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A HISTORY OF GROWTH
A History of Growth 2 0 0 5 A n n u a l R e p o r t
Annual Report 2005

Table of contents

  • Page 1
    Annu a l Repo r t 2 0 0 5 A HISTORY OF GROWTH

  • Page 2
    RESULTS THROUGH EXECUTION

  • Page 3
    Activision, Inc. - 2005 Annual Report $ 1.4 billion '92 '93 '94 '95 '96 ' 97 '98 '99 '0 0 '01 '0 2 '0 3 '0 4 '0 5 net revenues WE฀EN T ER ED฀FISCA L฀20 0 6฀WI T H฀A฀ST RO NG฀R ECO R D฀O F฀GROW T H,฀A฀BROA D฀P O RT FO L I O฀O F฀PROV EN฀ P R O D U CT S, ...

  • Page 4
    Activision, Inc. - 2005 Annual Report $ 138 million $ 78 $ 66 $ 52 61 net earnings % NE T฀R E V E N U E S O PE R AT I N G฀ I N C O M E NET฀EARNINGS CAGR FROM 2001-2005 $ 21 '01 '0 2 '0 3 '0 4 '0 5 FINANCIAL฀HIGHLIGHTS฀ I N ฀ T H O U S A N D S ,฀ E X C E P T ฀ P E R ฀ S ...

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    Activision, Inc. - 2005 Annual Report 45 To Our Shareholders...CA N฀ I M PR OV E฀ O U R฀ E A R N I N GS,฀ E X PA N D฀ O U R฀ O PE R AT I N G฀ M A RG I N฀ A N D฀ C O N T I N U E฀ TO฀ D O฀ T H I S฀ AT฀ A฀ H I G H฀ R AT E฀ O F฀ R E T U R N฀ O N฀ I N V EST E D฀ CA...

  • Page 8
    Activision, Inc. - 2005 Annual Report $ $ 95 $ 110 185million $ 81 operating income A NOTHER YEAR SUCCESS :฀ D U R I N G ฀ $40 '01 '0 2 '0 3 '0 4 '0 5 OF FISCAL ฀ 2005,฀ ACTIVISION...NEW฀GAMES... D S - True Crime: Streets of L.A.฀ A N D ฀ Call of Duty: Finest Hour. ฀ W E ฀ W...

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  • Page 11
    Activision, Inc. - 2005 Annual Report $ $ 0.4 0 $ 0. 2 9 $ 0. 3 2 0.66 earnings per share diluted $ 0.17 '01 '0 2 '0 3 '0 4 '0 5 O V E R ฀T H E ฀PA S T ฀S E V E R A L ฀M O N T H S , ฀W E ฀A L S O ฀S T R E N G T H E N E D ฀O U R ฀D E V E L O P M E N T ฀C A PA B I L I T I...

  • Page 12
    Activision, Inc. - 2005 Annual Report $ $ 4. 5 5 $ 3.32 $ 2. 5 3 $ 1.4 8 5.47 book value per share... ฀ SYST E M S฀ W I L L฀ F E AT U R E฀ S I G N I F I CA N T฀ V I SUA L฀ A N D฀ AU D I O฀ E N H A N C EM E N ... N DS฀ W I T H฀ T H E฀ A PPR O PR I AT E฀ H A R DWA R E฀ PL AT F O...

  • Page 13

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  • Page 15
    Activision, Inc. - 2005 Annual Report + delivering growth 48% NET R EVENUES + 78 % NET INCOME FISCAL 2005...ANOTHER R ECORD YEAR + ฀ PUBLISHING 154bps ฀ IN OPERATING...R TA N T฀ PA R T฀ O F฀ O U R฀ SU C C ESS.฀ O U R ฀ A B I L...PR OV E N฀ G A M E฀ D E V E LO PM E N T฀ CA...

  • Page 16
    Activision, Inc. - 2005 Annual Report free cash flow $200 million VALUES AND VALUE CREATION :฀ W H E T H E...F฀ T H E M฀ F O R฀ T H E I R฀ PASS I O N AT E฀ C O M M I T M EN...AV E฀M A D E฀SU B STA N T I A L฀PR O G R ESS฀... E L LY฀ CO-CHAIRMAN฀ RONALD฀DOORNINK PRESIDENT page 14

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  • Page 19
    Activision, Inc. - 2005 Annual Report 2005 2004 2003 2002 2 0 01 operating margin 6 .4 % 10. 2 % 13.1% 11.6 % 11.0 % Preparing for new opportunities in video games...PR... CA ...GAME฀DEVELOPMENT฀PERSONNEL฀AND฀RESOURCES,฀AND฀WE฀WILL฀SUPPORT฀ALL฀OF฀THE฀NEW฀ SYSTEMS฀WITH฀GAMES...

  • Page 20
    Activision, Inc. - 2005 Annual Report Wireless Online I n- Ga me Adver tisi ng strategy for growth Control Costs / L everage G & A Grow Cata log Business Re-Enter Ha nd held Market Internationa l Expa nsion Fra nchise Building Achieving sustainable growth E X P A N D I N G ฀ D E M O G R A P H ...

  • Page 21
    ... 31, Net฀revenues Cost฀of฀sales-product฀costs Cost฀of฀sales-intellectual฀property฀licenses฀and฀software฀royalties฀฀ and฀amortization Income฀from฀operations Income฀before฀income฀tax฀provision Net฀income Basic฀earnings฀per฀share Diluted฀earnings฀per...

  • Page 22
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW We฀are฀a฀leading฀international฀publisher฀of฀interactive฀entertainment฀software฀products.฀We฀have฀built฀a฀company฀with฀a฀diverse฀...

  • Page 23
    Activision, Inc. - 2005 Annual Report Our Focus With฀respect฀to฀future฀game฀development,฀we฀will฀continue฀to฀focus฀on฀our฀"big฀propositions,"฀products฀that฀are฀backed฀by฀strong฀brands฀and฀high฀quality฀development,฀ for฀which฀we฀will฀...

  • Page 24
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations requires฀ management฀ to฀ make฀ estimates฀ and฀ assumptions฀ that฀ affect฀ the฀ reported฀ amounts฀ of฀ assets฀ and฀ liabilities฀ at฀ the฀ ...

  • Page 25
    Activision, Inc. - 2005 Annual Report hardware฀platforms.฀Material฀differences฀may฀result฀in฀the฀amount฀and฀timing฀of฀our฀revenue฀for฀any฀period฀if฀management฀makes฀different฀judgments฀or฀utilizes฀different฀ estimates฀in฀determining฀the฀...

  • Page 26
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations factors฀such฀as฀the฀success฀of฀other฀products฀and/or฀entertainment฀vehicles฀utilizing฀the฀intellectual฀property,฀whether฀there฀are฀any฀...

  • Page 27
    ... Cost฀of฀sales-intellectual฀property฀licenses ฀ ฀ Product฀development ฀ ฀ Sales฀and฀marketing ฀ ฀ General฀and฀administrative Total฀costs฀and฀expenses Income฀from฀operations Investment฀income,฀net ฀ ฀ Income฀before฀income฀tax฀provision Income...

  • Page 28
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations R ESULTS OF OPERATIONS-FISCAL YEARS ENDED MARCH 31, 2005 AND 2004 Net฀income฀for฀the฀year฀ended฀March฀31,฀2005฀was฀$138.3฀million฀or฀$0.66฀per฀...

  • Page 29
    Activision, Inc. - 2005 Annual Report North America Publishing Net Revenues (In thousands) March 31, 2005 $696,325 % of Consolidated Net Revenues 50% March 31, 2004 $446,812 % of Consolidated Net Revenues 47% Increase/(Decrease) $249,513 Percent Change 56% North฀...

  • Page 30
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations...Total฀console Hand-held ฀ Game฀Boy฀Advance ฀ PlayStation฀...number฀of฀titles฀shipped฀from฀eight฀in฀fiscal฀2004฀to฀fifteen฀in฀fiscal฀2005...

