Item 1. Financial Statements
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions, except share data)
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
At December 31, 2018
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,592
|
|
|
$
|
4,225
|
|
Accounts receivable, net of allowances of $108 and $190, at June 30, 2019 and December 31, 2018, respectively
|
455
|
|
|
1,035
|
|
Inventories, net
|
46
|
|
|
43
|
|
Software development
|
184
|
|
|
264
|
|
Other current assets
|
386
|
|
|
539
|
|
Total current assets
|
5,663
|
|
|
6,106
|
|
Software development
|
90
|
|
|
65
|
|
Property and equipment, net
|
259
|
|
|
282
|
|
Deferred income taxes, net
|
366
|
|
|
458
|
|
Other assets
|
721
|
|
|
482
|
|
Intangible assets, net
|
633
|
|
|
735
|
|
Goodwill
|
9,763
|
|
|
9,762
|
|
Total assets
|
$
|
17,495
|
|
|
$
|
17,890
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
180
|
|
|
$
|
253
|
|
Deferred revenues
|
728
|
|
|
1,493
|
|
Accrued expenses and other liabilities
|
731
|
|
|
896
|
|
Total current liabilities
|
1,639
|
|
|
2,642
|
|
Long-term debt, net
|
2,673
|
|
|
2,671
|
|
Deferred income taxes, net
|
20
|
|
|
18
|
|
Other liabilities
|
1,186
|
|
|
1,167
|
|
Total liabilities
|
5,518
|
|
|
6,498
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,195,517,884 and 1,192,093,991 shares issued at June 30, 2019 and December 31, 2018, respectively
|
—
|
|
|
—
|
|
Additional paid-in capital
|
11,063
|
|
|
10,963
|
|
Less: Treasury stock, at cost, 428,676,471 shares at June 30, 2019 and December 31, 2018
|
(5,563
|
)
|
|
(5,563
|
)
|
Retained earnings
|
7,085
|
|
|
6,593
|
|
Accumulated other comprehensive loss
|
(608
|
)
|
|
(601
|
)
|
Total shareholders’ equity
|
11,977
|
|
|
11,392
|
|
Total liabilities and shareholders’ equity
|
$
|
17,495
|
|
|
$
|
17,890
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net revenues
|
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
359
|
|
|
$
|
464
|
|
|
$
|
1,015
|
|
|
$
|
1,184
|
|
Subscription, licensing, and other revenues
|
1,037
|
|
|
1,177
|
|
|
2,205
|
|
|
2,423
|
|
Total net revenues
|
1,396
|
|
|
1,641
|
|
|
3,220
|
|
|
3,607
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues—product sales:
|
|
|
|
|
|
|
|
Product costs
|
99
|
|
|
126
|
|
|
251
|
|
|
289
|
|
Software royalties, amortization, and intellectual property licenses
|
51
|
|
|
49
|
|
|
162
|
|
|
194
|
|
Cost of revenues—subscription, licensing, and other revenues:
|
|
|
|
|
|
|
|
Game operations and distribution costs
|
230
|
|
|
250
|
|
|
469
|
|
|
521
|
|
Software royalties, amortization, and intellectual property licenses
|
53
|
|
|
85
|
|
|
114
|
|
|
169
|
|
Product development
|
244
|
|
|
255
|
|
|
492
|
|
|
513
|
|
Sales and marketing
|
191
|
|
|
226
|
|
|
397
|
|
|
477
|
|
General and administrative
|
170
|
|
|
216
|
|
|
350
|
|
|
415
|
|
Restructuring and related costs
|
22
|
|
|
—
|
|
|
79
|
|
|
—
|
|
Total costs and expenses
|
1,060
|
|
|
1,207
|
|
|
2,314
|
|
|
2,578
|
|
|
|
|
|
|
|
|
|
Operating income
|
336
|
|
|
434
|
|
|
906
|
|
|
1,029
|
|
Interest and other expense (income), net (Note 15)
|
(34
|
)
|
|
26
|
|
|
(31
|
)
|
|
54
|
|
Income before income tax expense
|
370
|
|
|
408
|
|
|
937
|
|
|
975
|
|
Income tax expense
|
42
|
|
|
6
|
|
|
163
|
|
|
73
|
|
Net income
|
$
|
328
|
|
|
$
|
402
|
|
|
$
|
774
|
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.43
|
|
|
$
|
0.53
|
|
|
$
|
1.01
|
|
|
$
|
1.19
|
|
Diluted
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
$
|
1.01
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
766
|
|
|
761
|
|
|
765
|
|
|
760
|
|
Diluted
|
770
|
|
|
770
|
|
|
770
|
|
|
770
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
|
$
|
328
|
|
|
$
|
402
|
|
|
$
|
774
|
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax
|
(2
|
)
|
|
(11
|
)
|
|
1
|
|
|
(10
|
)
|
Unrealized gains (losses) on forward contracts designated as hedges, net of tax
|
(8
|
)
|
|
48
|
|
|
(6
|
)
|
|
36
|
|
Unrealized gains (losses) on investments, net of tax
|
4
|
|
|
7
|
|
|
(2
|
)
|
|
4
|
|
Total other comprehensive income (loss)
|
$
|
(6
|
)
|
|
$
|
44
|
|
|
$
|
(7
|
)
|
|
$
|
30
|
|
Comprehensive income
|
$
|
322
|
|
|
$
|
446
|
|
|
$
|
767
|
|
|
$
|
932
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
774
|
|
|
$
|
902
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Deferred income taxes
|
91
|
|
|
95
|
|
Depreciation and amortization
|
166
|
|
|
267
|
|
Non-cash operating lease cost
|
34
|
|
|
—
|
|
Amortization of capitalized software development costs and intellectual property licenses
(1)
|
153
|
|
|
206
|
|
Share-based compensation expense (2)
|
100
|
|
|
110
|
|
Unrealized gain on equity investment (Note 8)
|
(38
|
)
|
|
—
|
|
Other
|
28
|
|
|
9
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
570
|
|
|
511
|
|
Inventories
|
(4
|
)
|
|
8
|
|
Software development and intellectual property licenses
|
(105
|
)
|
|
(209
|
)
|
Other assets
|
78
|
|
|
39
|
|
Deferred revenues
|
(803
|
)
|
|
(891
|
)
|
Accounts payable
|
(75
|
)
|
|
(157
|
)
|
Accrued expenses and other liabilities
|
(365
|
)
|
|
(352
|
)
|
Net cash provided by operating activities
|
604
|
|
|
538
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Proceeds from maturities of available-for-sale investments
|
75
|
|
|
—
|
|
Purchases of available-for-sale investments
|
—
|
|
|
(59
|
)
|
Capital expenditures
|
(45
|
)
|
|
(61
|
)
|
Other investing activities
|
7
|
|
|
(4
|
)
|
Net cash provided by (used in) investing activities
|
37
|
|
|
(124
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from issuance of common stock to employees
|
57
|
|
|
77
|
|
Tax payment related to net share settlements on restricted stock units
|
(48
|
)
|
|
(68
|
)
|
Dividends paid
|
(283
|
)
|
|
(259
|
)
|
Net cash used in financing activities
|
(274
|
)
|
|
(250
|
)
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
3
|
|
|
(19
|
)
|
Net increase in cash and cash equivalents and restricted cash
|
370
|
|
|
145
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
4,229
|
|
|
4,720
|
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
4,599
|
|
|
$
|
4,865
|
|
|
|
(1)
|
Excludes deferral and amortization of share-based compensation expense.
|
|
|
(2)
|
Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three and
Six Months Ended June 30, 2019
(Unaudited)
(Amounts and shares in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Shareholders’
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2018
|
1,192
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
10,963
|
|
|
$
|
6,593
|
|
|
$
|
(601
|
)
|
|
$
|
11,392
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447
|
|
|
—
|
|
|
447
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Issuance of common stock pursuant to employee stock options
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Issuance of common stock pursuant to restricted stock units
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock surrendered for employees’ tax liability
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45
|
)
|
|
—
|
|
|
—
|
|
|
(45
|
)
|
Share-based compensation expense related to employee stock options and restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Dividends ($0.37 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(283
|
)
|
|
—
|
|
|
(283
|
)
|
Balance at March 31, 2019
|
1,195
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
11,004
|
|
|
$
|
6,757
|
|
|
$
|
(602
|
)
|
|
$
|
11,596
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
328
|
|
|
—
|
|
|
328
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Issuance of common stock pursuant to employee stock options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Restricted stock surrendered for employees’ tax liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Share-based compensation expense related to employee stock options and restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Balance at June 30, 2019
|
1,196
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
11,063
|
|
|
$
|
7,085
|
|
|
$
|
(608
|
)
|
|
$
|
11,977
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three and Six Months Ended
June 30, 2018
(Unaudited)
(Amounts and shares in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Shareholders’
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2017
|
1,186
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
10,747
|
|
|
$
|
4,916
|
|
|
$
|
(638
|
)
|
|
$
|
9,462
|
|
Cumulative impact from adoption of new revenue accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
3
|
|
|
91
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
500
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
Issuance of common stock pursuant to employee stock options
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
Issuance of common stock pursuant to restricted stock units
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock surrendered for employees’ tax liability
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
Share-based compensation expense related to employee stock options and restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Dividends ($0.34 per common share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(259
|
)
|
|
—
|
|
|
(259
|
)
|
Balance at March 31, 2018
|
1,190
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
10,786
|
|
|
$
|
5,245
|
|
|
$
|
(649
|
)
|
|
$
|
9,819
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
402
|
|
|
—
|
|
|
402
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
44
|
|
Issuance of common stock pursuant to employee stock options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
Restricted stock surrendered for employees’ tax liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Share-based compensation expense related to employee stock options and restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
61
|
|
Balance at June 30, 2018
|
1,191
|
|
|
$
|
—
|
|
|
(429
|
)
|
|
$
|
(5,563
|
)
|
|
$
|
10,867
|
|
|
$
|
5,647
|
|
|
$
|
(605
|
)
|
|
$
|
10,346
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
Description of Business and Basis of Consolidation and Presentation
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers (“PC”s), and mobile devices. We also operate esports leagues and 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.
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 League
TM
, 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 Inc.’s Android and Apple Inc.’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:
|
|
•
|
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
|
|
|
•
|
the Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.
|
Basis of Consolidation and Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in our annual audited consolidated financial statements. Additionally, the year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31,
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.
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.
The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
Supplemental Cash Flow Information
The beginning and ending cash and cash equivalents and restricted cash reported within our condensed consolidated statement of cash flows included restricted cash amounts as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
At June 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
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 are evaluating the impact, if any, of adopting this new accounting guidance on our consolidated financial statements.
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.
4.
Inventories, Net
Inventories, net, consist of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
At December 31, 2018
|
Finished goods
|
$
|
45
|
|
|
$
|
40
|
|
Purchased parts and components
|
1
|
|
|
3
|
|
Inventories, net
|
$
|
46
|
|
|
$
|
43
|
|
At
June 30, 2019
and
December 31, 2018
, inventory reserves were
$18 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):
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
At December 31, 2018
|
Internally-developed software costs
|
$
|
254
|
|
|
$
|
291
|
|
Payments made to third-party software developers
|
20
|
|
|
38
|
|
Total software development costs
|
$
|
274
|
|
|
$
|
329
|
|
As of both
June 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization of capitalized software development costs and intellectual property licenses
|
$
|
54
|
|
|
$
|
57
|
|
|
$
|
164
|
|
|
$
|
209
|
|
6.
