UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of report (Date of earliest event reported):  August 2, 2018

 

 

            ACTIVISION BLIZZARD, INC.              

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware

 

001-15839

 

95-4803544

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

3100 Ocean Park Boulevard,
Santa Monica, CA

 

 

 

90405

(Address of Principal Executive
Offices)

 

 

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code:  (310) 255-2000

 

 

 

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 



 

Certain Information Not Filed.  The information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached to this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall such Item 2.02 or such Exhibit 99.1 or any of the information contained therein be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

Item 2.02.                              Results of Operations and Financial Condition.

 

On August 2, 2018, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended June 30, 2018. A copy of the press release is attached hereto as Exhibit 99.1. As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 9.01.                              Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1

 

Press Release dated August 2, 2018 (furnished not filed)

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 2, 2018

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

By:

/s/ Spencer Neumann

 

 

 

Spencer Neumann

 

 

 

Chief Financial Officer

 

 

3


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES SECOND-QUARTER 2018 FINANCIAL RESULTS

 

 

Better-Than-Expected Second-Quarter Results

 

Record First-Half Revenue, Net Bookings A, and EPS

 

Record Second-Quarter Mobile Revenue and Mobile Net Bookings A

 

 

Santa Monica, CA – August 2, 2018 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced second-quarter 2018 results.

 

“This was another strong quarter for Activision Blizzard. Our portfolio of global franchises enabled us to deliver record first half revenues and earnings per share,” said Bobby Kotick, Chief Executive Officer of Activision Blizzard. “This past weekend we held the Overwatch League TM Grand Finals. We had a very successful first season as we enhanced our leadership position in esports. And, today we announced two additional Overwatch League franchise sales at record prices, adding Atlanta, Georgia and Guangzhou, China to our league. We plan to announce additional franchises over the next few months.”

 

Financial Metrics:

 

 

 

Second Quarter

 

 

 

 

 

 

 

 

 

 

 

Prior

 

 

(in millions, except EPS)

 

2018

 

Outlook*

 

2017

 

 

 

 

 

 

 

GAAP Net Revenues

 

  $

1,641

 

$

1,555

 

$

1,631

Impact of GAAP deferralsB

 

  $

(256)

 

$

(205)

 

$

(213)

 

 

 

 

 

 

 

GAAP EPS

 

  $

0.52

 

$

0.26

 

$

0.32

Non-GAAP EPS

 

  $

0.62

 

$

0.46

 

$

0.55

Impact of GAAP deferralsB

 

  $

(0.21)

 

$

(0.15)

 

$

(0.12)

 

 

 

 

 

 

 

 

    * Prior outlook was provided by the company on May 3, 2018 in its earnings release.

 

For the quarter ended June 30, 2018, Activision Blizzard’s net revenues presented in accordance with GAAP were a Q2 record $1.64 billion, as compared with $1.63 billion for the second quarter of 2017. GAAP net revenues from digital channels were $1.26 billion. GAAP operating margin was 26%. GAAP earnings per diluted share were a Q2 record $0.52, as compared with $0.32 for the second quarter of 2017.

 

1



 

Activision Blizzard Announces Q2 2018 Financial Results

 

For the quarter ended June 30, 2018, on a non-GAAP basis, Activision Blizzard’s operating margin was 35% and earnings per diluted share were a Q2 record $0.62, as compared with $0.55 for the second quarter of 2017.

 

For the quarter ended June 30, 2018, operating cash flow was $9 million. For the trailing twelve-month period, operating cash flow was $2.08 billion.

 

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

 

Operating Metric:

 

Net bookings is an operating metric that is defined as 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, and is equal to net revenues excluding the impact from deferrals.

 

For the quarter ended June 30, 2018, Activision Blizzard’s net bookingsA were $1.38 billion, as compared with $1.42 billion for the second quarter of 2017. Net bookingsA from digital channels were $1.20 billion, as compared with $1.28 billion for the second quarter of 2017.

 

Selected Business Highlights:

 

Activision Blizzard’s consistent second-quarter results illustrate the enduring nature of our franchises. In the second half of 2018, we have several exciting launches which we expect to drive strong full-year results.

 

Audience Reach

·                 Activision Blizzard had 352 million Monthly Active Users (MAUs)C in the quarter.

