Company Quick10K Filing
Activision Blizzard
Price59.04 EPS2
Shares769 P/E30
MCap45,413 P/FCF25
Net Debt-3,119 EBIT1,633
TEV42,294 TEV/EBIT26
TTM 2019-12-31, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-04
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-08-05
10-Q 2014-03-31 Filed 2014-05-06
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-02-22
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-02-28
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-05
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-06-11
8-K 2020-05-05
8-K 2020-03-05
8-K 2020-02-06
8-K 2019-11-07
8-K 2019-08-28
8-K 2019-08-10
8-K 2019-08-08
8-K 2019-06-20
8-K 2019-05-24
8-K 2019-05-02
8-K 2019-02-12
8-K 2019-02-12
8-K 2019-01-10
8-K 2019-01-07
8-K 2018-12-31
8-K 2018-12-31
8-K 2018-11-08
8-K 2018-10-03
8-K 2018-08-24
8-K 2018-08-02
8-K 2018-06-26
8-K 2018-05-03
8-K 2018-02-08
8-K 2018-02-01
8-K 2018-01-12

ATVI 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 atvi33120ex311.htm
EX-31.2 atvi33120ex312.htm
EX-32.1 atvi33120ex321.htm
EX-32.2 atvi33120ex322.htm

Activision Blizzard Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2016128402011201420172021
Assets, Equity
2.41.81.20.60.0-0.62011201420172021
Rev, G Profit, Net Income
1.90.8-0.3-1.3-2.4-3.52011201420172021
Ops, Inv, Fin

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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, 2020
 
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
ablogoblacka19.jpg
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.)
 
 
 
 
 
3100 Ocean Park Boulevard
Santa Monica,
CA
 
90405
(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 April 28, 2020 was 770,485,455.
 



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
 
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” 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 ongoing global impact of a novel strain of coronavirus which emerged in December 2019 (“COVID-19”) (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 and distributors who sell our physical product to customers; effects on our ability to release our content in a timely manner; the impact of large-scale intervention by the Federal Reserve and other central banks around the world, including the impact on interest rates; 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; concentration of revenue among a small number of franchises; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; our ability to attract, retain and motivate skilled personnel; rapid changes in technology and industry standards; competition, including from other forms of entertainment; increasing importance of revenues derived from digital distribution channels; risks associated with the retail sales business model; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our newly acquired or started businesses and the potential impact of our expansion into new businesses on our existing businesses; substantial influence of third-party platform providers over our products and costs; risks associated with transitions to next-generation consoles; success and availability of video game consoles manufactured by third parties; risks associated with the free-to-play business model, including dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; our ability to realize the expected financial and operational benefits of, and effectively implement and manage, our previously announced restructuring actions; our ability to quickly adjust our cost structure in response to sudden changes in demand; risks and costs associated with legal proceedings; intellectual property claims; changes in tax rates or exposure to additional tax liabilities, as well as the outcome of current or future tax disputes; our ability to sell products at assumed pricing levels; reliance on external developers for development of some of our software products; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the seasonality in the sale of our products; counterparty risks relating to customers, licensees, licensors, and manufacturers, which have been magnified as a result of the COVID-19 pandemic; risks associated with our use of open source software; piracy and unauthorized copying of our products; insolvency or business failure of any of our partners, which has been magnified as a result of the COVID-19 pandemic; risks and uncertainties of conducting business outside the United States (“U.S.”); increasing regulation of our business, products, and distribution in key territories; compliance with continually evolving laws and regulations concerning data privacy; reliance on servers and networks to operate our games and our proprietary online gaming service; potential data breaches and other cybersecurity risks; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q.

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. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.
 
Activision Blizzard, Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard, 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.


3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions, except share data)
 
At March 31, 2020
 
At December 31, 2019
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
5,906

 
$
5,794

Accounts receivable, net of allowances of $87 and $132, at March 31, 2020 and December 31, 2019, respectively
590

 
848

Software development
293

 
322

Other current assets
330

 
328

Total current assets
7,119

 
7,292

Software development
90

 
54

Property and equipment, net
236

 
253

Deferred income taxes, net
1,234

 
1,293

Other assets
664

 
658

Intangible assets, net
498

 
531

Goodwill
9,763

 
9,764

Total assets
$
19,604

 
$
19,845

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
158

 
$
292

Deferred revenues
1,064

 
1,375

Accrued expenses and other liabilities
1,338

 
1,248

Total current liabilities
2,560

 
2,915

Long-term debt, net
2,675

 
2,675

Deferred income taxes, net
458

 
505

Other liabilities
890

 
945

Total liabilities
6,583

 
7,040

Commitments and contingencies (Note 16)


 


Shareholders’ equity:
 
 
 
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,199,021,144 and 1,197,436,644 shares issued at March 31, 2020 and December 31, 2019, respectively

 

Additional paid-in capital
11,213

 
11,174

Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2020 and December 31, 2019
(5,563
)
 
(5,563
)
Retained earnings
7,999

 
7,813

Accumulated other comprehensive loss
(628
)
 
(619
)
Total shareholders’ equity
13,021

 
12,805

Total liabilities and shareholders’ equity
$
19,604

 
$
19,845

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

4


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,
 
 
2020
 
2019
Net revenues
 
 
 
 
Product sales
 
$
543

 
$
656

Subscription, licensing, and other revenues
 
1,245

 
1,169

Total net revenues
 
1,788

 
1,825

 
 
 
 
 
Costs and expenses
 
 
 
 

Cost of revenues—product sales:
 
 
 
 
Product costs
 
119

 
152

Software royalties, amortization, and intellectual property licenses
 
82

 
111

Cost of revenues—subscription, licensing, and other revenues:
 
 
 
 
Game operations and distribution costs
 
258

 
239

Software royalties, amortization, and intellectual property licenses
 
46

 
61

Product development
 
238

 
249

Sales and marketing
 
243

 
207

General and administrative
 
167

 
179

Restructuring and related costs
 
23

 
57

Total costs and expenses
 
1,176

 
1,255

 
 
 
 
 
Operating income
 
612

 
570

Interest and other expense (income), net (Note 12)
 
8

 
3

Income before income tax expense
 
604

 
567

Income tax expense
 
99

 
120

Net income
 
$
505

 
$
447

 
 
 
 
 
Earnings per common share
 
 
 
 

Basic
 
$
0.66

 
$
0.58

Diluted
 
$
0.65

 
$
0.58

 
 
 
 
 
Weighted-average number of shares outstanding
 
 
 
 

Basic
 
769

 
764

Diluted
 
774

 
770

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


5


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in millions)
 
 
 
For the Three Months Ended March 31,
 
 
2020
 
2019
Net income
 
$
505

 
$
447

 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment, net of tax
 
(14
)
 
2

Unrealized gains (losses) on forward contracts designated as hedges, net of tax
 
1

 
2

Unrealized gains (losses) on investments, net of tax
 
4

 
(5
)
Total other comprehensive loss
 
$
(9
)
 
$
(1
)
Comprehensive income
 
$
496

 
$
446

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


6


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
 
For the Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 

 
 

Net income
$
505

 
$
447

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Deferred income taxes
11

 
86

Depreciation and amortization
62

 
87

Non-cash operating lease cost
16

 
17

Amortization of capitalized software development costs and intellectual property licenses (1)
77

 
104

Share-based compensation expense (2)
43

 
63

Other

 
30

Changes in operating assets and liabilities:
 
 
 

Accounts receivable, net
249

 
438

Software development and intellectual property licenses
(85
)
 
(46
)
Other assets
(11
)
 
(38
)
Deferred revenues
(334
)
 
(582
)
Accounts payable
(132
)
 
(91
)
Accrued expenses and other liabilities
(253
)
 
(65
)
Net cash provided by operating activities
148

 
450

 
 
 
 
Cash flows from investing activities:
 
 
 

Proceeds from maturities of available-for-sale investments

 
13

Purchases of available-for-sale investments
(9
)
 

Capital expenditures
(19
)
 
(18
)
Net cash used in investing activities
(28
)
 
(5
)
 
 
 
 
Cash flows from financing activities:
 
 
 

Proceeds from issuance of common stock to employees
26

 
30

Tax payment related to net share settlements on restricted stock units
(19
)
 
(6
)
Net cash provided by financing activities
7

 
24

Effect of foreign exchange rate changes on cash and cash equivalents
(15
)
 
2

Net increase in cash and cash equivalents and restricted cash
112

 
471

Cash and cash equivalents and restricted cash at beginning of period
5,798

 
4,229

Cash and cash equivalents and restricted cash at end of period
$
5,910

 
$
4,700

(1)
Excludes deferral and amortization of share-based compensation expense.
(2)
Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.

