Commitments and Contingencies

Commitments and Obligations

In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating lease agreements for our offices, for the development of products and for the rights to intellectual property. Under these agreements, we commit to provide specified payments to a lessor, developer or intellectual property holder, as the case may be, based upon contractual arrangements. The payments to third-party developers are generally conditioned upon the achievement by the developers of contractually specified development milestones. Further, these payments to third-party developers and intellectual property holders typically are deemed to be advances and, as such, are recoupable against future royalties earned by the developer or intellectual property holder based on sales of the related game. Additionally, in connection with certain intellectual property rights, acquisitions and development agreements, we commit to spend specified amounts for marketing support for the game(s) which is (are) to be developed or in which the intellectual property will be utilized. Assuming all contractual provisions are met, the total future minimum commitments for these and other contractual arrangements in place at December 31, 2017 are scheduled to be paid as follows (amounts in millions):



	Contractual Obligations (1)
	Facility and Equipment Leases		Developer and Intellectual Properties		Marketing		Long-Term Debt Obligations (2)		Total
For the years ending December 31,
2018	$	81	$	202	$	19	$	159	$	461
2019	70		2		—		159		231
2020	61		1		—		159		221
2021	48		—		—		1,790		1,838
2022	41		—		—		512		553
Thereafter	88		—		—		3,064		3,152
Total	$	389	$	205	$	19	$	5,843	$	6,456

(1)

We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of the potential issue resolution of the underlying matters. Specifically, either (a) the underlying positions have not been fully developed under audit to quantify at this time or, (b) the years relating to the matters for certain jurisdictions are not currently under audit. At December 31, 2017, we had $455 million and $495 million of net unrecognized tax benefits included in “Accrued expenses and other liabilities” and “Other liabilities,” respectively, in our consolidated balance sheet.

Additionally, as a result of the U.S. Tax Reform Act, we recorded a liability at December 31, 2017, of $467 million which reflects our estimated Transition Tax net payments. This provisional amount is subject to change as we collect and prepare the data necessary to finalize our calculations, interpret the U.S. Tax Reform Act and any additional guidance issued. The Transition Tax liability is payable over up to eight years and is not reflected in our Contractual Obligations table above. We expect to pay $77 million of the Transition Tax during 2018.

(2)

Long-term debt obligations represent our obligations related to the contractual principal repayments and interest payments under the 2017 TLA and the Notes as of December 31, 2017. There was no outstanding balance under our Revolver as of December 31, 2017. The Notes are subject to fixed interest rates and we have calculated the interest obligation based on the applicable rates and payment dates. The 2017 TLA bears a variable interest rate and interest is payable at least quarterly. We have calculated the expected interest obligation based on the outstanding principal balance and interest rate applicable at December 31, 2017. Refer to Note 11 for additional information on our debt obligations.

Legal Proceedings

As described in Note 15, on December 28, 2017, we received a Notice of Reassessment from the FTA related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million ($680 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and judicial remedies, if necessary. While we believe our tax provisions at December 31, 2017 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.

In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.

Purchase Transaction Matters

In prior periods, the Company reported on litigation related to the Purchase Transaction. During the period ended June 30, 2015, the cases were resolved and dismissed with prejudice. As part of the resolution of the claims, we received a settlement payment of $202 million in July 2015 from Vivendi, ASAC LP, and our insurers. We recorded the settlement within “Shareholders’ equity” in our consolidated balance sheet as of December 31, 2015.

Letters of Credit

As described in Note 11, a portion of our Revolver can be used to issue letters of credit of up to $50 million, subject to the availability of the Revolver. At December 31, 2017, we did not have any letters of credit issued or outstanding under the Revolver.