Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Basis of Consolidation and Presentation
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also operate esports leagues and events and create film and television content based on our intellectual property. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.
The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination by and among the Company (then known as Activision, Inc.), Vivendi S.A., and Vivendi Games, Inc., then an indirect wholly-owned subsidiary of Vivendi S.A., we were renamed Activision Blizzard, Inc.
Our Segments
Based upon our organizational structure, we conduct our business through three reportable segments, as follows:
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and entertainment content, particularly for the console platform. Activision primarily delivers content through retail and digital channels, including full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products primarily based on our internally developed intellectual properties, as well as some licensed properties. Activision’s key product franchise is Call of Duty®, a first-person shooter for the console and PC platforms. Also, on October 1, 2019, in collaboration with Tencent, Activision released Call of Duty: Mobile for the mobile platform, including for Google Inc.’s (“Google”) Android and Apple Inc.’s (“Apple”) iOS.
In 2010, Activision entered into an exclusive relationship with Bungie, Inc. (“Bungie”) to publish games in the Destiny franchise. Effective December 31, 2018, Activision and Bungie mutually agreed to terminate their publishing relationship related to the Destiny franchise. As part of this termination, Activision agreed to transfer its publishing rights for the Destiny franchise to Bungie in exchange for cash and Bungie’s assumption of on-going customer obligations of Activision. Activision no longer has any material rights or obligations related to the Destiny franchise.
(ii) Blizzard Entertainment, Inc.
Blizzard Entertainment, Inc. (“Blizzard”) is a leading global developer and publisher of interactive software products and entertainment content, particularly for the PC platform. Blizzard primarily delivers content through retail and digital channels, including subscriptions, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Blizzard Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity, and the creation of user-generated content. Blizzard also includes the activities of the Overwatch LeagueTM, the first major global professional esports league with city-based teams, and our Major League Gaming (“MLG”) business, which is responsible for various esports events and serves as a multi-platform network for Activision Blizzard esports content.
Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game for the PC platform; StarCraft®, a real-time strategy franchise for the PC platform; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; and Overwatch®, a team-based first-person shooter for the PC and console platforms.
(iii) King Digital Entertainment
King Digital Entertainment (“King”) is a leading global developer and publisher of interactive entertainment content and services, primarily for the mobile platform, including for Google’s Android and Apple’s iOS. King also distributes its content and services on the PC platform, primarily via Facebook. King’s games are free to play; however, players can acquire in-game items, either with virtual currency or real currency, and we continue to focus on in-game advertising as a growing source of additional revenue.
King’s key product franchises, all of which are for the mobile and PC platforms, include: Candy Crush™, which features “match three” games; Farm Heroes™, which also features “match three” games; and Bubble Witch™, which features “bubble shooter” games.
Other
We also engage in other businesses that do not represent reportable segments, including:
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•
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the Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content based on our library of globally recognized intellectual properties, and which, in September 2018, released the third season of the animated TV series Skylanders™ Academy on Netflix; and
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•
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the Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.
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Basis of Consolidation and Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in our annual audited consolidated financial statements. Additionally, the year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, all adjustments considered necessary for the fair statement of our financial position and results of operations in accordance with U.S. GAAP (consisting of normal recurring adjustments) have been included in the accompanying unaudited condensed consolidated financial statements. Actual results could differ from these estimates and assumptions.
The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated.
The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
During the three months ended March 31, 2019, we identified an error principally related to the initial recognition of global intangible low-taxed income of foreign subsidiaries income taxes which should have been recorded in the three months and year ended December 31, 2018. Income tax expense for the three months and year ended December 31, 2018 should have been reduced by $35 million. This amount is not material to the consolidated financial statements for the year ended December 31, 2018, and we will revise our 2018 consolidated financial statements to correct this matter in our Annual Report on Form 10-K for the year ending December 31, 2019. Our condensed consolidated balance sheet as of December 31, 2018, as presented in this Form 10-Q, has been revised to reflect the correction of this error.
Supplemental Cash Flow Information
The beginning and ending cash and cash equivalents and restricted cash reported within our condensed consolidated statement of cash flows included restricted cash amounts as follows (amounts in millions):
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|
|
|
|
|
|
|
|
At September 30,
|
|
2019
|
|
2018
|
Beginning restricted cash
|
$
|
4
|
|
|
$
|
7
|
|
Ending restricted cash
|
7
|
|
|
8
|
|
2. Summary of Significant Accounting Policies
Adoption of Accounting Standards Codification (“ASC”) 842: Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases. The new standard replaces all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease, and to recognize a lease liability and a right-of-use (“ROU”) asset for its leases. On January 1, 2019, we adopted the new lease accounting standard. As a result, we have updated our significant accounting policy disclosure to include our accounting policy for leases under the new standard. Refer to Note 3 for information about the impact of adoption on our condensed consolidated financial statements.
Leases
We determine if an arrangement is or contains a lease at contract inception. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement provides us with an asset that is physically distinct, or that represents substantially all of the capacity of the asset, and if we have the right to direct the use of the asset. Lease assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. Included in the lease liability are future lease payments that are fixed, in-substance fixed, or payments based on an index or rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. The operating lease ROU asset also includes any lease payments made prior to commencement, initial direct costs incurred, and lease incentives received. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents the rate required to borrow funds over a similar term to purchase the leased asset, and is based on the information available at the commencement date of the lease. For leased assets with similar lease terms and asset type we applied a portfolio approach in determining a single incremental borrowing rate to apply to the leased assets.
In determining our lease liability, the lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise such option. For operating leases, the lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Finance lease assets are depreciated on a straight-line basis over the estimated life of the asset, not to exceed the length of the lease, with interest expense associated with finance lease liabilities recorded using the effective interest method. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components. For our real estate, server and data center, and event production and broadcasting equipment leases, we elected the practical expedient to account for the lease and non-lease components as a single lease component. In all other lease arrangements, we account for lease and non-lease components separately. Additionally, for certain leases that have a group of leased assets with similar characteristics in size and composition, we may apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Operating lease ROU assets are presented in “Other assets” and operating lease liabilities are presented in “Accrued expenses and other current liabilities” and “Other liabilities” on our condensed consolidated balance sheet.
Finance lease ROU assets are presented in “Property and equipment, net” and finance lease liabilities are presented in “Accrued expenses and other current liabilities” and “Other liabilities” on our condensed consolidated balance sheet.
3. Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Leases
As noted in Note 2 above, we adopted the new lease accounting standard effective January 1, 2019. We elected to apply an optional adoption method, which uses the effective date as the initial date of application on transition with no retrospective adjustments to prior periods. Additionally, we elected to apply the package of transition practical expedients which permitted us to, among other things, (1) not reassess if existing contracts contained leases under the new lease accounting standard and (2) carry forward our historical lease classifications.
The impact from the adoption of the new lease accounting standard to our condensed consolidated balance sheet at January 1, 2019, was as follows (amounts in millions):
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|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet:
|
Balance at December 31, 2018
|
|
Adjustments due to adoption of new lease accounting standard
|
|
Balance at January 1, 2019
|
Assets
|
|
|
|
|
|
Other current assets
|
$
|
539
|
|
|
$
|
(8
|
)
|
|
$
|
531
|
|
Other assets
|
482
|
|
|
252
|
|
|
734
|
|
Liabilities
|
|
|
|
|
|
Accrued expenses and other liabilities
|
$
|
896
|
|
|
$
|
54
|
|
|
$
|
950
|
|
Other liabilities
|
1,167
|
|
|
190
|
|
|
1,357
|
|
The adoption of this standard did not have an impact on our condensed consolidated statement of operations or condensed consolidated statements of cash flows.
Recent Accounting Pronouncements Not Yet Adopted
Goodwill
In January 2017, the FASB issued new guidance that eliminates Step 2 from the goodwill impairment test. Instead, if an entity forgoes a Step 0 test, that entity will be required to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying amount and recognize an impairment charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019, and should be applied prospectively. Early adoption is permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. We do not currently expect this new accounting guidance to have an impact on our financial statements upon adoption.
Cloud Computing Arrangements
In August 2018, the FASB issued new guidance related to a customer’s accounting for implementation costs incurred in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract. The new guidance requires customers to capitalize implementation costs for these arrangements by applying the same criteria that are utilized for existing internal-use software guidance. The capitalized costs are required to be amortized over the associated term of the arrangement, generally on a straight-line basis, with amortization of these costs presented in the same financial statement line item as other costs associated with the arrangement. The new standard is effective for fiscal years beginning after December 15, 2019, and can be applied retrospectively or prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance related to accounting for credit losses on financial instruments. The update replaces the existing incurred loss impairment model with an expected loss model which requires the use of historical and forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will generally result in earlier recognition of credit losses. The new standard is effective for fiscal years beginning after December 15, 2019, and will be applied on a modified retrospective basis, with the cumulative effect of adoption recorded as an adjustment to retained earnings. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements, however, our preliminary conclusion is that the new guidance will not have a material impact on our financial statements and related disclosures.
4. Inventories, Net
Inventories, net, consist of the following (amounts in millions):
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|
|
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At September 30, 2019
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|
At December 31, 2018
|
Finished goods
|
$
|
82
|
|
|
$
|
40
|
|
Purchased parts and components
|
20
|
|
|
3
|
|
Inventories, net
|
$
|
102
|
|
|
$
|
43
|
|
At September 30, 2019 and December 31, 2018, inventory reserves were $13 million and $22 million, respectively.
5. Software Development and Intellectual Property Licenses
The following table summarizes the components of our capitalized software development costs (amounts in millions):
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|
|
|
|
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At September 30, 2019
|
|
At December 31, 2018
|
Internally-developed software costs
|
$
|
325
|
|
|
$
|
291
|
|
Payments made to third-party software developers
|
24
|
|
|
38
|
|
Total software development costs
|
$
|
349
|
|
|
$
|
329
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|
As of both September 30, 2019 and December 31, 2018, capitalized intellectual property licenses were not material.
Amortization of capitalized software development costs and intellectual property licenses was as follows (amounts in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
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For the Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization of capitalized software development costs and intellectual property licenses
|
$
|
11
|
|
|
$
|
33
|
|
|
$
|
175
|
|
|
$
|
242
|
|
6. Intangible Assets, Net
Intangible assets, net, consist of the following (amounts in millions):
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
Estimated useful lives
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
Acquired definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally-developed franchises
|
3
|
-
|
11 years
|
|
$
|
1,154
|
|
|
$
|
(1,086
|
)
|
|
$
|
68
|
|
Developed software
|
2
|
-
|
5 years
|
|
601
|
|
|
(548
|
)
|
|
53
|
|
Trade names
|
7
|
-
|
10 years
|
|
54
|
|
|
(28
|
)
|
|
26
|
|
Other
|
1
|
-
|
15 years
|
|
19
|
|
|
(16
|
)
|
|
3
|
|
Total definite-lived intangible assets (1)
|
|
|
|
|
$
|
1,828
|
|
|
$
|
(1,678
|
)
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
Acquired indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision trademark
|
Indefinite
|
|
|
|
|
|
|
|
386
|
|
Acquired trade names
|
Indefinite
|
|
|
|
|
|
|
|
47
|
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
$
|
433
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
$
|
583
|
|
|
|
(1)
|
Beginning with the first quarter of 2019, the balances of the customer base intangible assets have been removed as such amounts were fully amortized in the prior year.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
Estimated useful lives
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
Acquired definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally-developed franchises
|
3
|
-
|
11 years
|
|
$
|
1,154
|
|
|
$
|
(1,032
|
)
|
|
$
|
122
|
|
Developed software
|
2
|
-
|
5 years
|
|
601
|
|
|
(456
|
)
|
|
145
|
|
Customer base
|
2 years
|
|
617
|
|
|
(617
|
)
|
|
—
|
|
Trade names
|
7
|
-
|
10 years
|
|
54
|
|
|
(23
|
)
|
|
31
|
|
Other
|
1
|
-
|
15 years
|
|
19
|
|
|
(15
|
)
|
|
4
|
|
Total definite-lived intangible assets
|
|
|
|
|
$
|
2,445
|
|
|
$
|
(2,143
|
)
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
|
Acquired indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision trademark
|
Indefinite
|
|
|
|
|
|
|
|
386
|
|
Acquired trade names
|
Indefinite
|
|
|
|
|
|
|
|
47
|
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
$
|
433
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
$
|
735
|
|
Amortization expense of our intangible assets was $50 million and $152 million for the three and nine months ended September 30, 2019, respectively. Amortization expense of our intangible assets was $84 million and $280 million for the three and nine months ended September 30, 2018, respectively.
At September 30, 2019, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):
|
|
|
|
|
For the years ending December 31,
|
|
2019 (remaining three months)
|
$
|
52
|
|
2020
|
74
|
|
2021
|
12
|
|
2022
|
7
|
|
2023
|
2
|
|
Thereafter
|
3
|
|
Total
|
$
|
150
|
|
7. Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows (amounts in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Balance at December 31, 2018
|
$
|
6,897
|
|
|
$
|
190
|
|
|
$
|
2,675
|
|
|
$
|
9,762
|
|
Other
|
1
|
|
|
—
|
|
|
1
|
|
|
2
|
|
Balance at September 30, 2019
|
$
|
6,898
|
|
|
$
|
190
|
|
|
$
|
2,676
|
|
|
$
|
9,764
|
|
8. Fair Value Measurements
The FASB literature regarding fair value measurements for certain assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:
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|
•
|
Level 1—Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and
|
|
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
|
Fair Value Measurements on a Recurring Basis
The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2019 Using
|
|
|
|
As of September 30, 2019
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Balance Sheet Classification
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
4,616
|
|
|
$
|
4,616
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Foreign government treasury bills
|
36
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
Foreign currency forward contracts designated as hedges
|
23
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
Other current assets
|
Foreign currency forward contracts not designated as hedges
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
Other current assets
|
Total recurring fair value measurements
|
$
|
4,683
|
|
|
$
|
4,652
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as hedges
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 Using
|
|
|
|
As of December 31, 2018
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Balance Sheet Classification
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
3,925
|
|
|
$
|
3,925
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Foreign government treasury bills
|
32
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
U.S. treasuries and government agency securities
|
150
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
Other current assets
|
Foreign currency forward contracts designated as hedges
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
Other current assets
|
Foreign currency forward contracts not designated as hedges
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Other current assets
|
Total recurring fair value measurements
|
$
|
4,121
|
|
|
$
|
4,107
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts designated as hedges
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
Accrued expenses and other liabilities
|
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
The total gross notional amounts and fair values of our Cash Flow Hedges are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
As of December 31, 2018
|
|
Notional amount
|
Fair value gain (loss)
|
|
Notional amount
|
Fair value gain (loss)
|
Foreign Currency:
|
|
|
|
|
|
Buy USD, Sell Euro
|
$
|
310
|
|
$
|
23
|
|
|
$
|
723
|
|
$
|
12
|
|
At September 30, 2019, our Cash Flow Hedges have remaining maturities of three months or less. Additionally, $2 million of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at September 30, 2019 for Cash Flow Hedges that had settled but were deferred and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next 12 months.