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

7


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended March 31, 2020 and March 31, 2019
(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, 2019
1,197

 
$

 
(429
)
 
$
(5,563
)
 
$
11,174

 
$
7,813

 
$
(619
)
 
$
12,805

Cumulative impact from adoption of new credit loss standard

 

 

 

 

 
(3
)
 

 
(3
)
Components of comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
505

 

 
505

Other comprehensive loss

 

 

 

 

 

 
(9
)
 
(9
)
Issuance of common stock pursuant to employee stock options
1

 

 

 

 
27

 

 

 
27

Issuance of common stock pursuant to restricted stock units
1

 

 

 

 

 

 

 

Restricted stock surrendered for employees’ tax liability

 

 

 

 
(31
)
 

 

 
(31
)
Share-based compensation expense related to employee stock options and restricted stock units

 

 

 

 
43

 

 

 
43

Dividends ($0.41 per common share)

 

 

 

 

 
(316
)
 

 
(316
)
Balance at March 31, 2020
1,199

 
$

 
(429
)
 
$
(5,563
)
 
$
11,213

 
$
7,999

 
$
(628
)
 
$
13,021


 
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, 2018
1,192

 
$

 
(429
)
 
$
(5,563
)
 
$
10,963

 
$
6,593

 
$
(601
)
 
$
11,392

Components of comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
447

 

 
447

Other comprehensive loss

 

 

 

 

 

 
(1
)
 
(1
)
Issuance of common stock pursuant to employee stock options
2

 

 

 

 
30

 

 

 
30

Issuance of common stock pursuant to restricted stock units
2

 

 

 

 

 

 

 

Restricted stock surrendered for employees’ tax liability
(1
)
 

 

 

 
(45
)
 

 

 
(45
)
Share-based compensation expense related to employee stock options and restricted stock units

 

 

 

 
56

 

 

 
56

Dividends ($0.37 per common share)

 

 

 

 

 
(283
)
 

 
(283
)
Balance at March 31, 2019
1,195

 
$

 
(429
)
 
$
(5,563
)
 
$
11,004

 
$
6,757

 
$
(602
)
 
$
11,596

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

8


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 (“PC”s), and mobile devices. We also operate esports leagues and offer digital advertising within our content. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination by and among the Company (then known as Activision, Inc.), Vivendi S.A, and Vivendi Games, Inc., pursuant to which we acquired Blizzard Entertainment, Inc. (“Blizzard”), we were renamed Activision Blizzard, Inc. On February 23, 2016, we acquired King Digital Entertainment plc, a leading interactive mobile entertainment company ("King"), by purchasing all of its outstanding shares.
 
Our Segments

Based upon our organizational structure, we conduct our business through three reportable segments, as follows:
 
(i) Activision Publishing, Inc.
 
Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and entertainment content, particularly for the console platform. Activision primarily delivers content through retail and digital channels, including full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products primarily based on our internally developed intellectual properties. Activision also includes the activities of the Call of Duty LeagueTM, a global professional esports league with city-based teams.

Activision’s key product franchise is Call of Duty®, a first-person action title for the console and PC platforms and, following the October 1, 2019 launch of Call of Duty: Mobile, the mobile platform, including for Google Inc.’s (“Google”) Android and Apple Inc.’s (“Apple”) iOS.

(ii) Blizzard Entertainment, Inc.
 
Blizzard is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retail and digital channels, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. Blizzard also includes the activities of the Overwatch LeagueTM, a global professional esports league with city-based teams.

Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game for the PC platform; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; and Overwatch®, a team-based first-person action title for the PC and console platforms.

(iii) King Digital Entertainment
 
King is a leading global developer and publisher of interactive entertainment content and services, primarily for the mobile platform, including for Google’s Android and Apple’s iOS. King also distributes its content and services on the PC platform, primarily via Facebook. King’s games are free to play; however, players can acquire in-game items, either with virtual currency or real currency, and we continue to focus on in-game advertising as a growing source of additional revenue.
King’s key product franchise is Candy Crush™, which features “match three” games for the mobile and PC platforms.


9


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 Securities and Exchange Commission 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, 2019.
 
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. Generally, making these estimates and developing our assumptions requires consideration of forecasted information, which, in context of the COVID-19 pandemic, involves additional uncertainty. While there was no material impact to our estimates in the current period, in future periods, facts and circumstances (including, without limitation, the impact of the ongoing global COVID-19 pandemic) could change and impact our estimates. Additionally, actual results could differ from these estimates and assumptions. 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.

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated.

Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Supplemental Cash Flow Information

As of March 31, 2020 and 2019, we had the following amounts associated with investing and financing activities recorded within “Accrued expenses and other liabilities”:

dividends payable of $316 million and $283 million, respectively; and
accrued withholding tax payments related to net share settlements on restricted stock units of $12 million and $40 million, respectively.

