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Table of Contents
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, 2023
 
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission File Number 1-15839
https://cdn.kscope.io/25365da2370444922d53c1ad47f83828-ablogoblacka19.jpg
ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)
Delaware95-4803544
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2701 Olympic Boulevard Building BSanta Monica,CA90404
(Address of principal executive offices)(Zip Code)
 
(310) 255-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.000001 per shareATVIThe Nasdaq Global Select Market
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerNon-accelerated FilerAccelerated 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 April 28, 2023 was 786,158,727.


Table of Contents
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
 
Table of Contents

 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
2

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CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, statements reflecting our views about our future performance that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; (4) statements regarding the proposed transaction between Activision Blizzard, Inc. (“Activision Blizzard”) and Microsoft Corporation (“Microsoft”) pursuant to the Agreement and Plan of Merger, dated as of January 18, 2022, by and among Activision Blizzard, Microsoft, and Anchorage Merger Sub Inc., a wholly owned subsidiary of Microsoft (the “Merger Agreement” and such transaction, “the proposed transaction with Microsoft”), including any statements regarding the expected timetable for completing the proposed transaction with Microsoft, the ability to complete the proposed transaction with Microsoft, and the expected benefits of the proposed transaction with Microsoft; and (5) statements of assumptions underlying such statements. Activision Blizzard 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 (which may or may not be received on a timely basis or at all); the occurrence of any event, change, or other circumstance that could give rise to the termination of the 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 and recruitment as a result of the proposed transaction with Microsoft; risks related to diverting management’s attention from ongoing business operations; the outcome of any legal proceedings that have been or may be instituted against us related to the Merger Agreement or the transactions contemplated thereby; restrictions during the pendency of the proposed transaction with Microsoft that may impact our ability to pursue certain business opportunities or strategic transactions; uncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the major countries in which we do business; decline in demand for our products and services if general economic conditions decline; fluctuations in currency exchange rates; our ability to deliver popular, high-quality content in a timely manner; negative impacts on our business resulting from concerns regarding our workplace, including associated legal proceedings; our ability to attract, retain, and motivate skilled personnel; future impacts from COVID-19; the level of demand for our games and products; our ability to meet customer expectations with respect to our brands, games, services, and/or business practices; competition; our reliance on a relatively small number of franchises for a significant portion of our revenues and profits; negative impacts from the results of collective bargaining, legal proceedings related to unionization, or campaigns by unions directed at our workforce; our ability to adapt to rapid technological change and allocate our resources accordingly; the increasing importance of digital sales and the risks of that business model; our ability to effectively manage the scope and complexity of our business, including risks related to our professional esports business model; our reliance on third-party platforms, which are also our competitors, for the distribution of products; our dependence on the success and availability of video game consoles manufactured by third parties and our ability to develop commercially successful products for these consoles; the increasing importance of free-to-play games and the risks of that business model; the risks and uncertainties of conducting business outside the United States (the “U.S.”)., including the need for regulatory approval to operate, the relatively weaker protection for our intellectual property rights, and the impact of cultural differences on consumer preferences; insolvency or business failure of any of our business partners; the importance of retail sales to our business and the risks of that business model; any difficulties in integrating acquired businesses or realizing the anticipated benefits of strategic transactions; seasonality in the sale of our products; fluctuation in our recurring business; the risk of distributors, retailers, development, and licensing partners or other third parties being unable to honor their commitments or otherwise putting our brand at risk; our reliance on tools and technologies owned by third parties; our use of open source software; risks associated with undisclosed content or features in our games; the impact of objectionable consumer- or other third-party-created content on our operating results or reputation; outages, disruptions, or degradations in our services, products, and/or technological infrastructure; cybersecurity-related attacks, significant data breaches, fraudulent activity, or disruption of our information technology systems or networks; significant disruption during our live events; catastrophic events; climate change; provisions in our corporate documents and Delaware state law that could delay or prevent a change of control; other legal proceedings; increasing regulation in key territories over our business, products, and distribution; changes in government regulation relating to the Internet; our compliance with evolving data privacy laws and regulations; scrutiny regarding the appropriateness of the content in our games and our ability to receive target ratings for certain titles; changes in tax rates and/or tax laws and exposure to additional tax liabilities; changes in financial accounting standards or the application of existing or future standards as our business evolves; and the other factors included in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, 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 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 March 31, 2023At December 31, 2022
Assets
Current assets:
Cash and cash equivalents$9,236 $7,060 
Held-to-maturity investments3,280 4,932 
Accounts receivable, net764 1,204 
Software development715 640 
Other current assets524 633 
Total current assets14,519 14,469 
Software development622 641 
Property and equipment, net199 193 
Deferred income taxes, net1,180 1,201 
Other assets507 508 
Intangible assets, net437 442 
Goodwill9,929 9,929 
Total assets$27,393 $27,383 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$177 $324 
Deferred revenues1,653 2,088 
Accrued expenses and other liabilities987 1,143 
Total current liabilities2,817 3,555 
Long-term debt, net3,611 3,611 
Deferred income taxes, net32 158 
Other liabilities818 816 
Total liabilities7,278 8,140 
Commitments and contingencies (Note 13)
Shareholders’ equity:  
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,214,763,143 and 1,212,894,055 shares issued at March 31, 2023 and December 31, 2022, respectively
  