The amount of pre-tax net realized gains (losses) associated with our Cash Flow Hedges that were reclassified out of “Accumulated other comprehensive income (loss)” and into earnings was as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
Statement of Operations Classification
|
|
2019
|
2018
|
|
2019
|
2018
|
|
Cash Flow Hedges
|
$
|
7
|
|
$
|
3
|
|
|
$
|
24
|
|
$
|
(11
|
)
|
|
Net revenues
|
Foreign Currency Forward Contracts Not Designated as Hedges
The gross notional amounts and fair values of our foreign currency forward contracts not designated as hedges are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
As of December 31, 2018
|
|
Notional amount
|
Fair value gain (loss)
|
|
Notional amount
|
Fair value gain (loss)
|
Foreign Currency:
|
|
|
|
|
|
Buy USD, Sell EUR
|
$
|
81
|
|
$
|
5
|
|
|
$
|
—
|
|
$
|
—
|
|
Buy EUR, Sell USD
|
79
|
|
(3
|
)
|
|
—
|
|
—
|
|
Buy USD, Sell SEK
|
46
|
|
2
|
|
|
—
|
|
—
|
|
Buy SEK, Sell USD
|
45
|
|
(1
|
)
|
|
—
|
|
—
|
|
Buy USD, Sell GBP
|
13
|
|
1
|
|
|
55
|
|
1
|
|
Buy GBP, Sell USD
|
13
|
|
—
|
|
|
—
|
|
—
|
|
For the three and nine months ended September 30, 2019 and 2018, pre-tax net gains (losses) associated with these forward contracts were recorded in “General and administrative expenses” and were not material.
Fair Value Measurements on a Non-Recurring Basis
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
During the three months ended June 30, 2019, we recorded an upward adjustment of $38 million to an investment in equity securities, which has been historically recorded at cost, based on an observable and orderly transaction in the common stock of the investee. We recognized a corresponding unrealized gain within “Interest and other expense (income), net” in our condensed consolidated statement of operations. As of September 30, 2019, the carrying value of the investment is $42 million and is recorded in “Other assets” on our condensed consolidated balance sheet. We classify this investment as Level 3 in the fair value hierarchy as we estimated the value based on valuation methods using the observable transaction price in a market with limited activity.
For the three and nine months ended September 30, 2019 and 2018, there were no impairment charges related to assets that are measured on a non-recurring basis.
9. Deferred revenues
We record deferred revenues when cash payments are received or due in advance of the fulfillment of our associated performance obligations. The opening balance of deferred revenues as of January 1, 2019 and the ending balance as of September 30, 2019, were $1.6 billion and $0.8 billion, respectively, including our current and non-current balances. For the nine months ended September 30, 2019, the additions to our deferred revenues balance were primarily due to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenues balance were primarily due to the recognition of revenues upon fulfillment of our performance obligations, both of which were in the ordinary course of business. During the three and nine months ended September 30, 2019, $0.1 billion and $1.4 billion of revenues, respectively, were recognized that were included in the deferred revenues balance at December 31, 2018. During the three and nine months ended September 30, 2018, $0.1 billion and $1.6 billion of revenues, respectively, were recognized that were included in the deferred revenues balance at January 1, 2018, as adjusted for the adoption of the new revenue standard in the prior year.
As of September 30, 2019, the aggregate amount of contracted revenues allocated to our unsatisfied performance obligations is $2.5 billion, which includes our deferred revenues balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1.4 billion over the next 12 months, $0.4 billion in the subsequent 12-month period, and the remainder thereafter. This balance does not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.
10. Leases
Our lease arrangements are primarily for: (1) corporate, administrative, and development studio offices; (2) data centers and server equipment; and (3) live event production equipment. Our existing leases have remaining lease terms ranging from one year to 10 years. In certain instances, such leases include one or more options to renew, with renewal terms that generally extend the lease term by one year to five years for each option. The exercise of lease renewal options is generally at our sole discretion. Additionally, the majority of our leases are classified as operating leases; our financing leases are not material.
Components of our lease costs are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
Operating leases
|
|
|
|
Operating lease costs
|
$
|
19
|
|
|
$
|
58
|
|
Variable lease costs
|
6
|
|
|
16
|
|
Supplemental information related to our operating leases is as follows (amounts in millions):
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Supplemental Operating Cash Flows Information
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
61
|
|
ROU assets obtained in exchange for new lease obligations
|
|
55
|
|
|
|
|
|
|
At September 30, 2019
|
Weighted Average Lease terms and discount rates
|
|
|
Remaining lease term
|
|
5.15 years
|
|
Discount rate
|
|
4.09
|
%
|
Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at September 30, 2019, are as follows (amounts in millions):
|
|
|
|
|
For the years ending December 31,
|
|
|
2019 (remaining three months)
|
$
|
14
|
|
2020
|
74
|
|
2021
|
56
|
|
2022
|
48
|
|
2023
|
42
|
|
Thereafter
|
74
|
|
Total future lease payments
|
$
|
308
|
|
Less imputed interest
|
(32
|
)
|
Total lease liabilities
|
$
|
276
|
|
As of September 30, 2019, we have entered into facility leases that have not yet commenced with future lease payments of approximately $57 million. These leases are expected to commence within the next 12 months and will have lease terms ranging from two years to five years.
Operating lease ROU assets and liabilities recorded on our condensed consolidated balance sheet as of September 30, 2019, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
Balance Sheet Classification
|
ROU assets
|
$
|
238
|
|
|
Other assets
|
|
|
|
|
Current lease liabilities
|
$
|
61
|
|
|
Accrued expenses and other current liabilities
|
Non-current lease liabilities
|
215
|
|
|
Other liabilities
|
|
$
|
276
|
|
|
Total lease liabilities
|
Future minimum lease payments as of December 31, 2018, prior to our adoption of the new lease accounting standard, were as follows:
|
|
|
|
|
For the years ending December 31,
|
|
|
2019
|
$
|
80
|
|
2020
|
70
|
|
2021
|
53
|
|
2022
|
45
|
|
2023
|
38
|
|
Thereafter
|
60
|
|
Total
|
$
|
346
|
|
11. Debt
Credit Facilities
As of September 30, 2019 and December 31, 2018, we had $1.5 billion available under a revolving credit facility (the “Revolver”) pursuant to a credit agreement entered into on October 11, 2013 (as amended thereafter and from time to time, the “Credit Agreement”). To date, we have not drawn on the Revolver, and we were in compliance with the terms of the Credit Agreement as of September 30, 2019.
Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 2018 for further details regarding the Credit Agreement, its key terms, and previous amendments made to it.
Unsecured Senior Notes
At September 30, 2019 and December 31, 2018, we had the following unsecured senior notes outstanding:
|
|
•
|
$650 million of 2.3% unsecured senior notes due September 2021 (the “2021 Notes”);
|
|
|
•
|
$400 million of 2.6% unsecured senior notes due June 2022 (the “2022 Notes”);
|
|
|
•
|
$850 million of 3.4% unsecured senior notes due September 2026 (the “2026 Notes”);
|
|
|
•
|
$400 million of 3.4% unsecured senior notes due June 2027 (the “2027 Notes”); and
|
|
|
•
|
$400 million of 4.5% unsecured senior notes due June 2047 (the “2047 Notes”, and together with the 2021 Notes, the 2022 Notes, the 2026 Notes, and the 2027 Notes, the “Notes”).
|
The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future senior indebtedness, including the Revolver described above. The Notes are not secured and are effectively junior to any of the Company’s existing and future indebtedness that is secured to the extent of the value of the collateral securing such indebtedness. We were in compliance with the terms of the Notes as of September 30, 2019.
Interest is payable semi-annually in arrears on March 15 and September 15 of each year for the 2021 Notes and the 2026 Notes, and payable semi-annually in arrears on June 15 and December 15 of each year for the 2022 Notes, the 2027 Notes, and the 2047 Notes. Accrued interest payable is recorded within “Accrued expenses and other liabilities” in our condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, we had accrued interest payable of $14 million and $15 million, respectively, related to the Notes.
Refer to Note 13 contained in our Annual Report on Form 10-K for the year ended December 31, 2018 for further details regarding key terms under our indentures that govern the Notes.
