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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 June 30, 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)

Delaware			95-4803544
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2701 Olympic Boulevard Building B	Santa Monica,	CA	90404
(Address of principal executive offices)			(Zip Code)

 

(310) 255-2000

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.000001 per share	ATVI	The Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Non-accelerated Filer	☐	Accelerated Filer	☐
				Smaller reporting company	☐
				Emerging growth company	☐

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

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

The number of shares of the registrant’s Common Stock outstanding at July 25, 2022 was 782,306,592.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Table of Contents

	Cautionary Statement	3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021	4
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and June 30, 2021	5
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and June 30, 2021	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and June 30, 2021	7
	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three and six months ended June 30, 2022 and June 30, 2021	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 6.	Exhibits	61
SIGNATURE		62

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CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, statements reflecting our views about our future performance that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; (4) statements regarding the proposed transaction between Activision Blizzard, Inc. 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 and other macroeconomic factors (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; potential strain on the retailers, distributors, and manufacturers who sell our physical products to customers and the platform providers on whose networks and consoles certain of our games are available; effects on our ability to release our content in a timely manner and with effective quality control; effects on our ability to prevent cyber-security incidents while our workforce is dispersed; effects on the operations of our professional esports leagues; the impact on interest rates, including via the impact of large-scale intervention by the Federal Reserve and other central banks around the world and other economic factors; increased demand for our games due to stay-at-home orders and curtailment of other forms of entertainment, which may not be sustained and may fluctuate as stay-at-home orders are reduced, lifted, and/or reinstated; macroeconomic impacts arising from the long duration of the COVID-19 pandemic, including labor shortages and supply chain disruptions; and volatility in foreign exchange rates); our ability to consistently deliver popular, high-quality titles 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 Personal Information Protection Law; scrutiny regarding the appropriateness of our games’ content, including ratings assigned by third parties; changes in tax rates and/or tax laws or exposure to additional tax liabilities; fluctuations in currency exchange rates; impacts of changes in financial accounting standards; insolvency or business failure of any of our business partners, which has been magnified as a result of the COVID-19 pandemic; risks associated with our reliance on consumer discretionary spending; risks associated with increased inflation on our costs and the impacts on consumer discretionary spending; and the other factors 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

	At June 30, 2022		At December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	10,483	$	10,423
Accounts receivable, net	572		972
Software development	768		449
Other current assets	684		712
Total current assets	12,507		12,556
Software development	124		211
Property and equipment, net	175		169
Deferred income taxes, net	1,259		1,377
Other assets	545		497
Intangible assets, net	453		447
Goodwill	9,931		9,799
Total assets	$	24,994	$	25,056
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	197	$	285
Deferred revenues	847		1,118
Accrued expenses and other liabilities	980		1,008
Total current liabilities	2,024		2,411
Long-term debt, net	3,609		3,608
Deferred income taxes, net	251		506
Other liabilities	862		932
Total liabilities	6,746		7,457
Commitments and contingencies (Note 16)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,210,967,560 and 1,207,729,623 shares issued at June 30, 2022 and December 31, 2021, respectively	—		—
Additional paid-in capital	12,069		11,715
Less: Treasury stock, at cost, 428,676,471 shares at June 30, 2022 and December 31, 2021	(5,563)		(5,563)
Retained earnings	12,333		12,025
Accumulated other comprehensive loss	(591)		(578)
Total shareholders’ equity	18,248		17,599
Total liabilities and shareholders’ equity	$	24,994	$	25,056

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net revenues
Product sales	$	304	$	568	$	690	$	1,243
In-game, subscription, and other revenues	1,340		1,728		2,722		3,328
Total net revenues	1,644		2,296		3,412		4,571
Costs and expenses
Cost of revenues—product sales:
Product costs	80		116		172		255
Software royalties and amortization	63		88		144		200
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs	317		322		605		619
Software royalties and amortization	25		29		43		59
Product development	311		335		658		688
Sales and marketing	263		245		514		482
General and administrative	250		189		464		471
Restructuring and related costs	(3)		13		(5)		43
Total costs and expenses	1,306		1,337		2,595		2,817
Operating income	338		959		817		1,754
Interest and other expense (income), net (Note 12)	17		(43)		31		(14)
Income before income tax expense	321		1,002		786		1,768
Income tax expense	41		126		111		272
Net income	$	280	$	876	$	675	$	1,496
Earnings per common share
Basic	$	0.36	$	1.13	$	0.86	$	1.93
Diluted	$	0.36	$	1.12	$	0.86	$	1.91
Weighted-average number of shares outstanding
Basic	782		777		781		776
Diluted	788		783		787		784

