Blizzard 2005 Annual Report Download - page 41

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Net฀revenues฀from฀sales฀of฀titles฀for฀the฀GBA฀for฀the฀year฀ended฀March฀31,฀2004฀decreased฀44%฀from฀the฀prior฀fiscal฀year,฀from฀$44.1฀million฀to฀$24.6฀million.฀This฀is฀due฀to฀
a฀decrease฀in฀the฀number฀of฀GBA฀games฀released฀year-over-year.฀In฀fiscal฀2003,฀we฀released฀11฀GBA฀titles,฀whereas฀in฀fiscal฀2004฀we฀released฀4฀GBA฀titles.฀We฀expect฀the฀
hand-held฀installed฀base฀to฀grow฀with฀the฀release฀of฀the฀NDS฀and฀PSP฀which฀are฀expected฀to฀launch฀in฀late฀calendar฀year฀2004฀and฀early฀calendar฀year฀2005,฀respectively.
A฀significant฀portion฀of฀our฀revenues฀and฀profits฀are฀derived฀from฀a฀relatively฀small฀number฀of฀popular฀titles฀and฀brands฀each฀year฀as฀revenues฀and฀profits฀are฀significantly฀
affected฀by฀our฀ability฀to฀release฀highly฀successful฀or฀“hit”฀titles.฀For฀example,฀for฀the฀year฀ended฀March฀31,฀2004,฀28%฀of฀our฀consolidated฀net฀revenues฀and฀40%฀of฀
worldwide฀publishing฀net฀revenues฀were฀derived฀from฀net฀revenues฀from฀our฀
Tony Hawk’s Underground
฀and฀
True Crime: Streets of L.A.
฀titles.฀Though฀many฀of฀these฀titles฀have฀substantial฀
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฀derived฀from฀these฀select฀titles.
Distribution Net Revenues
(In thousands)
March 31, 2004
% of Consolidated
Net Revenues March 31, 2003
% of Consolidated
Net Revenues Increase/(Decrease) Percent Change
$281,924 30% $248,141 29% $33,783 14%
Distribution฀net฀revenues฀for฀the฀year฀ended฀March฀31,฀2004฀increased฀14%฀from฀the฀prior฀fiscal฀year,฀from฀$248.1฀million฀to฀$281.9฀million.฀The฀increase฀was฀primarily฀due฀to฀
the฀positive฀impact฀of฀the฀year-over-year฀strengthening฀of฀the฀EUR฀and฀the฀GBP฀in฀relation฀to฀the฀U.S.฀dollar.฀Excluding฀the฀impact฀of฀the฀changing฀foreign฀currency฀rates,฀
our฀distribution฀net฀revenues฀was฀in฀line฀with฀our฀prior฀fiscal฀year,฀with฀a฀slight฀increase฀of฀2%฀year-over-year.฀The฀mix฀of฀distribution฀net฀revenues฀between฀hardware฀and฀
software฀sales฀varied฀year-over-year฀with฀approximately฀28%฀hardware฀in฀the฀year฀ended฀March฀31,฀2004฀as฀compared฀to฀38%฀hardware฀in฀the฀prior฀fiscal฀year.฀This฀is฀
mainly฀attributed฀to฀an฀increase฀in฀business฀with฀large,฀mass-market฀customers฀that฀generate฀a฀higher฀percentage฀of฀sales฀from฀software.฀In฀both฀fiscal฀years,฀hardware฀
sales฀were฀principally฀comprised฀of฀sales฀of฀console฀hardware.
Costs and Expenses
Cost of Sales—Product Costs
(In thousands)
March 31, 2004
% of Consolidated
Net Revenues March 31, 2003
% of Consolidated
Net Revenues Increase/(Decrease) Percent Change
$475,541 50% $440,977 51% $34,564 8%
Cost฀of฀sales—product฀costs฀represented฀50%฀and฀51%฀of฀consolidated฀net฀revenues฀for฀the฀years฀ended฀March฀31,฀2004฀and฀2003,฀respectively.฀In฀absolute฀dollars,฀cost฀
of฀sales—product฀costs฀increased฀due฀to฀higher฀sales฀volume฀in฀fiscal฀2004฀as฀compared฀to฀fiscal฀2003.฀There฀were฀two฀primary฀factors฀that฀affected฀cost฀of฀sales—
product฀costs฀as฀a฀percentage฀of฀consolidated฀net฀revenues:
฀ •฀ ฀The฀product฀mix฀of฀our฀publishing฀business฀for฀the฀year฀ended฀March฀31,฀2004฀reflects฀a฀lower฀proportion฀of฀net฀revenues฀from฀titles฀for฀hand-held฀devices,฀as฀compared฀
to฀the฀year฀ended฀March฀31,฀2003.฀Titles฀for฀hand-held฀devices฀generally฀have฀the฀highest฀manufacturing฀per฀unit฀cost฀of฀all฀platforms.
฀ •฀ ฀Due฀to฀the฀lower฀manufacturing฀costs฀for฀PC฀titles,฀we฀were฀able฀to฀benefit฀from฀the฀strong฀sales฀of฀
Call of Duty
฀for฀the฀year฀ended฀March฀31,฀2004.
Cost of Sales—Software Royalties and Amortization
(In thousands)
March 31, 2004
% of Publishing
Net Revenues March 31, 2003
% of Publishing
Net Revenues Increase/(Decrease) Percent Change
$59,744 9% $79,194 13% $(19,450) (25%)
page 39
Activision, Inc. — 2005 Annual Report