with respect to: (1) the mobile games published by King,
which rely on a small number of third-party owned data centers located in one city; (2) 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 as selected Activision content for the PC platform, unavailable; and (3) Activision’s
multiplayer game services which rely on systems hosted in a hybrid of data centers across the world as well as cloud providers.
We also rely on platforms and networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam,
for the sale and digital delivery of downloadable console and PC game content and the functionality of our games with online
features. Similarly, we rely on those platforms and networks, as well as the continued operation of the Apple App Store, the
Google Play Store, and Facebook, for the sale of virtual currency 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, which could result in a loss of revenue and otherwise negatively impact our business.
24
24
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.
Any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on
which we rely 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 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, viruses, phishing, denial of service,
and similar attacks) or other breach of the systems 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 (including personally
identifiable 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 service 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 services, we may have a loss in sales or subscriptions or be forced to pay damages or incur
other costs, including from the implementation of additional cyber and physical security measures, or suffer reputational
damage. Additionally, although we maintain insurance policies, they may be insufficient to reimburse the Company 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, including regulatory investigations and actions, 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.
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 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 revenues of those products. Further, as we increase
our downloadable content and add new features to our online services, our estimate of the service period may change, and we
could be required to recognize revenues, and defer related costs, over a shorter or longer period of time. As we enhance, expand
and diversify our business and product offerings, the application of existing or future financial accounting standards,
particularly those relating to the way we account for revenues and income taxes, could have a significant impact on our reported
net revenues, net income and earnings per share under accounting principles generally accepted in the United States in any
given period.
25
25
Provisions in our corporate documents and Delaware state law could delay or prevent a change of control.
Our Fourth Amended and Restated Bylaws contain a provision regulating the ability of shareholders to bring matters for
action before annual and special meetings. The regulations on shareholder action could make it more difficult for any person
seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. In addition,
our Third Amended and Restated Certificate of Incorporation authorizes the issuance of so-called “blank check” preferred
stock. This ability of our Board of Directors to issue and fix the rights and preferences of preferred stock could effectively
dilute the interests of any person seeking control or otherwise make it more difficult to obtain control.
Catastrophic events may disrupt our business.
Our corporate headquarters and our primary corporate data center are located in the Los Angeles, California area, which is
near a major earthquake fault. A major earthquake or other catastrophic event that results in the destruction or disruption of any
of our critical business or information technology systems, or otherwise prevents us from conducting our normal business
operations, could require significant expenditures to resume operations and negatively impact our business. While we maintain
insurance coverage for some of these events, the potential liabilities associated with such events could exceed the insurance
coverage we maintain. Further, our system redundancy may be ineffective or inadequate and our disaster recovery planning
may not be sufficient for all eventualities. Any such event could also limit the ability of retailers, distributors or our other
customers to sell or distribute our products.
Significant disruption during our live events may adversely affect our business.
We, as well as the teams in the esports leagues we operate, host numerous live events each year, many of which are
attended by a large number of people. There are many risks that are inherent in large gatherings of people, including the risk of
an actual or threatened terrorist act, fire, explosion, protests and riots, and other safety or security issues, any one of which
could result in injury or death to attendees and/or damage to the facilities at which such an event is hosted. While we maintain
insurance policies, they may be insufficient to reimburse us for all losses or all types of claims that may be caused by such an
event. Moreover, if there were a public perception that the safety or security measures are inadequate at the events we host or
events hosted by teams in the esports leagues we operate, whether or not the case, it could result in reputational damage and a
decline in future attendance at events hosted by us or those teams. Any one of these things could harm our business.
Large-scale medical emergencies or public health epidemics could adversely effect on our business.
Epidemics, medical emergencies and other public health crises outside of our control could have a negative impact on our
business. Large-scale medical emergencies can take many forms and can cause widespread illness and death. For example, in
December 2019, a strain of coronavirus surfaced in Wuhan, China, and currently, there are no vaccines or antiviral drugs
approved for prevention or treatment. Although the extent of the impact from the coronavirus outbreak is unknown at this time,
it could affect the health of our employees, or otherwise impact the productivity of our employees, third-party organizations
with which we partner, or regulatory agencies we rely on, which may prevent us from delivering content in a timely manner or
otherwise executing our business strategies. It could also affect the health of our consumers, which may affect sales of our
products or result in lower-than-expected attendance at, or the cancellation of, events hosted by us or teams in the esports
leagues we operate (as has already occurred for a number of scheduled events). If any of these things happen, our business
could be negatively impacted.
If general economic conditions decline, demand for our products could decline.
Purchases of our products and services involve discretionary spending on the part of consumers. Consumers are generally
more willing to make discretionary purchases, including purchases of products and services like ours, during periods in which
favorable economic conditions prevail. As a result, our products are sensitive to general economic conditions and economic
cycles. A reduction or shift in domestic or international consumer spending could result in an increase in our selling and
promotional expenses, in an effort to offset that reduction, and could negatively impact our business.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our principal corporate and administrative offices, which includes our Activision segment’s headquarters, are located in
Santa Monica, California and consist of approximately 150,000 square feet of leased office space.
Our Activision segment primarily leases office space for development studio personnel, with a total of approximately
500,000 square feet of leased spaces throughout the U.S., primarily in California, New York, and Wisconsin. We also lease
approximately 740,000 square feet of office space in Irvine, CA for our Blizzard segment’s headquarters, which includes
administrative and development studio space, and approximately 68,000 square feet of office space in London, United
Kingdom for our King segment’s headquarter offices. King also leases approximately 200,000 square feet of office space for
additional administrative and development studio space in Barcelona, Spain and Stockholm, Sweden.
In total, we have approximately 80 facility leases, primarily for other administrative and sales functions and development
studio personnel, in the following countries: Australia, Brazil, Canada, China, France, Germany, Ireland, Japan, Malta, Mexico,
the Netherlands, Poland, Romania, South Korea, Spain, Sweden, Taiwan, the United Kingdom, and the United States.
The only facilities currently owned by the Company are two European warehouses utilized by the Distribution segment,
one located in Burglengenfeld, Germany, and the other in Venlo, the Netherlands.
We anticipate no difficulty in extending the leases of our facilities or obtaining comparable facilities in suitable locations,
as needed, and we consider our facilities to be adequate for our current needs.
Item 3. LEGAL PROCEEDINGS
In December 2017, we received a Notice of Reassessment from the French Tax Authority (the “FTA”) related to transfer
pricing for intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total
assessment, including interest and penalties, was approximately €571 million (approximately $638 million). In December 2019,
the Company reached a settlement with the FTA for the 2011 through 2018 tax years, resulting in the recognition of $54 million
of tax expense in the period ended December 31, 2019 and a tax payment of €161 million (approximately $179 million),
including interest and penalties, in January 2020.
In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising in the ordinary
course of business, including with respect to intellectual property, competition and antitrust matters, regulatory matters, tax
matters, privacy matters, labor and employment matters, compliance matters, unclaimed property matters, liability and personal
injury claims, product damage claims, collection matters, and/or commercial claims. In the opinion of management, after
consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a
material adverse effect on our business, financial condition, results of operations, or liquidity.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
27
27
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock is quoted on the Nasdaq National Market under the symbol “ATVI”. At February 20, 2020, there were
1,574 holders of record of our common stock.
Stock Performance Graph
This performance graph shall not be deemed “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.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
among Activision Blizzard, Inc., the Nasdaq Composite Index, the S&P 500 Index,
and the RDG Technology Composite Index
The following graph and table compare the cumulative total stockholder return on our common stock, the Nasdaq
Composite Index, the S&P 500 Index, and the RDG Technology Composite Index. The graph and table assume that $100 was
invested on December 31, 2014, 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.
$400
$400
$350
$350
$300
$300
$250
$250
$200
$200
$150
$150
$100
$100
$50
$50
$0
$0
▲
▲
▲
▲
▲
12/14
12/14
12/15
12/15
12/16
12/16
12/17
12/17
12/18
12/18
12/19
12/19
Activision Blizzard, Inc.
▲
NASDAQ Composite
S&P 500
RDG Technology Composite
Activision Blizzard, Inc.
Nasdaq Composite
S&P 500
Fiscal year ending December 31:
Activision Blizzard, Inc.
Nasdaq Composite
S&P 500
RDG Technology Composite
RDG Technology Composite
12/14
12/15
12/16
12/17
12/18
12/19
$
$
100.00
100.00
100.00
100.00
$
194.07
106.96
101.38
103.42
$
182.50
116.45
113.51
118.01
$
321.96
150.96
138.29
161.58
$
238.01
146.67
132.23
162.31
306.15
200.49
173.86
238.96
Cash Dividends
28
We have paid a dividend annually since 2010. Below is a summary of cash dividends paid over the past three fiscal years,
along with the dividend most recently declared by the Board of Directors that will be paid in May 2020:
28
S&P 500
RDG Technology Composite
100.00
100.00
101.38
103.42
113.51
118.01
138.29
161.58
132.23
162.31
173.86
238.96
Cash Dividends
We have paid a dividend annually since 2010. Below is a summary of cash dividends paid over the past three fiscal years,
along with the dividend most recently declared by the Board of Directors that will be paid in May 2020:
Year
2020
2019
2018
2017
Per Share Amount
$0.41
$0.37
$0.34
$0.30
Record Date
Dividend Payment Date
4/15/2020
3/28/2019
3/30/2018
3/30/2017
5/6/2020
5/9/2019
5/9/2018
5/10/2017
Future dividends will depend upon our earnings, financial condition, cash requirements, anticipated future prospects, and
other factors deemed relevant by our Board of Directors. There can be no assurances that dividends will be declared in the
future.
10b5-1 Stock Trading Plans
The Company’s directors and employees may, at a time they are not aware of material non-public information, enter into
plans to purchase or sell shares of our common stock that satisfy the requirements of Exchange Act Rule 10b5-1 (“Rule 10b5-1
Plans”). Rule 10b5-1 Plans permit persons whose ability to purchase or sell our common stock may otherwise be substantially
restricted (by quarterly and special stock-trading blackouts and by their possession from time to time of material nonpublic
information) to trade on a pre-arranged, “automatic-pilot” basis.
Trading under Rule 10b5-1 Plans is subject to certain conditions, including that the person for whom the plan is created
(or anyone else aware of material non-public information acting on such person’s behalf) not exercise any subsequent influence
regarding the amount, price, and dates of transactions under the plan. In addition, the Company requires Rule 10b5-1 Plans to
be established and maintained in accordance with the Company’s “Policy on Establishing and Maintaining 10b5-1 Trading
Plans.”
Trades under a Rule 10b5-1 Plan by our directors and employees are not necessarily indicative of their respective
opinions of our current or potential future performance at the time of the trade. Trades by our directors and executive officers
pursuant to a Rule 10b5-1 Plan will be disclosed publicly through Form 144 and Form 4 filings with the SEC, in accordance
with applicable laws, rules, and regulations.
Issuer Purchase of Equity Securities
On January 31, 2019, our Board of Directors authorized a stock repurchase program under which we are authorized to
repurchase up to $1.5 billion of our common stock during the two-year period from February 14, 2019 until the earlier of
February 13, 2021 and a determination by the Board of Directors to discontinue the repurchase program. To date, we have not
repurchased any shares under this program.
On February 2, 2017, our Board of Directors authorized a stock repurchase program under which we were authorized to
repurchase up to $1 billion of our common stock during the two-year period from February 13, 2017 through February 12,
2019. We did not repurchase any shares under this program.
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Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data, which should be read in conjunction with
our consolidated financial statements and notes thereto in Item 8 and with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included under Item 7 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, 2019, is derived from
our consolidated financial statements and include the operations of King commencing on February 23, 2016. All amounts set
forth in the following tables are in millions, except per share data.
Statement of Operations Data (1):
Net revenues
Net income (2)
Basic net income per share
Diluted net income per share
Cash dividends declared per share
Operating cash flows
Balance Sheet Data:
Cash and investments (3)
Total assets
Long-term debt, net (4)
Long-term debt, gross
Net debt (5)
For the Years Ended December 31,
2019
2018 (6)
2017
2016
2015
$
6,489
$
7,500
$
7,017
$
6,608
$
4,664
1,503
1.96
1.95
0.37
1,848
2.43
2.40
0.34
273
0.36
0.36
0.30
966
1.30
1.28
0.26
892
1.21
1.19
0.23
$
$
1,831
$
1,790
$
2,213
$
2,155
$
1,259
5,863
$
4,380
$
4,775
$
3,271
$
19,845
17,890
18,668
17,452
2,675
2,700
—
2,671
2,700
—
4,390
4,440
—
4,887
4,940
1,669
1,840
15,246
4,074
4,119
2,279
(1) On January 1, 2018, we adopted a new revenue accounting standard utilizing the modified retrospective method of
transition. As a result, periods prior to January 1, 2018 have not been restated to reflect the new accounting standard and
continue to be reported under the accounting standards that were in effect for those periods.
(2) Net income for 2019, 2018, and 2017 includes the impact of significant discrete tax-related impacts, including incremental
income tax expense and benefits in 2017 and 2018 due to the application of the U.S. Tax Reform Act. See further
discussion in Note 19 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K.
(3) Cash and investments consists of cash and cash equivalents along with short-term and long-term investments. We had total
investments of $69 million, $155 million, $62 million, $26 million, and $17 million, as of December 31, 2019, December
31, 2018, December 31, 2017, December 31, 2016, and December 31, 2015, respectively. Cash and investments as of
December 31, 2015, excludes $3,561 million of cash placed in escrow for the acquisition of King.
(4) For discussion on our debt obligations, see Note 13 of the notes to the consolidated financial statements included in Item 8
of this Annual Report on Form 10-K.
(5) Net debt is defined as long-term debt, gross less cash and investments.
(6) During the three months ended March 31, 2019, we identified an amount which should have been recorded in the three
months and year ended December 31, 2018 to reduce income tax expense by $35 million. Our selected financial data for
the year ended December 31, 2018, as presented above, has been revised to reflect the correction. See further discussion in
Note 2 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Business Overview
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We
develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also
operate esports leagues and offer digital advertising within our content. The terms “Activision Blizzard,” the “Company,” “we,”
“us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.
Reportable Segments
Based upon our organizational structure, we conduct our business through three reportable segments: Activision, Blizzard,
and King.
(i) Activision
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 primarily based on our internally developed intellectual properties.
Activision also includes the activities of the Call of Duty League, a global professional esports league with city-based teams for
Call of Duty.
(ii) Blizzard
Blizzard is a leading global developer and publisher of interactive software products and entertainment content,
particularly for the PC platform. Blizzard primarily delivers content through 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 and selected Activision content, online social connectivity, and the creation of user-generated content.
Blizzard also includes the activities of the Overwatch League, the first major global professional esports league with city-based
teams.
(iii) King
King is a leading global developer and publisher of interactive entertainment content and services, particularly for the
mobile platform, including for Google’s Android and Apple’s iOS. King also distributes its content 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 or real currency, and we continue to focus on in-game advertising as a growing source of additional revenue.
Other
We also engage in other businesses that do not represent reportable segments, including our 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.
Destiny Franchise
In 2010, Activision entered into an exclusive relationship with Bungie to publish games in the Destiny franchise. Effective
December 31, 2018, Activision and Bungie mutually agreed to terminate their publishing relationship related to the Destiny
franchise. As part of this termination, Activision agreed to transfer its publishing rights for the Destiny franchise to Bungie in
exchange for cash and Bungie’s assumption of on-going customer obligations of Activision. As a result of the agreement to
terminate the relationship, the Company recognized net bookings, a key operating metric, of $20 million, GAAP revenues of
$164 million, and GAAP operating income of $91 million for the year ended December 31, 2018. Activision no longer has any
material rights or obligations related to the Destiny franchise.
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31
Business Results and Highlights
Financial Results
2019 financial highlights included:
•
•
•
•
•
•
consolidated net revenues decreased 13% to $6.5 billion and consolidated operating income decreased 19% to
$1.6 billion, as compared to consolidated net revenues of $7.5 billion and consolidated operating income of $2.0
billion in 2018;
revenues from digital online channels decreased 15% to $4.9 billion and were 76% of consolidated net revenues,
as compared to $5.8 billion and 77% of consolidated net revenues in 2018;
operating margin was 24.8%, as compared to 26.5% in 2018;
consolidated net income decreased to $1.5 billion, as compared to $1.8 billion in 2018, which included significant
discrete tax-related impacts in both 2019 and 2018—refer to “Consolidated Results, Income Tax Expense”
discussion below for details;
diluted earnings per common share decreased to $1.95, as compared to $2.40 in 2018; and
cash flows from operating activities were approximately $1.83 billion, an increase of 2%, as compared to $1.79
billion in 2018.
Since certain of our games are hosted online or include significant online functionality that represents a separate
performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games and
recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net
revenues and operating income for the year ended December 31, 2019, include net effects of $101 million and $52 million,
respectively, from the recognition of deferred net revenues and related cost of revenues.
Additionally, for the year ended December 31, 2019, 18% of total net revenues recognized were from revenue sources that
were recognized at a “point-in-time,” while “over-time and other” revenues were 82% of total net revenues. Revenue
recognized at a “point-in-time” is primarily comprised of the portion of revenue from software products that is recognized when
the customer takes control of the product (i.e., upon delivery of the software product) and revenues from our Distribution
business. “Over-time and other revenue” is primarily comprised of revenue associated with the online functionality of our
games, in-game purchases, and subscriptions.
Content Release and Event Highlights
Games and downloadable content that were released during 2019, include:
•
•
•
•
•
•
•
Activision’s SekiroTM: Shadows Die Twice;
Activision’s CrashTM Team Racing Nitro-Fueled;
Activision’s Spyro® Reignited Trilogy on Nintendo Switch and PC;
Activision’s Call of Duty: Mobile;
Activision’s Call of Duty: Modern Warfare;
Blizzard’s World of Warcraft® Classic; and
Blizzard’s latest expansions to Hearthstone—Rise of ShadowsTM, Saviors of UldumTM, Tombs of TerrorTM,, and
Descent of DragonsTM.
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The Overwatch League, the first major global professional esports league with city-based teams, completed its second
season in 2019 and began its third season in February 2020. During 2019, we also sold the first 12 teams for the Call of Duty
League, which began its first season in January 2020.
International Sales
International sales are a fundamental part of our business. An important element of our international strategy is to develop
content that is specifically directed toward local cultures and customs. Net revenues from international sales accounted for
approximately 54%, 54%, and 55% of our total consolidated net revenues for the years ended December 31, 2019, 2018, and
2017, respectively. The majority of our net revenues from foreign countries are generated by consumers in Australia, Brazil,
Canada, China, France, Germany, Italy, Japan, the Netherlands, South Korea, Spain, Sweden, and the United Kingdom. Our
international business is subject to risks typical of an international business, including, but not limited to, foreign currency
exchange rate volatility and changes in local economies. Accordingly, our future results could be materially and adversely
affected by changes in foreign currency exchange rates and changes in local economies.
Operating Metrics
The following operating metrics are key performance indicators that we use to evaluate our business. The key drivers of
changes in our operating metrics are presented in the order of significance.
Net bookings and In-game net bookings
We monitor net bookings as a key operating metric in evaluating the performance of our business because it enables an
analysis of performance based on the timing of actual transactions with our customers and provides more timely indication of
trends in our operating results. Net bookings is the net amount of products and services sold digitally or sold-in physically in
the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings is equal to net
revenues excluding the impact from deferrals. In-game net bookings primarily includes the net amount of downloadable content
and microtransactions sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.
Net bookings and in-game net bookings were as follows (amounts in millions):
Net bookings
In-game net bookings
Net bookings
For the Years Ended December 31,
2019
2018
Increase
(Decrease)
$
$
6,388
3,366
$
$
7,262
4,203
$
$
(874)
(837)
The decrease in net bookings for 2019, as compared to 2018, was primarily due to:
•
•
a $572 million decrease in Blizzard net bookings primarily driven by (1) lower net bookings from Hearthstone
and (2) overall lower net bookings from World of Warcraft expansion and in-game content sales, primarily due
to World of Warcraft: Battle for Azeroth, which was released in August 2018, with no comparable release in 2019
(although net bookings from subscriptions increased due to the release of World of Warcraft Classic in August
2019);
a $239 million decrease in Activision net bookings primarily driven by (1) lower net bookings from the Destiny
franchise (reflecting our sale of the publishing rights for Destiny to Bungie in December 2018) and (2) lower net
bookings from Call of Duty franchise catalog titles, partially offset by net bookings from Sekiro: Shadows Die
Twice, Crash Team Racing Nitro-Fueled, and Call of Duty: Mobile, which were new releases in March 2019, June
2019, and October 2019, respectively; and
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33
•
a $55 million decrease in King net bookings primarily driven by lower net bookings from player purchases across
various franchise titles, primarily driven by the Candy Crush franchise, partially offset by an increase in
advertising net bookings.
In-game net bookings
The decrease in in-game net bookings for 2019, as compared to 2018, was primarily due to:
•
•
•
a $539 million decrease in Blizzard in-game net bookings primarily driven by (1) lower in-game net bookings
from Hearthstone and (2) lower in-game net bookings from World of Warcraft, in part due to World of Warcraft:
Battle for Azeroth;
a $167 million decrease in Activision in-game net bookings primarily due to lower in-game net bookings from the
Destiny franchise, partially offset by in-game net bookings from Call of Duty: Mobile; and
a $131 million decrease in King in-game net bookings primarily due to lower in-game net bookings across various
franchise titles, primarily driven by the Candy Crush franchise.
Monthly Active Users
We monitor monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number
of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total
number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An
individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for
Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be
counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant
period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these
instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable
estimates of MAUs for these third-party published games.
The number of MAUs for a given period can be significantly impacted by the timing of new content releases, since new
releases may cause a temporary surge in MAUs. Accordingly, although we believe that overall trending in the number of MAUs
can be a meaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends. The
following table details our average MAUs on a sequential quarterly basis for each of our reportable segments (amounts in
millions):
Activision
Blizzard
King
Total
December 31,
2019
September 30,
2019
June 30, 2019 March 31, 2019
December 31,
2018
September 30,
2018
128
32
249
409
36
33
247
316
37
32
258
327
41
32
272
345
53
35
268
356
46
37
262
345
Average MAUs increased by 93 million, or 29%, for the three months ended December 31, 2019, as compared to the three
months ended September 30, 2019, primarily due to an increase in average MAUs for Activision driven by the Call of Duty
franchise as a result of the October 2019 launches of Call of Duty: Mobile and Call of Duty: Modern Warfare.
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34
Average MAUs increased by 53 million, or 15%, for the three months ended December 31, 2019, as compared to the three
months ended December 31, 2018. The year-over-year increase in average MAUs is due to higher average MAUs for
Activision, primarily driven by the launch Call of Duty: Mobile, partially offset by the absence of Destiny MAUs in our
operating metric. The overall increase is partially offset by:
•
•
decreases across King’s various franchises, primarily from less engaged users leaving the network; and
lower average MAUs for Blizzard due to lower average MAUs for Hearthstone and Overwatch, partially offset by
higher average MAUs for World of Warcraft.
Management’s Overview of Business Trends
Interactive Entertainment Growth, Including Mobile Gaming
Our business participates in the global interactive entertainment industry. Games have become an increasingly popular
form of entertainment, and we estimate the total industry has grown, on average, 13% annually from 2016 to 2019. The
industry continues to benefit from additional players entering the market as interactive entertainment becomes more
commonplace across age groups and as more developing regions gain access to this form of entertainment.
Further, wide adoption of smartphones globally and the free-to-play business model on those platforms has increased the
total addressable audience for gaming significantly by introducing gaming to new age groups and new regions and allowing
gaming to occur more widely outside the home. Mobile gaming is estimated to be larger than console and PC gaming, and
continues to grow at a 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 in our franchises. The October 2019 launch of Call of Duty: Mobile is an example of these efforts.
Opportunities to Expand Franchises Outside of Games
Our fans spend significant time engaging in our franchises and investing through purchases of our game content,
including full games, downloadable content and microtransactions. Given the passion our players have for our franchises, we
believe there are emerging opportunities to drive additional engagement and investment in our franchises outside of games. Our
efforts to build these adjacent opportunities are still relatively nascent, but we view them as potentially significant sources of
future revenues.
For example, as part of our efforts to take advantage of esports opportunities, we have sold rights for 20 teams that are
participating in the Overwatch League, which recently began its third season in February 2020, and, during 2019, we sold rights
for the first 12 teams for the Call of Duty League, which began its first season in January 2020.
Concentration of Sales Among the Most Popular Franchises
The concentration of retail revenues among key titles has continued as a trend in the overall interactive entertainment
industry. According to The NPD Group, the top 10 titles accounted for 33% of the retail sales in the U.S. interactive
entertainment industry in 2019. Similarly, a significant portion of our revenues historically has been derived from video games
based on a few popular franchises, and these video games have also been responsible for a disproportionately high percentage
of our profits. For example, in 2019, the Call of Duty, Candy Crush, and World of Warcraft franchises, collectively, accounted
for 67% of our consolidated net revenues—and a significantly higher percentage of our operating income.
The top titles in the industry are also becoming more consistent as players and revenues concentrate more heavily in
established franchises. Of the top 10 console franchises in the U.S. in 2019, 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 2019, the
top 10 mobile games have held such ranking for an average of 25 months.
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35
In addition to investing in, and developing sequels and content for, our top franchises, with the aim of releasing content
more frequently, we are continually exploring additional ways to expand those franchises. Further, while there is no guarantee
of success, we invest in new properties in an effort to develop future top franchises. For example, in 2014, we released
Hearthstone, and in 2016, we released Overwatch. Additionally, to diversify our portfolio of key franchises and increase our
presence on the mobile platform, in 2016, we acquired King. We also have been focusing on expanding our franchises to the
mobile platform, as demonstrated by the recently released Call of Duty: Mobile, as well as our plans for Diablo ImmortalTM ,
which is currently in development.
Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high
percentage of our, and the industry’s, revenues and profits in the near future. Accordingly, our ability to maintain our top
franchises and our ability to successfully compete against our competitors’ top franchises can significantly impact our
performance.
Recurring Revenue Business Models and Seasonality
Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our
business further towards a more consistently recurring and year-round model. Offering downloadable content and
microtransactions, in addition to full games, allows our players to access and invest in new content throughout the year. This
incremental content not only provides additional high-margin revenues, it can also increase player engagement. Also, mobile
games, and free-to-play games more broadly, are generally less seasonal than premium games developed primarily for the
console or PC platforms.
While our business is shifting toward a year-round engagement model, the interactive entertainment industry remains
somewhat seasonal. We have historically experienced our highest sales volume, particularly for Activision, in the calendar year-
end holiday buying season.
Outlook
In the second half of 2020, we plan to release the next premium title in our Call of Duty franchise and the next expansion
for World of Warcraft, World of Warcraft: Shadowlands. In addition, throughout the year we expect to deliver ongoing content
for our various franchises, including continued in-game content for Call of Duty: Modern Warfare and Call of Duty: Mobile,
expansion packs and content updates for Hearthstone, in-game events for Overwatch, and continued releases of content,
features, and services across King’s portfolio with an ongoing focus on the Candy Crush franchise. We will also continue to
invest in opportunities that we think have the potential to drive our growth over the long-term, including continuing to build on
our advertising and esports initiatives. We expect lower revenues and earnings per share in 2020 as compared to 2019, primarily
due to the impact of deferrals as a result of the timing of releases for our games and content updates in 2020.
Additionally, during 2019, we implemented our previously announced restructuring plan, which was aimed at refocusing
our resources on our largest opportunities and removing unnecessary levels of complexity and duplication from certain parts of
the business. The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
“go-to-market” functions, along with certain of our administrative-related functions. We expect to incur aggregate pre-tax
restructuring charges of approximately $50 million in 2020 as we complete the execution of the restructuring plan. Refer to
Note 17 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further
discussion.
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36
Consolidated Statements of Operations Data
The following table sets forth consolidated statements of operations data for the periods indicated (amounts in millions)
and as a percentage of total net revenues, except for cost of revenues, which are presented as a percentage of associated
revenues:
For the Years Ended December 31,
2019
2018 (1)
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
Restructuring and related costs
Total costs and expenses
Operating income
Interest and other expense (income), net
Loss on extinguishment of debt (2)
Income before income tax expense
Income tax expense
Net income
$
1,975
4,514
6,489
30% $
70
100
656
240
965
233
998
926
732
132
4,882
1,607
(26)
—
1,633
130
1,503
$
33
12
21
5
15
14
11
2
75
25
—
—
25
2
23% $
2,255
5,245
7,500
719
371
1,028
399
1,101
1,062
822
10
5,512
1,988
71
40
1,877
29
1,848
30%
70
100
32
16
20
8
15
14
11
—
73
27
1
1
25
—
25%
(1) During the three months ended March 31, 2019, we identified an amount which should have been recorded in the three
months and year ended December 31, 2018 to reduce income tax expense by $35 million. Our statement of operations for
the year ended December 31, 2018, as presented above, has been revised to reflect the correction. See further discussion in
Note 2 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
(2) Represents the loss on extinguishment of debt we recognized in connection with our debt financing activities during the
year ended December 31, 2018. The loss on extinguishment is comprised of a $25 million premium payment and a $15
million write-off of unamortized discount and deferred financing costs.
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37
Consolidated Net Revenues
The key drivers of changes in our consolidated net revenues, operating segment results, consolidated results, and sources
of liquidity are presented in the order of significance.
The following table summarizes our consolidated net revenues, increase (decrease) in associated deferred net revenues
recognized, and in-game net revenues (amounts in millions):
For the Years Ended December 31,
2019
2018
Increase/
(decrease)
% Change
Consolidated net revenues
$
6,489
$
7,500
$
(1,011)
(13)%
Net effect from recognition (deferral) of deferred net
revenues
101
238
In-game net revenues (1)
3,376
4,249
(137)
(873)
(21)%
(1) In-game net revenues primarily includes the net amount of revenue recognized for downloadable content and
microtransactions during the period.
Consolidated net revenues
The decrease in consolidated net revenues for 2019, as compared to 2018, was primarily driven by a decrease in revenues
of $1.1 billion due to:
•
•
•
•
lower revenues recognized from the Destiny franchise (reflecting our sale of the publishing rights for Destiny to
Bungie in December 2018);
lower revenues recognized from Hearthstone;
lower revenues recognized from Call of Duty franchise catalog titles; and
lower revenues recognized from Overwatch.
The decrease was partially offset by an increase in revenues of $236 million due to:
•
•
revenues from Sekiro: Shadows Die Twice, which was released in March 2019; and
revenues recognized from Crash Team Racing Nitro-Fueled, which was released in June 2019.
The remaining net decrease of $131 million was driven by various other franchises and titles.
Change in Deferred Revenues Recognized
The decrease in net deferred revenues recognized for 2019, as compared to 2018, was primarily due to a decrease of $312
million in net deferred revenues recognized from Activision, primarily due to lower net deferred revenues recognized from the
Destiny franchise.
The decrease from Activision was partially offset by an increase of $158 million in net deferred revenues recognized from
Blizzard, primarily due to higher net deferred revenues recognized for World of Warcraft, driven by World of Warcraft: Battle
for Azeroth, which was released in August 2018, with no comparable release in 2017.
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38
In-game net revenues
The decrease in in-game net revenues for 2019, as compared to 2018, was primarily driven by a decrease in in-game net
revenues of $845 million due to:
•
•
•
•
•
lower in-game revenues recognized from the Destiny franchise;
lower in-game revenues recognized from Hearthstone;
lower in-game revenues across various King franchise titles, primarily driven by the Candy Crush franchise;
lower in-game revenues recognized from World of Warcraft; and
lower in-game revenues recognized from Overwatch.
The remaining net decrease of $28 million was driven by various other franchises and titles.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $150 million and a positive impact of $102 million on
Activision Blizzard’s consolidated net revenues in 2019 and 2018, respectively, as compared to the same periods in the previous
year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
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39
Operating Segment Results
Currently, we have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent
with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating
decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred
revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense;
amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees,
expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related
costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating
segment basis, and accordingly, no disclosure is made with respect thereto.
Our operating segments are also consistent with our internal organizational structure, the way we assess operating
performance and allocate resources, and the availability of separate financial information. We do not aggregate operating
segments.
Information on the reportable segment net revenues and segment operating income are presented below (amounts in
millions):
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
For the Year Ended December 31, 2019
Increase / (decrease) 2019 v 2018
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
$
$
$
2,219
—
2,219
850
$
$
$
1,676
43
1,719
464
$
$
$
2,031
—
2,031
740
$
$
$
5,926
43
5,969
2,054
$
$
$
(239) $
(562) $
(55) $
—
(10)
—
(239) $
(572) $
(55) $
(856)
(10)
(866)
(161) $
(221) $
(10) $
(392)
For the Year Ended December 31, 2018
Activision
Blizzard
King
Total
$
$
$
2,458
—
2,458
1,011
$
$
$
2,238
53
2,291
685
$
$
$
2,086
—
2,086
750
$
$
$
6,782
53
6,835
2,446
(1) Intersegment revenues reflect licensing and service fees charged between segments.
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40
Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and
consolidated income before income tax expense are presented in the table below (amounts in millions):
Reconciliation to consolidated net revenues:
Segment net revenues
Revenues from non-reportable 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 income (loss) from non-reportable 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
Restructuring and related costs (4)
Discrete tax-related items (5)
Consolidated operating income
Interest and other expense (income), net
Loss on extinguishment of debt
Consolidated income before income tax expense
$
$
$
$
For the Years Ended December 31,
2019
2018
5,969
462
101
(43)
6,489
2,054
24
52
(166)
(203)
(137)
(17)
1,607
(26)
—
1,633
$
$
$
$
6,835
480
238
(53)
7,500
2,446
31
100
(209)
(370)
(10)
—
1,988
71
40
1,877
(1) Includes other income and expenses from operating segments managed outside the reportable segments, including our
Distribution business. Also includes unallocated corporate income and expenses.
(2) Since certain of our games are hosted online or include significant online functionality that represents a separate
performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games
and then recognize the attributable revenues over the relevant estimated service periods, which are generally less than a
year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. This
table reflects the net effect from the deferrals of revenues and recognition of deferred revenues, along with the related cost
of revenues, on certain of our online enabled products.
(3) Intersegment revenues reflect licensing and service fees charged between segments.
(4) Reflects restructuring initiatives, which include severance and other restructuring-related costs.
(5) Reflects the impact of other unusual or unique tax‑related items and activities.
Segment Net Revenues
Activision
The decrease in Activision’s net revenues for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues from the Destiny franchise (reflecting our sale of the publishing rights for Destiny to Bungie in
December 2018); and
lower revenues from Call of Duty franchise catalog titles.
41
41
The decrease was partially offset by:
revenues from Sekiro: Shadows Die Twice, which was released in March 2019;
revenues from Crash Team Racing Nitro-Fueled, which was released in June 2019; and
revenues from Call of Duty: Mobile, which was released in October 2019.
•
•
•
Blizzard
The decrease in Blizzard’s net revenues for 2019, as compared to 2018, was primarily due to:
lower revenues from Hearthstone; and
overall lower revenues from World of Warcraft, primarily due to World of Warcraft: Battle for Azeroth, which was
released in August 2018, with no comparable release in 2019 (although revenues from subscriptions increased due
to the release of World of Warcraft Classic in August 2019).
•
•
King
The decrease in King’s net revenues for 2019, as compared to 2018, was primarily due to lower in-game revenues from
player purchases across various franchise titles, primarily driven by the Candy Crush franchise, partially offset by an increase in
advertising revenues.
Segment Income from Operations
Activision
The decrease in Activision’s operating income for 2019, as compared to 2018, was primarily due to:
•
lower revenues, as discussed above; and
• marketing costs associated with the release of Call of Duty: Mobile in October 2019.
The decrease was partially offset by:
lower cost of revenues as a result of the decrease in revenues discussed above, primarily associated with Destiny;
and
lower operating expenses, such as sales and marketing and product developments costs, for Destiny.
•
•
Blizzard
The decrease in Blizzard’s operating income for 2019, as compared to 2018, was primarily due to lower revenues, as
discussed above.
The decrease is partially offset by:
•
•
•
•
lower spending on sales and marketing, primarily driven by lower marketing for esports initiatives;
higher capitalization of development costs driven by the timing of Blizzard’s game development cycles;
lower personnel costs;
lower software amortization from World of Warcraft, primarily due to the release of World of Warcraft: Battle for
Azeroth in August 2018, with no comparable release in 2019; and
42
42
•
lower service provider fees, such as digital storefront fees (e.g., fees retained by Apple and Google for our sales
on their platforms), payment processor fees, and server bandwidth fees.
King
King’s operating income for 2019 was slightly less than in 2018, primarily due to lower revenues, as discussed above. The
impact of the lower revenues was largely offset by:
•
•
lower personnel costs; and
lower service provider fees, such as digital storefront fees (e.g., fees retained by Apple and Google for our sales
on their platforms), payment processor fees, and server bandwidth fees.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $126 million and a positive impact of $48 million on
reportable segment net revenues for 2019 and 2018, respectively, as compared to the same periods in the previous year. The
changes are primarily due to changes in the value of the U.S. dollar relative to the euro and British pound.
Consolidated Results
Net Revenues by Distribution Channel
The following table details our consolidated net revenues by distribution channel (amounts in millions):
Net revenues by distribution channel:
Digital online channels (1)
Retail channels
Other (2)
Total consolidated net revenues
For the Years Ended December 31,
2019
2018
Increase/
(decrease)
% Change
$
$
4,932
$
5,786
$
909
648
1,107
607
6,489
$
7,500
$
(854)
(198)
41
(1,011)
(15)%
(18)
7
(13)
(1) Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable
content, microtransactions, and products, as well as licensing royalties.
(2) Net revenues from “Other” primarily includes revenues from our Distribution business and the Overwatch League.
Digital Online Channel Net Revenues
The decrease in net revenues from digital online channels for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues recognized from the Destiny franchise (reflecting our sale of the publishing rights for Destiny to
Bungie in December 2018); and
lower revenues recognized from Hearthstone.
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43
Retail Channel Net Revenues
The decrease in net revenues from retail channels for 2019, as compared to 2018, was primarily due to:
•
•
•
lower revenues recognized from Call of Duty: Black Ops 4, which was released in October 2018, as compared
to Call of Duty: WWII, which was released in November 2017;
lower revenues recognized from the Destiny franchise; and
lower revenues from Crash Bandicoot™ N. Sane Trilogy, which was released on the Xbox One, PC, and Nintendo
Switch in June 2018.
The decrease was partially offset by:
•
•
•
revenues recognized from Crash Team Racing Nitro-Fueled, which was released in June 2019;
revenues from Sekiro: Shadows Die Twice, which was released in March 2019; and
higher revenues recognized from Call of Duty: Modern Warfare, which was released in October 2019, as
compared to Call of Duty: Black Ops 4.
Net Revenues by Geographic Region
The following table details our consolidated net revenues by geographic region (amounts in millions):
Net revenues by geographic region:
Americas
EMEA (1)
Asia Pacific
Consolidated net revenues
For the Years Ended December 31,
2019
2018
Increase/
(decrease)
% Change
$
$
3,341
2,239
909
6,489
$
$
3,880
2,618
1,002
7,500
$
$
(539)
(379)
(93)
(1,011)
(14)%
(14)
(9)
(13)
(1) “EMEA” consists of the Europe, Middle East, and Africa geographic regions.
Americas
The decrease in net revenues in the Americas region for 2019, as compared to 2018, was primarily due to lower revenues
recognized from the Destiny franchise (reflecting our sale of the publishing rights for Destiny to Bungie in December 2018).
EMEA
The decrease in net revenues in the EMEA region for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues recognized from the Destiny franchise; and
lower revenues recognized from Call of Duty: Black Ops 4, which was released in October 2018, as compared
to Call of Duty: WWII, which was released in November 2017.
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44
Asia Pacific
The decrease in net revenues in the Asia Pacific region for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues recognized from Hearthstone, primarily due to the prior year including additional digital content
delivered in connection with the renewal of our contract with NetEase, Inc. in December 2018, with no equivalent
transaction for the franchise in 2019; and
lower revenues recognized from the Destiny franchise.
Net Revenues by Platform
The following tables detail our net revenues by platform (amounts in millions):
Net revenues by platform:
Console
PC
Mobile and ancillary (1)
Other (2)
Total consolidated net revenues
For the Years Ended December 31,
2019
2018
Increase/
(decrease)
% Change
$
$
1,920
$
2,538
$
1,718
2,203
648
2,180
2,175
607
6,489
$
7,500
$
(618)
(462)
28
41
(1,011)
(24)%
(21)
1
7
(13)
(1) Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform-specific game-
related revenues, such as standalone sales of toys and accessories.
(2) Net revenues from “Other” primarily includes revenues from our Distribution business and the Overwatch League.
Console
The decrease in net revenues from console for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues recognized from the Destiny franchise (reflecting our sale of the publishing rights for Destiny to
Bungie in December 2018); and
lower revenues recognized from Call of Duty franchise catalog titles.
The decrease was partially offset by revenues recognized from Crash Team Racing Nitro-Fueled, which was released in
June 2019.
PC
The decrease in net revenues from PC for 2019, as compared to 2018, was primarily due to:
•
•
lower revenues recognized from the Destiny franchise; and
lower revenues recognized from Hearthstone.
Mobile and Ancillary
The increase in net revenues from mobile and ancillary for 2019, as compared to 2018, was primarily due to revenues
recognized from Call of Duty: Mobile, which was released in October 2019.
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45
Costs and Expenses
Cost of Revenues
The following tables detail the components of cost of revenues in dollars (amounts in millions) and as a percentage of
associated net revenues:
Year Ended
December 31,
2019
% of
associated
net revenues
Year Ended
December 31,
2018
% of
associated
net revenues
Increase
(Decrease)
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
$
$
Cost of Revenues—Product Sales:
656
240
965
233
2,094
33% $
12
21
5
32% $
719
371
1,028
399
2,517
32% $
16
20
8
34% $
(63)
(131)
(63)
(166)
(423)
The decrease in product costs for 2019, as compared to 2018, was due to the decrease in product sales, primarily
associated with the Destiny franchise (reflecting our sale of the publishing rights for Destiny to Bungie in December 2018).
The decrease in software royalties, amortization, and intellectual property licenses related to product sales for 2019, as
compared to 2018, was primarily due to a decrease of $133 million in software amortization and royalties from Activision,
primarily due to the Destiny franchise. The decrease was partially offset by:
•
•
•
higher software amortization and royalties for Call of Duty: Black Ops 4, which was released in October 2018, as
compared to Call of Duty: WWII, which was released in November 2017;
software amortization and royalties from Sekiro: Shadows Die Twice, which was released in March 2019; and
higher software amortization and royalties for Call of Duty: Modern Warfare, which was released in October
2019, as compared to Call of Duty: Black Ops 4.
Cost of Revenues—Subscription, Licensing, and Other Revenues:
The decrease in game operations and distribution costs for 2019, as compared to 2018, was primarily due to a decrease of
$50 million in service provider fees such as digital storefront fees (e.g., fees retained by Apple and Google for our sales on their
platforms), payment processor fees, and server bandwidth fees.
The decrease in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and
other revenues for 2019, as compared to 2018, was primarily due to:
•
•
•
a decrease of $122 million in amortization of internally-developed franchise intangible assets acquired as part of
our acquisition of King;
a decrease of $36 million in software amortization and royalties from Activision, driven by the Destiny franchise,
partially offset by software royalties on Call of Duty: Mobile, which was released in October 2019; and
lower amortization of capitalized film costs due to the release of the third season of the animated TV
series, Skylanders™ Academy, in September 2018, with no comparable release in 2019.
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Product Development (amounts in millions)
Product development
Year Ended
December 31,
2019
$
998
% of
consolidated
net revenues
Year Ended
December 31,
2018
% of
consolidated
net revenues
Increase
(Decrease)
15% $
1,101
15% $
(103)
The decrease in product development costs for 2019, as compared to 2018, was primarily due to:
•
•
lower product development costs from the Destiny franchise; and
a $25 million increase in capitalization of development costs, primarily driven by the timing of Blizzard’s game
development cycles.
Sales and Marketing (amounts in millions)
Sales and marketing
Year Ended
December 31,
2019
$
926
% of
consolidated
net revenues
Year Ended
December 31,
2018
% of
consolidated
net revenues
Increase
(Decrease)
14% $
1,062
14% $
(136)
The decrease in sales and marketing expenses for 2019, as compared to 2018, was primarily due to:
•
•
a decrease of $107 million in marketing spending and personnel costs, primarily associated with lower marketing
costs for esports initiatives and the Destiny franchise, partially offset by marketing costs for Call of Duty: Mobile;
and
a decrease of $44 million in amortization of the customer base intangible asset acquired as part of our acquisition
of King, as the asset was fully amortized during the first quarter of 2018.
General and Administrative (amounts in millions)
General and administrative
Year Ended
December 31,
2019
$
732
% of
consolidated
net revenues
Year Ended
December 31,
2018
% of
consolidated
net revenues
Increase
(Decrease)
11% $
822
11% $
(90)
The decrease in general and administrative expenses for 2019, as compared to 2018, was primarily due to a $72 million
decrease in personnel costs.
Restructuring and related costs (amounts in millions)
Restructuring and related costs
Year Ended
December 31,
2019
$
132
% of
consolidated
net revenues
Year Ended
December 31,
2018
% of
consolidated
net revenues
Increase
(Decrease)
2% $
10
—% $
122
During 2019, we implemented our previously announced restructuring plan, which was aimed at refocusing our resources
on our largest opportunities and to remove unnecessary levels of complexity and duplication from certain parts of our business.
Since the roll out of the plan, we have been, and will continue focusing on these goals. The restructuring and related costs
incurred during 2019, relate primarily to severance costs, write-downs of lease facility assets, and the write-downs of other
assets that will no longer be used. Refer to Note 17 of the notes to the consolidated financial statements included in Item 8 of
this Annual Report on Form 10-K for further discussion.
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47
Interest and Other Expense (Income), Net (amounts in millions)
Interest and other expense (income), net
$
(26)
—% $
71
1% $
(97)
Year Ended
December 31,
2019
% of
consolidated
net revenues
Year Ended
December 31,
2018
% of
consolidated
net revenues
Increase
(Decrease)
The decrease in interest and other expense (income), net, for 2019, as compared to 2018, was primarily due to:
•
•
•
a $49 million decrease in interest expense and amortization of deferred financing costs associated with our debt
obligations, reflecting a decrease in our total debt outstanding as a result of our debt redemptions and repayment
activities during 2018;
a $38 million gain recognized as a result of adjusting a cost-method equity investment to fair value, with no
comparable activity in the prior year (refer to Note 10 in the notes to the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K); and
a $14 million increase in interest income due to our cash and cash equivalent balances earning interest at higher
rates, along with a higher average cash balance, in 2019 as compared to 2018.
Income Tax Expense (amounts in millions)
Income tax expense
Year Ended
December 31,
2019
$
130
% of
Pretax
income
Year Ended
December 31,
2018
% of
Pretax
income
Increase
(Decrease)
8% $
29
2% $
101
For the years ended December 31, 2019 and 2018, the Company’s income before income tax expense was $1.6 billion and
$1.9 billion, respectively, and our income tax expense was $130 million (or an 8% effective tax rate) and $29 million (or a 2%
effective tax rate), respectively. Our full year 2019 effective tax rate of 8% is lower than the U.S. statutory rate of 21%
primarily due to one-time tax benefits related to the intra-entity transfer of certain intellectual property rights, as further
described below, and earnings taxed at relatively lower rates in foreign jurisdictions, partially offset by changes in the
Company's liability for uncertain tax positions and audit settlements.
The effective tax rate in 2019 was higher than in 2018, primarily due to one-time tax benefits reported in the prior year
related to the U.S. Tax Reform Act and an IRS audit settlement. This increase was partially offset by one-time tax benefits
reported in the current year related to the intra-entity transfer of certain intellectual property rights, net of changes in the
Company’s liability for uncertain tax positions in the current year.
The overall effective income tax rate in future periods will depend on a variety of factors, such as changes in pre-tax
income or loss by jurisdiction, applicable accounting rules, applicable tax laws and regulations, and rulings and interpretations
thereof, developments in tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income
or loss.
Intellectual Property Right Transfer
In October 2019, we completed an intra-entity transfer of certain intellectual property rights to one of our subsidiaries in
the U.K., aligning the ownership of these rights with our evolving business. The transfer did not result in a taxable gain;
however, our U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property
rights. Such fair value was determined based on our expectations of future cash flows, long-term growth rates, and discount
rates. We recorded a one-time benefit of $230 million in the quarter ended December 31, 2019 for the recognition of a $1.1
billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred intellectual property, net of uncertain
tax positions and valuation allowance, partially offset by a related $920 million deferred tax liability for U.S. taxes on foreign
earnings. The U.K. amortizable tax basis will be recovered over a period of three to 25 years and the related deferred tax asset
was measured using the U.K. corporate tax rates in effect for the years in which the amortization will be realized. We recorded a
valuation allowance of $110 million for the portion of the deferred tax asset for which it is more-likely-than-not that a benefit
will not be realized based on objective evidence available as of December 31, 2019. 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.
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48
French Tax Settlement
In December 2017, we received a Notice of Reassessment from the FTA related to transfer pricing for intercompany
transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including
interest and penalties, was approximately €571 million (approximately $638 million). In December 2019, the Company reached
a settlement with the FTA for the 2011 through 2018 tax years, resulting in the recognition of $54 million of tax expense in the
period ended December 31, 2019 and a tax payment of €161 million (approximately $179 million), including interest and
penalties, in January 2020.
IRS Closing Agreement
On June 27, 2018, we entered into a closing agreement with the Internal Revenue Service (“IRS”) to resolve certain
intercompany transfer pricing arrangements for tax periods starting in 2009 (the “Closing Agreement”). The primary
adjustments related to the Closing Agreement were recognized in the second quarter of 2018 and consisted of a tax expense of
$70 million and a reduction in unrecognized tax benefits of $437 million. In addition, we recognized $185 million of tax
benefits related to other tax adjustments resulting from the changes in U.S. tax attributes and taxable income caused by the
primary adjustments. The Closing Agreement resulted in federal and state cash tax payments totaling approximately $345
million, of which federal tax payments of $334 million were made in October 2018.
U.S. Tax Reform Act
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
imposed a one-time tax on deemed repatriated earnings of foreign subsidiaries (the “Transition Tax”). In the fourth quarter of
2018, we completed our analysis of the effect of the U.S. Tax Reform Act. For the year ended December 31, 2018, we recorded
a net tax benefit of $340 million for the effects of the U.S. Tax Reform Act. This is primarily related to adoption of global
intangible low-taxed income deferred tax accounting and remeasurement of deferred tax assets and liabilities, partially offset by
tax expense related to Transition Tax.
Further analysis of the differences between the U.S. federal statutory rate and the consolidated effective tax rate, as well as
other information about our income taxes, is provided in Note 19 of the notes to the consolidated financial statements included
in Item 8 of this Annual Report on Form 10-K.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $71 million and a positive impact of $68 million on
Activision Blizzard’s consolidated operating income in 2019 and 2018, respectively. The changes are primarily due to changes
in the value of the U.S. dollar relative to the euro and British pound and its impact on our foreign operating income.
Comparison of 2018 to 2017
For the comparison of 2018 to 2017, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the
SEC on February 28, 2019.
Liquidity and Capital Resources
We believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. In the
near term, we expect our business and financial condition to remain strong and to continue to generate significant operating
cash flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term
investments of $5.9 billion, our access to capital, and the availability of our $1.5 billion revolving credit facility, will be
sufficient to finance our operational and financing requirements for the next 12 months. Our primary sources of liquidity, which
are available to us to fund cash outflows such as potential dividend payments or share repurchases, and scheduled debt
maturities, include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities.
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49
As of December 31, 2019, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries
was $2.8 billion, as compared to $1.4 billion as of December 31, 2018. These cash balances are generally available for use in
the U.S., subject in some cases to certain restrictions.
Our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by
weekly sales, which are generally highest in the fourth quarter due to seasonal and holiday-related sales patterns. We consider,
on a continuing basis, various transactions to increase shareholder value and enhance our business results, including
acquisitions, divestitures, joint ventures, share repurchases, and other structural changes. These transactions may result in future
cash proceeds or payments.
Sources of Liquidity (amounts in millions)
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 financing activities
Effect of foreign exchange rate changes
$
$
$
For the Years Ended December 31,
2019
2018
Increase
(Decrease)
$
$
5,794
69
5,863
30%
$
$
4,225
155
4,380
24%
1,569
(86)
1,483
For the Years Ended December 31,
2019
2018
Increase
(Decrease)
$
1,831
(22)
(237)
(3)
$
1,790
(230)
(2,020)
(31)
41
208
1,783
28
2,060
Net increase (decrease) in cash and cash equivalents and
restricted cash
$
1,569
$
(491) $
Net Cash Provided by Operating Activities
The primary driver of net cash flows associated with our operating activities is the collection of customer receivables
generated from the sale of our products and services. These collections are typically partially offset by: payments to vendors for
the manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers;
payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software
development; payments for tax liabilities; and payments to our workforce.
Net cash provided by operating activities for 2019 was $1.83 billion, as compared to $1.79 billion for 2018. The increase
was primarily due to:
•
•
lower tax payments, primarily due to payments for a tax settlement in the U.S. in 2018 with no comparable
activity in 2019; and
changes in our working capital resulting from the timing of collections and payments, in addition to lower cash
spent to support the Destiny franchise (reflecting our sale of the publishing rights for Destiny to Bungie in
December 2018).
The increase was partially offset by lower net income in 2019 as compared to 2018 and a decrease in non-cash
adjustments to net income, primarily due to lower amortization of intangible assets related to the acquisition of King and lower
amortization of capitalized software development costs and intellectual property licenses.
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50
Net Cash Used in Investing Activities
The primary drivers of net cash flows associated with investing activities typically include capital expenditures,
purchases and sales of investments, changes in restricted cash balances, and cash used for acquisitions.
Net cash used in investing activities for 2019 was $22 million, as compared to $230 million for 2018. The decrease in the
cash used in investing activities was primarily due to:
•
•
•
lower purchases of available-for-sale investments, with $65 million of purchases in 2019, as compared to $209
million in 2018;
higher proceeds from maturities of available-for-sale investments, with $153 million of proceeds in 2019, as
compared to $116 million in 2018; and
lower capital expenditures, with $116 million of expenditures in 2019, as compared to $131 million in 2018.
Net Cash Used in Financing Activities
The primary drivers of net cash flows associated with financing activities typically include the proceeds from, and
repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common
stock to employees upon the exercise of stock options, as well as the payment of dividends.
Net cash used in financing activities for 2019 was $237 million, as compared to $2.0 billion for 2018. The decrease was
primarily due to debt repayments, inclusive of premium payments, of $1.8 billion made in 2018, with no comparable repayment
activity in 2019. The decrease in cash used in financing activities was further impacted by lower tax payments made for net
share settlements on restricted stock units, with $59 million of payments in 2019, as compared to $94 million for 2018. These
decreases were partially offset by higher dividends paid, with $283 million of dividend payments in 2019, as compared to $259
million for 2018.
Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had a negative impact of $3 million and $31 million on our cash and cash equivalents
for the years ended December 31, 2019 and 2018, respectively. The change is primarily due to changes in the value of the U.S.
dollar relative to the euro and British pound.
Debt
At both December 31, 2019 and December 31, 2018, our total outstanding debt was $2.7 billion, bearing interest at a
weighted average rate of 3.18%.
A summary of our outstanding debt as of December 31, 2019, is as follows (amounts in millions):
2021 Notes
2022 Notes
2026 Notes
2027 Notes
2047 Notes
Total debt
Gross Carrying
Amount
December 31, 2019
Unamortized
Discount and Deferred
Financing Costs
Net Carrying
Amount
$
650
400
850
400
400
2,700
$
(2) $
(2)
(7)
(5)
(9)
(25) $
648
398
843
395
391
2,675
$
$
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51
A summary of our outstanding debt as of December 31, 2018, is as follows (amounts in millions):
2021 Notes
2022 Notes
2026 Notes
2027 Notes
2047 Notes
Total debt
Gross Carrying
Amount
December 31, 2018
Unamortized
Discount and Deferred
Financing Costs
Net Carrying
Amount
650
400
850
400
400
$
2,700
$
(3)
(3)
(8)
(5)
(10)
(29) $
647
397
842
395
390
2,671
Refer to Note 13 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K for further disclosures regarding our debt obligations.
Dividends
On February 6, 2020, our Board of Directors declared a cash dividend of $0.41 per common share, payable on May 6,
2020, to shareholders of record at the close of business on April 15, 2020.
On February 12, 2019, our Board of Directors declared a cash dividend of $0.37 per common share. On May 9, 2019, we
made an aggregate cash dividend payment of $283 million to shareholders of record at the close of business on March 28, 2019.
Capital Expenditures
We made capital expenditures of $116 million in 2019, as compared to $131 million in 2018. In 2020, we anticipate total
capital expenditures of approximately $135 million, primarily for computer hardware, leasehold improvements, and software
purchases.
Commitments
Refer to Note 23 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.
Comparison of 2018 to 2017
For the comparison of 2018 to 2017, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the
SEC on February 28, 2019 under the subheading “Liquidity and Capital Resources.”
Off-balance Sheet Arrangements
At December 31, 2019 and 2018, Activision Blizzard had no significant relationships with unconsolidated entities or
financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a
material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures, or capital resources.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and
assumptions. The impact and any associated risks related to these policies on our business operations are discussed throughout
Management’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’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.
Adoption of Accounting Standards Codification 606: Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue
recognition. On January 1, 2018, we adopted the new accounting standard and related amendments.
Revenue Recognition
We generate revenue primarily through the sale of our interactive entertainment content and services, principally for the
console, PC, and mobile platforms, as well as through the licensing of our intellectual property. Our products span various
genres, including first- and third-person action/adventure, role-playing, strategy, and “match three.” We primarily offer the
following products and services:
•
•
full games, which typically provide access to main game content, primarily for the console or PC platform;
downloadable content, which provides players with additional in-game content to purchase following the purchase
of a full game;
• microtransactions, which typically provide relatively small pieces of additional in-game content or enhancements
to gameplay; and
•
subscriptions to players in our World of Warcraft franchise, which provide continual access to the game content.
When control of the promised products and services is transferred to our customers, we recognize revenue in the amount
that reflects the consideration we expect to receive in exchange for these products and services.
We determine revenue recognition by:
•
•
•
•
•
identifying the contract, or contracts, with a customer;
identifying the performance obligations in each contract;
determining the transaction price;
allocating the transaction price to the performance obligations in each contract; and
recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or
services.
Certain products are sold to customers with a “street date” (which is the earliest date these products may be sold by
retailers). For these products, we recognize revenues on the later of the street date and the date the product is sold to our
customer. For digital full-game downloads sold to customers, we recognize revenue when it is available for download or is
activated for gameplay. Revenues are recorded net of taxes assessed by governmental authorities that are imposed at the time of
the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.
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Payment terms and conditions vary by contract type, although terms generally include a requirement of payment
immediately upon purchase or within 30 to 90 days. In instances where the timing of revenue recognition differs from the
timing of invoicing, we do not adjust the promised amount of consideration for the effects of a significant financing component
when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and
payment for that product or service will be one year or less.
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) control of the products has been transferred to our customers and (2) the
underlying performance obligations have been satisfied. Such revenues, which include our software products with significant
online functionality and our online hosted software arrangements, are recognized in "Product sales" on our consolidated
statement of operations.
Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection,
which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and price
protection are estimated at contract inception and updated at the end of each reporting period as additional information becomes
available.
Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are
considered adjustments of the transaction price of our products and are reflected as reductions to revenues. Sales incentives and
other consideration that represent costs incurred by us for distinct goods or services received, such as the appearance of our
products in a customer’s national circular advertisement, are recorded as “Sales and marketing” expense when the benefit from
the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the good or
service.
Products with Online Functionality
For our software products that include both offline functionality (i.e., do not require an Internet connection to access) and
significant online functionality, such as for most of our titles from the Call of Duty franchise, we evaluate whether the license of
our intellectual property and the online functionality each represent separate and distinct performance obligations. In such
instances, we typically have two performance obligations: (1) a license to the game software that is accessible without an
Internet connection (predominantly the offline single player campaign or game mode) and (2) ongoing activities associated with
the online components of the game, such as content updates, hosting of online content and gameplay, and online matchmaking
(the “online functionality”). The online functionality generally operates to support the additional features and functionalities of
the game that are only available online, not the offline license. This evaluation is performed for each software product or
product add-on, including downloadable content. When we determine that our software products contain a license of
intellectual property (i.e., the offline software license) that is separate and distinct from the online functionality, we consider
market conditions and other observable inputs to estimate the standalone selling price for the performance obligations, since we
do not generally sell the software license on a standalone basis. These products may be sold in a bundle with other products and
services, which often results in the recognition of additional performance obligations.
For arrangements that include both a license to the game software that is accessible offline and separate online
functionality, we recognize revenue when control of the license transfers to our customers for the portion of the transaction
price allocable to the offline software license and ratably over the estimated service period for the portion of the transaction
price allocable to the online functionality. Similarly, we defer a portion of the cost of revenues on these arrangements and
recognize the costs as the related revenues are recognized. The cost of revenues that are deferred include product costs,
distribution costs, and software royalties, amortization, and intellectual property licenses, and excludes intangible asset
amortization.
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Online Hosted Software Arrangements
For our online hosted software arrangements, such as titles for the Overwatch, World of Warcraft, and Candy Crush
franchises, substantially all gameplay and functionality are obtained through our continuous hosting of the game content for the
player. In these instances, we typically have a single performance obligation related to our ongoing activities in the hosted
arrangement, including content updates, hosting of the gameplay, online matchmaking, and access to the game content. Similar
to our software products with online functionality, these arrangements may include other products and services, which often
results in the recognition of additional performance obligations. Revenues related to online hosted software arrangements are
generally recognized ratably over the estimated service period.
Subscription, Licensing, and Other Revenues
Subscription Arrangements
Subscription revenue arrangements are mostly derived from World of Warcraft, which is playable through Blizzard’s
servers and is generally sold on a subscription-only basis. Revenues associated with the sales of subscriptions are deferred until
the subscription service is activated by the consumer and are then recognized ratably over the subscription period as the
performance obligations are satisfied.
Revenues attributable to the purchase of World of Warcraft software by our customers, including expansion packs, are
classified as “Product sales,” whereas revenues attributable to subscriptions and other in-game revenues are classified as
“Subscription, licensing, and other revenues.”
Software 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 typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
other revenues" on our consolidated statement of operations.
Other Revenues
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
generally the estimated service period.
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Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
products and services are considered distinct performance obligations that should be accounted for separately versus together
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
performance obligations for the license of the intellectual property and the online functionality.
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
Estimated Service Period
We consider a variety of data points when determining the estimated service period for players of our games, including the
weighted average number of days between players’ first and last days played online, the average total hours played, the average
number of days in which player activity stabilizes, and the weighted-average number of days between players’ first purchase
date and last date played online. We also consider known online trends, the service periods of our previously released games,
and, to the extent publicly available, the service periods of our competitors’ games that are similar in nature to ours. We believe
this provides a reasonable depiction of the transfer of services to our customers, as it is the best representation of the time
period during which our customers play our games. Determining the estimated service period is subjective and requires
management’s judgment. Future usage patterns may differ from historical usage patterns, and therefore the estimated service
period may change in the future. The estimated service periods for players of our current games are 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 our revenues should be reported gross or
net of fees retained by the storefront. Key indicators that we evaluate in determining whether we are the principal in the sale
(gross reporting) or an agent (net reporting) include, but are not limited to:
•
•
which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
which party has discretion in establishing the price for the specified good or service.
Based on our evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via the Apple
App Store and the Google Play Store, and we report revenues on a net basis (i.e., net of fees retained by the digital storefront)
for sales arrangements via Microsoft’s Xbox Games Store and Sony’s PSN.
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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.
Management believes it is more likely than not that forecasted income, including income that may be generated as a result
of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover
the remaining deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in
the future, an adjustment to the valuation allowance would be charged to tax expense in the period such determination is made.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of
ASC Topic 740 and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s
expectations could have a material impact on our business and results of operations in an interim period in which the
uncertainties are ultimately resolved.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.
Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not
be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of
changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final
tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes
in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions
and changes to reserves that are considered appropriate, as well as the related net interest and penalties.
Our provision for income taxes is subject to volatility and could be adversely impacted by: (1) changes in the mix of
earnings in countries with differing statutory tax 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 are subject to the continuous
examination of our income tax returns by the IRS and are regularly subject to audit by other tax authorities. We regularly assess
the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income
taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our
operating results and financial condition.
As further described in “Consolidated Results” above, on 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 imposed a one-time tax on deemed repatriated earnings of foreign
subsidiaries.
On December 22, 2017, the SEC staff issued SAB 118, which provided guidance on how to account for the effects of the
U.S. Tax Reform Act under ASC 740. SAB 118 enabled 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. In the fourth quarter of 2018, we completed our analysis to determine the effects of the U.S. Tax
Reform Act.
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Software Development Costs
Software development costs include payments made to independent software developers under development agreements,
as well as direct costs incurred for internally developed products. Software development costs are capitalized once the
technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of
a product requires both technical design documentation and game design documentation, or the completed and tested product
design and a working model. Significant management judgments and estimates are utilized in the assessment of when
technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where
proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted
revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be
completed and the software will be used to perform the function intended. Prior to a product’s release, if and when we believe
capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization,
and intellectual property licenses.” Capitalized costs for products that are canceled or are expected to be abandoned are charged
to “Product development” in the period of cancellation. Amounts related to software development which are not capitalized are
charged immediately to “Product development.”
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—
software royalties, amortization, and intellectual property licenses” based on the ratio of current revenues to total projected
revenues for the specific product, generally resulting in an amortization period of six months to approximately two years.
We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that
have been released 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.
Fair Value Estimates
The preparation of financial statements often requires us to determine the fair value of a particular item to fairly present in
our consolidated financial statements. Without an independent market or another representative transaction, determining the fair
value of a particular item requires us to make several assumptions that are inherently difficult to predict and can have a material
impact on the conclusion of the appropriate accounting.
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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, 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 associated with the accounting for several types of transactions, the following areas are the
most sensitive to the assessments:
Assessment of Impairment of Goodwill and Indefinite-lived Intangible Assets
We are required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and, if
current events or circumstances require, on an interim basis. ASC Topic 350 provides companies an option to first perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived
intangible asset is less than its carrying value before performing a quantitative two-step approach to testing goodwill for
impairment. If a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative impairment
test is performed. For goodwill, the first step of the 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. We perform our annual impairment test as of December 31.
In the instances when a quantitative test is performed, we use a discounted cash flow approach to determine the fair
values of the reporting units in performing the first step. 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, as well as 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. Assumptions
used in our estimates are unpredictable and inherently uncertain, but we base our fair value estimates on assumptions we
believe to be reasonable. Actual future results may differ from those estimates. Based on our annual impairment assessment, no
impairments of goodwill were identified for the years ended December 31, 2019, 2018, and 2017.
We test our acquired trade names for possible impairment by applying the same process as for goodwill. In the instance
when a qualitative test is not performed or is inconclusive, a quantitative test is performed by using a discounted cash flow
model to estimate fair value of our acquired trade names. For the years ended December 31, 2019, 2018, and 2017, we
concluded that no impairment had occurred.
For a detailed discussion of the application of these and other accounting policies, see Note 2 of the notes to the
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements that were most significant to our accounting policy activities for fiscal 2019
relate to our adoption of the new lease accounting standard, which we adopted on January 1, 2019. For a detailed discussion
regarding the accounting adoption and impacts, see Note 2 and Note 3 of the notes to the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily
include fluctuations in foreign currency exchange rates and interest rates.
Foreign Currency Exchange Rate Risk
We transact business in many different foreign currencies and may be exposed to financial market risk resulting from
fluctuations in foreign currency exchange rates. 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 values of our foreign currency contracts are estimated based on the prevailing exchange rates of the various
hedged currencies as of the end of the period.
We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes.
For a detailed discussion of our accounting policies for our foreign currency forward contracts, see Note 2 of the notes to
the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges” )
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
Foreign Currency:
Buy USD, Sell Euro
As of December 31, 2019
As of December 31, 2018
Notional amount
Fair value gain (loss)
Notional amount
Fair value gain (loss)
$
350 $
(2)
$
723 $
12
At December 31, 2019, our Cash Flow Hedges have remaining maturities of twelve months or less. Additionally, $10
million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
December 31, 2019, for Cash Flow Hedges 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.
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of
“Accumulated other comprehensive income (loss)” and into earnings are as follows (amounts in millions):
Cash Flow Hedges
$
39 $
7 $
(1)
Net revenues
For the Years Ended December 31,
2019
2018
2017
Statement of Operations Classification
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Foreign Currency Forward Contracts Not Designated as Hedges
The total gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as
follows (amounts in millions):
Foreign Currency:
Buy USD, Sell GBP
As of December 31, 2019
As of December 31, 2018
Notional amount
Fair value gain (loss)
Notional amount
Fair value gain (loss)
$
25 $
(2)
$
55 $
1
For the years ended December 31, 2019, 2018, and 2017, pre-tax net gains (losses) associated with these forward
contracts were recorded in “General and administrative expenses” and were not material.
In the absence of hedging activities for the year ended December 31, 2019, a hypothetical adverse foreign currency
exchange rate movement of 10% would have resulted in a theoretical decline of our net income of approximately $133 million.
This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however,
all foreign currency exchange rates do not always move in this manner and actual results may differ materially.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio, as our
outstanding debt is all at fixed rates. Our investment portfolio consists primarily of money market funds and government
securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and
must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents, or short-
term securities is more subject to market fluctuations than a portfolio of longer-term securities. Conversely, the fair value of
such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At December 31, 2019, our
$5.8 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, 2019, there
was no material interest rate risk exposure to the Company’s consolidated financial condition, results of operations, or liquidity
as of that date.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018,
and 2017
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2019,
2018, and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
F-1
F-4
F-5
F-6
F-7
F-8
F-9
Schedule II—Valuation and Qualifying Accounts at December 31, 2019, 2018, and 2017
F-58
Other financial statement schedules are omitted because the information called for is not applicable or is shown either in
the Consolidated Financial Statements or the Notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Definition and Limitations of Disclosure Controls and Procedures.
Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is:
(1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and
(2) accumulated and communicated to our management, including our principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and
operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material
information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls
and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such
controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we
believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired
objectives under all possible future events.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated
the effectiveness of our disclosure controls and procedures at December 31, 2019, 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, 2019,
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.
62
62
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,
2019, 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, 2019.
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, 2019, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual
Report on Form 10-K.
Changes in Internal Control Over Financial Reporting.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated
any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019. Based
on this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2019, there
have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
63
63
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item, other than the information regarding executive officers, which is included in Item
1 of this report, is incorporated by reference to the sections of our definitive Proxy Statement for our 2020 Annual Meeting of
Shareholders entitled “Proposal 1—Election of Directors,” “Corporate Governance Matters—Board of Directors and
Committees—Board Committees,” “Corporate Governance Matters—Code of Conduct,” and, if applicable, “Beneficial
Ownership Matters—Delinquent Section 16(a) Reports Beneficial Ownership Reporting Compliance” 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 2020 Annual Meeting of Shareholders entitled “Executive Compensation” and “Director Compensation” to be filed with the
SEC.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for
our 2020 Annual Meeting of Shareholders entitled “Beneficial Ownership Matters” and “Equity Compensation Plan
Information” to be filed with the SEC.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for
our 2020 Annual Meeting of Shareholders entitled “Corporate Governance Matters—Board of Directors and Committees” and
“Certain Relationships and Related Person Transactions” to be filed with the SEC.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to the sections of our definitive Proxy Statement for
our 2020 Annual Meeting of Shareholders entitled “Audit-Related Matters” to be filed with the SEC.
64
64
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
1 Financial Statements See Item 8.—Consolidated Financial Statements and Supplementary Data for index to
Financial Statements and Financial Statement Schedule on page 62 herein.
2 Financial Statement Schedule The following financial statement schedule of Activision Blizzard for the years ended
December 31, 2019, 2018, and 2017 is filed as part of this report on page F-58 and should be read in conjunction
with the consolidated financial statements of Activision Blizzard:
Schedule II—Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information called for is not applicable or is shown
either in the Consolidated Financial Statements or the Notes thereto.
3 The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as
part of, or hereby incorporated by reference into, this Annual Report on Form 10-K.
Item 16. FORM 10-K SUMMARY
Not applicable.
65
65
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66
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Activision Blizzard, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Activision Blizzard, Inc. and its subsidiaries (the
“Company”) as of December 31, 2019 and 2018, 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, 2019,
including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively
referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-1
F-1
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Determination of Service Period for the Online Functionality
As described in Note 2 to the consolidated financial statements, the Company recognizes a significant portion of their
revenue ratably over the estimated service period for the portion of the transaction price allocable to the online functionality,
which is generally less than twelve months. When determining the estimated service period for players of the Company’s
games, management considers a variety of data points including the weighted-average number of days between the players’ first
and last days played online, the average total hours played, the average number of days in which the player activity stabilizes,
and the weighted-average number of days between players’ first purchase date and last date played online. Management also
considers known online trends, the service period of their previously released games, and the service period of their
competitors’ games that are similar in nature, to the extent they are publicly available. Determining the estimated service period
is subjective and requires management’s judgment.
The principal considerations for our determination that performing procedures relating to revenue recognition -
determination of the service period for the online functionality is a critical audit matter are there was significant judgment by
management when determining the service period. This in turn led to a high degree of auditor judgment, subjectivity and effort
in performing procedures and in evaluating audit evidence relating to the data used in developing the service period
assumption, including the player data assessed by management for historical or comparable titles to determine the weighted-
average number of days between players' first purchase date and last date played online, as well as qualitative factors utilized
by management, such as analysis of competitor and industry information.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the determination of the service period for the online functionality. These procedures also included, among others, testing
management’s method of obtaining and analyzing player data, assessing qualitative factors utilized by management, such as
comparison to similar or historical titles and analysis of competitor and industry information, evaluating the reasonableness of
management’s determination of the estimated service period and testing the completeness and accuracy of player data used in
the determination of the service period estimate.
F-2
F-2
Valuation of Transferred Intellectual Property Rights That Give Rise to Deferred Tax Assets
As described in Note 19 to the consolidated financial statements, in October 2019, the Company completed an intra-entity
As described in Note 19 to the consolidated financial statements, in October 2019, the Company completed an intra-entity
Valuation of Transferred Intellectual Property Rights That Give Rise to Deferred Tax Assets
transfer of certain intellectual property rights to one of its subsidiaries in the U.K. The transfer did not result in a taxable gain;
however, the Company’s U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual
transfer of certain intellectual property rights to one of its subsidiaries in the U.K. The transfer did not result in a taxable gain;
property rights. Such fair value was determined based on management’s expectations of future cash flows, long-term growth
however, the Company’s U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual
rates, and discount rates. The Company recorded a one-time benefit of $230 million in the quarter ended December 31, 2019
property rights. Such fair value was determined based on management’s expectations of future cash flows, long-term growth
for the recognition of a $1.1 billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred
rates, and discount rates. The Company recorded a one-time benefit of $230 million in the quarter ended December 31, 2019
intellectual property, net of uncertain tax positions and valuation allowance, partially offset by a related $920 million deferred
for the recognition of a $1.1 billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred
tax liability for U.S. taxes on foreign earnings.
intellectual property, net of uncertain tax positions and valuation allowance, partially offset by a related $920 million deferred
tax liability for U.S. taxes on foreign earnings.
The principal considerations for our determination that performing procedures relating to the valuation of transferred
intellectual property rights that give rise to deferred tax assets is a critical audit matter are there was significant judgment by
The principal considerations for our determination that performing procedures relating to the valuation of transferred
management in developing the fair value of the intangible assets transferred, which is used as the basis for the recording of the
intellectual property rights that give rise to deferred tax assets is a critical audit matter are there was significant judgment by
deferred tax assets. This led to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate the
management in developing the fair value of the intangible assets transferred, which is used as the basis for the recording of the
estimates and assumptions, including, future cash flows, long-term growth rates, and discount rates. In addition, the audit effort
deferred tax assets. This led to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate the
involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating
estimates and assumptions, including, future cash flows, long-term growth rates, and discount rates. In addition, the audit effort
the audit evidence obtained.
involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating
the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
to the valuation of the intangible assets transferred. These procedures also included, among others, testing management’s
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
process for developing the fair value of the intangible assets transferred; evaluating the appropriateness of the discounted cash
to the valuation of the intangible assets transferred. These procedures also included, among others, testing management’s
flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the
process for developing the fair value of the intangible assets transferred; evaluating the appropriateness of the discounted cash
significant assumptions used by management, including, future cash flows, long-term growth rates, and discount
flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the
rates. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted
significant assumptions used by management, including, future cash flows, long-term growth rates, and discount
cash flow model and certain significant assumptions, including discount rates.
rates. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted
cash flow model and certain significant assumptions, including discount rates.
/s/ PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 27, 2020
Los Angeles, California
February 27, 2020
We have served as the Company’s auditor since 2008.
We have served as the Company’s auditor since 2008.
F-3
F-3
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $132 and $190, at December 31, 2019 and
December 31, 2018, 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 23)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,197,436,644 and
1,192,093,991 shares issued at December 31, 2019 and December 31, 2018, respectively
Additional paid-in capital
Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2019 and December 31, 2018
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
At December 31,
2019
At December 31,
2018
$
5,794
$
4,225
848
32
322
296
7,292
54
253
1,293
658
531
9,764
19,845
292
1,375
1,248
2,915
2,675
505
945
7,040
$
$
—
11,174
(5,563)
7,813
(619)
12,805
19,845
$
1,035
43
264
539
6,106
65
282
458
482
735
9,762
17,890
253
1,493
896
2,642
2,671
18
1,167
6,498
—
10,963
(5,563)
6,593
(601)
11,392
17,890
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
F-4
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share data)
For the Years Ended December 31,
2018
2017
2019
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
Restructuring and related costs
Total costs and expenses
Operating income
Interest and other expense (income), net (Note 18)
Loss on extinguishment of debt
Income before income tax expense
Income tax expense
Net income
Earnings per common share
Basic
Diluted
$
1,975
$
2,255
$
4,514
6,489
656
240
965
233
998
926
732
132
4,882
1,607
(26)
—
1,633
130
5,245
7,500
719
371
1,028
399
1,101
1,062
822
10
5,512
1,988
71
40
1,877
29
$
$
$
1,503
$
1,848
$
1.96
1.95
$
$
2.43
2.40
$
$
Weighted-average number of shares outstanding
Basic
Diluted
767
771
762
771
The accompanying notes are an integral part of these Consolidated Financial Statements.
2,110
4,907
7,017
733
300
984
484
1,069
1,378
745
15
5,708
1,309
146
12
1,151
878
273
0.36
0.36
754
766
F-5
F-5
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
For the Years Ended December 31,
2018
2019
2017
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax
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
$
1,503
$
1,848
$
5
(15)
(8)
(18) $
$
1,485
(9)
38
5
34
1,882
$
$
$
$
273
36
(44)
(1)
(9)
264
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
F-6
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-
F
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
For the Years Ended December 31,
2018
2017
2019
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
1,503
$
1,848
$
273
Deferred income taxes
Provision for inventories
Non-cash operating lease cost
Depreciation and amortization
Amortization of capitalized software development costs and intellectual property licenses (1)
Loss on extinguishment of debt
Share-based compensation expense (2)
Unrealized gain on equity investment (Note 10)
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
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
Other financing activities
Net cash used in financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
$
(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.
(352)
6
64
328
225
—
166
(38)
51
182
7
(275)
164
(154)
31
(77)
1,831
153
(65)
(116)
6
(22)
105
(59)
(283)
—
—
—
—
(237)
(3)
1,569
4,229
5,798
$
(35)
6
—
509
489
40
209
—
7
(114)
(5)
(372)
(51)
(122)
(65)
(554)
1,790
116
(209)
(131)
(6)
(230)
99
(94)
(259)
—
(1,740)
(25)
(1)
(2,020)
(31)
(491)
4,720
4,229
$
(181)
33
—
888
311
12
176
—
40
(165)
(26)
(301)
(97)
220
85
945
2,213
80
(135)
(155)
3
(207)
178
(56)
(226)
3,741
(4,251)
—
(10)
(624)
76
1,458
3,262
4,720
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-8
F-8
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of Business
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We
develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also
operate esports leagues and offer digital advertising within our content. The terms “Activision Blizzard,” the “Company,” “we,”
“us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.
The 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,
and Vivendi Games, Inc., pursuant to which we acquired Blizzard Entertainment, Inc. (“Blizzard”), we were renamed
Activision Blizzard, Inc. On February 23, 2016, we acquired King Digital Entertainment plc, a leading interactive mobile
entertainment company ("King"), by purchasing all of its outstanding shares.
Our Segments
Based upon our organizational structure, we conduct our business through three reportable segments, as follows:
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher 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 primarily based on our internally developed
intellectual properties. Activision also includes the activities of the Call of Duty League, a global professional esports league
with city-based teams for Call of Duty®.
Activision’s key product franchise is Call of Duty, a first-person action title for the console and PC platforms and,
following the October 1, 2019 launch of Call of Duty: Mobile, the mobile platform, including for Google Inc.’s (“Google”)
Android and Apple Inc.’s (“Apple”) iOS.
(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 and selected Activision content, online social connectivity, and the creation of user-generated content.
Blizzard also includes the activities of the Overwatch LeagueTM, the first major global professional esports league with city-
based teams.
Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-
playing game for the PC platform; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an
online collectible card franchise for the PC and mobile platforms; and Overwatch®, a team-based first-person action title for the
PC and console platforms.
(iii) King Digital Entertainment
King is a leading global developer and publisher of interactive entertainment content and services, primarily for the
mobile platform, including for Google’s Android and Apple’s iOS. King also distributes its content 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 or real currency, and we continue to focus on in-game advertising as a growing source of additional revenue.
King’s key product franchise is Candy Crush™, which features “match three” games for the mobile and PC platforms.
F-9
F-9
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Other
We also engage in other businesses that do not represent reportable segments, including the Activision Blizzard
Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales
distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and
manufacturers of interactive entertainment hardware.
Destiny Franchise
In 2010, Activision entered into an exclusive relationship with Bungie, Inc. (“Bungie”) to publish games in the Destiny
franchise. Effective December 31, 2018, Activision and Bungie mutually agreed to terminate their publishing relationship
related to the Destiny franchise. As part of this termination, Activision agreed to transfer its publishing rights for the Destiny
franchise to Bungie in exchange for cash and Bungie’s assumption of on-going customer obligations of Activision. Going
forward, Activision no longer has any material rights or obligations related to the Destiny franchise. As a result of the
agreement to terminate the relationship, the Company recognized revenues of $164 million and GAAP operating income of $91
million for the year ended December 31, 2018. Activision no longer has any material rights or obligations related to the Destiny
franchise.
2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts and operations of the Company. All
intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ
from these estimates and assumptions.
Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.
The Company considers events or transactions that occur after the balance sheet date, but before the financial statements
are issued, for additional evidence relative to certain estimates or to identify matters that require additional disclosures.
During the three months ended March 31, 2019, we identified an error principally related to the initial recognition of
income taxes for global intangible low-taxed income (“GILTI”) of foreign subsidiaries which should have been recorded in the
three months and year ended December 31, 2018. Income tax expense for the three months and year ended December 31, 2018
should have been reduced by $35 million. This amount is not material to the consolidated financial statements for the year
ended December 31, 2018, and we have revised our 2018 consolidated financial statements and impacted footnotes in this Form
10-K to reflect this correction.
Cash and Cash Equivalents
We consider all money market funds and highly liquid investments with original maturities of three months or less at the
time of purchase to be “Cash and cash equivalents.”
Investment Securities
Investments in debt securities designated as available-for-sale are carried at fair value, which is based on quoted market
prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar
characteristics. Unrealized gains and losses on the Company’s available-for-sale debt securities are excluded from earnings and
are reported as a component of “Other comprehensive income (loss).”
F-10
F-10
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Investments with original maturities greater than three months and remaining maturities of less than one year are
normally classified within “Other current assets.” Investments with maturities beyond one year may be classified within “Other
current assets” if they are highly liquid in nature and represent the investment of cash that is available for current operations.
The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses
reflected in “Interest and other expense (income), net” in our consolidated statements of operations.
Investments in equity securities which are not accounted for under the equity method and for which there is not a readily
determinable fair value are carried at cost, less impairment, and adjusted for changes resulting from observable price changes in
orderly transactions for identical or similar investment of the same issuer.
Financial Instruments
The carrying amounts of “Cash and cash equivalents,” “Accounts receivable, net of allowances,” “Accounts payable,”
and “Accrued expenses and other liabilities” approximate fair value due to the short-term nature of these accounts. Our
investments in U.S. treasuries, government agency securities, and corporate bonds, if any, are carried at fair value, which is
based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial
instruments with similar characteristics.
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, 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.
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, we record the
changes in the estimated fair value of these derivatives within “General and administrative expenses” 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 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.
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.
F-11
F-11
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
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Our concentration of credit risk relates to depositors holding the Company’s cash and cash equivalents and customers
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
with significant accounts receivable balances.
Notes to Consolidated Financial Statements (continued)
Our cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt
Our customer base includes retailers and distributors, including mass-market retailers, first party digital storefronts,
instruments issued by governments and governmental organizations, financial institutions and industrial companies.
consumer electronics stores, discount warehouses, and game specialty stores in the U.S. and other countries worldwide. We
F-11
perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. We generally do not
Our customer base includes retailers and distributors, including mass-market retailers, first party digital storefronts,
require collateral or other security from our customers.
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
For the years ended December 31, 2019, 2018, and 2017, Apple, Google, and Sony Interactive Entertainment, Inc.
require collateral or other security from our customers.
(“Sony”) have been our most significant customers with revenues of 17%, 13%, and 11%, respectively, for 2019, 15%, 11%,
and 13%, respectively, for 2018, and 16%, 10%, and 14%, respectively, for 2017. No other customer accounted for 10% or
For the years ended December 31, 2019, 2018, and 2017, Apple, Google, and Sony Interactive Entertainment, Inc.
more of our net revenues in the periods discussed above.
(“Sony”) have been our most significant customers with revenues of 17%, 13%, and 11%, respectively, for 2019, 15%, 11%,
and 13%, respectively, for 2018, and 16%, 10%, and 14%, respectively, for 2017. No other customer accounted for 10% or
We had two customers—Sony and Microsoft—who accounted for 18% and 11%, respectively, of consolidated gross
more of our net revenues in the periods discussed above.
receivables at December 31, 2019. We had two customers—Sony and NetEase, Inc.—who accounted for 15% and 12%,
respectively, of consolidated gross receivables at December 31, 2018. No other customer accounted for 10% or more of our
We had two customers—Sony and Microsoft—who accounted for 18% and 11%, respectively, of consolidated gross
consolidated gross receivables in the periods discussed above.
receivables at December 31, 2019. We had two customers—Sony and NetEase, Inc.—who accounted for 15% and 12%,
respectively, of consolidated gross receivables at December 31, 2018. No other customer accounted for 10% or more of our
Inventories and Allowances for Obsolescence
consolidated gross receivables in the periods discussed above.
