Restructuring

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

On February 12, 2019, the Company committed to a Board-authorized restructuring plan under which the Company aims to refocus its resources on its largest opportunities and to remove unnecessary levels of complexity and duplication from certain parts of the business. We have been, and will continue:


•	increasing our investment in development for our largest, internally-owned franchises—across upfront releases, in-game content, mobile, and geographic expansion;


•	reducing certain non-development and administrative-related costs across our business; and


•	integrating our global and regional sales and “go-to-market,” partnerships, and sponsorships capabilities across the business, which we believe will enable us to provide better opportunities for talent, and greater expertise and scale on behalf of our business units.

The restructuring actions are in process and are largely expected to be completed by the end of 2019, although the timing of cash payments may continue into 2020.

The following table summarizes accrued restructuring and related costs included in “Accrued expenses and other liabilities” in our condensed consolidated balance sheet (amounts in millions):



	Severance and employee related costs			Facilities and related costs			Other costs			Total
Balance at December 31, 2018	$	—		$	—		$	—		$	—
Costs charged to expense	43			—			14			57
Cash payments	(11		)	—			(1		)	(12		)
Non-cash charge adjustment (1)	—			—			(11		)	(11		)
Balance at March 31, 2019	$	32		$	—		$	2		$	34
Costs charged to expense	9			9			4			22
Cash payments	(15		)	—			(5		)	(20		)
Non-cash charge adjustment (1)	—			(9		)	—			(9		)
Balance at June 30, 2019	$	26		$	—		$	1		$	27
Costs charged to expense	5			13			6			24
Cash payments	(8		)	—			(3		)	(11		)
Non-cash charge adjustment (1)	—			(13		)	—			(13		)
Balance at September 30, 2019	$	23		$	—		$	4		$	27


(1)	Adjustments relate to non-cash charges included in “Costs charged to expense” for the write-down of assets from canceled projects during the three months ended March 31, 2019, and the write-down of lease facility assets, inclusive of lease right-of-use assets and associated fixed assets, that were vacated during the three months ended June 30, 2019 and September 30, 2019.

Total restructuring and related costs by segment are (amounts in millions):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Activision	$	1	$	12
Blizzard	12		52
King	4		17
Other segments (1)	7		23
Total	$	24	$	104


(1)	Includes charges related to operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes restructuring charges for our corporate and administrative functions.

During the three months ended September 30, 2019, we also recorded $4 million to write-down inventory resulting from changes to certain of our consumer product activities as part of our restructuring actions, whereby those activities will now operate under a licensing business model rather than being direct sales. This write-down is recorded within “Cost of revenues—product sales: Product costs” in our condensed consolidated statement of operations.

We expect to incur aggregate pre-tax restructuring charges of approximately $150 million in 2019 associated with the restructuring plan, which includes the inventory write-down discussed above. These charges will primarily relate to severance (approximately 55% of the aggregate charge), including, in many cases, amounts above those that are legally required, facilities costs (approximately 20% of the aggregate charge), and other asset write-downs and costs (approximately 25% of the aggregate charge). A majority of the total pre-tax charge associated with the restructuring will be paid in cash using amounts on hand and the outlays are expected to be largely incurred throughout 2019, with the remainder continuing into 2020.

The total expected pre-tax restructuring charges related to the restructuring plan by segment, inclusive of amounts already incurred, are presented below (amounts in millions):



	Year Ending December 31, 2019
Activision	$	15
Blizzard	66
King	27
Other segments (1)	42
Total	$	150

(1)

Includes charges related to operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes restructuring charges for our corporate and administrative functions.