  • Page 31
    ...฀including฀THUG 2, Call of Duty: Finest Hour, X-Men Legends, Spider-Man 2, Shrek 2, Shark Tale, Lemony Snicket's A Series of Unfortunate Events฀and฀Cabela's Big Game Hunter 2005.฀In฀fiscal฀2005,฀we฀released฀thirteen฀titles฀for฀PS2฀compared฀to฀ten฀in฀fiscal฀2004...

  • Page 32
    ...฀launch฀of฀the฀PSP.฀In฀addition฀to฀the฀increase฀in฀the฀number฀of฀GBA฀titles฀released,฀we฀implemented฀a฀customized฀marketing฀plan฀for฀the฀ GBA฀platform฀and฀demographic฀to฀support฀a฀strong฀slate฀of฀new฀releases฀including฀THUG...

  • Page 33
    Activision, Inc. - 2005 Annual Report...Price฀cuts฀on฀Xbox,฀PS2฀and฀GBA฀hardware฀were...driven฀by฀a฀number฀of฀factors...business,฀which฀is฀a฀lower฀margin฀business,฀in฀fiscal฀2005฀as฀compared฀to฀fiscal฀2004. We฀expect฀cost฀of฀sales-product฀costs...

  • Page 34
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Cost of Sales-Software Royalties and Amortization (In thousands) % of Publishing March 31, 2005 Net Revenues $123,800 12% % of Publishing Net Revenues 9% March 31, 2004 $59,...

  • Page 35
    ...฀of฀significant฀ marketing฀programs,฀including฀television฀and฀in-theatre฀ad฀campaigns฀and฀in-store฀promotions,฀run฀in฀support฀of฀our฀key฀fiscal฀2005฀"big฀proposition"฀title฀releases฀ Spider-Man 2, Shrek 2, Doom 3, Shark Tale, X-Men Legends, THUG...

  • Page 36
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Distribution฀operating฀income฀for฀the฀year฀ended฀March฀31,฀2005฀increased฀over฀the฀same฀period฀last฀year,฀from฀$16.6฀million฀to฀$23...

  • Page 37
    Activision, Inc. - 2005 Annual Report Net฀income฀for฀the฀year฀ended฀March฀31,฀2004฀was฀$77.7฀million฀or฀$0.40฀per฀diluted฀share,฀as฀compared฀to฀$66.2฀million฀or฀$0.32฀per฀diluted฀share฀for฀the฀year฀ended฀ March฀31,฀2003. R ESULTS OF...

  • Page 38
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations North America ...Jedi Knight: Jedi Academy.฀ In฀addition,฀we฀had฀strong฀catalog฀sales฀from฀a฀number฀of฀our฀franchises,฀including฀Spider-Man...

  • Page 39
    Activision, Inc. - 2005 Annual Report Publishing Net Revenues by Product Line Publishing฀net฀revenues฀increased฀8%฀from฀$616.0฀million฀for฀the฀year฀ended฀March฀31,฀2003฀to฀$665.7฀million฀for฀the฀year฀ended฀March฀31,฀2004.฀...

  • Page 40
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Castle Wolfenstein, Cabela's Dangerous Hunts฀and฀Cabela's Deer Hunt 2004 Season. Microsoft Xbox Net Revenues (In thousands) markets.฀The฀increase฀is฀primarily฀...

  • Page 41
    ...฀ production฀or฀acquisition฀costs฀and฀marketing฀budgets,฀once฀a฀title฀recoups฀these฀costs,฀incremental฀net฀revenues฀directly฀and฀positively฀impact฀operating฀profits฀resulting฀ in฀a฀disproportionate฀amount฀of฀operating฀income฀being...

  • Page 42
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Cost฀of฀sales-software฀royalties฀and฀amortization฀for฀the฀year฀ended฀March฀31,฀2004฀decreased฀as฀a฀percentage฀of฀publishing฀net฀...

  • Page 43
    ...Partially฀offset฀by฀a฀$5.2฀million฀year-over-year฀increase฀in฀general฀and฀administrative฀employee฀related฀costs฀in฀both฀our฀publishing฀and฀distribution฀businesses. Operating Income (In thousands) Publishing Distribution ฀ Consolidated March 31, 2004 $ 93...

  • Page 44
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Distribution฀operating฀income...฀due฀to฀an฀increase฀in฀general฀and฀administrative฀employee฀related฀costs. Investment Income, Net (In thousands) March...

  • Page 45
    ... under฀our฀control.฀See฀Item฀1฀"Business-Factors฀Affecting฀Future฀Performance"฀of฀our฀Annual฀Report฀on฀Form฀10-K,฀which฀has฀been฀previously฀filed฀with฀the฀Securities฀and฀ Exchange฀Commission.฀Our฀business฀also฀has฀experienced฀and฀is...

  • Page 46
    ...,฀to฀finance฀our฀ operational฀requirements฀for฀at฀least฀the฀next฀twelve฀months,฀including฀purchases฀of฀inventory฀and฀equipment,฀the฀funding฀of฀the฀development,฀production,฀marketing฀and฀ sale฀of฀new฀products฀and฀the฀acquisition฀of...

  • Page 47
    ...฀the฀PSP฀platform฀ in฀late฀March฀2005 The฀fourth฀quarter฀releases฀of฀three฀affiliate฀titles,฀Mercenaries, Star Wars: Knights of the Old Republic II฀and฀Star Wars: Republic Commando,฀in฀our฀European฀territories A฀continued฀increase฀in฀business฀of...

  • Page 48
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Reserves...of฀product฀development฀costs฀relating฀to฀internally฀developed฀products. Accounts Payable (Amounts in thousands) Accounts฀payable March 31, 2005 $...

  • Page 49
    .... - 2005 Annual Report Accrued Expenses (Amounts in thousands) Accrued฀expenses March 31, 2005 $98,067 March 31, 2004 $63,205 Increase/ (Decrease) $34,862 The฀increase฀in฀accrued฀expenses฀was฀primarily฀driven฀by Continued฀focus฀on฀marketing฀and฀co-op฀support฀for...

  • Page 50
    ... are฀ generally฀ those฀ controls฀ and฀ procedures฀ designed฀ to฀ ensure฀ that฀ financial฀ and฀ non-financial฀ information฀ required฀ to฀ be฀ disclosed฀in฀our฀reports฀filed฀with฀the฀Securities฀and฀Exchange฀Commission฀is฀reported฀within฀the...

  • Page 51
    ...,฀the฀Company฀currently฀accounts฀for฀share-based฀payments฀to฀employees฀using฀Opinion฀25's฀intrinsic฀value฀method฀and,฀as฀such,฀generally฀ recognizes฀ no฀ compensation฀ cost฀ for฀ employee฀ stock฀ options.฀ Accordingly,฀ the฀ adoption฀ of...

  • Page 52
    Activision, Inc. - 2005 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations INFLATION Our฀management฀currently฀believes฀that฀inflation฀has฀not฀had฀a฀material฀impact฀on฀continuing฀operations. QUANTITATIVE AND QUALITATIVE ...

  • Page 53
    Activision, Inc. - 2005 Annual Report CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The฀ Company's฀ management,฀ with฀ the฀ participation฀ of฀ the฀ Company's฀ Chief฀ Executive฀ Officers฀ and฀ Chief฀ Financial฀ Officer,฀ has฀ evaluated...

  • Page 54
    Activision, Inc. - 2005 Annual Report Report of Independent Registered Public Accounting Firm To฀the฀Board฀of฀Directors฀and฀Shareholders฀of฀Activision,฀Inc.: We฀have฀completed฀an฀integrated฀audit฀of฀Activision,฀Inc.'s฀2005฀consolidated฀financial฀statements...

  • Page 55
    Activision, Inc. - 2005 Annual Report A฀company's฀internal฀control฀over฀financial฀reporting฀is฀a฀process฀designed฀to฀provide฀reasonable฀assurance฀regarding฀the฀reliability฀of฀financial฀reporting...฀LLP Los฀Angeles,฀California June฀7,฀2005 page 53

  • Page 56
    Activision, Inc. - 2005 Annual Report Consolidated Balance Sheets March 31, ASSETS (In thousands, except share data) 2005 $ ...stock,฀at฀cost,฀no฀shares฀and฀39,393,765฀shares฀as฀of฀March฀31,฀2005฀and฀2004,฀respectively ฀ ฀ Accumulated฀other฀comprehensive฀income...

  • Page 57
    Activision, Inc. - 2005 Annual Report Consolidated Statements of Operations (In thousands, except per share data) For the years ended March 31, Net฀revenues Costs฀and฀expenses: ฀ ฀ Cost฀of฀sales-product฀costs ฀ ฀ Cost฀of฀sales-software฀royalties฀and฀amortization ฀ ...

  • Page 58
    Activision, Inc. - 2005 Annual Report Activision, Inc. - 2005 Annual Report Consolidated Statements of Changes in Shareholders' Equity (In thousands) Common Stock Shares Amount For the years ended March 31, 2005, 2004 and 2003 BALANCE, MARCH 31, 2002 Components฀of฀comprehensive฀income: ฀...

  • Page 59
    Activision, Inc. - 2005 Annual Report Consolidated Statements of Cash Flows (In thousands) For the years ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES: 2005 2004 $ 77,715 15,147 10,795 (21) 87,922 12,417 (42,497) (6,850) (115,202) (5,232) 23,005 10,204 67,403 (3,480) (...

  • Page 60
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activision,฀Inc.฀("Activision"฀or฀"we")฀is฀a฀leading฀international฀publisher฀of฀interactive฀entertainment฀software฀products.฀We฀...

  • Page 61
    Activision, Inc. - 2005 Annual Report Notes...product฀is฀established฀and฀such฀ costs฀are฀determined฀to฀be฀recoverable.฀Technological฀feasibility฀of฀a฀product฀encompasses฀both฀technical฀design฀documentation฀and฀game฀design฀documentation.฀For฀ products...

  • Page 62
    Activision, Inc. - 2005 Annual Report on฀a฀quarterly฀basis.฀The฀recoverability฀of฀capitalized฀software฀development฀costs฀is฀evaluated฀based฀on฀the฀expected฀performance฀of฀the฀specific฀products฀for฀which฀the฀ costs฀relate.฀Criteria฀used฀to฀...

  • Page 63
    ...management฀makes฀different฀judgments฀or฀utilizes฀different฀estimates฀in฀evaluating฀ these฀qualitative฀factors. Inventories Inventories฀are฀valued฀at฀the฀lower฀of฀cost฀(first-in,฀first-out)฀or฀market. Property and Equipment Property฀and฀equipment...

  • Page 64
    ... on-hand฀ retail฀ channel฀ inventory,฀ Activision฀ warehouse฀ on-hand฀ inventory฀ levels,฀ the฀ title's฀recent฀sell-through฀history฀(if฀available),฀marketing฀trade฀programs฀and฀competing฀titles.฀The฀relative฀importance฀of฀these฀factors฀varies...

  • Page 65
    ...฀by฀dividing฀income฀available฀to฀common฀shareholders฀by฀the฀weighted฀average฀number฀of฀common฀shares฀outstanding,฀ increased฀by฀common฀stock฀equivalents.฀Common฀stock฀equivalents฀are฀calculated฀using฀the฀treasury฀stock฀method฀and...

  • Page 66
    ...stock-based฀employee฀compensation฀expense฀determined฀under฀฀ fair฀value฀based฀method฀for฀all฀awards,฀net฀of฀related฀tax฀effects Pro฀forma฀net฀income Earnings฀per฀share Basic-as฀reported Basic-pro฀forma Diluted-as฀reported Diluted-pro฀forma 2005...

  • Page 67
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements For฀options฀granted฀during฀fiscal฀2005,฀2004฀and฀2003,฀the฀per฀share฀weighted฀average฀fair฀value฀of฀options฀with฀exercise฀prices฀equal฀to฀market฀value฀on฀the฀date...

  • Page 68
    Activision, Inc. - 2005 Annual Report On฀March฀7,฀2005,฀in฀connection฀with฀our฀stock฀split,฀all฀shares฀of฀common฀stock฀held฀as฀treasury฀stock฀were฀formally฀cancelled฀and฀restored฀to฀the฀status฀of฀authorized฀ but฀unissued฀shares฀of฀...

  • Page 69
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements The฀following฀table฀summarizes฀our฀cash,฀cash฀equivalents฀and฀short-term฀investments฀as฀of฀March฀31,฀2004฀(amounts฀in฀thousands): Amortized Cost Cash฀and฀cash฀equivalents: ...

  • Page 70
    ...potential฀responsiveness฀of฀the฀product฀to฀aggressive฀marketing฀support฀and฀ the฀financial฀risk฀in฀the฀event฀of฀product฀failure.฀As฀a฀result฀of฀this฀review฀at฀the฀time,฀we฀found฀that฀we฀had฀an฀extensive฀slate฀of฀high-potential...

  • Page 71
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements 6. INVENTORIES Our฀inventories฀consist฀of฀the฀following฀(amounts฀in฀thousands): March 31, Purchased฀parts฀and฀components Finished฀goods 2005 $ 2,092 45,926 $ 48,018 $ 2004 392 26,035 $ 26,...

  • Page 72
    ...฀stores,฀discount฀warehouses฀and฀game฀specialty฀stores.฀ We฀conduct฀our฀international฀publishing฀activities฀through฀offices฀in฀the฀UK,฀Germany,฀France,฀Italy,฀Spain,฀the฀Netherlands,฀Australia,฀Sweden,฀Canada฀and฀Japan.฀Our฀ products...

  • Page 73
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements Distribution฀refers฀to฀our฀operations฀in฀the฀UK...Resources฀are฀allocated฀to฀each฀of฀these฀segments฀using฀information฀on฀their฀respective฀net฀revenues฀and฀operating฀profits...

  • Page 74
    Activision, Inc. - 2005 Annual Report Geographic฀information฀is฀based฀on฀the฀location฀of฀the฀selling฀...฀is฀derived฀from฀products฀based฀on฀a฀relatively฀small฀number฀of฀popular฀brands฀each฀year.฀In฀fiscal฀2005,฀37%฀of฀our฀consolidated...

  • Page 75
    ...฀earnings฀per฀share-income฀available฀to฀common฀shareholders Denominator: ฀ Denominator฀for฀basic฀earnings฀per฀share-weighted฀average฀common฀shares฀outstanding ฀ Effect฀of฀dilutive฀securities: ฀ ฀ Employee฀stock฀options฀and฀stock฀purchase฀plan...

  • Page 76
    Activision, Inc. - 2005 Annual Report 12. INCOME TAXES Domestic฀and฀foreign฀income฀before฀income฀taxes฀and฀details฀of฀the฀income฀tax฀provision฀are฀as฀follows฀(amounts฀in฀thousands): Year ended March 31, Income฀before฀income฀taxes: Domestic Foreign Total ...

  • Page 77
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements The฀items฀accounting฀for฀the฀difference฀between฀income฀taxes฀computed฀at฀the฀U.S.฀federal฀statutory฀income฀tax฀rate฀and฀the฀income฀tax฀provision฀for฀each฀of฀the฀...

  • Page 78
    Activision, Inc. - 2005 Annual Report The฀ tax฀ benefits฀ associated฀ with฀ certain฀ net฀ operating฀ loss฀ carryovers฀ relate฀ to฀ employee฀ stock฀ options.฀ Pursuant฀ to฀ SFAS฀ No.฀ 109,฀ net฀ operating฀ losses฀ have฀ been฀ reduced฀by฀$30.9฀...

  • Page 79
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements for฀revolving฀loans฀up฀to฀EUR฀0.5฀million฀($0.6฀million)฀as฀of฀both฀March฀31,฀2005...฀specified฀amounts฀for฀marketing฀support฀for฀ the฀related฀game(s)฀which฀is฀to฀...

  • Page 80
    ....฀That฀complaint฀was฀filed฀in฀California฀ Superior฀Court฀for฀the฀County฀of฀Los฀Angeles.฀Also,฀on฀March฀22,฀2005,฀a฀new฀derivative฀lawsuit฀captioned฀"Ramalingham฀Balamohan,฀Derivatively฀on฀Behalf฀of฀Nominal฀ Defendant฀Activision,฀Inc...

  • Page 81
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements On฀June฀30,฀2003,฀we฀terminated฀our฀Star฀Trek฀Merchandising฀License฀Agreement฀with฀Viacom฀Consumer฀Products,฀Inc.฀and฀filed฀a฀complaint฀in฀the฀Superior฀Court฀of฀ the...

  • Page 82
    ...form฀of฀non-qualified฀stock฀options,฀ISOs,฀SARs,฀restricted฀stock฀awards,฀deferred฀share฀awards฀and฀other฀common฀stock-based฀awards฀to฀ officers,฀employees,฀directors,฀consultants฀and฀advisors.฀The฀total฀number฀of฀shares฀of฀common฀stock...

  • Page 83
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements On฀July฀22,฀2002,฀the฀Board฀of฀Directors฀approved฀the฀2002฀Employee฀Stock฀Purchase฀Plan฀for฀eligible฀domestic฀employees.฀The฀shareholders฀of฀Activision฀subsequently฀ ...

  • Page 84
    Activision, Inc. - 2005 Annual Report The฀following฀tables฀summarize฀information฀about฀all฀employee฀and฀director฀stock฀options฀and฀warrants฀outstanding฀as฀of฀March฀31,฀2005฀(share฀amounts฀in฀thousands): Outstanding Options Remaining Wtd. Avg. ...

  • Page 85
    ...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...

  • Page 86
    Activision, Inc. - 2005 Annual Report In฀the฀event฀that฀any฀person฀or฀group฀acquires฀15%฀or฀more฀of฀our฀outstanding฀common฀stock฀each฀holder฀of฀a฀right฀(other฀than฀such฀person฀or฀members฀of฀such฀group)฀ will฀ thereafter฀ have฀ the...

  • Page 87
    Activision, Inc. - 2005 Annual Report Notes to Consolidated Financial Statements 18. QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED) (Amounts in thousands, except per share data) June 30 $211,276 15,733 11,957 0.07 0.06 12.82 10.31 $158,725 5,146 4,163 0.02 0.02 6.75 4.51 Quarter ended ...

  • Page 88
    ...share-based฀payments฀to฀employees฀using฀Opinion฀25's฀intrinsic฀value฀method฀and,฀as฀such,฀generally฀ recognizes฀ no฀ compensation฀ cost฀ for฀ employee฀ stock...2005,฀we฀held฀a฀Special฀Meeting฀of฀Stockholders฀in฀Santa฀Monica,฀California...

  • Page 89
    Activision, Inc. - 2005 Annual Report Non-GAAP Disclosures Free Cash Flow (In thousands) Net฀Cash฀Provided฀by฀(Used฀In)฀Operating฀Activities Less:฀Capital฀Expenditures Free฀Cash฀Flow Trailing฀Twelve฀Month฀Free฀Cash฀Flow Return on Invested Capital (In thousands) 3/31...

  • Page 90
    Activision, Inc. - 2005 Annual Report Market for Registrant's Common Equity and Related Stockholder Matters Our฀common฀stock฀is฀quoted฀on฀the฀Nasdaq฀National฀Market฀under฀the฀symbol฀"ATVI." The฀following฀table฀sets฀forth฀for฀the฀periods฀indicated฀the฀...

  • Page 91
    ... of this Annual Report are referred to this filing. DOMESTIC OFFICES Dallas, Texas Eagan, Minnesota Eden Prairie, Minnesota Encino, California Foster City, California Los Angeles, California Madison, Wisconsin New York, New York Novato, California San Francisco, California Troy, New York Woodland...

  • Page 92
    3100 Ocean Park Boulevard Santa Monica, California 90405 telephone: (310) 255-2000 fax: (310) 255-2100 www.activision.com