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and freight-in
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and freight-in
Inventories and Allowances for Obsolescence
costs and are stated at the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a
weighted-average cost method.
costs and are stated at the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a
We regularly review inventory quantities on-hand and in the retail channels and will write down inventory on-hand based
weighted-average cost method.
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
We regularly review inventory quantities on-hand and in the retail channels and will write down inventory on-hand based
demand, which are inherently difficult to assess and dependent on market conditions. At the point of a loss recognition, a new,
on excess or obsolete inventories, determined primarily by future anticipated demand for our products. Inventory write-downs
lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the
are measured as the difference between the cost of the inventory and net realizable value, based upon assumptions about future
restoration or increase in that newly established basis.
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
Software Development Costs and Intellectual Property Licenses
restoration or increase in that newly established basis.
Software development costs include payments made to independent software developers under development agreements,
Software Development Costs and Intellectual Property Licenses
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
Software development costs include payments made to independent software developers under development agreements,
a product requires both technical design documentation and game design documentation, or the completed and tested product
as well as direct costs incurred for internally developed products. Software development costs are capitalized once
design and a working model. Significant management judgments and estimates are utilized in the assessment of when
technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of
technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where
a product requires both technical design documentation and game design documentation, or the completed and tested product
proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted
design and a working model. Significant management judgments and estimates are utilized in the assessment of when
revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be
technological feasibility is established and the evaluation is performed on a product-by-product basis. For products where
completed and the software will be used to perform the function intended. Prior to a product’s release, if and when we believe
proven technology exists, this may occur early in the development cycle. Software development costs related to online hosted
capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization,
revenue arrangements are capitalized after the preliminary project phase is complete and it is probable that the project will be
and intellectual property licenses.” Capitalized costs for products that are canceled or are expected to be abandoned are charged
completed and the software will be used to perform the function intended. Prior to a product’s release, if and when we believe
to “Product development” in the period of cancellation. Amounts related to software development which are not capitalized are
capitalized costs are not recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization,
charged immediately to “Product development.”
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
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—
charged immediately to “Product development.”
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.
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.
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Notes to Consolidated Financial Statements (continued)
Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their
trademarks, copyrights, software, technology, music or other intellectual property or proprietary rights in the development of
our products. Depending upon the agreement with the rights holder, we may obtain the right to use the intellectual property in
multiple products or for a single product. Prior to a product’s release, if and when we believe capitalized costs are not
recoverable, we expense the amounts as part of “Cost of revenues—software royalties, amortization, and intellectual property
licenses.” Capitalized intellectual property costs for products that are canceled or are expected to be abandoned are charged to
“Product development” in the period of cancellation.
Commencing upon a product’s release, capitalized intellectual property license costs are amortized to “Cost of revenues
—software royalties, amortization, and intellectual property licenses” based on the ratio of current revenues for the specific
product to total projected revenues for all products in which the licensed property will be utilized. As intellectual property
license contracts may extend for multiple years and can be used in multiple products to be released over a period beyond one
year, the amortization of capitalized intellectual property license costs relating to such contracts may extend beyond one year.
We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a
quarterly basis. For products that have been released 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 utilizing 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.
Assets Recognized from Costs to Obtain a Contract with a Customer
We apply the practical expedient to expense, as incurred, costs to obtain a contract with a customer when the amortization
period would have been one year or less for certain similar contracts in which commissions are paid to internal personnel or
third parties. We believe application of the practical expedient has a limited effect on the amount and timing of cost recognition.
Total capitalized costs to obtain a contract were immaterial as of December 31, 2019 and 2018.
Long-Lived Assets
Property and Equipment.
Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful life of the
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.
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Notes to Consolidated Financial Statements (continued)
Goodwill and Other Indefinite-Lived Assets.
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. As of December 31, 2019 and 2018, our
reporting units are the same as our operating segments. We generally test goodwill for possible impairment first by 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. If a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative
impairment test is performed. If a quantitative test is performed, we first determine 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. Based on our annual impairment
assessment, no impairments of goodwill were identified for the years ended December 31, 2019, 2018, and 2017.
We test our acquired trade names for possible impairment by applying the same process as for goodwill. In the instance
when a qualitative test is not performed or is inconclusive, a quantitative test is performed by using a discounted cash flow
model to estimate fair value of our acquired trade names. For the years ended December 31, 2019, 2018, and 2017, we
concluded that no impairment had occurred.
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 when events or
circumstances indicate a potential impairment exists. We consider certain events and circumstances in determining whether the
carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, may not
be recoverable including, but not limited to: significant changes in performance relative to expected operating results;
significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in our stock
price for a sustained period of time; and changes in our business strategy. If we determine that the carrying value may not be
recoverable, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group to
determine whether an impairment exists. If an impairment is indicated based on a comparison of the asset groups’ carrying
values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the
asset group exceeds its fair value. We did not record an impairment charge to our definite-lived intangible assets as of
December 31, 2019, 2018, and 2017.
Leases
In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard replaced all
current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either
an operating or financing lease, and to recognize a lease liability and a right-of-use (“ROU”) asset for its leases. On January 1,
2019, we adopted the new lease accounting standard. This is reflected in our significant accounting policy disclosure for leases
below. Refer to Note 3 for information about the impact of adoption on our consolidated financial statements.
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Notes to Consolidated Financial Statements (continued)
We determine if an arrangement is or contains a lease at contract inception. In certain of our lease arrangements, primarily
those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these
arrangements, there is judgment in evaluating if the arrangement provides us with an asset that is physically distinct, or that
represents substantially all of the capacity of the asset, and if we have the right to direct the use of the asset. Lease assets and
liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date.
Included in the lease liability are future lease payments that are fixed, in-substance fixed, or are payments based on an index or
rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as incurred, and
generally relate to variable payments made based on the level of services provided by the landlords of our leases. The operating
lease ROU asset also includes any lease payments made prior to commencement, initial direct costs incurred, and lease
incentives received. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in
determining the present value of future payments. The incremental borrowing rate represents the rate required to borrow funds
over a similar term to purchase the leased asset, and is based on the information available at the commencement date of the
lease. For leased assets with similar lease terms and asset type we applied a portfolio approach in determining a single
incremental borrowing rate to apply to the leased assets.
In determining our lease liability, the lease term includes options to extend or terminate the lease when it is reasonably
certain that we will exercise such option. For operating leases, the lease expense for minimum lease payments is recognized on
a straight-line basis over the lease term. Finance lease assets are depreciated on a straight-line basis over the estimated life of
the asset, not to exceed the length of the lease, with interest expense associated with finance lease liabilities recorded using the
effective interest method. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we
recognize lease expense for these leases on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components. For our real estate, server and data center, and event
production and broadcasting equipment leases, we elected the practical expedient to account for the lease and non-lease
components as a single lease component. In all other lease arrangements, we account for lease and non-lease components
separately. Additionally, for certain leases that have a group of leased assets with similar characteristics in size and composition,
we may apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Operating lease ROU assets are presented in “Other assets” and operating lease liabilities are presented in “Accrued
expenses and other current liabilities” and “Other liabilities” on our consolidated balance sheet.
Finance lease ROU assets are presented in “Property and equipment, net” and finance lease liabilities are presented in
“Accrued expenses and other current liabilities” and “Other liabilities” on our consolidated balance sheet.
Revenue Recognition
In May 2014, the FASB issued new accounting guidance related to revenue recognition. On January 1, 2018, we adopted
the new accounting standard and related amendments.
We generate revenue primarily through the sale of our interactive entertainment content and services, principally for the
console, PC, and mobile platforms, as well as through the licensing of our intellectual property. Our products span various
genres, including first- and third-person action/adventure, role-playing, strategy, and “match three.” We primarily offer the
following products and services:
•
•
full games, which typically provide access to main game content, primarily for the console or PC platform;
downloadable content, which provides players with additional in-game content to purchase following the purchase
of a full game;
• microtransactions, which typically provide relatively small pieces of additional in-game content or enhancements
to gameplay; and
•
subscriptions to players in our World of Warcraft franchise, which provide continual access to the game content.
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Notes to Consolidated Financial Statements (continued)
When control of the promised products and services is transferred to our customers, we recognize revenue in the amount
that reflects the consideration we expect to receive in exchange for these products and services.
We determine revenue recognition by:
•
•
•
•
•
identifying the contract, or contracts, with a customer;
identifying the performance obligations in each contract;
determining the transaction price;
allocating the transaction price to the performance obligations in each contract; and
recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or
services.
Certain products are sold to customers with a “street date” (which is the earliest date these products may be sold by
retailers). For these products, we recognize revenues on the later of the street date and the date the product is sold to our
customer. For digital full-game downloads sold to customers, we recognize revenue when it is available for download or is
activated for gameplay. Revenues are recorded net of taxes assessed by governmental authorities that are imposed at the time of
the specific revenue-producing transaction between us and our customer, such as sales and value-added taxes.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment
immediately upon purchase or within 30 to 90 days. In instances where the timing of revenue recognition differs from the
timing of invoicing, we do not adjust the promised amount of consideration for the effects of a significant financing component
when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and
payment for that product or service will be one year or less.
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) control of the products has been transferred to our customers and (2) the
underlying performance obligations have been satisfied. Such revenues, which include our software products with significant
online functionality and our online hosted software arrangements, are recognized in "Product sales" on our consolidated
statement of operations.
Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection,
which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and price
protection are estimated at contract inception and updated at the end of each reporting period as additional information becomes
available.
Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are
considered adjustments of the transaction price of our products and are reflected as reductions to revenues. Sales incentives and
other consideration that represent costs incurred by us for distinct goods or services received, such as the appearance of our
products in a customer’s national circular advertisement, are recorded as “Sales and marketing” expense when the benefit from
the sales incentive is separable from sales to the same customer and we can reasonably estimate the fair value of the good or
service.
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Notes to Consolidated Financial Statements (continued)
Products with Online Functionality
For our software products that include both offline functionality (i.e., do not require an Internet connection to access) and
significant online functionality, such as for most of our titles from the Call of Duty franchise, we evaluate whether the license of
our intellectual property and the online functionality each represent separate and distinct performance obligations. In such
instances, we typically have two performance obligations: (1) a license to the game software that is accessible without an
Internet connection (predominantly the offline single player campaign or game mode) and (2) ongoing activities associated with
the online components of the game, such as content updates, hosting of online content and gameplay, and online matchmaking
(the “online functionality”). The online functionality generally operates to support the additional features and functionalities of
the game that are only available online, not the offline license. This evaluation is performed for each software product or
product add-on, including downloadable content. When we determine that our software products contain a license of
intellectual property (i.e., the offline software license) that is separate and distinct from the online functionality, we consider
market conditions and other observable inputs to estimate the standalone selling price for the performance obligations, since we
do not generally sell the software license on a standalone basis. These products may be sold in a bundle with other products and
services, which often results in the recognition of additional performance obligations.
For arrangements that include both a license to the game software that is accessible offline and separate online
functionality, we recognize revenue when control of the license transfers to our customers for the portion of the transaction
price allocable to the offline software license and ratably over the estimated service period for the portion of the transaction
price allocable to the online functionality. Similarly, we defer a portion of the cost of revenues on these arrangements and
recognize the costs as the related revenues are recognized. The cost of revenues that are deferred include product costs,
distribution costs, and software royalties, amortization, and intellectual property licenses, and excludes intangible asset
amortization.
Online Hosted Software Arrangements
For our online hosted software arrangements, such as titles for the Overwatch, World of Warcraft, and Candy Crush
franchises, substantially all gameplay and functionality are obtained through our continuous hosting of the game content for the
player. In these instances, we typically have a single performance obligation related to our ongoing activities in the hosted
arrangement, including content updates, hosting of the gameplay, online matchmaking, and access to the game content. Similar
to our software products with online functionality, these arrangements may include other products and services, which often
results in the recognition of additional performance obligations. Revenues related to online hosted software arrangements are
generally recognized ratably over the estimated service period.
Subscription, Licensing, and Other Revenues
Subscription Arrangements
Subscription revenue arrangements are mostly derived from World of Warcraft, which is playable through Blizzard’s
servers and is generally sold on a subscription-only basis. Revenues associated with the sales of subscriptions are deferred until
the subscription service is activated by the consumer and are then recognized ratably over the subscription period as the
performance obligations are satisfied.
Revenues attributable to the purchase of World of Warcraft software by our customers, including expansion packs, are
classified as “Product sales,” whereas revenues attributable to subscriptions and other in-game revenues are classified as
“Subscription, licensing, and other revenues.”
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Software Licensing Revenues
Software Licensing Revenues
Software Licensing Revenues
Software Licensing Revenues
Software Licensing Revenues
Software Licensing Revenues
Software Licensing Revenues
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
typically include multiple performance obligations, such as an upfront license of intellectual property and rights to specified or
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
unspecified future updates. Our estimate of the selling price is comprised of several factors including, but not limited to, prior
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
selling prices, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
approach. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee (1) when we
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
transfer control of the upfront license of intellectual property, (2) upon transfer of control of future specified updates, and/or (3)
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
ratably over the contractual term in which we provide the customer with unspecified future updates. Royalty payments in
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee. Revenues from
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
these licensing arrangements with third-parties to distribute and host our games are recognized in "Subscriptions, licensing, and
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
other revenues" on our consolidated statement of operations.
Other Revenues
Other Revenues
Other Revenues
Other Revenues
Other Revenues
Other Revenues
Other Revenues
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
Other revenues primarily include revenues from downloadable content (e.g., multi-player content packs),
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
microtransactions, and licensing of intellectual property other than software to third-parties. These revenues are recognized in
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
"Subscriptions, licensing, and other revenues" on our consolidated statement of operations.
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
Microtransaction revenues are derived from the sale of virtual currencies and goods to our players to enhance their
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
gameplay experience. Proceeds from these sales of virtual currencies and goods are initially recorded in deferred revenue.
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
Proceeds from the sales of virtual currencies are recognized as revenues when a player uses the virtual goods purchased with a
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual currency. Proceeds from the direct sales of virtual goods are similarly recognized as revenues when a player uses the
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
virtual goods. We categorize our virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods
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
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
as the goods are consumed and our performance obligation is satisfied. Durable virtual goods represent goods that are
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale of durable virtual
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
goods ratably over the period of time the goods are available to the player and our performance obligation is satisfied, which is
generally the estimated service period.
generally the estimated service period.
generally the estimated service period.
generally the estimated service period.
generally the estimated service period.
generally the estimated service period.
generally the estimated service period.
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
Revenues from the licensing of intellectual property other than software to third parties primarily include the licensing of
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
our (1) brand, logo, or franchise to customers and (2) media content. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
brand or franchise are generally recognized over the license term. Fixed fee payments from customers for the license of our
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
media content are generally recognized when control has transferred to the customer, which may be upfront or over time.
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Significant Judgment around Revenue Arrangements with Multiple Deliverables
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
Our contracts with customers often include promises to transfer multiple products and services. Determining whether
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
products and services are considered distinct performance obligations that should be accounted for separately versus together
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
may require significant judgment. Certain of our games, such as titles in the Call of Duty franchise, may contain a license of our
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
intellectual property to play the game offline, but may also depend on a significant level of integration and interdependency
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
with the online functionality. In these cases, significant judgment is required to determine whether this license of our
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
intellectual property should be considered distinct and accounted for separately, or not distinct and accounted for together with
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
the online functionality provided and recognized over time. Generally, for titles in which the software license is functional
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
without the online functionality and a significant component of gameplay is available offline, we believe we have separate
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
performance obligations for the license of the intellectual property and the online functionality.
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
Significant judgment is also required to determine the standalone selling price for each distinct performance obligation
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
and to determine whether there is a discount that needs to be allocated based on the relative standalone selling price of the
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
various products and services. To estimate the standalone selling price we generally consider market data, including our pricing
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
strategies for the product being evaluated and other similar products we may offer, competitor pricing to the extent data is
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
available, and the replayability design of both the offline and online components of our games. In limited instances, we may
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
also utilize an expected cost approach to determine whether the estimated selling price yields an appropriate profit margin.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Estimated Service Period
We consider a variety of data points when determining the estimated service period for players of our games, including the
weighted average number of days between players’ first and last days played online, the average total hours played, the average
number of days in which player activity stabilizes, and the weighted-average number of days between players’ first purchase
date and last date played online. We also consider known online trends, the service periods of our previously released games,
and, to the extent publicly available, the service periods of our competitors’ games that are similar in nature to ours. We believe
this provides a reasonable depiction of the transfer of services to our customers, as it is the best representation of the time
period during which our customers play our games. Determining the estimated service period is subjective and requires
management’s judgment. Future usage patterns may differ from historical usage patterns, and therefore the estimated service
period may change in the future. The estimated service periods for players of our current games are 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 whether we are the principal in the sale (gross
reporting) or an agent (net reporting) include, but are not limited to:
•
•
which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
which party has discretion in establishing the price for the specified good or service.
Based on our evaluation of the above indicators, we report revenues on a gross basis for sales arrangements via the Apple
App Store and the Google Play Store, and we report revenues on a net basis (i.e., net of fees retained by the digital storefront)
for sales arrangements via Microsoft’s Xbox Games Store and Sony’s PSN.
Allowances for Returns and Price Protection
We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price
protection refers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a
product by a certain amount and, when granted and applicable, allow customers a credit against amounts owed by such
customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to
return products or receive price protection credits include, among other things, compliance with applicable trading and payment
terms and 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, the facilitation of slow-moving inventory, and other market factors.
Management uses judgment in estimates made with respect to potential future product returns and price protection related
to current period product revenues and when establishing the allowance for returns and price protection. We estimate the
amount of future returns and price protection for current period product revenues utilizing historical experience and information
regarding inventory levels and the demand and acceptance of our products by the end consumer, and record revenue for the
transferred products in the amount of consideration to which we expect to be entitled. Various factors are used to estimate the
amount of future returns and price protection for a particular title, including but not limited to: historical performance of titles in
similar genres and our franchises; historical performance of the hardware platform; 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.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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.
Contract Balances
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment,
and record deferred revenue when cash payments are received or due in advance of our performance, even if amounts are
refundable.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in our accounts receivable
balance. In estimating the allowance for doubtful accounts, we analyze the age of current outstanding account balances,
historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in our
customers’ payment terms and their economic condition, as well as whether we can obtain sufficient credit insurance. Any
significant changes in any of these criteria would affect management’s estimates in establishing our allowance for doubtful
accounts.
Deferred revenue is comprised primarily of unearned revenue related to the sale of products with online functionality or
online hosted arrangements. We typically invoice, and collect payment for, these sales at the beginning of the contract period
and recognize revenue ratably over the estimated service period. Deferred revenue also includes payments for: product sales
pending delivery or activation; subscription revenues; licensing revenues with fixed minimum guarantees; and other revenues
for which we have been paid in advance and earn the revenue when we transfer control of the product or service.
Refer to Note 11 for further information, including changes in deferred revenue during the period.
Shipping and Handling
Shipping and handling costs consist primarily of packaging and transportation charges incurred to move finished goods to
customers. We recognize all shipping and handling costs as an expense in “Cost of revenues-product costs,” including those
incurred when control of the product has already transferred to the customer.
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 fees, and payment provider fees, along with costs to associated with
our esports activities.
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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
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
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.
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Cost of revenues—subscription, licensing, and other revenues:
(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
(1) “Game operations and distribution costs”—includes costs to operate our games, such as customer service, Internet
on the balance sheet until the respective games are released, at which time the capitalized costs are amortized.
bandwidth and server costs, platform provider fees, and payment provider fees, along with costs to associated with
Also included is amortization of intangible assets recognized in purchase accounting attributable to subscription,
our esports activities.
licensing and other revenues.
Notes to Consolidated Financial Statements (continued)
(2) “Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
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Advertising Expenses
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,
We expense advertising as incurred, except for production costs associated with media advertising, which are deferred
licensing and other revenues.
and charged to expense when the related advertisement is run for the first time. Advertising expenses for the years ended
December 31, 2019, 2018, and 2017 were $587 million, $631 million, and $708 million, respectively, and are included in
Advertising Expenses
“Sales and marketing” in the consolidated statements of operations.
We expense advertising as incurred, except for production costs associated with media advertising, which are deferred
We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with
Income Taxes
and charged to expense when the related advertisement is run for the first time. Advertising expenses for the years ended
December 31, 2019, 2018, and 2017 were $587 million, $631 million, and $708 million, respectively, and are included in
“Sales and marketing” in the consolidated statements of operations.
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
Income Taxes
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
We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
ASC Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax
liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate
assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial
deferred tax assets each period for recoverability. For those assets that do not meet the threshold of “more likely than not” that
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit
they will be realized in the future, a valuation allowance is recorded.
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
tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in “Income tax expense.”
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.
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 imposed a one-time tax on deemed
tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in “Income tax expense.”
repatriated earnings of foreign subsidiaries (“Transition Tax”).
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a
On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the “U.S. Tax Reform Act”) was
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on
enacted in the United States. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from
how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enabled companies to record a provisional
35% to 21% beginning in 2018 and implemented a modified territorial tax system that imposed a one-time tax on deemed
amount for the effects of the U.S. Tax Reform Act based on a reasonable estimate, subject to adjustment during a measurement
repatriated earnings of foreign subsidiaries (“Transition Tax”).
period of up to one year, until accounting is complete. In the fourth quarter of 2018, we completed our analysis to determine the
effects of the U.S. Tax Reform Act. As a result, we made an election to record deferred U.S. taxes with respect to earnings of
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on
our foreign subsidiaries subject to GILTI.
how to account for the effects of the U.S. Tax Reform Act under ASC 740. SAB 118 enabled 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. In the fourth quarter of 2018, we completed our analysis to determine the
the consolidated statement of operations. The tax effects of exercised or vested equity awards are treated as discrete items in the
effects of the U.S. Tax Reform Act. As a result, we made an election to record deferred U.S. taxes with respect to earnings of
reporting period in which they occur.
our foreign subsidiaries subject to GILTI.
Foreign Currency Translation
Excess tax benefits and tax deficiencies from share-based payments are recorded as an income tax expense or benefit in
Excess tax benefits and tax deficiencies from share-based payments are recorded as an income tax expense or benefit in
All assets and liabilities of our foreign subsidiaries who have a functional currency other than U.S. dollars are translated
the consolidated statement of operations. The tax effects of exercised or vested equity awards are treated as discrete items in the
reporting period in which they occur.
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
Foreign Currency Translation
comprehensive loss” in shareholders’ equity.
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.
F-21
F-21
period of up to one year, until accounting is complete. In the fourth quarter of 2018, we completed our analysis to determine the
effects of the U.S. Tax Reform Act. As a result, we made an election to record deferred U.S. taxes with respect to earnings of
our foreign subsidiaries subject to GILTI.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Excess tax benefits and tax deficiencies from share-based payments are recorded as an income tax expense or benefit in
Notes to Consolidated Financial Statements (continued)
the consolidated statement of operations. The tax effects of exercised or vested equity awards are treated as discrete items in the
reporting period in which they occur.
Earnings (Loss) Per Common Share
Foreign Currency Translation
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
All assets and liabilities of our foreign subsidiaries who have a functional currency other than U.S. dollars are translated
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common
into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at average
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
exchange rates during the period. The resulting translation adjustments are reflected as a component of “Accumulated other
Earnings (Loss) Per Common Share
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
comprehensive loss” in shareholders’ equity.
Earnings (Loss) Per Common Share
Earnings (Loss) Per Common Share
Earnings (Loss) Per Common Share
Earnings (Loss) Per Common Share
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
Earnings (Loss) Per Common Share
Earnings (Loss) Per Common Share
Earnings (Loss) Per Common Share
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
Earnings (Loss) Per Common Share
However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
“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
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common
“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
“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
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common
“Basic (loss) earnings per common share” is computed by dividing income (loss) available to common shareholders by
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
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
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
the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
the weighted-average number of common shares outstanding for the periods presented. “Diluted earnings (loss) per common
Share-Based Payments
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of 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
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
F-21
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
share” is computed by dividing income (loss) available to common shareholders by the weighted-average number of common
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
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.
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.
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
shares outstanding, increased by the weighted-average number of common stock equivalents. Common stock equivalents are
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share
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
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
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options.
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
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.
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.
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.
However, potential common shares are not included in the denominator of the diluted earnings (loss) per common share
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
Share-Based Payments
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Share-Based Payments
Share-Based Payments
Share-Based Payments
Share-Based Payments
Share-Based Payments
Share-Based Payments
Share-Based Payments
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
Share-Based Payments
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
We account for share-based payments in accordance with ASC Subtopic 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
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
We account for share-based payments in accordance with ASC Subtopic 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
We account for share-based payments in accordance with ASC Subtopic 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
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
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
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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.
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.
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.
is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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
time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
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
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock
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
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
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock
We generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
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.
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.
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.
price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
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
price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
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.
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
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.
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.
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
We generally determine the fair value of restricted stock units based on the closing market price of the Company’s
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period.
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
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
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
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
Certain restricted stock units granted to our employees and senior management vest based on the achievement of pre-
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
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
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
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
established performance or market conditions. For performance-based restricted stock units, each quarter we update our
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
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
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
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
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
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
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
performance-based restricted stock units over the requisite service period, adjusting for estimated forfeitures for each separately
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
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
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
vesting tranche of the award. For market-based restricted stock units, we estimate the fair value at the date of grant using a
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
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
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
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
Monte Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
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
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
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to estimate the fair
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
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
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
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
value of market-based restricted stock units at the date of grant incorporates into the valuation the possibility that the market
rendered.
stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
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.
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.
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
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.
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.
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.
stock units at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
Loss Contingencies
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
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
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
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
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
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
rendered.
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
For share-based compensation grants that are liability classified, if any, we update our grant date valuation at each
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
rendered.
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
rendered.
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
rendered.
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
rendered.
reporting period and recognize a cumulative catch-up adjustment for changes in the value related to the requisite service already
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
rendered.
rendered.
rendered.
Loss Contingencies
rendered.
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
Loss Contingencies
Loss Contingencies
Loss Contingencies
Loss Contingencies
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
Loss Contingencies
Loss Contingencies
Loss Contingencies
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
Loss Contingencies
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
adverse impacts on us.
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
adverse impacts on us.
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when
adverse impacts on us.
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
adverse impacts on us.
adverse impacts on us.
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
adverse impacts on us.
it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material
adverse impacts on us.
adverse impacts on us.
adverse impacts on us.
adverse impacts on us.
F-22
F-22
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
3. Recently Issued Accounting Pronouncements
Recently adopted accounting pronouncements
3. Recently Issued Accounting Pronouncements
Recently adopted accounting pronouncements
Recently adopted accounting pronouncements
3. Recently Issued Accounting Pronouncements
Recently adopted accounting pronouncements
3. Recently Issued Accounting Pronouncements
Recently adopted accounting pronouncements
Recently adopted accounting pronouncements
Recently adopted accounting pronouncements
Recently adopted accounting pronouncements
Leases
Recently adopted accounting pronouncements
Leases
Leases
Recently adopted accounting pronouncements
Leases
Recently adopted accounting pronouncements
Leases
Leases
Leases
Leases
Leases
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
Leases
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
Leases
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply the
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
carry forward our historical lease classifications.
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
carry forward our historical lease classifications.
carry forward our historical lease classifications.
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
carry forward our historical lease classifications.
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us
carry forward our historical lease classifications.
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
carry forward our historical lease classifications.
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
carry forward our historical lease classifications.
to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard, and (2)
carry forward our historical lease classifications.
carry forward our historical lease classifications.
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
carry forward our historical lease classifications.
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
carry forward our historical lease classifications.