Intangible Assets, Net
Intangible assets, net, consist of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 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
|
|
|
$
|
(1,068
|
)
|
|
$
|
86
|
|
Developed software
|
2
|
-
|
5 years
|
|
601
|
|
|
(518
|
)
|
|
83
|
|
Trade names
|
7
|
-
|
10 years
|
|
54
|
|
|
(26
|
)
|
|
28
|
|
Other
|
1
|
-
|
15 years
|
|
19
|
|
|
(16
|
)
|
|
3
|
|
Total definite-lived intangible assets (1)
|
|
|
|
|
$
|
1,828
|
|
|
$
|
(1,628
|
)
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
Acquired indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision trademark
|
Indefinite
|
|
|
|
|
|
|
|
386
|
|
Acquired trade names
|
Indefinite
|
|
|
|
|
|
|
|
47
|
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
$
|
433
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
$
|
633
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$48 million
and
$103 million
for the three and
six
months ended
June 30, 2019
, respectively. Amortization expense of our intangible assets was
$77 million
and
$196 million
for the three and
six
months ended
June 30, 2018
, respectively.
At
June 30, 2019
, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):
|
|
|
|
|
For the years ending December 31,
|
|
2019 (remaining six months)
|
$
|
102
|
|
2020
|
74
|
|
2021
|
12
|
|
2022
|
7
|
|
2023
|
2
|
|
Thereafter
|
3
|
|
Total
|
$
|
200
|
|
7.
Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Balance at December 31, 2018
|
$
|
6,897
|
|
|
$
|
190
|
|
|
$
|
2,675
|
|
|
$
|
9,762
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Balance at June 30, 2019
|
$
|
6,898
|
|
|
$
|
190
|
|
|
$
|
2,675
|
|
|
$
|
9,763
|
|
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:
|
|
•
|
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 June 30, 2019 Using
|
|
|
|
As of June 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
|
$
|
3,866
|
|
|
$
|
3,866
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Foreign government treasury bills
|
38
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
U.S. treasuries and government agency securities
|
78
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
Other current assets
|
Foreign currency forward contracts designated as hedges
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
Other current assets
|
Foreign currency forward contracts not designated as hedges
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
Other current assets
|
Total recurring fair value measurements
|
$
|
3,999
|
|
|
$
|
3,982
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as hedges
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
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 June 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
|
$
|
409
|
|
$
|
11
|
|
|
$
|
723
|
|
$
|
12
|
|
At
June 30, 2019
, our Cash Flow Hedges have remaining maturities of
six months
or less. Additionally,
$2 million
of net realized but unrecognized gains are recorded within “Accumulated other comprehensive income (loss)” at
June 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
Statement of Operations Classification
|
|
2019
|
2018
|
|
2019
|
2018
|
|
Cash Flow Hedges
|
$
|
6
|
|
$
|
(4
|
)
|
|
$
|
17
|
|
$
|
(14
|
)
|
|
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 June 30, 2019
|
|
As of December 31, 2018
|
|
Notional amount
|
Fair value gain (loss)
|
|
Notional amount
|
Fair value gain (loss)
|
Foreign Currency:
|
|
|
|
|
|
Buy USD, Sell SEK
|
$
|
393
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
$
|
—
|
|
Buy USD, Sell EUR
|
142
|
|
3
|
|
|
—
|
|
—
|
|
Buy EUR, Sell USD
|
142
|
|
1
|
|
|
—
|
|
—
|
|
Buy USD, Sell GBP
|
28
|
|
1
|
|
|
55
|
|
1
|
|
Buy GBP, Sell USD
|
28
|
|
—
|
|
|
—
|
|
—
|
|
For the
three and six
months ended
June 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 June 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 six
months ended
June 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
June 30, 2019
, were
$1.6 billion
and
$0.8 billion
, respectively, including our current and non-current balances. For the
six
months ended
June 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 six
months ended
June 30, 2019
,
$0.4 billion
and
$1.3 billion
of revenues, respectively, were recognized that were included in the deferred revenues balance at December 31, 2018. During the
three and six
months ended
June 30, 2018
,
$0.4 billion
and
$1.5 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
June 30, 2019
, the aggregate amount of contracted revenues allocated to our unsatisfied performance obligations is
$1.9 billion
, which includes our deferred revenues balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately
$0.9 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 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 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 June 30, 2019
|
|
Six Months Ended June 30, 2019
|
Operating leases
|
|
|
|
Operating lease costs
|
$
|
20
|
|
|
$
|
40
|
|
Variable lease costs
|
4
|
|
|
9
|
|
Other supplemental information related to our operating leases is as follows (amounts in millions):
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
Supplemental Operating Cash Flows Information
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
43
|
|
ROU assets obtained in exchange for new lease obligations
|
|
47
|
|
|
|
|
|
|
At June 30, 2019
|
Weighted Average Lease terms and discount rates
|
|
|
Remaining lease term
|
|
5.34 years
|
|
Discount rate
|
|
4.12
|
%
|
Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at
June 30, 2019
, are as follows (amounts in millions):
|
|
|
|
|
For the years ending December 31,
|
|
|
2019 (remaining six months)
|
$
|
35
|
|
2020
|
69
|
|
2021
|
55
|
|
2022
|
48
|
|
2023
|
42
|
|
Thereafter
|
75
|
|
Total future lease payments
|
$
|
324
|
|
Less imputed interest
|
(35
|
)
|
Total lease liabilities
|
$
|
289
|
|
Operating lease ROU assets and liabilities recorded on our condensed consolidated balance sheet as of
June 30, 2019
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
Balance Sheet Classification
|
ROU assets
|
$
|
254
|
|
|
Other assets
|
|
|
|
|
Current lease liabilities
|
$
|
60
|
|
|
Accrued expenses and other current liabilities
|
Non-current lease liabilities
|
229
|
|
|
Other liabilities
|
|
$
|
289
|
|
|
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
June 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
June 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
June 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”) and
$850 million
of
3.4%
unsecured senior notes due September 2026 (the “2026 Notes”); and
|
|
|
•
|
$400 million
of
2.6%
unsecured senior notes due June 2022 (the “2022 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
June 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
June 30, 2019
and
December 31, 2018
, we had accrued interest payable of
$15 million
, 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 six
months ended
June 30, 2019
, interest expense was
$21 million
and
$43 million
, respectively, and amortization of the debt discount and deferred financing costs was
$1 million
and
$2 million
, respectively. For the
three and six
months ended
June 30, 2018
, interest expense was
$41 million
and
$80 million
, respectively, and amortization of the debt discount and deferred financing costs was
$2 million
and
$4 million
, respectively.
A summary of our outstanding debt is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
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
|
|
|
(4
|
)
|
|
396
|
|
2047 Notes
|
400
|
|
|
(9
|
)
|
|
391
|
|
Total long-term debt
|
$
|
2,700
|
|
|
$
|
(27
|
)
|
|
$
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
June 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 six 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
June 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
June 30, 2019
, based on Level 2 inputs, the fair value of the 2047 Notes was
$418 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 Six Months Ended June 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
|
1
|
|
|
11
|
|
|
(1
|
)
|
|
11
|
|
Amounts reclassified from accumulated other comprehensive income (loss) into earnings
|
—
|
|
|
(17
|
)
|
|
(1
|
)
|
|
(18
|
)
|
Balance at June 30, 2019
|
$
|
(628
|
)
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
(608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 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
|
(10
|
)
|
|
22
|
|
|
4
|
|
|
16
|
|
Amounts reclassified from accumulated other comprehensive income (loss) into earnings
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Balance at June 30, 2018
|
$
|
(630
|
)
|
|
$
|
21
|
|
|
$
|
4
|
|
|
$
|
(605
|
)
|
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
June 30, 2019
and
2018
, are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
268
|
|
|
$
|
381
|
|
|
$
|
499
|
|
|
$
|
1,148
|
|
Intersegment net revenues (1)
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Segment net revenues
|
$
|
268
|
|
|
$
|
384
|
|
|
$
|
499
|
|
|
$
|
1,151
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
55
|
|
|
$
|
75
|
|
|
$
|
171
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
338
|
|
|
$
|
485
|
|
|
$
|
502
|
|
|
$
|
1,325
|
|
Intersegment net revenues (1)
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Segment net revenues
|
$
|
338
|
|
|
$
|
489
|
|
|
$
|
502
|
|
|
$
|
1,329
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
84
|
|
|
$
|
133
|
|
|
$
|
169
|
|
|
$
|
386
|
|
Information on reportable segment net revenues and operating income for the
six
months ended
June 30, 2019
and
2018
, are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
585
|
|
|
$
|
720
|
|
|
$
|
1,028
|
|
|
$
|
2,333
|
|
Intersegment net revenues (1)
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Segment net revenues
|
$
|
585
|
|
|
$
|
728
|
|
|
$
|
1,028
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
128
|
|
|
$
|
130
|
|
|
$
|
349
|
|
|
$
|
607
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
651
|
|
|
$
|
964
|
|
|
$
|
1,036
|
|
|
$
|
2,651
|
|
Intersegment net revenues (1)
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Segment net revenues
|
$
|
651
|
|
|
$
|
970
|
|
|
$
|
1,036
|
|
|
$
|
2,657
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
175
|
|
|
$
|
255
|
|
|
$
|
360
|
|
|
$
|
790
|
|
|
|
(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 June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation to consolidated net revenues:
|
|
|
|
|
|
|
|
Segment net revenues
|
$
|
1,151
|
|
|
$
|
1,329
|
|
|
$
|
2,341
|
|
|
$
|
2,657
|
|
Revenues from non-reportable segments (1)
|
59
|
|
|
60
|
|
|
132
|
|
|
118
|
|
Net effect from recognition (deferral) of deferred net revenues (2)
|
189
|
|
|
256
|
|
|
755
|
|
|
838
|
|
Elimination of intersegment revenues (3)
|
(3
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(6
|
)
|
Consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated income before income tax expense:
