Operating Segments and Geographic Region

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Operating Segments and Geographic Region

Operating Segments and Geographic Region

Currently, we have three reportable 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, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring costs; and 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 organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in Note 1, commencing with the second quarter of 2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable “Other segments,” is now presented within the “Blizzard” reportable operating segment. Prior period amounts have been revised to reflect this change. The change had no impact on consolidated net revenues or operating income.

Information on the reportable segments and reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three and nine months ended September 30, 2017 and 2016, are presented below (amounts in millions):

	For the Three Months Ended September 30,
	2017			2016			2017			2016
	Net revenues						Operating income and income before income tax expense
Activision	$	759		$	377		$	261		$	123
Blizzard	531			729			168			316
King	528			459			208			138
Reportable segments total	1,818			1,565			637			577
Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Other segments (1)	84			65			(12		)	(2		)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues	(284		)	(62		)	(132		)	(33		)
Share-based compensation expense	—			—			(47		)	(33		)
Amortization of intangible assets	—			—			(187		)	(211		)
Fees and other expenses related to the King Acquisition (2)	—			—			(3		)	(4		)
Other non-cash charges (4)	—			—			1			—
Consolidated net revenues / operating income	$	1,618		$	1,568		$	257		$	294
Interest and other expense (income), net							37			63
Consolidated income before income tax expense							$	220		$	231
	For the Nine Months Ended September 30,
	2017			2016			2017			2016
	Net revenues						Operating income and income before income tax expense
Activision	$	1,291		$	1,069		$	371		$	309
Blizzard	1,539			1,767			552			730
King	1,482			1,149			538			381
Reportable segments total	4,312			3,985			1,461			1,420
Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Other segments (1)	204			162			(15		)	(5		)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues	458			447			370			228
Share-based compensation expense	—			—			(120		)	(118		)
Amortization of intangible assets	—			—			(571		)	(495		)
Fees and other expenses related to the King Acquisition (2)	—			—			(12		)	(43		)
Restructuring costs (3)	—			—			(11		)	—
Other non-cash charges (4)	—			—			(14		)	—
Consolidated net revenues / operating income	$	4,974		$	4,594		$	1,088		$	987
Interest and other expense (income), net							121			181
Consolidated income before income tax expense							$	967		$	806

(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 fees and other expenses, such as legal, banking, and professional services fees, related to the King Acquisition and associated integration activities, inclusive of related debt financings.

(3) Reflects restructuring charges, primarily severance 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.

Geographic information presented below for the three and nine months ended September 30, 2017 and 2016, is based on the location of the paying customer. Net revenues from external customers by geographic region were as follows (amounts in millions):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues by geographic region:
Americas	$	798	$	796	$	2,586	$	2,411
EMEA (1)	593		499		1,684		1,528
Asia Pacific	227		273		704		655
Total consolidated net revenues	$	1,618	$	1,568	$	4,974	$	4,594

(1) Consists of the Europe, Middle East, and Africa geographic regions.

The Company’s net revenues in the U.S. were 43% of consolidated net revenues for both the three months ended September 30, 2017 and 2016. The Company’s net revenues in the U.K. were 12% and 10% of consolidated net revenues for the three months ended September 30, 2017 and 2016, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended September 30, 2017 or 2016.

The Company’s net revenues in the U.S. were 46% of consolidated net revenues for both the nine months ended September 30, 2017 and 2016. The Company’s net revenues in the U.K. were 10% of consolidated net revenues for both the nine months ended September 30, 2017 and 2016. No other country’s net revenues exceeded 10% of consolidated net revenues for the nine months ended September 30, 2017 or 2016.

Net revenues by platform were as follows (amounts in millions):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues by platform:
Console	$	527	$	452	$	1,710	$	1,867
PC	461		609		1,534		1,421
Mobile and ancillary (1)	534		440		1,502		1,137
Other (2)	96		67		228		169
Total consolidated net revenues	$	1,618	$	1,568	$	4,974	$	4,594

(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 toys and accessories from our Skylanders franchise and other physical merchandise and accessories.

(2) Net revenues from “Other” include revenues from our Studios and Distribution businesses, as well as revenues from MLG.

Long-lived assets by geographic region at September 30, 2017 and December 31, 2016, were as follows (amounts in millions):

	At September 30, 2017		At December 31, 2016
Long-lived assets (1) by geographic region:
Americas	$	160	$	154
EMEA	77		87
Asia Pacific	17		17
Total long-lived assets by geographic region	$	254	$	258

(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.