Blizzard 2004 Annual Report Download - page 68

Non-Employee Warrants
In prior years, we have granted stock warrants to third parties in connection with the development of software and the
acquisition of licensing rights for intellectual property. The warrants generally vest upon grant and are exercisable over
the term of the warrant. The exercise price of third-party warrants is generally greater than or equal to the fair market
value of our common stock at the date of grant. No third-party warrants were granted during the year ended March
31, 2004. As of March 31, 2004, 1,539,000 third-party warrants to purchase common stock were outstanding
with a weighted average exercise price of $9.50 per share. During the year ended March 31, 2003, we granted
warrants to a third party to purchase 337,500 shares of our common stock at an exercise price of $13.22 per share
in connection with, and as partial consideration for, a license agreement that allows us to utilize intellectual property
owned by the third party in conjunction with an Activision product. The warrants vested upon grant and have a three-
year term. The fair value of the warrants was determined using the Black-Scholes pricing model, assuming a risk-free
rate of 4.18%, a volatility factor of 70% and expected term as noted above. The per share weighted average
estimated fair value of the third-party warrants granted during the year ended March 31, 2003 was $6.47 per share.
As of March 31, 2003, 1,984,500 third-party warrants to purchase common stock were outstanding with a weighted
average exercise price of $6.25 per share. No third-party warrants were granted during the year ended March 31,
2002. As of March 31, 2002, 1,747,500 third-party warrants to purchase common stock were outstanding with a
weighted average exercise price of $7.81 per share.
In accordance with EITF 96-18, we measure the fair value of the securities on the measurement date. The fair value
of each warrant is capitalized and amortized to expense when the related product is released and the related revenue
is recognized. Additionally, as more fully described in Note 1, the recoverability of capitalized software development
costs and intellectual property licenses is evaluated on a quarterly basis with amounts determined as not recoverable
being charged to expense. In connection with the evaluation of capitalized software development costs and intellectual
property licenses, any capitalized amounts for related third-party warrants are additionally reviewed for recoverability
with amounts determined as not recoverable being amortized to expense. For the years ended March 31, 2004,
2003 and 2002, $0.2 million, $3.6 million and $1.1 million, respectively, was amortized and included in cost of
sales—software royalties and amortization and/or cost of sales—intellectual property licenses.
Employee Retirement Plan
We have a retirement plan covering substantially all of our eligible employees. The retirement plan is qualified in accord-
ance with Section 401(k) of the Internal Revenue Code. Under the plan, employees may defer up to 15% of their
pre-tax salary, but not more than statutory limits. Effective January 1, 2003, we contribute 20% of each dollar con-
tributed by a participant. Prior to January 1, 2003, we contributed 5% of each dollar contributed by a participant.
Our matching contributions to the plan were approximately $700,000, $320,000 and $82,000 during the years
ended March 31, 2004, 2003 and 2002, respectively.
16. Capital Transactions
Buyback Program
During fiscal 2003, our Board of Directors authorized a buyback program under which we can repurchase up to
$350.0 million of our common stock. Under the program, shares may be purchased as determined by management,
from time to time and within certain guidelines, in the open market or in privately negotiated transactions, including
privately negotiated structured stock repurchase transactions and through transactions in the options markets.
Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or
from time to time without prior notice.
Under the buyback program, we repurchased approximately 1.9 million shares of our common stock for $12.4 million
and 16.2 million shares our common stock for $101.4 million, during the years ended March 31, 2004 and 2003,
Activision, Inc. — 2004 Annual Report
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