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
301
|
|
|
$
|
386
|
|
|
$
|
607
|
|
|
$
|
790
|
|
Operating income (loss) from non-reportable segments (1)
|
7
|
|
|
—
|
|
|
4
|
|
|
(11
|
)
|
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)
|
135
|
|
|
182
|
|
|
576
|
|
|
557
|
|
Share-based compensation expense
|
(38
|
)
|
|
(57
|
)
|
|
(100
|
)
|
|
(111
|
)
|
Amortization of intangible assets
|
(47
|
)
|
|
(77
|
)
|
|
(102
|
)
|
|
(196
|
)
|
Restructuring and related costs (4)
|
(22
|
)
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
Consolidated operating income
|
336
|
|
|
434
|
|
|
906
|
|
|
1,029
|
|
Interest and other expense (income), net
|
(34
|
)
|
|
26
|
|
|
(31
|
)
|
|
54
|
|
Consolidated income before income tax expense
|
$
|
370
|
|
|
$
|
408
|
|
|
$
|
937
|
|
|
$
|
975
|
|
|
|
(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
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
248
|
|
|
$
|
342
|
|
|
$
|
499
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,086
|
|
Retail channels
|
180
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
193
|
|
Other (2)
|
—
|
|
|
56
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
117
|
|
Total consolidated net revenues
|
$
|
428
|
|
|
$
|
411
|
|
|
$
|
499
|
|
|
$
|
61
|
|
|
$
|
(3
|
)
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(51
|
)
|
|
$
|
(25
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(76
|
)
|
Retail channels
|
(109
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(112
|
)
|
Other (2)
|
—
|
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
Total change in deferred revenues
|
$
|
(160
|
)
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
197
|
|
|
$
|
317
|
|
|
$
|
499
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,010
|
|
Retail channels
|
71
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Other (2)
|
—
|
|
|
57
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
116
|
|
Total segment net revenues
|
$
|
268
|
|
|
$
|
384
|
|
|
$
|
499
|
|
|
$
|
59
|
|
|
$
|
(3
|
)
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
333
|
|
|
$
|
420
|
|
|
$
|
510
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
1,259
|
|
Retail channels
|
259
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
278
|
|
Other (2)
|
—
|
|
|
49
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
104
|
|
Total consolidated net revenues
|
$
|
592
|
|
|
$
|
488
|
|
|
$
|
510
|
|
|
$
|
55
|
|
|
$
|
(4
|
)
|
|
$
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(58
|
)
|
|
$
|
4
|
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
Retail channels
|
(196
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
Other (2)
|
—
|
|
|
3
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
8
|
|
Total change in deferred revenues
|
$
|
(254
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
275
|
|
|
$
|
424
|
|
|
$
|
502
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
1,197
|
|
Retail channels
|
63
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76
|
|
Other (2)
|
—
|
|
|
52
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
112
|
|
Total segment net revenues
|
$
|
338
|
|
|
$
|
489
|
|
|
$
|
502
|
|
|
$
|
60
|
|
|
$
|
(4
|
)
|
|
$
|
1,385
|
|
Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the
six
months ended
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
714
|
|
|
$
|
748
|
|
|
$
|
1,025
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
2,479
|
|
Retail channels
|
476
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
505
|
|
Other (2)
|
—
|
|
|
95
|
|
|
—
|
|
|
141
|
|
|
—
|
|
|
236
|
|
Total consolidated net revenues
|
$
|
1,190
|
|
|
$
|
872
|
|
|
$
|
1,025
|
|
|
$
|
141
|
|
|
$
|
(8
|
)
|
|
$
|
3,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(268
|
)
|
|
$
|
(139
|
)
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(404
|
)
|
Retail channels
|
(337
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(344
|
)
|
Other (2)
|
—
|
|
|
2
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(7
|
)
|
Total change in deferred revenues
|
$
|
(605
|
)
|
|
$
|
(144
|
)
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
446
|
|
|
$
|
609
|
|
|
$
|
1,028
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
2,075
|
|
Retail channels
|
139
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
161
|
|
Other (2)
|
—
|
|
|
97
|
|
|
—
|
|
|
132
|
|
|
—
|
|
|
229
|
|
Total segment net revenues
|
$
|
585
|
|
|
$
|
728
|
|
|
$
|
1,028
|
|
|
$
|
132
|
|
|
$
|
(8
|
)
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
809
|
|
|
$
|
875
|
|
|
$
|
1,042
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
2,720
|
|
Retail channels
|
656
|
|
|
33
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
690
|
|
Other (2)
|
—
|
|
|
89
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
197
|
|
Total consolidated net revenues
|
$
|
1,465
|
|
|
$
|
997
|
|
|
$
|
1,043
|
|
|
$
|
108
|
|
|
$
|
(6
|
)
|
|
$
|
3,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
(290
|
)
|
|
$
|
(23
|
)
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(319
|
)
|
Retail channels
|
(524
|
)
|
|
(8
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(533
|
)
|
Other (2)
|
—
|
|
|
4
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
14
|
|
Total change in deferred revenues
|
$
|
(814
|
)
|
|
$
|
(27
|
)
|
|
$
|
(7
|
)
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
519
|
|
|
$
|
852
|
|
|
$
|
1,036
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
2,401
|
|
Retail channels
|
132
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
157
|
|
Other (2)
|
—
|
|
|
93
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
211
|
|
Total segment net revenues
|
$
|
651
|
|
|
$
|
970
|
|
|
$
|
1,036
|
|
|
$
|
118
|
|
|
$
|
(6
|
)
|
|
$
|
2,769
|
|
|
|
(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
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
255
|
|
|
$
|
202
|
|
|
$
|
309
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
764
|
|
EMEA (1)
|
135
|
|
|
127
|
|
|
137
|
|
|
61
|
|
|
(1
|
)
|
|
459
|
|
Asia Pacific
|
38
|
|
|
82
|
|
|
53
|
|
|
—
|
|
|
—
|
|
|
173
|
|
Total consolidated net revenues
|
$
|
428
|
|
|
$
|
411
|
|
|
$
|
499
|
|
|
$
|
61
|
|
|
$
|
(3
|
)
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(105
|
)
|
|
$
|
(15
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(120
|
)
|
EMEA (1)
|
(42
|
)
|
|
(13
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(58
|
)
|
Asia Pacific
|
(13
|
)
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Total change in deferred revenues
|
$
|
(160
|
)
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
150
|
|
|
$
|
187
|
|
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
644
|
|
EMEA (1)
|
93
|
|
|
114
|
|
|
137
|
|
|
59
|
|
|
(2
|
)
|
|
401
|
|
Asia Pacific
|
25
|
|
|
83
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
162
|
|
Total segment net revenues
|
$
|
268
|
|
|
$
|
384
|
|
|
$
|
499
|
|
|
$
|
59
|
|
|
$
|
(3
|
)
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
349
|
|
|
$
|
239
|
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
900
|
|
EMEA (1)
|
199
|
|
|
155
|
|
|
144
|
|
|
55
|
|
|
(1
|
)
|
|
552
|
|
Asia Pacific
|
44
|
|
|
94
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
189
|
|
Total consolidated net revenues
|
$
|
592
|
|
|
$
|
488
|
|
|
$
|
510
|
|
|
$
|
55
|
|
|
$
|
(4
|
)
|
|
$
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(143
|
)
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(141
|
)
|
EMEA (1)
|
(97
|
)
|
|
(6
|
)
|
|
(2
|
)
|
|
5
|
|
|
—
|
|
|
(100
|
)
|
Asia Pacific
|
(14
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Total change in deferred revenues
|
$
|
(254
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
206
|
|
|
$
|
246
|
|
|
$
|
310
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
759
|
|
EMEA (1)
|
102
|
|
|
149
|
|
|
142
|
|
|
60
|
|
|
(1
|
)
|
|
452
|
|
Asia Pacific
|
30
|
|
|
94
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
174
|
|
Total segment net revenues
|
$
|
338
|
|
|
$
|
489
|
|
|
$
|
502
|
|
|
$
|
60
|
|
|
$
|
(4
|
)
|
|
$
|
1,385
|
|
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
six
months ended
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
712
|
|
|
$
|
409
|
|
|
$
|
634
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
1,751
|
|
EMEA (1)
|
378
|
|
|
276
|
|
|
281
|
|
|
141
|
|
|
(3
|
)
|
|
1,073
|
|
Asia Pacific
|
100
|
|
|
187
|
|
|
110
|
|
|
—
|
|
|
(1
|
)
|
|
396
|
|
Total consolidated net revenues
|
$
|
1,190
|
|
|
$
|
872
|
|
|
$
|
1,025
|
|
|
$
|
141
|
|
|
$
|
(8
|
)
|
|
$
|
3,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(371
|
)
|
|
$
|
(70
|
)
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(437
|
)
|
EMEA (1)
|
(189
|
)
|
|
(61
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(259
|
)
|
Asia Pacific
|
(45
|
)
|
|
(13
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(59
|
)
|
Total change in deferred revenues
|
$
|
(605
|
)
|
|
$
|
(144
|
)
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
341
|
|
|
$
|
339
|
|
|
$
|
638
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
1,314
|
|
EMEA (1)
|
189
|
|
|
215
|
|
|
281
|
|
|
132
|
|
|
(3
|
)
|
|
814
|
|
Asia Pacific
|
55
|
|
|
174
|
|
|
109
|
|
|
—
|
|
|
(1
|
)
|
|
337
|
|
Total segment net revenues
|
$
|
585
|
|
|
$
|
728
|
|
|
$
|
1,028
|
|
|
$
|
132
|
|
|
$
|
(8
|
)
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (2)
|
|
Total
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
859
|
|
|
$
|
473
|
|
|
$
|
637
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,966
|
|
EMEA (1)
|
504
|
|
|
325
|
|
|
305
|
|
|
108
|
|
|
(3
|
)
|
|
1,239
|
|
Asia Pacific
|
102
|
|
|
199
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
402
|
|
Total consolidated net revenues
|
$
|
1,465
|
|
|
$
|
997
|
|
|
$
|
1,043
|
|
|
$
|
108
|
|
|
$
|
(6
|
)
|
|
$
|
3,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
(471
|
)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(474
|
)
|
EMEA (1)
|
(295
|
)
|
|
(14
|
)
|
|
(4
|
)
|
|
10
|
|
|
1
|
|
|
(302
|
)
|
Asia Pacific
|
(48
|
)
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(62
|
)
|
Total change in deferred revenues
|
$
|
(814
|
)
|
|
$
|
(27
|
)
|
|
$
|
(7
|
)
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
388
|
|
|
$
|
473
|
|
|
$
|
634
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,492
|
|
EMEA (1)
|
209
|
|
|
311
|
|
|
301
|
|
|
118
|
|
|
(2
|
)
|
|
937
|
|
Asia Pacific
|
54
|
|
|
186
|
|
|
101
|
|
|
—
|
|
|
(1
|
)
|
|
340
|
|
Total segment net revenues
|
$
|
651
|
|
|
$
|
970
|
|
|
$
|
1,036
|
|
|
$
|
118
|
|
|
$
|
(6
|
)
|
|
$
|
2,769
|
|
|
|
(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
49%
and
49%
of consolidated net revenues for the three months ended
June 30, 2019
and
2018
, respectively. The Company’s net revenues in the U.K. were
9%
and
10%
of consolidated net revenues for the three months ended
June 30, 2019
and
2018
, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for either the three months ended
June 30, 2019
or
2018
.
The Company’s net revenues in the U.S. were
49%
and
48%
of consolidated net revenues for the
six
months ended
June 30, 2019
and
2018
, respectively. The Company’s net revenues in the U.K. were
9%
and
10%
of consolidated net revenues for the
six
months ended
June 30, 2019
and
2018
, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for either the
six
months ended
June 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
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
374
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
407
|
|
PC
|
51
|
|
|
282
|
|
|
31
|
|
|
—
|
|
|
(3
|
)
|
|
361
|
|
Mobile and ancillary (1)
|
3
|
|
|
40
|
|
|
468
|
|
|
—
|
|
|
—
|
|
|
511
|
|
Other (2)
|
—
|
|
|
56
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
117
|
|
Total consolidated net revenues
|
$
|
428
|
|
|
$
|
411
|
|
|
$
|
499
|
|
|
$
|
61
|
|
|
$
|
(3
|
)
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(141
|
)
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(146
|
)
|
PC
|
(19
|
)
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
Mobile and ancillary (1)
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Other (2)
|
—
|
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
Total change in deferred revenues
|
$
|
(160
|
)
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
233
|
|
|
$
|
28
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
261
|
|
PC
|
32
|
|
|
251
|
|
|
31
|
|
|
—
|
|
|
(3
|
)
|
|
311
|
|
Mobile and ancillary (1)
|
3
|
|
|
48
|
|
|
468
|
|
|
—
|
|
|
—
|
|
|
519
|
|
Other (2)
|
—
|
|
|
57
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
116
|
|
Total segment net revenues
|
$
|
268
|
|
|
$
|
384
|
|
|
$
|
499
|
|
|
$
|
59
|
|
|
$
|
(3
|
)
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
520
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
565
|
|
PC
|
69
|
|
|
347
|
|
|
39
|
|
|
—
|
|
|
(4
|
)
|
|
451
|
|
Mobile and ancillary (1)
|
3
|
|
|
47
|
|
|
471
|
|
|
—
|
|
|
—
|
|
|
521
|
|
Other (2)
|
—
|
|
|
49
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
104
|
|
Total consolidated net revenues
|
$
|
592
|
|
|
$
|
488
|
|
|
$
|
510
|
|
|
$
|
55
|
|
|
$
|
(4
|
)
|
|
$
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(233
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(232
|
)
|
PC
|
(21
|
)
|
|
(6
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
Mobile and ancillary (1)
|
—
|
|
|
3
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Other (2)
|
—
|
|
|
3
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
8
|
|
Total change in deferred revenues
|
$
|
(254
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
287
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
333
|
|
PC
|
48
|
|
|
341
|
|
|
38
|
|
|
—
|
|
|
(4
|
)
|
|
423
|
|
Mobile and ancillary (1)
|
3
|
|
|
50
|
|
|
464
|
|
|
—
|
|
|
—
|
|
|
517
|
|
Other (2)
|
—
|
|
|
52
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
112
|
|
Total segment net revenues
|
$
|
338
|
|
|
$
|
489
|
|
|
$
|
502
|
|
|
$
|
60
|
|
|
$
|
(4
|
)
|
|
$
|
1,385
|
|
Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the
six
months ended
June 30, 2019
and
2018
, were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
1,008
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,083
|
|
PC
|
176
|
|
|
623
|
|
|
64
|
|
|
—
|
|
|
(8
|
)
|
|
855
|
|
Mobile and ancillary (1)
|
6
|
|
|
79
|
|
|
961
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
Other (2)
|
—
|
|
|
95
|
|
|
—
|
|
|
141
|
|
|
—
|
|
|
236
|
|
Total consolidated net revenues
|
$
|
1,190
|
|
|
$
|
872
|
|
|
$
|
1,025
|
|
|
$
|
141
|
|
|
$
|
(8
|
)
|
|
$
|
3,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(527
|
)
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(544
|
)
|
PC
|
(77
|
)
|
|
(120
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(196
|
)
|
Mobile and ancillary (1)
|
(1
|
)
|
|
(9
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Other (2)
|
—
|
|
|
2
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(7
|
)
|
Total change in deferred revenues
|
$
|
(605
|
)
|
|
$
|
(144
|
)
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
481
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
539
|
|
PC
|
99
|
|
|
503
|
|
|
65
|
|
|
—
|
|
|
(8
|
)
|
|
659
|
|
Mobile and ancillary (1)
|
5
|
|
|
70
|
|
|
963
|
|
|
—
|
|
|
—
|
|
|
1,038
|
|
Other (2)
|
—
|
|
|
97
|
|
|
—
|
|
|
132
|
|
|
—
|
|
|
229
|
|
Total segment net revenues
|
$
|
585
|
|
|
$
|
728
|
|
|
$
|
1,028
|
|
|
$
|
132
|
|
|
$
|
(8
|
)
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Non-reportable segments
|
|
Elimination of intersegment revenues (3)
|
|
Total
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
1,289
|
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,382
|
|
PC
|
169
|
|
|
726
|
|
|
82
|
|
|
—
|
|
|
(6
|
)
|
|
971
|
|
Mobile and ancillary (1)
|
7
|
|
|
89
|
|
|
961
|
|
|
—
|
|
|
—
|
|
|
1,057
|
|
Other (2)
|
—
|
|
|
89
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
197
|
|
Total consolidated net revenues
|
$
|
1,465
|
|
|
$
|
997
|
|
|
$
|
1,043
|
|
|
$
|
108
|
|
|
$
|
(6
|
)
|
|
$
|
3,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
(723
|
)
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(740
|
)
|
PC
|
(91
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
Mobile and ancillary (1)
|
—
|
|
|
(8
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Other (2)
|
—
|
|
|
4
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
14
|
|
Total change in deferred revenues
|
$
|
(814
|
)
|
|
$
|
(27
|
)
|
|
$
|
(7
|
)
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
566
|
|
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
642
|
|
PC
|
78
|
|
|
720
|
|
|
82
|
|
|
—
|
|
|
(6
|
)
|
|
874
|
|
Mobile and ancillary (1)
|
7
|
|
|
81
|
|
|
954
|
|
|
—
|
|
|
—
|
|
|
1,042
|
|
Other (2)
|
—
|
|
|
93
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
211
|
|
Total segment net revenues
|
$
|
651
|
|
|
$
|
970
|
|
|
$
|
1,036
|
|
|
$
|
118
|
|
|
$
|
(6
|
)
|
|
$
|
2,769
|
|
|
|
(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 June 30, 2019
|
|
At December 31, 2018
|
Long-lived assets (1) by geographic region:
|
|
|
|
|
|
Americas
|
$
|
190
|
|
|
$
|
203
|
|
EMEA
|
56
|
|
|
62
|
|
Asia Pacific
|
13
|
|
|
17
|
|
Total long-lived assets by geographic region
|
$
|
259
|
|
|
$
|
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. More specifically, we are:
|
|
•
|
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
|
|
|
|
(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.
|
Total restructuring and related costs by segment are (amounts in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
Activision
|
$
|
2
|
|
|
$
|
11
|
|
Blizzard
|
13
|
|
|
39
|
|
King
|
6
|
|
|
13
|
|
Other segments (1)
|
1
|
|
|
16
|
|
Total
|
$
|
22
|
|
|
$
|
79
|
|
|
|
(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.
|
We expect to incur aggregate pre-tax restructuring charges of approximately
$150 million
in 2019 associated with the restructuring plan. 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.
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
|
$
|
14
|
|
Blizzard
|
77
|
|
King
|
27
|
|
Other segments (1)
|
32
|
|
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 June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Interest income
|
|
$
|
(19
|
)
|
|
$
|
(18
|
)
|
|
$
|
(41
|
)
|
|
$
|
(32
|
)
|
Interest expense from debt and amortization of debt discount and deferred financing costs
|
|
23
|
|
|
43
|
|
|
46
|
|
|
84
|
|
Unrealized gain on equity investment
|
|
(38
|
)
|
|
—
|
|
|
(38
|
)
|
|
—
|
|
Other expense (income), net
|
|
—
|
|
|
1
|
|
|
2
|
|
|
2
|
|
Interest and other expense (income), net
|
|
$
|
(34
|
)
|
|
$
|
26
|
|
|
$
|
(31
|
)
|
|
$
|
54
|
|
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
$42 million
for the three months ended
June 30, 2019
, reflects an effective tax rate of
11%
, which is higher than the effective tax rate of
1%
for the three months ended
June 30, 2018
. The increase is primarily due to a discrete tax benefit recognized in the prior-year in connection with an audit settlement with the Internal Revenue Service (“IRS”), lower excess tax benefits from share-based payments in the current year, and an increase in U.S. tax on foreign earnings. 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”) and a discrete tax benefit in the current year from a foreign tax audit settlement.
The income tax expense of
$163 million
for the
six
months ended
June 30, 2019
, reflects an effective tax rate of
17%
, which is higher than the effective tax rate of
7%
for the
six
months ended
June 30, 2018
. The increase is primarily due to the factors discussed above for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018.
The effective tax rate of
11%
and
17%
for the
three and six
months ended
June 30, 2019
, respectively, is lower than the U.S. statutory rate of
21%
, primarily due to a discrete tax benefit in the current year related to a foreign tax audit settlement and the recognition of federal research and development credits, partially offset by the valuation allowance recorded with regard to CA R&D 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 and Swedish audits 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
$379 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
$650 million
). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA and, if necessary, judicial remedies. While we believe our tax provisions at June 30, 2019, are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for the 2011 through 2013 tax years, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.
In addition, 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
$
|
328
|
|
|
$
|
402
|
|
|
$
|
774
|
|
|
$
|
902
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share—weighted-average common shares outstanding
|
766
|
|
|
761
|
|
|
765
|
|
|
760
|
|
Effect of potential dilutive common shares under the treasury stock method—employee stock options and awards
|
4
|
|
|
9
|
|
|
5
|
|
|
10
|
|
Denominator for basic earnings per common share—weighted-average dilutive common shares outstanding
|
770
|
|
|
770
|
|
|
770
|
|
|
770
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.43
|
|
|
$
|
0.53
|
|
|
$
|
1.01
|
|
|
$
|
1.19
|
|
Diluted earnings per common share
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
$
|
1.01
|
|
|
$
|
1.17
|
|
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 June 30,
|
|
For the Six Months Ended June 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
|
|
|
2
|
|
|
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
June 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
In December 2018, we received a decision from the STA informing us of an audit assessment of a Swedish subsidiary of King for the 2016 tax year. The Initial Decision described the basis for issuing a transfer pricing assessment of approximately
3.5kr billion
(approximately
$379 million
), primarily concerning an alleged intercompany asset transfer. On June 17, 2019, we received a reassessment from the STA 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 addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.
|
|
•
|
consolidated net income decreased
14%
to
$774 million
, as compared to
$902 million
for the
six
months ended
June 30, 2018
; net income for the 2018 period included $25 million of net tax benefits from several discrete tax items, as discussed above; and
|
|
|
•
|
diluted earnings per common share decreased
14%
to
$1.01
, as compared to
$1.17
for the
six
months ended
June 30, 2018
.
|
Since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games and then recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net revenues and operating income for the
three
months ended
June 30, 2019
, include a net effect of
$189 million
and
$135 million
, respectively, from the recognition of deferred net revenues and related cost of revenues. Net revenues and operating income for the
six
months ended
June 30, 2019
, include a net effect of
$755 million
and
$576 million
, respectively, from the recognition of deferred net revenues and related cost of revenues.
