Activision 2012 Annual Report Download - page 25

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7
Operating Segment Results
Our operating segments are consistent with our internal organizational structure, the manner in which our operations are reviewed and
managed by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), the manner in which we assess operating
performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.
The CODM reviews segment performance exclusive of the impact of the change in deferred net revenues and related cost of sales with
respect to certain of our online-enabled games, stock-based compensation expense, restructuring expense, amortization of intangible assets, and
impairment of intangible assets and goodwill. The CODM does not review any information regarding total assets on an operating segment basis,
and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total segment net
revenues and total segment operating income to consolidated net revenues and income before income tax expense from external customers and
consolidated income before income tax expense for the years ended December 31, 2012, 2011, and 2010 are presented in the table below
(amounts in millions):
For the Years Ended December 31,
2012
2011
2010
Increase/
(decrease)
2012 v 2011
Increase/
(decrease)
2011 v 2010
Segment net revenues:
Activision ..........................................................................................................
$3,072
$2,828
$2,769
$244
$59
Blizzard .............................................................................................................
1,609
1,243
1,656
366
(413)
Distribution ........................................................................................................
306
418
378
(112)
40
Operating segment net revenue total ............................................................
4,987
4,489
4,803
498
(314)
Reconciliation to consolidated net revenues:
Net effect from changes in the deferral of net revenues ...................................
(131)
266
(356)
(397)
622
Consolidated net revenues............................................................................
$4,856
$4,755
$4,447
$101
$308
Segment income from operations:
Activision ..........................................................................................................
$970
$851
$511
$119
$340
Blizzard .............................................................................................................
717
496
850
221
(354)
Distribution ........................................................................................................
11
11
10
—
1
Operating segment income from operations total ........................................
1,698
1,358
1,371
340
(13)
Reconciliation to consolidated operating income and consolidated income
before income tax expense:
Net effect from changes in the deferral of net revenues and related cost
of sales ..........................................................................................................
(91)
183
(319)
(274)
502
Stock-based compensation expense ..................................................................
(126)
(103)
(131)
(23)
28
Restructuring .....................................................................................................
—
(26)
(3)
26
(23)
Amortization of intangible assets ......................................................................
(30)
(72)
(123)
42
51
Impairment of goodwill/intangible assets .........................................................
—
(12)
(326)
12
314
Consolidated operating income ..............................................................................
1,451
1,328
469
123
859
Investment and other income (expense), net.....................................................
7
3
23
4
(20)
Consolidated income before income tax expense ..................................................
$1,458
$1,331
$492
$127
$839
For better understanding of the differences in presentation between our segment results and the consolidated results, the following
explains the nature of each reconciling item.
Net Effect from Deferral of Net Revenues and Related Cost of Sales
We have determined that some of our game’s online functionality represents an essential component of gameplay and as a result a
more-than-inconsequential separate deliverable. As such, we are required to recognize the revenues of these game titles over the estimated service
periods, which may range from a minimum of five months to a maximum of less than a year. The related cost of sales is deferred and recognized
as the related revenues are recognized. In the table on the previous page, we present the amount of net revenues and related cost of sales
separately for each period as a result of this accounting treatment.