 

·                 Activision had 45 million MAUsC. Call of Duty®: World War II continued to have more MAUsC than the prior franchise release. Pre-orders for Call of Duty: Black Ops 4 are strong. Black Ops 3 MAUsC grew quarter-over-quarter and, in June, reached the highest level for this year as over 15 million players geared up for the October 12th  release of Black Ops 4. During the quarter, Destiny 2 released its second expansion, Warmind, with higher attach rates than Destiny 1’s second expansion, and Destiny 2 MAUsC grew quarter-over-quarter. Crash Bandicoot™ N. Sane Trilogy successfully launched for Xbox One, Switch, and PC in the quarter with strong performance.

 

·                 Blizzard had 37 million MAUsC  ahead of significant content coming in the second half of 2018. World of Warcraft® momentum remains high ahead of the upcoming expansion, Battle for Azeroth™, which is seeing strong pre-orders. Blizzard is building on the excitement around the Overwatch League with further Overwatch® esports events, and a continuous stream of content for the game in the second half of this year, including seasonal events, maps, heroes, and new cosmetic items. Pre-purchases for the upcoming Hearthstone® expansion, The Boomsday Project™, are tracking ahead of any prior expansion at the same point in time pre-release.

 

2



 

Activision Blizzard Announces Q2 2018 Financial Results

 

·                 King had 270 million MAUsC. Candy Crush Saga™ mobile MAUsC were stable quarter-over-quarter and grew year-over-year. King’s engagement remained strong with daily time spent per user at 36 minutes.

 

Deep Engagement

·                 The Overwatch League held its Grand Finals event at Barclays Center in New York on June 27-28. The Grand Finals had a sold-out live audience and millions of global viewers watched on TV networks and streaming platforms. The hard-to-reach 18 to 34 demographic made up approximately 70% of the global audience.

 

·                 Activision’s Call of Duty World League continued to enjoy momentum with year-to-date minutes watched up 50% year-over-year heading into its championships in Columbus, Ohio later this month.

 

Player Investment

·                 Activision Blizzard delivered $1 billion of in-game net bookingsA in the second quarter and a record of approximately $2 billion year-to-date.

 

·                 Activision had record Q2 in-game net bookings A, driven by Call of Duty: WWII, Call of Duty: Black Ops 3, and Destiny 2.

 

·                 This quarter, King had two of the top-10 highest-grossing titles in the U.S. mobile app stores for the nineteenth quarter in a row, with Candy Crush Saga at #1 again.1 Overall Candy Crush™ franchise net bookings A grew double digits year-over-year.

 

·                 King’s advertising business was profitable for the second quarter in a row with net bookings A growing sequentially.

 

Company Outlook:

 

(in millions, except EPS)

 

GAAP
Outlook

 

Non-GAAP
Outlook

 

Impact of GAAP
deferrals
B

 

 

 

 

 

 

 

CY 2018

 

 

 

 

 

 

Net Revenues

 

$

7,355

 

$

7,355

 

$

120

EPS

 

$

1.84

 

$

2.46

 

$

0.12

Fully Diluted Shares

 

774

 

774

 

 

Q3 2018

 

 

 

 

 

 

Net Revenues

 

$

1,490

 

$

1,490

 

$

125

EPS

 

$

0.16

 

$

0.37

 

$

0.10

Fully Diluted Shares

 

772

 

772

 

 

 

Net bookingsA (operating metric) is expected to be $7.48 billion for 2018 and $1.61 billion for the third quarter of 2018.

 

3



 

Activision Blizzard Announces Q2 2018 Financial Results

 

Currency Assumptions for 2018 Outlook:

·                 $1.21 USD/Euro for current outlook (vs. average of $1.12 for 2017 and $1.11 for 2016); and

·                 $1.35 USD/British Pound Sterling for current outlook (vs. average of $1.30 for 2017 and $1.36 for 2016).

·                 Note: Our financial guidance includes the forecasted impact of our FX hedging program.

 

Capital Allocation:

 

The company paid a cash dividend of $0.34 per common share, up 13% year-over-year, in May 2018 to shareholders of record at the close of business on March 30, 2018. Cash payments totaled $259 million. The Board of Directors has authorized a debt paydown of up to $1.8 billion during 2018, and the company expects to utilize the full authorization in Q3.

 

Conference Call:

 

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended June 30, 2018 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 866-548-4713 in the U.S. with passcode 1068570.

 

About Activision Blizzard:

 

Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is the world’s most successful standalone interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision’s Call of Duty®, Destiny, and Skylanders®, Blizzard Entertainment’s World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®, and King’s Candy Crush™,  Bubble Witch™, and Farm Heroes™. The company is one of the Fortune “100 Best Companies To Work For®.” Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world, and its games are played in 196 countries. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

 

1 U.S. ranking for Apple App Store and Google Play Store combined, per App Annie Intelligence for second quarter of 2018.

 

A Net bookings is an operating metric that is defined as 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, and is equal to net revenues excluding the impact from deferrals.

 

B Net effect of accounting treatment from revenue deferrals on certain of our online-enabled products. 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 recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, along with, for the purposes of EPS, the related cost of revenues deferrals treatment and the related tax impacts. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

 

4



 

Activision Blizzard Announces Q2 2018 Financial Results

 

Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.

 

C Monthly Active User (“MAU”) Definition: We monitor 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.

 

Non-GAAP Financial Measures: As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

 

Activision Blizzard provides net income (loss), earnings (loss) per share, and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. When relevant, the company also provides constant FX information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation, and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation).  The non-GAAP financial measures exclude the following items, as applicable in any given reporting period and our outlook:

 

·                  expenses related to stock-based compensation;

·                  the amortization of intangibles from purchase price accounting;

·                  fees and other expenses related to the King acquisition, inclusive of related debt financings, and refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs;

·                  restructuring charges;

·                  other non-cash charges from reclassification of certain cumulative translation adjustments into earnings as required by GAAP;

·                  the income tax adjustments associated with any of the above items (tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results); and

·                  significant discrete tax-related items, including amounts related to changes in tax laws (including the Tax Cuts and Jobs Act enacted in December 2017), amounts related to the potential or final resolution of tax positions, and other unusual or unique tax-related items and activities.

 

In the future, Activision Blizzard may also consider whether other items should also be excluded in calculating the non-GAAP financial measures used by the company. Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance. In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company’s core business, operating results, or future outlook. Additionally, we consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Internally, management uses these non-GAAP financial measures, along with others, in assessing the company’s operating results, and measuring compliance with the requirements of the company’s debt financing agreements, as well as in planning and forecasting.

 

5



 

Activision Blizzard Announces Q2 2018 Financial Results

 

Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

 

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

 

Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements, including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those related to releases of products and services; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. The company generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

 

The company cautions that a number of important factors could cause Activision Blizzard’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: sales levels of Activision Blizzard’s titles, products, and services; concentration of revenue among a small number of titles; Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres and modes, and preferences among platforms; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our acquired or newly started businesses and the potential impact of our expansion into new businesses on our existing businesses; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain, and motivate key personnel and developers that can create high-quality titles, products, and services; changing business models within the video game industry, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation risks and associated costs; protection of proprietary rights; potential data breaches and other cybersecurity risks; shifts in consumer spending trends; capital market risks; the impact of applicable laws, rules, and regulations, including changes in those laws, rules, and regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

 

The forward-looking statements in this press release are based on information available to the company at this time and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

 

Activision Blizzard, Inc.

 

Investors and Analysts:

ir@activisionblizzard.com

or

Press:

pr@activisionblizzard.com

 

###

 

(Tables to Follow)

 

6



 

1

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2018 1

 

2017

 

2018 1

 

2017

 

Net revenues

 

 

 

 

 

 

 

 

 

Product sales

 

 $

464

 

 $

481

 

 $

1,184

 

 $

989

 

Subscription, licensing, and other revenues 2

 

1,177

 

1,150

 

2,423

 

2,367

 

Total net revenues

 

1,641

 

1,631

 

3,607

 

3,356

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cost of revenues—product sales:

 

 

 

 

 

 

 

 

 

Product costs

 

126

 

130

 

289

 

273

 

Software royalties, amortization, and intellectual property licenses

 

49

 

75

 

194

 

163

 

Cost of revenues—subscription, licensing, and other:

 

 

 

 

 

 

 

 

 

Game operations and distribution costs

 

250

 

236

 

521

 

468

 

Software royalties, amortization, and intellectual property licenses

 

85

 

120

 

169

 

242

 

Product development

 

255

 

252

 

513

 

478

 

Sales and marketing

 

226

 

308

 

477

 

554

 

General and administrative

 

216

 

171

 

415

 

347

 

Total costs and expenses

 

1,207

 

1,292

 

2,578

 

2,525

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

434

 

339

 

1,029

 

831

 

Interest and other expense (income), net

 

26

 

46

 

54

 

85

 

Income before income tax expense

 

408

 

293

 

975

 

746

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

6

 

50

 

73

 

77

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 $

402

 

 $

243

 

 $

902

 

 $

669

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

 $

0.53

 

 $

0.32

 

 $

1.19

 

 $

0.89

 

Weighted average common shares outstanding

 

761

 

754

 

760

 

752

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

 $

0.52

 

 $

0.32

 

 $

1.17

 

 $

0.88

 

Weighted average common shares outstanding assuming dilution

 

770

 

764

 

770

 

763

 

 

1                    We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and six months ended June 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the second quarter of 2018 for additional information.

 

2                    Subscription, licensing, and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, downloadable content, microtransactions, and other miscellaneous revenues.

 



 

2

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

 

 

June 30, 2018 1

 

December 31, 2017

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

 $

4,857

 

$

4,713

 

Accounts receivable, net

 

418

 

918

 

Inventories, net

 

36

 

46

 

Software development

 

320

 

367

 

Other current assets

 

503

 

476

 

Total current assets

 

6,134

 

6,520

 

Software development

 

131

 

86

 

Property and equipment, net

 

281

 

294

 

Deferred income taxes, net

 

324

 

459

 

Other assets

 

415

 

440

 

Intangible assets, net

 

910

 

1,106

 

Goodwill

 

9,763

 

9,763

 

Total assets

 

 $

17,958

 

$

18,668

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

 $

167

 

$

323

 

Deferred revenues

 

832

 

1,929

 

Accrued expenses and other liabilities

 

1,061

 

1,411

 

Total current liabilities

 

2,060

 

3,663

 

Long-term debt, net

 

4,394

 

4,390

 

Deferred income taxes, net

 

13

 

21

 

Other liabilities

 

1,145

 

1,132

 

Total liabilities

 

7,612

 

9,206

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock

 

 

 

Additional paid-in capital

 

10,867

 

10,747

 

Treasury stock

 

(5,563)

 

(5,563)

 

Retained earnings

 

5,647

 

4,916

 

Accumulated other comprehensive loss

 

(605)

 

(638)

 

Total shareholders’ equity

 

10,346

 

9,462

 

Total liabilities and shareholders’ equity

 

 $

17,958

 

$

18,668

 

 

1                    We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three and six months ended June 30, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-Q for the second quarter of 2018 for additional information.

 



 

3

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

 

Three Months Ended June 30, 2018

 

Net Revenues

 

Cost of Revenues
 - Product Sales:
Product Costs

 

Cost of Revenues
 - Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
 - Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
 - Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

1,641

 

 $

126

 

 $

49

 

$

250

 

$

85

 

$

255

 

$

226

 

$

216

 

$

1,207

 

Share-based compensation1

 

 

 

(2

)

 

 

(18

)

(5

)

(32

)

(57

)

Amortization of intangible assets2

 

 

 

 

 

(75

)

 

 

(2

)

(77

)

Non-GAAP Measurement

 

 $

1,641

 

 $

126

 

 $

47

 

$

250

 

$

10

 

$

237

 

$

221

 

$

182

 

$

1,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues3

 

 $

(256

)

 $

(44

)

 $

(46

)

$

(1

)

$

17

 

$

 

$

 

$

 

$

(74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

434

 

 $

402

 

 $

0.53

 

$

0.52

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

57

 

57

 

0.07

 

0.07

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

77

 

77

 

0.10

 

0.10

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above4

 

 

(37

)

(0.05

)

(0.05

)

 

 

 

 

 

 

 

 

 

 

Discrete tax-related items5

 

 

(25

)

(0.03

)

(0.03

)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

568

 

 $

474

 

 $

0.62

 

$

0.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues3

 

 $

(182

)

 $

(159

)

 $

(0.21

)

$

(0.21

)

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

4                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

5                    Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Refer to our Form 10-Q for the second quarter of 2018 for additional information.

 

The GAAP and non-GAAP earnings per share information is presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 



 

4

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

 

Six Months Ended June 30, 2018

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

$

3,607

 

$

289

 

$

194

 

$

521

 

$

169

 

$

513

 

$

477

 

$

415

 

$

2,578

 

Share-based compensation1

 

 

 

(5

)

(1

)

 

(32

)

(9

)

(64

)

(111

)

Amortization of intangible assets2

 

 

 

 

 

(148

)

 

(44

)

(4

)

(196

)

Non-GAAP Measurement

 

$

3,607

 

$

289

 

$

189

 

$

520

 

$

21

 

$

481

 

$

424

 

$

347

 

$

2,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues3

 

$

(838

)

$

(120

)

$

(165

)

$

(5

)

$

9

 

$

 

$

 

$

 

$

(281

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

$

1,029

 

$

902

 

$

1.19

 

$

1.17

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

111

 

111

 

0.15

 

0.14

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

196

 

196

 

0.26

 

0.25

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above4

 

 

(106

)

(0.14

)

(0.14

)

 

 

 

 

 

 

 

 

 

 

Discrete-tax related items5

 

 

(25

)

(0.03

)

(0.03

)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

$

1,336

 

$

1,078

 

$

1.42

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues3

 

$

(557

)

$

(469

)

$

(0.62

)

$

(0.61

)

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

4                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

5                    Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Refer to our Form 10-Q for the second quarter of 2018 for additional information.

 

The GAAP and non-GAAP earnings per share information is presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 



 

5

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

1,631

 

 $

130

 

 $

75

 

 $

236

 

 $

120

 

 $

252

 

 $

308

 

 $

171

 

 $

1,292

 

Share-based compensation1

 

 

 

(3

)

 

 

(14

)

(4

)

(18

)

(39

)

Amortization of intangible assets2

 

 

 

 

 

(114

)

 

(78

)

(2

)

(194

)

Fees and other expenses related to the King Acquisition3

 

 

 

 

 

 

 

 

(5

)

(5

)

Other non-cash charges4

 

 

 

 

 

 

 

 

1

 

1

 

Non-GAAP Measurement

 

 $

1,631

 

 $

130

 

 $

72

 

 $

236

 

 $

6

 

 $

238

 

 $

226

 

 $

147

 

 $

1,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

 

 $

(213

)

 $

(44

)

 $

(68

)

 $

1

 

 $

3

 

 $

 

 $

 

 $

 

 $

(108

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

339

 

 $

243

 

 $

0.32

 

 $

0.32

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

39

 

39

 

0.05

 

0.05

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

194

 

194

 

0.26

 

0.25

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to the King Acquisition3

 

5

 

6

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Other non-cash charges4

 

(1

)

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt6

 

 

12

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above7

 

 

(75

)

(0.10

)

(0.10

)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

576

 

 $

418

 

 $

0.55

 

 $

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues5

 

 $

(105

)

 $

(86

)

 $

(0.11

)

 $

(0.12

)

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects fees and other expenses related to the acquisition of King Digital Entertainment (“King Acquisition”), inclusive of related debt financings and integration costs.

4                    Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities.

5                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

6                    Reflects the loss on extinguishment of debt from refinancing activities.

7                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

The GAAP and non-GAAP earnings per share information is presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 



 

6

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Six Months Ended June 30, 2017

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

3,356

 

 $

273

 

 $

163

 

 $

468

 

 $

242

 

 $

478

 

 $

554

 

 $

347

 

 $

2,525

 

Share-based compensation1

 

 

 

(7

)

(1

)

 

(27

)

(7

)

(31

)

(73

)

Amortization of intangible assets2

 

 

 

(1

)

 

(224

)

 

(155

)

(4

)

(384

)

Fees and other expenses related to the King Acquisition3

 

 

 

 

 

 

 

 

(9

)

(9

)

Restructuring costs4

 

 

 

 

 

 

 

 

(11

)

(11

)

Other non-cash charges5

 

 

 

 

 

 

 

 

(15

)

(15

)

Non-GAAP Measurement

 

 $

3,356

 

 $

273

 

 $

155

 

 $

467

 

 $

18

 

 $

451

 

 $

392

 

 $

277

 

 $

2,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues6

 

 $

(742

)

 $

(101

)

 $

(137

)

 $

(3

)

 $

 

 $

 

 $

 

 $

 

 $

(241

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

831

 

 $

669

 

 $

0.89

 

 $

0.88

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

73

 

73

 

0.10

 

0.10

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

384

 

384

 

0.51

 

0.50

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to the King Acquisition3

 

9

 

15

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs4

 

11

 

11

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Other non-cash charges5

 

15

 

15

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt7

 

 

12

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above8

 

 

(215

)

(0.28

)

(0.28

)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

1,323

 

 $

964

 

 $

1.28

 

 $

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues6

 

 $

(501

)

 $

(395

)

 $

(0.52

)

 $

(0.51

)

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.