Additional paid-in capital12,396 12,260 
Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2023 and December 31, 2022
(5,563)(5,563)
Retained earnings13,911 13,171 
Accumulated other comprehensive loss(629)(625)
Total shareholders’ equity20,115 19,243 
Total liabilities and shareholders’ equity$27,393 $27,383 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)

 For the Three Months Ended March 31,
 20232022
Net revenues
Product sales$695 $386 
In-game, subscription, and other revenues1,688 1,382 
Total net revenues 2,383 1,768 
Costs and expenses
Cost of revenues—product sales:
Product costs136 91 
Software royalties and amortization101 81 
Cost of revenues—in-game, subscription, and other:
Game operations and distribution costs363 288 
Software royalties and amortization65 19 
Product development402 346 
Sales and marketing278 252 
General and administrative238 212 
Total costs and expenses1,583 1,289 
Operating income800 479 
Interest expense from debt27 27 
Other (income) expense, net (Note 10)
(122)(13)
Income before income tax expense895 465 
Income tax expense155 70 
Net income$740 $395 
Earnings per common share
Basic$0.94 $0.51 
Diluted$0.93 $0.50 
Weighted-average number of shares outstanding
Basic785 780 
Diluted792 786 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in millions)

 For the Three Months Ended March 31,
 20232022
Net income$740 $395 
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax7 (4)
Unrealized gains (losses) on forward contracts designated as hedges, net of tax
(11)(5)
Unrealized gains (losses) on available-for-sale securities, net of tax 1 
Total other comprehensive (loss) income$(4)$(8)
Comprehensive income$736 $387 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
 For the Three Months Ended March 31,
 20232022
Cash flows from operating activities:
Net income$740 $395 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes(100)(64)
Non-cash operating lease cost21 18 
Depreciation and amortization21 24 
Amortization of capitalized software development costs (1)102 75 
Share-based compensation expense (2)124 98 
Other(35)(22)
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net443 440 
Software development(161)(104)
Other assets86 125 
Deferred revenues(447)(278)
Accounts payable(150)(76)
Accrued expenses and other liabilities(67)11 
Net cash provided by operating activities577 642 
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments 22 
Proceeds from maturities of held-to-maturity investments1,700  
Capital expenditures(37)(15)
Net cash provided by investing activities1,663 7 
Cash flows from financing activities:
Proceeds from issuance of common stock to employees13 16 
Tax payment related to net share settlements on restricted stock units(84)(113)
Net cash used in financing activities(71)(97)
Effect of foreign exchange rate changes on cash and cash equivalents8 (10)
Net increase in cash and cash equivalents and restricted cash2,177 542 
Cash and cash equivalents and restricted cash at beginning of period7,086 10,438 
Cash and cash equivalents and restricted cash at end of period$9,263 $10,980 
Supplemental cash flow information - Non-cash financing activities:
Dividends payable$ $367 
(1)Excludes deferral and amortization of share-based compensation expense, including liability awards accounted for under Accounting Standards Codification (“ASC”) 718.
(2)Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense, including liability awards accounted for under ASC 718.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended March 31, 2023 and March 31, 2022
(Unaudited)
(Amounts and shares in millions, except per share data)
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 20221,213 $ (429)$(5,563)$12,260 $13,171 $(625)$19,243 
Components of comprehensive income:
Net income— — — — — 740 — 740 
Other comprehensive income (loss)— — — — — — (4)(4)
Issuance of common stock pursuant to employee stock options — — — 14 — — 14 
Issuance of common stock pursuant to restricted stock units3 — — — — — —  
Restricted stock surrendered for employees’ tax liability(1)— — — (92)— — (92)
Settlement of liability-classified awards in restricted stock units (Note 9)
— — — — 93 — — 93 
Share-based compensation expense related to employee stock options and restricted stock units— — — — 121 — — 121 
Balance at March 31, 20231,215 $ (429)$(5,563)$12,396 $13,911 $(629)$20,115 
 Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
 SharesAmountSharesAmount
Balance at December 31, 20211,208 $ (429)$(5,563)$11,715 $12,025 $(578)$17,599 
Components of comprehensive income:
Net income— — — — — 395 — 395 
Other comprehensive income (loss)— — — — — — (8)(8)
Issuance of common stock pursuant to employee stock options — — — 15 — — 15 
Issuance of common stock pursuant to restricted stock units4 — — — — — —  
Restricted stock surrendered for employees’ tax liability(2)— — — (131)— — (131)
Settlement of liability-classified awards in restricted stock units (Note 9)
— — — — 204 — — 204 
Share-based compensation expense related to employee stock options and restricted stock units— — — — 124 — — 124 
Dividends ($0.47 per common share)
— — — — — (367)— (367)
Balance at March 31, 20221,210 $ (429)$(5,563)$11,927 $12,053 $(586)$17,831 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Description of Business and Basis of Consolidation and Presentation

Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“PCs”), and mobile devices. We also operate esports leagues and offer digital advertising within some of our content. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

Merger Agreement

On January 18, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Microsoft Corporation (“Microsoft”) and Anchorage Merger Sub Inc. (“Merger Sub”), a wholly owned subsidiary of Microsoft. Subject to the terms and conditions of the Merger Agreement, Microsoft agreed to acquire the Company for $95.00 per issued and outstanding share of our common stock, par value $0.000001 per share, in an all-cash transaction. Pursuant to the terms of the Merger Agreement, our acquisition will be accomplished through the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as 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. 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.

If the Merger Agreement is terminated under certain specified circumstances, we or Microsoft will be required to pay a termination fee. We will be required to pay Microsoft a termination fee of approximately $2.27 billion under specified circumstances, including termination of the Merger Agreement due to our material breach of representations, warranties, covenants or agreements in the Merger Agreement. Microsoft will be required to pay us a reverse termination fee under specified circumstances, including termination of the Merger Agreement due to a permanent injunction arising from Antitrust Laws (as defined in the Merger Agreement) when we are not then in material breach of any provision of the Merger Agreement and if certain other conditions are met, in an amount equal to $3.0 billion if the termination notice is provided at any time after April 18, 2023.

For additional information related to the Merger Agreement, please refer to Part I Item 1 “Business” of our Annual Report on Form 10-K for the year ended December 31, 2022, and other relevant materials in connection with the proposed transaction with Microsoft that we will file with the SEC and that will contain important information about the Company and the Merger.

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

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

Our Segments

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

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(i) Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product offerings include titles and content for Call of Duty®, a first-person action franchise. Activision also includes the activities of the Call of Duty League™, a global professional esports league.

(ii) Blizzard Entertainment, Inc.

Blizzard Entertainment, Inc. (“Blizzard”) delivers content through both premium and free-to-play offerings and primarily generates revenue from full-game and in-game sales, subscriptions, and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming platform, Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. Blizzard’s key product offerings include titles and content for: the Warcraft® franchise, which includes World of Warcraft®, a subscription-based massive multi-player online role-playing game, and Hearthstone®, an online collectible card game based in the Warcraft universe; Diablo® in the action role-playing genre; and Overwatch® in the team-based first-person action genre. Blizzard also includes the activities of the Overwatch League™, a global professional esports league.

(iii) King Digital Entertainment

King Digital Entertainment (“King”) delivers content through free-to-play offerings and primarily generates revenue from in-game sales and in-game advertising on mobile platforms. King’s key product offerings include titles and content for Candy Crush™, a “match three” franchise.

Other

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

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, 2022.

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, all adjustments considered necessary for the fair statement of our financial position and results of operations in accordance with U.S. GAAP (consisting of normal recurring adjustments) have been included in the accompanying unaudited condensed consolidated financial statements. Actual results could differ from these estimates and assumptions.

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.

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2. Held-to-Maturity Investments

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

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

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

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

3. Software Development

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

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

 For the Three Months Ended March 31,
 20232022
Amortization of capitalized software development costs$125 $79 

4. Fair Value Measurements

The Financial Accounting Standards Board literature regarding fair value measurements for certain assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

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Fair Value Measurements on a Recurring Basis

The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):

 Fair Value Measurements at March 31, 2023 Using
 As of March 31, 2023Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Balance Sheet
Classification
Financial Assets:     
Recurring fair value measurements:    
Money market funds$8,888 $8,888 $ $ Cash and cash equivalents
Equity securities47 47   Other current assets
Foreign currency forward contracts designated as hedges3  3  Other current assets
Total$8,938 $8,935 $3 $  
Financial Liabilities:
Foreign currency forward contracts designated as hedges$(8)$ $(8)$ Accrued expenses and other liabilities

 Fair Value Measurements at December 31, 2022 Using 
 As of December 31, 2022Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Balance Sheet
Classification
Financial Assets:
Recurring fair value measurements:     
Money market funds$6,639 $6,639 $ $ Cash and cash equivalents
Equity securities49 49   Other current assets
Foreign currency forward contracts designated as hedges6  6  Other current assets
Total$6,694 $6,688 $6 $ 
Financial Liabilities:
Foreign currency forward contracts designated as hedges$(6)$ $(6)$ Accrued expenses and other liabilities

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Foreign Currency Forward Contracts

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

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

As of March 31, 2023As of December 31, 2022
Notional amountFair value gain (loss)Notional amountFair value gain (loss)
Foreign Currency:
Buy USD, Sell EUR$475 $(5)$509 $ 

For the three months ended March 31, 2023 and 2022, 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.

5. Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated performance obligations. The aggregate of the current and non-current balances of deferred revenues as of March 31, 2023 and December 31, 2022, were $1.7 billion and $2.1 billion, respectively. For the three months ended March 31, 2023, the additions to our deferred revenues balance were primarily due to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily due to the recognition of revenues upon fulfillment of our performance obligations, which were in the ordinary course of business. During the three months ended March 31, 2023 and March 31, 2022, $1.3 billion and $0.7 billion, respectively, of revenues were recognized that were included in the deferred revenues balance at the beginning of the period.

As of March 31, 2023, the aggregate amount of contracted revenues allocated to our unsatisfied performance obligations was $1.8 billion, which included our deferred revenues balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1.8 billion over the next 12 months. This balance did not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee or any estimated amounts of variable consideration that are subject to constraint in accordance with the revenue accounting standard.

6. Debt

Credit Facilities

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

Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 2022 for further details regarding the Credit Agreement and its key terms.

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Unsecured Senior Notes

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

 At March 31, 2023At December 31, 2022
Unsecured Senior NotesInterest RateSemi-Annual Interest Payments Due OnMaturityPrincipalFair Value
(Level 2)
PrincipalFair Value
(Level 2)
2026 Notes3.40%Mar. 15 & Sept. 15Sept. 2026$850 $823 $850 $810 
2027 Notes3.40%Jun. 15 & Dec. 15Jun. 2027400 384 400 378 
2030 Notes1.35%Mar. 15 & Sept. 15Sept. 2030500 406 500 391 
2047 Notes4.50%Jun. 15 & Dec. 15Jun. 2047400 378 400 353 
2050 Notes2.50%Mar. 15 & Sept. 15Sept. 20501,500 1,009 1,500 936 
Total gross long-term debt$3,650 $3,650 
Unamortized discount and deferred financing costs(39)(39)
Total net carrying amount$3,611 $3,611 

We were in compliance with the terms of the notes outstanding as of March 31, 2023. Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 2022 for further details regarding key terms under our indentures that govern our outstanding notes.

7. 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, 2023
Foreign currency
translation
adjustments
Unrealized gain (loss)
on forward
contracts
Total
Balance at December 31, 2022$(636)$11 $(625)
Other comprehensive income (loss) before reclassifications7  7 
Amounts reclassified from accumulated other comprehensive income (loss) into earnings (11)(11)
Balance at March 31, 2023$(629)$ $(629)

 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)

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8. Operating Segments and Geographic Regions

We have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense (including liability awards accounted for under ASC 718); amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; certain partnership wind down and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

Our operating segments are also consistent with our internal organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.

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

Three Months Ended March 31, 2023
ActivisionBlizzardKingTotal
Segment Revenues
Net revenues from external customers$580 $435 $739 $1,754 
Intersegment net revenues (1) 8  8 
Segment net revenues$580 $443 $739 $1,762 
Segment operating income$179 $56 $241 $476 
Three Months Ended March 31, 2022
ActivisionBlizzardKingTotal
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 
(1)Intersegment revenues reflect licensing and service fees charged between segments.

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

Three Months Ended March 31,
20232022
Reconciliation to consolidated net revenues:
Segment net revenues$1,762 $1,409 
Revenues from non-reportable segments (1)
101 81 
Net effect from recognition (deferral) of deferred net revenues (2)528 287 
Elimination of intersegment revenues (3)
(8)(9)
Consolidated net revenues
$2,383 $1,768 
Reconciliation to consolidated income before income tax expense:
Segment operating income
$476 $355 
Operating income (loss) from non-reportable segments (1)6 19 
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)