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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-15839
ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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95-4803544 |
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(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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2701 Olympic Boulevard Building B |
Santa Monica, |
CA |
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90404 |
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(Address of principal executive offices) |
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(Zip Code) |
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(310) 255-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common Stock, par value $0.000001 per share |
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ATVI |
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The Nasdaq Global Select Market |
Indicate
by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company”, and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large Accelerated Filer |
☒ |
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Non-accelerated Filer |
☐ |
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Accelerated Filer |
☐ |
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Smaller reporting company |
☐
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Emerging growth company |
☐
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If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant’s Common Stock outstanding
at April 26, 2022 was 781,881,472.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Table of Contents
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains, or incorporates by
reference, statements reflecting our views about our future
performance that constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements consist of any statement other than a recitation of
historical facts and include, but are not limited to: (1)
projections of revenues, expenses, income or loss, earnings or loss
per share, cash flow, or other financial items; (2) statements
of our plans and objectives, including those related to releases of
products or services and restructuring activities;
(3) statements of future financial or operating performance,
including the impact of tax items thereon; (4) statements regarding
the proposed transaction between Activision Blizzard, Inc. and
Microsoft Corporation (“Microsoft”) (such transaction, “the
proposed transaction with Microsoft”), including any statements
regarding the expected timetable for completing the proposed
transaction with Microsoft, the ability to complete the proposed
transaction with Microsoft, and the expected benefits of the
proposed transaction with Microsoft; and (5) statements of
assumptions underlying such statements. Activision
Blizzard, Inc. generally uses words such as “outlook,”
“forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,”
“aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,”
“anticipates,” “estimate,” “future,” “positioned,” “potential,”
“project,” “remain,” “scheduled,” “set to,” “subject to,”
“upcoming,” and the negative version of these words and other
similar words and expressions to help identify forward-looking
statements. Forward-looking statements are subject to business and
economic risks, reflect management’s current expectations,
estimates, and projections about our business, and are inherently
uncertain and difficult to predict.
We caution that a number of important factors, many of which are
beyond our control, could cause our actual future results and other
future circumstances to differ materially from those expressed in
any forward-looking statements. Such factors include, but are not
limited to: the risk that the proposed transaction with Microsoft
may not be completed in a timely manner or at all, which may
adversely affect our business and the price of our common stock;
the failure to satisfy the conditions to the consummation of the
proposed transaction with Microsoft, including the receipt of
certain governmental and regulatory approvals; the occurrence of
any event, change, or other circumstance that could give rise to
the termination of the Agreement and Plan of Merger, dated as of
January 18, 2022, by and among Activision Blizzard, Microsoft, and
Anchorage Merger Sub Inc., a wholly owned subsidiary of Microsoft
(the “Merger Agreement”); the effect of the announcement or
pendency of the proposed transaction with Microsoft on our business
relationships, operating results, and business generally; risks
that the proposed transaction with Microsoft disrupts our current
plans and operations and potential difficulties in employee
retention as a result of the proposed transaction with Microsoft;
risks related to diverting management’s attention from ongoing
business operations; the outcome of any legal proceedings that have
been or may be instituted against us related to the Merger
Agreement or the transactions contemplated thereby; restrictions
during the pendency of the proposed transaction with Microsoft that
may impact our ability to pursue certain business opportunities or
strategic transactions; the potential for receipt of alternative
acquisition proposals from potential acquirors; the global impact
of the ongoing COVID-19 pandemic (including, without limitation,
the potential for significant short- and long-term global
unemployment and economic weakness and a resulting impact on global
discretionary spending; potential strain on the retailers,
distributors, and manufacturers who sell our physical products to
customers and the platform providers on whose networks and consoles
certain of our games are available; effects on our ability to
release our content in a timely manner and with effective quality
control; effects on our ability to prevent cyber-security incidents
while our workforce is disbursed; effects on the operations of our
professional esports leagues; the impact of large-scale
intervention by the Federal Reserve and other central banks around
the world, including the impact on interest rates; increased demand
for our games due to stay-at-home orders and curtailment of other
forms of entertainment, which may not be sustained and may
fluctuate as stay-at-home orders are reduced, lifted, and/or
reinstated; macroeconomic impacts arising from the long duration of
the COVID-19 pandemic, including labor shortages and supply chain
disruptions; and volatility in foreign exchange rates); our ability
to consistently deliver popular, high-quality titles in a timely
manner, which has been made more difficult as a result of the
COVID-19 pandemic; our ability to satisfy the expectations of
consumers with respect to our brands, games, services, and/or
business practices; negative impacts on our business from concerns
regarding our workplace; our ability to attract, retain, and
motivate skilled personnel; competition; concentration of revenue
among a small number of franchises; negative impacts from
unionization or attempts to unionize by our workforce; rapid
changes in technology and industry standards; increasing importance
of revenues derived from digital distribution channels; our ability
to manage growth in the scope and complexity of our business;
substantial influence of third-party platform providers over our
products and costs; success and availability of video game consoles
manufactured by third parties, including our ability to predict the
consoles that will be most successful in the marketplace and
develop commercially-successful products for those consoles; risks
associated with the free-to-play business model, including our
dependence on a relatively small number of consumers for a
significant portion of revenues and profits from any given game;
risks and uncertainties of conducting business outside the United
States (the “U.S.”), including the need for regulatory approval to
operate, impacts on our business arising from the current conflict
between Russia and Ukraine, the relatively weaker protection for
our intellectual property rights, and the impact of cultural
differences on consumer preferences; risks associated with the
retail sales
business model; our ability to realize the expected benefits of our
recent restructuring actions; difficulties in integrating acquired
businesses or otherwise realizing the anticipated benefits of
strategic transactions; the seasonality in the sale of our
products; fluctuation in our recurring business; risks relating to
behavior of our distributors, retailers, development, and licensing
partners, or other affiliated third parties that may harm our
brands or business operations; our reliance on tools and
technologies owned by third parties; risks associated with our use
of open source software; risks associated with undisclosed content
or features that may result in consumers’ refusal to buy or
retailers’ refusal to sell our products; risks associated with
objectionable consumer- or other third-party-created content;
outages, disruptions or degradations in our services, products,
and/or technological infrastructure;
data breaches,
fraudulent activity,
and other cybersecurity risks; significant disruption during our
live events; risks related to the impacts of catastrophic events;
climate change; provisions
in our corporate documents that may make it more difficult for any
person to acquire control of our company; ongoing legal proceedings
related to workplace concerns and otherwise, including the impact
of the complaint filed in 2021 by the California Department of Fair
Employment and Housing alleging violations of the California Fair
Employment and Housing Act and the California Equal Pay Act and
separate investigations and complaints by other parties and
regulators related to certain employment practices and related
disclosures; successful implementation of the requirements of the
court-approved consent decree with the Equal Employment Opportunity
Commission; intellectual property claims; increasing regulation in
key territories; regulation relating to the Internet, including
potential harm from laws impacting “net neutrality”; regulation
concerning data privacy, including China’s recently passed Personal
Information Protection Law; scrutiny regarding the appropriateness
of our games’ content, including ratings assigned by third parties;
changes in tax rates and/or tax laws or exposure to additional tax
liabilities; fluctuations in currency exchange rates; impacts of
changes in financial accounting standards; insolvency or business
failure of any of our business partners, which has been magnified
as a result of the COVID-19 pandemic; risks associated with our
reliance on consumer discretionary spending; and the other factors
included in “Risk
Factors”
included in Part I, Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2021, filed with the U.S. Securities
and Exchange Commission (the “SEC”).
The forward-looking statements contained herein are based on
information available to Activision Blizzard, Inc. as of the date
of this filing, and we assume no obligation to update any such
forward-looking statements.
Actual events or results may differ from those expressed in
forward-looking statements. As such, you should not rely on
forward-looking statements as predictions of future events. We have
based the forward-looking statements contained in this Quarterly
Report on Form 10-Q primarily on our current expectations and
projections about future events and trends that we believe may
affect our business, financial condition, operating results,
prospects, strategy, and financial needs. These statements are not
guarantees of our future performance and are subject to risks,
uncertainties, and
other factors, some of which are beyond our control and may cause
actual results to differ materially from current
expectations.
Activision Blizzard, Inc.’s names, abbreviations thereof, logos,
and product and service designators are all either the registered
or unregistered trademarks or trade names of Activision Blizzard,
Inc. All other product or service names are the property of their
respective owners. All dollar amounts referred to in, or
contemplated by, this Quarterly Report on Form 10-Q refer to U.S.
dollars unless otherwise explicitly stated to the
contrary.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions, except share data)
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At March 31, 2022 |
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At December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
10,967 |
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$ |
10,423 |
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Accounts receivable, net of allowances of $31 and $36, at
March 31, 2022 and December 31, 2021,
respectively
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530 |
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972 |
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Software development |
433 |
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449 |
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Other current assets |
556 |
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712 |
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Total current assets |
12,486 |
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12,556 |
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Software development |
289 |
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211 |
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Property and equipment, net |
174 |
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169 |
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Deferred income taxes, net |
1,308 |
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1,377 |
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Other assets |
511 |
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497 |
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Intangible assets, net |
445 |
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447 |
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Goodwill |
9,799 |
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9,799 |
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Total assets |
$ |
25,012 |
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$ |
25,056 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
207 |
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$ |
285 |
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Deferred revenues |
835 |
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1,118 |
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Accrued expenses and other liabilities |
1,249 |
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1,008 |
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Total current liabilities |
2,291 |
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2,411 |
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Long-term debt, net |
3,608 |
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3,608 |
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Deferred income taxes, net |
375 |
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506 |
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Other liabilities |
907 |
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932 |
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Total liabilities |
7,181 |
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7,457 |
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Commitments and contingencies (Note 16)
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Shareholders’ equity: |
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Common stock, $0.000001 par value, 2,400,000,000 shares authorized,
1,210,312,481 and 1,207,729,623 shares issued at March 31,
2022 and December 31, 2021, respectively
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Additional paid-in capital |
11,927 |
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11,715 |
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Less: Treasury stock, at cost, 428,676,471 shares at March 31,
2022 and December 31, 2021
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(5,563) |
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(5,563) |
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Retained earnings |
12,053 |
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12,025 |
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Accumulated other comprehensive loss |
(586) |
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(578) |
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Total shareholders’ equity |
17,831 |
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17,599 |
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Total liabilities and shareholders’ equity |
$ |
25,012 |
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$ |
25,056 |
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The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
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For the Three Months Ended March 31, |
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2022 |
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2021 |
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Net revenues |
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Product sales |
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$ |
386 |
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$ |
675 |
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In-game, subscription, and other revenues |
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1,382 |
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1,600 |
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Total net revenues |
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1,768 |
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2,275 |
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Costs and expenses |
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Cost of revenues—product sales: |
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Product costs |
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91 |
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140 |
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Software royalties, amortization, and intellectual property
licenses |
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81 |
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112 |
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|
|
Cost of revenues—in-game, subscription, and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Game operations and distribution costs |
|
|
|
|
|
288 |
|
|
296 |
|
|
|
|
|
|
|
Software royalties, amortization, and intellectual property
licenses |
|
|
|
|
|
19 |
|
|
30 |
|
|
|
|
|
|
|
Product development |
|
|
|
|
|
346 |
|
|
353 |
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
252 |
|
|
237 |
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
214 |
|
|
282 |
|
|
|
|
|
|
|
Restructuring and related costs |
|
|
|
|
|
(2) |
|
|
30 |
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
1,289 |
|
|
1,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
479 |
|
|
795 |
|
|
|
|
|
|
Interest and other expense (income), net (Note
12)
|
|
|
|
|
|
14 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
465 |
|
|
765 |
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
70 |
|
|
146 |
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
$ |
395 |
|
|
$ |
619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
$ |
0.51 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
$ |
0.50 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
780 |
|
|
775 |
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
786 |
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
Net income |
|
|
|
|
|
$ |
395 |
|
|
$ |
619 |
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
|
|
|
|
(4) |
|
|
(5) |
|
|
|
|
|
|
|
Unrealized gains (losses) on forward contracts designated as
hedges, net of tax
|
|
|
|
|
|
(5) |
|
|
29 |
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities, net of
tax |
|
|
|
|
|
1 |
|
|
(2) |
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
|
|
|
$ |
(8) |
|
|
$ |
22 |
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
$ |
387 |
|
|
$ |
641 |
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
395 |
|
|
$ |
619 |
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
(64) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash operating lease cost |
|
18 |
|
|
16 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
24 |
|
|
33 |
|
|
|
|
|
|
|
Amortization of capitalized software development costs and
intellectual property licenses (1) |
|
75 |
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense (2) |
|
98 |
|
|
151 |
|
|
|
|
|
|
|
Realized and unrealized gain on equity investment |
|
(11) |
|
|
— |
|
|
|
|
|
|
|
Other |
|
(11) |
|
|
(11) |
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
440 |
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development and intellectual property licenses |
|
(104) |
|
|
(84) |
|
|
|
|
|
|
|
Other assets |
|
125 |
|
|
(2) |
|
|
|
|
|
|
|
Deferred revenues |
|
(278) |
|
|
(204) |
|
|
|
|
|
|
|
Accounts payable |
|
(76) |
|
|
(70) |
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
11 |
|
|
11 |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
642 |
|
|
844 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale
investments |
|
22 |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale investments |
|
— |
|
|
(80) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(15) |
|
|
(22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
7 |
|
|
(86) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock to employees |
|
16 |
|
|
29 |
|
|
|
|
|
|
|
Tax payment related to net share settlements on restricted stock
units |
|
(113) |
|
|
(124) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
(97) |
|
|
(95) |
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash
equivalents |
|
(10) |
|
|
(28) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents and restricted
cash |
|
542 |
|
|
635 |
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at beginning of
period |
|
10,438 |
|
|
8,652 |
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at end of
period |
|
$ |
10,980 |
|
|
$ |
9,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information - Non-cash financing
activities: |
|
|
|
|
|
|
|
|
|
|
Dividends payable |
|
$ |
367 |
|
|
$ |
365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Excludes
deferral and amortization of share-based compensation expense,
including liability awards accounted for under ASC
718.
(2)Includes
the net effects of capitalization, deferral, and amortization of
share-based compensation expense, including liability awards
accounted for under ASC 718.
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
For the Three Months Ended March 31, 2022 and March 31,
2021
(Unaudited)
(Amounts and shares in millions, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Total
Shareholders’
Equity |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
Balance at December 31, 2021 |
1,208 |
|
|
$ |
— |
|
|
(429) |
|
|
$ |
(5,563) |
|
|
$ |
11,715 |
|
|
$ |
12,025 |
|
|
$ |
(578) |
|
|
$ |
17,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
395 |
|
|
— |
|
|
395 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8) |
|
|
(8) |
|
|
Issuance of common stock pursuant to employee stock
options |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
15 |
|
|
— |
|
|
— |
|
|
15 |
|
|
Issuance of common stock pursuant to restricted stock
units |
4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Restricted stock surrendered for employees’ tax
liability |
(2) |
|
|
— |
|
|
— |
|
|
— |
|
|
(131) |
|
|
— |
|
|
— |
|
|
(131) |
|
Settlement of liability-classified awards in restricted stock units
(Note
10)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
204 |
|
|
— |
|
|
— |
|
|
204 |
|
|
Share-based compensation expense related to employee stock options
and restricted stock units |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
124 |
|
|
— |
|
|
— |
|
|
124 |
|
|
Dividends ($0.47 per common share)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(367) |
|
|
— |
|
|
(367) |
|
|
Balance at March 31, 2022 |
1,210 |
|
|
$ |
— |
|
|
(429) |
|
|
$ |
(5,563) |
|
|
$ |
11,927 |
|
|
$ |
12,053 |
|
|
$ |
(586) |
|
|
$ |
17,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Total
Shareholders’
Equity |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
Balance at December 31, 2020 |
1,203 |
|
|
$ |
— |
|
|
(429) |
|
|
$ |
(5,563) |
|
|
$ |
11,531 |
|
|
$ |
9,691 |
|
|
$ |
(622) |
|
|
$ |
15,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
619 |
|
|
— |
|
|
619 |
|
|
Other comprehensive income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
22 |
|
|
Issuance of common stock pursuant to employee stock
options |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
33 |
|
|
— |
|
|
— |
|
|
33 |
|
|
Issuance of common stock pursuant to restricted stock
units |
4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Restricted stock surrendered for employees’ tax
liability |
(2) |
|
|
— |
|
|
— |
|
|
— |
|
|
(165) |
|
|
— |
|
|
— |
|
|
(165) |
|
|
Share-based compensation expense related to employee stock options
and restricted stock units |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
150 |
|
|
— |
|
|
— |
|
|
150 |
|
|
Dividends ($0.47 per common share)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(365) |
|
|
— |
|
|
(365) |
|
|
Balance at March 31, 2021 |
1,206 |
|
|
$ |
— |
|
|
(429) |
|
|
$ |
(5,563) |
|
|
$ |
11,549 |
|
|
$ |
9,945 |
|
|
$ |
(600) |
|
|
$ |
15,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Basis of Consolidation and
Presentation
Activision Blizzard, Inc. is a leading global developer and
publisher of interactive entertainment content and services. We
develop and distribute content and services on video game consoles,
personal computers (“PCs”), and mobile devices. We also operate
esports leagues and offer digital advertising within some of our
content. The terms “Activision Blizzard,” the “Company,” “we,”
“us,” and “our” are used to refer collectively to Activision
Blizzard, Inc. and its subsidiaries.
Merger Agreement
On January 18, 2022, we entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Microsoft Corporation
(“Microsoft”) and Anchorage Merger Sub Inc. (“Merger Sub”), a
wholly owned subsidiary of Microsoft. Subject to the terms and
conditions of the Merger Agreement, Microsoft agreed to acquire the
Company for $95.00 per issued and outstanding share of our common
stock, par value $0.000001 per share, in an all-cash transaction.
Pursuant to the Merger Agreement, following consummation of the
merger of Merger Sub with and into the Company (the “Merger”), the
Company will be a wholly-owned subsidiary of Microsoft. As a result
of the Merger, we will cease to be a publicly traded company. We
have agreed to various customary covenants and agreements,
including, among others, agreements to conduct our business in the
ordinary course during the period between the execution of the
Merger Agreement and the effective time of the Merger (the
“Effective Time”). We do not believe these restrictions will
prevent us from meeting our debt service obligations, ongoing costs
of operations, working capital needs or capital expenditure
requirements. The consummation of the Merger remains subject to
customary closing conditions, including satisfaction of certain
regulatory approvals. On April 28, 2022, the Company’s stockholders
adopted the Merger Agreement at a special meeting of stockholders.
The Merger is currently expected to close in Microsoft’s fiscal
year ending June 30, 2023.
For additional information related to the Merger Agreement, please
refer to the Definitive Proxy Statement on Schedule 14A filed with
the SEC on March 21, 2022, as supplemented by the Current Report on
Form 8-K filed with the SEC on April 15, 2022, as well as
Part
I Item 1 “Business” of our Annual Report on
Form 10-K for the year ended December 31,
2021,
and other relevant materials in connection with the proposed
transaction with Microsoft that we will file with the SEC and that
will contain important information about the Company and the
Merger.
Our Segments
Based upon our organizational structure, we conduct our business
through three reportable segments, each of which is a leading
global developer and publisher of interactive entertainment content
and services based primarily on our internally-developed
intellectual properties.
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) delivers content through
both premium and free-to-play offerings and primarily generates
revenue from full-game and in-game sales, as well as by licensing
software to third-party or related-party companies that distribute
Activision products. Activision’s key product franchise is Call of
Duty®,
a first-person action franchise. Activision also includes the
activities of the Call of Duty League™, a global professional
esports league with city-based teams.
(ii) Blizzard Entertainment, Inc.
Blizzard Entertainment, Inc. (“Blizzard”) delivers content through
both premium and free-to-play offerings and primarily generates
revenue from full-game and in-game sales, subscriptions, and by
licensing software to third-party or related-party companies that
distribute Blizzard products. Blizzard also maintains a proprietary
online gaming platform, Battle.net®,
which facilitates digital distribution of Blizzard content and
selected Activision content, online social connectivity, and the
creation of user-generated content. Blizzard’s key product
franchises include: Warcraft®,
which includes World of Warcraft®,
a subscription-based massive multi-player online role-playing game,
and Hearthstone®,
an online collectible card game based in the Warcraft
universe; Diablo®,
an action role-playing franchise; and Overwatch®,
a team-based first-person action franchise. Blizzard also includes
the activities of the Overwatch League™, a global professional
esports league with city-based teams.
(iii) King Digital Entertainment
King Digital Entertainment (“King”) delivers content through
free-to-play offerings and primarily generates revenue from in-game
sales and in-game advertising on mobile platforms. King’s key
product franchise is Candy Crush™, a “match three”
franchise.
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.
Basis of Consolidation and Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the SEC and accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim
reporting. Accordingly, certain notes or other information that are
normally required by U.S. GAAP have been condensed or omitted if
they substantially duplicate the disclosures contained in our
annual audited consolidated financial statements. Additionally, the
year-end condensed consolidated balance sheet data was derived from
audited financial statements but does not include all disclosures
required by U.S. GAAP. Accordingly, the unaudited condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2021.
The preparation of the condensed consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. In the
opinion of management, all adjustments considered necessary for the
fair statement of our financial position and results of operations
in accordance with U.S. GAAP (consisting of normal recurring
adjustments) have been included in the accompanying unaudited
condensed consolidated financial statements. Actual results could
differ from these estimates and assumptions.
The accompanying condensed consolidated financial statements
include the accounts and operations of the Company. All
intercompany accounts and transactions have been
eliminated.
2. Software Development and Intellectual Property
Licenses
Our total capitalized software development costs of $722 million
and $660 million as of March 31, 2022 and December 31,
2021, respectively, primarily relate to internal development costs.
As of both March 31, 2022 and December 31, 2021,
capitalized intellectual property licenses were not
material.
Amortization of capitalized software development costs and
intellectual property licenses was as follows (amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
Amortization of capitalized software development costs and
intellectual property licenses |
|
|
|
|
|
$ |
79 |
|
|
$ |
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Intangible Assets, Net
Intangible assets, net, consist of the following (amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2022 |
|
|
Estimated
useful
lives |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net
carrying
amount |
|
Acquired definite-lived intangible assets (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and other |
1 |
- |
10 years |
|
$ |
80 |
|
|
$ |
(68) |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
Activision trademark |
Indefinite |
|
|
|
|
|
$ |
386 |
|
|
Acquired trade names |
Indefinite |
|
|
|
|
|
47 |
|
|
Total indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
$ |
433 |
|
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
$ |
445 |
|
(1) Beginning with the first quarter of 2022, the balances of the
internally-developed franchises intangible assets have been removed
as such amounts were fully amortized in the prior
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2021 |
|
|
Estimated
useful
lives |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net carrying
amount |
|
Acquired definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
Internally-developed franchises |
3 |
- |
11 years |
|
$ |
1,154 |
|
|
$ |
(1,154) |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and other |
1 |
- |
10 years |
|
80 |
|
|
(66) |
|
|
14 |
|
|
Total definite-lived intangible assets |
|
|
|
|
$ |
1,234 |
|
|
$ |
(1,220) |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
Activision trademark |
Indefinite |
|
|
|
|
|
$ |
386 |
|
|
Acquired trade names |
Indefinite |
|
|
|
|
|
47 |
|
|
Total indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
$ |
433 |
|
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
$ |
447 |
|
4. Goodwill
The carrying amount of goodwill by reportable segment at both
March 31, 2022 and December 31, 2021, was as follows
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision |
|
Blizzard |
|
King |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
$ |
6,933 |
|
|
$ |
190 |
|
|
$ |
2,676 |
|
|
|
|
$ |
9,799 |
|
5. 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.
Fair Value Measurements on a Recurring Basis
The table below segregates all of our financial assets and
liabilities that are measured at fair value on a recurring basis
into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the
measurement date (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2022 Using |
|
|
|
|
As of March 31, 2022 |
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
|
Significant Other Observable Inputs
(Level 2) |
|
Significant Unobservable Inputs
(Level 3) |
|
Balance Sheet
Classification |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
10,583 |
|
|
$ |
10,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Cash and cash equivalents |
|
Foreign government treasury bills |
46 |
|
|
46 |
|
|
— |
|
|
— |
|
|
Cash and cash equivalents |
|
U.S. treasuries and government agency securities |
107 |
|
|
107 |
|
|
— |
|
|
— |
|
|
Other current assets |
|
Equity securities |
61 |
|
|
61 |
|
|
— |
|
|
— |
|
|
Other current assets |
|
Foreign currency forward contracts designated as hedges |
21 |
|
|
— |
|
|
21 |
|
|
— |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
10,818 |
|
|
$ |
10,797 |
|
|
$ |
21 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2021 Using |
|
|
|
|
As of December 31, 2021 |
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
|
Significant Other Observable Inputs
(Level 2) |
|
Significant Unobservable Inputs
(Level 3) |
|
Balance Sheet
Classification |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
10,035 |
|
|
$ |
10,035 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Cash and cash equivalents |
|
Foreign government treasury bills |
34 |
|
|
34 |
|
|
— |
|
|
— |
|
|
Cash and cash equivalents |
|
U.S. treasuries and government agency securities |
130 |
|
|
130 |
|
|
— |
|
|
— |
|
|
Other current assets |
|
Equity securities |
50 |
|
|
50 |
|
|
— |
|
|
— |
|
|
Other current assets |
|
Foreign currency forward contracts designated as hedges |
20 |
|
|
— |
|
|
20 |
|
|
— |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
10,269 |
|
|
$ |
10,249 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow
Hedges”)
The total gross notional amounts and fair values of our Cash Flow
Hedges, all of which primarily had remaining maturities of 12
months or less as of March 31, 2022, are as follows (amounts
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2022 |
|
As of December 31, 2021 |
|
Notional amount |
Fair value gain (loss) |
|
Notional amount |
Fair value gain (loss) |
|
Foreign Currency: |
|
|
|
|
|
|
Buy USD, Sell EUR |
$ |
441 |
|
$ |
21 |
|
|
$ |
382 |
|
$ |
20 |
|
For the three months ended March 31, 2022 and 2021, pre-tax
net realized gains (losses) associated with our Cash Flow Hedges
that were reclassified out of “Accumulated other comprehensive
income (loss)” and into earnings were not material.
6. Deferred Revenues
We record deferred revenues when cash payments are received or due
in advance of the fulfillment of our associated performance
obligations. The aggregate of the current and non-current balances
of deferred revenues as of March 31, 2022 and
December 31, 2021, were $0.8 billion and $1.1 billion,
respectively. For the three months ended March 31, 2022, the
additions to our deferred revenues balance were primarily due to
cash payments received or due in advance of satisfying our
performance obligations, while the reductions to our deferred
revenues balance were primarily due to the recognition of revenues
upon fulfillment of our performance obligations, all of which were
in the ordinary course of business. During the three months ended
March 31, 2022 and March 31, 2021, $0.7 billion and
$1.1 billion, respectively, of revenues were recognized that
were included in the deferred revenues balance at beginning of the
period.
As of March 31, 2022, the aggregate amount of contracted
revenues allocated to our unsatisfied performance obligations was
$1.2 billion, which included our deferred revenues balances and
amounts to be invoiced and recognized as revenue in future periods.
We expect to recognize approximately $1.1 billion over the next 12
months, approximately $0.1 billion in the subsequent 12-month
period, and the remainder thereafter. This balance did not include
an estimate for variable consideration arising from sales-based
royalty license revenue in excess of the contractual minimum
guarantee or any estimated amounts of variable consideration that
are subject to constraint in accordance with the revenue accounting
standard.
7. Debt
Credit Facilities
As of March 31, 2022 and December 31, 2021, we had $1.5
billion available under a revolving credit facility (the
“Revolver”) pursuant to a credit agreement entered into on October
11, 2013 (as amended thereafter and from time to time, the “Credit
Agreement”). To date, we have not drawn on the Revolver and we were
in compliance with the terms of the Credit Agreement as of
March 31, 2022.
Unsecured Senior Notes
As of March 31, 2022 and December 31, 2021, we had
$3.7 billion of gross unsecured senior notes outstanding. A
summary of our outstanding unsecured senior notes is as follows
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2022 |
|
At December 31, 2021 |
|
Unsecured Senior Notes |
|
Interest Rate |
|
Semi-Annual Interest Payments Due On |
|
Maturity |
|
Principal |
|
Fair Value
(Level 2) |
|
Principal |
|
Fair Value
(Level 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 Notes |
|
3.40% |
|
Mar. 15 & Sept. 15 |
|
Sept. 2026 |
|
$ |
850 |
|
|
$ |
866 |
|
|
$ |
850 |
|
|
$ |
912 |
|
|
2027 Notes |
|
3.40% |
|
Jun. 15 & Dec. 15 |
|
Jun. 2027 |
|
400 |
|
|
406 |
|
|
400 |
|
|
430 |
|
|
2030 Notes |
|
1.35% |
|
Mar. 15 & Sept. 15 |
|
Sept. 2030 |
|
500 |
|
|
435 |
|
|
500 |
|
|
463 |
|
|
2047 Notes |
|
4.50% |
|
Jun. 15 & Dec. 15 |
|
Jun. 2047 |
|
400 |
|
|
455 |
|
|
400 |
|
|
480 |
|
|
2050 Notes |
|
2.50% |
|
Mar. 15 & Sept. 15 |
|
Sept. 2050 |
|
1,500 |
|
|
1,238 |
|
|
1,500 |
|
|
1,320 |
|
|
Total gross long-term debt |
|
$ |
3,650 |
|
|
|
|
$ |
3,650 |
|
|
|
|
Unamortized discount and deferred financing costs |
|
(42) |
|
|
|
|
(42) |
|
|
|
|
Total net carrying amount |
|
$ |
3,608 |
|
|
|
|
$ |
3,608 |
|
|
|
We were in compliance with the terms of the notes outstanding as of
March 31, 2022. As of March 31, 2022, with the exception
of our 2026 Notes, which are scheduled to mature in September 2026,
no other contractual principal repayments of our long-term debt
were due within the next five years.
8. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss)
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
Foreign currency
translation
adjustments |
|
Unrealized gain (loss)
on available-for-
sale securities |
|
Unrealized gain (loss)
on forward
contracts |
|
Total |
|
Balance at December 31, 2021 |
$ |
(606) |
|
|
$ |
3 |
|
|
$ |
25 |
|
|
$ |
(578) |
|
|
Other comprehensive income (loss) before
reclassifications |
(4) |
|
|
2 |
|
|
6 |
|
|
4 |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) into earnings |
— |
|
|
(1) |
|
|
(11) |
|
|
(12) |
|
|
Balance at March 31, 2022 |
$ |
(610) |
|
|
$ |
4 |
|
|
$ |
20 |
|
|
$ |
(586) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021 |
|
|
Foreign currency
translation
adjustments |
|
Unrealized gain (loss)
on available-for-
sale securities |
|
Unrealized gain (loss)
on forward
contracts |
|
Total |
|
Balance at December 31, 2020 |
$ |
(589) |
|
|
$ |
(5) |
|
|
$ |
(28) |
|
|
$ |
(622) |
|
|
Other comprehensive income (loss) before
reclassifications
|
(5) |
|
|
(3) |
|
|
20 |
|
|
12 |
|
|
Amounts reclassified from accumulated other comprehensive income
(loss) into earnings
|
— |
|
|
1 |
|
|
9 |
|
|
10 |
|
|
Balance at March 31, 2021 |
$ |
(594) |
|
|
$ |
(7) |
|
|
$ |
1 |
|
|
$ |
(600) |
|
9. Operating Segments and Geographic Regions
We have three reportable segments—Activision, Blizzard, and King.
Our operating segments are consistent with the manner in which our
operations are reviewed and managed by our Chief Executive Officer,
who is our chief operating decision maker (“CODM”). The CODM
reviews segment performance exclusive of: the impact of the change
in deferred revenues and related cost of revenues with respect to
certain of our online-enabled games; share-based compensation
expense (including liability awards accounted for under ASC 718);
amortization of intangible assets as a result of purchase price
accounting; fees and other expenses (including legal fees,
expenses, and accruals) related to acquisitions, associated
integration activities, and financings; certain restructuring and
related costs; 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 reportable segment net revenues and operating income
are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Activision |
|
Blizzard |
|
King |
|
Total |
|
Segment Revenues |
|
|
|
|
|
|
|
|
|
Net revenues from external customers |
|
$ |
453 |
|
|
$ |
265 |
|
|
$ |
682 |
|
|
$ |
1,400 |
|
|
Intersegment net revenues (1) |
|
— |
|
|
9 |
|
|
— |
|
|
9 |
|
|
Segment net revenues |
|
$ |
453 |
|
|
$ |
274 |
|
|
$ |
682 |
|
|
$ |
1,409 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
59 |
|
|
$ |
53 |
|
|
$ |
243 |
|
|
$ |
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
Activision |
|
Blizzard |
|
King |
|
Total |
|
Segment Revenues |
|
|
|
|
|
|
|
|
|
Net revenues from external customers |
|
$ |
891 |
|
|
$ |
458 |
|
|
$ |
609 |
|
|
$ |
1,958 |
|
|
Intersegment net revenues (1) |
|
— |
|
|
25 |
|
|
— |
|
|
25 |
|
|
Segment net revenues |
|
$ |
891 |
|
|
$ |
483 |
|
|
$ |
609 |
|
|
$ |
1,983 |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
$ |
442 |
|
|
$ |
208 |
|
|
$ |
203 |
|
|
$ |
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Intersegment
revenues reflect licensing and service fees charged between
segments.
Reconciliations of total segment net revenues and total segment
operating income to consolidated net revenues and consolidated
income before income tax expense are presented in the table below
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
Reconciliation to consolidated net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues |
|
|
|
|
|
$ |
1,409 |
|
|
$ |
1,983 |
|
|
|
|
|
|
|
Revenues from non-reportable segments (1)
|
|
|
|
|
|
81 |
|
|
108 |
|
|
|
|
|
|
|
Net effect from recognition (deferral) of deferred net revenues
(2) |
|
|
|
|
|
287 |
|
|
209 |
|
|
|
|
|
|
|
Elimination of intersegment revenues (3)
|
|
|
|
|
|
(9) |
|
|
(25) |
|
|
|
|
|
|
|
Consolidated net revenues
|
|
|
|
|
|
$ |
1,768 |
|
|
$ |
2,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated income before income tax
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
|
|
|
$ |
355 |
|
|
$ |
853 |
|
|
|
|
|
|
|
Operating income (loss) from non-reportable segments
(1) |
|
|
|
|
|
19 |
|
|
(4) |
|
|
|
|
|
|
|
Net effect from recognition (deferral) of deferred net revenues and
related cost of revenues (2) |
|
|
|
|
|
235 |
|
|
132 |
|
|
|
|
|
|
|
Share-based compensation expense (4) |
|
|
|
|
|
(98) |
|
|
(151) |
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
(2) |
|
|
(5) |
|
|
|
|
|
|
|
Restructuring and related costs |
|
|
|
|
|
2 |
|
|
(30) |
|
|
|
|
|
|
|
Merger and acquisition-related fees and other expenses
(5) |
|
|
|
|
|
(32) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
|
|
|
479 |
|
|
795 |
|
|
|
|
|
|
|
Interest and other expense (income), net |
|
|
|
|
|
14 |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income tax expense |
|
|
|
|
|
$ |
465 |
|
|
$ |
765 |
|
|
|
|
|
|
(1)Includes
other income and expenses outside of our reportable segments,
including our Distribution business and unallocated corporate
income and expenses.
(2)Reflects
the net effect from recognition (deferral) of deferred net
revenues, along with related cost of revenues, on certain of our
online-enabled products.
(3)Intersegment
revenues reflect licensing and service fees charged between
segments.
(4)Expenses
related to share-based compensation, including $15 million for
outstanding liability awards accounted for under ASC
718.
(5)Reflects
fees and other expenses related to our proposed transaction with
Microsoft, primarily legal and advisory fees.
Net revenues by distribution channel, including a reconciliation to
each of our reportable segment’s revenues, were as follows (amounts
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Activision |
|
Blizzard |
|
King |
|
Non-reportable segments |
|
Elimination of intersegment revenues (3) |
|
Total |
|
Net revenues by distribution channel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
616 |
|
|
$ |
300 |
|
|
$ |
682 |
|
|
$ |
— |
|
|
$ |
(9) |
|
|
$ |
1,589 |
|
|
Retail channels |
|
83 |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
85 |
|
|
Other (2) |
|
11 |
|
|
2 |
|
|
— |
|
|
81 |
|
|
— |
|
|
94 |
|
|
Total consolidated net revenues |
|
$ |
710 |
|
|
$ |
304 |
|
|
$ |
682 |
|
|
$ |
81 |
|
|
$ |
(9) |
|
|
$ |
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
(192) |
|
|
$ |
(30) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(222) |
|
|
Retail channels |
|
(65) |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(64) |
|
|
Other (2) |
|
— |
|
|
(1) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
|
|
Total change in deferred revenues |
|
$ |
(257) |
|
|
$ |
(30) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(287) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
424 |
|
|
$ |
270 |
|
|
$ |
682 |
|
|
$ |
— |
|
|
$ |
(9) |
|
|
$ |
1,367 |
|
|
Retail channels |
|
18 |
|
|
3 |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
Other (2) |
|
11 |
|
|
1 |
|
|
— |
|
|
81 |
|
|
— |
|
|
93 |
|
|
Total segment net revenues |
|
$ |
453 |
|
|
$ |
274 |
|
|
$ |
682 |
|
|
$ |
81 |
|
|
$ |
(9) |
|
|
$ |
1,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
Activision |
|
Blizzard |
|
King |
|
Non-reportable segments |
|
Elimination of intersegment revenues (3) |
|
Total |
|
Net revenues by distribution channel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
965 |
|
|
$ |
461 |
|
|
$ |
605 |
|
|
$ |
— |
|
|
$ |
(25) |
|
|
$ |
2,006 |
|
|
Retail channels |
|
143 |
|
|
6 |
|
|
— |
|
|
— |
|
|
— |
|
|
149 |
|
|
Other (2) |
|
15 |
|
|
3 |
|
|
— |
|
|
102 |
|
|
— |
|
|
120 |
|
|
Total consolidated net revenues |
|
$ |
1,123 |
|
|
$ |
470 |
|
|
$ |
605 |
|
|
$ |
102 |
|
|
$ |
(25) |
|
|
$ |
2,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
(162) |
|
|
$ |
17 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(141) |
|
|
Retail channels |
|
(70) |
|
|
(4) |
|
|
— |
|
|
— |
|
|
— |
|
|
(74) |
|
|
Other (2) |
|
— |
|
|
— |
|
|
— |
|
|
6 |
|
|
— |
|
|
6 |
|
|
Total change in deferred revenues |
|
$ |
(232) |
|
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
(209) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1) |
|
$ |
803 |
|
|
$ |
478 |
|
|
$ |
609 |
|
|
$ |
— |
|
|
$ |
(25) |
|
|
$ |
1,865 |
|
|
Retail channels |
|
73 |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
75 |
|
|
Other (2) |
|
15 |
|
|
3 |
|
|
— |
|
|
108 |
|
|
— |
|
|
126 |
|
|
Total segment net revenues |
|
$ |
891 |
|
|
$ |
483 |
|
|
$ |
609 |
|
|
$ |
108 |
|
|
$ |
(25) |
|
|
$ |
2,066 |
|
(1)Net
revenues from “Digital online channels” include revenues from
digitally-distributed downloadable content, microtransactions,
subscriptions, and products, as well as licensing
royalties.
