Playtika Holding Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA PLAYTIKA HOLDING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID# 1281 ) 83 Consolidated Balance Sheets 87 Consolidated Statements of Comprehensive Income 88 Consolidated Statements of Stockholders' Equity (Deficit) 89 Consolidated Statements of Cash Flows 90 Notes to Consolidated Financial Statements 92 - 131 82 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of PLAYTIKA HOLDING CORP. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Playtika Holding Corp. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion . Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 83 Impairment Test of Reworks Asset Group Description of the Matter As discussed in Note 1 to the consolidated financial statements, identifiable intangible assets that are subject to amortization are assessed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company identified triggering event and performed an impairment assessment with respect to Reworks asset group. The Company's evaluation of Reworks assets for potential impairment is measured at the asset group level by comparing the undiscounted projected future cash flows to the carrying amount of the asset group. Auditing the Company’s impairment test for identifiable intangible assets that are subject to amortization was complex and highly judgmental due to the significant estimation in management’s assumptions to calculate the undiscounted projected future cash flows of the assets group. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's impairment assessment for Reworks asset group. To test the Company’s impairment assessment for Reworks asset group, we performed audit procedures that included, among others, testing the significant assumptions, including the completeness and accuracy of the underlying data used by management in its analyses. We compared the significant assumptions used by management to current industry and economic trends and historical financial results. We involved our valuation specialists in evaluating the appropriateness of the undiscounted projected future cash flows of the assets group including evaluation of the terminal growth rate and performed sensitivity analyses related to significant assumptions. We also evaluated the Company’s disclosures included in Note 1 to the consolidated financial statements. /s/ KOST FORER GABBAY & KASIERER KOST FORER GABBAY & KASIERER A Member of EY Global We have served as the Company’s auditor since 2016. Tel-Aviv, Israel February 28, 2023 84 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of PLAYTIKA HOLDING CORP. Opinion on Internal Control Over Financial Reporting We have audited Playtika Holding Corp.'s internal control over financial reporting as of December 31, 2022, based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Playtika Holding Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 28, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on internal control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 85 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KOST FORER GABBAY & KASIERER KOST FORER GABBAY & KASIERER A Member of EY Global Tel-Aviv, Israel February 28, 2023 86 CONSOLIDATED BALANCE SHEETS (In millions, except for per share data) December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 768.7 $ 1,017.0 Short-term bank deposits — 100.1 Restricted cash 1.7 2.0 Accounts receivable 141.1 143.7 Prepaid expenses and other current assets 113.4 72.9 Total current assets 1,024.9 1,335.7 Property and equipment, net 125.7 103.3 Operating lease right-of-use assets 104.2 89.4 Intangible assets other than goodwill, net 354.0 417.3 Goodwill 811.2 788.1 Deferred tax assets, net 68.3 38.3 Investment in unconsolidated entities 52.6 17.8 Other non-current assets 156.7 13.4 Total assets $ 2,697.6 $ 2,803.3 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Current maturities of long-term debt $ 12.4 $ 12.2 Accounts payable 50.7 45.7 Operating lease liabilities, current 13.5 17.2 Accrued expenses and other current liabilities 385.2 494.6 Total current liabilities 461.8 569.7 Long-term debt 2,411.2 2,422.9 Contingent consideration — 28.7 Other long-term liabilities, including employee related benefits 252.1 23.7 Operating lease liabilities, long-term 94.5 82.3 Deferred tax liabilities 46.6 53.7 Total liabilities 3,266.2 3,181.0 Commitments and contingencies (Note 16) Stockholders' equity (deficit) Common stock of US $ 0.01 par value: 1,600.0 shares authorized; 363.6 and 411.1 shares issued and outstanding at December 31, 2022 and 2021, respectively 4.1 4.1 Treasury stock at cost ( 51.8 shares at December 31, 2022) ( 603.5 ) — Additional paid-in capital 1,155.8 1,032.9 Accumulated other comprehensive income 17.6 3.2 Accumulated deficit ( 1,142.6 ) ( 1,417.9 ) Total stockholders' deficit ( 568.6 ) ( 377.7 ) Total liabilities and stockholders’ deficit $ 2,697.6 $ 2,803.3 The accompanying notes are an integral part of these consolidated financial statements. 87 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except for per share data) Year ended December 31, 2022 2021 2020 Revenues $ 2,615.5 $ 2,583.0 $ 2,371.5 Costs and expenses Cost of revenue 735.7 729.0 712.2 Research and development 472.3 386.7 268.9 Sales and marketing 603.7 581.7 502.0 General and administrative 332.4 323.4 501.2 Total costs and expenses 2,144.1 2,020.8 1,984.3 Income from operations 471.4 562.2 387.2 Interest and other, net 110.6 153.8 192.8 Income before income taxes 360.8 408.4 194.4 Provision for income taxes 85.5 99.9 102.3 Net income 275.3 308.5 92.1 Other comprehensive income (loss) Foreign currency translation ( 13.7 ) ( 18.6 ) 19.6 Change in fair value of derivatives 28.1 5.1 — Total other comprehensive income (loss) 14.4 ( 13.5 ) 19.6 Comprehensive income $ 289.7 $ 295.0 $ 111.7 Net income per share attributable to common stockholders, basic $ 0.69 $ 0.75 $ 0.24 Net income per share attributable to common stockholders, diluted $ 0.69 $ 0.75 $ 0.24 Weighted-average shares used in computing net income per share attributable to common stockholders, basic 401.0 408.9 384.7 Weighted-average shares used in computing net income per share attributable to common stockholders, diluted 401.6 411.0 384.7 The accompanying notes are an integral part of these consolidated financial statements. 88 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (In millions) Share Capital Shares Amount Treasury stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings (deficit) Total stockholders’ equity (deficit) Balance as of January 1, 2020 378.0 $ 3.8 $ — $ 202.1 $ ( 2.9 ) $ ( 1,818.5 ) $ ( 1,615.5 ) Net income — — — — — 92.1 92.1 Stock-based compensation — — — 276.0 — — 276.0 Issuance of shares upon vesting of RSUs 13.1 0.1 — ( 0.1 ) — — — Income tax withholding related to vesting of restricted stock units and other — — — ( 15.7 ) — — ( 15.7 ) Other comprehensive income — — — — 19.6 — 19.6 Balance as of December 31, 2020 391.1 3.9 — 462.3 16.7 ( 1,726.4 ) ( 1,243.5 ) Net income — — — — — 308.5 308.5 Issuance of common stock in the IPO, net of underwriting commission and offering costs 18.5 0.2 — 467.5 — — 467.7 Stock-based compensation — — — 103.1 — — 103.1 Issuance of shares upon vesting of RSUs 1.5 * — (*) — — — Other comprehensive loss — — — — ( 13.5 ) — ( 13.5 ) Balance as of December 31, 2021 411.1 4.1 — 1,032.9 3.2 ( 1,417.9 ) ( 377.7 ) Net income — — — — — 275.3 275.3 Repurchase of common stock ( 51.8 ) — ( 603.5 ) — — — ( 603.5 ) Stock-based compensation — — — 125.5 — — 125.5 Issuance of shares upon vesting of RSUs 4.3 * — (*) — — — Income tax withholding related to vesting of restricted stock units and other — — — ( 2.6 ) — — ( 2.6 ) Other comprehensive income — — — — 14.4 — 14.4 Balance as of December 31, 2022 363.6 $ 4.1 $ ( 603.5 ) $ 1,155.8 $ 17.6 $ ( 1,142.6 ) $ ( 568.6 ) _________ * Represents an amount less than 0.1 or $ 0.1 The accompanying notes are an integral part of these consolidated financial statements. 89 CONSOLIDATED STATEMENT OF CASH FLOWS (In millions) Year ended December 31, 2022 2021 2020 Cash flows from operating activities Net income $ 275.3 $ 308.5 $ 92.1 Adjustments to reconcile net income to net cash from operating activities: Depreciation 45.9 42.5 37.6 Amortization of intangible assets 116.1 103.0 81.6 Stock-based compensation 123.5 100.4 276.0 Change in deferred taxes, net ( 46.0 ) ( 72.7 ) ( 13.1 ) Amortization and write-off of loan discount 7.4 31.5 15.3 Change in contingent consideration ( 13.1 ) ( 5.0 ) 17.4 Capital gain from sale of investment — ( 1.2 ) — Loss (gain) from foreign currency 8.8 ( 0.2 ) ( 10.0 ) Non-cash lease expenses ( 6.2 ) 0.2 5.1 Changes in operating assets and liabilities: Accounts receivable 1.0 ( 7.5 ) ( 1.7 ) Prepaid expenses and other current and non-current assets ( 142.0 ) 28.8 ( 21.7 ) Accounts payable 5.7 5.9 ( 20.2 ) Accrued expenses and other current and non-current liabilities 117.3 17.5 59.3 Net cash provided by operating activities 493.7 551.7 517.7 Cash flows from investing activities Purchase of property and equipment ( 68.3 ) ( 47.4 ) ( 54.1 ) Capitalization of internal use software costs ( 30.1 ) ( 33.1 ) ( 33.3 ) Purchase of software for internal use ( 11.6 ) ( 19.1 ) ( 10.7 ) Payments for business combination, net of cash acquired ( 29.9 ) ( 394.1 ) — Proceeds from short-term bank deposits 100.1 — — Investment in short-term bank deposits — ( 100.0 ) — Investments in unconsolidated entities ( 34.8 ) ( 17.8 ) — Other investing activities — 2.1 — Net cash used in investing activities ( 74.6 ) ( 609.4 ) ( 98.1 ) Cash flows from financing activities Proceeds from bank borrowings, net — 887.7 — Repayments on bank borrowings ( 19.0 ) ( 965.3 ) — Proceeds from issuance of unsecured notes, net — 178.9 — Proceeds from issuance of common stock, net — 470.4 ( 2.4 ) Payment of debt issuance costs — ( 12.0 ) — Borrowings under revolving credit facility — — 250.0 Repayment of term loan and revolving credit facility — — ( 408.3 ) Payment for tender offer ( 603.5 ) — — Payment of tax withholdings on stock-based payments ( 2.6 ) — ( 15.7 ) Net cash out flow for business acquisitions and other ( 26.9 ) — ( 4.9 ) Net cash provided by (used in) financing activities ( 652.0 ) 559.7 ( 181.3 ) Effect of exchange rate changes on cash and cash equivalents ( 15.7 ) ( 6.6 ) 13.3 Net change in cash, cash equivalents and restricted cash ( 248.6 ) 495.4 251.6 Cash, cash equivalents and restricted cash at the beginning of the period 1,019.0 523.6 272.0 Cash, cash equivalents and restricted cash at the end of the period $ 770.4 $ 1,019.0 $ 523.6 90 Year ended December 31, 2022 2021 2020 Supplemental cash flow disclosures Cash paid for income taxes $ 160.7 $ 102.3 $ 81.1 Cash paid for interest $ 107.5 $ 93.9 $ 182.4 Cash received for interest $ 13.5 $ 0.5 $ 1.7 Non-cash financing and investing activities Right-of-use assets from operating leases $ 44.9 $ 41.0 $ 30.0 Capitalization of stock-based compensation costs $ 2.0 $ 2.7 $ — Contingent consideration related to business acquisition $ 11.4 $ 33.7 $ — Accrued offering costs $ — $ — $ 2.6 The accompanying notes are an integral part of these consolidated financial statements. 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, unless specified otherwise) NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business and organization Playtika Holding Corp. (“Playtika”) and its subsidiaries (together with Playtika, the “Company”) is one of the world’s leading developers of mobile games creating fun, innovative experiences that entertain and engage its users. It has built best-in-class live game operations services and a proprietary technology platform to support its portfolio of games which enable it to drive strong user engagement and monetization. The Company’s games are free-to-play, and the Company seeks to provide novel, curated in-game content and offers to its users, at optimal points in their game journeys to drive user engagement and monetization. As of December 31, 2022, the Company had operations in Argentina, Australia, Austria, Belarus, Finland, Germany, India, Israel, Poland, Romania, Switzerland, Ukraine, the United Kingdom and the United States. Basis of presentation and consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include Playtika and all subsidiaries in which the Company has a controlling financial interest. Control generally equates to ownership percentage, whereby (i) affiliates that are more than 50% owned are consolidated; (ii) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where the Company has determined that it has significant influence over the entities; and (iii) investments in affiliates of 20% or less are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In the opinion of management, all adjustments considered necessary for a fair presentation have been recorded within the accompanying financial statements, consisting of normal, recurring adjustments, and all intercompany balances and transactions have been eliminated in the consolidation. Out of period correction In connection with the Company’s review of its uncertain tax positions, the Company noted that it had improperly netted uncertain tax benefits in certain jurisdictions with uncertain tax liabilities in other jurisdictions. The improper netting of unrecognized tax liabilities and unrecognized tax assets resulted in the Company not properly evaluating its unrecognized tax assets, particularly in instances where evaluating on a gross-balance basis would have resulted in an increase to the net unrecognized tax assets. The Company further noted that its uncertain tax benefit calculated for one of its uncertain tax positions in the United States did not properly consider the provisions of the global intangible low-tax income (“GILTI”) rules. The Company has recorded tax benefit of $ 1.4 million for the year ending December 31, 2022 that, had it been booked properly, would have been recorded in prior periods. In addition, unrecognized tax assets and tax liabilities are presented on a long-term gross balance basis as of December 31, 2022. As the balance sheet as of December 31, 2021 continues to present such balances on a current net-balance basis, such amounts are not comparable. See Note 21, Income Taxes for further disclosures. Management has determined that these errors were not material to any of its previously issued financial statements, individually or in the aggregate. Investment in unconsolidated entities The Company holds certain equity investments in various unconsolidated entities that, based upon the structure of the investment, are not within the scope of equity method investment accounting that would lead to the consolidation conclusions above. Instead, these investments fall within the scope of ASC 321, Investments - Equity Securities. As permitted within that guidance, the Company has elected to account for these investments at cost less impairment, adjusted for changes in fair value from observable transactions for identical or similar investments of the same issuer as of the respective transaction dates. No change to the carrying amounts were recorded in the years ended December 31, 2022 or 2021. 92 Use of estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial statements in United States dollars The currency of the primary economic environment in which the operations of Playtika and certain subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of Playtika and certain subsidiaries. Playtika and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with ASC 830, Foreign Currency Matters . All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of comprehensive income as financial income or expenses, as appropriate. For those consolidated subsidiaries whose functional currency has been determined to be a non-dollar currency, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income in stockholders' equity (deficit). Concentration of credit risk and significant customers Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term bank deposits, restricted cash, accounts receivable and derivative contracts. The Company’s investment policy imposes certain maturity limits on the Company’s portfolio and restricts the permitted investments to the purchase of bank deposits and highly rated fixed income securities. Apple, Facebook and Google are significant distribution, marketing, promotion and payment platforms for the Company's games. A significant portion of the Company’s revenues has been generated from players who accessed the Company's games through these platforms. Therefore, the Company's accounts receivable are derived mainly from sales through these three platforms. The Company performs ongoing credit evaluations of its customers. The following table summarizes the major accounts receivable of the Company as a percentage of the total accounts receivable as of the dates indicated: December 31, 2022 2021 % Apple 43 42 Google 35 34 Facebook 7 8 Accounts receivable are recorded at their transaction amounts and do not bear interest. The Company bases its allowance for doubtful accounts on management's best estimate of the amount of probable credit losses in the Company's existing accounts receivable based on historical collection experience and current and expected future economic and market conditions. 93 Cash and cash equivalents and Short-term bank deposits The Company classifies its debt securities as available-for-sale (“AFS”). AFS debt securities are carried at fair value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses on sale of investments are included in Interest and other, net on the statements of comprehensive income and are derived using the specific identification method for determining the cost of securities sold. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization together with interest on securities is included in Interest and other, net. Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase and are stated at the lower of cost or market value. Cash equivalents include investments in term deposits, commercial papers and money market funds that can be redeemed immediately at the current net asset value. Investments with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximates fair market value. Restricted cash Restricted cash primarily consists of deposits to secure obligations under the Company's operating lease agreements and to secure company-issued credit cards . Property and equipment, net The Company states property and equipment at cost. The Company computes depreciation using the straight-line method over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the lease term of the respective assets, whichever is shorter. The Company examines fully depreciated assets annually and writes off those no longer in use. The depreciation periods for the Company's property and equipment are as follows: Useful life Computers and peripheral equipment 3 to 5 years Office furniture and equipment 4 to 14 years Vehicles and aircraft 3 to 7 years Leasehold improvements Shorter of the estimated useful life or remaining term of lease Software development costs The Company reviews internal use software development cost associated with infrastructure and new games or significant updates to existing games to determine if the costs qualify for capitalizing. The development costs incurred during the application development stage that are related to infrastructure are capitalized. Internal use software is included in intangible assets other than goodwill, net in the accompanying consolidated balance sheets. Capitalization of such costs begins when the preliminary project stage is completed and ceases at the point in which the project is substantially complete and is ready for its intended purpose. With respect to new games or updates to existing games, the preliminary project stage remains ongoing until just prior to worldwide launch. The development costs of new games or updates to existing games are expensed as incurred to research and development in the consolidated statements of comprehensive income. Capitalized internal use software costs were approximately $ 32.1 million, $ 35.5 million and $ 33.3 million during the years ending December 31, 2022, 2021 and 2020, respectively. The estimated useful life of costs capitalized is generally three years . During the years ended December 31, 2022, 2021 and 2020, the amortization of capitalized software costs totaled approximately $ 25.0 million, $ 21.8 million and $ 8.9 million, respectively. 94 Business combination The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to future expected cash flows from acquired technology and acquired trademarks and user base from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Goodwill Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350, Intangible - Goodwill and Other ("ASC 350"), goodwill is not amortized, but rather is subject to an annual impairment test. The Company tests goodwill for impairment as of October 1st of each year, or more frequently if events or changes in circumstances indicate that this asset may be impaired. For the purposes of impairment testing, the Company has determined that it has one reporting unit. When performing the annual goodwill impairment testing, the Company either conducts a qualitative assessment to determine whether it is more likely than not that the asset is impaired, or elects to bypass this qualitative assessment and perform a quantitative test for impairment. Under the qualitative assessment, the Company considers both positive and negative factors, including macroeconomic conditions, industry events, financial performance and other changes, and makes a determination of whether it is more likely than not that the fair value of goodwill is less than its carrying amount. If, after assessing the qualitative factors, the Company determines it is more likely than not the asset is impaired, it then performs a quantitative test in which the estimated fair value of the reporting unit is compared with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to the excess, limited to the amount of goodwill allocated to the reporting unit. Intangible assets other than goodwill, net Intangible assets other than goodwill are amortized over their estimated useful lives using the straight-line method, using the following ranges of useful lives: Useful life Developed games and acquired technology 1 to 10 years Trademarks and user base 1 to 5 years Internal use software 3 years Impairment of long-lived assets The Company’s long-lived assets to be held or used, including right-of-use (“ROU”) assets, and identifiable intangible assets that are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Impairment indicators include any significant changes in the manner of the Company’s use of the assets and significant negative industry or economic trends. The Company recognizes impairment based on the difference between the fair value of the asset and its carrying value. Fair value is generally measured based on either quoted market prices, if available, or a discounted cash flow analysis. 95 Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset, an impairment charge is recorded for the excess of the carrying amount over fair value. Leases The Company is the lessee under non-cancelable office real estate and data center leases. The Company accounts for its leases under ASU No. 2016-02, Leases (Topic 842) . Operating lease ROU assets and liabilities are recognized at the commencement date and initially measured based on the present value of lease payments and lease incentives received over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s real estate lease agreements and data center leases do not contain any material residual value guarantees, restrictions or covenants. The Company’s lease agreements with lease and non-lease components are accounted for separately. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based upon the capital structure of the Company and upon the other information available at the lease commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also include any prepaid lease payments made and are net of lease incentives. The Company does not record an asset or liability for operating leases with a term of 12 months or less. Revenue recognition The Company primarily derives revenue from the sale of virtual items associated with online games. The Company distributes its games to the end customer through various web and mobile platforms such as Apple, Facebook, Google, and other web and mobile platforms. Through these platforms, users can download the Company’s free-to-play games and can purchase virtual currency which is redeemed in the game for virtual goods, or players can purchase virtual goods directly (collectively referred to as virtual items) to enhance their game-playing experience. The initial download of the games does not create a contract under ASC 606, Revenue from Contracts with Customers ; however, the separate election by the player to make an in-application purchase satisfies the ASC 606 criterion for creating a contract. Players can pay for their virtual item purchases through various widely accepted payment methods offered in the games. Payments from players for virtual items are required at the time of purchase, are non-refundable and relate to non-cancellable contracts that specify the Company’s obligations and cannot be redeemed for cash nor exchanged for anything other than virtual items within the Company’s games. The purchase price is a fixed amount which reflects the consideration that the Company expects to be entitled to receive in exchange for use of virtual items by its customers. The platform providers collect proceeds from the game players and remit the proceeds to the Company after deducting their respective platform fees. The Company is primarily responsible for providing the virtual items, has control over the content and functionality of games and has the discretion to establish the virtual items’ prices. Therefore, the Company is the principal and, accordingly revenues are recorded on a gross basis. Payment processing fees paid to platform providers are recorded within cost of revenue. The Company’s performance obligation is to display the virtual items within the game over the estimated life of the paying player or until the virtual item is consumed in game play based upon the nature of the virtual item. The Company categorizes its virtual items as either consumable or durable. The substantial majority of the Company’s games sell only consumable virtual items. Consumable virtual items represent items that can be consumed by a specific player action and do not provide the player any continuing benefit following consumption. For the sale of consumable virtual items, the Company recognizes revenue as the items are consumed which is usually over a period of time of up to one month. The Company has determined through a review of game play behavior that players generally do not purchase additional virtual currency until their existing virtual currency balances have been substantially consumed. This review, performed on a game-by-game basis, includes an analysis of game players’ historical play behavior, purchase behavior, and the amount of virtual 96 currency outstanding. Based upon this analysis, the Company has estimated the rate at which virtual currency is consumed during game play. Accordingly, revenue is recognized using a user-based revenue model using these estimated consumption rates. The Company monitors its analysis of customer play behavior on a quarterly basis. Durable virtual items represent items that are accessible to the player over an extended period of time. The Company recognizes revenue from the sale of durable virtual items ratably over the estimated average life of the paying player, which is estimated on a individual game basis and generally ranges from eleven to thirteen months . The Company estimates the average life of the paying player based on historical paying player patterns and playing behaviors within each of the specific games that offer durable virtual items. The Company monitors its operational data and player patterns and re-assesses its estimates on a quarterly basis. Deferred revenues, which represent a contract liability, represent mostly unrecognized fees collected for virtual items which are not consumed at the balance sheets date, or for players that are still active in the games. Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. The Company also has relationships with certain advertising service providers for advertisements within its games and revenue from these advertising providers is generated through impressions, clickthroughs, banner ads and offers. The Company has determined that displaying the advertisements within the mobile games is identified as a single performance obligation. The transaction price in advertising arrangements is established by our advertising service providers and is generally the product of the number of advertising units delivered (e.g. impressions, offers completed, etc.) and the contractually agreed upon price per unit. Revenue from advertisements and offers are recognized at a point-in-time when the advertisements are displayed in the game or the offer has been completed by the user as the customer simultaneously receives and consumes the benefits provided from these services. The Company has determined that it is generally acting as an agent in its advertising arrangements as the advertising service providers maintain the relationship with the customers, control the pricing of the advertising such that the Company does not know the total price paid by the customer to the service providers, and control the advertising product through the time the advertisements are displayed in our games. Therefore, the Company recognizes revenue related to these arrangements on a net basis. Advertising expenses Costs for marketing and advertising of the Company’s games are primarily expensed as incurred and are included in the sales and marketing expenses in the Company’s consolidated statements of comprehensive income. Such costs primarily consist of player acquisition costs. Advertising expense was $ 464.6 million, $ 457.8 million and $ 408.5 million in the years ended December 31, 2022, 2021 and 2020, respectively. Stock-based compensation expense The Company has a stock-based compensation program which provides for equity awards including time-based stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period for options and RSUs and on an accelerated basis for PSUs. The Company records forfeitures as a reduction of stock-based compensation expense as those forfeitures occur. The Company used the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with stock options. As it does not have a long history of market prices for its common stock because the stock was not publicly traded prior to January 2021, the Company used observable data for a group of peer companies that grant options with substantially similar terms to assist in developing its volatility assumptions. The expected volatility of the stock was determined using weighted average measures of the implied volatility and the historical volatility for the Company’s peer group of companies for a period equal to the expected life of the options. The weighted-average risk-free interest rates were based on the interest rates for U.S. Treasury bonds. The expected term assumptions were derived using the simplified method, which is based on an average between each vesting date and the expiration date of an option. This method was chosen because there was no historical option exercise experience due to the Company being privately held. The Company 97 does not anticipate paying cash dividends on its shares of common stock in the future. The stock options have a contractual term of 10 years. Except as otherwise provided in an option agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. If factors change and the Company employs different assumptions, stock-based compensation cost on future awards may differ significantly from what the Company has recorded in the past. Higher volatility and longer expected terms result in an increase to stock-based compensation determined at the date of grant. Future stock-based compensation cost and unrecognized stock-based compensation will increase to the extent that the Company grants additional equity awards to employees or assumes unvested equity awards in connection with acquisitions. If there are any modifications or cancellations of the underlying unvested equity awards, the Company may be required to accelerate any remaining unearned stock-based compensation cost or incur incremental cost. The Company uses the associated per-share value at the time of grant to determine the compensation cost to be recognized associated with RSUs and PSUs granted. The Company reviews the estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant quarterly, or more frequently if events or changes in circumstances indicate there may be a change, and adjusts the stock compensation expense accordingly. For RSUs, shares are issued on the vesting dates net of the applicable statutory income tax withholding to be paid by the Company on behalf of its employees. As a result, fewer shares are generally issued than the number of RSUs outstanding, and the income tax withholding is recorded as a reduction to additional paid-in capital. The Company’s stock-based compensation expense is recorded in the financial statement line item relevant to each of the award recipients. See Note 13, Equity Transactions and Stock Incentive Plan, for additional discussion. Significant factors, assumptions, and methodologies used in estimating fair value of equity prior to the IPO Prior to its initial public offering of equity in January 2021, the Company, with the assistance of third-party valuation experts, used a combination of the income approach (the discounted cash flow method) and the market approach (a combination of the guideline public company method and the guideline transaction method) to estimate its equity value in connection with its stock-based compensation program discussed in Note 13, Equity Transactions and Stock Incentive Plan . The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenue and costs. The guideline transaction method estimates the value of a company by applying valuation multiples paid in actual transactions for comparable public and private companies. The values derived under the market and income approaches were used to determine an initial estimated fair market value of the Company’s equity. The initial estimated value was then subjected to a discount for the lack of marketability based on the impediments to liquidity as a result of the Company’s previous status as a private company, including the lack of publicly available information and the lack of a trading market. Subsequent to the Company’s initial public offering of equity in January 2021, the Company uses the public trading price of its common stock on the Nasdaq stock exchange as the basis for determining the fair market value for its common stock for purposes of its stock based compensation expense. There is inherent uncertainty in the Company’s forecasts and projections, and if different assumptions and estimates had been made than those described above, the amount of the equity valuation and stock-based compensation expense could have been materially different. Income taxes The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences will reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is more likely than not 98 to be realized. Deferred tax assets and deferred tax liabilities are presented under long-term assets and long-term liabilities, respectively. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more likely than not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards expiring unused and tax planning alternatives. The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50 % (cumulative basis) likely to be realized upon ultimate settlement. The Tax Cuts and Jobs Act (“TCJA”) subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. We can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into the measurement of deferred taxes. We elected to account for the income tax effects of GILTI as a “period cost,” or an income tax expense in the year the tax is incurred. The Company classifies interest and penalties on income taxes (which includes uncertain tax positions) as taxes on income. See Note 21, Income Taxes, for additional discussion. Employee related benefits Appreciation and retention plan In September 2016, the Company adopted the Playtika Holding Corp. Retention Plan (the “2017-2020 Plan”). According to the 2017-2020 Plan, appreciation unit awards were granted to selected eligible employees. These units provided the right to receive cash payments for each of the years 2017 through 2020 as a percentage (between 1.5 % - 2 %) of the Company's estimated appreciation in value in excess of $ 4.4 billion. The value of each appreciation unit was calculated based on the Company's Retention Plan Adjusted EBITDA (as agreed in the 2017-2020 Plan) multiplied by an agreed multiplier. In addition, an annual retention bonus for each of the four years in the 2017-2020 Plan, in the amount of $ 25 million was distributed to selected eligible employees of the 2017-2020 Plan. The value of each unit of the 2017-2020 Plan was amortized into compensation expense using the graded-vesting method, which resulted in the recognition of compensation costs over the requisite service period for each separately vesting tranche of the units as though the units were, in substance, multiple units awards. In August 2019, the Company adopted the Playtika Holding Corp. Retention Plan (the “2021-2024 Retention Plan”) in order to retain key employees and reward them for contributing to the success of the Company. Under the 2021-2024 Retention Plan, eligible employees may be granted retention units that let them receive their pro rata portion of a retention pool of $ 25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Retention Plan Adjusted EBITDA for each of the plan years as described further in Note 19, Appreciation and Retention Plans . The value of each unit of the 2021-2024 Retention Plan is being amortized into compensation expense using the straight-line method, which will result in the recognition of compensation costs in the same years as the underlying EBITDA used in the plan measurement is earned. 99 Severance pay The liability for the Company’s employees in Israel in respect of severance pay is calculated in accordance with Section 14 of the Severance Pay Law 5723-1963 ("Section 14"). Section 14 states that Company's contributions for severance pay shall be in lieu of severance compensation. Upon deposit of the related obligation for the employee under Section 14, no additional obligations shall be conducted between the parties regarding the matter of severance pay and no additional payments are required to be made by the Company to the employee. Expense resulting from contributions in accordance with Section 14 for the years ended December 31, 2022, 2021 and 2020 was $ 8.5 million, $ 7.1 million and $ 5.7 million, respectively. Exit or disposal activities The Company accounts for exit or disposal cost obligations, including restructuring activities, under ASC 420-10, Exit or Disposal Cost Obligations , which requires that companies only record liabilities for such activities when such liabilities have been incurred. During the second quarter of 2022, the Company announced the closure of its Montreal, Los Angeles, Helsinki and London studios, along with limited other cost reduction activities. Severance payments associated with these closures are being recorded as liabilities and recognized as expense over the period such payments are earned. During the fourth quarter of 2022, the Company reduced its workforce by approximately ten percent. Severance liabilities associated with this reduction in force were recorded as the reduction in force was completed. Total severance expense for the year ended December 31, 2022, for both the site closures and the reduction in force totaled approximately $ 16.4 million, included within operating expenses on the consolidated statements of comprehensive income, of which $ 10.1 million is accrued in accrued expenses and other current liabilities at December 31, 2022. The Company concluded that certain announced activities, including the above, were triggering events for potential impairment under ASC 360, Property, Plant, and Equipment , and therefore assessed the associated asset groups for impairment. Based upon this assessment, the Company determined that no impairment was required. The recoverable amount for the Seriously Holding Corp. assets was significantly above the carrying value of the associated assets, while the recoverable amount for the Reworks Oy (“Reworks”) assets exceed the book value by a relatively small margin. Thus, to the extent the financial results at Reworks deteriorate further in the near future, discount rates increase significantly, or the Company does not meet its projected performance, the Company could have impairments to record in the next twelve months, and such impairments could be material. Derivative instruments The Company uses interest rate swap contracts to reduce its exposure to fluctuating interest rates associated with the Company’s variable rate debt, and to effectively increase the portion of debt upon which the Company pays a fixed interest rate. The Company’s interest rate swap agreements are designated as cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”), involving the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional amount. These hedges are highly effective in offsetting changes in the Company’s future expected cash flows due to the fluctuation of the USD benchmark rate associated with its variable rate debt. The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively. The Company performed a regression analysis at inception of the hedging relationship and at period end in which it compared the change in the fair value of the swap transactions and the change in fair value of a hypothetical interest rate swap having terms that identically match the terms of the debt's interest rate payments based on at least 30 observations that are based on historical swap rates. Based on the regression results, the Company believes that, at inception and at period end, the hedging instrument is expected to be highly effective at offsetting changes in the hedged transactions attributable to the risk being hedged. For each future reporting period, the Company will continue performing retrospective and prospective assessments of hedge effectiveness in a single regression analysis by updating the regression analysis that was prepared at inception of the hedging relationship. 100 The Company uses foreign currency derivative contracts to reduce its exposure to fluctuating exchange rates between the United States dollar (as the Company’s functional currency) and certain expense lines denominated in Israeli Shekels (“ILS”), Polish Zloty (“PLN”) and Romanian Leu (“RON”). The Company’s derivative contracts are designated as cash flow hedges under ASC 815. The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively, and expects these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates. See Note 14, Derivative Instruments, for additional discussion. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in other comprehensive income on the consolidated statements of comprehensive income until the future underlying transactions occur. The fair value approximates the amount the Company would pay or receive if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s interest rate swap agreements are categorized as Level 2 in the fair value hierarchy as established by ASC 820, Fair Value Measurement (“ASC 820”). The inputs used to measure the fair value of the Company’s foreign currency derivative contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. Fair value of financial instruments The Company accounts for fair value in accordance with ASC 820. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three tier hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 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. The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The carrying value of accounts receivable and payables and the Company's cash and cash equivalents, short-term bank deposits and restricted cash, approximates fair value due to the short time to expected payment or receipt of cash. Net income per share attributable to common stockholders For all periods presented herein, basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. Performance Stock Units (“PSUs”) are considered potentially dilutive as of the first day of the reporting period in which the underlying performance metric is achieved. The performance metrics for the PSUs related to 2022 performance metrics were considered fulfilled as of December 31, 2022. In the event of a loss, diluted shares are not considered because of their anti-dilutive effect. The Company uses the treasury stock method on a grant-by-grant basis as the method for determining the dilutive effect of options, RSUs and PSUs. Under this method, it is assumed that the hypothetical proceeds received upon settlement are used to repurchase common shares at the average market price during the period. Recently issued accounting standards not yet adopted by the Company In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805). ASU 2021-08 requires that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in 101 accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) and that at the acquisition date, the acquirer accounts for related revenue contracts in accordance with ASC 606 as if it had originated the contracts. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 484 (“ASU 2022-06”) . The amendments of ASU No. 2020-06 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company will continue to monitor the effects of rate reform, if any, on its contracts. The Company does not anticipate the amendments in 2022-06 to be material to its consolidated financial statements upon adoption. NOTE 2. BUSINESS COMBINATIONS Acquisition of Reworks OY On August 31, 2021, the Company entered into a Share Sale and Purchase Agreement (“SPA”) pursuant to which the Company (i) acquired 80 % of all issued and registered shares and options (“Share Capital”) of Reworks Oy, a limited liability company incorporated under the laws of Finland (“Reworks”) in exchange for cash consideration of $ 400 million, subject to customary closing adjustments, and (ii) will acquire the remaining 20 % of the Share Capital for additional cash consideration (“Earnout Payment”) in an amount to be determined based on certain performance metrics during the calendar year 2022. The Earnout Payment will be calculated based on the amount of “Company EBITDA” (as defined in the SPA) in calendar year 2022 in excess of $ 10.3 million multiplied by 6.0 , not to exceed $ 200 million, as further described in the SPA. In the event “Company EBITDA” (as defined in the SPA) is $ 10.3 million or less, the Earnout Payment will be $ 1 . The acquisition was accounted for as a business combination with the Company consolidating Reworks subsequent to the August 31, 2021 closing date. The assets acquired and liabilities assumed have been recognized at their estimated fair values at the acquisition date, the determination of which was completed in the fourth quarter of 2021 and there were no material adjustments. The goodwill, which is non-deductible for tax purposes, is generally attributable to synergies between the Company's and Reworks' respective studio operations and apps. The acquisition date fair value of the Earnout Payment was estimated by management, with the assistance of third-party valuation specialists, based upon the probability-weighted fair values of multiple discounted cash flow analyses. The extent to which the actual EBITDA differs from the probability-weighted analysis will result in adjustments to this liability in future periods. In accordance with ASC 480, this liability has been measured at fair value as of the acquisition date and will be remeasured to fair value on each subsequent reporting date until the contingency is resolved. The selling shareholders of Reworks include both third-party investors and certain historical employees of Reworks that will continue as employees of Playtika post-acquisition. The earnout obligation payable to selling employee shareholders that will remain as employees of Playtika had an acquisition date fair value of $ 54.2 million. As the SPA includes certain forfeiture provisions for selling employee shareholders, the earnout obligation payable to these employee will be recorded as compensation expense over the period that such payment is earned. The earnout obligation payable to the third-party sellers had an acquisition date fair value of $ 33.7 million. As this represents an unconditional obligation of the Company to purchase the remaining Share Capital of Reworks at an agreed upon future date, this portion of the total Earnout Payment has been classified as a liability on the Company’s consolidated balance sheet rather than non-controlling interest. 102 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in millions): Consideration Total Consideration $ 438.7 Less: Cash acquired ( 10.9 ) Total consideration, net of cash acquired 427.8 Less: Acquisition date fair value of contingent consideration ( 33.7 ) Consideration paid as of August 31, 2021 $ 394.1 Identifiable assets acquired and liabilities assumed Accounts receivable $ 9.4 Intangible assets other than goodwill 143.0 Goodwill 312.6 Deferred tax liabilities ( 28.6 ) Contingent consideration ( 33.7 ) Liabilities assumed ( 8.6 ) Total identifiable assets acquired and liabilities assumed $ 394.1 The developed game and user base intangible assets acquired and included in the above table are being amortized on a straight-line basis over their estimated useful life of six years and one year , respectively, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. Transaction costs incurred by the Company in connection with the Reworks acquisition, were approximately $ 1.0 million for the year ended December 31, 2021, and were recorded within general and administrative expenses in the consolidated statements of comprehensive income. Pro forma results of operations for this acquisition subsequent to the August 31, 2021 acquisition date have not been presented because the incremental results from Reworks are not material to the consolidated statements of comprehensive income presented herein. For the year ended December 31, 2021, the Company recorded other income of $ 5.0 million with respect to the adjustment of the contingent consideration to estimated fair value. The net amount is comprised of a favorable fair value adjustment of $ 6.5 million, partially offset by $ 1.5 million of interest expense included within general and administrative expenses and interest expense, respectively, in the accompanying consolidated statement of comprehensive income. As of December 31, 2021, approximately $ 11 million had been recorded as compensation expense and was classified as an employee-related current liability on the Company’s consolidated balance sheet. As of December 31, 2021, the fair value of the earnout obligation payable to third-party sellers was $ 28.7 million and was recorded as contingent consideration on the Company’s consolidated balance sheet. In the first half of 2022, the Company recognized $ 25 million of income and $ 30 of expense in connection with adjusting the Earnout Payment to estimated fair value. On August 1, 2022, the Company entered into an Omnibus Agreement to acquire the title to the remaining shares and options of Reworks in exchange for a $ 45 million cash payment to the sellers in lieu of the Earnout Payment. The cash payment was made in the third quarter of 2022. As of December 31, 2022, the Company has no remaining liability reflected in the financial statements herein. Acquisition of JustPlay.LOL Ltd On March 21, 2022, the Company acquired all of the issued and outstanding shares of JustPlay.LOL Ltd. (“JustPlay”) consistent with the Company’s strategy to increase its breadth of entertainment genres and leverage the Company’s Boost platform to enhance game-operations. The acquisition was accounted for as a business combination. Within the accompanying consolidated financial statements, management has recorded its final estimate of the assets acquired and liabilities assumed in the acquisition, along with an estimate of the fair value for contingent consideration 103 payable, based upon management’s financial models for this acquisition, and upon similar allocations from prior acquisitions. The Company has engaged a third-party valuation specialist to assist the Company and such valuations were finalized during the third quarter of 2022. The goodwill, which is non-deductible for tax purposes, is generally attributable to synergies between the Company's and JustPlay's respective studio operations and games. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in millions): Consideration Total Consideration $ 42.0 Less: Cash acquired ( 0.7 ) Total consideration, net of cash acquired 41.3 Less: Acquisition date fair value of contingent consideration ( 11.4 ) Consideration paid as of March 23, 2022 $ 29.9 Identifiable assets acquired and liabilities assumed Accounts receivable $ 1.0 Property and equipment 0.1 Intangible assets other than goodwill 12.3 Goodwill 29.7 Contingent consideration ( 11.4 ) Deferred tax liability ( 1.5 ) Liabilities assumed ( 0.3 ) Total identifiable assets acquired and liabilities assumed $ 29.9 The developed game assets acquired and included in the above table are being amortized on a straight-line basis over their estimated useful life of six years , which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. Transaction costs incurred by the Company in connection with the JustPlay acquisition, were approximately $ 0.5 million for the year ended December 31, 2022, and were recorded within general and administrative expenses in the consolidated statements of comprehensive income. Pro forma results of operations for this acquisition subsequent to the March 23, 2022 acquisition date have not been presented because the incremental results from JustPlay are not material to the consolidated statements of comprehensive income presented herein. Subsequent to the acquisition, the Company reduced the amount of contingent consideration expected to be paid. As of December 31, 2022, the Company has no remaining liability reflected in the financial statements herein. Other development transactions In February 2020, the Company acquired an assembled workforce to expand the Company’s game portfolio and in-house expertise for approximately $ 12.1 million. This acquisition was recorded as expense during the quarter ended March 31, 2020. During 2021 and 2022, the Company has made a small number of minority investments in early-stage high-growth potential game developers, all of which are accounted for as investments in unconsolidated affiliates. 104 NOTE 3. CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS Cash equivalents and bank deposits at December 31, 2022 and 2021 are as follow (in millions): December 31, 2022 Amortized cost Allowance for credit losses Unrealized gains Unrealized losses Cash equivalents Money market funds $ 294.8 $ — $ — $ — Term deposits 243.3 — — — Commercial papers 79.9 — — — Total cash equivalents $ 618.0 $ — $ — $ — December 31, 2021 Amortized cost Allowance for credit losses Unrealized gains Unrealized losses Cash equivalents Money market funds $ 310.2 $ — $ — $ — Short-term bank deposits $ 100.1 $ — $ — $ — NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets at December 31, 2022 and 2021 are as follows (in millions): December 31, 2022 2021 Government authorities $ 57.0 $ 39.6 Prepaid expenses 16.0 11.3 Deferred charges 10.8 9.4 Other 29.6 12.6 Total prepaid expenses and other current assets $ 113.4 $ 72.9 105 NOTE 5. PROPERTY AND EQUIPMENT, NET Property and equipment, net at December 31, 2022 and 2021 are as follow (in millions): December 31, 2022 2021 Computers and peripheral equipment $ 205.7 $ 182.1 Office furniture and equipment 17.1 14.0 Vehicles and aircraft 8.1 6.4 Leasehold improvements 53.0 42.4 Total property and equipment, gross 283.9 244.9 Accumulated depreciation ( 158.2 ) ( 141.6 ) Total property and equipment, net $ 125.7 $ 103.3 Depreciation expense was $ 45.9 million, $ 42.5 million and $ 37.6 million in the years ended December 31, 2022, 2021 and 2020, respectively. NOTE 6. GOODWILL Changes in goodwill for the years ended December 31, 2022 and 2021 were as follows (in millions): Year ended December 31, 2022 2021 Balance at beginning of period $ 788.1 $ 484.8 Goodwill acquired during the year 29.7 312.6 Foreign currency translation adjustments ( 6.6 ) ( 9.3 ) Balance at end of period $ 811.2 $ 788.1 As of October 1 of each of the years presented, the Company performed a qualitative assessment for its reporting unit and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required. Accordingly, during the years ended December 31, 2022, 2021 and 2020, no impairment charge was recognized. 106 NOTE 7. INTANGIBLE ASSETS OTHER THAN GOODWILL The carrying amounts and accumulated amortization expenses of the acquired intangible assets other than goodwill, net, including the impact of foreign currency exchange translation, at December 31, 2022 and 2021 were as follows (in millions): December 31, 2022 Weighted average remaining useful life (in years) Balance December 31, 2021 Historical cost basis: Developed games and acquired technology 4.3 $ 599.2 $ 591.0 Trademarks and user base — 31.0 31.2 Internal use software 2.5 126.2 97.0 756.4 719.2 Accumulated amortization Developed games and acquired technology ( 315.4 ) ( 247.9 ) Trademarks and user base ( 31.0 ) ( 23.0 ) Internal use software ( 56.0 ) ( 31.0 ) ( 402.4 ) ( 301.9 ) Intangible assets other than goodwill, net $ 354.0 $ 417.3 Acquisition-related intangible assets included in the above table are finite-lived and are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenue. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses. During the years ended December 31, 2022, 2021 and 2020, the Company recorded amortization expense in the amounts of $ 116.1 million, $ 103.0 million and $ 81.6 million, respectively. There was no impairment of intangible assets in the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, the total expected future amortization related to intangible assets was as follows (in millions): 2023 $ 98.7 2024 85.5 2025 76.9 2026 67.3 Thereafter 25.6 Total $ 354.0 107 NOTE 8. OTHER NON-CURRENT ASSETS Other non-current assets at December 31, 2022 and 2021 are as follows (in millions): December 31, 2022 2021 Long-term tax assets $ 123.5 $ — Unrecognized gain on interest rate swaps 29.3 7.9 Deposits 3.2 5.5 Prepaid expenses 0.7 — Total other non-current assets $ 156.7 $ 13.4 NOTE 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities at December 31, 2022 and 2021 are as follows (in millions): December 31, 2022 2021 Employees and related expenses $ 170.3 $ 167.8 Accrued expenses 110.1 95.6 Media buy 41.3 37.1 Deferred revenues 38.6 31.6 Tax accruals 24.9 162.5 Total accrued expenses and other current liabilities $ 385.2 $ 494.6 NOTE 10. OTHER LONG-TERM LIABILITIES, INCLUDING EMPLOYEE RELATED BENEFITS Other long-term liabilities, including employee related benefits at December 31, 2022 and 2021 are as follows (in millions): December 31, 2022 2021 Long-term tax reserves $ 248.6 $ — Employee related benefits — 21.3 Other 3.5 2.4 Total other long-term liabilities, including employee related benefits $ 252.1 $ 23.7 NOTE 11. LEASES The Company's leases include office real estate and data center leases for its facilities worldwide, which are all classified as operating leases, and which expire on various dates, the latest of which is December 2035. Certain lease agreements include rental payments that are adjusted periodically for the consumer price index ("CPI"). The Company’s ROU assets and lease liabilities were calculated using the initial CPI and will not be subsequently adjusted. Certain leases include renewal options that are reasonably certain to be exercised. 108 The following is a summary of weighted average remaining lease terms and discount rates for all of the Company's operating leases: December 31, 2022 December 31, 2021 Weighted average remaining lease term (years) 7.8 6.1 Weighted average discount rates 4.1 % 3.4 % Total operating lease expense was $ 25.5 million, $ 21.8 million and $ 16.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $ 24.5 million, $ 21.5 million and $ 15.