4                    Reflects restructuring charges, primarily severance costs.

5                    Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities.

6                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

7                    Reflects the loss on extinguishment of debt from refinancing activities.

8                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

The GAAP and non-GAAP earnings per share information is presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 



 

7

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 

Three Months Ended:

 

June 30, 2018

 

$ Increase / (Decrease)

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

Activision

 

Blizzard

 

King

 

Total

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

338

 

$

485

 

$

502

 

$

1,325

 

$

22

 

$

(81)

 

$

22

 

$

(37)

 

Intersegment net revenues1

 

 

4

 

 

4

 

 

4

 

 

4

 

Segment net revenues

 

$

338

 

$

489

 

$

502

 

$

1,329

 

$

22

 

$

(77)

 

$

22

 

$

(33)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

84

 

$

133

 

$

169

 

$

386

 

$

(3)

 

$

(92)

 

$

5

 

$

(90)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

29.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

 

 

 

 

 

 

 

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

316

 

$

566

 

$

480

 

$

1,362

 

 

 

 

 

 

 

 

 

Intersegment net revenues1

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

316

 

$

566

 

$

480

 

$

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

87

 

$

225

 

$

164

 

$

476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

34.9%

 

 

 

 

 

 

 

 

 

 

Six Months Ended:

 

June 30, 2018

 

$ Increase / (Decrease)

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

Activision

 

Blizzard

 

King

 

Total

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

651

 

$

964

 

$

1,036

 

$

2,651

 

$

119

 

$

(45)

 

$

82

 

$

156

 

Intersegment net revenues1

 

 

6

 

 

6

 

 

6

 

 

6

 

Segment net revenues

 

$

651

 

$

970

 

$

1,036

 

$

2,657

 

$

119

 

$

(39)

 

$

82

 

$

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

175

 

$

255

 

$

360

 

$

790

 

$

64

 

$

(129)

 

$

30

 

$

(35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

29.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

 

 

 

 

 

 

 

 

Segment Net Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

532

 

$

1,009

 

$

954

 

$

2,495

 

 

 

 

 

 

 

 

 

Intersegment net revenues1

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

532

 

$

1,009

 

$

954

 

$

2,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

111

 

$

384

 

$

330

 

$

825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

33.1%

 

 

 

 

 

 

 

 

 

 

1       Intersegment revenues reflect licensing and service fees charged between segments.

 

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, costs, expenses and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring costs; and other non-cash charges. See the following page for the reconciliation tables of segment revenues and operating income to consolidated net revenues and consolidated operating income.

 

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.

 



 

8

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

For the Three and Six Months Ended June 30, 2018 and 2017

(Amounts in millions)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Reconciliation to consolidated net revenues:

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

1,329

 

$

1,362

 

$

2,657

 

$

2,495

 

Revenues from non-reportable segments1

 

60

 

56

 

118

 

119

 

Net effect from recognition (deferral) of deferred net revenues2

 

256

 

213

 

838

 

742

 

Elimination of intersegment revenues3

 

(4)

 

 

(6)

 

 

Consolidated net revenues

 

$

1,641

 

$

1,631

 

$

3,607

 

$

3,356

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to consolidated income before income tax expense:

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

386

 

$

476

 

$

790

 

$

825

 

Operating income from non-reportable segments1

 

 

(5)

 

(11)

 

(3)

 

Net effect from recognition (deferral) of deferred net revenues and related cost of revenues2

 

182

 

105

 

557

 

501

 

Share-based compensation expense

 

(57)

 

(39)

 

(111)

 

(73)

 

Amortization of intangible assets

 

(77)

 

(194)

 

(196)

 

(384)

 

Fees and other expenses related to the King Acquisition4

 

 

(5)

 

 

(9)

 

Restructuring costs5

 

 

 

 

(11)

 

Other non-cash charges6

 

 

1

 

 

(15)

 

Consolidated operating income

 

434

 

339

 

1,029

 

831

 

Interest and other expense (income), net

 

26

 

46

 

54

 

85

 

Consolidated income before income tax expense

 

$

408

 

$

293

 

$

975

 

$

746

 

 

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 (deferral) of revenues and recognition of deferred 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 fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.

5                    Reflects restructuring charges, primarily severance costs.

6                    Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.

 



 

9