(2)Net
revenues from “Other” primarily include revenues from our
Distribution business, the Overwatch League, and the Call of Duty
League.
(3)Intersegment
revenues reflect licensing and service fees charged between
segments.
Geographic information presented below is based on the location of
the paying customer. Net revenues by geographic region, including a
reconciliation to each of our reportable segment’s net revenues,
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Activision |
|
Blizzard |
|
King |
|
Non-reportable segments |
|
Elimination of intersegment revenues (2) |
|
Total |
|
Net revenues by geographic region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
460 |
|
|
$ |
125 |
|
|
$ |
437 |
|
|
$ |
— |
|
|
$ |
(6) |
|
|
$ |
1,016 |
|
|
EMEA (1) |
|
184 |
|
|
94 |
|
|
170 |
|
|
81 |
|
|
(2) |
|
|
527 |
|
|
Asia Pacific |
|
66 |
|
|
85 |
|
|
75 |
|
|
— |
|
|
(1) |
|
|
225 |
|
|
Total consolidated net revenues |
|
$ |
710 |
|
|
$ |
304 |
|
|
$ |
682 |
|
|
$ |
81 |
|
|
$ |
(9) |
|
|
$ |
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
(164) |
|
|
$ |
(11) |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(174) |
|
|
EMEA (1) |
|
(80) |
|
|
(13) |
|
|
— |
|
|
— |
|
|
— |
|
|
(93) |
|
|
Asia Pacific |
|
(13) |
|
|
(6) |
|
|
(1) |
|
|
— |
|
|
— |
|
|
(20) |
|
|
Total change in deferred revenues |
|
$ |
(257) |
|
|
$ |
(30) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(287) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
296 |
|
|
$ |
114 |
|
|
$ |
438 |
|
|
$ |
— |
|
|
$ |
(6) |
|
|
$ |
842 |
|
|
EMEA (1) |
|
104 |
|
|
81 |
|
|
170 |
|
|
81 |
|
|
(2) |
|
|
434 |
|
|
Asia Pacific |
|
53 |
|
|
79 |
|
|
74 |
|
|
— |
|
|
(1) |
|
|
205 |
|
|
Total segment net revenues |
|
$ |
453 |
|
|
$ |
274 |
|
|
$ |
682 |
|
|
$ |
81 |
|
|
$ |
(9) |
|
|
$ |
1,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
Activision |
|
Blizzard |
|
King |
|
Non-reportable segments |
|
Elimination of intersegment revenues (2) |
|
Total |
|
Net revenues by geographic region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
725 |
|
|
$ |
210 |
|
|
$ |
386 |
|
|
$ |
— |
|
|
$ |
(14) |
|
|
$ |
1,307 |
|
|
EMEA (1) |
|
311 |
|
|
167 |
|
|
160 |
|
|
102 |
|
|
(9) |
|
|
731 |
|
|
Asia Pacific |
|
87 |
|
|
93 |
|
|
59 |
|
|
— |
|
|
(2) |
|
|
237 |
|
|
Total consolidated net revenues |
|
$ |
1,123 |
|
|
$ |
470 |
|
|
$ |
605 |
|
|
$ |
102 |
|
|
$ |
(25) |
|
|
$ |
2,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
(131) |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(121) |
|
|
EMEA (1) |
|
(77) |
|
|
7 |
|
|
(1) |
|
|
6 |
|
|
— |
|
|
(65) |
|
|
Asia Pacific |
|
(24) |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(23) |
|
|
Total change in deferred revenues |
|
$ |
(232) |
|
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
(209) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
594 |
|
|
$ |
215 |
|
|
$ |
391 |
|
|
$ |
— |
|
|
$ |
(14) |
|
|
$ |
1,186 |
|
|
EMEA (1) |
|
234 |
|
|
174 |
|
|
159 |
|
|
108 |
|
|
(9) |
|
|
666 |
|
|
Asia Pacific |
|
63 |
|
|
94 |
|
|
59 |
|
|
— |
|
|
(2) |
|
|
214 |
|
|
Total segment net revenues |
|
$ |
891 |
|
|
$ |
483 |
|
|
$ |
609 |
|
|
$ |
108 |
|
|
$ |
(25) |
|
|
$ |
2,066 |
|
(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 51% and 50% of
consolidated net revenues for the three months ended March 31,
2022 and 2021, respectively. The Company’s net revenues in the
United Kingdom (“U.K.”) were 10% and 11% of consolidated net
revenues for the three months ended March 31, 2022 and 2021,
respectively. No other country’s net revenues exceeded 10% of
consolidated net revenues for the three months ended March 31,
2022 or 2021.
Net revenues by platform, including a reconciliation to each of our
reportable segment’s net revenues, were as follows (amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Activision |
|
Blizzard |
|
King |
|
Non-reportable segments |
|
Elimination of intersegment revenues (3) |
|
Total |
|
Net revenues by platform: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Console |
|
$ |
460 |
|
|
$ |
24 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
484 |
|
|
PC |
|
124 |
|
|
251 |
|
|
17 |
|
|
— |
|
|
(9) |
|
|
383 |
|
|
Mobile and ancillary (1) |
|
115 |
|
|
27 |
|
|
665 |
|
|
— |
|
|
— |
|
|
807 |
|
|
Other (2) |
|
11 |
|
|
2 |
|
|
— |
|
|
81 |
|
|
— |
|
|
94 |
|
|
Total consolidated net revenues |
|
$ |
710 |
|
|
$ |
304 |
|
|
$ |
682 |
|
|
$ |
81 |
|
|
$ |
(9) |