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. Maturities of lease liabilities are as follows (in millions): 2023 $ 17.3 2024 20.5 2025 18.2 2026 14.7 2027 12.3 Thereafter 44.4 Total undiscounted cash flows 127.4 Less: imputed interest ( 19.4 ) Present value of lease liabilities $ 108.0 NOTE 12. DEBT December 31, 2022 December 31, 2021 (in millions, except interest rates) Maturity Interest rate(s) Book value Face value Book value Term Loan 2028 7.130 % $ 1,831.2 $ 1,866.8 $ 1,843.8 Senior Notes 2029 4.250 % 592.4 600.0 591.3 Revolving Credit Facility 2026 n/a — — — Total debt 2,423.6 2,466.8 2,435.1 Less: Current portion of long-term debt ( 12.4 ) ( 19.0 ) ( 12.2 ) Long-term debt $ 2,411.2 $ 2,447.8 $ 2,422.9 Book value of debt in the table above is reported net of deferred financing costs and original issue discount of $ 43.2 million and $ 50.7 million at December 31, 2022 and 2021, respectively. Credit Agreement On December 10, 2019, the Company entered into $ 2,750 million of senior secured credit facilities (the "Credit Facilities"), consisting of a $ 250 million revolving credit facility (the "Revolving Credit Facility"), and a $ 2,500 million first lien term loan (the "Old Term Loan"). The Credit Facilities were provided pursuant to a Credit Agreement, dated as of December 10, 2019 (the "Credit Agreement"), by and among Playtika, the lenders party thereto, and Credit Suisse, AG, Cayman Islands Branch, as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent"). Proceeds borrowed under the Credit Facilities on the closing date were used to pay off the outstanding balance on the Company’s prior debt facility. On June 15, 2020, the Company increased the capacity of the Revolving Credit 109 Facility to $ 350 million. On January 15, 2021, the Company increased the borrowing capacity of the Revolving Credit Facility from $ 350 million to $ 550 million. On March 11, 2021, the Company amended the Credit Agreement pursuant to an Incremental Assumption Agreement No. 3 and Second Amendment to Credit Agreement (the “Second Amendment”). The Second Amendment, among other things, effected a refinancing of the Old Term Loan with a new $ 1.9 billion senior secured first lien term loan borrowed under the Credit Agreement (the “New Term Loan”), increased the Revolving Credit Facility to $ 600 million and extended the maturity of the Revolving Credit Facility to March 11, 2026. The New Term Loan matures on March 11, 2028 and requires scheduled quarterly principal payments in amounts equal to 0.25 % of the original aggregate principal amount of the New Term Loan, with the balance due at maturity. The Credit Agreement allows the Company to request one or more incremental term loan facilities, incremental revolving credit facilities and/or increases to the New Term Loan or the Revolving Credit Facility in an aggregate amount of up to the sum of (x) the greater of (1) $ 800 million and (2) 1.00 times EBITDA (as defined in the Credit Agreement) plus (y) the amount of certain voluntary prepayments of indebtedness plus (z) such additional amount so long as, (i) in the case of loans under additional credit facilities that are secured by liens on the collateral securing the Credit Agreement, the Company's net total secured leverage ratio on a pro forma basis would not exceed 3.50 to 1.00 (or in the case of incremental facilities to fund certain investments and acquisitions, the net total secured leverage ratio immediately prior to such incurrence) and (iii) in the case of any other loans under additional credit facilities, the Company's fixed charge coverage ratio on a pro forma basis would not be less than 2.00 to 1.00 (or in the case of incremental facilities to fund certain investments and acquisitions, the fixed charge coverage ratio immediately prior to such incurrence), in each case, subject to certain conditions and receipt of commitments by existing or additional financial institutions or institutional lenders. All future borrowings under the Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, subject to certain exceptions. Interest and Fees Borrowings under the Credit Agreement bear interest at a rate equal to, at the Company’s option, either (a) LIBOR determined by reference to the cost of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a floor of 0 % or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate as determined by the administrative agent and (iii) the one-month adjusted LIBOR rate plus 1.00 %, in each case plus an applicable margin. Such applicable margin is (x) with respect to the New Term Loan, 2.75 % per annum in the case of any LIBOR loan or 1.75 % per annum in the case of any base rate loan, subject to one 0.25 % step-down based on the Company’s credit ratings and (y) in the case of the Revolving Credit Facility, a range from 2.25 % to 3.00 % per annum in the case of any LIBOR loan and a range from 1.25 % to 2.00 % per annum in the case of any base rate loan, based on the Company’s net senior secured leverage ratio. Beginning in July 2023, LIBOR will be replaced by SOFR and interest will be calculated based upon term SOFR plus an applicable margin. In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a commitment fee in respect of any unused commitments under the Revolving Credit Facility in the amount of 0.50 % of the principal amount of the daily unused commitments of such lender, subject to step-downs to 0.375 % and 0.25 % based upon the Company's senior secured leverage ratio. The Company is also required to pay customary agency fees as well as letter of credit participation fees on outstanding letters of credit. The Credit Agreement permits voluntary prepayments and requires mandatory prepayments in certain events including among others, 50 % (subject to step-downs to 25 % and 0 % based upon the Company’s net total secured leverage ratio) of the Company’s excess cash flow to the extent such amount exceeds $ 10 million, certain net cash proceeds from non-ordinary asset sale transactions (subject to reinvestment rights), and 100 % of net proceeds of any issuance of debt (except for debt permitted to be incurred by the Credit Agreement). The Company is not required to make an excess cash flow payment based upon its secured leverage ratio for 2022. 110 Collateral and Guarantors The borrowings under the Credit Agreement are guaranteed by certain material, wholly-owned restricted subsidiaries of the Company, and are secured by a pledge of substantially all of the existing and future property and assets of the Company and the guarantors (subject to exceptions), including a pledge of the capital stock of the domestic subsidiaries held by the Company and the domestic guarantors and 65 % (or 100 % in the case of certain of the guarantors) of the capital stock of the first-tier foreign subsidiaries held by the Company and the domestic guarantors, in each case subject to exceptions. The Credit Agreement requires that the Company and the guarantors (a) generate at least 80.0 % of the EBITDA of the Company and its restricted subsidiaries for the four fiscal quarters most recently ended prior to the end of each fiscal quarter and (b) own all “Material Intellectual Property” (defined as any intellectual property rights consisting of registered trademarks or copyrights subsisting in the name or logo of any game that generates more than 5 % of the EBITDA of the Company and its restricted subsidiaries for the then most recently ended four fiscal quarters) on the last day of the four fiscal quarters most recently ended prior to the end of each fiscal quarter. If the Company and the guarantors do not satisfy such requirement, then the Company must cause sufficient additional subsidiaries (which, subject to certain limitations, may include guarantors located in jurisdictions other than the United States, England and Wales and the State of Israel) to become guarantors in order to satisfy such requirement. During the year ended December 31, 2021, the Company voluntarily designated certain subsidiaries in Germany, Austria and Finland as additional guarantors. As of December 31, 2022, the Company was in compliance with these requirements. Restrictive Covenants The Revolving Credit Facility includes a maximum first-priority net senior secured leverage ratio financial maintenance covenant of 6.25 to 1.00, calculated as total first lien senior secured net debt divided by Credit Adjusted EBITDA. At December 31, 2022, the Company’s first-priority net senior secured leverage ratio was 1.36 to 1.00 based upon Credit Adjusted EBITDA of $ 805.1 million and net debt (as defined in the Credit Agreement) of $ 1,098.3 million. In addition, the Credit Agreement includes negative covenants, subject to certain exceptions, restricting or limiting the Company's ability and the ability of its restricted subsidiaries to, among other things: (i) make non-ordinary course dispositions of assets; (ii) make certain mergers and acquisitions; (iii) complete dividends and stock repurchases and optional redemptions (and optional prepayments) of subordinated debt; (iv) incur indebtedness; (v) make certain loans and investments; (vi) incur liens and certain fixed charges; (vii) transact with affiliates; (viii) change the business of the Company and its restricted subsidiaries; (ix) enter into sale/leaseback transactions; (x) allow limitations on negative pledges and the ability of restricted subsidiaries to pay dividends or make distributions; (xi) change the fiscal year and (xii) modify subordinated debt documents. Under the Credit Agreement, the Company may be required to meet specified leverage ratios or fixed charge coverage ratios in order to take certain actions, such as incurring certain debt or liens or making certain investments. The Company was in compliance with its financial and other covenants under the Credit Agreement as of December 31, 2022. Expenses Related to Modification of Debt The Company accounts for the restructuring of its debt agreements in accordance with the accounting standards applicable to troubled debt restructuring, debt modification and debt extinguishment. Under the applicable accounting standards, the Company determined that the March 2021 financing transactions qualified for modification accounting. As a result, the Company expensed $ 14.5 million related to the debt modification, wrote off $ 22.9 million of previously deferred financing costs related to the modification of debt related to the Company’s Old Term Loan and carried over $ 34.9 million of deferred financing costs to the New Term Loan. 111 Offering of 4.250 % Senior Notes due 2029 Indenture On March 11, 2021, the Company issued $ 600.0 million aggregate principal amount of its 4.250 % senior notes due 2029 (the “Notes”) under an indenture, dated March 11, 2021 (the “Indenture”), among the Company, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee (the “Trustee”). Maturity and Interest The Notes mature on March 15, 2029. Interest on the Notes will accrue at a rate of 4.250 % per annum. Interest on the Notes payable semi-annually in cash in arrears on March 15 and September 15 of each year, commenced on September 15, 2021. Guarantees The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future restricted subsidiaries that guarantee the obligations under the Credit Agreement (the “subsidiary guarantors”). Ranking The Notes and the note guarantees rank equally in right of payment to all of the Company’s and the subsidiary guarantors’ existing and future senior indebtedness and senior in right of payment to all of the Company’s and the subsidiary guarantors’ future subordinated indebtedness. The Notes and the note guarantees are effectively subordinated to any of the Company’s and the subsidiary guarantors’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness, including indebtedness outstanding under the Credit Agreement. In addition, the Notes and the note guarantees are structurally subordinated to the existing and future liabilities of the Company’s non-guarantor subsidiaries. Redemption The Company may redeem the Notes at any time prior to March 15, 2024, in whole or in part, at a redemption price equal to 100 % of the accrued principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a make-whole premium. The Company may redeem the Notes at any time on or after March 15, 2024, in whole or in part, at a redemption price equal to (i) 102.125 % of the principal amount thereof, should such redemption occur before March 15, 2025, (ii) 101.063 % of the principal amount thereof, should such redemption occur before March 15, 2026, and (iii) 100.000 % of the principal amount thereof, should such redemption occur on or after March 15, 2026, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to March 15, 2024, the Company may redeem up to 40 % of the original aggregate principal amount of all Notes issued with the net cash proceeds from certain equity offerings at a redemption price of 104.250 % of the principal amount redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 50 % of the aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption, and the redemption date is within 90 days of the consummation of any such equity offering. Covenants The Indenture contains customary covenants that limit the Company’s ability and, in certain instances, the ability of the Company’s subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and 112 sell assets or merge with other companies. These limitations are subject to a number of important exceptions and qualifications set forth in the Indenture. Change of Control In the event of a change of control, the Company must offer to repurchase the Notes at a repurchase price equal to 101 % of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. Events of Default Events of default under the Indenture include, among others, the following with respect to the Notes: default which continues for 30 days in the payment of interest on the Notes; default in payment of the principal of, or premium, if any, on the Notes; failure to comply with certain covenants in the Indenture for 60 days (or 120 days with respect to the covenant relating to the provision of financial reports) upon the receipt of notice from the Trustee or holders of at least 25 % in aggregate principal amount of the Notes; acceleration or payment default of indebtedness of the Company or certain of its subsidiaries in excess of a specified amount that remains uncured following the applicable grace period provided in such indebtedness; final judgments against the Company or certain of its subsidiaries in excess of a specified amount that remains unpaid for 45 days; and certain events of bankruptcy or insolvency with respect to the Company or certain of its subsidiaries. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or certain of its subsidiaries, all Notes then outstanding will become due and payable immediately without further action or notice. If any other event of default occurs with respect to the Notes, the Trustee or holders of at least 25 % in aggregate principal amount of the Notes may declare all Notes then outstanding to be due and payable immediately. Scheduled principal payments of long-term debt The scheduled principal payments due on long-term debt are as follows (in millions): 2023 $ 19.0 2024 19.0 2025 19.0 2026 19.0 2027 and thereafter 2,390.8 Total $ 2,466.8 NOTE 13. EQUITY TRANSACTIONS AND STOCK INCENTIVE PLAN Common stock The following are the rights and privileges of the Company’s common shares: Dividends - The holders of outstanding shares of the Company’s common stock are entitled to receive dividends out of funds legally available at the times and in the amounts which its board of directors may determine. Voting rights – Holders of the Company’s common shares are entitled to one vote per share. Liquidation – Upon the Company’s liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of the Company’s common shares. Preemptive or similar rights – None of the Company’s common shares is entitled to preemptive rights or subject to redemption. 