Interest Expense and Financing Costs
Fees and discounts associated with the issuance of our debt instruments are recorded as debt discount, which reduces their respective carrying values, and are amortized over their respective terms. Amortization expense is recorded within “Interest and other expense (income), net” in our condensed consolidated statement of operations.
For the three and nine months ended September 30, 2019, interest expense was $21 million and $64 million, respectively, and amortization of the debt discount and deferred financing costs was $1 million and $3 million, respectively. For the three and nine months ended September 30, 2018, interest expense was $32 million and $113 million, respectively, and amortization of the debt discount and deferred financing costs was $1 million and $5 million, respectively.
A summary of our outstanding debt is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
Gross Carrying
Amount
|
|
Unamortized
Discount and Deferred Financing Costs
|
|
Net Carrying
Amount
|
2021 Notes
|
$
|
650
|
|
|
$
|
(2
|
)
|
|
$
|
648
|
|
2022 Notes
|
400
|
|
|
(2
|
)
|
|
398
|
|
2026 Notes
|
850
|
|
|
(8
|
)
|
|
842
|
|
2027 Notes
|
400
|
|
|
(5
|
)
|
|
395
|
|
2047 Notes
|
400
|
|
|
(9
|
)
|
|
391
|
|
Total long-term debt
|
$
|
2,700
|
|
|
$
|
(26
|
)
|
|
$
|
2,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
Gross Carrying
Amount
|
|
Unamortized
Discount and Deferred Financing Costs
|
|
Net Carrying
Amount
|
2021 Notes
|
$
|
650
|
|
|
$
|
(3
|
)
|
|
$
|
647
|
|
2022 Notes
|
400
|
|
|
(3
|
)
|
|
397
|
|
2026 Notes
|
850
|
|
|
(8
|
)
|
|
842
|
|
2027 Notes
|
400
|
|
|
(5
|
)
|
|
395
|
|
2047 Notes
|
400
|
|
|
(10
|
)
|
|
390
|
|
Total long-term debt
|
$
|
2,700
|
|
|
$
|
(29
|
)
|
|
$
|
2,671
|
|
As of September 30, 2019, the scheduled maturities and contractual principal repayments of our debt for each of the five succeeding years and thereafter are as follows (amounts in millions):
|
|
|
|
|
For the years ending December 31,
|
|
|
2019 (remaining three months)
|
$
|
—
|
|
2020
|
—
|
|
2021
|
650
|
|
2022
|
400
|
|
2023
|
—
|
|
Thereafter
|
1,650
|
|
Total
|
$
|
2,700
|
|
With the exception of the 2047 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active markets) at September 30, 2019, the carrying values of the Notes approximated their fair values, as the interest rates were similar to the current rates at which we could borrow funds over the selected interest periods. At September 30, 2019, based on Level 2 inputs, the fair value of the 2047 Notes was $454 million.
Using Level 2 inputs at December 31, 2018, the carrying values of the 2021 Notes and the 2022 Notes approximated their fair values, as the interest rates were similar to the current rates at which we could borrow funds over the selected interest periods. At December 31, 2018, based on Level 2 inputs, the fair values of the 2026 Notes, the 2027 Notes, and the 2047 Notes were $800 million, $376 million, and $360 million, respectively.
12. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2019
|
|
Foreign currency translation adjustments
|
|
Unrealized gain (loss) on forward contracts
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
Total
|
Balance at December 31, 2018
|
$
|
(629
|
)
|
|
$
|
23
|
|
|
$
|
5
|
|
|
$
|
(601
|
)
|
Other comprehensive income (loss) before reclassifications
|
(5
|
)
|
|
28
|
|
|
3
|
|
|
26
|
|
Amounts reclassified from accumulated other comprehensive income (loss) into earnings
|
—
|
|
|
(24
|
)
|
|
(8
|
)
|
|
(32
|
)
|
Balance at September 30, 2019
|
$
|
(634
|
)
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
(607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2018
|
|
Foreign currency translation adjustments
|
|
Unrealized gain (loss) on forward contracts
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
Total
|
Balance at December 31, 2017
|
$
|
(623
|
)
|
|
$
|
(15
|
)
|
|
$
|
—
|
|
|
$
|
(638
|
)
|
Cumulative impact from adoption of new revenue accounting standard
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Other comprehensive income (loss) before reclassifications
|
(7
|
)
|
|
14
|
|
|
4
|
|
|
11
|
|
Amounts reclassified from accumulated other comprehensive income (loss) into earnings
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Balance at September 30, 2018
|
$
|
(627
|
)
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
(613
|
)
|
13. Operating Segments and Geographic Region
Currently, we have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.
Our operating segments are also consistent with our internal organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.
Information on reportable segment net revenues and operating income for the three months ended September 30, 2019 and 2018, are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
209
|
|
|
$
|
392
|
|
|
$
|
500
|
|
|
$
|
1,101
|
|
Intersegment net revenues (1)
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Segment net revenues
|
$
|
209
|
|
|
$
|
394
|
|
|
$
|
500
|
|
|
$
|
1,103
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
26
|
|
|
$
|
74
|
|
|
$
|
194
|
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
397
|
|
|
$
|
627
|
|
|
$
|
506
|
|
|
$
|
1,530
|
|
Intersegment net revenues (1)
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Segment net revenues
|
$
|
397
|
|
|
$
|
635
|
|
|
$
|
506
|
|
|
$
|
1,538
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
112
|
|
|
$
|
189
|
|
|
$
|
184
|
|
|
$
|
485
|
|
Information on reportable segment net revenues and operating income for the nine months ended September 30, 2019 and 2018, are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
794
|
|
|
$
|
1,113
|
|
|
$
|
1,527
|
|
|
$
|
3,434
|
|
Intersegment net revenues (1)
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Segment net revenues
|
$
|
794
|
|
|
$
|
1,122
|
|
|
$
|
1,527
|
|
|
$
|
3,443
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
153
|
|
|
$
|
204
|
|
|
$
|
543
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
1,047
|
|
|
$
|
1,592
|
|
|
$
|
1,542
|
|
|
$
|
4,181
|
|
Intersegment net revenues (1)
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Segment net revenues
|
$
|
1,047
|
|
|
$
|
1,606
|
|
|
$
|
1,542
|
|
|
$
|
4,195
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
288
|
|
|
$
|
444
|
|
|
$
|
543
|
|
|
$
|
1,275
|
|
|
|
(1)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and consolidated income before income tax expense are presented in the table below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation to consolidated net revenues:
|
|
|
|
|
|
|
|
Segment net revenues
|
$
|
1,103
|
|
|
$
|
1,538
|
|
|
$
|
3,443
|
|
|
$
|
4,195
|
|
Revenues from non-reportable segments (1)
|
113
|
|
|
128
|
|
|
245
|
|
|
246
|
|
Net effect from recognition (deferral) of deferred net revenues (2)
|
68
|
|
|
(146
|
)
|
|
824
|
|
|
692
|
|
Elimination of intersegment revenues (3)
|
(2
|
)
|
|
(8
|
)
|
|
(9
|
)
|
|
(14
|
)
|
Consolidated net revenues
|
$
|
1,282
|
|
|
$
|
1,512
|
|
|
$
|
4,503
|
|
|
$
|
5,119
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated income before income tax expense:
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
294
|
|
|
$
|
485
|
|
|
$
|
900
|
|
|
$
|
1,275
|
|
Operating income (loss) from non-reportable segments (1)
|
5
|
|
|
7
|
|
|
10
|
|
|
(4
|
)
|
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)
|
53
|
|
|
(89
|
)
|
|
629
|
|
|
468
|
|
Share-based compensation expense
|
(27
|
)
|
|
(55
|
)
|
|
(127
|
)
|
|
(166
|
)
|
Amortization of intangible assets
|
(50
|
)
|
|
(83
|
)
|
|
(151
|
)
|
|
(279
|
)
|
Restructuring and related costs (4)
|
(28
|
)
|
|
—
|
|
|
(108
|
)
|
|
—
|
|
Consolidated operating income
|
247
|
|
|
265
|
|
|
1,153
|
|
|
1,294
|
|
Interest and other expense (income), net
|
(2
|
)
|
|
13
|
|
|
(33
|
)
|
|
67
|
|
Loss on extinguishment of debt
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
Consolidated income before income tax expense
|
$
|
249
|
|
|
$
|
212
|
|
|
$
|
1,186
|
|
|
$
|
1,187
|
|
|
|
(1)
|
Includes other income and expenses from operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes unallocated corporate income and expenses.
|
|
|
(2)
|
Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain of our online-enabled products.
|
|
|
(3)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
|
|
(4)
|
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
|
Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the three months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
179
|
|
|
$
|
335
|
|
|
$
|
502
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
1,014
|
|
Retail channels
|
73
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
Other (2)
|
—
|
|
|
62
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
175
|
|
Total consolidated net revenues
|
$
|
252
|
|
|
$
|
417
|
|
|
$
|
502
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(16
|
)
|
|
$
|
(21
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
Retail channels
|
(27
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
Other (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total change in deferred revenues
|
$
|
(43
|
)
|
|
$
|
(23
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
163
|
|
|
$
|
314
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
975
|
|
Retail channels
|
46
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
Other (2)
|
—
|
|
|
62
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
175
|
|
Total segment net revenues
|
$
|
209
|
|
|
$
|
394
|
|
|
$
|
500
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
299
|
|
|
$
|
480
|
|
|
$
|
505
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
1,276
|
|
Retail channels
|
53
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76
|
|
Other (2)
|
—
|
|
|
35
|
|
|
—
|
|
|
125
|
|
|
—
|
|
|
160
|
|
Total consolidated net revenues
|
$
|
352
|
|
|
$
|
538
|
|
|
$
|
505
|
|
|
$
|
125
|
|
|
$
|
(8
|
)
|
|
$
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
57
|
|
|
$
|
101
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
159
|
|
Retail channels
|
(12
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Other (2)
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
3
|
|
|
—
|
|
|
1
|
|
Total change in deferred revenues
|
$
|
45
|
|
|
$
|
97
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
356
|
|
|
$
|
581
|
|
|
$
|
506
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
1,435
|
|
Retail channels
|
41
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
Other (2)
|
—
|
|
|
33
|
|
|
—
|
|
|
128
|
|
|
—
|
|
|
161
|
|
Total segment net revenues
|
$
|
397
|
|
|
$
|
635
|
|
|
$
|
506
|
|
|
$
|
128
|
|
|
$
|
(8
|
)
|
|
$
|
1,658
|
|
Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
894
|
|
|
$
|
1,081
|
|
|
$
|
1,527
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
3,493
|
|
Retail channels
|
548
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
599
|
|
Other (2)
|
—
|
|
|
157
|
|
|
—
|
|
|
254
|
|
|
—
|
|
|
411
|
|
Total consolidated net revenues
|
$
|
1,442
|
|
|
$
|
1,289
|
|
|
$
|
1,527
|
|
|
$
|
254
|
|
|
$
|
(9
|
)
|
|
$
|
4,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(285
|
)
|
|
$
|
(159
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(444
|
)
|
Retail channels
|
(363
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(373
|
)
|
Other (2)
|
—
|
|
|
2
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(7
|
)
|
Total change in deferred revenues
|
$
|
(648
|
)
|
|
$
|
(167
|
)
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
609
|
|
|
$
|
922
|
|
|
$
|
1,527
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
3,049
|
|
Retail channels
|
185
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
Other (2)
|
—
|
|
|
159
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
404
|
|
Total segment net revenues
|
$
|
794
|
|
|
$
|
1,122
|
|
|
$
|
1,527
|
|
|
$
|
245
|
|
|
$
|
(9
|
)
|
|
$
|
3,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
1,110
|
|
|
$
|
1,355
|
|
|
$
|
1,547
|
|
|
$
|
—
|
|
|
$
|
(14
|
)
|
|
$
|
3,998
|
|
Retail channels
|
707
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
764
|
|
Other (2)
|
—
|
|
|
124
|
|
|
—
|
|
|
233
|
|
|
—
|
|
|
357
|
|
Total consolidated net revenues
|
$
|
1,817
|
|
|
$
|
1,536
|
|
|
$
|
1,547
|
|
|
$
|
233
|
|
|
$
|
(14
|
)
|
|
$
|
5,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(234
|
)
|
|
$
|
79
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(160
|
)
|
Retail channels
|
(536
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(546
|
)
|
Other (2)
|
—
|
|
|
1
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
14
|
|
Total change in deferred revenues
|
$
|
(770
|
)
|
|
$
|
70
|
|
|
$
|
(5
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
876
|
|
|
$
|
1,434
|
|
|
$
|
1,542
|
|
|
$
|
—
|
|
|
$
|
(14
|
)
|
|
$
|
3,838
|
|
Retail channels
|
171
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
Other (2)
|
—
|
|
|
125
|
|
|
—
|
|
|
246
|
|
|
—
|
|
|
371
|
|
Total segment net revenues
|
$
|
1,047
|
|
|
$
|
1,606
|
|
|
$
|
1,542
|
|
|
$
|
246
|
|
|
$
|
(14
|
)
|
|
$
|
4,427
|
|
|
|
(1)
|
Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
|
|
|
(2)
|
Net revenues from “Other” include revenues from our Studios and Distribution businesses, as well as revenues from MLG and the Overwatch League.
|
|
|
(3)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
Geographic information presented below is based on the location of the paying customer. Net revenues by geographic region, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
141
|
|
|
$
|
204
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
655
|
|
EMEA (1)
|
79
|
|
|
124
|
|
|
137
|
|
|
113
|
|
|
(1
|
)
|
|
452
|
|
Asia Pacific
|
32
|
|
|
89
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
175
|
|
Total consolidated net revenues
|
$
|
252
|
|
|
$
|
417
|
|
|
$
|
502
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(20
|
)
|
|
$
|
(11
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(33
|
)
|
EMEA (1)
|
(16
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
Asia Pacific
|
(7
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Total change in deferred revenues
|
$
|
(43
|
)
|
|
$
|
(23
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
121
|
|
|
$
|
193
|
|
|
$
|
309
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
622
|
|
EMEA (1)
|
63
|
|
|
114
|
|
|
137
|
|
|
113
|
|
|
(1
|
)
|
|
426
|
|
Asia Pacific
|
25
|
|
|
87
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
166
|
|
Total segment net revenues
|
$
|
209
|
|
|
$
|
394
|
|
|
$
|
500
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
214
|
|
|
$
|
242
|
|
|
$
|
309
|
|
|
$
|
13
|
|
|
$
|
(4
|
)
|
|
$
|
774
|
|
EMEA (1)
|
109
|
|
|
172
|
|
|
143
|
|
|
112
|
|
|
(2
|
)
|
|
534
|
|
Asia Pacific
|
29
|
|
|
124
|
|
|
53
|
|
|
—
|
|
|
(2
|
)
|
|
204
|
|
Total consolidated net revenues
|
$
|
352
|
|
|
$
|
538
|
|
|
$
|
505
|
|
|
$
|
125
|
|
|
$
|
(8
|
)
|
|
$
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
33
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
76
|
|
EMEA (1)
|
8
|
|
|
48
|
|
|
1
|
|
|
3
|
|
|
—
|
|
|
60
|
|
Asia Pacific
|
4
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Total change in deferred revenues
|
$
|
45
|
|
|
$
|
97
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
247
|
|
|
$
|
285
|
|
|
$
|
309
|
|
|
$
|
13
|
|
|
$
|
(4
|
)
|
|
$
|
850
|
|
EMEA (1)
|
117
|
|
|
220
|
|
|
144
|
|
|
115
|
|
|
(2
|
)
|
|
594
|
|
Asia Pacific
|
33
|
|
|
130
|
|
|
53
|
|
|
—
|
|
|
(2
|
)
|
|
214
|
|
Total segment net revenues
|
$
|
397
|
|
|
$
|
635
|
|
|
$
|
506
|
|
|
$
|
128
|
|
|
$
|
(8
|
)
|
|
$
|
1,658
|
|
Geographic information presented below is based on the location of the paying customer. Net revenues by geographic region, including a reconciliation to each of our reportable segment’s net revenues, for the nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
852
|
|
|
$
|
613
|
|
|
$
|
946
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
2,406
|
|
EMEA (1)
|
457
|
|
|
400
|
|
|
417
|
|
|
254
|
|
|
(3
|
)
|
|
1,525
|
|
Asia Pacific
|
133
|
|
|
276
|
|
|
164
|
|
|
—
|
|
|
(1
|
)
|
|
572
|
|
Total consolidated net revenues
|
$
|
1,442
|
|
|
$
|
1,289
|
|
|
$
|
1,527
|
|
|
$
|
254
|
|
|
$
|
(9
|
)
|
|
$
|
4,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(390
|
)
|
|
$
|
(80
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(469
|
)
|
EMEA (1)
|
(205
|
)
|
|
(71
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(285
|
)
|
Asia Pacific
|
(53
|
)
|
|
(16
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
Total change in deferred revenues
|
$
|
(648
|
)
|
|
$
|
(167
|
)
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
462
|
|
|
$
|
533
|
|
|
$
|
947
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
1,937
|
|
EMEA (1)
|
252
|
|
|
329
|
|
|
417
|
|
|
245
|
|
|
(3
|
)
|
|
1,240
|
|
Asia Pacific
|
80
|
|
|
260
|
|
|
163
|
|
|
—
|
|
|
(1
|
)
|
|
502
|
|
Total segment net revenues
|
$
|
794
|
|
|
$
|
1,122
|
|
|
$
|
1,527
|
|
|
$
|
245
|
|
|
$
|
(9
|
)
|
|
$
|
3,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
1,074
|
|
|
$
|
716
|
|
|
$
|
945
|
|
|
$
|
13
|
|
|
$
|
(8
|
)
|
|
$
|
2,740
|
|
EMEA (1)
|
613
|
|
|
497
|
|
|
448
|
|
|
220
|
|
|
(4
|
)
|
|
1,774
|
|
Asia Pacific
|
130
|
|
|
323
|
|
|
154
|
|
|
—
|
|
|
(2
|
)
|
|
605
|
|
Total consolidated net revenues
|
$
|
1,817
|
|
|
$
|
1,536
|
|
|
$
|
1,547
|
|
|
$
|
233
|
|
|
$
|
(14
|
)
|
|
$
|
5,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(439
|
)
|
|
$
|
43
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(399
|
)
|
EMEA (1)
|
(287
|
)
|
|
34
|
|
|
(2
|
)
|
|
13
|
|
|
—
|
|
|
(242
|
)
|
Asia Pacific
|
(44
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
Total change in deferred revenues
|
$
|
(770
|
)
|
|
$
|
70
|
|
|
$
|
(5
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
635
|
|
|
$
|
759
|
|
|
$
|
942
|
|
|
$
|
13
|
|
|
$
|
(8
|
)
|
|
$
|
2,341
|
|
EMEA (1)
|
326
|
|
|
531
|
|
|
446
|
|
|
233
|
|
|
(4
|
)
|
|
1,532
|
|
Asia Pacific
|
86
|
|
|
316
|
|
|
154
|
|
|
—
|
|
|
(2
|
)
|
|
554
|
|
Total segment net revenues
|
$
|
1,047
|
|
|
$
|
1,606
|
|
|
$
|
1,542
|
|
|
$
|
246
|
|
|
$
|
(14
|
)
|
|
$
|
4,427
|
|
|
|
(1)
|
“EMEA” consists of the Europe, Middle East, and Africa geographic regions.
|
|
|
(2)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
The Company’s net revenues in the U.S. were 46% of consolidated net revenues for both the three months ended September 30, 2019 and 2018. The Company’s net revenues in the U.K. were 13% of consolidated net revenues for both the three months ended September 30, 2019 and 2018. No other country’s net revenues exceeded 10% of consolidated net revenues for either the three months ended September 30, 2019 or 2018.
The Company’s net revenues in the U.S. were 48% and 47% of consolidated net revenues for the nine months ended September 30, 2019 and 2018, respectively. The Company’s net revenues in the U.K. were 10% and 11% of consolidated net revenues for the nine months ended September 30, 2019 and 2018, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for either the nine months ended September 30, 2019 or 2018.
Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
214
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
241
|
|
PC
|
29
|
|
|
286
|
|
|
28
|
|
|
—
|
|
|
(2
|
)
|
|
341
|
|
Mobile and ancillary (1)
|
9
|
|
|
42
|
|
|
474
|
|
|
—
|
|
|
—
|
|
|
525
|
|
Other (2)
|
—
|
|
|
62
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
175
|
|
Total consolidated net revenues
|
$
|
252
|
|
|
$
|
417
|
|
|
$
|
502
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(36
|
)
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(45
|
)
|
PC
|
(7
|
)
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
Mobile and ancillary (1)
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Other (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total change in deferred revenues
|
$
|
(43
|
)
|
|
$
|
(23
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
178
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
196
|
|
PC
|
22
|
|
|
272
|
|
|
28
|
|
|
—
|
|
|
(2
|
)
|
|
320
|
|
Mobile and ancillary (1)
|
9
|
|
|
42
|
|
|
472
|
|
|
—
|
|
|
—
|
|
|
523
|
|
Other (2)
|
—
|
|
|
62
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
175
|
|
Total segment net revenues
|
$
|
209
|
|
|
$
|
394
|
|
|
$
|
500
|
|
|
$
|
113
|
|
|
$
|
(2
|
)
|
|
$
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
307
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
347
|
|
PC
|
40
|
|
|
414
|
|
|
36
|
|
|
—
|
|
|
(8
|
)
|
|
482
|
|
Mobile and ancillary (1)
|
5
|
|
|
49
|
|
|
469
|
|
|
—
|
|
|
—
|
|
|
523
|
|
Other (2)
|
—
|
|
|
35
|
|
|
—
|
|
|
125
|
|
|
—
|
|
|
160
|
|
Total consolidated net revenues
|
$
|
352
|
|
|
$
|
538
|
|
|
$
|
505
|
|
|
$
|
125
|
|
|
$
|
(8
|
)
|
|
$
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
29
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20
|
|
PC
|
16
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
117
|
|
Mobile and ancillary (1)
|
—
|
|
|
7
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Other (2)
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
3
|
|
|
—
|
|
|
1
|
|
Total change in deferred revenues
|
$
|
45
|
|
|
$
|
97
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
336
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
367
|
|
PC
|
56
|
|
|
515
|
|
|
36
|
|
|
—
|
|
|
(8
|
)
|
|
599
|
|
Mobile and ancillary (1)
|
5
|
|
|
56
|
|
|
470
|
|
|
—
|
|
|
—
|
|
|
531
|
|
Other (2)
|
—
|
|
|
33
|
|
|
—
|
|
|
128
|
|
|
—
|
|
|
161
|
|
Total segment net revenues
|
$
|
397
|
|
|
$
|
635
|
|
|
$
|
506
|
|
|
$
|
128
|
|
|
$
|
(8
|
)
|
|
$
|
1,658
|
|
Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
1,222
|
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,324
|
|
PC
|
204
|
|
|
909
|
|
|
92
|
|
|
—
|
|
|
(9
|
)
|
|
1,196
|
|
Mobile and ancillary (1)
|
16
|
|
|
121
|
|
|
1,435
|
|
|
—
|
|
|
—
|
|
|
1,572
|
|
Other (2)
|
—
|
|
|
157
|
|
|
—
|
|
|
254
|
|
|
—
|
|
|
411
|
|
Total consolidated net revenues
|
$
|
1,442
|
|
|
$
|
1,289
|
|
|
$
|
1,527
|
|
|
$
|
254
|
|
|
$
|
(9
|
)
|
|
$
|
4,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(563
|
)
|
|
$
|
(26
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(589
|
)
|
PC
|
(84
|
)
|
|
(133
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(218
|
)
|
Mobile and ancillary (1)
|
(1
|
)
|
|
(10
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Other (2)
|
—
|
|
|
2
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(7
|
)
|
Total change in deferred revenues
|
$
|
(648
|
)
|
|
$
|
(167
|
)
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
659
|
|
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
735
|
|
PC
|
120
|
|
|
776
|
|
|
91
|
|
|
—
|
|
|
(9
|
)
|
|
978
|
|
Mobile and ancillary (1)
|
15
|
|
|
111
|
|
|
1,436
|
|
|
—
|
|
|
—
|
|
|
1,562
|
|
Other (2)
|
—
|
|
|
159
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
404
|
|
Total segment net revenues
|
$
|
794
|
|
|
$
|
1,122
|
|
|
$
|
1,527
|
|
|
$
|
245
|
|
|
$
|
(9
|
)
|
|
$
|
3,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
1,597
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,730
|
|
PC
|
208
|
|
|
1,140
|
|
|
118
|
|
|
—
|
|
|
(14
|
)
|
|
1,452
|
|
Mobile and ancillary (1)
|
12
|
|
|
139
|
|
|
1,429
|
|
|
—
|
|
|
—
|
|
|
1,580
|
|
Other (2)
|
—
|
|
|
124
|
|
|
—
|
|
|
233
|
|
|
—
|
|
|
357
|
|
Total consolidated net revenues
|
$
|
1,817
|
|
|
$
|
1,536
|
|
|
$
|
1,547
|
|
|
$
|
233
|
|
|
$
|
(14
|
)
|
|
$
|
5,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(695
|
)
|
|
$
|
(25
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(720
|
)
|
PC
|
(76
|
)
|
|
96
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Mobile and ancillary (1)
|
1
|
|
|
(2
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Other (2)
|
—
|
|
|
1
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
14
|
|
Total change in deferred revenues
|
$
|
(770
|
)
|
|
$
|
70
|
|
|
$
|
(5
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
902
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,010
|
|
PC
|
132
|
|
|
1,236
|
|
|
118
|
|
|
—
|
|
|
(14
|
)
|
|
1,472
|
|
Mobile and ancillary (1)
|
13
|
|
|
137
|
|
|
1,424
|
|
|
—
|
|
|
—
|
|
|
1,574
|
|
Other (2)
|
—
|
|
|
125
|
|
|
—
|
|
|
246
|
|
|
—
|
|
|
371
|
|
Total segment net revenues
|
$
|
1,047
|
|
|
$
|
1,606
|
|
|
$
|
1,542
|
|
|
$
|
246
|
|
|
$
|
(14
|
)
|
|
$
|
4,427
|
|
|
|
(1)
|
Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform specific game-related revenues, such as standalone sales of physical merchandise and accessories.
|
|
|
(2)
|
Net revenues from “Other” include revenues from our Studios and Distribution businesses, as well as revenues from MLG and the Overwatch League.
|
|
|
(3)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
Long-lived assets by geographic region were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
At December 31, 2018
|
Long-lived assets (1) by geographic region:
|
|
|
|
|
|
Americas
|
$
|
179
|
|
|
$
|
203
|
|
EMEA
|
58
|
|
|
62
|
|
Asia Pacific
|
12
|
|
|
17
|
|
Total long-lived assets by geographic region
|
$
|
249
|
|
|
$
|
282
|
|
|
|
(1)
|
The only long-lived assets that we classify by region are our long-term tangible fixed assets, which consist of property, plant, and equipment assets; all other long-term assets are not allocated by location.
|
14. Restructuring
On February 12, 2019, the Company committed to a Board-authorized restructuring plan under which the Company aims to refocus its resources on its largest opportunities and to remove unnecessary levels of complexity and duplication from certain parts of the business. We have been, and will continue:
|
|
•
|
increasing our investment in development for our largest, internally-owned franchises—across upfront releases, in-game content, mobile, and geographic expansion;
|
|
|
•
|
reducing certain non-development and administrative-related costs across our business; and
|
|
|
•
|
integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and scale on behalf of our business units.
|
The restructuring actions are in process and are largely expected to be completed by the end of 2019, although the timing of cash payments may continue into 2020.
The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other liabilities” in our condensed consolidated balance sheet (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and employee related costs
|
|
Facilities and related costs
|
|
Other costs
|
|
Total
|
Balance at December 31, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Costs charged to expense
|
43
|
|
|
—
|
|
|
14
|
|
|
57
|
|
Cash payments
|
(11
|
)
|
|
—
|
|
|
(1
|
)
|
|
(12
|
)
|
Non-cash charge adjustment (1)
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(11
|
)
|
Balance at March 31, 2019
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
34
|
|
Costs charged to expense
|
9
|
|
|
9
|
|
|
4
|
|
|
22
|
|
Cash payments
|
(15
|
)
|
|
—
|
|
|
(5
|
)
|
|
(20
|
)
|
Non-cash charge adjustment (1)
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
Balance at June 30, 2019
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
27
|
|
Costs charged to expense
|
5
|
|
|
13
|
|
|
6
|
|
|
24
|
|
Cash payments
|
(8
|
)
|
|
—
|
|
|
(3
|
)
|
|
(11
|
)
|
Non-cash charge adjustment (1)
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
Balance at September 30, 2019
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
27
|
|
|
|
(1)
|
Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled projects during the three months ended March 31, 2019, and the write-down of lease facility assets, inclusive of lease right-of-use assets and associated fixed assets, that were vacated during the three months ended June 30, 2019 and September 30, 2019.
|
Total restructuring and related costs by segment are (amounts in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
Activision
|
$
|
1
|
|
|
$
|
12
|
|
Blizzard
|
12
|
|
|
52
|
|
King
|
4
|
|
|
17
|
|
Other segments (1)
|
7
|
|
|
23
|
|
Total
|
$
|
24
|
|
|
$
|
104
|
|
|
|
(1)
|
Includes charges related to operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes restructuring charges for our corporate and administrative functions.
|
During the three months ended September 30, 2019, we also recorded $4 million to write-down inventory resulting from changes to certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales: Product costs” in our condensed consolidated statement of operations.
We expect to incur aggregate pre-tax restructuring charges of approximately $150 million in 2019 associated with the restructuring plan, which includes the inventory write-down discussed above. These charges will primarily relate to severance (approximately 55% of the aggregate charge), including, in many cases, amounts above those that are legally required, facilities costs (approximately 20% of the aggregate charge), and other asset write-downs and costs (approximately 25% of the aggregate charge). A majority of the total pre-tax charge associated with the restructuring will be paid in cash using amounts on hand and the outlays are expected to be largely incurred throughout 2019, with the remainder continuing into 2020.
The total expected pre-tax restructuring charges related to the restructuring plan by segment, inclusive of amounts already incurred, are presented below (amounts in millions):
|
|
|
|
|
|
Year Ending December 31, 2019
|
Activision
|
$
|
15
|
|
Blizzard
|
66
|
|
King
|
27
|
|
Other segments (1)
|
42
|
|
Total
|
$
|
150
|
|
|
|
(1)
|
Includes charges related to operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes restructuring charges for our corporate and administrative functions.
|
|
|
15.
|
Interest and Other Expense (Income), Net
|
Interest and other expense (income), net is comprised of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Interest income
|
|
$
|
(20
|
)
|
|
$
|
(17
|
)
|
|
$
|
(61
|
)
|
|
$
|
(50
|
)
|
Interest expense from debt and amortization of debt discount and deferred financing costs
|
|
23
|
|
|
33
|
|
|
68
|
|
|
118
|
|
Unrealized gain on equity investment
|
|
—
|
|
|
—
|
|
|
(38
|
)
|
|
—
|
|
Other expense (income), net
|
|
(5
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Interest and other expense (income), net
|
|
$
|
(2
|
)
|
|
$
|
13
|
|
|
$
|
(33
|
)
|
|
$
|
67
|
|
16. Income Taxes
We account for our provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. The provision for income taxes represents federal, foreign, state, and local income taxes. Our effective tax rate could be different from the statutory U.S. income tax rate due to: the effect of state and local income taxes; tax rates that apply to our foreign income (including U.S. tax on foreign income); research and development credits; and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from share-based payments; and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.
The income tax expense of $45 million for the three months ended September 30, 2019, reflects an effective tax rate of 18%, which is higher than the effective tax rate of (23)% for the three months ended September 30, 2018. The increase is primarily due to a discrete tax benefit recognized in the prior year in connection with adjustments made to the provisional amounts initially recorded in connection with tax reform legislation known as the Tax Cuts and Jobs Act enacted in December 22, 2017 (the “U.S. Tax Reform Act”), lower excess tax benefits from share-based payments in the current year, and an increase in U.S. tax on foreign earnings.
The income tax expense of $208 million for the nine months ended September 30, 2019, reflects an effective tax rate of 18%, which is higher than the effective tax rate of 2% for the nine months ended September 30, 2018. The increase is due to a discrete tax benefit recognized in the prior year in connection with an audit settlement with the Internal Revenue Service (“IRS”), a discrete tax benefit recognized in the prior year in connection with adjustments made to the provisional amounts initially recorded in connection with the U.S. Tax Reform Act, and lower excess tax benefits from share-based payments in the current year. This increase was partially offset by a valuation allowance recorded in the prior year with regard to California research and development credit carryforwards (“CA R&D Credits”).
The effective tax rate of 18% for both the three and nine months ended September 30, 2019, is lower than the U.S. statutory rate of 21%, primarily due to foreign earnings taxed at lower statutory rates as compared to domestic earnings, which is partially offset by U.S. tax on foreign earnings, and the recognition of federal research and development credits.
Activision Blizzard’s 2009 through 2018 tax years remain open to examination by certain major taxing jurisdictions to which we are subject. The IRS is currently examining our federal tax returns for the 2012 through 2016 tax years. We also have several state and non-U.S. audits pending, including the French audit discussed below. In addition, we are currently seeking a multilateral agreement among the tax authorities in the U.K., Sweden, and other relevant jurisdictions with respect to King’s transfer pricing for tax years dating back to 2013. While the outcome of any discussions aimed at such an agreement remains uncertain, they could result in an agreement that changes the allocation of profits and losses between these and other relevant jurisdictions or a failure to reach an agreement that results in unilateral adjustments to the amount and timing of taxable income in the jurisdictions in which King operates.
In December 2018, we received a decision from the Swedish Tax Agency (“STA”) informing us of an audit assessment of a Swedish subsidiary of King for the 2016 tax year (“Initial Decision”). The Initial Decision described the basis for issuing a transfer pricing assessment of approximately 3.5kr billion (approximately $359 million), primarily concerning an alleged intercompany asset transfer. On June 17, 2019, we received a reassessment from the STA (“Reassessment”) which changed the Initial Decision based on a revision of the transfer pricing approach reflected in King’s 2016 Swedish tax return and removal of the alleged intercompany asset transfer that was the basis of the Initial Decision. The STA also, at the same time, reassessed the 2017 tax year on the same transfer pricing basis as 2016. The transfer pricing approach reflected in the Reassessment for both 2016 and 2017 remains subject to further review by taxing authorities in other jurisdictions. In July 2019, the Company made a payment to the STA for the Reassessment for the 2016 and 2017 tax years, which did not result in a significant impact to our condensed consolidated financial statements.
In December 2017, we received a Notice of Reassessment from the French Tax Authority (“FTA”) related to transfer pricing for intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million (approximately $625 million). We disagree with the proposed assessment and continue to vigorously contest it. We believe our tax provisions at September 30, 2019, were appropriate. Until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for the 2011 through 2013 tax years, if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.
In October 2019, we completed an intra-entity transfer of certain intellectual property rights to one of our subsidiaries in the U.K. The transfer did not result in a taxable gain; however, our U.K. subsidiary received a step-up in tax basis. We are currently assessing the tax impacts associated with this transfer, including its impact to deferred taxes. We expect to record a one-time benefit for the recognition of a deferred tax asset in the U.K. related to the amortizable tax basis in the transferred intellectual property, partially offset by a related deferred tax liability for U.S. taxes on foreign earnings. The net tax impact of this intra-entity asset transfer will be recorded in the quarter ending December 31, 2019. While this one-time impact may be material to our financial statements, we do not expect the transfer to materially affect cash taxes or operating cash flows in 2019.
In addition, certain of our subsidiaries are under examination or investigation, or may be subject to examination or investigation, by tax authorities in various jurisdictions. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations in the earlier of the period or periods in which the matters are resolved and in which appropriate tax provisions are taken into account in our financial statements. If we were to receive a materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.
We regularly assess the likelihood of adverse outcomes resulting from these examinations and monitor the progress of ongoing discussions with tax authorities in determining the appropriateness of our tax provisions. The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations, except as noted above.
17. Computation of Basic/Diluted Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
$
|
204
|
|
|
$
|
260
|
|
|
$
|
978
|
|
|
$
|
1,162
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share—weighted-average common shares outstanding
|
767
|
|
|
763
|
|
|
766
|
|
|
761
|
|
Effect of potential dilutive common shares under the treasury stock method—employee stock options and awards
|
4
|
|
|
8
|
|
|
4
|
|
|
10
|
|
Denominator for basic earnings per common share—weighted-average dilutive common shares outstanding
|
771
|
|
|
771
|
|
|
770
|
|
|
771
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.27
|
|
|
$
|
0.34
|
|
|
$
|
1.28
|
|
|
$
|
1.53
|
|
Diluted earnings per common share
|
$
|
0.26
|
|
|
$
|
0.34
|
|
|
$
|
1.27
|
|
|
$
|
1.51
|
|
The vesting of certain of our employee-related restricted stock units and options is contingent upon the satisfaction of pre-defined performance measures. The shares underlying these equity awards are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Additionally, potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive.
Weighted-average shares excluded from the computation of diluted earnings per share were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Restricted stock units and options with performance measures not yet met
|
4
|
|
|
6
|
|
|
3
|
|
|
6
|
|
Anti-dilutive employee stock options
|
6
|
|
|
1
|
|
|
6
|
|
|
2
|
|
18. Capital Transactions
Repurchase Program
On January 31, 2019, our Board of Directors authorized a stock repurchase program under which we are authorized to repurchase up to $1.5 billion of our common stock from February 14, 2019, until the earlier of February 13, 2021, and a determination by the Board of Directors to discontinue the repurchase program. As of September 30, 2019, we have not repurchased any shares under this program.
Dividends
On February 12, 2019, our Board of Directors declared a cash dividend of $0.37 per common share. On May 9, 2019, we made an aggregate cash dividend payment of $283 million to shareholders of record at the close of business on March 28, 2019.
On February 8, 2018, our Board of Directors declared a cash dividend of $0.34 per common share. On May 9, 2018, we made an aggregate cash dividend payment of $259 million to shareholders of record at the close of business on March 30, 2018.
19. Commitments and Contingencies
Legal Proceedings
We are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant, and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.