Content Release and Event Highlights
During the
three
months ended
June 30, 2019
, Activision released
Crash
TM
Team Racing Nitro
-
Fueled
and Blizzard released the latest expansion to
Hearthstone
—
Rise of Shadows
TM
.
Operating Metrics
The following operating metrics are key performance indicators that we use to evaluate our business.
Net Bookings
We monitor net bookings as a key operating metric in evaluating the performance of our business. Net bookings is the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings is equal to net revenues excluding the impact from deferrals.
Net bookings was as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Increase (Decrease)
|
Net bookings
|
|
|
|
|
|
Three Months Ended
|
$
|
1,207
|
|
|
$
|
1,385
|
|
|
$
|
(178
|
)
|
Six Months Ended
|
$
|
2,465
|
|
|
$
|
2,769
|
|
|
$
|
(304
|
)
|
Q2 2019 vs. Q2 2018
The decrease in net bookings for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower net bookings from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed; and
|
|
|
•
|
lower net bookings from
Overwatch
.
|
The decrease was partially offset by net bookings from
Crash Team Racing Nitro-Fueled
,
which was released in June 2019.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net bookings for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower net bookings from the Call of Duty franchise, primarily driven by lower net bookings from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017;
|
|
|
•
|
lower net bookings from
World of Warcraft
, primarily due to the prior year including net bookings associated with in-game content delivered to customers upon pre-purchase of
World of Warcraft: Battle for Azeroth
TM
, with no comparable net bookings in the current period; and
|
|
|
•
|
lower net bookings from
Overwatch
.
|
The decrease was partially offset by net bookings from
Sekiro
TM
: Shadows Die Twice
,
which was released in March 2019.
Monthly Active Users
We monitor monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.
The number of MAUs for a given period can be significantly impacted by the timing of new content releases, since new releases may cause a temporary surge in MAUs. Accordingly, although we believe that overall trending in the number of MAUs can be a meaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends. The following table details our average MAUs on a sequential quarterly basis for each of our reportable segments (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
March 31, 2018
|
Activision
|
37
|
|
|
41
|
|
|
53
|
|
|
46
|
|
|
45
|
|
|
51
|
|
Blizzard
|
32
|
|
|
32
|
|
|
35
|
|
|
37
|
|
|
37
|
|
|
38
|
|
King
|
258
|
|
|
272
|
|
|
268
|
|
|
262
|
|
|
270
|
|
|
285
|
|
Total
|
327
|
|
|
345
|
|
|
356
|
|
|
345
|
|
|
352
|
|
|
374
|
|
Average MAUs decreased by 18 million, or 5%, for the three months ended
June 30, 2019
, as compared to the three months ended
March 31, 2019
, primarily driven by a decrease in average MAUs for King and Activision. The decrease in King’s average MAUs is primarily due to decreases from the Candy Crush franchise. The decrease in Activision’s average MAUs is primarily due to decreases from the Call of Duty franchise.
Average MAUs decreased by 25 million, or 7%, for the three months ended
June 30, 2019
, as compared to the three months ended
June 30, 2018
. The year-over-year decrease in average MAUs is due to:
|
|
•
|
decreases across King’s various franchises, primarily from less engaged users leaving the network, partially offset by an increase in average MAUs for the Candy Crush franchise, primarily given the launch of
Candy Crush Friends Saga
TM
in the fourth quarter of 2018;
|
|
|
•
|
lower average MAUs for Activision, primarily due to lower average MAUs from the Call of Duty franchise and the absence of Destiny MAUs in our operating metric; and
|
|
|
•
|
lower average MAUs for Blizzard, primarily due to lower average MAUs for
Overwatch
and
Hearthstone
.
|
King MAUs were also negatively impacted by a King network outage in the second quarter of 2018, resulting from changes made by a third-party partner which inadvertently impacted some users’ ability to play and spend money in King games.
Management’s Overview of Business Trends
Interactive Entertainment and Mobile Gaming Growth
Our business participates in the global interactive entertainment industry. Games have become an increasingly popular form of entertainment, and we estimate the total industry has grown, on average, 18% annually from 2015 to 2018. The industry continues to benefit from additional players entering the market as interactive entertainment becomes more commonplace across age groups and as more developing regions gain access to this form of entertainment.
The wide adoption of smart phones globally and the free-to-play business model on those platforms has increased the total addressable audience for gaming significantly by introducing gaming to new age groups and new regions and allowing gaming to occur more widely outside the home. Mobile gaming is estimated to be larger than console and PC gaming, and continues to grow at a significant rate. King is a leading developer of mobile and free-to-play games and our other business units have mobile efforts underway that present the opportunity for us to expand the reach of, and drive additional player investment from, our franchises.
Opportunities to Expand Franchises Outside of Games
Our fans spend significant time investing in our franchises through purchases of our game content, whether through purchases of full games or downloadable content or via microtransactions. Given the passion our players have for our franchises, we believe there are emerging opportunities to drive additional engagement and investment in our franchises outside of games. Our efforts to build these adjacent opportunities are still relatively nascent, but we view them as potentially significant sources of future revenues.
For example, as part of our efforts to take advantage of esports opportunities, during 2017, we completed the sale of 12 teams for the Overwatch League, which concluded its inaugural season in July 2018. During 2018, we also completed the sale of eight additional teams for the Overwatch League, which are competing in the league’s second season that began in February 2019. Additionally, we have sold the first eight teams for our professional Call of Duty city-based league.
Concentration of Sales Among the Most Popular Franchises
The concentration of retail revenues among key titles has continued as a trend in the overall interactive entertainment industry. According to The NPD Group, the top 10 titles accounted for 38% of the retail sales in the U.S. interactive entertainment industry in 2018. Similarly, a significant portion of our revenues historically has been derived from video games based on a few popular franchises, and these video games have been responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, Candy Crush, and World of Warcraft franchises, collectively, accounted for 58% of our consolidated net revenues—and a significantly higher percentage of our operating income—for 2018.
In addition to investing in, and developing sequels and content for, our top franchises, we are continually exploring additional ways to expand those franchises. Further, while there is no guarantee of success, we invest in new properties in an effort to develop future top franchises. For example, in 2014, we released
Hearthstone
,
and in 2016, we released
Overwatch
. Additionally, to diversify our portfolio of key franchises and increase our presence on the mobile platform, in 2016, we acquired King. We also have mobile titles in development based on Activision and Blizzards intellectual property, such as the previously announced
Call of Duty Mobile
and
Diablo Immortal
TM
.
Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry’s, revenues and profits in the near future. Accordingly, our ability to maintain our top franchises and our ability to successfully compete against our competitors’ top franchises can significantly impact our performance.
Recurring Revenue Business Models
Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our business further towards a more consistently recurring and year-round model. Offering downloadable content and microtransactions, in addition to full games, allows our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenues, it can also increase player engagement. Also, mobile games, and free-to-play games more broadly, are generally less seasonal than games developed primarily for the console or PC platforms.
Consolidated Statements of Operations Data
The following table sets forth condensed consolidated statements of operations data for the periods indicated (amounts in millions) and as a percentage of total net revenues, except for cost of revenues, which are presented as a percentage of associated revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
359
|
|
26
|
%
|
|
$
|
464
|
|
28
|
%
|
|
$
|
1,015
|
|
32
|
%
|
|
$
|
1,184
|
|
33
|
%
|
Subscription, licensing, and other revenues
|
1,037
|
|
74
|
|
|
1,177
|
|
72
|
|
|
2,205
|
|
68
|
|
|
2,423
|
|
67
|
|
Total net revenues
|
1,396
|
|
100
|
|
|
1,641
|
|
100
|
|
|
3,220
|
|
100
|
|
|
3,607
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues—product sales:
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
99
|
|
28
|
|
|
126
|
|
27
|
|
|
251
|
|
25
|
|
|
289
|
|
24
|
|
Software royalties, amortization, and intellectual property licenses
|
51
|
|
14
|
|
|
49
|
|
11
|
|
|
162
|
|
16
|
|
|
194
|
|
16
|
|
Cost of revenues—subscription, licensing, and other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Game operations and distribution costs
|
230
|
|
22
|
|
|
250
|
|
21
|
|
|
469
|
|
21
|
|
|
521
|
|
22
|
|
Software royalties, amortization, and intellectual property licenses
|
53
|
|
5
|
|
|
85
|
|
7
|
|
|
114
|
|
5
|
|
|
169
|
|
7
|
|
Product development
|
244
|
|
17
|
|
|
255
|
|
16
|
|
|
492
|
|
15
|
|
|
513
|
|
14
|
|
Sales and marketing
|
191
|
|
14
|
|
|
226
|
|
14
|
|
|
397
|
|
12
|
|
|
477
|
|
13
|
|
General and administrative
|
170
|
|
12
|
|
|
216
|
|
13
|
|
|
350
|
|
11
|
|
|
415
|
|
12
|
|
Restructuring and related costs
|
22
|
|
2
|
|
|
—
|
|
—
|
|
|
79
|
|
2
|
|
|
—
|
|
—
|
|
Total costs and expenses
|
1,060
|
|
76
|
|
|
1,207
|
|
74
|
|
|
2,314
|
|
72
|
|
|
2,578
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
336
|
|
24
|
|
|
434
|
|
26
|
|
|
906
|
|
28
|
|
|
1,029
|
|
29
|
|
Interest and other expense (income), net
|
(34
|
)
|
(2
|
)
|
|
26
|
|
2
|
|
|
(31
|
)
|
(1
|
)
|
|
54
|
|
1
|
|
Income before income tax expense
|
370
|
|
27
|
|
|
408
|
|
25
|
|
|
937
|
|
29
|
|
|
975
|
|
27
|
|
Income tax expense
|
42
|
|
3
|
|
|
6
|
|
—
|
|
|
163
|
|
5
|
|
|
73
|
|
2
|
|
Net income
|
$
|
328
|
|
23
|
%
|
|
$
|
402
|
|
24
|
%
|
|
$
|
774
|
|
24
|
%
|
|
$
|
902
|
|
25
|
%
|
Consolidated Net Revenues
The following table summarizes our consolidated net revenues and the increase (decrease) in deferred net revenues recognized (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
% Change
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
% Change
|
Consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
(245
|
)
|
|
(15
|
)%
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
$
|
(387
|
)
|
|
(11
|
)%
|
Net effect from recognition (deferral) of deferred net revenues
|
189
|
|
|
256
|
|
|
(67
|
)
|
|
|
|
755
|
|
|
838
|
|
|
(83
|
)
|
|
|
Consolidated Net Revenues
Q2 2019 vs. Q2 2018
The decrease in consolidated net revenues for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a decrease of
$164 million
in revenues recognized from Activision, primarily due to (1) lower revenues recognized from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed, and (2) lower revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017; and
|
|
|
•
|
a decrease of
$77 million
in revenues recognized from Blizzard, primarily due to lower revenues recognized from
Overwatch
.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in consolidated net revenues for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a decrease of
$275 million
in revenues recognized from Activision, primarily due to lower revenues recognized from the Destiny franchise, partially offset by revenues from
Sekiro: Shadows Die Twice
,
which was released in March 2019; and
|
|
|
•
|
a decrease of
$125 million
in revenues recognized from Blizzard, primarily due to lower revenues recognized from
Overwatch
.