113 Overview of Stock Incentive Plan On May 26, 2020, the Board of Directors of the Company approved the Playtika Holding Corp. 2020 Incentive Award Plan (the “Plan”). The Plan authorizes the issuance of stock options, restricted stock, RSUs, dividend equivalents, stock appreciation rights, performance bonus awards and other incentive awards. The Plan authorizes the grant of awards to employees, non-employee directors and consultants of the Company. The maximum number of shares of the Company’s common stock for which grants may be made under the Plan was 56,232,228 shares as of December 31, 2022. As of December 31, 2022, a total of 15,874,201 shares of the Company’s common stock remained available for grants of awards under the Plan. Equity transactions On May 26, 2020, the Board of Directors of the Company approved an amendment to the Certificate of Incorporation of the Company (the ”Stock Split”) to increase the authorized number of shares of the Company’s common stock from ten ( 10 ) shares to one million ( 1,000,000 ) shares, to decrease the par value of each share of common stock of the Company from $ 1.00 per share to $ 0.01 per share, and to reclassify each share of common stock issued and outstanding immediately prior to the Stock Split into 94,500 shares of common stock. On January 5, 2021, the Company’s Board of Directors approved an amended and restated certificate of incorporation of the Company effecting a 400 -for-1 stock split of the Company’s issued and outstanding shares of common stock and an increase to the authorized shares of our common stock and preferred stock to 1,600 million shares and 100 million shares, respectively. The split and the increase in authorized shares of the Company’s common stock was effected on January 6, 2021 and without any change in the par values per share. All information herein related to the Company’s common stock and stock awards has been retroactively adjusted to give effect to both the May 26, 2020 stock split and the January 5, 2021 stock split. In January 2021, promptly following the pricing of the Company’s IPO, the number of shares available for issuance under the Playtika Holding Corp. 2020 Incentive Award Plan (the “Plan”) increased by 14,335,499 shares of common stock, which represented 3.5 % of the total number of shares outstanding immediately after the consummation of the IPO. The number of shares available for grant will increase on January 1st of each year through January 2030 by an amount equal to the lesser of (i) 3.5 % of the total shares of the Company’s outstanding common stock or (ii) such number of shares determined by the Board of Directors. On January 1, 2022, the number of shares of issuance under the Plan increased by 14.0 million. On January 1, 2023, there was no increase to the number of shares available for issuance under the Plan. In connection with its January 15, 2021 IPO, the Company granted 7,985,297 stock options and 4,299,077 RSUs to certain of its employees. The stock options and RSUs generally vest 25 % on the first anniversary of the grant date, and the remaining 75 % of the options and RSUs vest in equal quarterly installments during the three years following the first anniversary of the grant date. Option Repricing On February 7, 2022, the Compensation Committee of the Board of Directors of the Company approved an amendment to 5,303,242 options granted in 2021 that were scheduled to vest after the first anniversary of the grant date (the “Adjusted Portion”). The Adjusted Portion was amended to reduce the per share exercise prices of such Adjusted Portion to $ 18.71 . The Company accounted for the repricing as a modification and is recording incremental compensation expense of approximately $ 8.8 million from the time of the repricing through the remaining vesting period. There were no awards to any named executive officers or other Section 16 executives included in this repricing. Tender Offer On August 29, 2022, the Company announced a tender offer for the purchase of up to 51,813,472 shares of its issued and outstanding common stock, par value $ 0.01 per share (each, a “Share” and collectively, “Shares”) or such lesser number of 114 Shares as are properly tendered and not properly withdrawn, at a price of $ 11.58 per Share (the "Tender Offer"). On October 10, 2022, the Company announced that it accepted for purchase 51,813,472 Shares for an aggregate cost of $ 600 million, excluding fees and expense related to the Tender Offer. The number of shares that the Company has accepted for purchase in the Tender Offer represented approximately 12.6 % of the total number of shares that were outstanding as of September 30, 2022. The Company’s shares outstanding and treasury stock are presented, and both basic and diluted earnings per share have been calculated, as if the entire 51,813,472 shares accepted in the Tender Offer were purchased on the closing date of the Tender Offer. The actual settlement by the Administrative agent for Shares may be delayed due to administrative requirements, whereby the Shares are repurchased as those requirements are fulfilled. Option Exchange On November 14, 2022, the Company commenced a voluntary, one-time stock option exchange program (the “Option Exchange”) pursuant to which eligible service providers (including eligible employees) were able to exchange outstanding stock options for a lesser amount of new RSUs to be issued under the Plan. No members of the Board held outstanding stock options and therefore did not participate in the Option Exchange. Service providers who elected to participate in the Option Exchange received one RSU for every 2.5 shares of Playtika common stock underlying the eligible options surrendered. This “exchange ratio” ( 2.5 -for-1) was applied on a grant-by-grant basis. On December 15, 2022, 10,886,748 options were exchanged for 4,353,438 RSUs. The Company accounted for the Option Exchange as a modification and is recording incremental compensation expense of approximately $ 10.1 million from the time of the Option Exchange through the remaining vesting period. Stock options The following table summarizes the Company’s stock option activity: Stock Weighted Weighted Options Average Average Intrinsic Outstanding Remaining Exercise Value (in millions) Term (in years) Price (in millions) Outstanding at January 1, 2022 15.8 8.8 $ 22.70 Granted 2.8 $ 14.93 Exercised — Cancelled (1) ( 14.7 ) $ 19.28 Expired ( 0.5 ) $ — Outstanding at December 31, 2022 3.4 8.2 $ 19.08 $ — Exercisable at December 31, 2022 1.6 7.8 $ 21.74 $ — __________ (1) The number of stock options cancelled includes those exchanged in the Option Exchange. There were no stock options exercised during the years ended December 31, 2022, 2021 or 2020. The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 6.43 per share and $ 10.16 per share, respectively. The Company will issue new shares of common stock upon exercise of stock options. The Company uses the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with employee stock options, which is affected by the following assumptions regarding complex and subjective variables. Any changes in these assumptions may materially affect the estimated fair value of the stock-based award. – Fair value of common stock - Prior to the Company’s initial public offering of equity in January 2021, as the Company’s common stock was not publicly traded, the fair value of common stock was estimated by valuation 115 reports prepared by third-party valuation specialists using multiple methods, as more fully discussed in Note 1, O rganization and Summary of Significant Accounting Policies . Subsequent to the Company’s initial public offering, the Company uses the public trading price of its common stock on the Nasdaq stock market to determine the fair value of its common stock. – Risk-free interest rate - The risk-free interest rate was estimated based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of the respective equity option award. – Expected dividend yield - The Company does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield was assumed to be zero . – Expected term - The Company estimated the expected term based on the average time between the vesting date and expiration date, ten years after the grant date, of the respective equity option award. – Expected volatility – Prior to the Company’s initial public offering of equity in January 2021, as the Company was a private company at the time of valuation, the Company estimated volatility based on the volatilities exhibited by comparable public companies and the Company’s capital structure and utilized the observable data for a group of peer companies that grant options with substantially similar terms to assist in developing its volatility assumption. Subsequent to the Company’s initial public offering, the Company continues to estimate volatility in the same manner as it has not yet established sufficient history to estimate volatility of its own. The table below summarizes the assumptions used for the options granted in each respective period, as well as for options repriced during the first quarter of 2022: Year ended December 31, 2022 2021 Risk-free interest rate 0.67 % - 3.88 % 0.67 % - 0.98 % Expected dividend yield — — Expected term in years 6.1 6.1 Expected volatility 40.96 % - 52.82 % 38.19 % - 38.56 % The options granted during 2020 vest over four years , with 25 % vesting on each of the four anniversaries of the grant date. For options granted during 2021 and 2022, 25 % of the options generally vest on the first anniversary of the grant date, and the remaining 75 % of the options vest in equal quarterly installments during the three years following the first anniversary of the grant date. The stock options have a contractual term of ten years . Except as provided in an option agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. RSUs The majority of RSUs granted on June 26, 2020 vested immediately, while the remaining RSUs granted on June 26, 2020 vested 25 % immediately, and 25 % vest on each of the first three anniversaries of the grant date. In October 2020, the Company’s board of directors approved the issuance of 5,854,800 RSUs. The RSUs vest over four years , with 25 % of the RSUs vesting on each of December 31, 2021, 2022, 2023 and 2024, subject to continued service on the applicable vesting date. For RSUs granted during 2021 and 2022, 25 % of the RSUs generally vest on the first anniversary of the grant date, and the remaining 75 % of the RSUs vest in equal quarterly installments during the three years following the first anniversary of the grant date. RSUs granted in 2022 as a result of the Option Exchange generally vest in equal quarterly installments over three years . Except as provided in an award agreement between the Company and the employee, if an employee is terminated 116 (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. RSUs settle for outstanding shares of the Company’s common stock upon vesting. The following table summarizes the Company’s RSU activity: Weighted Total Fair Average Value of Shares Grant Date Shares Vested (in millions) Fair Value (in millions) Outstanding at January 1, 2020 — $ — Granted 19.8 $ 19.41 Vested ( 13.9 ) $ 18.71 $ 260.1 Cancelled — $ — Outstanding at December 31, 2020 5.9 $ 21.04 Granted 7.5 $ 28.23 Vested ( 1.5 ) $ 21.17 $ 26.6 Cancelled ( 0.5 ) $ 30.62 Outstanding at December 31, 2021 11.4 $ 25.29 Granted (1) 11.0 $ 15.43 Vested ( 4.5 ) $ 24.92 $ 55.1 Cancelled ( 3.0 ) $ 22.30 Outstanding at December 31, 2022 14.9 $ 18.69 __________ (1) The number of RSUs granted includes those resulting from the Option Exchange. PSUs On February 7, 2022, the Compensation Committee of the Board of Directors of the Company approved the grant of PSUs to certain employees pursuant to the Plan. For each annual performance period consisting of calendar years 2022 through 2025, up to 25 % of the PSUs will be eligible to vest based on the Company’s annual revenue growth rate during the applicable performance period relative to threshold, target and maximum achievement levels. If the Company’s annual revenue growth rate for a performance period is between two achievement levels, the achievement percentage will be determined by linear interpolation between the applicable achievement levels. Notwithstanding the foregoing, in no event shall less than 25 PSUs vest during each performance period for Israeli participants. The following table summarizes the Company’s PSU activity: Weighted Total Fair Average Value of Shares (1) Grant Date Shares Vested (in millions) Fair Value (in millions) Outstanding at January 1, 2022 — $ — Granted 3.5 $ 9.72 Vested — $ — $ — Cancelled ( 0.3 ) $ 9.72 Outstanding at December 31, 2022 3.2 $ 9.72 __________ (1) The number of shares for the PSUs listed as granted represent the total number of PSUs granted to each recipient eligible to vest if the Company meets its highest specified performance goals for the applicable period. 117 On November 10, 2022, the Compensation Committee of the Board of Directors of the Company approved an amendment to the performance stock unit agreement resulting in a modification of the PSU awards and stock-based compensation expense. As of December 31, 2022, the Company believed it probable that the 2022 and 2023 performance targets, as outlined in the amended award agreements, would achieve 50 % revenue growth achievement, as defined. Therefore, fifty percent of the potential expense associated with these tranches was recognized or will be recognized over the remaining performance period of the respective tranche. On February 9, 2023, the Board of Directors of the Company ratified the Company’s annual revenue growth rate during 2022 and approved the vesting of 50.9 % of the PSU awards eligible to vest for the 2022 performance period. Stock-based compensation The following table summarizes stock-based compensation costs by award type (in millions): Year ended December 31, 2022 2021 2020 Stock options $ 24.2 $ 35.2 $ 8.9 RSUs 96.1 67.9 267.1 PSUs 5.2 — — Total stock-based compensation costs $ 125.5 $ 103.1 $ 276.0 The following table summarizes stock-based compensation costs, net of amounts capitalized, as reported on the Company’s consolidated statements of comprehensive income (in millions): Year ended December 31, 2022 2021 2020 Research and development expenses $ 43.4 $ 27.7 $ 0.5 Sales and marketing expenses 10.6 8.3 0.4 General and administrative expenses 69.5 64.4 275.1 Total stock-based compensation costs, net of amounts capitalized $ 123.5 $ 100.4 $ 276.0 During the years ended December 31, 2022 and 2021, the Company capitalized $ 2.0 million and $ 2.7 million of stock-based compensation cost, respectively. There was no stock-based compensation cost capitalized in the 2020. As of December 31, 2022, the Company’s unrecognized stock-based compensation expenses related to stock options, RSUs and PSUs was approximately $ 14.1 million, $ 250.4 million and $ 18.1 million, respectively. The expense related to stock options, RSUs and PSUs are expected to be recognized over a weighted average period of 2.4 years, 2.5 years and 2.2 years, respectively. NOTE 14. DERIVATIVE INSTRUMENTS Interest rate swap agreements In March 2021, the Company entered into two interest rate swap agreements, each with a notional value of $ 250 million. Each of these swap agreements is with a different financial institution as the counterparty to reduce the Company’s counterparty risk. Each swap requires the Company to pay a fixed interest rate of 0.9275 % in exchange for receiving one-month LIBOR. Upon the update of the index to SOFR, we expect that the fixed rate will change from this current rate.The interest rate swap agreements settle monthly commencing in April 2021 through their termination dates on April 30, 2026. The estimated fair value of the Company’s interest rate swap agreements is derived from a discounted cash flow analysis. The aggregate fair value of the Company’s interest rate swap agreements was an asset of $ 48.8 million as of December 31, 2022 and was recorded between prepaid expenses and other current assets and other non-current assets in the accompanying consolidated balance sheets based upon the timing of the underlying expected cash flows. The aggregate fair value of the 118 Company’s interest rate swap agreements was an asset of $ 5.5 million as of December 31, 2021 and was recorded between accrued expenses and other current liabilities and other non-current assets in the accompanying consolidated balance sheets based upon the timing of the underlying expected cash flows. In January 2023, the Company entered into two interest rate swap agreements, each with a notional value of $ 250 million. Each of these swap agreements is with a different financial institution, and each swap requires the Company to pay a fixed interest rate of 3.435 % in exchange for receiving one-month LIBOR for six months and one-month Term SOFR afterwards. Foreign currency hedge agreements At December 31, 2022, the Company had outstanding derivative contracts to purchase certain foreign currencies, including ILS, RON, and PLN at future dates. The amount of future salary expenses the Company had hedged was approximately $ 187.4 million, and all contracts are expected to mature during the upcoming 12 months. The aggregate fair value of the Company’s derivative contracts was a net liability of $ 5.3 million as of December 31, 2022 and was recorded in prepaid expenses and other current assets and accrued expenses and other current liabilities in the accompanying consolidated balance sheets. The aggregate fair value of the Company’s derivative contracts was an asset of $ 1.3 million as of December 31, 2021 and was recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheets. In the second quarter of 2022, in conjunction with the announced closing of its Canadian operations, the Company terminated its derivative contract to purchase Canadian dollars resulting in an immaterial gain. NOTE 15. FAIR VALUE MEASUREMENTS Our assessment of goodwill and other intangible assets for impairment includes an assessment using various Level 2 (discount rate) and Level 3 (forecasted cash flows) inputs. See Note 1, Organization and Summary of Significant Accounting Policies, for more information on the assessment for impairment of goodwill and of intangible assets other than goodwill, respectively. The following table summarizes the fair value measurement of the Company’s long-term debt at December 31, 2022 (in millions): December 31, 2022 Face Value Fair Value Fair Value Hierarchy Term Loan $ 1,866.8 $ 1,794.5 Level 2 Senior Notes 600.0 468.0 Level 2 Total debt $ 2,466.8 $ 2,262.5 December 31, 2021 Face Value Fair Value Fair Value Hierarchy Term Loan $ 1,885.8 $ 1,876.4 Level 2 Senior Notes 600.0 585.0 Level 2 Total debt $ 2,485.8 $ 2,461.4 The estimated fair value of the Company’s term loan is based upon the prices at which the Company’s debt traded in the days immediately preceding the balance sheet date. As the trading volume of the Company’s debt is low relative to the overall debt balance, the Company does not believe that the associated transactions represent an active market, and therefore this indication of value represents a level 2 fair value input. 119 The following table sets forth the assets and liabilities measured at fair value on a recurring basis in the Company’s consolidated balance sheet (in millions): Fair Value at Pricing Category December 31, 2022 December 31, 2021 Cash equivalents Money market funds Level 1 $ 294.8 $ 310.2 Term deposits Level 1 243.3 — Commercial papers Level 2 79.9 — Short-term bank deposits Level 1 $ — $ 100.1 Prepaid expenses and other current assets Derivative instruments - interest rate swaps Level 2 $ 19.5 $ — Derivative instruments - foreign currency derivative contracts Level 2 2.2 1.3 Other non-current assets: Derivative instruments - interest rate swaps Level 2 $ 29.3 $ 7.9 Accrued expenses and other current liabilities: Derivative instruments - foreign currency derivative contracts Level 2 $ 7.5 $ — Derivative instruments - interest rate swaps Level 2 — 2.4 The carrying values of the Company’s cash equivalents and short-term bank deposits approximate fair value because of the short duration of these financial instruments. The Company estimates the fair value of interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of the Company’s interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. The fair value of the Company’s foreign currency contracts approximates the amount the Company would pay or receive if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s foreign currency contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. The change in fair value of contingent consideration payable was valued using significant unobservable inputs (Level 3), was included in the general and administrative expenses in the Company’s consolidated statements of comprehensive income and consisted of the following (in millions): Balance as of December 31, 2020 $ — Recorded in connection with acquisition transactions 33.7 Fair value adjustments based upon post-acquisition performance ( 5.0 ) Balance as of December 31, 2021 28.7 Recorded in connection with acquisition transaction 11.4 Adjustment based on subsequent settlement agreement (1) ( 28.7 ) Fair value adjustments based upon post-acquisition performance ( 11.4 ) Balance as of December 31, 2022 $ — 120 _______ (1) See Note 2, Business Combinations, for additional discussion. In April 2020, the Company reached an agreement with the former stockholders of Seriously on the early determination of value and settlement of the contingent consideration payable following the Company’s acquisition of Seriously in July 2019. The impact of this agreement has been recorded within the fair value adjustments for the year ended December 31, 2020. The Company estimated the fair value of its contingent consideration liabilities using probability-weighted discounted cash flow analyses. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined in ASC 820. The extent to which the actual results differ from assumptions made within the probability-weighted analyses will result in adjustments to this liability in future periods. The Company had no financial assets or liabilities measured at fair value as of December 31, 2022 and 2020. The Company has not elected the fair value measurement option available under U.S. GAAP for any of its assets or liabilities that meet the option for this criteria. NOTE 16. COMMITMENTS AND CONTINGENCIES In December 2016, a copywriter lawsuit was filed against Wooga GmbH (a subsidiary of the Company) in the regional court of Berlin, Germany. The Plaintiff is suing for additional remuneration to his contributions for a storyline provided for one of Wooga's games and alleged reuse of parts of that storyline in one of Wooga’s other games. As of December 31, 2022, the Company has recorded in its financial statements a reserve based upon its best estimate outcome. It is possible that any final amounts payable in connection with this lawsuit could exceed the Company’s currently reserved best estimate. The Company has defended this case vigorously and will continue to do so. In November 2013, the Company’s subsidiary, Playtika, Ltd., sent an initial demand letter to Enigmatus s.r.o., a game developer in the Czech Republic, which owns various U.S. trademark registrations that resemble the Company’s Sloto-formative trademark names, demanding that it cease use of the trademark Slotopoly. In response, Enigmatus s.r.o. asserted that it was the owner of the Sloto-formative trademarks and denied that its game title infringed the Company’s trademarks. Enigmatus s.r.o. applied to register one of the Company’s trademarks in the United Kingdom and European Union, and the Company successfully opposed its applications. In December 2016, Enigmatus s.r.o., filed a trademark infringement lawsuit, Enigmatus, s.r.o. v. Playtika LTD and Caesars Interactive Entertainment, Inc., against Playtika, Ltd. and Caesars Interactive Entertainment LLC in the Federal Court of Canada asserting that the Company’s use of the Slotomania trademarks violates its proprietary and trademark rights. The plaintiff sought injunctive relief and monetary damages. Pleadings have been exchanged and the lawsuit is in the discovery stage. A hearing date for summary trial has been scheduled for June 27-29, 2023. The Company has defended this case vigorously and will continue to do so. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. On November 23, 2021, the Company, its directors and certain of its officers were named in a putative class action lawsuit filed in the United States District Court for the Eastern District of New York (Bar-Asher v. Playtika Holding Corp. et al.). The complaint is allegedly brought on behalf of a class of purchasers of the Company’s securities between January 15, 2021 and November 2, 2021, and alleges violations of federal securities laws arising out of alleged misstatements or omissions by the defendants during the alleged class period. On March 10, 2022, the court appointed LBMotion Ltd as lead plaintiff, and the plaintiff filed an amended complaint on May 6, 2022. The amended complaint alleges violations of Section 11 and 15 of the Securities Act of 1933 and seeks, among other things, damages and attorneys’ fees and costs on behalf of the putative class. The amended complaint also added the companies that served as underwriters for the Company’s IPO as defendants in the lawsuit. On September 15, 2022, in accordance with local rules of the Court, the Company and other defendants in the case filed a letter notifying the Court of defendants’ service upon plaintiffs of, among other things, a notice of motion to dismiss plaintiffs’ amended complaint and memorandum of law in support of the defendants’ motion to dismiss plaintiffs’ amended complaint, and on November 30, 2022, the Company filed with the Court the motion to dismiss. As the case is in 121 preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. The Company has defended this case vigorously and will continue to do so. On May 17, 2022, Guy David Ben Yosef filed a motion for approval of a class action lawsuit in district court in Tel Aviv-Jaffa Israel against Playtika Group Israel Ltd. (“PGI”), on behalf of all of PGI’s customers who made game token purchases in Israel as part of games marketed by PGI during the seven years preceding the filing of the motion and for all subsequent customers of such games who purchase tokens until the resolution of the claim. The motion alleges that certain of the Company’s slot, poker and solitaire-themed games, including Slotomania, Caesars Slots, Solitaire Grand Harvest, House of Fun and Poker Heat, constitute illegal gambling and are prohibited under Israeli law and are misleading under Israeli consumer protection laws and alleges unjust enrichment. The motion asserts damages of NIS 50 million. In January 2023, PGI filed its response to the plantiff’s motion, and a pre-trial hearing is set for March 19, 2023. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. The Company will defend this case vigorously. The Company has received a number of demand letters pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), seeking disclosure of certain of the Company’s books and records. The Company has responded to those demands, stating its belief that the demand letters fail to fully comply with the requirements of Section 220 of the DGCL. However, in the interest of resolution and while preserving all rights, the Company has engaged in negotiations with certain of the shareholders and has produced materials in relation to the demands. The Company received seven demands for arbitration in late 2022 and early 2023 alleging that its games constitute illegal gambling under applicable state law. As the arbitrations are in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. The Company will defend this case vigorously. NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS The following table provides information about disaggregated revenue by geographic location of the Company's players and type of platform (in millions): Year ended December 31, 2022 2021 2020 Geographic location USA $ 1,843.0 $ 1,816.7 $ 1,669.0 EMEA 390.1 383.8 338.8 APAC 201.5 206.9 200.7 Other 180.9 175.6 163.0 Total $ 2,615.5 $ 2,583.0 $ 2,371.5 Platform type Mobile $ 2,096.8 $ 2,069.1 $ 1,907.6 Web 518.7 513.9 463.9 Total $ 2,615.5 $ 2,583.0 $ 2,371.5 122 Revenues through third-party platforms and through the Company’s own Direct-to-Consumer platforms were as follows (in millions): Year ended December 31, 2022 2021 2020 Revenues Third-party platforms $ 2,008.6 $ 2,054.0 $ 2,048.5 Direct-to-Consumer platforms 606.9 529.0 323.0 Total $ 2,615.5 $ 2,583.0 $ 2,371.5 Contract balances Payments from players for virtual items are collected by platform providers or payment processors and remitted to the Company (net of the platform or clearing fees) generally within 45 days after the player transaction. The Company’s right to receive the payments collected by the platform providers or payment processors is recorded as an accounts receivable as the right to receive payment is unconditional. Deferred revenues, which represent a contract liability, represent mostly unrecognized fees billed for virtual items which have not yet been consumed at the balance sheet date. Platform fees paid to platform providers or payment processors and associated with deferred revenues represent a contract asset. Balances of the Company’s contract assets and liabilities are as follows (in millions): December 31, 2022 2021 Accounts receivable $ 141.1 $ 143.7 Contract assets (1) 10.8 9.4 Contract liabilities (2) 38.6 31.6 _______ (1) Contract assets are included within prepaid expenses and other current assets as “deferred charges” in the Company’s consolidated balance sheets. (2) Contract liabilities are included within accrued expenses and other current liabilities as “deferred revenues” in the Company’s consolidated balance sheets. During the year ended December 31, 2022, the Company recognized all of its contract liabilities balance as of December 31, 2021. Unsatisfied performance obligations Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less. 123 NOTE 18. SEGMENT INFORMATION The Company operates its business as one operating segment and one reportable segment. The Company’s long-lived assets, net, by country of domicile are as follows (in millions): December 31, 2022 2021 Israel $ 100.9 $ 73.9 USA 62.0 51.4 Ukraine 26.1 32.5 Other 40.9 34.9 Total long-lived assets, net $ 229.9 $ 192.7 NOTE 19. APPRECIATION AND RETENTION PLANS In August 2019, the Board approved the 2021-2024 Retention Plan. Under the 2021-2024 Retention Plan, eligible employees may be granted retention awards that let them receive their pro rata portion of a retention pool of $ 25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Retention Plan Adjusted EBITDA in each of the plan years, determined as follows: For 2021, (A) 14 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . For 2022, (A) 14.5 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . For each of 2023 and 2024, (A) 15.0 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . Initial awards were granted under the 2021-2024 Retention Plan in August 2019, with subsequent awards to employees or consultants hired or retained after such date granted at the discretion of the administrator. Complete disclosure surrounding this plan and executive compensation can be found in the Company’s proxy statement. For certain participants, in the event of the participant’s termination without cause or resignation for good reason, or termination by reason of death or disability, he or she will be eligible to receive a lump sum cash payment equal to his or her proportionate share (based on the number of retention units outstanding and eligible for payment as of such date) of the unpaid portion of the total retention pool for the remaining term of the 2021-2024 Retention Plan as of the date of termination, which amount shall be paid in cash within 60 days following the date of termination. In the event of such a termination, such participant will also remain eligible to receive payments in respect of his or her appreciation units for all vesting dates that have not yet occurred prior to the date of such termination, which payments will be made as and when such payments are made to other appreciation unit holders. For all other participants, in the event of termination due to death or disability on or after January 1, 2021, but prior to December 31, 2024, the participant will receive a payment in respect of his or her proportionate share (based on the number of retention units outstanding and eligible for payment as of such date) of the unpaid portion of the total retention pool for the remaining term of the 2021-2024 Retention Plan as of the date of termination, pro-rated for the portion of the period between January 1, 2021 and December 31, 2024 that has elapsed prior to termination, payable within 60 days following termination. In addition, the participant will retain the right to receive payments for a pro-rated portion of his or her appreciation units for all vesting dates that have not yet occurred prior to the date of such termination, which payments will be made as and when such payments are made to other appreciation unit holders. 124 All payments triggered by a termination of employment or service will be subject to the execution of a general release of claims in favor of the company. If a participant terminates service for any reason other than as described above, the participant will immediately forfeit all unearned benefits related to his or her unvested retention units and appreciation units. In October 2020, 43,000 appreciation units held under the 2021-2024 Retention Plan were cancelled. Pursuant to an amendment to the 2021-2024 Retention Plan adopted in October 2020, these cancelled appreciation units are considered “retired units” for purposes of the plan, and will be deemed to be outstanding and eligible for payment solely for purposes of determining the per unit value to be paid to participants, but no amounts will be paid with respect to such retired units. Retention Plan Adjusted EBITDA represents Credit Adjusted EBITDA further adjusted to reflect certain elements of cash-based compensation including retention unit awards and appreciation unit awards under the 2021-2024 Plan and retention awards to key individuals with acquired companies. The Company recognized compensation expenses in respect of retention bonus and appreciation unit awards under the 2021-2024 Plan of $ 106.2 million and $ 112.7 million during the years ended December 31, 2022 and 2021, respectively, and under the 2017-2020 Plan of $ 67.6 million during the year ended December 31, 2020. The Company has also granted retention awards to key individuals associated with acquired companies as an incentive to retain those individuals on a long-term basis. The Company recognized compensation expenses associated with these development-related retention payments of $ 7.7 million, $ 21.3 million and $ 15.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. NOTE 20. INTEREST EXPENSE AND OTHER, NET Interest expense and other, net for the years ended December 31, 2022, 2021 and 2020, are as follows (in millions): Year ended December 31, 2022 2021 2020 Interest expense $ 117.5 $ 149.2 $ 198.3 Interest income ( 14.1 ) ( 0.8 ) ( 0.1 ) Foreign currency translation differences, net 7.0 5.7 ( 5.7 ) Other 0.2 ( 0.3 ) 0.3 Total interest expense and other, net $ 110.6 $ 153.8 $ 192.8 125 NOTE 21. INCOME TAXES Deferred tax assets and liabilities Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in millions): December 31, 2022 2021 Deferred tax assets Net operating loss carry-forwards $ 29.3 $ 15.1 Accrued employee costs 8.3 6.6 Research and development expenses 41.8 30.4 Operating lease liabilities 21.4 16.9 Stock-based compensation 12.4 7.4 Interest expense 4.8 19.9 Foreign tax credit carryforward 37.2 37.2 Other 11.7 9.3 Deferred tax assets 166.9 142.8 Valuation allowances ( 39.4 ) ( 53.8 ) Net deferred tax assets 127.5 89.0 Deferred tax liabilities Intangible assets ( 54.6 ) ( 67.2 ) Debt issuance costs ( 6.1 ) ( 7.1 ) Property and equipment ( 9.0 ) ( 10.3 ) Derivative instruments ( 11.3 ) ( 1.3 ) Operating lease right-of-use assets ( 20.6 ) ( 15.3 ) Other ( 4.2 ) ( 3.2 ) Deferred tax liabilities ( 105.8 ) ( 104.4 ) Net deferred tax assets (liabilities) $ 21.7 $ ( 15.4 ) Deferred taxes are reported in the accompanying consolidated balance sheets as follows (in millions): December 31, 2022 2021 Deferred tax assets, net $ 68.3 $ 38.3 Deferred tax liabilities, net ( 46.6 ) ( 53.7 ) Net deferred tax (liabilities) assets $ 21.7 $ ( 15.4 ) Based on available evidence, management believes it is not more-likely-than-not that $ 39.4 million U.S. and Israel deferred tax assets will be fully realizable. Accordingly, in those jurisdictions, the Company has recorded a valuation allowance against these assets. The Company regularly reviews the deferred tax assets for recoverability based on all of the available positive and negative evidence, with a focus on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies by jurisdiction. Prior to the second quarter of 2019, the Company considered the earnings in all its non-U.S. subsidiaries to be indefinitely reinvested and accordingly, recorded no deferred income taxes associated with such earnings. During the second quarter of 2019, the Company reevaluated its historic assertion and no longer considered the earnings of certain of its non-U.S. subsidiaries to be indefinitely reinvested since the cash generated from some of the foreign subsidiaries will be used to 126 service debt in the United States. As a result of the change in assertion, the impact of a repatriation of the undistributed earnings resulted in recording a deferred tax liability consisting of potential withholding and distribution taxes of $ 41.7 million as of December 31, 2019. For the year ended December 31, 2020, the Company accrued an additional $ 4.5 million of deferred tax liability. Such deferred taxes were recognized as tax expense. As a result of the amendment to the Credit Agreement in 2021, primarily a reduction in the interest rate, in addition to other considerations, the Company had reevaluated its assertion and considered the earnings of all its non-U.S. subsidiaries to be indefinitely reinvested. For the year ended December 31, 2021, the Company reversed the previously accrued deferred tax liability and recognized $ 46.2 million of tax benefit. As of December 31, 2022, the Company continues to assert that the undistributed earnings of its non-U.S. subsidiaries will be indefinitely reinvested. The determination of the amount of any deferred income or withholding tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation. Net operating loss carry-forwards The Company has net operating loss carryforwards in certain jurisdictions, including Israel, Finland, and the U.S. of $ 121.7 million, $ 27.7 million, and $ 10.8 million, respectively. The net operating losses in Israel and the U.S. are carried forward indefinitely. The net operating losses in the Finland expire from 2031 through 2032. The Company’s income tax return is subject to examination by federal, state and non-U.S. tax authorities. The 2019 through 2021 U.S. federal income tax filings are currently open tax years available for examination by the IRS. U.S. state tax jurisdictions have statutes of limitation generally ranging from three to five years , with the earliest open tax year for the Company being 2017. Years still open to examination by tax authorities in Israel, which is the main jurisdiction other than the U.S. are 2017 through 2021. The Israeli tax authorities are currently examining tax years 2017 through 2020. Income before income taxes is comprised as follows (in millions): Year ended December 31, 2022 2021 2020 Domestic (U.S.) $ 127.0 $ 52.9 $ ( 48.5 ) Foreign 233.8 355.5 242.9 Income before taxes on income $ 360.8 $ 408.4 $ 194.4 Effective income tax rate reconciliations: Year ended December 31, 2022 2021 2020 US statutory tax rate 21.0 % 21.0 % 21.0 % Foreign tax rate differentials 2.9 % 2.6 % 1.0 % Effect of “Preferred Technology Enterprise” status ( 3.8 ) % ( 6.4 ) % ( 6.9 ) % Nondeductible stock-based compensation 2.4 % 2.0 % 14.2 % 162(m) Limitation 0.9 % 1.1 % — % GILTI and Foreign adjustments 4.3 % 6.3 % — % Permanent items 0.9 % 0.3 % 2.4 % Change in valuation allowance ( 4.0 ) % 0.9 % 1.3 % Withholding taxes 1.3 % 0.1 % 0.1 % State taxes, net of federal benefit 1.4 % 0.3 % 0.6 % Change in uncertain tax positions 0.6 % 5.8 % 18.5 % Repatriation of undistributed dividends — % ( 11.3 ) % 2.3 % Return-To-Provision Adjustments ( 4.7 ) % 1.7 % ( 1.0 ) % Other 0.5 % 0.1 % ( 0.9 ) % Effective tax rate 23.7 % 24.5 % 52.6 % 127 The Company believes that certain of its Israeli subsidiaries qualify as Preferred Technology Enterprises, entitled to a special tax track, under the Israeli Investment Law, 5719-1959 (the “Investment Law”) and accordingly are eligible for a reduced corporate tax rate of 12% on their preferred technology income, as defined in the Investment Law, beginning from tax year 2017 and onwards. A Preferred Technology Enterprise becomes a Special Preferred Technology Enterprise and is entitled to a reduced corporate tax rate of 6% on their preferred technology income when the worldwide revenues reach ILS 10 billion annually. The Company expects that the Israeli subsidiaries qualifying as Preferred Technology Enterprises in the current year will continue to qualify as Preferred Technology Enterprises or become Special Preferred Technology Enterprises in subsequent tax years. Income not eligible for Preferred Technology Enterprise benefits is taxed at the regular corporate tax rate at 23% beginning in 2018. Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence. During the fourth quarter of 2022, the Company received an assessment from the Israel Tax Authority asserting that a smaller proportion of the Company’s 2017 earnings qualified for reduced tax rates under the Preferred Technology Enterprise regime than what the Company had asserted on its tax return. Applying this same assertion to all open tax years 2017 through 2022, the assessment results in an aggregate exposure of approximately $ 120 million more income tax than what the Company has included on its prior tax returns for 2017 through 2021, or expects to include on its upcoming 2022 tax return. The Company intends to appeal this assessment and believes that its associated reserves are adequate. However, it is possible that any final amounts payable in connection with this tax assessment could exceed the Company’s current reserves. The provision for income taxes is comprised as follows (in millions): Year ended December 31, 2022 2021 2020 Current $ 134.2 $ 172.3 $ 115.4 Deferred ( 48.7 ) ( 72.4 ) ( 13.1 ) Total $ 85.5 $ 99.9 $ 102.3 Domestic (U.S.) $ ( 27.2 ) $ ( 19.6 ) $ 7.6 Foreign 112.7 119.5 94.7 Total $ 85.5 $ 99.9 $ 102.3 Year ended December 31, 2022 2021 2020 U.S. Federal Current $ ( 32.4 ) $ 24.9 $ 2.4 Deferred ( 1.3 ) ( 48.5 ) ( 1.1 ) Total $ ( 33.7 ) $ ( 23.6 ) $ 1.3 U.S. State Current $ 9.2 $ 3.5 $ 7.8 Deferred ( 2.7 ) 0.5 ( 1.5 ) Total $ 6.5 $ 4.0 $ 6.3 Foreign Current $ 157.5 $ 143.9 $ 105.2 Deferred ( 44.8 ) ( 24.4 ) ( 10.5 ) Total $ 112.7 $ 119.5 $ 94.7 128 Uncertain tax positions A reconciliation of the opening and closing balances of total unrecognized tax benefits is as follows (in millions): Year ended December 31, 2022 2021 Balance as of January 1 $ 114.2 $ 91.4 Increases in respect of tax positions related to the current year 44.5 23.4 Increases in respect of tax positions related to prior years 87.0 9.1 Increases in respect to exchange rate fluctuations — 3.9 Reductions in respect of settlements with authorities ( 1.2 ) ( 12.7 ) Reductions in respect of expirations of statute of limitations — ( 0.9 ) Reductions in respect of tax positions related to prior years ( 9.4 ) — Reductions in respect of exchange rate fluctuations ( 3.7 ) — Balance as of December 31 $ 231.4 $ 114.2 Included in the balance of total unrecognized tax benefits at December 31, 2022 is $ 100.5 million of tax benefits that if recognized, would affect the Company’s effective tax rate. The balance of the accrual relating to interest and penalties as of December 31, 2022 is $ 13.4 million. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits could change significantly within 12 months of the reporting date as a result of the open examination in Israel for the tax years ended 2017 through 2020. The nature of this uncertainty primarily relates to the qualification of certain income under the Preferred Technology Enterprise tax regime in Israel. However, a reasonable estimate of the range of possible changes cannot be made at this time. As of December 31, 2022, the Company has a gross unrecognized tax benefit liability in Israel of $ 140.2 million associated with potential transfer pricing adjustments. The Company estimates this liability will be reduced by $ 123.5 million from offsetting unrecognized tax benefits in the U.S., the United Kingdom, and Austria associated with correlative effects of potential transfer pricing adjustments. The Company netted these amounts in previous financial statements as discussed in Note 1, Organization and Summary of Significant Accounting Policies . The applicable guidance prohibits offsetting with regards to the unrecognized tax benefit reconciliation above. 129 NOTE 22. ACCUMULATED OTHER COMPREHENSIVE INCOME The following table shows a summary of changes in accumulated other comprehensive income (loss), net of tax, for the respective periods (in millions): Foreign Currency Translation Interest Rate Swaps Foreign Currency Derivative Contracts Total Balance as of January 1, 2021 $ 16.7 $ — $ — $ 16.7 Other comprehensive income (loss) before reclassifications ( 18.6 ) 2.1 2.0 ( 14.5 ) Amounts reclassified from accumulated other comprehensive income (loss) — 2.1 ( 1.1 ) 1.0 Balance as of December 31, 2021 ( 1.9 ) 4.2 0.9 3.2 Other comprehensive income (loss) before reclassifications ( 13.7 ) 36.4 ( 13.0 ) 9.7 Amounts reclassified from accumulated other comprehensive income (loss) — ( 2.9 ) 7.6 4.7 Balance as of December 31, 2022 $ ( 15.6 ) $ 37.7 $ ( 4.5 ) $ 17.6 For the year ended December 31, 2022, interest rate swaps and foreign currency derivative contracts were net of $ 10.0 million of tax expense and $ 1.0 million of tax benefit, respectively. For the year ended December 31, 2021, interest rate swaps were net of $ 1.3 million of tax expense. NOTE 23. NET INCOME ATTRIBUTABLE TO ORDINARY STOCKHOLDERS The following table sets forth the computation of basic and diluted net income per share attributable to ordinary stockholders (in millions, except per share data): Year ended December 31, 2022 2021 2020 Numerator: Net income $ 275.3 $ 308.5 $ 92.1 Denominator: Weighted-average shares used in computing net income per share attributable to common stockholders, basic 401.0 408.9 384.7 Weighted-average shares used in computing net income per share attributable to common stockholders, diluted 401.6 411.0 384.7 Net income per share, basic $ 0.69 $ 0.75 $ 0.24 Net income per share, diluted $ 0.69 $ 0.75 $ 0.24 The following outstanding employee equity awards were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive for the periods presented (in millions): Year ended December 31, 2022 2021 2020 Stock options 15.8 7.8 8.0 RSUs 13.0 4.5 — Total 28.8 12.3 8.0 Option awards that were deemed to be anti-dilutive and were modified in the Option Exchange are included in table above for the period they were outstanding in 2022 prior to the Option Exchange. In addition, 2.4 million PSUs were excluded from the 130 calculation of diluted net income per share for the year ended December 31, 2022 because the minimum performance measures have not yet been met. NOTE 24. SUBSEQUENT EVENTS The Company’s management evaluates subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the consolidated financial statements as of and for the year ended December 31, 2022. 131 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.