Activision Blizzard Inc. (ATVI) 2007年年度報告「NASDAQ」.pdf

《Activision Blizzard Inc. (ATVI) 2007年年度報告「NASDAQ」.pdf》由會員分享，可在線閱讀，更多相關《Activision Blizzard Inc. (ATVI) 2007年年度報告「NASDAQ」.pdf（107頁珍藏版）》請在三個皮匠報告上搜索。

1、TWO THOUSAND AND SEVENANNUAL REPORTGAME ONIN FISCAL 2007,THE VIDEO GAME INDUSTRY ENTERED A NEW ERA WHERE TECHNOLOGY AND CREATIVITY WILL FUSE TO PRODUCE THE MOST STUNNING INTERACTIVE ENTERTAINMENT EXPERIENCES EVER.THE NEXT-GENERATION CONSOLES ARE EXPECTED TO GREATLY EXPAND THE REACH OF GAMES AND CREA

2、TE NEW OPPORTUNITIES FOR ACTIVISION TO DELIVER COMPELLING ENTERTAINMENT EXPERIENCES.TODAY,WE ARE POISED TO CAPITALIZE ON THE OPPORTUNITIES IN THE NEW CONSOLE ERA THAT WILL DRIVE OUR LONG-TERM GROWTH.TM&2007 Marvel Characters,Inc.2007 CPII.All Rights Reserved.Next-generation console systems are TRANS

3、FORMing the way video games are played.In fiscal 2007,Activision firmly established its leadership on the next-generation platforms.Demand for innovative interactive entertainment will propel the industry into what could be the greatest growth period in its history.Photo by Atiba JeffersonPhoto by A

4、tiba Jefferson READY?ARE YOU READY?WE ARE!At Activision,we have been focused on delivering long-term value to our sharehold-ers.In fiscal 2007,that commitment translated into our 15th consecutive year of net revenue growth.During the fiscal year,we delivered record net revenues of$1.5 billion and ne

5、t income of$86 million,the highest net income among third-party publishers in fiscal year 2007.Our stock price appreciated 37%year over year,and,since fiscal year 2000,has grown at a compounded annual growth rate of 38%.We successfully navigated the console hardware transition,solidified our positio

6、n as a leading publisher of next-generation console software and significantly strength-ened our business worldwide.In the U.S.,we ended the fiscal year as the#2 third-party software publisher overall with two top-10 titlesCall of Duty 3 and Guitar Hero II and we were the only company to rank as a t

7、op-three publisher for both the recently released Nintendo Wii and Sony PlayStation 3 video game consoles,according to The NPD Group.In Europe,we ended the fiscal year as the#3 third-party publisher on the next-generation consoles with improved operating performance.Call of Duty 3 in Europe was the#

8、1 best-selling console and hand-held first-person action game,according to Charttrack and Gfk.We also made progress in building a stronger foundation for growth through the acquisition of video game publisher RedOctane,makers of Guitar Hero.We success-fully integrated RedOctane into our business and

9、 Guitar Hero is one of the fastest growing franchises in Activisions history.Today,we are in an excellent position,both strategically and operationally,to build on our success.We have one of the strongest balance sheets in the industry having ended fiscal 2007 with approximately$1 billion in cash an

10、d short-term investments and$1.4 billion in shareholders equity.And our market position has never been stronger.Our broad franchise portfolio and strong global reach,combined with our financial flexibility and operational excellence,should enable us to continue deliver-ing long-term value for our sh

11、areholders.To Our Shareholders:13We remain focused on:.Expanding our balanced franchise portfolio,.Strengthening our development capabilities,and.Improving our operating efficiency worldwide.And,we believe that these practices will create strengths and capabilities which,in turn,will drive our compe

12、titive advantage.Expanding our balanced franchise portfolio:In fiscal 2007,we continued to expand the breadth and depth of our brand portfolio by adding three new intellectual propertiesGuitar Hero,James Bond and Marvel:Ultimate Allianceand growing our two largest franchisesCall of Duty and Tony Haw

13、k.According to The NPD Group,we ended the year with four of the top 15 games in the U.S.Guitar Hero II ranked as the#3 best-selling franchise overall and the#1 best-selling franchise on the PlayStation 2 computer entertainment system and Call of Duty 3 ended the year as the#3 best-selling game on th