|
Change in Deferred Revenues Recognized
Q2 2019 vs. Q2 2018
The decrease in net deferred revenues recognized for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to a decrease of
$94 million
in net deferred revenues recognized from Activision, primarily due to lower net deferred revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net deferred revenues recognized for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to a decrease of
$209 million
in net deferred revenues recognized from Activision, primarily due to lower net deferred revenues recognized from the Destiny franchise. The decrease from Activision was partially offset by an increase of
$117 million
in net deferred revenues recognized from Blizzard, primarily due to higher net deferred revenues recognized for
World of Warcraft
,
driven by
World of Warcraft: Battle for Azeroth
,
which was released in August 2018, with no comparable release in 2017.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of
$39 million
and
$105 million
on our consolidated net revenues for the
three and six
months ended
June 30, 2019
, as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
Operating Segment Results
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 and six
months ended
June 30, 2019
and
2018
, are presented below (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
$ Increase / (Decrease)
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
268
|
|
|
$
|
381
|
|
|
$
|
499
|
|
|
$
|
1,148
|
|
|
$
|
(70
|
)
|
|
$
|
(104
|
)
|
|
$
|
(3
|
)
|
|
$
|
(177
|
)
|
Intersegment net revenues
(1)
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Segment net revenues
|
$
|
268
|
|
|
$
|
384
|
|
|
$
|
499
|
|
|
$
|
1,151
|
|
|
$
|
(70
|
)
|
|
$
|
(105
|
)
|
|
$
|
(3
|
)
|
|
$
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
55
|
|
|
$
|
75
|
|
|
$
|
171
|
|
|
$
|
301
|
|
|
$
|
(29
|
)
|
|
$
|
(58
|
)
|
|
$
|
2
|
|
|
$
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
|
|
|
|
|
|
|
|
Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
338
|
|
|
$
|
485
|
|
|
$
|
502
|
|
|
$
|
1,325
|
|
|
|
|
|
|
|
|
|
Intersegment net revenues (1)
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Segment net revenues
|
$
|
338
|
|
|
$
|
489
|
|
|
$
|
502
|
|
|
$
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
84
|
|
|
$
|
133
|
|
|
$
|
169
|
|
|
$
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
$ Increase / (Decrease)
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
585
|
|
|
$
|
720
|
|
|
$
|
1,028
|
|
|
$
|
2,333
|
|
|
$
|
(66
|
)
|
|
$
|
(244
|
)
|
|
$
|
(8
|
)
|
|
$
|
(318
|
)
|
Intersegment net revenues (1)
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Segment net revenues
|
$
|
585
|
|
|
$
|
728
|
|
|
$
|
1,028
|
|
|
$
|
2,341
|
|
|
$
|
(66
|
)
|
|
$
|
(242
|
)
|
|
$
|
(8
|
)
|
|
$
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
128
|
|
|
$
|
130
|
|
|
$
|
349
|
|
|
$
|
607
|
|
|
$
|
(47
|
)
|
|
$
|
(125
|
)
|
|
$
|
(11
|
)
|
|
$
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
Activision
|
|
Blizzard
|
|
King
|
|
Total
|
|
|
|
|
|
|
|
|
Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
$
|
651
|
|
|
$
|
964
|
|
|
$
|
1,036
|
|
|
$
|
2,651
|
|
|
|
|
|
|
|
|
|
Intersegment net revenues (1)
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Segment net revenues
|
$
|
651
|
|
|
$
|
970
|
|
|
$
|
1,036
|
|
|
$
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
175
|
|
|
$
|
255
|
|
|
$
|
360
|
|
|
$
|
790
|
|
|
|
|
|
|
|
|
|
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation to consolidated net revenues:
|
|
|
|
|
|
|
|
Segment net revenues
|
$
|
1,151
|
|
|
$
|
1,329
|
|
|
$
|
2,341
|
|
|
$
|
2,657
|
|
Revenues from non-reportable segments (1)
|
59
|
|
|
60
|
|
|
132
|
|
|
118
|
|
Net effect from recognition (deferral) of deferred net revenues
|
189
|
|
|
256
|
|
|
755
|
|
|
838
|
|
Elimination of intersegment revenues (2)
|
(3
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(6
|
)
|
Consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated income before income tax expense:
|
|
|
|
|
|
|
|
Segment operating income
|
$
|
301
|
|
|
$
|
386
|
|
|
$
|
607
|
|
|
$
|
790
|
|
Operating income (loss) from non-reportable segments (1)
|
7
|
|
|
—
|
|
|
4
|
|
|
(11
|
)
|
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues
|
135
|
|
|
182
|
|
|
576
|
|
|
557
|
|
Share-based compensation expense
|
(38
|
)
|
|
(57
|
)
|
|
(100
|
)
|
|
(111
|
)
|
Amortization of intangible assets
|
(47
|
)
|
|
(77
|
)
|
|
(102
|
)
|
|
(196
|
)
|
Restructuring and related costs (3)
|
(22
|
)
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
Consolidated operating income
|
336
|
|
|
434
|
|
|
906
|
|
|
1,029
|
|
Interest and other expense (income), net
|
(34
|
)
|
|
26
|
|
|
(31
|
)
|
|
54
|
|
Consolidated income before income tax expense
|
$
|
370
|
|
|
$
|
408
|
|
|
$
|
937
|
|
|
$
|
975
|
|
|
|
(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)
|
Intersegment revenues reflect licensing and service fees charged between segments.
|
|
|
(3)
|
Reflects restructuring initiatives, primarily severance and other restructuring-related costs.
|
Segment Net Revenues
Activision
Q2 2019 vs. Q2 2018
The decrease in Activision’s net revenues for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed;
|
|
|
•
|
lower revenues from
Crash Bandicoot™ N. Sane Trilogy
,
which was released on the Xbox One, PC, and Nintendo Switch in June 2018;
|
|
|
•
|
lower revenues from the Call of Duty franchise catalog titles; and
|
|
|
•
|
lower revenues from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017.
|
The decrease was partially offset by:
|
|
•
|
revenues from
Crash Team Racing Nitro-Fueled
,
which was released in June 2019; and
|
|
|
•
|
revenues from
Sekiro: Shadows Die Twice
,
which was released in March 2019.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in Activision’s net revenues for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues from
Call of Duty: Black Ops 4
, as compared to
Call of Duty: WWII
;
|
|
|
•
|
lower revenues from the Destiny franchise;
|
|
|
•
|
lower revenues from Call of Duty franchise catalog titles; and
|
|
|
•
|
lower revenues from
Crash Bandicoot N. Sane Trilogy
.
|
The decrease was partially offset by revenues from
Sekiro: Shadows Die Twice
and
Crash Team Racing Nitro-Fueled
.
Blizzard
Q2 2019 vs. Q2 2018
The decrease in Blizzard’s net revenues for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues from
Overwatch
;
|
|
|
•
|
lower revenues from
Hearthstone
, primarily driven by lower revenues from the
Rise of Shadows
expansion
,
which was released in April 2019, as compared to
The Witchwood™
expansion
,
which was released in April 2018
;
and
|
|
|
•
|
lower revenues from
World of Warcraft
, primarily due to the prior year including revenues associated with in-game content delivered to customers upon pre-purchase of
World of Warcraft: Battle for Azeroth,
with no comparable revenues in the current period.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in Blizzard’s net revenues for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues from
World of Warcraft
,
primarily due to the prior year including revenues associated with in-game content delivered to customers upon pre-purchase of
World of Warcraft: Battle for Azeroth
, with no comparable revenues in the current period;
|
|
|
•
|
lower revenues from
Overwatch
; and
|
|
|
•
|
lower revenues from
Hearthstone
.
|
King
Q2 2019 vs. Q2 2018
King’s net revenues for the
three
months ended
June 30, 2019
, were roughly equal to net revenues for the
three
months ended
June 30, 2018
.
YTD Q2 2019 vs. YTD Q2 2018
King’s net revenues for the
six
months ended
June 30, 2019
, were roughly equal to net revenues for the
six
months ended
June 30, 2018
.
Segment Income from Operations
Activision
Q2 2019 vs. Q2 2018
The decrease in Activision’s operating income for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to lower revenues, as discussed above. The decrease was partially offset by lower operating costs associated with the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in Activision’s operating income for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues, primarily driven by the Call of Duty franchise, as discussed above;
|
|
|
•
|
higher cost of revenues and higher spending on sales and marketing, primarily associated with the launches of
Sekiro: Shadows Die Twice
and
Crash Team Racing Nitro-Fueled
in March and June 2019, respectively; and
|
|
|
•
|
an increase in bad debt provisions.
|
The decrease was partially offset by lower operating costs associated with the Destiny franchise.
Blizzard
Q2 2019 vs. Q2 2018
The decrease in Blizzard’s operating income for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to lower revenues, as discussed above. The decrease is partially offset by:
|
|
•
|
lower spending on sales and marketing, primarily driven by Overwatch;
|
|
|
•
|
lower charitable contributions; and
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in Blizzard’s operating income for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to lower revenues, as discussed above. The decrease is partially offset by:
|
|
•
|
lower spending on sales and marketing, primarily driven by lower marketing for esports initiatives and Overwatch;
|
|
|
•
|
lower personnel costs; and
|
|
|
•
|
lower service provider fees, such as digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms), payment processor fees, and server bandwidth fees.
|
King
Q2 2019 vs. Q2 2018
King’s operating income for the
three
months ended
June 30, 2019
, was roughly equal to the
three
months ended
June 30, 2018
.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in King’s operating income for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to higher sales and marketing costs driven by the Candy Crush franchise, partially offset by:
|
|
•
|
lower service provider fees such as digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms), payment processor fees, and server bandwidth fees; and
|
|
|
•
|
lower product development costs.
|
Foreign Exchange Impact
Changes in foreign exchange rates had a
negative impact of $30 million and $72 million on reportable segment net revenues for the three and six months ended June 30, 2019, respectively,
as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
Consolidated Results
Net Revenues by Distribution Channel
The following table details our consolidated net revenues by distribution channel (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
Net revenues by distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital online channels (1)
|
$
|
1,086
|
|
|
$
|
1,259
|
|
|
$
|
(173
|
)
|
|
$
|
2,479
|
|
|
$
|
2,720
|
|
|
$
|
(241
|
)
|
Retail channels
|
193
|
|
|
278
|
|
|
(85
|
)
|
|
505
|
|
|
690
|
|
|
(185
|
)
|
Other (2)
|
117
|
|
|
104
|
|
|
13
|
|
|
236
|
|
|
197
|
|
|
39
|
|
Total consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
(245
|
)
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
$
|
(387
|
)
|
|
|
(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.
|
Digital Online Channel Net Revenues
Q2 2019 vs. Q2 2018
The decrease in net revenues from digital online channels for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed; and
|
|
|
•
|
lower revenues recognized from
Overwatch
.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from digital online channels for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to lower revenues recognized from the Destiny franchise.
Retail Channel Net Revenues
Q2 2019 vs. Q2 2018
The decrease in net revenues from retail channels for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017;
|
|
|
•
|
lower revenues from
Crash Bandicoot N. Sane Trilogy
,
which was released on the Xbox One, PC, and Nintendo Switch in June 2018; and
|
|
|
•
|
lower revenues recognized from the Destiny franchise.
|
The decrease was partially offset by revenues recognized from
Crash Team Racing Nitro-Fueled
,
which was released in June 2019.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from retail channels for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from
Call of Duty: Black Ops 4
, as compared to
Call of Duty: WWII
;
|
|
|
•
|
lower revenues recognized from the Destiny franchise; and
|
|
|
•
|
lower revenues from
Crash Bandicoot N. Sane Trilogy
.
|
The decrease was partially offset by revenues from
Sekiro: Shadows Die Twice
,
which was released in March 2019.
Net Revenues by Geographic Region
The following table details our consolidated net revenues by geographic region (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
Net revenues by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
764
|
|
|
$
|
900
|
|
|
$
|
(136
|
)
|
|
$
|
1,751
|
|
|
$
|
1,966
|
|
|
$
|
(215
|
)
|
EMEA (1)
|
459
|
|
|
552
|
|
|
(93
|
)
|
|
1,073
|
|
|
1,239
|
|
|
(166
|
)
|
Asia Pacific
|
173
|
|
|
189
|
|
|
(16
|
)
|
|
396
|
|
|
402
|
|
|
(6
|
)
|
Consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
(245
|
)
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
$
|
(387
|
)
|
|
|
(1)
|
“EMEA” consists of the Europe, Middle East, and Africa geographic regions.
|
Americas
Q2 2019 vs. Q2 2018
The decrease in net revenues from the Americas region for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to lower revenues recognized from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from the Americas region for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to lower revenues recognized from the Destiny franchise.
EMEA
Q2 2019 vs. Q2 2018
The decrease in net revenues from the EMEA region for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017; and
|
|
|
•
|
lower revenues recognized from the Destiny franchise.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from the EMEA region for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to the same drivers applicable to the
three
months ended
June 30, 2019
discussed above.
Asia Pacific
Q2 2019 vs. Q2 2018
The decrease in net revenues from the Asia Pacific region for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to lower revenues recognized from
Hearthstone,
primarily driven by lower revenues recognized from the
Rise of Shadows
expansion
,
which was released in April 2019, as compared to
The Witchwood
expansion
,
which was released in April 2018.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from the Asia Pacific region for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to lower revenues recognized from the Destiny franchise.
Net Revenues by Platform
The following table details our consolidated net revenues by platform (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
Net revenues by platform:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Console
|
$
|
407
|
|
|
$
|
565
|
|
|
$
|
(158
|
)
|
|
$
|
1,083
|
|
|
$
|
1,382
|
|
|
$
|
(299
|
)
|
PC
|
361
|
|
|
451
|
|
|
(90
|
)
|
|
855
|
|
|
971
|
|
|
(116
|
)
|
Mobile and ancillary (1)
|
511
|
|
|
521
|
|
|
(10
|
)
|
|
1,046
|
|
|
1,057
|
|
|
(11
|
)
|
Other (2)
|
117
|
|
|
104
|
|
|
13
|
|
|
236
|
|
|
197
|
|
|
39
|
|
Total consolidated net revenues
|
$
|
1,396
|
|
|
$
|
1,641
|
|
|
$
|
(245
|
)
|
|
$
|
3,220
|
|
|
$
|
3,607
|
|
|
$
|
(387
|
)
|
|
|
(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.
|
Console
Q2 2019 vs. Q2 2018
The decrease in net revenues from the console platform for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017;
|
|
|
•
|
lower revenues recognized from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed;
|
|
|
•
|
lower revenues from
Crash Bandicoot N. Sane Trilogy
which was released on the Xbox One, PC, and Nintendo Switch in June 2018; and
|
|
|
•
|
lower revenues recognized from Call of Duty franchise catalog titles.
|
The decrease was partially offset by revenues recognized from
Crash Team Racing Nitro-Fueled
,
which was released in June 2019.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from the console platform for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from the Destiny franchise;
|
|
|
•
|
lower revenues recognized from from
Call of Duty: Black Ops 4
, as compared to
Call of Duty: WWII
;
and
|
|
|
•
|
lower revenues recognized from Call of Duty franchise catalog titles.
|
The decrease was partially offset by revenues from
Sekiro: Shadows Die Twice
,
which was released in March 2019.
PC
Q2 2019 vs. Q2 2018
The decrease in net revenues from the PC platform for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from the Destiny franchise;
|
|
|
•
|
lower revenues recognized from
Overwatch
;
and
|
|
|
•
|
lower revenues recognized from
Hearthstone,
primarily driven by lower revenues recognized from the
Rise of Shadows
expansion,
which was released in April 2019, as compared to
The Witchwood
expansion,
which was released in April 2018.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in net revenues from the PC platform for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
lower revenues recognized from the Destiny franchise;
|
|
|
•
|
lower revenues recognized from
Overwatch
; and
|
|
|
•
|
lower revenues recognized from
Hearthstone
.
|
The decrease was partially offset by higher revenues recognized from
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017.
Mobile and Ancillary
Q2 2019 vs. Q2 2018
Net revenues from mobile and ancillary for the
three
months ended
June 30, 2019
, were roughly equal to net revenues for the
three
months ended
June 30, 2018
.
YTD Q2 2019 vs. YTD Q2 2018
Net revenues from mobile and ancillary for the
six
months ended
June 30, 2019
, were roughly equal to net revenues for the
six
months ended
June 30, 2018
.
Costs and Expenses
Cost of Revenues
The following table details the components of cost of revenues in dollars (amounts in millions) and as a percentage of associated net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
% of associated net revenues
|
|
Three Months Ended June 30, 2018
|
|
% of associated net revenues
|
|
Increase (Decrease)
|
Cost of revenues—product sales:
|
|
|
|
|
|
|
|
|
|
Product costs
|
$
|
99
|
|
|
28
|
%
|
|
$
|
126
|
|
|
27
|
%
|
|
$
|
(27
|
)
|
Software royalties, amortization, and intellectual property licenses
|
51
|
|
|
14
|
|
|
49
|
|
|
11
|
|
|
2
|
|
Cost of revenues—subscription, licensing, and other revenues:
|
|
|
|
|
|
|
|
|
|
Game operations and distribution costs
|
230
|
|
|
22
|
|
|
250
|
|
|
21
|
|
|
(20
|
)
|
Software royalties, amortization, and intellectual property licenses
|
53
|
|
|
5
|
|
|
85
|
|
|
7
|
|
|
(32
|
)
|
Total cost of revenues
|
$
|
433
|
|
|
31
|
%
|
|
$
|
510
|
|
|
31
|
%
|
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
% of associated net revenues
|
|
Six Months Ended June 30, 2018
|
|
% of associated net revenues
|
|
Increase (Decrease)
|
Cost of revenues—product sales:
|
|
|
|
|
|
|
|
|
|
Product costs
|
$
|
251
|
|
|
25
|
%
|
|
$
|
289
|
|
|
24
|
%
|
|
$
|
(38
|
)
|
Software royalties, amortization, and intellectual property licenses
|
162
|
|
|
16
|
|
|
194
|
|
|
16
|
|
|
(32
|
)
|
Cost of revenues—subscription, licensing, and other revenues:
|
|
|
|
|
|
|
|
|
|
Game operations and distribution costs
|
469
|
|
|
21
|
|
|
521
|
|
|
22
|
|
|
(52
|
)
|
Software royalties, amortization, and intellectual property licenses
|
114
|
|
|
5
|
|
|
169
|
|
|
7
|
|
|
(55
|
)
|
Total cost of revenues
|
$
|
996
|
|
|
31
|
%
|
|
$
|
1,173
|
|
|
33
|
%
|
|
$
|
(177
|
)
|
Cost of Revenues—Product Sales:
Q2 2019 vs. Q2 2018
The decrease in product costs for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was in line with the decrease in product sales.
The slight increase in software royalties, amortization, and intellectual property licenses related to product sales for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to an increase of
$9 million
in software amortization and royalties from Blizzard, driven by the release of
World of Warcraft: Battle for Azeroth
in August 2018, with no comparable release in 2017. The increase from Blizzard was partially offset by a decrease of
$6 million
in software amortization and royalties from Activision, driven by the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in product costs for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was in line with the decrease in product sales.
The decrease in software royalties, amortization, and intellectual property licenses related to product sales for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to a decrease of
$48 million
in software amortization and royalties from Activision, driven by the Destiny franchise. The decrease in software amortization and royalties from the Destiny franchise was partially offset by:
|
|
•
|
higher software amortization and royalties for
Call of Duty: Black Ops 4
, which was released in October 2018, as compared to
Call of Duty: WWII
, which was released in November 2017; and
|
|
|
•
|
software amortization and royalties from
Sekiro: Shadows Die Twice
, which was released in March 2019, with no comparable release in 2018.
|
The decrease from Activision was partially offset by an increase of
$16 million
in software amortization and royalties from Blizzard, driven by the release of
World of Warcraft: Battle for Azeroth
.
Cost of Revenues—Subscription, Licensing, and Other Revenues
:
Q2 2019 vs. Q2 2018
The decrease in game operations and distribution costs for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to a decrease of
$13 million
in service provider fees such as digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms), payment processor fees, and server bandwidth fees.
The decrease in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to a decrease of
$29 million
in amortization of internally-developed franchise intangible assets acquired as part of our acquisition of King.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in game operations and distribution costs for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to a decrease of
$32 million
in service provider fees such as digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms), payment processor fees, and server bandwidth fees.
The decrease in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to a decrease of
$49 million
in amortization of internally-developed franchise intangible assets acquired as part of our acquisition of King.
Product Development (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of consolidated net revenues
|
|
June 30, 2018
|
|
% of consolidated net revenues
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
244
|
|
|
17
|
%
|
|
$
|
255
|
|
|
16
|
%
|
|
$
|
(11
|
)
|
Six Months Ended
|
$
|
492
|
|
|
15
|
%
|
|
$
|
513
|
|
|
14
|
%
|
|
$
|
(21
|
)
|
Q2 2019 vs. Q2 2018
The decrease in product development costs for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily driven by lower product development costs from the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in product development costs for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily driven by lower product development costs from the Destiny franchise.
Sales and Marketing (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of consolidated net revenues
|
|
June 30, 2018
|
|
% of consolidated net revenues
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
191
|
|
|
14
|
%
|
|
$
|
226
|
|
|
14
|
%
|
|
$
|
(35
|
)
|
Six Months Ended
|
$
|
397
|
|
|
12
|
%
|
|
$
|
477
|
|
|
13
|
%
|
|
$
|
(80
|
)
|
Q2 2019 vs. Q2 2018
The decrease in sales and marketing expenses for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to a decrease of
$35 million
in marketing spending and personnel costs, primarily associated with lower marketing costs for the Overwatch and Destiny franchises, partially offset by higher marketing costs for the Candy Crush franchise.
YTD Q2 2019 vs. YTD Q2 2018
The decrease in sales and marketing expenses for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a decrease of
$47 million
in marketing spending and personnel costs, primarily associated with lower marketing costs for esports initiatives and
Overwatch
, partially offset by higher marketing costs for the Candy Crush franchise; and
|
|
|
•
|
a decrease of
$44 million
in amortization of the customer base intangible asset acquired as part of our acquisition of King, as the asset was fully amortized during the first quarter of 2018.
|
General and Administrative (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of consolidated net revenues
|
|
June 30, 2018
|
|
% of consolidated net revenues
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
170
|
|
|
12
|
%
|
|
$
|
216
|
|
|
13
|
%
|
|
$
|
(46
|
)
|
Six Months Ended
|
$
|
350
|
|
|
11
|
%
|
|
$
|
415
|
|
|
12
|
%
|
|
$
|
(65
|
)
|
Q2 2019 vs. Q2 2018
The decrease in general and administrative expenses for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a
$33 million
decrease in personnel costs; and
|
|
|
•
|
a
$13 million
decrease in charitable contributions, primarily driven by a charitable campaign in
Overwatch
during the prior year where all proceeds from the sale of a special in-game item were donated to charity, with no equivalent campaign in 2019.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in general and administrative expenses for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to a
$47 million
decrease in personnel costs.
Restructuring and related costs (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of consolidated net revenues
|
|
June 30, 2018
|
|
% of consolidated net revenues
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
22
|
|
|
2
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
22
|
|
Six Months Ended
|
$
|
79
|
|
|
2
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
79
|
|
On February 12, 2019, the Company committed to a Board-authorized restructuring plan under which we are refocusing our resources on our largest opportunities and removing unnecessary levels of complexity and duplication from certain parts of our business. The costs incurred during the three and
six
months ended
June 30, 2019
, relate primarily to severance costs and the write-downs of assets that will no longer be used. Refer to Note 14 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Interest and Other Expense (Income), Net (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of consolidated net revenues
|
|
June 30, 2018
|
|
% of consolidated net revenues
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
(34
|
)
|
|
(2
|
)%
|
|
$
|
26
|
|
|
2
|
%
|
|
$
|
(60
|
)
|
Six Months Ended
|
$
|
(31
|
)
|
|
(1
|
)%
|
|
$
|
54
|
|
|
1
|
%
|
|
$
|
(85
|
)
|
Q2 2019 vs. Q2 2018
The decrease in interest and other expense (income), net, for the
three
months ended
June 30, 2019
, as compared to the
three
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a
$38 million
gain recognized as a result of adjusting a cost-method equity investment to fair value, with no comparable activity in the prior period (refer to Note 8 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q); and
|
|
|
•
|
a
$20 million
decrease in interest expense and amortization of deferred financing costs associated with our debt obligations due to our lower total debt outstanding as a result of our debt redemptions and repayment activities during 2018.
|
YTD Q2 2019 vs. YTD Q2 2018
The decrease in interest and other expense (income), net, for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
, was primarily due to:
|
|
•
|
a
$38 million
gain recognized as a result of adjusting a cost-method equity investment to fair value, with no comparable activity in the prior period; and
|
|
|
•
|
a
$38 million
decrease in interest expense and amortization of deferred financing costs associated with our debt obligations.
|
Income Tax Expense (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
% of pretax income
|
|
June 30, 2018
|
|
% of pretax income
|
|
Increase (Decrease)
|
Three Months Ended
|
$
|
42
|
|
|
11
|
%
|
|
$
|
6
|
|
|
1
|
%
|
|
$
|
36
|
|
Six Months Ended
|
$
|
163
|
|
|
17
|
%
|
|
$
|
73
|
|
|
7
|
%
|
|
$
|
90
|
|
The income tax expense of
$42 million
for the
three
months ended
June 30, 2019
, reflects an effective tax rate of
11%
, which is higher than the effective tax rate of
1%
for the
three
months ended
June 30, 2018
. The increase is primarily due to a discrete tax benefit recognized in the prior-year in connection with an IRS audit settlement, lower excess tax benefits from share-based payments in the current year, and an increase in U.S. tax on foreign earnings. This increase was partially offset by a valuation allowance recorded in the prior year with regard to CA R&D Credits and a discrete tax benefit in the current year from a foreign tax audit settlement.
The income tax expense of
$163 million
for the
six
months ended
June 30, 2019
, reflects an effective tax rate of
17%
, which is higher than the effective tax rate of
7%
for the
six
months ended
June 30, 2018
. The increase is primarily due to the factors discussed above for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018.
The effective tax rate of
11%
and
17%
for the
three and six
months ended
June 30, 2019
, respectively, is lower than the U.S. statutory rate of 21%, primarily due to a discrete tax benefit in the current year related to a foreign tax audit settlement and the recognition of federal research and development credits, partially offset by the valuation allowance recorded with regard to CA R&D Credits.
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.
Further information about our income taxes is provided in Note 16 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
We believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. In the near term, we expect our business and financial condition to remain strong and to continue to generate significant operating cash flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term investments of
$4.7 billion
, our access to capital, and the availability of our
$1.5 billion
revolving credit facility, will be sufficient to finance our operational and financing requirements for the next 12 months. Our primary sources of liquidity, which are available to us to fund cash outflows such as our anticipated dividend payments, share repurchases, and scheduled debt maturities, include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities.
As of
June 30, 2019
, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was
$2.0 billion
, as compared to
$1.4 billion
as of December 31,
2018
. These cash balances are generally available for use in the U.S., subject in some cases to certain restrictions.
Our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by weekly sales, which are generally highest in the fourth quarter due to seasonal and holiday-related sales patterns. We consider, on a continuing basis, various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, share repurchases, and other structural changes. These transactions may result in future cash proceeds or payments.
Sources of Liquidity (amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Increase (Decrease)
|
Cash and cash equivalents
|
$
|
4,592
|
|
|
$
|
4,225
|
|
|
$
|
367
|
|
Short-term investments
|
84
|
|
|
155
|
|
|
(71
|
)
|
|
$
|
4,676
|
|
|
$
|
4,380
|
|
|
$
|
296
|
|
Percentage of total assets
|
27
|
%
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
Net cash provided by operating activities
|
$
|
604
|
|
|
$
|
538
|
|
|
$
|
66
|
|
Net cash provided by (used in) investing activities
|
37
|
|
|
(124
|
)
|
|
161
|
|
Net cash used in financing activities
|
(274
|
)
|
|
(250
|
)
|
|
(24
|
)
|
Effect of foreign exchange rate changes
|
3
|
|
|
(19
|
)
|
|
22
|
|
Net increase in cash and cash equivalents and restricted cash
|
$
|
370
|
|
|
$
|
145
|
|
|
$
|
225
|
|
Net Cash Provided by Operating Activities
The primary driver of net cash flows associated with our operating activities is the collection of customer receivables generated from the sale of our products and services. These collections are typically partially offset by: payments to vendors for the manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.
Net cash provided by operating activities for the
six
months ended
June 30, 2019
, was
$604 million
, as compared to
$538 million
for the
six
months ended
June 30, 2018
. The increase was primarily due to changes in our working capital resulting from the timing of collections and payments and lower cash spent to support the Destiny franchise, the publishing rights to which we sold to Bungie in December 2018, as previously disclosed. This increase was partially offset by lower net income and a decrease in non-cash adjustments to net income for the
six
months ended
June 30, 2019
, as compared to the
six
months ended
June 30, 2018
.
Net Cash Provided by (Used in) Investing Activities
The primary drivers of net cash flows associated with investing activities typically include capital expenditures, purchases and sales of investments, changes in restricted cash balances, and cash used for acquisitions.
Net cash
provided by investing activities
for the
six
months ended
June 30, 2019
, was
$37 million
, as compared to net cash used in investing activities of
$124 million
for the
six
months ended
June 30, 2018
. The increase was primarily due to cash flow activities associated with available-for-sale investments, for which, in the
six
months ended
June 30, 2019
, there were
$75 million
of cash proceeds from the maturities of available-for-sale investments, as compared to purchases of available-for-sale investments of
$59 million
in the prior-year period. Additionally, capital expenditures of
$45 million
for the
six
months ended
June 30, 2019
, were lower than the capital expenditures of
$61 million
for the prior-year period.
Net Cash Used in Financing Activities
The primary drivers of net cash flows associated with financing activities typically include the proceeds from, and repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise of stock options, as well as the payment of dividends.
Net cash used in financing activities for the
six
months ended
June 30, 2019
, was
$274 million
, as compared to
$250 million
for the
six
months ended
June 30, 2018
. The increase was primarily due to:
|
|
•
|
higher dividends paid of
$283 million
for the
six
months ended
June 30, 2019
, as compared to
$259 million
for the prior-year period; and
|
|
|
•
|
lower proceeds from stock option exercises of
$57 million
for the
six
months ended
June 30, 2019
, as compared to
$77 million
for the prior-year period.
|
The increase was partially offset by lower tax payments made for net share settlements on restricted stock units of
$48 million
for the
six
months ended
June 30, 2019
, as compared to
$68 million
for the prior-year period.
Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had a positive impact of
$3 million
on our cash and cash equivalents and restricted cash for the
six
months ended
June 30, 2019
, as compared to a negative impact of
$19 million
for the
six
months ended
June 30, 2018
. The change was primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
Debt
As of
June 30, 2019
and December 31,
2018
, our total outstanding debt was
$2.7 billion
, bearing interest at a weighted average rate of
3.18%
.
A summary of our outstanding debt is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
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
|
|
|
(4
|
)
|
|
396
|
|
2047 Notes
|
400
|
|
|
(9
|
)
|
|
391
|
|
Total long-term debt
|
$
|
2,700
|
|
|
$
|
(27
|
)
|
|
$
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Refer to Note 11 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for further disclosures regarding our debt obligations.
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.
Capital Expenditures
For the year ending
December 31, 2019
, we anticipate total capital expenditures of approximately
$140 million
, primarily for leasehold improvements, computer hardware, and software purchases. During the
six
months ended
June 30, 2019
, capital expenditures were
$45 million
.
Off-Balance Sheet Arrangements
At each of
June 30, 2019
and
December 31, 2018
, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments, and assumptions, and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
•
Revenue Recognition;
•
Income Taxes;
•
Allowances for Returns and Price Protection;
•
Software Development Costs;
•
Fair Value Estimates (including Business Combinations and Assessment of Impairment of Assets); and
•
Share-Based Payments.
During the
six
months ended
June 30, 2019
, there were no significant changes to the above critical accounting policies and estimates. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2018
, for a more complete discussion of our critical accounting policies and estimates.
Recently Issued Accounting Pronouncements
Below are recently issued accounting pronouncements that were most significant to our accounting policy activities. For a detailed discussion of all relevant recently issued accounting pronouncements, see Note 3 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
Leases
As noted in Note 2 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, 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.
For additional discussion regarding the impact of our adoption of the new lease accounting standard to our condensed consolidated balance sheet, see Note 3 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.