The beginning and ending cash and cash equivalents and restricted cash reported within our condensed consolidated statement of cash flows included restricted cash amounts as follows (amounts in millions):

 
At March 31,
 
2020
 
2019
Beginning restricted cash
$
4

 
$
4

Ending restricted cash
4

 
4




10


2.    Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Cloud Computing Arrangements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance related to a customer’s accounting for implementation costs incurred in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance requires customers to capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs associated with the arrangement. We adopted the new standard under a prospective approach during the first quarter of 2020 and it did not have a material impact on our condensed consolidated financial statements.

Goodwill

In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by (1) comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying amount and (2) recognizing an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We adopted the new standard under a prospective approach during the first quarter of 2020 and it did not have a material impact on our condensed consolidated financial statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued new guidance related to accounting for credit losses on financial instruments. The update replaces the existing incurred loss impairment model under current GAAP with a methodology that reflects a current expected credit losses model which requires the use of historical and forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will generally result in earlier recognition of credit losses. We adopted the new standard under a modified retrospective basis, with the cumulative effect of adoption recorded as an adjustment to retained earnings during the first quarter of 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued new guidance which is intended to simplify various aspects of accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for recognizing deferred taxes for investments, performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends certain areas of existing guidance to reduce complexity and improve consistency in the application of Topic 740. The new standard is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Generally, the topics must be applied prospectively upon adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective basis. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

3.    Software Development and Intellectual Property Licenses
 
The following table summarizes the components of our capitalized software development costs (amounts in millions):

 
At March 31, 2020
 
At December 31, 2019
Internally-developed software costs
$
354

 
$
345

Payments made to third-party software developers
29

 
31

Total software development costs
$
383

 
$
376



11


 
As of both March 31, 2020 and December 31, 2019, 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,
 
 
2020
 
2019
Amortization of capitalized software development costs and intellectual property licenses
 
$
83

 
$
110


 
4.    Intangible Assets, Net
 
Intangible assets, net, consist of the following (amounts in millions):
 
 
At March 31, 2020
 
Estimated useful lives
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Acquired definite-lived intangible assets:
 
 
 
 
 

 
 

 
 

Internally-developed franchises
3
-
11 years
 
$
1,154

 
$
(1,116
)
 
$
38

Developed software
2
-
5 years
 
601

 
(599
)
 
2

Trade names
7
-
10 years
 
54

 
(31
)
 
23

Other
1
-
15 years
 
19

 
(17
)
 
2

Total definite-lived intangible assets
 
 
 
 
$
1,828

 
$
(1,763
)
 
$
65

 
 
 
 
 
 
 
 
 
 
Acquired indefinite-lived intangible assets:
 
 
 
 
 

 
 

 
 

Activision trademark
Indefinite
 
 

 
 

 
386

Acquired trade names
Indefinite
 
 

 
 

 
47

Total indefinite-lived intangible assets
 
 
 
 
 

 
 

 
$
433

Total intangible assets, net
 
 
 
 
 
 
 
 
$
498


 
At December 31, 2019
 
Estimated useful lives
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Acquired definite-lived intangible assets:
 
 
 
 
 

 
 

 
 

Internally-developed franchises
3
-
11 years
 
$
1,154

 
$
(1,105
)
 
$
49

Developed software
2
-
5 years
 
601

 
(579
)
 
22

Trade names
7
-
10 years
 
54

 
(30
)
 
24

Other
1
-
15 years
 
19

 
(16
)
 
3

Total definite-lived intangible assets
 
 
 
 
$
1,828

 
$
(1,730
)
 
$
98

 
 
 
 
 
 
 
 
 
 
Acquired indefinite-lived intangible assets:
 
 
 
 
 

 
 

 
 

Activision trademark
Indefinite
 
 

 
 

 
386

Acquired trade names
Indefinite
 
 

 
 

 
47

Total indefinite-lived intangible assets
 
 
 
 
 

 
 

 
$
433

Total intangible assets, net
 
 
 
 
 
 
 
 
$
531



Amortization expense of our intangible assets was $33 million and $55 million for the three months ended March 31, 2020 and 2019, respectively.
 

12


At March 31, 2020, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):
 
For the years ending December 31,
 
2020 (remaining nine months)
$
42

2021
11

2022
7

2023
2

2024
1

Thereafter
2

Total
$
65


 
5.    Goodwill
 
The changes in the carrying amount of goodwill by reportable segment are as follows (amounts in millions):
 
Activision
 
Blizzard
 
King
 
Total
Balance at December 31, 2019
$
6,898

 
$
190

 
$
2,676

 
$
9,764

Other
(1
)
 

 

 
(1
)
Balance at March 31, 2020
$
6,897

 
$
190

 
$