14、e Microsoft Xbox 360 in the U.S.The next-generation consoles are enabling us to extend the lifecycle of our games through downloadable content that can also be offered in premium retail products.We expect online transactions will help expand our operating margins over time and we have already seen e

15、arly success with Microsofts Xbox Live Marketplace.In fiscal 2007,on the Xbox 360,we generated almost$6 million in incremental revenue from downloadable content.We will continue to leverage this new ancillary revenue stream in fiscal 2008,and have already released eight new playable characters for M

16、arvel:Ultimate Alliance and nine new songs for Guitar Hero II.Strengthening our development capabilities:During the fiscal year,we gained product creation efficiencies across the current and next-generation consoles by increasing our development schedules to facilitate a longer pre-production phase

17、and more predictable workflow timelines.Our shared proprietary tools and technologies enabled us to more easily develop games across more platforms than ever before.Our acquisition of DemonWare,the leading provider of network middleware tech-nologies for console and PC games,is allowing us to gain e

18、fficiencies related to online game development and is positioning us to take advantage of the growth in 14online gameplay that will be driven by the next-generation consoles.In the next two to four years,we expect that online gaming will grow significantly as a result of a more seamless plug-and-pla

19、y experience provided by the new hardware systems.DemonWares State Engine will enable us to eliminate many of the challenges associated with online multiplayer game development,reducing development time and risk,and allowing us to deliver consistent,high-quality online gaming experiences.In addition

20、 to increasing our talent pool of highly skilled engineers,DemonWares suite of technologies combined with our library of tools and technologies will let us easily share online development capabilities across our studios.Further enhancing our studio infrastructure,we recently announced that we will e

21、xpand our Quebec-based video game studio,Beenox,Inc.,and create more than 200 new positions in the Quebec area by 2009.Beenox will focus its efforts on developing games for the next-generation consoles and PCs including titles based on our licensed movie-based and superhero properties.Improving our

22、operating efficiency worldwide:In the coming fiscal year,we will continue to capitalize on opportunities to increase our operating margin through innovation and operational efficiencies.In fiscal 2007,we realized cost savings in product development by outsourcing portions of our art creation and qua

23、lity assurance activities.We began to cultivate co-development opportunities with local game studios in China to create art assets for our Xbox 360 and PlayStation 3 games,including the development of characters,vehicles and environments.We also outsourced quality assurance for our hand-held and cur

24、rent-generation games to India.In fiscal 2008,we are looking to increase our outsourced activities in these areas.Further,we found substantial efficiencies by consolidating our supply chain activities globally and are now well positioned to continue advancing cost savings opportunities in this area.

25、Lastly,for the fiscal year,we succeeded in driving our sales and marketing expendi-ture as a percent of revenue down more than 30%year over year.During the year,we launched an Internet-based customer-relationship marketing program which targeted a broad base of influencers that help generate pre-awa

26、reness for our games.We also effectively lowered our television expenditures per title by rebalancing our marketing mix against more efficiently targeted vehicles to maintain strong marketing reach and consumer purchase intent for our new releases.15Outlook:Our business is well positioned in the mar

27、ket,our global team is focused on the right priorities and we have the financial flexibility to execute on our strategic initiatives.We will continue to work diligently to further unlock the operating leverage in our business and deliver margin expansion.We see long-term growth in new markets like i

28、n-game advertising and believe that in-game advertising can be additive to our current business model without any degradation to the consumer experience.Excellent execution in all areas of our business is key to building long-term value for our shareholders.Our results must be achieved with high lev

29、els of financial transparency and governance.While we are confident in our current processes,during the fiscal year,a special sub-committee of our Board of Directors,assisted by independent counsel,conducted a voluntary review into our stock option granting practices.As a result,we restated our hist

30、orical financial statements for the fiscal years 19942006.To further strengthen our processes and assure ongoing strong and effective governance,we appointed a principal compliance officer who reports directly to our Board of Directors Nominating and Corporate Governance Committee,realigned certain

31、internal responsibilities relating to the granting and reporting of equity compensation and have implemented a number of modifications to our option granting policies and practices.Our capacity to deliver high operating standards,expand our business and honor our core values in our day-to-day activi

32、ties would be impossible without the dedica-tion and commitment of our management team and employees worldwide.Their hard work and exceptional skills have enabled us to continue executing our vision and rewarding our shareholders.While we are proud to have fulfilled that promise in fiscal 2007,we ar

33、e more determined than ever to continue to do so in the future.Sincerely,Robert A.Kotick Brian G.Kelly Michael GriffithChairman and Co-Chairman President and Chief Executive Officer of Activision,Inc.Chief Executive Officer of of Activision,Inc.Activision Publishing,Inc.1617AC T I V I S I O N,I N C.

34、2 0 0 7 A N N UA L R E P O R TThe following table summarizes certain selected consolidated financial data,which should be read in conjunction with our Consolidated Financial Statements and Notes thereto and with Managements Discussion and Analysis of Financial Condition and Results of Operations inc

35、luded elsewhere herein.The selected consolidated financial data presented below as of and for each of the fiscal years in the five-year period ended March 31,2007 are derived from our consolidated financial statements except basic and diluted earnings per share and basic and diluted weighted average

36、 shares outstanding which have been restated for the effect of our stock splits.The Consolidated Balance Sheets as of March 31,2007 and 2006 and the Consolidated Statements of Operations and Consolidated State-ments of Cash Flows for each of the fiscal years in the three-year period ended March 31,2

37、007,and the report thereon,are included elsewhere in this report(in thousands,except per share data).For the fiscal years ended March 31,20072006200520042003Statement of Operations Data:Net revenues$1,513,012$1,468,000$1,405,857$947,656$864,116Cost of salesproduct costs799,587734,874658,949475,54144

38、0,977Cost of salesintellectual property licenses and software royalties and amortization178,478205,488185,99791,606124,196Income from operations73,14715,226179,608104,53784,691Income before income tax provision109,82545,856192,700110,71293,251Net income85,78740,251135,05774,09859,003Basic earnings p

39、er share(1)0.310.150.540.310.23Diluted earnings per share(1)0.280.140.490.290.21Basic weighted average common shares outstanding(1)281,114273,177250,023236,887256,639Diluted weighted average common shares outstanding(1)305,339294,002277,712258,350277,620Net Cash Provided by(Used in):Operating activi

40、ties27,16286,007215,30967,40390,975Investing activities(35,242)(85,796)(143,896)(170,155)(301,547)Financing activities27,96845,08872,654117,56964,090As of March 31,20072006200520042003Balance Sheet Data:Working capital$1,060,064$922,199$913,819$675,796$422,500Cash,cash equivalents and short-term inv

41、estments954,849944,960840,864587,649406,954Capitalized software development and intellectual property licenses231,196147,665127,340135,201107,921Goodwill195,374100,44691,66176,49368,019Total assets1,793,9471,418,2551,305,919966,220703,070Long-term debt2,671Shareholders equity1,411,5321,222,6231,097,

42、274830,141595,994(1)Consolidated financial information for fiscal years 20052003 has been restated for the effect of our four-for-three stock split effected in the form of a 33%stock dividend to shareholders of record as of October 10,2005,paid October 24,2005.Selected Consolidated Financial Data18A

43、C T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TOverviewOur BusinessWe are a leading international publisher of interactive entertainment software products.We have built a company with a diverse portfolio of products that spans a wide range of categories and target markets and that are used on

44、 a variety of game hardware platforms and operating systems.We have created,licensed,and acquired a group of highly recognizable brands,which we market to a variety of consumer demographics.Our fiscal 2007 product portfolio includes titles such as Over the Hedge,X-Men:The Official Game,Marvel:Ultima

45、te Alliance,Tony Hawks Project 8,Tony Hawks Downhill Jam,Call of Duty 3,and Guitar Hero II.Our products cover diverse game categories including action/adventure,action sports,racing,role-playing,simulation,first-person action,music-based gaming,and strategy.Our target customer base ranges from casua

46、l players to game enthusiasts,children to adults,and mass-market consumers to“value”buyers.We currently offer our products primarily in versions that operate on the Sony PlayStation 2(“PS2”),the Sony PlayStation 3(“PS3”),the Nintendo Wii(“Wii”),and the Microsoft Xbox360(“Xbox360”)console systems,the

47、 Nintendo Game Boy Advance(“GBA”),the Nintendo Dual Screen(“NDS”),and the Sony PlayStation Portable(“PSP”)hand-held devices,and the personal computer(“PC”).The installed base for the previous generation of hardware platforms(e.g.,PS2,Xbox)is significant and the fiscal 2006 release of the Xbox360 and

48、 the fiscal 2007 releases of the PS3 and the Wii will further expand the software market.During the third quarter of fiscal 2007,we had a successful and significant presence at the launches of the PS3 and the Wii with three launch titles for the PS3,Call of Duty 3,Marvel:Ultimate Alliance,and Tony H

49、awks Project 8,and five launch titles for the Wii,Call of Duty 3,Marvel:Ultimate Alliance,World Series of Poker:Tournament of Champions,Rapala Tournament Fishing,and Tony Hawks Downhill Jam.Our plan is to continue to build on our signifi-cant launch presence on the PS3,Wii,and Xbox360(“the next-gene

50、ration platforms”)by continuing to expand the number of titles released on the next generation platforms while continuing to market to current-generation platforms as long as economically attractive given their large installed base.Our publishing business involves the development,marketing,and sale

51、of products directly,by license,or through our affiliate label program with certain third-party publishers.In North America,we primarily sell our products on a direct basis to mass-market retailers,consumer electronics stores,discount warehouses,and game specialty stores.We conduct our international

52、 publishing activities through offices in the United Kingdom(“UK”),Germany,France,Italy,Spain,the Netherlands,Australia,Scandinavia,Canada,South Korea,and Japan.Our products are sold internationally on a direct-to-retail basis,through third-party distribution and licensing arrangements,and through o

53、ur wholly owned European distribution subsidiaries.Our distribution business consists of operations located in the UK,the Netherlands,and Germany that provide logistical and sales services to third-party publishers of interactive entertainment software,our own publishing operations,and manu-facturer

54、s of interactive entertainment hardware.Our profitability is directly affected by the mix of revenues from our publishing and distribution businesses.Operating margins realized from our publishing business are typically substantially higher than margins realized from our distribution business.Operat

55、ing margins in our publishing business are affected by our ability to release highly successful or“hit”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 ou

56、r operating margin.Operating margins in our distribution business are affected by the mix of hardware and software sales,with software typically producing higher margins than hardware.Managements Discussion and Analysis of Financial Condition and Results of Operations19AC T I V I S I O N,I N C.2 0 0

57、 7 A N N UA L R E P O R TOur FocusWith respect to future game development,we will continue to focus on our“big propositions,”products that are backed by strong brands and high quality development,for which we will provide significant marketing support.Our fiscal 2007 releases have included well-esta

58、blished brands,which are backed by high-profile intellectual property and/or highly anticipated motion picture releases.For example,we have a long-term relationship with Marvel Entertainment,Inc.through an exclusive licensing agreement for the Spider-Man and X-Men franchises through 2017.This agreem

59、ent grants us the exclusive rights to develop and publish video games based on Marvels comic book and movie franchises Spider-Man and X-Men.Through March 31,2007,games based on the Spider-Man and X-Men franchises have generated approximately$852.7 million in net revenues worldwide.Under this agreeme

60、nt,in the first quarter of fiscal 2007 we released the video game,X-Men:The Official Game,coinciding with the theatrical release of“X-Men:The Last Stand.”In the third quarter of fiscal 2007,we released Marvel:Ultimate Alliance across multiple platforms and Spider-Man:Battle for New York on the NDS a

61、nd GBA.In addition,through our licensing agreement with Spider-Man Merchandising,LP,we developed and published video games based on Columbia Pictures/Marvel Entertainment,Inc.s feature film“Spider-Man 3,”which was released in May 2007.Our agreement with Spider-Man Merchandising,LP grants us exclusiv

62、e worldwide publishing rights to publish entertainment software products based on subsequent Spider-Man movie sequels or new television series through 2017.We also have an exclusive licensing agreement with professional skateboarder Tony Hawk.The agreement grants us exclusive rights to develop and p

63、ublish video games through 2015 using Tony Hawks name and likeness.Through March 31,2007,we have released eight successful titles in the Tony Hawk franchise with cumulative net revenues of$1.2 billion,including the two fiscal 2007 third quarter releases,Tony Hawks Project 8,which was released on the

64、 PSP,Xbox360,PS2,and PS3,and Tony Hawks Downhill Jam which was released on the Wii,NDS,and GBA.According to the NPD Group,which is a provider of consumer and retail market research information for a wide range of industries,for the eighth consecutive year the Tony Hawk franchise had a top 10 best-se

65、lling game in the U.S.for the month of December.We will continue to build on the highly successful Tony Hawk franchise with future releases currently in development for multiple platforms.We continue to develop a number of original intellectual properties internally.For example,in the third quarter

66、of fiscal 2007 we released Call of Duty 3 on the PS2,PS3,Xbox,Xbox360,and the Wii.According to the NPD Group,Call of Duty 3 was the#3 best-selling console game in the U.S.Call of Duty 3 was the sixth release based upon this original intellectual property following two PC exclusive titles,Call of Dut

67、y and Call of Duty:United Offensive,as well as multi-platform releases of Call of Duty:Finest Hour,Call of Duty:Big Red One,and Call of Duty 2.We expect to continue to develop a variety of games on multiple platforms based on this original intellectual property as well as continue to invest in devel

68、oping other original intellectual properties.We have continued our focus on establishing and maintaining relationships with talented and experienced software development and publishing teams.In June 2006,we acquired RedOctane,Inc.(“RedOctane”),the publisher of the popular Guitar Hero franchise.In th

69、e third quarter of fiscal 2007 we released Guitar Hero II on the PS2,which according to the NPD Group was the#1 game in dollars for the U.S.for the month of December and the#2 game overall for the third quarter of fiscal 2007.We have also developed Guitar Hero II for the Xbox 360 and plan on continu

70、ing to build on this franchise by investing in future development of Guitar Hero titles across a variety of platforms.We 20AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Talso have development agreements with other top-level,third-party developers such as id Software,Inc.,Splash Damage,Ltd.,a

71、nd Travellers Tales.We will also continue to evaluate and exploit emerging brands that we believe have potential to become successful game franchises.For example,we have a multi-year,multi-property,publishing agreement with DreamWorks Animation LLC that grants us the exclusive rights to publish vide

72、o games based on DreamWorks Animation SKGs theatrical release“Shrek 2,”which was released in the first quarter of fiscal 2005,“Shark Tale,”which was released in the second quarter of fiscal 2005,“Madagascar,”which was released in the first quarter of fiscal 2006,“Over the Hedge,”which was released i

73、n the first quarter of fiscal 2007,and all of their respective sequels.In addition,our multi-year agreement with DreamWorks Animation LLC also grants us the exclusive video game rights to four upcoming feature films,as well as potential future films in the“Shrek”franchise beyond the“Shrek the Third.

74、”Additionally,we have a strategic alliance with Harrahs Entertainment,Inc.that grants us the exclu-sive,worldwide interactive rights to develop and publish“World Series of Poker”video games based on the popular World Series of Poker Tournament.In the second quarter of fiscal 2006,we released our fir

75、st title under this alliance,World Series of Poker,which became the number one poker title of calendar 2005.Further building on this franchise,in the second quarter of fiscal 2007,we released our second title under this alliance,World Series of Poker:Tournament of Champions.We also continue to build

76、 on our portfolio of licensed intellectual property.In February 2006,we signed an agreement with Hasbro Properties Group granting us the exclusive global rights(exclud-ing Japan)to develop console,hand-held,and PC games based on Hasbros“Transformers”brand.We anticipate releasing the first game concu

77、rrently with the July 2007 movie release of the live action“Transformers”film from DreamWorks Pictures and Paramount Pictures.In April 2006,we signed an agreement with MGM Interactive and EON Productions Ltd.granting us the exclusive rights to develop and publish interactive entertainment games base

78、d on the James Bond license through 2014.In May 2006,we signed a multi-year agreement with Mattel,Inc.which grants us the exclusive worldwide distribution rights to new video games on all platforms based on Mattel,Inc.s Barbie brand.In the third quarter of fiscal 2006,we distributed six Barbie title

79、s:Barbie in the 12 Dancing Princesses,The Barbie Diaries:High School Mystery,Barbie Fashion Show,Barbie Horse Adventures:Mystery Ride,Barbie and the Magic of Pegasus,and Barbie as the Princess and the Pauper.In September 2006,we entered into a distribution agreement with MTV Networks Kids and Family

80、 Groups Nickelodeon,a division of Viacom Inc.,to be the exclusive distributor of three new Nick Jr.PC CD-ROM titles,published by Nickelodeon and based on the top preschool series on commercial television,Dora The Explorer,The Backyardigans,and Go,Diego,Go!We are utilizing these developer relationshi

81、ps,new intellectual property acquisitions,new original intellectual property creations,and our existing library of intellectual property to further focus our game development on product lines that will deliver significant,lasting,and recurring revenues and operating profits.Critical Accounting Polic

82、iesWe have identified the policies below as critical to our business operations and the understanding of our financial results.The impact and any associated risks related to these policies on our business operations is discussed throughout Managements Discussion and Analysis of Financial Condition a

83、nd Results of Operations where such policies affect our reported and expected financial results.For a detailed discussion on the application of these and other accounting policies,see Note 1 to Managements Discussion and Analysis of Financial Condition and Results of Operations21AC T I V I S I O N,I

84、 N C.2 0 0 7 A N N UA L R E P O R Tthe Notes to Consolidated Financial Statements.The preparation of financial statements in confor-mity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at t

85、he date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.Revenue Recognition.We recognize revenue from the sale of our products upon the transfer of title and risk of loss to our customers.Certa

86、in products are sold to customers with a street date(i.e.,a date on which products are made widely available by retailers).For these products we recognize revenue no earlier than the street date.Revenue from product sales is recognized after deducting the estimated allowance for returns and price pr

87、otection.With respect to license agreements that provide customers the right to make multiple copies in exchange for guaranteed amounts,revenue is recognized upon delivery of such copies.Per copy royalties on sales that exceed the guarantee are recognized as earned.With respect to online transaction

88、s,such as electronic downloads of titles or product add-ons,revenue is recognized when the fee is paid by the online customer to purchase online content and we are notified by the online retailer that the product has been downloaded.In addition,in order to recognize revenue for both product sales an

89、d licensing transactions,persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.Revenue recognition also determines the timing of certain expenses,including“cost of sales intellectual property licenses”and“cost of salessoftware royalties and amorti

90、zation.”Sales incentives or other consideration given by us to our customers are accounted for in accordance with the Financial Accounting Standards Boards Emerging Issues Task Force(“EITF”)Issue 01-9,“Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendors P

91、roducts).”In accordance with EITF Issue 01-9,sales incentives and other consideration that are considered adjustments of the selling price of our products,such as rebates and product placement fees,are reflected as reductions of revenue.Sales incentives and other consideration that represent costs i

92、ncurred by us for assets or services received,such as the appearance of our products in a customers national circular ad,are reflected as sales and marketing expenses.Allowances for Returns,Price Protection,Doubtful Accounts,and Inventory Obsolescence.In determining the appropriate unit shipments to

93、 our customers,we benchmark our titles using historical and industry data.We closely monitor and analyze the historical performance of our various titles,the performance of products released by other publishers and the anticipated timing of other releases in order to assess future demands of current

94、 and upcoming titles.Initial volumes shipped upon title launch and subsequent reorders are evaluated to ensure that quantities are sufficient to meet the demands from the retail markets but at the same time,are controlled to prevent excess inventory in the channel.We may permit product returns from,

95、or grant price protection to,our customers under certain conditions.In general,price protection refers to the circumstances when we elect to decrease the wholesale price of a product by a certain amount and,when granted and applicable,allows customers a credit against amounts owed by such customers

96、to us with respect to open and/or future invoices.The conditions our customers must meet to be granted the right to return products or price protection are,among other things,compliance with applicable payment terms,and consistent delivery to us of inventory and sell-through reports.We may also cons

97、ider 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 amount of future returns and price protection for current

98、period product revenue utilizing historical experience and information regarding inventory levels and the 22AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tdemand and acceptance of our products by the end consumer.The following factors are used to estimate the amount of future returns and pri