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
was as follows (amounts in millions):
was as follows (amounts in millions):
was as follows (amounts in millions):
was as follows (amounts in millions):
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
was as follows (amounts in millions):
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
was as follows (amounts in millions):
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
was as follows (amounts in millions):
The impact from the adoption of the new lease accounting standard to our consolidated balance sheet at January 1, 2019,
was as follows (amounts in millions):
was as follows (amounts in millions):
was as follows (amounts in millions):
was as follows (amounts in millions):
Adjustments due to
Adjustments due to
Adjustments due to
Adjustments due to
Adjustments due to
adoption of new
Adjustments due to
adoption of new
adoption of new
adoption of new
adoption of new
Adjustments due to
lease accounting
adoption of new
lease accounting
lease accounting
Adjustments due to
lease accounting
Adjustments due to
lease accounting
adoption of new
Adjustments due to
standard
lease accounting
standard
standard
Adjustments due to
adoption of new
standard
adoption of new
standard
lease accounting
adoption of new
standard
lease accounting
adoption of new
lease accounting
standard
lease accounting
standard
lease accounting
standard
standard
standard
Balance at
Balance at
Balance at
Balance at
Balance at
January 1, 2019
Balance at
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
Balance at
January 1, 2019
Balance at
Balance at
January 1, 2019
Balance at
January 1, 2019
Balance at
January 1, 2019
January 1, 2019
January 1, 2019
Balance at
Balance at
Balance at
Balance at
Balance at
December 31, 2018
Balance at
December 31, 2018
December 31, 2018
December 31, 2018
December 31, 2018
Balance at
December 31, 2018
Balance at
Balance at
December 31, 2018
Balance at
December 31, 2018
Balance at
December 31, 2018
December 31, 2018
539
$
December 31, 2018
539
539
$
$
539
$
539
$
539
$
482
482
482
539
$
482
539
$
482
539
$
482
539
$
539
$
482
482
482
482
896
$
482
896
896
$
$
896
$
896
$
896
$
1,167
1,167
1,167
896
$
1,167
896
$
1,167
896
$
1,167
896
$
896
$
1,167
1,167
1,167
1,167
1,167
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Assets
Assets
Assets
Consolidated Balance Sheet:
Assets
Consolidated Balance Sheet:
Assets
Assets
Consolidated Balance Sheet:
Consolidated Balance Sheet:
Other current assets
Consolidated Balance Sheet:
Other current assets
Other current assets
Assets
Other current assets
Assets
Other current assets
Assets
Other current assets
Assets
Assets
Other current assets
Other current assets
Other current assets
Other current assets
Liabilities
Other current assets
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
Liabilities
(8) $
(8) $
(8) $
(8) $
(8) $
(8) $
252
252
252
(8) $
252
(8) $
252
(8) $
252
(8) $
(8) $
252
252
252
252
54
$
252
54
54
$
$
54
$
54
$
54
$
190
190
190
54
$
190
54
$
190
54
$
190
54
$
54
$
190
190
190
190
190
531
531
531
531
531
531
734
734
734
531
734
531
734
531
734
531
531
734
734
734
734
950
734
950
950
950
950
950
1,357
1,357
1,357
950
1,357
950
1,357
950
1,357
950
950
1,357
1,357
1,357
1,357
1,357
Other assets
Other assets
Other assets
Other assets
Other assets
Other assets
Other assets
Other assets
Other assets
Other assets
Accrued expenses and other liabilities
Other assets
Accrued expenses and other liabilities
Accrued expenses and other liabilities
Accrued expenses and other liabilities
Accrued expenses and other liabilities
Accrued expenses and other liabilities
Other liabilities
Other liabilities
Other liabilities
Accrued expenses and other liabilities
Other liabilities
Accrued expenses and other liabilities
Other liabilities
Accrued expenses and other liabilities
Other liabilities
Accrued expenses and other liabilities
Accrued expenses and other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
Other liabilities
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
statements of cash flows.
statements of cash flows.
statements of cash flows.
statements of cash flows.
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
statements of cash flows.
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
statements of cash flows.
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
statements of cash flows.
The adoption of this standard did not have an impact on our consolidated statement of operations or consolidated
statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted
statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted
Goodwill
Recent Accounting Pronouncements Not Yet Adopted
Goodwill
Goodwill
Recent Accounting Pronouncements Not Yet Adopted
Goodwill
Recent Accounting Pronouncements Not Yet Adopted
Goodwill
Goodwill
Goodwill
Goodwill
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
Goodwill
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
Goodwill
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
Goodwill
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1)
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. 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
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
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. This standard is effective for us beginning with
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
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. This standard is effective for us beginning with
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption.
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
adoption.
adoption.
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
adoption.
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption should be reflected as of the beginning of the fiscal year of adoption. This standard is effective for us beginning with
adoption.
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption.
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption.
the first quarter of 2020 and we do not expect it to have an impact on our financial statements and related disclosures upon
adoption.
Cloud Computing Arrangements
adoption.
Cloud Computing Arrangements
Cloud Computing Arrangements
adoption.
Cloud Computing Arrangements
adoption.
Cloud Computing Arrangements
Cloud Computing Arrangements
Cloud Computing Arrangements
Cloud Computing Arrangements
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
Cloud Computing Arrangements
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
Cloud Computing Arrangements
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
Cloud Computing Arrangements
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
related disclosures upon adoption.
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
related disclosures upon adoption.
related disclosures upon adoption.
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
related disclosures upon adoption.
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
applied retrospectively or prospectively. Early adoption is permitted. This standard is effective for us beginning with the first
related disclosures upon adoption.
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
related disclosures upon adoption.
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
related disclosures upon adoption.
quarter of 2020 and will be applied prospectively. We do not expect it to have a material impact on our financial statements and
related disclosures upon adoption.
related disclosures upon adoption.
F-23
related disclosures upon adoption.
related disclosures upon adoption.
F-23
F-23
F-23
F-23
F-23
F-23
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance related to accounting for credit losses on financial instruments. The update
replaces the existing incurred loss impairment model under current GAAP with a methodology that reflects a current expected
credit losses model which requires the use of historical and forward–looking information to calculate credit loss estimates. It
also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt
securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the
securities. These changes will generally result in earlier recognition of credit losses. The new standard is effective for fiscal
years beginning after December 15, 2019, and will be applied on a modified retrospective basis, with the cumulative effect of
adoption recorded as an adjustment to retained earnings. This standard is effective for us beginning with the first quarter of
2020 and we do not expect it to have a material impact on our financial statements and related disclosures upon adoption.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued new guidance which is intended to simplify various aspects to accounting for income
taxes by removing certain exceptions to the general principles in Topic 740 for recognizing deferred taxes for investments,
performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends
certain areas of existing guidance to reduce complexity and improve consistency in application of Topic 740. The new standard
is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim
period for which financial statements have not yet been issued. Generally the topics must be applied prospectively upon
adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective
basis. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
4. Cash and Cash Equivalents
The following table summarizes the components of our cash and cash equivalents (amounts in millions):
Cash
Foreign government treasury bills
Money market funds
Cash and cash equivalents
At December 31,
2019
2018
$
$
437
$
37
5,320
5,794
$
268
32
3,925
4,225
5. Software Development and Intellectual Property Licenses
The following table summarizes the components of our capitalized software development costs (amounts in millions):
Internally-developed software costs
Payments made to third-party software developers
Total software development costs
At December 31,
2019
2018
$
$
345
31
376
$
$
291
38
329
As of both December 31, 2019 and December 31, 2018, capitalized intellectual property licenses were not material.
F-24
F-24
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Amortization of capitalized software development costs and intellectual property licenses was as follows (amounts in
millions):
Amortization of capitalized software development costs and intellectual
property licenses
$
241
$
501
$
314
Write-offs and impairments of capitalized software development costs and intellectual property licenses were not material
For the Years Ended December 31,
2019
2018
2017
for the years ended December 31, 2019, 2018, and 2017.
6. Property and Equipment, Net
Property and equipment, net was comprised of the following (amounts in millions):
Land
Buildings
Leasehold improvements
Computer equipment
Office furniture and other equipment
Total cost of property and equipment
Less accumulated depreciation
Property and equipment, net
At December 31,
2019
2018
$
$
$
1
4
252
654
91
1,002
(749)
253
$
1
4
248
700
99
1,052
(770)
282
Depreciation expense for the years ended December 31, 2019, 2018, and 2017 was $124 million, $138 million, and $130
million, respectively.
F-25
F-25
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. Intangible Assets, Net
Intangible assets, net consist of the following (amounts in millions):
Acquired definite-lived intangible assets:
Internally-developed franchises
Developed software
Trade names
Other
Total definite-lived intangible assets (1)
Acquired indefinite-lived intangible assets:
Activision trademark
Acquired trade names
Total indefinite-lived intangible assets
Total intangible assets, net
At December 31, 2019
Estimated
useful
lives
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
3 - 11 years
2 - 5 years
7 - 10 years
1 - 15 years
$
$
1,154
$
601
54
19
1,828
$
(1,105) $
(579)
(30)
(16)
(1,730) $
Indefinite
Indefinite
$
$
$
49
22
24
3
98
386
47
433
531
At December 31, 2018
Estimated
useful
lives
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
Acquired definite-lived intangible assets:
Internally-developed franchises
Developed software
Customer base
Trade names
Other
3 - 11 years
$
1,154
$
2 - 5 years
2 years
7 - 10 years
1 - 15 years
601
617
54
19
Total definite-lived intangible assets
$
2,445
$
Acquired indefinite-lived intangible assets:
Activision trademark
Acquired trade names
Total indefinite-lived intangible assets
Total intangible assets, net
Indefinite
Indefinite
(1,032) $
(456)
(617)
(23)
(15)
(2,143) $
$
$
$
122
145
—
31
4
302
386
47
433
735
(1) Beginning with the first quarter of 2019, the balances of the customer base intangible assets have been removed, as such
amounts were fully amortized in the prior year.
Amortization expense of intangible assets was $204 million, $371 million, and $759 million for the years ended
December 31, 2019, 2018, and 2017, respectively.
F-26
F-26
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At December 31, 2019, future amortization of definite-lived intangible assets is estimated as follows (amounts in
millions):
2020
2021
2022
2023
2024
Thereafter
Total
8. Goodwill
$
$
75
11
7
2
1
2
98
The changes in the carrying amount of goodwill by operating segment are as follows (amounts in millions):
Balance at December 31, 2017
Other
Balance at December 31, 2018
Other
Balance at December 31, 2019
Activision
Blizzard
King
Total
$
$
$
6,898
(1)
6,897
1
6,898
$
$
$
190
—
190
—
190
$
$
$
2,675
—
2,675
1
2,676
$
$
$
9,763
(1)
9,762
2
9,764
At December 31, 2019, 2018, and 2017, there were no accumulated impairment losses.
9. Other Assets and Liabilities
Included in “Accrued expenses and other liabilities” in our consolidated balance sheets are accrued payroll-related costs
of $395 million and $402 million at December 31, 2019 and 2018, respectively, and the current portion of income taxes payable
of $436 million and $203 million at December 31, 2019 and 2018, respectively.
10. Fair Value Measurements
The FASB literature regarding fair value measurements for certain assets and liabilities establishes a three-level fair value
hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of
“observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as
follows:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets
or liabilities in active markets or other inputs that are observable or can be corroborated by observable market
data; and
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies, and similar
techniques that use significant unobservable inputs.
F-27
F-27
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Fair Value Measurements on a Recurring Basis
Fair Value Measurements on a Recurring Basis
The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis
The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis
into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the
into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the
measurement date (amounts in millions):
measurement date (amounts in millions):
Fair Value Measurements at December 31, 2019
Fair Value Measurements at December 31, 2019
Using
Using
Significant
Significant
Other
Other
Observable
Observable
Inputs
Inputs
(Level 2)
(Level 2)
Quoted
Quoted
Prices in Active
Prices in Active
Markets for
Markets for
Identical Assets
Identical Assets
(Level 1)
(Level 1)
Significant
Significant
Unobservable
Unobservable
Inputs
Inputs
(Level 3)
(Level 3)
As of
As of
December 31,
December 31,
2019
2019
Balance Sheet
Balance Sheet
Classification
Classification
Financial Assets:
Financial Assets:
Recurring fair value
Recurring fair value
measurements:
measurements:
Money market funds
Money market funds
Foreign government treasury bills
Foreign government treasury bills
U.S. treasuries and government
U.S. treasuries and government
agency securities
agency securities
Total recurring fair value
Total recurring fair value
measurements
measurements
$
$
$
$
$
$
5,320
5,320
37
37
65
65
$
$
5,320
5,320
37
37
65
65
5,422
5,422
$
$
5,422
5,422
$
$
Financial Liabilities:
Financial Liabilities:
Foreign currency forward
Foreign currency forward
contracts not designated as hedges $
contracts not designated as hedges $
Foreign currency forward
Foreign currency forward
contracts designated as hedges
contracts designated as hedges
$
$
(2) $
(2) $
(2) $
(2) $
— $
— $
— $
— $
— $
— $
—
—
—
—
— $
— $
(2) $
(2) $
(2) $
(2) $
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
— Other current assets
— Other current assets
—
—
—
—
—
—
Accrued expenses and
Accrued expenses and
other liabilities
other liabilities
Accrued expenses and
Accrued expenses and
other liabilities
other liabilities
Financial Assets:
Financial Assets:
Recurring fair value
Recurring fair value
measurements:
measurements:
Money market funds
Money market funds
Foreign government treasury bills
Foreign government treasury bills
U.S. treasuries and government
U.S. treasuries and government
agency securities
agency securities
Foreign currency forward
Foreign currency forward
contracts designated as hedges
contracts designated as hedges
Foreign currency forward
Foreign currency forward
contracts not designated as hedges
contracts not designated as hedges
Total recurring fair value
Total recurring fair value
measurements
measurements
Financial Liabilities:
Financial Liabilities:
Foreign currency forward
Foreign currency forward
contracts designated as hedges
contracts designated as hedges
Fair Value Measurements at December 31, 2018
Fair Value Measurements at December 31, 2018
Using
Using
Significant
Significant
Other
Other
Observable
Observable
Inputs
Inputs
(Level 2)
(Level 2)
Quoted
Quoted
Prices in Active
Prices in Active
Markets for
Markets for
Identical Assets
Identical Assets
(Level 1)
(Level 1)
Significant
Significant
Unobservable
Unobservable
Inputs
Inputs
(Level 3)
(Level 3)
As of
As of
December 31,
December 31,
2018
2018
Balance Sheet
Balance Sheet
Classification
Classification
$
$
$
$
$
$
$
$
3,925
3,925
32
32
150
150
13
13
1
1
3,925
3,925
32
32
150
150
—
—
—
—
$
$
— $
— $
—
—
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
—
—
13
13
1
1
— Other current assets
— Other current assets
— Other current assets
— Other current assets
— Other current assets
— Other current assets
4,121
4,121
$
$
4,107
4,107
$
$
14
14
$
$
(1) $
(1) $
— $
— $
(1) $
(1) $
F-28
F-28
F-28
—
—
—
—
Accrued expenses and
Accrued expenses and
other liabilities
other liabilities
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
As of December 31, 2019
As of December 31, 2019
As of December 31, 2019
As of December 31, 2019
Notional amount
Notional amount
Notional amount
Notional amount
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
As of December 31, 2018
As of December 31, 2018
As of December 31, 2018
As of December 31, 2018
Notional amount
Notional amount
Notional amount
Notional amount
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
Foreign Currency:
Foreign Currency:
Foreign Currency:
Buy USD, Sell Euro
Foreign Currency:
Buy USD, Sell Euro
Buy USD, Sell Euro
Buy USD, Sell Euro
$
$
$
$
350 $
350 $
350 $
350 $
At December 31, 2019, our Cash Flow Hedges have remaining maturities of twelve months or less. Additionally, $10
At December 31, 2019, our Cash Flow Hedges have remaining maturities of twelve months or less. Additionally, $10
At December 31, 2019, our Cash Flow Hedges have remaining maturities of twelve months or less. Additionally, $10
At December 31, 2019, our Cash Flow Hedges have remaining maturities of twelve months or less. Additionally, $10
million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
December 31, 2019, for Cash Flow Hedges that had settled but were deferred and will be amortized into earnings, along with
million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
December 31, 2019, for Cash Flow Hedges that had settled but were deferred and will be amortized into earnings, along with
December 31, 2019, for Cash Flow Hedges 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.
December 31, 2019, for Cash Flow Hedges 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.
the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.
the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.
723 $
723 $
723 $
723 $
(2)
(2)
(2)
(2)
$
$
$
$
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of
“Accumulated other comprehensive income (loss)” and into earnings are as follows (amounts in millions):
“Accumulated other comprehensive income (loss)” and into earnings are as follows (amounts in millions):
“Accumulated other comprehensive income (loss)” and into earnings are as follows (amounts in millions):
“Accumulated other comprehensive income (loss)” and into earnings are as follows (amounts in millions):
12
12
12
12
For the Years Ended December 31,
For the Years Ended December 31,
For the Years Ended December 31,
2018
For the Years Ended December 31,
2018
2018
2018
2017
2017
2017
2017
2019
2019
2019
2019
7 $
Cash Flow Hedges
7 $
Cash Flow Hedges
Cash Flow Hedges
7 $
Cash Flow Hedges
7 $
Foreign Currency Forward Contracts Not Designated as Hedges
Foreign Currency Forward Contracts Not Designated as Hedges
Foreign Currency Forward Contracts Not Designated as Hedges
Foreign Currency Forward Contracts Not Designated as Hedges
39 $
39 $
39 $
39 $
$
$
$
$
(1)
(1)
(1)
(1)
Statement of Operations Classification
Statement of Operations Classification
Statement of Operations Classification
Net revenues
Statement of Operations Classification
Net revenues
Net revenues
Net revenues
The total gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as
The total gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as
The total gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as
The total gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as
follows (amounts in millions):
follows (amounts in millions):
follows (amounts in millions):
follows (amounts in millions):
Foreign Currency:
Foreign Currency:
Foreign Currency:
Buy USD, Sell GBP
Foreign Currency:
Buy USD, Sell GBP
Buy USD, Sell GBP
Buy USD, Sell GBP
As of December 31, 2019
As of December 31, 2019
As of December 31, 2019
As of December 31, 2019
Notional amount
Notional amount
Notional amount
Notional amount
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
As of December 31, 2018
As of December 31, 2018
As of December 31, 2018
As of December 31, 2018
Notional amount
Notional amount
Notional amount
Notional amount
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
Fair value gain (loss)
$
$
$
$
25 $
25 $
25 $
25 $
(2)
(2)
(2)
(2)
$
$
$
$
55 $
55 $
55 $
55 $
1
1
1
1
During the years ended December 31, 2019, 2018, and 2017 pre-tax net gains associated with these forward contracts
During the years ended December 31, 2019, 2018, and 2017 pre-tax net gains associated with these forward contracts
During the years ended December 31, 2019, 2018, and 2017 pre-tax net gains associated with these forward contracts
During the years ended December 31, 2019, 2018, and 2017 pre-tax net gains associated with these forward contracts
were recorded in “General and administrative expenses” and were not material.
were recorded in “General and administrative expenses” and were not material.
were recorded in “General and administrative expenses” and were not material.
were recorded in “General and administrative expenses” and were not material.
Fair Value Measurements on a Non-Recurring Basis
Fair Value Measurements on a Non-Recurring Basis
Fair Value Measurements on a Non-Recurring Basis
Fair Value Measurements on a Non-Recurring Basis
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable.
circumstances indicate that the carrying amount of the assets may not be recoverable.
circumstances indicate that the carrying amount of the assets may not be recoverable.
circumstances indicate that the carrying amount of the assets may not be recoverable.
During the three months ended June 30, 2019, we recorded an upward adjustment of $38 million to an investment in
During the three months ended June 30, 2019, we recorded an upward adjustment of $38 million to an investment in
During the three months ended June 30, 2019, we recorded an upward adjustment of $38 million to an investment in
equity securities, which has been historically recorded at cost, based on an observable and orderly transaction in the common
During the three months ended June 30, 2019, we recorded an upward adjustment of $38 million to an investment in
equity securities, which has been historically recorded at cost, based on an observable and orderly transaction in the common
equity securities, which has been historically recorded at cost, based on an observable and orderly transaction in the common
stock of the investee. We recognized a corresponding unrealized gain within “Interest and other expense (income), net” in our
equity securities, which has been historically recorded at cost, based on an observable and orderly transaction in the common
stock of the investee. We recognized a corresponding unrealized gain within “Interest and other expense (income), net” in our
stock of the investee. We recognized a corresponding unrealized gain within “Interest and other expense (income), net” in our
consolidated statement of operations. As of December 31, 2019, the carrying value of the investment is $42 million and is
stock of the investee. We recognized a corresponding unrealized gain within “Interest and other expense (income), net” in our
consolidated statement of operations. As of December 31, 2019, the carrying value of the investment is $42 million and is
consolidated statement of operations. As of December 31, 2019, the carrying value of the investment is $42 million and is
recorded in “Other assets” on our consolidated balance sheet. We classify this investment as Level 3 in the fair value hierarchy
consolidated statement of operations. As of December 31, 2019, the carrying value of the investment is $42 million and is
recorded in “Other assets” on our consolidated balance sheet. We classify this investment as Level 3 in the fair value hierarchy
recorded in “Other assets” on our consolidated balance sheet. We classify this investment as Level 3 in the fair value hierarchy
as we estimated the value based on valuation methods using the observable transaction price in a market with limited activity.
recorded in “Other assets” on our consolidated balance sheet. We classify this investment as Level 3 in the fair value hierarchy
as we estimated the value based on valuation methods using the observable transaction price in a market with limited activity.
as we estimated the value based on valuation methods using the observable transaction price in a market with limited activity.
as we estimated the value based on valuation methods using the observable transaction price in a market with limited activity.
For the years ended December 31, 2019, 2018, and 2017, there were no impairment charges related to assets that are
For the years ended December 31, 2019, 2018, and 2017, there were no impairment charges related to assets that are
For the years ended December 31, 2019, 2018, and 2017, there were no impairment charges related to assets that are
For the years ended December 31, 2019, 2018, and 2017, there were no impairment charges related to assets that are
measured on a non-recurring basis.
measured on a non-recurring basis.
measured on a non-recurring basis.
measured on a non-recurring basis.
F-29
F-29
F-29
F-29
F-29
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
11. Deferred Revenues
11. Deferred Revenues
11. Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated
We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated
We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated
performance obligations. The opening balance of deferred revenues as of January 1, 2019 and the ending balance as of
performance obligations. The opening balance of deferred revenues as of January 1, 2019 and the ending balance as of
December 31, 2019, were $1.6 billion and $1.4 billion, respectively, including our current and non-current balances. For the
performance obligations. The opening balance of deferred revenues as of January 1, 2019 and the ending balance as of
December 31, 2019, were $1.6 billion and $1.4 billion, respectively, including our current and non-current balances. For the
December 31, 2019, were $1.6 billion and $1.4 billion, respectively, including our current and non-current balances. For the
year ended December 31, 2019, the additions to our deferred revenues balance were primarily due to cash payments received or
year ended December 31, 2019, the additions to our deferred revenues balance were primarily due to cash payments received or
year ended December 31, 2019, the additions to our deferred revenues balance were primarily due to cash payments received or
due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily
due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily
due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course
due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily
due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course
of business. During the years ended December 31, 2019 and December 31, 2018, $1.5 billion and $1.7 billion of revenues,
due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course
of business. During the years ended December 31, 2019 and December 31, 2018, $1.5 billion and $1.7 billion of revenues,
respectively, were recognized that were included in the deferred revenues balance at the beginning of the period.
of business. During the years ended December 31, 2019 and December 31, 2018, $1.5 billion and $1.7 billion of revenues,
respectively, were recognized that were included in the deferred revenues balance at the beginning of the period.
respectively, were recognized that were included in the deferred revenues balance at the beginning of the period.
As of December 31, 2019, the aggregate amount of contracted revenues allocated to our unsatisfied performance
As of December 31, 2019, the aggregate amount of contracted revenues allocated to our unsatisfied performance
As of December 31, 2019, the aggregate amount of contracted revenues allocated to our unsatisfied performance
obligations is $2.7 billion, which includes our deferred revenues balances and amounts to be invoiced and recognized as
obligations is $2.7 billion, which includes our deferred revenues balances and amounts to be invoiced and recognized as
revenue in future periods. We expect to recognize approximately $1.5 billion over the next 12 months, $0.4 billion in the
obligations is $2.7 billion, which includes our deferred revenues balances and amounts to be invoiced and recognized as
revenue in future periods. We expect to recognize approximately $1.5 billion over the next 12 months, $0.4 billion in the
revenue in future periods. We expect to recognize approximately $1.5 billion over the next 12 months, $0.4 billion in the
subsequent 12-month period, and the remainder thereafter. This balance does not include an estimate for variable consideration
subsequent 12-month period, and the remainder thereafter. This balance does not include an estimate for variable consideration
arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.
subsequent 12-month period, and the remainder thereafter. This balance does not include an estimate for variable consideration
arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.
arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.
12. Leases
12. Leases
12. Leases
Our lease arrangements are primarily for: (1) corporate, administrative, and development studio offices; (2) data centers
Our lease arrangements are primarily for: (1) corporate, administrative, and development studio offices; (2) data centers
and server equipment; and (3) live event production equipment. Our existing leases have remaining lease terms ranging from
Our lease arrangements are primarily for: (1) corporate, administrative, and development studio offices; (2) data centers
and server equipment; and (3) live event production equipment. Our existing leases have remaining lease terms ranging from
one year to 10 years. In certain instances, such leases include one or more options to renew, with renewal terms that generally
and server equipment; and (3) live event production equipment. Our existing leases have remaining lease terms ranging from
one year to 10 years. In certain instances, such leases include one or more options to renew, with renewal terms that generally
one year to 10 years. In certain instances, such leases include one or more options to renew, with renewal terms that generally
extend the lease term by one year to five years for each option. The exercise of lease renewal options is generally at our sole
extend the lease term by one year to five years for each option. The exercise of lease renewal options is generally at our sole
discretion. Additionally, the majority of our leases are classified as operating leases; our financing leases are not material.
extend the lease term by one year to five years for each option. The exercise of lease renewal options is generally at our sole
discretion. Additionally, the majority of our leases are classified as operating leases; our financing leases are not material.
discretion. Additionally, the majority of our leases are classified as operating leases; our financing leases are not material.
Components of our lease costs are as follows (amounts in millions):
Components of our lease costs are as follows (amounts in millions):
Components of our lease costs are as follows (amounts in millions):
Operating leases
Operating leases
Operating leases
Operating lease costs
Operating lease costs
Operating lease costs
Variable lease costs
Variable lease costs
Variable lease costs
Year Ended
Year Ended
December 31, 2019
December 31, 2019
Year Ended
December 31, 2019
$
$
$
75
75
75
20
20
20
Rental expense prior to our adoption of the new lease standard was $75 million and $71 million for the years ended
Rental expense prior to our adoption of the new lease standard was $75 million and $71 million for the years ended
Rental expense prior to our adoption of the new lease standard was $75 million and $71 million for the years ended
December 31, 2018 and 2017, respectively.
December 31, 2018 and 2017, respectively.
December 31, 2018 and 2017, respectively.
Supplemental information related to our operating leases is as follows (amounts in millions):
Supplemental information related to our operating leases is as follows (amounts in millions):
Supplemental information related to our operating leases is as follows (amounts in millions):
Supplemental Operating Cash Flows Information
Supplemental Operating Cash Flows Information
Supplemental Operating Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities
Cash paid for amounts included in the measurement of lease liabilities
Cash paid for amounts included in the measurement of lease liabilities
ROU assets obtained in exchange for new lease obligations
ROU assets obtained in exchange for new lease obligations
ROU assets obtained in exchange for new lease obligations
Weighted Average Lease terms and discount rates
Weighted Average Lease terms and discount rates
Weighted Average Lease terms and discount rates
Remaining lease term
Remaining lease term
Remaining lease term
Discount rate
Discount rate
Discount rate
F-30
F-30
F-30
F-30
Year Ended
Year Ended
December 31, 2019
December 31, 2019
Year Ended
December 31, 2019
$
$
$
80
80
80
65
65
65
At December 31, 2019
At December 31, 2019
At December 31, 2019
5.00 years
5.00 years
5.00 years
4.02%
4.02%
4.02%
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our
Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our
operating lease liabilities at December 31, 2019, are as follows (amounts in millions):
operating lease liabilities at December 31, 2019, are as follows (amounts in millions):
For the years ending December 31,
For the years ending December 31,
2020
2020
2021
2021
2022
2022
2023
2023
2024
2024
Thereafter
Thereafter
Total future lease payments
Total future lease payments
Less imputed interest
Less imputed interest
Total lease liabilities
Total lease liabilities
$
$
$
$
$
$
72
72
59
59
50
50
44
44
41
41
37
37
303
303
(30)
(30)
273
273
As of December 31, 2019, we have entered into facility leases that have not yet commenced with future lease payments of
As of December 31, 2019, we have entered into facility leases that have not yet commenced with future lease payments of
approximately $58 million. These leases are expected to commence within the next 12 months and will have lease terms
approximately $58 million. These leases are expected to commence within the next 12 months and will have lease terms
ranging from three years to five years.
ranging from three years to five years.
Operating lease ROU assets and liabilities recorded on our consolidated balance sheet as of December 31, 2019, were as
Operating lease ROU assets and liabilities recorded on our consolidated balance sheet as of December 31, 2019, were as
follows (amounts in millions):
follows (amounts in millions):
ROU assets
ROU assets
Current lease liabilities
Current lease liabilities
Non-current lease liabilities
Non-current lease liabilities
At December 31, 2019
At December 31, 2019
$
$
232 Other assets
232 Other assets
Balance Sheet Classification
Balance Sheet Classification
$
$
$
$
63 Accrued expenses and other current liabilities
63 Accrued expenses and other current liabilities
210 Other liabilities
210 Other liabilities
273 Total lease liabilities
273 Total lease liabilities
Future minimum lease payments as of December 31, 2018, prior to our adoption of the new lease accounting standard,
Future minimum lease payments as of December 31, 2018, prior to our adoption of the new lease accounting standard,
were as follows:
were as follows:
For the years ending December 31,
For the years ending December 31,
2019
2019
2020
2020
2021
2021
2022
2022
2023
2023
Thereafter
Thereafter
Total
Total
$
$
$
$
80
80
70
70
53
53
45
45
38
38
60
60
346
346
F-31
F-31
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
13. Debt
Credit Facilities
At December 31, 2019 and December 31, 2018, we had $1.5 billion available under a revolving credit facility (the
“Revolver”) pursuant to a credit agreement entered into on October 11, 2013 (as amended thereafter and from time to time, the
“Credit Agreement”). To date, we have not drawn on the Revolver.
