Blizzard 2005 Annual Report Download - page 52

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INFLATION
Our฀management฀currently฀believes฀that฀inflation฀has฀not฀had฀a฀material฀impact฀on฀continuing฀operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market฀risk฀is฀the฀potential฀loss฀arising฀from฀fluctuations฀in฀market฀rates฀and฀prices.฀Our฀market฀risk฀exposures฀primarily฀include฀fluctuations฀in฀interest฀rates,฀foreign฀
currency฀exchange฀rates฀and฀market฀prices.฀Our฀market฀risk฀sensitive฀instruments฀are฀classified฀as฀instruments฀entered฀into฀for฀purposes฀“other฀than฀trading.”฀Our฀views฀on฀
market฀risk฀are฀not฀necessarily฀indicative฀of฀actual฀results฀that฀may฀occur฀and฀do฀not฀represent฀the฀maximum฀possible฀gains฀and฀losses฀that฀may฀occur,฀since฀actual฀gains฀and฀
losses฀will฀differ฀from฀those฀estimated,฀based฀upon฀actual฀fluctuations฀in฀interest฀rates,฀foreign฀currency฀exchange฀rates฀and฀market฀prices฀and฀the฀timing฀of฀transactions.
Interest Rate Risk
Our฀exposure฀to฀market฀rate฀risk฀for฀changes฀in฀interest฀rates฀relates฀primarily฀to฀our฀investment฀portfolio.฀We฀do฀not฀use฀derivative฀financial฀instruments฀in฀our฀investment฀
portfolio.฀We฀manage฀our฀interest฀rate฀risk฀by฀maintaining฀an฀investment฀portfolio฀consisting฀primarily฀of฀debt฀instruments฀with฀high฀credit฀quality฀and฀relatively฀short฀average฀
maturities.฀We฀also฀manage฀our฀interest฀rate฀risk฀by฀maintaining฀sufficient฀cash฀and฀cash฀equivalent฀balances฀such฀that฀we฀are฀typically฀able฀to฀hold฀our฀investments฀to฀
maturity.฀As฀of฀March฀31,฀2005,฀our฀cash฀equivalents฀and฀short-term฀investments฀included฀debt฀securities฀of฀$551.4฀million.
The฀following฀table฀presents฀the฀amounts฀and฀related฀weighted฀average฀interest฀rates฀of฀our฀investment฀portfolio฀as฀of฀March฀31,฀2005฀(amounts฀in฀thousands):
Average
Interest Rate
Amortized
Cost Fair Value
Cash฀equivalents:
฀ Fixed฀rate 2.82% $ 25,227 $ 25,218
฀ Variable฀rate 2.71 107,519 107,519
Short-term฀investments:
฀ Fixed฀rate 2.96% $530,302 $526,194
Our฀short-term฀investments฀generally฀mature฀between฀three฀months฀and฀thirty฀months.
Foreign Currency Exchange Rate Risk
We฀transact฀business฀in฀many฀different฀foreign฀currencies฀and฀may฀be฀exposed฀to฀financial฀market฀risk฀resulting฀from฀fluctuations฀in฀foreign฀currency฀exchange฀rates,฀
particularly฀GBP฀and฀EUR.฀The฀volatility฀of฀GBP฀and฀EUR฀(and฀all฀other฀applicable฀currencies)฀will฀be฀monitored฀frequently฀throughout฀the฀coming฀year.฀When฀appropriate,฀
we฀enter฀into฀hedging฀transactions฀in฀order฀to฀mitigate฀our฀risk฀from฀foreign฀currency฀fluctuations.฀We฀will฀continue฀to฀use฀hedging฀programs฀in฀the฀future฀and฀may฀
use฀currency฀forward฀contracts,฀currency฀options฀and/or฀other฀derivative฀financial฀instruments฀commonly฀utilized฀to฀reduce฀financial฀market฀risks฀if฀it฀is฀determined฀that฀
such฀hedging฀activities฀are฀appropriate฀to฀reduce฀risk.฀We฀do฀not฀hold฀or฀purchase฀any฀foreign฀currency฀contracts฀for฀trading฀purposes.฀As฀of฀March฀31,฀2005,฀we฀had฀no฀
outstanding฀hedging฀contracts.
Market Price Risk
With฀regard฀to฀the฀structured฀stock฀repurchase฀transactions฀described฀in฀Note฀15฀in฀the฀Notes฀to฀the฀Consolidated฀Financial฀Statements,฀at฀those฀times฀when฀we฀have฀
structured฀stock฀repurchase฀transactions฀outstanding,฀it฀is฀possible฀that฀at฀settlement฀we฀could฀take฀delivery฀of฀shares฀at฀an฀effective฀repurchase฀price฀higher฀than฀the฀
then฀market฀price.฀As฀of฀March฀31,฀2005,฀we฀had฀no฀structured฀stock฀repurchase฀transactions฀outstanding.
page 50
Activision, Inc. — 2005 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations