Blizzard 2005 Annual Report Download - page 46

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As฀of฀March฀31,฀2005,฀our฀primary฀source฀of฀liquidity฀is฀comprised฀of฀$313.6฀million฀of฀cash฀and฀cash฀equivalents฀and฀$527.3฀million฀of฀short-term฀investments.฀Over฀the฀
last฀two฀years,฀our฀primary฀sources฀of฀liquidity฀have฀included฀cash฀on฀hand฀at฀the฀beginning฀of฀the฀year฀and฀cash฀flows฀generated฀from฀continuing฀operations.฀We฀have฀
also฀generated฀significant฀cash฀flows฀from฀the฀issuance฀of฀our฀common฀stock฀to฀employees฀through฀the฀exercise฀of฀options,฀as฀well฀as฀from฀the฀utilization฀of฀structured฀
stock฀repurchase฀transactions,฀which฀are฀described฀in฀more฀detail฀below฀in฀“Cash฀Flows฀from฀Financing฀Activities.”฀We฀have฀not฀utilized฀debt฀financing฀as฀a฀significant฀
source฀of฀cash฀flows.฀However,฀we฀do฀have฀available฀at฀certain฀of฀our฀international฀locations,฀credit฀facilities,฀which฀are฀described฀below฀in฀“Credit฀Facilities,”฀that฀can฀be฀
utilized฀if฀needed.
In฀August฀2003,฀we฀filed฀with฀the฀Securities฀and฀Exchange฀Commission฀two฀amended฀shelf฀registration฀statements,฀including฀the฀base฀prospectuses฀therein.฀The฀first฀
shelf฀registration฀statement,฀on฀Form฀S-3,฀allows฀us,฀at฀any฀time,฀to฀offer฀any฀combination฀of฀securities฀described฀in฀the฀base฀prospectus฀in฀one฀or฀more฀offerings฀with฀
an฀aggregate฀initial฀offering฀price฀of฀up฀to฀$500,000,000.฀Unless฀we฀state฀otherwise฀in฀the฀applicable฀prospectus฀supplement,฀we฀expect฀to฀use฀the฀net฀proceeds฀from฀
the฀sale฀of฀the฀securities฀for฀general฀corporate฀purposes,฀including฀capital฀expenditures,฀working฀capital,฀repayment฀or฀reduction฀of฀long-term฀and฀short-term฀debt฀and฀the฀
financing฀of฀acquisitions฀and฀other฀business฀combinations.฀We฀may฀invest฀funds฀that฀we฀do฀not฀immediately฀require฀in฀marketable฀securities.
The฀second฀shelf฀registration฀statement,฀on฀Form฀S-4,฀allows฀us,฀at฀any฀time,฀to฀offer฀any฀combination฀of฀securities฀described฀in฀the฀base฀prospectus฀in฀one฀or฀more฀
offerings฀with฀an฀aggregate฀initial฀offering฀price฀of฀up฀to฀$250,000,000฀in฀connection฀with฀our฀acquisition฀of฀the฀assets,฀business฀or฀securities฀of฀other฀companies฀whether฀
by฀purchase,฀merger฀or฀any฀other฀form฀of฀business฀combination.
We฀believe฀that฀we฀have฀sufficient฀working฀capital฀($915.4฀million฀at฀March฀31,฀2005),฀as฀well฀as฀proceeds฀available฀from฀our฀international฀credit฀facilities,฀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฀intellectual฀property฀rights฀for฀future฀products฀from฀third-parties.
Cash Flows from Operating Activities
The฀primary฀drivers฀of฀cash฀flows฀from฀operating฀activities฀typically฀have฀included฀the฀collection฀of฀customer฀receivables฀generated฀by฀the฀sale฀of฀our฀products,฀offset฀by฀
payments฀to฀vendors฀for฀the฀manufacture,฀distribution฀and฀marketing฀of฀our฀products,฀third-party฀developers฀and฀intellectual฀property฀holders฀and฀our฀own฀employees.฀
A฀significant฀operating฀use฀of฀our฀cash฀relates฀to฀our฀continued฀investment฀in฀software฀development฀and฀intellectual฀property฀licenses.฀We฀spent฀approximately฀$126.9฀million฀
and฀$115.2฀million฀in฀the฀years฀ended฀March฀31,฀2005฀and฀2004,฀respectively,฀in฀connection฀with฀the฀acquisition฀of฀publishing฀or฀distribution฀rights฀for฀products฀being฀
developed฀by฀third฀parties,฀the฀execution฀of฀new฀license฀agreements฀granting฀us฀long-term฀rights฀to฀intellectual฀property฀of฀third฀parties,฀as฀well฀as฀the฀capitalization฀of฀
product฀development฀costs฀relating฀to฀internally฀developed฀products.฀We฀expect฀that฀we฀will฀continue฀to฀make฀significant฀expenditures฀relating฀to฀our฀investment฀in฀software฀
development฀ and฀ intellectual฀ property฀ licenses.฀ Our฀ future฀ cash฀ commitments฀ relating฀ to฀ these฀ investments฀ are฀ detailed฀ below฀ in฀ “Commitments.”฀ Cash฀ flows฀ from฀
operations฀are฀affected฀by฀our฀ability฀to฀release฀highly฀successful฀or฀“hit”฀titles.฀Though฀many฀of฀these฀titles฀have฀substantial฀production฀or฀acquisition฀costs฀and฀marketing฀
budgets,฀once฀a฀title฀recoups฀these฀costs,฀incremental฀net฀revenues฀typically฀will฀directly฀and฀positively฀impact฀cash฀flows.
For฀the฀year฀ended฀March฀31,฀2005฀and฀2004,฀cash฀flows฀from฀operating฀activities฀were฀$215.3฀million฀and฀$67.4฀million,฀respectively.฀The฀principal฀components฀comprising฀
cash฀flows฀from฀operating฀activities฀for฀the฀year฀ended฀March฀31,฀2005฀included฀favorable฀operating฀results฀and฀increases฀in฀accounts฀payable฀and฀accrued฀liabilities,฀
partially฀ offset฀by฀ increases฀ in฀accounts฀ receivable฀and฀ our฀ continued฀ investment฀in฀ software฀ development฀ and฀ intellectual฀ property฀ licenses.฀ See฀ an฀ analysis฀ of฀ the฀
change฀in฀key฀balance฀sheet฀accounts฀below฀in฀“Key฀Balance฀Sheet฀Accounts.”฀We฀expect฀that฀a฀primary฀source฀of฀future฀liquidity,฀both฀short-term฀and฀long-term,฀will฀be฀
the฀result฀of฀cash฀flows฀from฀continuing฀operations.
page 44
Activision, Inc. — 2005 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations