Blizzard 2007 Annual Report Download - page 45

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47
A C T I V I S I O N , I N C . • • 2 0 0 7 A N N U A L R E P O R T
General and administrative expenses for the year ended March 31, 2006 increased $33.1 million over
the same period last year, from $63.2 million to $96.4 million. As a percentage of consolidated net
revenues, general and administrative expenses increased from 4% to 7%. The increases were primar-
ily due to an increase in personnel costs including costs related to European territory expansion,
separation and severance costs associated with a less than 7% reduction in workforce in the fourth
quarter of fiscal 2006, increased bad debt write-offs, an increase in foreign currency transaction
losses, and increased legal costs.
Operating Income
(in thousands)
March 31,
2006
% of
Segment
Net Revs
March 31,
2005
% of
Segment
Net Revs
Increase/
(Decrease)
Percent
Change
Publishing $ (6,715) (1)% $155,863 15% $(162,578) (104)%
Distribution 21,941 7% 23,745 7% (1,804) (8)%
Consolidated $15,226 1% $179,608 13% $(164,382) (92)%
Publishing operating income for the year ended March 31, 2006 decreased $162.6 million from the
same period last year, from $155.9 million to an operating loss of $6.7 million. The decrease is primar-
ily due to:
• Increased sales and marketing spending to support our large title release slate.
• An increase in provision for returns and price protection throughout fiscal 2006 from 12% of
net revenues in fiscal 2005 compared to 18% of net revenues in fiscal 2006, due to challenging
market conditions and the ongoing console transition.
• Cancellation, impairment, and earn-out recoverability charges totaling $24.0 million taken
in fiscal 2006. See additional description of charges incurred in the cost of sales—software
royalties and amortization and the product development discussions.
• Write-downs of inventory costs of $14.5 million taken during fiscal 2006. See additional descrip-
tion in the cost of sales—product costs discussion.
Distribution operating income for the year ended March 31, 2006 decreased over the same period
last year, from $23.7 million to $21.9 million. The decrease was primarily due to the impact of changes
in foreign currency rates on distribution operating income of approximately $1.4 million. Excluding
the impact of changes in foreign currency rates, distribution operating income for the year ended
March 31, 2006 decreased approximately $0.4 million or 2% from the same period last year.
Investment Income, Net
(in thousands)
March 31,
2006
% of
Consolidated
Net Revenues
March 31,
2005
% of
Consolidated
Net Revenues
Increase/
(Decrease)
Percent
Change
$30,630 2% $13,092 1% $17,538 134%
Investment income, net for the year ended March 31, 2006 was $30.6 million as compared to $13.1
million for the year ended March 31, 2005. The increase was primarily due to higher invested
balances combined with rising yields, a realized gain in the first quarter of fiscal 2006 of $1.3 million
on the sale of an investment in common stock, and a realized gain of $2.9 million on the sale of a cost
basis investment during the year ended March 31, 2006 as compared to 2005.