Blizzard 2004 Annual Report Download - page 56

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During the three months ended December 31, 2003, we executed a realignment of our product portfolio driven by
the evolution of the video game market, which is increasingly dominated by high quality products that are based on rec-
ognizable franchises and supported with big marketing programs. We completed a comprehensive review of our prod-
uct portfolio in which we evaluated each product based on a number of criteria, including: the strength of the
franchise, the projected product quality, the 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, we believe that we have an extensive slate
of high-potential properties in development. However, we also found that certain projects had a lower likelihood of
achieving acceptable levels of operating performance and that continued pursuit of these projects would create a
substantial opportunity cost as it related to our slate of high-potential projects. Accordingly, in the three months ended
December 31, 2003, we canceled the development of ten products which we believed were unlikely to produce an
acceptable level of return on our investment. In connection with the cancellation of these products, we recorded a
pre-tax charge of approximately $21 million which is included in the consolidated statement of operations in product
development expense.
For the year ended March 31, 2003, amortization and write-offs of capitalized software development costs and
intellectual property licenses included approximately $15.0 million recorded in the fourth quarter as the result of the
assessment of the recoverability of capitalized development costs relating to certain projects and certain of our invest-
ments in long-term licensing agreements.
6. Inventories
Our inventories consist of the following (amounts in thousands):
March 31, 2004 2003
Purchased parts and components $ 392 $ 1,129
Finished goods 26,035 18,448
$ 26,427 $ 19,577
7. Property and Equipment, Net
Property and equipment, net was comprised of the following (amounts in thousands):
March 31, 2004 2003
Land $ 557 $ 441
Buildings 4,379 5,029
Computer equipment 34,076 31,483
Office furniture and other equipment 13,687 9,724
Leasehold improvements 5,540 4,893
Total cost of property and equipment 58,239 51,570
Less accumulated depreciation (32,700) (29,305)
Property and equipment, net $ 25,539 $ 22,265
Depreciation expense for the years ended March 31, 2004, 2003 and 2002 was $10.0 million, $8.1 million and
$6.2 million, respectively.
Activision, Inc. — 2004 Annual Report
page 59