The Revolver is scheduled to mature on August 24, 2023. Borrowings under the Revolver will bear interest, at the
Company’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”) 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 base rate will be subject to an effective floor of 1.00%. The applicable interest margin for
borrowings under the Revolver will range from 0.875% to 1.375% for LIBOR borrowings and from 0% to 0.375% for base rate
borrowings and will be determined by reference to a pricing grid based on the Company’s credit ratings. Up to $50 million of
the Revolver may be used for letters of credit.
Under the Credit Agreement, we are subject to a financial covenant requiring the Company’s Consolidated Total Net
Debt Ratio (as defined in the Credit Agreement) not to exceed 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 covenants customary for transactions of this type for issuers with similar credit ratings. These include those
restricting liens, debt of non-guarantor subsidiaries and certain fundamental changes, in each case with exceptions, including
exceptions for secured debt and debt of non-guarantor subsidiaries of the Company, in each case up to an amount not exceeding
7.5% of Total Assets (as defined in the Credit Agreement). We were in compliance with the terms of the Credit Agreement as of
December 31, 2019.
Unsecured Senior Notes
At December 31, 2019 and December 31, 2018, we had the following unsecured senior notes outstanding:
•
•
•
•
•
$650 million of 2.3% unsecured senior notes due September 2021 (the “2021 Notes”);
$400 million of 2.6% unsecured senior notes due June 2022 (the “2022 Notes”);
$850 million of 3.4% unsecured senior notes due September 2026 (the “2026 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 2026 Notes, and the 2027 Notes, the “Notes”).
The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s
existing and future senior indebtedness, including the Revolver described above. The Notes are not secured and are effectively
junior to any of the Company’s existing and future indebtedness that is secured to the extent of the 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. We were in compliance with the terms of the Notes as of December 31, 2019.
Interest is payable semi-annually in arrears on March 15 and September 15 of each year for the 2021 Notes and the 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
the 2047 Notes. Accrued interest payable is recorded within “Accrued expenses and other liabilities” in our consolidated
balance sheets. As of both December 31, 2019 and December 31, 2018, we had accrued interest payable of $15 million related
to the Notes.
F-32
F-32
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
We may redeem some or all of the 2021 Notes, the 2022 Notes, the 2026 Notes, the 2027 Notes, and the 2047 Notes 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.
Any redemption of all or a portion of the applicable class of note after the applicable date would be at 100% of aggregate
principal amount plus accrued and unpaid interest.
Upon the occurrence of certain change of control events, we will be required to offer to repurchase the Notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. These repurchase requirements are
considered clearly and closely related to the Notes and are not accounted for separately upon issuance.
Interest expense and financing costs
Fees and discounts associated with the issuance of our debt instruments are recorded as debt discount, which reduces their
respective carrying values, and are amortized over their respective terms. Amortization expense is recorded within “Interest and
other expense (income), net” in our consolidated statement of operations.
For the years ended December 31, 2019, 2018, and 2017: interest expense was $86 million, $134 million, and $150
million, respectively; amortization of the debt discount and deferred financing costs was $4 million, $6 million, and $12
million, respectively.
A summary of our outstanding debt is as follows (amounts in millions):
2021 Notes
2022 Notes
2026 Notes
2027 Notes
2047 Notes
Total long-term debt
2021 Notes
2022 Notes
2026 Notes
2027 Notes
2047 Notes
Gross Carrying
Amount
At December 31, 2019
Unamortized
Discount and Deferred
Financing Costs
Net Carrying
Amount
$
$
$
650
400
850
400
400
2,700
$
(2) $
(2)
(7)
(5)
(9)
(25) $
648
398
843
395
391
2,675
Gross Carrying
Amount
At December 31, 2018
Unamortized
Discount and Deferred
Financing Costs
Net Carrying
Amount
650
400
850
400
400
(3)
(3)
(8)
(5)
(10)
(29) $
647
397
842
395
390
2,671
Total long-term debt
$
2,700
$
F-33
F-33
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
As of December 31, 2019, the scheduled maturities and contractual principal repayments of our debt for each of the five
succeeding years and thereafter are as follows (amounts in millions):
For the years ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
—
650
400
—
—
1,650
2,700
With the exception of the 2026 and the 2047 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active
markets) at December 31, 2019, the carrying values of the Notes approximated their fair values, as the interest rates were
similar to the current rates at which we could borrow funds over the selected interest periods. At December 31, 2019, based on
Level 2 inputs, the fair value of the 2026 and the 2047 Notes were $893 million and $456 million, respectively.
Using Level 2 inputs at December 31, 2018, the carrying values of the 2021 Notes and the 2022 Notes approximated their
fair values, as the interest rates were similar to the current rates at which we could borrow funds over the selected interest
periods. At December 31, 2019, based on Level 2 inputs, the fair values of the 2026 Notes, the 2027 Notes, and the 2047 Notes
were $800 million, $376 million, and $360 million, respectively.
14. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows (amounts in millions):
Balance at December 31, 2018
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss) into earnings
Balance at December 31, 2019
$
$
For the Year Ended December 31, 2019
Foreign
currency
translation
adjustments
Unrealized gain
(loss)
on available-for-
sale securities
Unrealized gain
(loss)
on forward
contracts
Total
(629) $
5
$
23
$
(601)
5
—
(624) $
—
(8)
(3) $
24
(39)
8
$
29
(47)
(619)
F-34
F-34
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
For the Year Ended December 31, 2018
As of December 31, 2019, the scheduled maturities and contractual principal repayments of our debt for each of the five
succeeding years and thereafter are as follows (amounts in millions):
Foreign
currency
translation
adjustments
Unrealized gain
(loss)
on available-for-
sale securities
Unrealized gain
(loss)
on forward
contracts
Balance at December 31, 2017
For the years ending December 31,
Cumulative impact from adoption of new revenue
2020
accounting standard
2021
Other comprehensive income (loss) before
2022
reclassifications
2023
Amounts reclassified from accumulated other
comprehensive income (loss) into earnings
2024
Balance at December 31, 2018
Thereafter
Total
15. Operating Segments and Geographic Regions
$
(623) $
— $
(15) $
3
(9)
—
(629) $
$
—
10
(5)
5
$
—
45
(7)
23
$
$
$
Total
(638)
—
3
650
400
46
—
(12)
—
(601)
1,650
2,700
With the exception of the 2026 and the 2047 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active
Currently, we have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent
markets) at December 31, 2019, the carrying values of the Notes approximated their fair values, as the interest rates were
with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating
similar to the current rates at which we could borrow funds over the selected interest periods. At December 31, 2019, based on
decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred
Level 2 inputs, the fair value of the 2026 and the 2047 Notes were $893 million and $456 million, respectively.
revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense;
amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees,
Using Level 2 inputs at December 31, 2018, the carrying values of the 2021 Notes and the 2022 Notes approximated their
expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related
fair values, as the interest rates were similar to the current rates at which we could borrow funds over the selected interest
costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating
periods. At December 31, 2019, based on Level 2 inputs, the fair values of the 2026 Notes, the 2027 Notes, and the 2047 Notes
segment basis, and accordingly, no disclosure is made with respect thereto.
were $800 million, $376 million, and $360 million, respectively.
Our operating segments are also consistent with our internal organizational structure, the way we assess operating
14. Accumulated Other Comprehensive Income (Loss)
performance and allocate resources, and the availability of separate financial information. We do not aggregate operating
segments.
The components of accumulated other comprehensive income (loss) were as follows (amounts in millions):
Balance at December 31, 2018
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss) into earnings
Balance at December 31, 2019
$
$
For the Year Ended December 31, 2019
Foreign
currency
translation
adjustments
Unrealized gain
(loss)
on available-for-
sale securities
Unrealized gain
(loss)
on forward
contracts
Total
(629) $
5
$
23
$
(601)
5
—
(624) $
—
(8)
(3) $
24
(39)
8
$
29
(47)
(619)
F-35
F-35
F-34
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Information on the reportable segment net revenues and segment operating income are presented below (amounts in
millions):
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
Year Ended December 31, 2019
Activision
Blizzard
King
Total
$
$
$
$
$
$
$
$
$
2,219
—
2,219
850
$
$
$
1,676
43
1,719
464
$
$
$
2,031
—
2,031
740
Year Ended December 31, 2018
Activision
Blizzard
King
2,458
—
2,458
1,011
$
$
$
2,238
53
2,291
685
$
$
$
2,086
—
2,086
750
Year Ended December 31, 2017
Activision
Blizzard
King
2,628
—
2,628
1,005
$
$
$
2,120
19
2,139
712
$
$
$
1,998
—
1,998
700
$
$
$
$
$
$
$
$
$
5,926
43
5,969
2,054
Total
6,782
53
6,835
2,446
Total
6,746
19
6,765
2,417
(1) Intersegment revenues reflect licensing and service fees charged between segments.
F-36
F-36
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and
consolidated income before income tax expense are presented in the table below (amounts in millions):
Reconciliation to consolidated net revenues:
Segment net revenues
Revenues from non-reportable 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 income (loss) from non-reportable 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
Fees and other expenses related to the acquisition of King (4)
Restructuring costs (5)
Other non-cash charges (6)
Discrete tax-related items (7)
Consolidated operating income
Interest and other expense (income), net
Loss on extinguishment of debt
Consolidated income before income tax expense
$
$
$
$
Years Ended December 31,
2018
2019
2017
5,969
462
101
(43)
6,489
2,054
24
52
(166)
(203)
—
(137)
—
(17)
1,607
(26)
—
1,633
$
$
$
$
6,835
480
238
(53)
7,500
2,446
31
100
(209)
(370)
—
(10)
—
—
1,988
71
40
1,877
$
$
$
$
6,765
410
(139)
(19)
7,017
2,417
(19)
(71)
(178)
(757)
(15)
(15)
(14)
(39)
1,309
146
12
1,151
(1) Includes other income and expenses from operating segments managed outside the reportable segments, including our
Distribution business. Also includes unallocated corporate income and expenses.
(2) Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain
of our online-enabled products.
(3) Intersegment revenues reflect licensing and service fees charged between segments.
(4) Reflects fees and other expenses, such as legal, banking, and professional services fees, related to the acquisition of King
and associated integration activities, including related debt financings.
(5) Reflects restructuring initiatives, which include severance and other restructuring-related costs.
(6) Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the
substantial liquidation of certain of our foreign entities.
(7) Reflects the impact of other unusual or unique tax-related items and activities.
F-37
F-37
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Due to requirements from our adoption of a new revenue accounting standard in 2018, net revenues by distribution
channel for the years ended December 31, 2019 and 2018, include a reconciliation to our segment revenues as disclosed for
each of our reportable segments above. Net revenues by distribution channel were as follows (amounts in millions):
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)
Retail channels
Other (2)
Total consolidated net revenues
Change in deferred revenues:
Digital online channels (1)
Retail channels
Other (2)
Total change in deferred revenues
Segment net revenues:
Digital online channels (1)
Retail channels
Other (2)
Total segment net revenues
$
$
$
$
$
$
1,366
$
1,580
$
2,029
$
818
3
2,187
122
(90)
—
$
$
32
$
91
181
1,852
$
—
—
2,029
(128) $
(5)
—
(133) $
2
—
—
2
$
$
$
1,488
$
1,452
$
2,031
$
728
3
86
181
—
—
2,219
$
1,719
$
2,031
$
— $
—
464
464
$
— $
—
(2)
(2) $
— $
—
462
462
$
(43) $
—
—
(43) $
4,932
909
648
6,489
— $
—
—
— $
(4)
(95)
(2)
(101)
(43) $
—
—
(43) $
4,928
814
646
6,388
F-38
F-38
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Year Ended December 31, 2018
Activision
Blizzard
King
Non-
reportable
segments
Elimination
of
intersegment
revenues (3)
Total
$
$
$
$
$
$
1,740
$
2,009
$
2,090
$
998
—
109
148
—
—
2,738
$
2,266
$
2,090
$
(96) $
(184)
—
(280) $
32
(7)
—
25
$
$
(4) $
—
—
(4) $
1,644
$
2,041
$
2,086
$
814
—
102
148
—
—
2,458
$
2,291
$
2,086
$
— $
—
459
459
$
— $
—
21
21
$
— $
—
480
480
$
(53) $
—
—
(53) $
5,786
1,107
607
7,500
— $
—
—
— $
(68)
(191)
21
(238)
(53) $
—
—
(53) $
5,718
916
628
7,262
Year Ended December 31, 2017
$
$
5,479
1,033
505
7,017
Net revenues by distribution channel:
Digital online channels (1)
Retail channels
Other (2)
Total consolidated net revenues
Change in deferred revenues:
Digital online channels (1)
Retail channels
Other (2)
Total change in deferred revenues
Segment net revenues:
Digital online channels (1)
Retail channels
Other (2)
Total segment net revenues
Net revenues by distribution channel:
Digital online channels (1)
Retail channels
Other (2)
Total consolidated net revenues
(1) Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable
content, microtransactions, and products, as well as licensing royalties.
(2) Net revenues from “Other” primarily includes revenues from our Distribution business and the Overwatch League.
(3) Intersegment revenues reflect licensing and service fees charged between segments.
F-39
F-39
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Geographic information presented below is based on the location of the paying customer. Net revenues by geographic
region, including a reconciliation to each of our reportable segment’s net revenues, were as follows (amounts in millions):
Year Ended December 31, 2019
Activision
Blizzard
King
Non-
reportable
segments
Elimination
of
intersegment
revenues (2)
Total
Net revenues by geographic region:
Americas
EMEA (1)
Asia Pacific
Total consolidated net revenues
Change in deferred revenues:
Americas
EMEA (1)
Asia Pacific
Total change in deferred revenues
Segment net revenues:
Americas
EMEA (1)
Asia Pacific
Total segment net revenues
$
$
$
$
$
$
1,286
$
691
210
822
543
487
$
1,254
$
557
218
— $
464
—
2,187
$
1,852
$
2,029
$
464
$
(21) $
(16)
(6)
(43) $
3,341
2,239
909
6,489
16
12
4
32
$
$
(62) $
(57)
(14)
(133) $
2
—
—
2
$
$
1,302
$
703
214
760
486
473
$
1,256
$
557
218
— $
(2)
—
(2) $
— $
462
—
2,219
$
1,719
$
2,031
$
462
$
— $
—
—
— $
(44)
(47)
(10)
(101)
(21) $
(16)
(6)
(43) $
3,297
2,192
899
6,388
F-40
F-40
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Year Ended December 31, 2018
Activision
Blizzard
King
Non-
reportable
segments
Elimination
of
intersegment
revenues (2)
Total
Net revenues by geographic region:
Americas
EMEA (1)
Asia Pacific
Total consolidated net revenues
Change in deferred revenues:
Americas
EMEA (1)
Asia Pacific
Total change in deferred revenues
Segment net revenues:
Americas
EMEA (1)
Asia Pacific
Total segment net revenues
$
$
$
$
$
$
Net revenues by geographic region:
Americas
EMEA (1)
Asia Pacific
Total consolidated net revenues
1,622
$
1,004
$
1,269
$
13
$
897
219
692
570
599
222
446
—
2,738
$
2,266
$
2,090
$
459
$
(28) $
(16)
(9)
(53) $
3,880
2,618
1,002
7,500
(163) $
(127)
10
(280) $
15
16
(6)
25
$
$
(3) $
(1)
—
(4) $
— $
21
—
21
$
— $
—
—
— $
(151)
(91)
4
(238)
1,459
$
1,019
$
1,266
$
13
$
770
229
708
564
598
222
467
—
2,458
$
2,291
$
2,086
$
480
$
(28) $
(16)
(9)
(53) $
3,729
2,527
1,006
7,262
Year Ended December 31, 2017
$
$
3,607
2,464
946
7,017
(1) “EMEA” consists of the Europe, Middle East, and Africa geographic regions.
(2) Intersegment revenues reflect licensing and service fees charged between segments.
The Company’s net revenues in the U.S. were 46%, 46%, and 45% of consolidated net revenues for the years ended
December 31, 2019, 2018, and 2017, respectively. The Company’s net revenues in the United Kingdom (“U.K.”) for each of the
years ended December 31, 2019, 2018, and 2017 were 12% of consolidated net revenues. No other country’s net revenues
exceeded 10% of consolidated net revenues for the years ended December 31, 2019, 2018, or 2017.
F-41
F-41
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, were as follows
(amounts in millions):
Year Ended December 31, 2019
Activision
Blizzard
King
Non-
reportable
segments
Elimination
of
intersegment
revenues (3)
Total
Net revenues by platform:
Console
PC
Mobile and ancillary (1)
Other (2)
Total consolidated net revenues
Change in deferred revenues:
Console
PC
Mobile and ancillary (1)
Other (2)
Total change in deferred revenues
Segment net revenues:
Console
PC
Mobile and ancillary (1)
Other (2)
$
1,783
$
137
$
298
103
3
1,346
188
181
— $
117
1,912
—
$
$
$
$
2,187
$
1,852
$
2,029
$
(36) $
57
11
—
32
$
(18) $
(110)
(5)
—
(133) $
— $
—
2
—
2
$
1,747
$
119
$
355
114
3
1,236
183
181
— $
117
1,914
—
Total segment net revenues
$
2,219
$
1,719
$
2,031
$
— $
—
—
464
464
$
— $
—
—
(2)
(2) $
— $
—
—
462
462
$
— $
(43)
—
—
(43) $
1,920
1,718
2,203
648
6,489
— $
—
—
—
— $
(54)
(53)
8
(2)
(101)
— $
(43)
—
—
(43) $
1,866
1,665
2,211
646
6,388
F-42
F-42
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Year Ended December 31, 2018
Activision
Blizzard
King
Non-
reportable
segments
Elimination
of
intersegment
revenues (3)
Total
Net revenues by platform:
Console
PC
Mobile and ancillary (1)
Other (2)
Total consolidated net revenues
Change in deferred revenues:
Console
PC
Mobile and ancillary (1)
Other (2)
Total change in deferred revenues
Segment net revenues:
Console
PC
Mobile and ancillary (1)
Other (2)
$
2,351
$
187
$
368
19
—
1,711
220
148
— $
154
1,936
—
$
$
$
$
2,738
$
2,266
$
2,090
$
(257) $
(23)
—
—
(280) $
(8) $
33
—
—
25
$
— $
(1)
(3)
—
(4) $
2,094
$
179
$
345
19
—
1,744
220
148
— $
153
1,933
—
Total segment net revenues
$
2,458
$
2,291
$
2,086
$
— $
—
—
459
459
$
— $
—
—
21
21
$
— $
—
—
480
480
$
— $
(53)
—
—
(53) $
2,538
2,180
2,175
607
7,500
— $
—
—
—
— $
(265)
9
(3)
21
(238)
— $
(53)
—
—
(53) $
2,273
2,189
2,172
628
7,262
Net revenues by platform:
Console
PC
Mobile and ancillary (1)
Other (2)
Total consolidated net revenues
Year Ended December 31, 2017
$
$
2,389
2,042
2,081
505
7,017
(1) Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform specific game-
related revenues, such as standalone sales of physical merchandise and accessories.
(2) Net revenues from “Other” primarily includes revenues from our Distribution business and the Overwatch League.
(3) Intersegment revenues reflect licensing and service fees charged between segments.
F-43
F-43
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Long-lived assets by geographic region were as follows (amounts in millions):
Long-lived assets* by geographic region:
Americas
EMEA
Asia Pacific
Total long-lived assets by geographic region
2019
At December 31,
2018
2017
$
$
322
142
21
$
203
$
62
17
485
$
282
$
197
75
22
294
*
The only long-lived assets that we classify by region are our long-term tangible fixed assets, which consist of property,
plant, and equipment assets, and beginning with 2019, as a result of our adoption of a new lease accounting standard, our
lease ROU assets; all other long-term assets are not allocated by location.
For information regarding significant customers, see “Concentration of Credit Risk” in Note 2.
16. Share-Based Payments
Activision Blizzard Equity Incentive Plans
On June 5, 2014, the Activision Blizzard, Inc. 2014 Incentive Plan (the “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. As of the effective
date of the 2014 Plan, we had ceased making awards under our prior equity incentive plans (collectively, the “Prior Plans”),
although such plans remain in effect to the extent that they continue to govern outstanding awards.
While the Compensation Committee has broad discretion to create equity incentives, our current share-based
compensation program generally 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 10 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.
As of the date it was approved by our shareholders, there were 46 million shares available for issuance under the 2014
Plan. The number of shares of our common stock reserved for issuance under the 2014 Plan has been, and may be further,
increased from time to time by: (1) the number of shares relating to awards outstanding under any Prior Plan that: (i) expire, or
are forfeited, terminated or canceled, without the issuance of shares; (ii) are settled in cash in lieu of shares; or (iii) are
exchanged, prior to the issuance of shares of our common stock, for awards not involving our common stock; (2) if the exercise
price of any option outstanding under any Prior Plans is, or the tax withholding requirements with respect to any award
outstanding under any Prior Plans are, satisfied by withholding shares otherwise then deliverable in respect of the award or the
actual or constructive transfer to the Company of shares already owned, the number of shares equal to the withheld or
transferred shares; and (3) if a share appreciation right is exercised and settled in shares, a number of shares equal to the
difference between the total number of shares with respect to which the award is exercised and the number of shares actually
issued or transferred. As of December 31, 2019, we had approximately 24 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.
F-44
F-44
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Fair Value Valuation Assumptions
Valuation of Stock Options
The fair value of stock options granted are principally estimated using a binomial-lattice model. The inputs in our
binomial-lattice model include expected stock price volatility, risk-free interest rate, dividend yield, contractual term, and
vesting schedule, as well as measures of employees’ cancellations, exercise, and post-vesting termination behavior. Statistical
methods are used to estimate employee termination rates.
The following table presents the weighted-average assumptions, weighted average grant date fair value, and the range of
expected stock price volatilities:
Expected life (in years)
Volatility
Risk free interest rate
Dividend yield
Weighted-average grant date fair value
$
Stock price volatility range:
Low
High
Expected life
Employee and Director Options
For the Years Ended December 31,
2019
2018
2017
7.85
30.00%
1.90%
0.76%
17.12
30.00%
38.17%
$
7.64
32.37%
3.10%
0.61%
21.03
31.72%
36.73%
$
7.01
35.00%
2.14%
0.50%
21.11
28.19%
35.00%
The expected life of employee stock options is a derived output of the binomial-lattice model and represents the
weighted-average period the stock options are expected to remain outstanding. A binomial-lattice model assumes that
employees will exercise their options when the stock price equals or exceeds an exercise multiple. The exercise multiple is
based on historical employee exercise behaviors.
Volatility
To estimate volatility for the binomial-lattice model, we consider the implied volatility of exchange-traded options on our
stock to estimate short-term volatility, the historical volatility of our common shares during the option’s contractual term to
estimate long-term volatility, and a statistical model to estimate the transition from short-term volatility to long-term volatility.
Risk-free interest rate
As is the case for volatility, the risk-free interest rate is assumed to change during the option’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”).
Dividend yield
The expected dividend yield assumption is based on our historical and expected future amount of dividend payouts.
Share-based compensation expense recognized is based on awards ultimately expected to vest and therefore has been
reduced for estimated forfeitures. Forfeitures are estimated at the time of grant based on historical experience and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
F-45
F-45
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Valuation of Restricted Stock Units (“RSUs”)
The fair value of the Company’s RSU awards granted is principally based upon the closing price of the Company’s stock
price on the date of grant reduced by the present value of dividends expected to be paid on our common stock prior to vesting.
Accuracy of Fair Value Estimates
We developed the assumptions used in the models above, including measures of 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 as there
are not current active markets for the trading of employee stock options and other share-based instruments.
Stock Option Activity
Stock option activity is as follows:
Number of
Shares (in
thousands)
Weighted-
average
exercise price
Weighted-
average
remaining
contractual
term (in years)
Aggregate
intrinsic value
(in millions)
Outstanding stock options at December 31, 2018
17,137
$
Granted
Exercised
Forfeited
Expired
Outstanding stock options at December 31, 2019
Vested and expected to vest at December 31, 2019
Exercisable at December 31, 2019
3,992
(3,847)
(2,852)
(401)
14,029
13,360
5,988
$
$
$
39.73
49.14
27.31
46.19
46.63
44.31
43.90
34.32
7.47 $
7.39 $
5.56 $
221
216
152
The aggregate intrinsic values in the table above represents the total pretax intrinsic value (i.e., the difference between our
closing stock price on the last trading day of the period and the exercise price, times the number of shares for options where the
closing stock price is greater than the exercise price) that would have been received by the option holders had all option holders
exercised their options on that date. This amount changes based on the market value of our stock. The total intrinsic value of
options actually exercised was $80 million, $196 million, and $372 million for the years ended December 31, 2019, 2018, and
2017, respectively. The total grant date fair value of options vested was $94 million, $45 million, and $47 million for the years
ended December 31, 2019, 2018, and 2017, respectively.
At December 31, 2019, $78 million of total unrecognized compensation cost related to stock options is expected to be
recognized over a weighted-average period of 1.33 years.
RSU Activity
We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs is contingent upon
the holders’ continued employment with us and may be subject to other conditions (which may include the satisfaction of a
performance measure). Also, certain of our performance-based RSUs 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.
F-46
F-46
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following table summarizes our RSU activity with performance-based RSUs presented at the maximum potential
shares that could be earned and issued at vesting (amounts in thousands except per share amounts):
Unvested RSUs at December 31, 2018
Granted
Vested
Forfeited
Unvested RSUs at December 31, 2019
Number of
shares
Weighted-
Average Grant
Date Fair Value
10,623
$
4,426
(2,758)
(2,963)
9,328
$
40.39
45.55
47.86
54.61
32.60
Certain of our performance-based RSUs did not have an accounting grant date as of December 31, 2019, as there is not a
mutual understanding between the Company and the employee of the performance terms. Generally, these performance terms
relate to operating income performance for future years where the performance goals have not yet been set. As of December 31,
2019, there were 3.2 million performance-based RSUs outstanding for which the accounting grant date has not been set, of
which 1.9 million were 2019 grants. Accordingly, no grant date fair value was established and the weighted average grant date
fair value calculated above for 2019 grants excludes these RSUs.
At December 31, 2019, approximately $96 million of total unrecognized compensation cost was related to RSUs and is
expected to be recognized over a weighted-average period of 1.64 years. Of the total unrecognized compensation cost, $50
million was related to performance-based RSUs, which is expected to be recognized over a weighted-average period of
1.63 years. The total grant date fair value of vested RSUs was $147 million, $120 million and $64 million for the years ended
December 31, 2019, 2018, and 2017, respectively.
The income tax benefit from stock option exercises and RSU vestings was $47 million, $94 million, and $160 million for
the years ended December 31, 2019, 2018, and 2017, respectively.
Share-Based Compensation Expense
The following table sets forth the total share-based compensation expense included in our consolidated statements of
operations (amounts in millions):
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
$
F-47
F-47
For the Years Ended December 31,
2017
2018
2019
$
19
$
13
$
1
1
53
10
82
166
(29)
137
$
2
3
61
15
115
209
(46)
163
$
10
1
3
57
15
92
178
(34)
144
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements (continued)
17. Restructuring
17. Restructuring
17. Restructuring
17. Restructuring
17. Restructuring
17. Restructuring
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
removing unnecessary levels of complexity from certain parts of our business. We have been, and will continue:
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
During 2019, we implemented a restructuring plan aimed at refocusing our resources on our largest opportunities and
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
in-game content, mobile, and geographic expansion;
in-game content, mobile, and geographic expansion;
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
in-game content, mobile, and geographic expansion;
increasing our investment in development for our largest, internally-owned franchises—across upfront releases,
in-game content, mobile, and geographic expansion;
in-game content, mobile, and geographic expansion;
in-game content, mobile, and geographic expansion;
reducing certain non-development and administrative-related costs across our business; and
reducing certain non-development and administrative-related costs across our business; and
reducing certain non-development and administrative-related costs across our business; and
reducing certain non-development and administrative-related costs across our business; and
reducing certain non-development and administrative-related costs across our business; and
reducing certain non-development and administrative-related costs across our business; and
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across
scale on behalf of our business units.
scale on behalf of our business units.
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
scale on behalf of our business units.
the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and
scale on behalf of our business units.
scale on behalf of our business units.
scale on behalf of our business units.
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
The restructuring actions remain in progress and will continue into 2020 as we execute against our plan. During
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
“go-to-market” functions, along with certain of our administrative-related functions.
“go-to-market” functions, along with certain of our administrative-related functions.
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
“go-to-market” functions, along with certain of our administrative-related functions.
implementation, we expanded the scope of certain actions within our plan aimed at integrating our global and regional sales and
“go-to-market” functions, along with certain of our administrative-related functions.
“go-to-market” functions, along with certain of our administrative-related functions.
“go-to-market” functions, along with certain of our administrative-related functions.
liabilities” in our consolidated balance sheet (amounts in millions):
liabilities” in our consolidated balance sheet (amounts in millions):
liabilities” in our consolidated balance sheet (amounts in millions):
liabilities” in our consolidated balance sheet (amounts in millions):
liabilities” in our consolidated balance sheet (amounts in millions):
liabilities” in our consolidated balance sheet (amounts in millions):
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other
Severance and
Severance and
employee related
Severance and
employee related
Severance and
costs
Severance and
employee related
Severance and
costs
employee related
employee related
costs
employee related
$
costs
$
costs
costs
$
$
$
$
Facilities and
Facilities and
related costs
Facilities and
related costs
Facilities and
Facilities and
related costs
Facilities and
related costs
related costs
related costs
Other costs
Other costs
Other costs
Other costs
Other costs
Other costs
Total
Total
Total
Total
Total
Total
Balance at December 31, 2018
Balance at December 31, 2018
Balance at December 31, 2018
Costs charged to expense
Balance at December 31, 2018
Costs charged to expense
Balance at December 31, 2018
Balance at December 31, 2018
Costs charged to expense
Cash payments
Costs charged to expense
Cash payments
Costs charged to expense
Costs charged to expense
Cash payments
Non-cash charge adjustment (1)
Cash payments
Non-cash charge adjustment (1)
Cash payments
Cash payments
Non-cash charge adjustment (1)
Non-cash charge adjustment (1)
Non-cash charge adjustment (1)
Non-cash charge adjustment (1)
—
—
—
132
—
132
—
—
132
(56)
132
(56)
132
132
(56)
(41)
(56)
(41)
(56)
(56)
(41)
35
Balance at December 31, 2019
(41)
35
Balance at December 31, 2019
(41)
(41)
35
Balance at December 31, 2019
35
Balance at December 31, 2019
35
Balance at December 31, 2019
35
Balance at December 31, 2019
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
(1) Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled
assets, that were vacated.
assets, that were vacated.
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
assets, that were vacated.
projects and the write-down of assets for our lease facilities, inclusive of lease right-of-use assets and associated fixed
assets, that were vacated.
assets, that were vacated.
assets, that were vacated.
Total restructuring and related costs by segment are (amounts in millions):
Total restructuring and related costs by segment are (amounts in millions):
Total restructuring and related costs by segment are (amounts in millions):
Total restructuring and related costs by segment are (amounts in millions):
Total restructuring and related costs by segment are (amounts in millions):
Total restructuring and related costs by segment are (amounts in millions):
— $
— $
— $
29
— $
29
— $
— $
29
—
29
—
29
29
—
(29)
—
(29)
—
—
(29)
— $
(29)
— $
(29)
(29)
— $
— $
— $
— $
— $
— $
— $
27
— $
27
— $
— $
27
(12)
27
(12)
27
27
(12)
(12)
(12)
(12)
(12)
(12)
(12)
3
(12)
3
(12)
(12)
3
3
3
3
— $
— $
— $
76
— $
76
— $
— $
76
(44)
76
(44)
76
76
(44)
—
(44)
—
(44)
(44)
—
32
—
32
—
—
32
32
32
32
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended
Year Ended
December 31, 2019
Year Ended
December 31, 2019
Year Ended
Year Ended
December 31, 2019
Year Ended
December 31, 2019
December 31, 2019
December 31, 2019
$
$
$
$
$
$
Activision
Activision
Activision
Blizzard
Activision
Blizzard
Activision
Activision
Blizzard
King
Blizzard
King
Blizzard
Blizzard
King
Other segments (1)
King
Other segments (1)
King
King
Other segments (1)
Total
Other segments (1)
Total
Other segments (1)
Other segments (1)
Total
Total
Total
Total
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
functions.
functions.
functions.
functions.
functions.
functions.
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
During the year ended December 31, 2019, we also recorded $5 million to write-down inventory as a result of changes to
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
Product costs” in our consolidated statement of operations.
Product costs” in our consolidated statement of operations.
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales:
Product costs” in our consolidated statement of operations.
Product costs” in our consolidated statement of operations.
Product costs” in our consolidated statement of operations.
Product costs” in our consolidated statement of operations.
19
19
19
68
19
68
19
19
68
20
68
20
68
68
20
25
20
25
20
20
25
132
25
132
25
25
132
132
132
132
$
$
$
$
$
$
F-48
F-48
F-48
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
We expect to incur aggregate pre-tax restructuring charges of approximately $190 million associated with the
Notes to Consolidated Financial Statements (continued)
We expect to incur aggregate pre-tax restructuring charges of approximately $190 million associated with the
restructuring plan, which includes the inventory write-down discussed above. Approximately $50 million of these charges are
expected to be incurred in 2020 as we complete the execution of the restructuring plan, as discussed above. These charges will
restructuring plan, which includes the inventory write-down discussed above. Approximately $50 million of these charges are
primarily relate to severance (approximately 60% of the aggregate charge), including, in many cases, amounts above those that
expected to be incurred in 2020 as we complete the execution of the restructuring plan, as discussed above. These charges will
are legally required, facilities costs (approximately 20% of the aggregate charge), and other asset write-downs and costs
primarily relate to severance (approximately 60% of the aggregate charge), including, in many cases, amounts above those that
(approximately 20% of the aggregate charge). A majority of the total pre-tax charge associated with the restructuring will be
are legally required, facilities costs (approximately 20% of the aggregate charge), and other asset write-downs and costs
paid in cash using amounts on hand and the outlays are expected to continue into 2020.
(approximately 20% of the aggregate charge). A majority of the total pre-tax charge associated with the restructuring will be
paid in cash using amounts on hand and the outlays are expected to continue into 2020.
The total expected pre-tax restructuring charges related to the restructuring plan by segment, inclusive of amounts already
incurred, are presented below (amounts in millions):
The total expected pre-tax restructuring charges related to the restructuring plan by segment, inclusive of amounts already
incurred, are presented below (amounts in millions):
Activision
Blizzard
Activision
King
Blizzard
Other segments (1)
King
Total
Other segments (1)
$
$
$
Total Expected
Charges
Total Expected
Charges
25
105
25
20
105
40
20
190
40
Total
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
$
190
functions.
(1) Includes charges for operating segments managed outside the reportable segments and our corporate and administrative
18. Interest and Other Expense (Income), Net
functions.
18. Interest and Other Expense (Income), Net
Interest and other expense (income), net is comprised of the following (amounts in millions):
Interest and other expense (income), net is comprised of the following (amounts in millions):
Interest income
Interest expense from debt and amortization of debt
Interest income
discount and deferred financing costs
Interest expense from debt and amortization of debt
Unrealized gain on equity investment
discount and deferred financing costs
Other expense (income), net
Unrealized gain on equity investment
Interest and other expense (income), net
Other expense (income), net
Interest and other expense (income), net
For the Years Ended December 31,
2019
2018
For the Years Ended December 31,
2017
2019
(79) $
(79) $
90
(38)
90
1
(38)
(26) $
1
(26) $
2018
(65) $
(65) $
140
—
140
(4)
—
71
(4)
71
$
$
2017
(24)
(24)
162
—
162
8
—
146
8
146
$
$
$
$
F-49
F-49
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, some of which
19. Income Taxes
have a statutory tax rate less than the U.S. rate of 21%, and the relative amount of income earned in each jurisdiction.
Domestic and foreign income (loss) before income taxes and details of the income tax expense (benefit) are as follows
In October 2019, we completed an intra-entity transfer of certain intellectual property rights to one of our subsidiaries in
(amounts in millions):
the U.K., aligning the ownership of these rights with our evolving business. The transfer did not result in a taxable gain;
however, our U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property
For the Years Ended December 31,
rights. Such fair value was determined based on our expectations of future cash flows, long-term growth rates, and discount
2017
2018
2019
rates. We recorded a one-time benefit of $230 million in the quarter ended December 31, 2019 for the recognition of a $1.1
billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred intellectual property, net of uncertain
Income before income tax expense:
tax positions and valuation allowance, partially offset by a related $920 million deferred tax liability for U.S. taxes on foreign
185
earnings. The U.K. amortizable tax basis will be recovered over a period of three years to 25 years and the related deferred tax
966
asset was measured using the enacted U.K. corporate tax rates for the years in which the amortization will be realized. We
1,151
recorded a valuation allowance of $110 million for the portion of the deferred tax asset for which it is more-likely-than-not that
a benefit will not be realized based on objective evidence available as of December 31, 2019. We will update the measurement
Income tax expense (benefit):
and realizability analysis going forward and record the impact from any change in determination in the period of the change.
Domestic
Foreign
1,877
1,633
1,445
1,305
432
328
$
$
$
$
$
$
Current:
$
$
24
136
Foreign
Deferred:
Total current
Federal
On June 27, 2018, we entered into a closing agreement with the Internal Revenue Service (“IRS”) to resolve certain
State
26
intercompany transfer pricing arrangements for tax periods starting in 2009 (the “Closing Agreement”). The primary
adjustments related to the Closing Agreement were recognized in the second quarter of 2018 and consisted of a tax expense of
335
$70 million and a reduction in unrecognized tax benefits of $437 million. In addition, we recognized $185 million of tax
benefits related to other tax adjustments resulting from the changes in U.S. tax attributes and taxable income caused by the
primary adjustments. The Closing Agreement resulted in federal and state cash tax payments totaling approximately $345
million, of which federal tax payments of $334 million were made in October 2018.
(111)
State
(32)
On December 22, 2017, the U.S. Tax Reform Act was enacted. The U.S. Tax Reform Act, among other things, reduced the
(36)
Foreign
U.S. corporate income tax rate from 35% to 21%, beginning in 2018, and implemented the Transition Tax. In the fourth quarter
(179)
of 2018, we completed our analysis of the effect of the U.S. Tax Reform Act and recorded a net tax benefit of $340
million. This is primarily related to adoption of GILTI deferred tax accounting and remeasurement of deferred tax assets and
liabilities partially offset by tax expense related to Transition Tax.
Income tax expense
781
(16)
(1,118)
(353)
(208) $
(15)
280
Total deferred
(153)
106
19
(28)
Federal
1,057
878
130
483
323
696
29
57
$
$
$
The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate and
the income tax expense (benefit) at the effective tax rate for each of the years are as follows (amounts in millions):
For the Years Ended December 31,
2019
2018
2017
Federal income tax provision at statutory rate
$
343
State taxes, net of federal benefit
Research and development credits
Foreign rate differential
Change in tax reserves
Acquired net operating loss utilization
Audit settlements
Excess tax benefits related to share-based payments
U.S. Tax Reform Act
Change in valuation allowance
Intra-entity IP Transfer
Other
Income tax expense
20
(38)
(104)
96
—
54
(2)
—
11
(230)
(20)
130
$
F-50
F-51
F-50
21% $
1
(2)
(7)
6
—
3
—
—
1
(14)
(1)
8% $
394
36
(46)
(198)
285
—
(115)
(58)
(340)
61
—
10
29
21% $
2
(2)
(11)
15
—
(6)
(3)
(18)
3
—
1
2% $
403
4
(26)
(271)
291
(36)
—
(113)
636
—
—
(10)
878
35%
—
(2)
(24)
25
(3)
—
(10)
55
—
—
—
76%
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, some of which
have a statutory tax rate less than the U.S. rate of 21%, and the relative amount of income earned in each jurisdiction.
In October 2019, we completed an intra-entity transfer of certain intellectual property rights to one of our subsidiaries in
the U.K., aligning the ownership of these rights with our evolving business. The transfer did not result in a taxable gain;
however, our U.K. subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property
rights. Such fair value was determined based on our expectations of future cash flows, long-term growth rates, and discount
rates. We recorded a one-time benefit of $230 million in the quarter ended December 31, 2019 for the recognition of a $1.1
billion deferred tax asset in the U.K. related to the amortizable tax basis in the transferred intellectual property, net of uncertain
tax positions and valuation allowance, partially offset by a related $920 million deferred tax liability for U.S. taxes on foreign
earnings. The U.K. amortizable tax basis will be recovered over a period of three years to 25 years and the related deferred tax
asset was measured using the enacted U.K. corporate tax rates for the years in which the amortization will be realized. We
recorded a valuation allowance of $110 million for the portion of the deferred tax asset for which it is more-likely-than-not that
a benefit will not be realized based on objective evidence available as of December 31, 2019. 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.
On June 27, 2018, we entered into a closing agreement with the Internal Revenue Service (“IRS”) to resolve certain
intercompany transfer pricing arrangements for tax periods starting in 2009 (the “Closing Agreement”). The primary
adjustments related to the Closing Agreement were recognized in the second quarter of 2018 and consisted of a tax expense of
$70 million and a reduction in unrecognized tax benefits of $437 million. In addition, we recognized $185 million of tax
benefits related to other tax adjustments resulting from the changes in U.S. tax attributes and taxable income caused by the
primary adjustments. The Closing Agreement resulted in federal and state cash tax payments totaling approximately $345
million, of which federal tax payments of $334 million were made in October 2018.
On December 22, 2017, the U.S. Tax Reform Act was enacted. The U.S. Tax Reform Act, among other things, reduced the
U.S. corporate income tax rate from 35% to 21%, beginning in 2018, and implemented the Transition Tax. In the fourth quarter
of 2018, we completed our analysis of the effect of the U.S. Tax Reform Act and recorded a net tax benefit of $340
million. This is primarily related to adoption of GILTI deferred tax accounting and remeasurement of deferred tax assets and
liabilities partially offset by tax expense related to Transition Tax.
F-51
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for
accounting purposes and the amounts used for income tax purposes. The components of the net deferred tax assets (liabilities)
are as follows (amounts in millions):
Deferred tax assets:
Allowance for sales returns and price protection
Accrued expenses
Deferred revenue
Tax attributes carryforwards
Share-based compensation
Intangibles
U.S. deferred taxes on foreign earnings
Capitalized software development expenses
Other
Deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Intangibles
Capitalized software development expenses
U.S. deferred taxes on foreign earnings
Other
Deferred tax liabilities
Net deferred tax assets
As of December 31,
2019
2018
$
$
19
28
119
93
54
1,289
—
67
109
1,778
(181)
1,597
(142)
—
(594)
(73)
(809)
788
$
$
25
26
136
81
69
43
318
—
28
726
(61)
665
(140)
(57)
—
(26)
(223)
442
As of December 31, 2019, we had gross tax credit carryforwards of $191 million for state purposes. The tax credit
carryforwards are included in Deferred tax assets net of unrealized tax benefits that would apply upon the realization of
uncertain tax positions. In addition, we had foreign NOL carryforwards of $32 million at December 31, 2019, attributed mainly
to losses in France which can be carried forward indefinitely.
We evaluate deferred tax assets each period for recoverability. We record a valuation allowance for assets that do not meet
the threshold of “more likely than not” to be realized in the future. To make that determination, we evaluate the likelihood of
realization based on the weight of all positive and negative evidence available. As a result of the Closing Agreement, we
received in 2018, we determined at that time that our remaining California research and development credit carryforwards
(“CA R&D Credit”) no longer met the threshold of more likely than not to be realized in the future. As such, consistent with our
position at December 31, 2018, we have established a full valuation allowance against our CA R&D Credit. For the year ended
December 31, 2019, the valuation allowance related to our CA R&D Credit is $71 million. We will reassess this determination
quarterly and record a tax benefit if and when future evidence allows for a partial or full release of this valuation allowance.
As of December 31, 2017, we no longer consider the available cash balances related to undistributed earnings held outside
of the U.S. by our foreign subsidiaries to be indefinitely reinvested.
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F-52
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Activision Blizzard’s tax years after 2008 remain open to examination by certain major taxing jurisdictions to which we
are subject. The IRS is currently examining our federal tax returns for the 2012 through 2016 tax years. We also have several
state and non-U.S. audits pending. In addition, as part of purchase price accounting for our 2016 acquisition of King, we
assumed $74 million of uncertain tax positions primarily related to pre-acquisition transfer pricing matters. We anticipate
resolving King’s transfer pricing for both pre- and post-acquisition tax years through a collaborative multilateral process with
the tax authorities in the relevant jurisdictions, which include the U.K. and Sweden. While the outcome of this process remains
uncertain, it could result in an agreement that changes the allocation of profits and losses between these and other relevant
jurisdictions or a failure to reach an agreement that results in unilateral adjustments to the amount and timing of taxable income
in the jurisdictions in which King operates.
In December 2018, we received a decision from the Swedish Tax Agency (the “STA”) informing us of an audit assessment
of a Swedish subsidiary of King for the 2016 tax year (the “Initial Decision”). The Initial Decision described the basis for
issuing a transfer pricing assessment of approximately 3.5kr billion (approximately $375 million), primarily concerning an
alleged intercompany asset transfer. On June 17, 2019, we received a reassessment from the STA (the “Reassessment”) which
changed the Initial Decision based on a revision of the transfer pricing approach reflected in King’s 2016 Swedish tax return
and removal of the alleged intercompany asset transfer that was the basis of the Initial Decision. The STA also, at the same
time, reassessed the 2017 tax year on the same transfer pricing basis as 2016. The transfer pricing approach reflected in the
Reassessment for both 2016 and 2017 remains subject to further review by taxing authorities in other jurisdictions. In July
2019, the Company made a payment to the STA for the Reassessment for the 2016 and 2017 tax years, which did not result in a
significant impact to our consolidated financial statements.
In December 2017, we received a Notice of Reassessment from the French Tax Authority (the “FTA”) related to transfer
pricing for 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 (approximately $638 million). In December 2019,
the Company reached a settlement with the FTA for the 2011 through 2018 tax years, resulting in the recognition of $54 million
of tax expense in the period ended December 31, 2019 and a tax payment of €161 million (approximately $179 million),
including interest and penalties, in January 2020.
In addition, certain of our subsidiaries are under examination or investigation, or may be subject to examination or
investigation, by tax authorities in various jurisdictions. These proceedings may lead to adjustments or proposed adjustments to
our taxes or provisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company’s
consolidated financial position, liquidity, or results of operations in the earlier of the period or periods in which the matters are
resolved and in which appropriate tax provisions are taken into account in our financial statements. If we were to receive a
materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options,
including the pursuit of judicial remedies.
As of December 31, 2019, we had approximately $1,037 million of gross unrecognized tax benefits, $661 million of
which 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,
2019
2018
2017
Unrecognized tax benefits balance at January 1
$
926
$
1,138
$
Gross increase for tax positions taken during a prior year
Gross decrease for tax positions taken during a prior year
Gross increase for tax positions taken during the current year
Settlement with taxing authorities
Lapse of statute of limitations
151
(168)
291
(163)
—
Unrecognized tax benefits balance at December 31
$
1,037
$
103
(123)
132
(312)
(12)
926
$
846
66
—
229
(1)
(2)
1,138
F-53
F-53
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
As of December 31, 2019, 2018, and 2017, we had approximately $72 million, $87 million, and $121 million,
respectively, of accrued interest and penalties related to uncertain tax positions. For the years ended December 31, 2019, 2018,
and 2017, we recorded $14 million, $11 million, and $28 million, respectively, of interest expense related to uncertain tax
positions.
The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the
analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current
information, in the opinion of the Company’s management, the ultimate resolution of these matters is not expected to have a
material adverse effect on the Company’s consolidated financial position, liquidity or results of operations, except as noted
above.
20. Computation of Basic/Diluted Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (amounts in millions,
except per share data):
Numerator:
Consolidated net income
Denominator:
For the Years Ended December 31,
2017
2018
2019
$
1,503
$
1,848
$
273
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
767
4
771
1.96
1.95
$
$
762
9
771
2.43
2.40
$
$
754
12
766
0.36
0.36
$
$
The vesting of certain of our employee-related restricted stock units and options is contingent upon the satisfaction of pre-
defined performance measures. The shares underlying these equity awards are included in the weighted-average dilutive
common shares only if the performance measures are met as of the end of the reporting period. Additionally, potential common
shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such
shares would be anti-dilutive.
Weighted-average shares excluded from the computation of diluted earnings per share were as follows (amounts in
millions):
For the For the Years Ended December 31,
2018
2017
2019
Restricted stock units and options with performance measures not yet met
Anti-dilutive employee stock options
2
6
4
3
7
1
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F-54
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
21. Capital Transactions
Repurchase Programs
On January 31, 2019, our Board of Directors authorized a stock repurchase program under which we are authorized to
repurchase up to $1.5 billion of our common stock from February 14, 2019 until the earlier of February 13, 2021 and a
determination by the Board of Directors to discontinue the repurchase program. As of December 31, 2019, we have not
repurchased any shares under this program.
On February 2, 2017, our Board of Directors authorized a stock repurchase program under which we were authorized to
repurchase up to $1 billion of our common stock from February 13, 2017 through February 12, 2019. We did not repurchase
any shares under this program.
Dividends
On February 6, 2020, our Board of Directors declared a cash dividend of $0.41 per common share. Such dividend is
payable on May 6, 2020, to shareholders of record at the close of business on April 15, 2020.
On February 12, 2019, our Board of Directors declared a cash dividend of $0.37 per common share. On May 9, 2019, we
made an aggregate cash dividend payment of $283 million to shareholders of record at the close of business on March 28, 2019.
On February 8, 2018, our Board of Directors declared a cash dividend of $0.34 per common share. On May 9, 2018, we
made an aggregate cash dividend payment of $259 million to shareholders of record at the close of business on March 30, 2018.
On February 9, 2017, our Board of Directors declared a cash dividend of $0.30 per common share. On May 10, 2017, we
made an aggregate cash dividend payment of $226 million to shareholders of record at the close of business on March 30, 2017.
On May 26, 2017, we made related dividend equivalent payments of less than $1 million to certain holders of restricted stock
units.
22. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (amounts in millions):
Supplemental cash flow information:
Cash paid for income taxes, net of refunds
Cash paid for interest
For the Years Ended December 31,
2017
2018
2019
$
319
$
86
$
560
150
176
145
The beginning and ending cash and cash equivalents and restricted cash reported within our consolidated statement of
cash flows included restricted cash amounts as follows (amounts in millions):
Beginning restricted cash
Ending restricted cash
2019
$
At December 31,
2018
2017
$
4
4
$
7
4
17
7
F-55
F-55
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
23. Commitments and Contingencies
Commitments and Obligations
In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating
lease agreements for our offices, for the development of products which may include obtaining rights to intellectual 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 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 typically are deemed to be advances and, as such,
are recoupable against future royalties earned by the developer based on sales of the related game. Assuming all contractual
provisions are met, the total future minimum commitments for these and other contractual arrangements in place at
December 31, 2019, are scheduled to be paid as follows (amounts in millions):
Contractual Obligations (1)
Facility and
Equipment
Leases
Developer and
Hosting
Marketing
Long-Term
Debt
Obligations (2)
Total
For the years ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
77
71
62
56
52
46
$
364
$
$
25
$
6
1
—
—
—
32
$
30
—
—
—
—
—
30
$
86
$
736
466
60
60
2,147
$
3,555
$
218
813
529
116
112
2,193
3,981
(1) We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of the
potential issue resolution of the underlying matters. Specifically, either (a) the underlying positions have not been fully
developed under audit to quantify at this time or (b) the years relating to the matters for certain jurisdictions are not
currently under audit. At December 31, 2019, we had $438 million of net unrecognized tax benefits included “Other
liabilities,” in our consolidated balance sheet.
Additionally, at December 31, 2019 we have a remaining net Transition Tax liability of $153 million associated with the
U.S. Tax Reform Act. The remaining Transition Tax liability is payable over the next seven years and is not reflected in our
Contractual Obligations table above.
(2) Long-term debt obligations represent our obligations related to the contractual principal repayments and interest payments
under the Notes, which are subject to fixed interest rates, as of December 31, 2019. There was no outstanding balance
under our Revolver as of December 31, 2019. We have calculated the expected interest obligation based on the outstanding
principal balance and interest rate applicable at December 31, 2019. Refer to Note 13 for additional information on our
debt obligations.
Subsequent to year-end, we entered into certain agreements, for which, under the terms, we have future minimum
commitments of approximately $600 million. The commitments relate primarily to advertising and hosting services which
comprise approximately 60% and 40%, respectively, of the total future minimum commitment. Payments of these commitments
will be made over the next three years to four years.
F-56
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Legal Proceedings
In December 2017, we received a Notice of Reassessment from the FTA related to transfer pricing for intercompany
transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including
interest and penalties, was approximately €571 million (approximately $638 million). In December 2019, the Company reached
a settlement with the FTA for the 2011 through 2018 tax years, resulting in the recognition of $54 million of tax expense in the
period ended December 31, 2019 and a tax payment of €161 million (approximately $179 million), including interest and
penalties, in January 2020.
In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising in the ordinary
course of business, including with respect to intellectual property, competition and antitrust matters, regulatory matters, tax
matters, privacy matters, labor and employment matters, compliance matters, unclaimed property matters, liability and personal
injury claims, product damage claims, collection matters, and/or commercial claims. In the opinion of management, after
consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a
material adverse effect on our business, financial condition, results of operations, or liquidity.
Letters of Credit
As described in Note 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, 2019, we did not have any letters of credit issued or outstanding under the
Revolver.
24. Quarterly Financial Information (Unaudited)
Net revenues
Cost of revenues
Operating income
Net income
Basic earnings per common share
Diluted earnings per common share
Net revenues
Cost of revenues
Operating income
Net income
Basic earnings per common share
Diluted earnings per common share
For the Quarters Ended
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
(Amounts in millions, except per share data)
$
1,986
$
1,282
$
1,396
$
1,825
656
454
525
0.68
0.68
442
247
204
0.27
0.26
433
336
328
0.43
0.43
563
570
447
0.58
0.58
For the Quarters Ended
December 31, 2018 (1)
September 30, 2018
June 30, 2018
March 31, 2018
(Amounts in millions, except per share data)
$
2,381
$
1,512
$
1,641
$
1,965
832
694
685
0.90
0.89
513
265
260
0.34
0.34
510
434
402
0.53
0.52
662
595
500
0.66
0.65
(1) Quarterly financial data for the quarter ended December 31, 2018, as presented above, have been revised to reflect the
correction of the tax error identified during 2019, as previously discussed in Note 2.
F-57
F-57
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in millions)
SCHEDULE II
Col. A Description
At December 31, 2019
Allowances for sales returns and price protection and
other allowances
Valuation allowance for deferred tax assets
At December 31, 2018
Allowances for sales returns and price protection and
other allowances
Valuation allowance for deferred tax assets
At December 31, 2017
Allowances for sales returns and price protection and
other allowances
$
$
$
$
$
Col. B
Balance at
Beginning of
Period
Col. C
Additions(A)
Col. D
Deductions(B)
Col. E
Balance at End
of Period
186
61
$
$
274
$
— $
11
127
24
61
$
$
$
$
(79) $
(7) $
(112) $
— $
118
181
186
61
257
$
83
$
(66) $
274
(A) Includes increases and reversals of allowances for sales returns, price protection, and valuation allowance for deferred tax
assets due to normal reserving terms.
(B) Includes actual write-offs and utilization of allowances for sales returns, price protection, and releases of income tax
valuation allowances and foreign currency translation and other adjustments.
F-58
F-58
EXHIBIT INDEX
Pursuant to the rules and regulations of the SEC, the Company has filed certain agreements as exhibits to this Annual
Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and
warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been
qualified by disclosures made to such other party or parties, (ii) 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’s public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may
apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and
warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon.
Exhibit Number
Exhibit
3.1 Third Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated June 5, 2014
(incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed June 6, 2014).
3.2 Fourth Amended and Restated Bylaws of Activision Blizzard, Inc., adopted as of February 1, 2018
(incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K/A, filed March 21, 2018).
4.1
Indenture, dated as of September 19, 2016, among Activision Blizzard, Inc., the guarantors named therein
and Wells Fargo Bank, National Association, as trustee, with respect to the Company’s 2.300% Unsecured
Senior Notes due 2021 and the Company’s 3.400% Unsecured Senior Notes due 2026 (incorporated by
reference to Exhibit 4.1 of the Company’s Form 8-K, filed September 19, 2016).
4.2 Base Indenture, dated as of May 26, 2017, between Activision Blizzard, Inc. and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K,
filed May 26, 2017).
4.3 First Supplemental Indenture, dated as of May 26, 2017, between Activision Blizzard, Inc. and Wells
Fargo Bank, National Association, as trustee, with respect to the Company’s 2.600% Unsecured Senior
Notes due 2022, the Company’s 3.400% Unsecured Senior Notes due September 2027 and the Company’s
4.500% Unsecured Senior Notes due 2047 (incorporated by reference to Exhibit 4.2 of the Company’s
Form 8-K, filed May 26, 2017).
4.4 Form of certificate for the Company’s 2.600% Unsecured Senior Notes due 2022 (incorporated by
reference to Exhibit 4.3 of the Company’s Form 8-K, filed May 26, 2017).
4.5 Form of certificate for the Company’s 3.400% Unsecured Senior Notes due 2027 (incorporated by
reference to Exhibit 4.4 of the Company’s Form 8-K, filed May 26, 2017).
4.6 Form of certificate for the Company’s 4.500% Unsecured Senior Notes due 2047 (incorporated by
reference to Exhibit 4.5 of the Company’s Form 8-K, filed May 26, 2017).
4.7 Description of Securities.
10.1* Activision Blizzard, Inc. Amended and Restated 2008 Incentive Plan, as amended and restated on June 7,
2012 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 12, 2012).
10.2* Activision Blizzard, Inc. 2014 Incentive Plan, amended and restated as of March 2, 2017 (incorporated by
reference to Exhibit 10.1 of the Company’s Form 10-Q filed May 4, 2017).
10.3* Activision Blizzard, Inc. KDE Equity Incentive Plan, amended as of November 1, 2016 (incorporated by
reference to Exhibit 10.14 of the Company’s Form 10-K for the year ended December 31, 2016).
10.4* Form of Notice of Stock Option Award for grants to unaffiliated directors pursuant to the Activision
Blizzard, Inc. 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to
Exhibit 10.44 of the Company’s Form 10-K for the year ended December 31, 2008).
10.5* Form of Notice of Stock Option Award for grants to persons other than directors pursuant to the Activision
Blizzard, Inc. 2008 Incentive Plan (effective as of November 12, 2008) (incorporated by reference to
Exhibit 10.45 of the Company’s Form 10-K for the year ended December 31, 2008).
10.6* Form of Notice of Stock Option Award for grants to unaffiliated directors pursuant to the Activision
Blizzard, Inc. 2008 Incentive Plan (effective as of March 6, 2013) (incorporated by reference to Exhibit
10.5 of the Company’s Form 10-Q for the quarter ended March 31, 2013).
10.7* Form of Notice of Stock Option Award for grants to persons other than directors pursuant to the Activision
Blizzard, Inc. 2008 Incentive Plan (effective as of March 6, 2013) (incorporated by reference to Exhibit
10.6 of the Company’s Form10-Q for the quarter ended March 31, 2013).
10.8* Form of Notice of Stock Option Award for grants pursuant to the Activision Blizzard, Inc. 2014 Incentive
Plan (effective as of June 5, 2014) (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q
for the quarter ended June 30, 2014).
E-1
E-1
Exhibit Number
Exhibit
10.9* Form of Notice of Restricted Share Unit Award for grants to persons other than non-affiliated directors
pursuant to the Activision Blizzard, Inc. 2014 Incentive Plan (effective as of June 5, 2014) (incorporated
by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarter ended June 30, 2014).
10.10* Form of Notice of Performance-Vesting Restricted Share Unit Award for grants pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of June 5, 2014) (incorporated by reference to Exhibit 10.4
of the Company’s Form 10-Q for the quarter ended June 30, 2014).
10.11* Form of Notice of Restricted Share Award for grants pursuant to the Activision Blizzard, Inc. 2014
Incentive Plan (effective as of June 5, 2014) (incorporated by reference to Exhibit 10.5 of the Company’s
Form 10-Q for the quarter ended June 30, 2014).
10.12* Form of Notice of Restricted Share Unit Award for grants to persons other than non-affiliated directors
pursuant to the Activision Blizzard, Inc. 2014 Incentive Plan (effective as of July 29, 2014) (incorporated
by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended September 30, 2014).
10.13* Form of Notice of Restricted Share Unit Award for grants to non-affiliated directors pursuant to the
Activision Blizzard, Inc. 2014 Incentive Plan (effective as of July 29, 2014) (incorporated by reference to
Exhibit 10.2 of the Company’s Form 10-Q for the quarter ended September 30, 2014).
10.14* Form of Notice of Performance-Vesting Restricted Share Unit Award for grants pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of July 29, 2014) (incorporated by reference to Exhibit
10.3 of the Company’s Form 10-Q for the quarter ended September 30, 2014).
10.15* Form of Notice of Stock Option Award for grants to U.S. employees pursuant to the Activision Blizzard,
Inc. 2014 Incentive Plan (effective as of November 1, 2016) (incorporated by reference to Exhibit 10.44 of
the Company’s Form 10-K for the year ended December 31, 2016).
10.16* Form of Notice of Stock Option Award for grants to non-U.S. employees pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of November 1, 2016) (incorporated by reference to
Exhibit 10.45 of the Company’s Form 10-K for the year ended December 31, 2016).
10.17*
Form of Notice of Restricted Share Unit Award for grants to non-U.S. employees pursuant to the
Activision Blizzard, Inc. 2014 Incentive Plan (effective as of November 1, 2016) (incorporated by
reference to Exhibit 10.46 of the Company’s Form 10-K for the year ended December 31, 2016).
10.18* Form of Notice of Stock Option Award for grants pursuant to the Activision Blizzard, Inc. 2014 Incentive
Plan (effective as of March 2, 2017) (incorporated by reference to Exhibit 10.2 of the Company’s Form
10-Q for the quarter ended March 31, 2017).
10.19* Form of Notice of Performance-Vesting Restricted Share Unit Award for grants pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of March 2, 2017) (incorporated by reference to Exhibit
10.3 of the Company’s Form 10-Q for the quarter ended March 31, 2017).
10.20* Form of Notice of Stock Option Award for grants pursuant to the Activision Blizzard, Inc. 2014 Incentive
Plan (effective as of October 26, 2018) (incorporated by reference to Exhibit 10.21 of the Company’s
Form 10-K for the year ended December 31, 2018).
10.21* Form of Notice of Performance-Vesting Restricted Share Unit Award for grants pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of November 26, 2018) (incorporated by reference to
Exhibit 10.20 of the Company’s Form 10-K for the year ended December 31, 2018).
10.22* Form of Notice of Stock Option Award for grants pursuant to the Activision Blizzard, Inc. 2014 Incentive
Plan (effective as of November 4, 2019).
10.23* Form of Notice of Performance-Vesting Restricted Share Unit Award for grants pursuant to the Activision
Blizzard, Inc. 2014 Incentive Plan (effective as of November 4, 2019).
10.24* Amended and Restated CEO Recognition Program (incorporated by reference to Exhibit 10.6 of the
Company’s Form 10-Q for the quarter ended June 30, 2014).
10.25* Activision Blizzard, Inc. Corporate Annual Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Company’s Form 10-Q for the quarter ended September 30, 2015).
10.26* Employment Agreement, dated as of November 1, 2016, between Chris B. Walther and the Company
(incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quartered ended March 31,
2019).
10.27* Employment Agreement, dated February 25, 2019, between Dennis Durkin and the Company
(incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K for the year ended December 31,
2018).
10.28* Employment Agreement, dated as of November 22, 2016, between Robert A. Kotick and the Company
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed November 25, 2016).
10.29* Form of Notice of Performance Share Unit Award to Robert A. Kotick (incorporated by reference to
Exhibit 10.26 of the Company’s Form 10-K for the year ended December 31, 2018).
E-2
E-2
Exhibit Number
Exhibit
10.30* Form of Notice of 2018 Stock Option Award to Robert A. Kotick (incorporated by reference to Exhibit
10.27 of the Company’s Form 10-K for the year ended December 31, 2018).
10.31* Form of Notice of 2019 Stock Option Award to Robert A. Kotick.
10.32* Employment Agreement, dated May 10, 2017, between Activision Blizzard, Inc. and Collister Johnson
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed May 11, 2017).
10.33* Employment Agreement, dated as of July 24, 2019, between Claudine Naughton and the Company.
10.34* Non-Affiliated Director Compensation Program and Stock Ownership Guidelines, as amended and
restated as of May 1, 2018 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the
quarter ended June 30, 2018).
10.35 Credit Agreement, dated as of October 11, 2013, among the Company, as borrower, certain subsidiaries of
the Company, as guarantors, a group of lenders, Bank of America, N.A., as administrative agent and
collateral agent for the lenders, J.P. Morgan Securities LLC, as syndication agent, Bank of America Merrill
Lynch and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and Goldman Sachs
& Co., HSBC Securities (USA) Inc., Mitsubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc.,
RBC Capital Markets, SunTrust Bank and U.S. Bank National Association, as co-documentation agents
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed October 18, 2013).
10.36 First Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed November 3, 2015).
10.37 Second Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed November 17, 2015.
10.38 Third Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s form 8-K, filed December 14, 2015.
10.39 Fourth Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed April 1, 2016).
10.40 Fifth Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed August 24, 2016).
10.41 Sixth Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed February 6, 2017).
10.42 Seventh Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision
Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto,
Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party
thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed August 29, 2018).
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP).
24.1 Power of Attorney of each Executive Officer and Director signing this report (included in the signature
page hereto).
31.1 Certification of Robert A. Kotick pursuant to Rule 13a-14(a) under the Securities and Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Dennis Durkin pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Robert A. Kotick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Dennis Durkin pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document - The instance document does not appear in the interactive data file
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
E-3
E-3
Exhibit Number
Exhibit
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB Inline XBRL Taxonomy Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Indicates a management contract or compensatory plan, contract or arrangement in which a director or executive officer of
the Company participates.
E-4
E-4
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURE
Date: February 27, 2020
ACTIVISION BLIZZARD, INC.
By:
/s/ ROBERT A. KOTICK
Robert A. Kotick
Director and Chief Executive Officer of Activision Blizzard, Inc.
(Principal Executive Officer)
________________________________________________________________________________________________________________________
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints Robert A. Kotick and Dennis Durkin and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to
file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
his, her, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ ROBERT A. KOTICK
(Robert A. Kotick)
/s/ DENNIS DURKIN
(Dennis Durkin)
/s/ REVETA BOWERS
(Reveta Bowers)
/s/ ROBERT J. CORTI
(Robert J. Corti)
/s/ HENDRIK J. HARTONG III
(Hendrik J. Hartong III)
/s/ BRIAN G. KELLY
(Brian G. Kelly)
/s/ BARRY MEYER
(Barry Meyer)
/s/ ROBERT J. MORGADO
(Robert J. Morgado)
/s/ PETER NOLAN
(Peter Nolan)
/s/ CASEY WASSERMAN
(Casey Wasserman)
/s/ ELAINE P. WYNN
(Elaine P. Wynn)
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
Director, Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Director
Director
Director
Chairman of the Board and Director
Director
Director
Director
Director
Director
E-5
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
OPERATING SEGMENTS INFORMATION
For the Years Ended December 31, 2019 and 2018
For the Years Ended December 31, 2019 and 2018
(Amounts in millions)
(Amounts in millions)
Years Ended:
Years Ended:
Segment Net Revenues
Segment Net Revenues
Net revenues from external customers
Net revenues from external customers
Intersegment net revenues1
Intersegment net revenues1
Segment net revenues
Segment net revenues
Segment operating income
Segment operating income
Operating Margin
Operating Margin
Segment Net Revenues
Segment Net Revenues
Net revenues from external customers
Net revenues from external customers
Intersegment net revenues1
Intersegment net revenues1
Segment net revenues
Segment net revenues
Segment operating income
Segment operating income
Operating Margin
Operating Margin
Activision
Activision
December 31, 2019
December 31, 2019
King
King
Blizzard
Blizzard
Total
Total
Activision
Activision
$ Increase / (Decrease)
$ Increase / (Decrease)
Blizzard
Blizzard
King
King
Total
Total
(239) $
(239) $
—
—
(239) $
(239) $
(161) $
(161) $
(562) $
(562) $
(10)
(10)
(572) $
(572) $
(221) $
(221) $
(55) $
(55) $
—
—
(55) $
(55) $
(10) $
(10) $
(856)
(856)
(10)
(10)
(866)
(866)
(392)
(392)
$
$
$
$
$
$
2,219 $
2,219 $
—
—
2,219 $
2,219 $
850 $
850 $
1,676 $
1,676 $
43
43
1,719 $
1,719 $
464 $
464 $
2,031 $
2,031 $
—
—
2,031 $
2,031 $
740 $
740 $
5,926
5,926
43
43
5,969
5,969
2,054
2,054
$
$
$
$
$
$
34.4%
34.4%
Activision
Activision
December 31, 2018
December 31, 2018
King
King
Blizzard
Blizzard
$
$
$
$
$
$
2,458 $
2,458 $
—
—
2,458 $
2,458 $
1,011 $
1,011 $
2,238 $
2,238 $
53
53
2,291 $
2,291 $
685 $
685 $
2,086 $
2,086 $
—
—
2,086 $
2,086 $
750 $
750 $
Total
Total
6,782
6,782
53
53
6,835
6,835
2,446
2,446
35.8%
35.8%
1
1
Intersegment revenues reflect licensing and service fees charged between segments.
Intersegment revenues reflect licensing and service fees charged between segments.
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
Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating
decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with
decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with
respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and
respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and
other expenses (including legal fees, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and
other expenses (including legal fees, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and
related costs; and other non-cash charges. See the following page for the reconciliation tables of segment revenues and operating income to consolidated net
related costs; and other non-cash charges. See the following page for the reconciliation tables of segment revenues and operating income to consolidated net
revenues and consolidated operating income.
revenues and consolidated operating income.
Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability
Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability
of separate financial information. We do not aggregate operating segments.
of separate financial information. We do not aggregate operating segments.
E-9
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Years Ended December 31, 2019 and 2018
OPERATING SEGMENTS INFORMATION
(Amounts in millions)
For the Years Ended December 31, 2019 and 2018
(Amounts in millions)
Years Ended December 31,
Reconciliation to consolidated net revenues:
Segment net revenues
Reconciliation to consolidated net revenues:
Revenues from non-reportable segments1
Segment net revenues
Net effect from recognition (deferral) of
Revenues from non-reportable segments1
deferred net revenues2
Net effect from recognition (deferral) of
Elimination of intersegment revenues3
deferred net revenues2
Consolidated net revenues
Elimination of intersegment revenues3
2019
Years Ended December 31,
2018
$
$
2019
5,969 $
462
5,969 $
462
101
2018
6,835
480
6,835
480
238
$
(43)
101
6,489 $
(43)
6,489 $
(53)
238
7,500
(53)
7,500
52
24
31
100
2,446
2,446
31
$
$
$
2,054 $
2,054 $
24
Consolidated net revenues
Reconciliation to consolidated income before
income tax expense:
Reconciliation to consolidated income before
Segment operating income
income tax expense:
Operating income (loss) from non-reportable
Segment operating income
segments1
Operating income (loss) from non-reportable
Net effect from recognition (deferral) of
segments1
deferred net revenues and related cost of
Net effect from recognition (deferral) of
revenues2
deferred net revenues and related cost of
Share-based compensation expense
revenues2
Amortization of intangible assets
Share-based compensation expense
Restructuring and related costs4
Amortization of intangible assets
Discrete tax-related items5
Restructuring and related costs4
Consolidated operating income
Discrete tax-related items5
Interest and other expense (income), net
Consolidated operating income
Loss on extinguishment of debt
Interest and other expense (income), net
Consolidated income before income tax expense
Loss on extinguishment of debt
(benefit)
Consolidated income before income tax expense
(benefit)
Includes other income and expenses from operating segments managed outside the reportable segments, including our distribution business. Also includes
unallocated corporate income and expenses.
Includes other income and expenses from operating segments managed outside the reportable segments, including our distribution business. Also includes
Reflects the net effect from (deferral) of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled
unallocated corporate income and expenses.
products.
Reflects the net effect from (deferral) of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled
Intersegment revenues reflect licensing and service fees charged between segments.
products.
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
Intersegment revenues reflect licensing and service fees charged between segments.
Reflects the impact of other unusual or unique tax-related items and activities.
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
Reflects the impact of other unusual or unique tax-related items and activities.
(166)
52
(203)
(166)
(137)
(203)
(17)
(137)
1,607
(17)
(26)
1,607
—
(26)
—
$
(209)
100
(370)
(209)
(10)
(370)
—
(10)
1,988
—
71
1,988
40
71
40
1,877
1,633
1,877
1,633
$
$
$
1
1
2
2
3
4
3
5
4
5
E-10
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY DISTRIBUTION CHANNEL
NET REVENUES BY DISTRIBUTION CHANNEL
For the Years Ended December 31, 2019 and 2018
For the Years Ended December 31, 2019 and 2018
(Amounts in millions)
(Amounts in millions)
December 31, 2019
December 31, 2019
Amount % of Total1 Amount % of Total1
Amount % of Total1 Amount % of Total1
$ Increase
$ Increase
(Decrease)
(Decrease)
% Increase
% Increase
(Decrease)
(Decrease)
Years Ended
Years Ended
December 31, 2018
December 31, 2018
Net Revenues by Distribution Channel
Net Revenues by Distribution Channel
Digital online channels2
Digital online channels2
Retail channels
Retail channels
Other3
Other3
Total consolidated net revenues
Total consolidated net revenues
Change in deferred revenues4
Change in deferred revenues4
Digital online channels2
Digital online channels2
Retail channels
Retail channels
Other3
Other3
Total changes in deferred revenues
Total changes in deferred revenues
$
$
$
$
$
$
$
$
4,932
4,932
909
909
648
648
6,489
6,489
(4)
(4)
(95)
(95)
(2)
(2)
(101)
(101)
76% $
76% $
14
14
10
10
100% $
100% $
5,786
5,786
1,107
1,107
607
607
7,500
7,500
77% $
77% $
15
15
8
8
100% $
100% $
(854)
(854)
(198)
(198)
41
41
(1,011)
(1,011)
(15 )%
(15 )%
(18 )
(18 )
7
7
(13 )
(13 )
$
$
$
$
(68)
(68)
(191)
(191)
21
21
(238)
(238)
1
1
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
rounding.
rounding.
2 Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions,
2 Net revenues from Digital online channels represent revenues from digitally-distributed subscriptions, downloadable content, microtransactions,
and products, as well as licensing royalties.
and products, as well as licensing royalties.
3 Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
3 Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
4
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
E-11
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY PLATFORM
NET REVENUES BY PLATFORM
For the Years Ended December 31, 2019 and 2018
For the Years Ended December 31, 2019 and 2018
(Amounts in millions)
(Amounts in millions)
Net Revenues by Platform
Net Revenues by Platform
Console
Console
PC
PC
Mobile and ancillary2
Mobile and ancillary2
Other3
Other3
Total consolidated net revenues
Total consolidated net revenues
Change in deferred revenues4
Change in deferred revenues4
Console
Console
PC
PC
Mobile and ancillary2
Mobile and ancillary2
Other3
Other3
Total changes in deferred revenues
Total changes in deferred revenues
December 31, 2019
December 31, 2019
Amount % of Total1 Amount % of Total1
Amount % of Total1 Amount % of Total1
$ Increase
$ Increase
(Decrease)
(Decrease)
Years Ended
Years Ended
December 31, 2018
December 31, 2018
% Increase
% Increase
(Decrease)
(Decrease)
34% $
34% $
29
29
29
29
8
8
100% $
100% $
(618 )
(618 )
(462)
(462)
28
28
41
41
(1,011)
(1,011)
(24 )%
(24 )%
(21 )
(21 )
1
1
7
7
(13 )
(13 )
$
$
$
$
$
$
$
$
1,920
1,920
1,718
1,718
2,203
2,203
648
648
6,489
6,489
(54)
(54)
(53)
(53)
8
8
(2)
(2)
(101)
(101)
30% $
30% $
26
26
34
34
10
10
100% $
100% $
$
$
$
$
2,538
2,538
2,180
2,180
2,175
2,175
607
607
7,500
7,500
(265)
(265)
9
9
(3)
(3)
21
21
(238)
(238)
1
1
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
rounding.
rounding.
2 Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as
2 Net revenues from Mobile and ancillary include revenues from mobile devices, as well as non-platform specific game related revenues, such as
standalone sales of physical merchandise and accessories.
standalone sales of physical merchandise and accessories.
3 Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
3 Net revenues from Other primarily includes revenues from our distribution business and the Overwatch League.
4
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
E-12
Asia Pacific
EMEA2
Americas
909
2,239
3,341
$
14
35
51% $
1,002
2,618
3,880
13
35
52% $
(93)
(379)
(539)
(9 )
(14 )
(14 )%
Net Revenues by Geographic Region
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC REGION
NET REVENUES BY GEOGRAPHIC REGION
For the Years Ended December 31, 2019 and 2018
For the Years Ended December 31, 2019 and 2018
(Amounts in millions)
(Amounts in millions)
(Amounts in millions)
For the Years Ended December 31, 2019 and 2018
NET REVENUES BY GEOGRAPHIC REGION
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Net Revenues by Geographic Region
Net Revenues by Geographic Region
Total consolidated net revenues
Total consolidated net revenues
Change in deferred revenues3
Change in deferred revenues3
Americas
Americas
EMEA2
EMEA2
Asia Pacific
Asia Pacific
Americas
Americas
EMEA2
EMEA2
Asia Pacific
Asia Pacific
Total changes in deferred revenues
Total changes in deferred revenues
(Decrease)
% Increase
% Increase
% Increase
(Decrease)
(Decrease)
Amount % of Total1 Amount % of Total1
December 31, 2019
December 31, 2018
(Decrease)
$ Increase
Years Ended
December 31, 2019
December 31, 2019
Amount % of Total1 Amount % of Total1
Amount % of Total1 Amount % of Total1
$ Increase
$ Increase
(Decrease)
(Decrease)
Years Ended
Years Ended
December 31, 2018
December 31, 2018
$
$
$
$
$
$
$
$
52% $
52% $
35
35
13
13
100% $
100% $
(539)
(539)
(379)
(379)
(93)
(93)
(1,011)
(1,011)
(14 )%
(14 )%
(14 )
(14 )
(9 )
(9 )
(13 )
(13 )
3,341
3,341
2,239
2,239
909
909
6,489
6,489
(44)
(44)
(47)
(47)
(10)
(10)
(101)
(101)
51% $
51% $
35
35
14
14
100% $
100% $
$
$
$
$
3,880
3,880
2,618
2,618
1,002
1,002
7,500
7,500
(151)
(151)
(91)
(91)
4
4
(238)
(238)
1
1
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of
rounding.
rounding.
Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
Net revenues from EMEA consist of the Europe, Middle East, and Africa geographic regions.
2
2
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
E-13
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E-14
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
EBITDA AND ADJUSTED EBITDA
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Trailing Twelve Months Ended December 31, 2019
EBITDA AND ADJUSTED EBITDA
(Amounts in millions)
For the Trailing Twelve Months Ended December 31, 2019
(Amounts in millions)
March 31,
2019
March 31,
2019
447
3
447
120
3
87
120
657
87
657
63
57
63
—
57
777
—
777
June 30,
2019
June 30,
2019
328
(34)
328
42
(34)
79
42
415
79
415
38
22
38
—
22
475
—
475
$
$
$
$
$
$
$
$
$
$
$
$
$
September 30,
2019
September 30,
2019
December 31,
2019
December 31,
2019
Trailing Twelve
Months Ended
Trailing Twelve
December 31,
Months Ended
2019
December 31,
2019
204
(2)
204
45
(2)
80
45
327
80
327
27
28
27
—
28
382
—
382
$
$
$
$
525
7
525
(78)
7
81
(78)
535
81
535
39
30
39
17
30
621
17
621
$
$
$
$
$
1,503
(26)
1,503
130
(26)
328
130
1,935
328
1,935
166
137
166
17
137
2,255
17
2,255
(52)
(441) $
(135) $
(53) $
577
GAAP Net Income
GAAP Net Income
Interest and other expense (income), net
Provision for income taxes1
Interest and other expense (income), net
Depreciation and amortization
Provision for income taxes1
Depreciation and amortization
EBITDA
EBITDA
Share-based compensation expense2
Restructuring and related costs3
Share-based compensation expense2
Discrete tax-related items5
Restructuring and related costs3
Discrete tax-related items5
Adjusted EBITDA
Adjusted EBITDA
Change in deferred net revenues and related cost of
revenues4
Change in deferred net revenues and related cost of
revenues4
1
$
1
2
3
2
4
3
4
5
(53) $
(135) $
(52)
(441) $
Provision for income taxes for the three months ended June 30, 2019 and December 31, 2019 also include impacts from significant discrete tax-
related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other
Provision for income taxes for the three months ended June 30, 2019 and December 31, 2019 also include impacts from significant discrete tax-
unusual or unique tax-related items and activities.
related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other
Includes expenses related to share-based compensation.
unusual or unique tax-related items and activities.
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
Includes expenses related to share-based compensation.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
online enabled products.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our
Reflects the impact of other unusual or unique tax-related items and activities.
online enabled products.
Reflects the impact of other unusual or unique tax-related items and activities.
5
Trailing twelve months amounts are presented as calculated. Therefore, the sum of the four quarters, as presented, may differ due to the impact of
rounding.
Trailing twelve months amounts are presented as calculated. Therefore, the sum of the four quarters, as presented, may differ due to the impact of
rounding.
577
$
E-15
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OPERATING METRICS
OPERATING METRICS
(Amounts in millions)
(Amounts in millions)
Net Bookings1
Net Bookings1
Net bookings1
Net bookings1
In-game net bookings2
In-game net bookings2
$
$
Year Ended December 31,
Year Ended December 31,
$ Increase
$ Increase
(Decrease)
(Decrease)
2018
2018
2019
2019
6,388 $
6,388 $
3,366
3,366
7,262 $
7,262 $
4,203
4,203
% Increase
% Increase
(Decrease)
(Decrease)
(12)%
(12)%
(20)
(20)
(874)
(874)
(837)
(837)
1 We monitor net bookings as a key operating metric in evaluating the performance of our business as it enables an analysis of performance based on
1 We monitor net bookings as a key operating metric in evaluating the performance of our business as it enables an analysis of performance based on
the timing of actual transactions with our customers, along with providing a more timely indication of trends in our operating results. Net bookings is
the timing of actual transactions with our customers, along with providing a more timely indication of trends in our operating results. Net bookings is
the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher
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, and is equal to net revenues excluding the impact from deferrals.
incentives, among others, and is equal to net revenues excluding the impact from deferrals.
2 In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-
2 In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-
game net revenues excluding the impact from deferrals.
game net revenues excluding the impact from deferrals.
Monthly Active Users3
Monthly Active Users3
Activision
Activision
Blizzard
Blizzard
King
King
Total MAUs
Total MAUs
December 31, 2018
December 31, 2018
53
53
35
35
268
268
356
356
March 31, 2019
March 31, 2019
June 30, 2019
June 30, 2019
41
41
32
32
272
272
345
345
37
37
32
32
258
258
327
327
September 30, 2019 December 31, 2019
September 30, 2019 December 31, 2019
128
128
32
32
249
249
409
409
36
36
33
33
247
247
316
316
3 We monitor our average monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals
3 We monitor our average monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals
who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the
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
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
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
or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices
in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these
in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these
instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for
instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for
these third-party published games.
these third-party published games.
E-16
To Our Shareholders
We are writing this letter at a time when societies
around the world are facing terrible disruption from
the spread of the coronavirus. Events are unfolding
quickly, but the virus has already exacted a tragic
toll among those directly exposed and caused
significant hardship for so many. Our first priority is
always the safety and well-being of our employees
and their families and we are committed to their
health and safety.
Corporate Information
Board of Directors
Officers
Annual Meeting
Domestic Offices
Reveta Bowers
Independent Governance and
Organizational Consultant
Robert A. Kotick
Chief Executive Officer,
Activision Blizzard
June 11, 2020, 9:00 am PDT
Boston Properties Offices
3200 Ocean Park Boulevard
Santa Monica, California 90405
Annual Report
on Form 10-K
Activision Blizzard’s Annual
Report on Form 10-K for the
year ended December 31, 2019,
is available to shareholders
without charge, upon request,
by calling our Investor Relations
department at (310) 255-2000
or by mailing a request to our
Corporate Secretary at our
corporate headquarters.
Non-incorporation
Portions of the Company’s 2019
Form 10-K, as filed with the
SEC, are included within this
Annual Report. Other than these
portions of the Form 10-K, all
other portions of this Annual
Report are not “filed” with the
SEC and shall not be deemed so.
Robert J. Corti
Retired Chief Financial Officer,
Avon Products
Hendrik J. Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners
Brian G. Kelly
Chairman of the Board,
Activision Blizzard
Robert A. Kotick
Chief Executive Officer,
Activision Blizzard
Barry Meyer
Retired Chairman and
Chief Executive Officer,
Warner Bros. Entertainment
Robert J. Morgado
Lead Independent Director,
Activision Blizzard
Former Chairman and
Chief Executive Officer,
Warner Music Group
Peter Nolan
Senior Advisor,
Leonard Green & Partners
Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman
Elaine Wynn
Co-founder,
Wynn Resorts
Daniel Alegre
President and Chief
Operating Officer,
Activision Blizzard
Dennis Durkin
Chief Financial Officer
and President of
Emerging Businesses,
Activision Blizzard
Claudine Naughton
Chief People Officer,
Activision Blizzard
Chris Walther
Chief Legal Officer,
Activision Blizzard
Special Advisors
Collister Johnson
Special Advisor to the CEO,
Activision Blizzard
Thomas Tippl
Vice Chairman,
Activision Blizzard
Transfer Agent
Broadridge Corporate
Issuer Solutions
(800) 685-4509
Auditor
PricewaterhouseCoopers LLP
Los Angeles, California
Corporate Headquarters
Activision Blizzard, Inc.
3100 Ocean Park Boulevard
Santa Monica, CA 90405
(310) 255-2000
Worldwide Website
www.activisionblizzard.com
E-mail
IR@activisionblizzard.com
Design: AndraDesignStudio.com
Printer: DG3 | Diversified Global Graphics Group
© Copyright 2020 Activision Blizzard, Inc.
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3100 Ocean Park Boulevard
Santa Monica, California 90405
activisionblizzard.com
2019 Annual Report
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