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in millions)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	280	$	876	$	675	$	1,496
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	(23)		9		(27)		5
Unrealized gains (losses) on forward contracts designated as hedges, net of tax	14		(2)		9		27
Unrealized gains (losses) on available-for-sale securities, net of tax	4		—		5		(3)
Total other comprehensive income (loss)	$	(5)	$	7	$	(13)	$	29
Comprehensive income	$	275	$	883	$	662	$	1,525

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

	For the Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	675	$	1,496
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	(137)		(46)
Non-cash operating lease cost	37		32
Depreciation and amortization	49		61
Amortization of capitalized software development costs (1)	133		187
Share-based compensation expense (2)	199		194
Realized and unrealized gain on equity investment	(4)		(72)
Other	(23)		4
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net	394		369
Software development	(290)		(189)
Other assets	61		20
Deferred revenues	(268)		(611)
Accounts payable	(87)		(80)
Accrued expenses and other liabilities	101		(133)
Net cash provided by operating activities	840		1,232
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments	22		44
Proceeds from sale of available-for-sale investments	20		—
Purchases of available-for-sale investments	(109)		(203)
Acquisition of business, net of cash acquired (Note 4)	(135)		—
Capital expenditures	(52)		(36)
Other investing activities	1		21
Net cash used in investing activities	(253)		(174)
Cash flows from financing activities:
Proceeds from issuance of common stock to employees	37		67
Tax payment related to net share settlements on restricted stock units	(137)		(173)
Dividends paid	(367)		(365)
Net cash used in financing activities	(467)		(471)
Effect of foreign exchange rate changes on cash and cash equivalents	(48)		(16)
Net increase in cash and cash equivalents and restricted cash	72		571
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	$	10,510	$	9,223

(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.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2022

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2021

(Unaudited)

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

	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	1,203	$	—	(429)	$	(5,563)	$	11,531	$	9,691	$	(622)	$	15,037
Components of comprehensive income:
Net income	—	—		—	—		—		619		—		619
Other comprehensive income (loss)	—	—		—	—		—		—		22		22
Issuance of common stock pursuant to employee stock options	1	—		—	—		33		—		—		33
Issuance of common stock pursuant to restricted stock units	4	—		—	—		—		—		—		—
Restricted stock surrendered for employees’ tax liability	(2)	—		—	—		(165)		—		—		(165)
Share-based compensation expense related to employee stock options and restricted stock units	—	—		—	—		150		—		—		150
Dividends ($0.47 per common share)	—	—		—	—		—		(365)		—		(365)
Balance at March 31, 2021	1,206	$	—	(429)	$	(5,563)	$	11,549	$	9,945	$	(600)	$	15,331
Components of comprehensive income:
Net income	—	—		—	—		—		876		—		876
Other comprehensive income (loss)	—	—		—	—		—		—		7		7
Issuance of common stock pursuant to employee stock options	—	—		—	—		33		—		—		33
Restricted stock surrendered for employees’ tax liability	—	—		—	—		(7)		—		—		(7)
Share-based compensation expense related to employee stock options and restricted stock units	—	—		—	—		46		—		—		46
Balance at June 30, 2021	1,206	$	—	(429)	$	(5,563)	$	11,621	$	10,821	$	(593)	$	16,286

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

9

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.

10

(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

Our total capitalized software development costs of $892 million and $660 million as of June 30, 2022 and December 31, 2021, respectively, primarily relate to internal development costs.

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Amortization of capitalized software development costs	$	60	$	87	$	139	$	199

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3. Intangible Assets, Net

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

	At June 30, 2022
	Estimated useful lives			Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets (1):
Trade names and other	1	-	10 years	$	90	$	(70)	$	20
Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite							$	386
Acquired trade names	Indefinite							47
Total indefinite-lived intangible assets								$	433
Total intangible assets, net								$	453

(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 and Acquisitions

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

	Activision		Blizzard		King		Total
Balance at December 31, 2021	$	6,933	$	190	$	2,676	$	9,799
Additions through acquisition (1)	—		100		33		133
Other	(1)		—		—		(1)
Balance at June 30, 2022	$	6,932