Blizzard 2003 Annual Report Download
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Breaking Records
2003 Annual Report
Table of contents
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Page 1
Breaking Records 2003 Annual Report -
Page 2
for 11Years Financial Highlights In thousands of dollars, except per share data 2003 2002 2001 Net revenues Operating income Net earnings Earnings per common share: Basic earnings per share Diluted earnings per share $864,116 94,847 66,180 0.69 0.64 $786,434 80,574 52,238 0.69 0.59 $620,183 ... -
Page 3
page 01 NET REVENUES NET EARNINGS DILUTED EPS (in millions of dollars) (in millions of dollars) (per common share) Activision 2003 -
Page 4
... expanded agreements grant us the exclusive rights to develop and publish video game products based on Marvel's comic book franchises Spider-Manா, X-Menீ , Fantastic Fourீ and Iron Manீ through 2009. Beginning in fiscal year 2005, we will be publishing games based on four upcoming DreamWorks... -
Page 5
...to require more sophisticated production values. Concurrent with this decision, we eliminated a significant number of smaller, non-core projects. These changes should allow us to focus on developing top-quality games and allocate our production and marketing resources against titles with the highest... -
Page 6
... stability ACTIVISION'S BALANCED PRODUCT PORTFOLIO INCLUDES BOTH LICENSED AND ORIGINAL PROPERTIES. Recognized brands provide enhanced financial stability and predictability which gives us the flexibility to create additional financial upside by developing new properties based on original game... -
Page 7
page 05 Activision 2003 -
Page 8
... on time; have proprietary technologies; and have development competencies in genres that align with our product slate. To ensure consistency and quality for our games, we partner our internal studio capabilities with our brand franchises. This strategy enables us to pair great developers with key... -
Page 9
page 07 Activision 2003 -
Page 10
... technologies expand the number of game players beyond previous levels, Activision is poised to capitalize on new business opportunities that will generate additional revenues, further extend the reach of our brands and deliver new types of gaming experiences to consumers worldwide. Emerging... -
Page 11
...sales-product costs Cost of sales-intellectual property licenses and software royalties and amortization Income (loss) from operations Income (loss) before income tax provision (benefit) Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Basic weighted average common... -
Page 12
..., marketing and sale of products, either directly, by license or through our affiliate label program with third-party publishers. In the United States, we primarily sell our products on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses and office super-stores... -
Page 13
... exclusive licensing agreement to develop and publish video games for the best-selling children's book series, Lemony Snicket's A Series of Unfortunate Events which is being developed for a feature film by Paramount Pictures and Nickelodeon Movies. In December 2002, we also entered into a multi-year... -
Page 14
...launches of our premium title releases. We may also consider other factors, including the facilitation of slow-moving inventory and other market factors. Management must make estimates of potential future product returns and price protection related to current period product revenue. We estimate the... -
Page 15
... are any future planned theatrical releases or television series based on the intellectual property and the rights holder's continued promotion and exploitation of the intellectual property. Prior to the related product's release, we expense, as part of cost of sales-intellectual property licenses... -
Page 16
... platform, as well as operating income by business segment: (In thousands) Year ended March 31, Net revenues Costs and expenses: Cost of sales-product costs Cost of sales-software royalties and amortization Cost of sales-intellectual property licenses Product development Sales and marketing General... -
Page 17
... 2001. Our GBA software sales for the year ended March 31, 2002 benefited from the related hardware launch. We also released fewer titles for the hand-held platforms in fiscal 2003-11 titles, in comparison to 19 titles in fiscal 2002. Additionally, the average retail price of titles for hand-held... -
Page 18
page 16 Management's Discussion and Analysis of Financial Condition and Results of Operations of new hardware platforms, as well as the timing of key product releases from our own product release schedule. We expect that net revenues from console titles will continue to represent the largest ... -
Page 19
... 2003 in which console titles accounted for a higher proportion of publishing net revenues. Console titles such as PS2, Xbox and GameCube have high product development cost structures, and the release of titles on these platforms will result in a correspondingly high cost of sales-software royalties... -
Page 20
... increase in sales and marketing expense dollars in our publishing business was the result of a significant marketing program in support of the simultaneous cross-platform, multi-national release of Spider-Man: The Movie during the first quarter of fiscal 2003, as well as increased TV and print ads... -
Page 21
... PCs. Products for hand-held devices generally have the highest manufacturing per unit cost of all platforms. Cost of sales-software royalties and amortization remained flat at 11% of publishing net revenues for the years ended March 31, 2002 and 2001. Cost of sales-intellectual property licenses... -
Page 22
... to generate savings by building on the existing awareness of our branded products and sequel titles sold during fiscal 2002. It also reflects the savings we receive from the increased success of releasing a higher proportion of our branded products simultaneously on multiple platforms. General and... -
Page 23
...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. We actively manage our capital structure and balance sheet as a component... -
Page 24
... in April 2003. Additionally, under the Board approved buyback program, we entered into a series of structured stock repurchase transactions in the aggregate amount of $110.0 million. These transactions may be settled in cash or stock depending on the market price of our common stock on the date of... -
Page 25
...used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. We adopted SFAS 148 in the fourth quarter of fiscal 2003. As we elected not to change to the fair value based method of accounting for stock-based employee compensation, the adoption... -
Page 26
... 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, 2003, our cash equivalents and short-term investments included debt securities... -
Page 27
... their cash flows for each of the three years in the period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on... -
Page 28
... except share data) March 31, 2003 March 31, 2002 Assets Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowances of $57,356 and $42,019 at March 31, 2003 and 2002, respectively Inventories Software development Intellectual property licenses Deferred... -
Page 29
... 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 Cost of sales-intellectual property licenses Product development Sales and marketing General and administrative Total costs... -
Page 30
... to employees Tax benefit attributable to employee stock options and common stock warrants Tax benefit derived from net operating loss carryforward utilization Purchase of treasury shares Balance, March 31, 2001 Components of comprehensive income: Net income for the year Foreign currency translation... -
Page 31
...software development costs and intellectual property licenses Tax benefit of stock options and warrants exercised Change in operating assets and liabilities (net of effects of acquisitions): Accounts receivable Inventories Software development and intellectual property licenses Other assets Accounts... -
Page 32
... personal computer ("PC"). Our target audiences range from game enthusiasts and children to mass-market consumers and "value" buyers. Our publishing business involves the development, marketing and sale of products, either directly, by license or through our affiliate label program with third-party... -
Page 33
... cost method. Software Development Costs and Intellectual Property Licenses. Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. We account for software development costs... -
Page 34
... are any future planned theatrical releases or television series based on the intellectual property and the rights holder's continued promotion and exploitation of the intellectual property. Prior to the related product's release, we expense, as part of cost of sales-intellectual property licenses... -
Page 35
.... Management must make estimates of potential future product returns and price protection related to current period product revenue. We estimate the amount of future returns and price protection based upon historical experience, customer inventory levels and changes in the demand and acceptance of... -
Page 36
...-based employee compensation cost is reflected in net income for any years presented, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table illustrates the Activision 2003 -
Page 37
...options with exercise prices equal to market value on date of grant and exercise prices greater than market value were $1.39 and $0.59, respectively. The per share weighted average estimated fair value of Employee Stock Purchase Plan shares granted during the year ended March 31, 2003, 2002 and 2001... -
Page 38
... at arm's length, and we believe that the fees are competitive with the fees charged by other law firms. Recently Issued Accounting Standards. In January 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure... -
Page 39
..., Ltd. ("Z-Axis"), a privately held interactive software development company, in exchange for $12.5 million in cash and 373,785 shares of our common stock valued at approximately $8.2 million. Z-Axis is an experienced, multi-platform, console software developer. The purchase price of the transaction... -
Page 40
... of Treyarch Invention, LLC ("Treyarch"), a privately held interactive software development company, in exchange for 1,228,442 shares of our common stock. Treyarch is an experienced, multi-platform console software developer with a focus on action and action sports video games. As part of the... -
Page 41
...of March 31, 2003 (amounts in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents: Cash and time deposits Money market funds Auction rate notes Cash and cash equivalents Short-term investments: Corporate bonds Taxable senior debt U.S. agency... -
Page 42
... per share data). Year ended March 31, Reported net income Add back: Goodwill amortization Adjusted net income Basic earnings per share: Reported net income Goodwill amortization Adjusted net income Diluted earnings per share: Reported net income Goodwill amortization Adjusted net income 2003 $66... -
Page 43
... entertainment software and hardware products. Publishing refers to the development, marketing and sale of products, either directly, by license or through our affiliate label program with third-party publishers. In the United States, we primarily sell our products on a direct basis to mass-market... -
Page 44
... and manufacturers of interactive entertainment hardware. Resources are allocated to each of these segments using information on their respective net revenues and operating profits before interest and taxes. The accounting policies of these segments are the same as those described in the Summary of... -
Page 45
... products based on a relatively small number of popular brands each year. In fiscal 2003, 38% of our consolidated net revenues (52% of worldwide publishing net revenues) was derived from two brands, one of which accounted for 20% and the other of which accounted for 18% of consolidated net revenues... -
Page 46
...Foreign Total current Deferred: Federal State Foreign Total deferred Add back benefit credited to additional paid-in capital: Tax benefit related to stock option and warrant exercises Tax benefit related to utilization of pre-bankruptcy net operating loss carryforwards Income tax provision 2003 $ 78... -
Page 47
...doubtful accounts Allowance for sales returns Inventory reserve Vacation and bonus reserve Amortization and depreciation Tax credit carryforwards Net operating loss carryforwards Other Deferred asset Valuation allowance Net deferred asset Deferred liability: Capitalized research expenses State taxes... -
Page 48
..., respectively, bore interest at a Eurocurrency rate plus 2.5%, is collateralized by the subsidiary's accounts receivable, inventory and certain property and equipment and expires June 2003. No borrowings were outstanding against the German Facility as of March 31, 2003 or 2002. Activision 2003 -
Page 49
...Notes were redeemed for cash. Annual maturities of long-term debt are as follows (amounts in thousands): Year ended March 31, 2004 2005 2006 2007 2008 and thereafter Total $ 147 159 159 159 2,194 2,818 $ 13. Commitments and Contingencies Developer and Intellectual Property Contracts. In the normal... -
Page 50
... the granting of "Awards" in the form of non-qualified stock options, ISOs, SARs, restricted stock awards, deferred stock awards and other common stock-based awards to directors, officers, employees, consultants and others. The total number of shares of common stock available for distribution under... -
Page 51
... the granting of "Awards" in the 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 available for distribution... -
Page 52
... the Board. Such warrants have vesting terms identical to the Directors Warrants and expire within 10 years from the date of grant. Relating to such warrants, as of March 31, 2003, 45,000 shares with a weighted average exercise price of $6.01 were outstanding and exercisable. Employee Stock Purchase... -
Page 53
... market value of our common stock at the date of grant. During the fiscal year ended March 31, 2003, we granted warrants to a third party to purchase 225,000 shares of our common stock at an exercise price of $19.83 per share in connection with, and as partial consideration for, a license agreement... -
Page 54
... of such right a number of the acquiring company's common shares having a market value equal to two times the then current exercise price of the right. For persons who, as of the close of business on April 18, 2000, beneficially own 15% or more of the common stock of Activision, the Rights Plan... -
Page 55
...options and common stock warrants Stock offering costs Tax benefit derived from net operating loss carryforward utilization Change in unrealized appreciation on short-term investments Supplemental cash flow information: Cash paid for income taxes Cash paid (received) for interest, net 2003 2002 2001... -
Page 56
... (loss) Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Common stock price per share: High Low Fiscal 2002: Net revenues Operating income (loss) Net income Basic earnings per share Diluted earnings per share Common stock price per share: High Low Activision 2003 -
Page 57
..., 2002 Fourth Quarter ended March 31, 2003 On June 9, 2003, the last reported sales price of our common stock was $11.68. Dividends We paid no cash dividends in 2003 or 2002 nor do we anticipate paying any cash dividends at any time in the foreseeable future. We expect that earnings will be retained... -
Page 58
... Los Angeles, California Corporate Counsel Bryan Cave LLP New York, New York Corporate Headquarters Activision, Inc. 3100 Ocean Park Boulevard Santa Monica, California 90405 (310) 255-2000 Offices Dallas, Texas Eden Prairie, Minnesota Eagan, Minnesota Hayward, California Madison, Wisconsin New York... -
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3100 Ocean Park Boulevard, Santa Monica, CA 90405 phone: (310) 255-2000 fax: (310) 255-2100 www.activision.com