99、ce protection for a particular title:historical per-formance of titles in similar genres,historical performance of the hardware platform,historical performance of the brand,console hardware life cycle,Activision sales force and retail customer feedback,industry pricing,weeks of on-hand retail channe

100、l inventory,absolute quantity of on-hand retail channel inventory,our warehouse on-hand inventory levels,the titles recent sell-through his-tory(if available),marketing trade programs,and competing titles.The relative importance of these factors varies among titles depending upon,among other items,g

101、enre,platform,seasonality,and sales strategy.Significant management judgments and estimates must be made and used in connection with establishing the allowance for returns and price protection in any accounting period.Based upon historical experience we believe our estimates are reasonable.However,a

102、ctual returns and price protection could vary materially from our allowance estimates due to a number of reasons including,among others,a lack of consumer acceptance of a title,the release in the same period of a similarly themed title by a competitor,or technological obsolescence due to the emergen

103、ce of new hardware platforms.Material differences may result in the amount and timing of our revenue for any period if factors or market conditions change or if management makes different judgments or utilizes different estimates in determining the allowances for returns and price protection.For exa

104、mple,a 1%change in our March 31,2007 allowance for returns and price protection would impact net revenues by$0.9 million.Similarly,management must make estimates of the uncollectibility of our accounts receivable.In estimating the allowance for doubtful accounts,we analyze the age of current outstan

105、ding account balances,historical bad debts,customer concentrations,customer creditworthiness,current eco-nomic trends,and changes in our customers payment terms and their economic condition,as well as whether we can obtain sufficient credit insurance.Any significant changes in any of these criteria

106、would affect managements estimates in establishing our allowance for doubtful accounts.We value inventory at the lower of cost or market.We regularly review inventory quantities on hand and in the retail channel and record a provision for excess or obsolete inventory based on the future expected dem

107、and for our products.Significant changes in demand for our products would impact managements estimates in establishing our inventory provision.Software Development Costs.Software development costs include payments made to independent software developers under development agreements,as well as direct

108、 costs incurred for internally developed products.We account for software development costs in accordance with Statement of Financial Accounting Standard(“SFAS”)No.86,“Accounting for the Costs of Computer Software to Be Sold,Leased,or Otherwise Marketed.”Software development costs are capitalized on

109、ce the technological feasibility of a product is established and such costs are determined to be recoverable.Technological feasibility of a product encompasses both technical design documentation and game design docu-mentation.For products where proven technology exists,this may occur early in the d

110、evelopment cycle.Technological feasibility is evaluated on a product-by-product basis.Prior to a products release,we expense,as part of“cost of salessoftware royalties and amortization,”capitalized costs when we believe such amounts are not recoverable.Capitalized costs for those products that are c

111、ancelled or abandoned are charged to product development expense in the period of Managements Discussion and Analysis of Financial Condition and Results of Operations23AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tcancellation.Amounts related to software development which are not capitalize

112、d are charged immediately to product development expense.We evaluate the future recoverability of capitalized amounts on a quarterly basis.The recoverability of capitalized software development costs is evaluated based on the expected performance of the specific products for which the costs relate.C

113、riteria used to evaluate expected product performance include:historical performance of com-parable products using comparable technology;orders for the product prior to its release;and estimated performance of a sequel product based on the performance of the product on which the sequel is based.Comm

114、encing upon product release,capitalized software development costs are amortized to“cost of salessoftware royalties and amortization”based on the ratio of current revenues to total projected revenues,generally resulting in an amortization period of six months or less.For products that have been rele

115、ased in prior periods,we evaluate the future recoverability of capitalized amounts on a quarterly basis.The primary evaluation criterion is actual title performance.Significant management judgments and estimates are utilized in the assessment of when tech-nological feasibility is established,as well

116、 as in the ongoing assessment of the recoverability of capitalized costs.In evaluating the recoverability of capitalized costs,the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred.If revised forecasted or actual product sal

117、es are less than and/or revised forecasted or actual costs are greater than the original forecasted amounts utilized in the initial recoverability analysis,the net realizable value may be lower than originally estimated in any given quarter,which could result in an impairment charge.Intellectual Pro

118、perty Licenses.Intellectual property license costs represent license fees paid to intellec-tual property rights holders for use of their trademarks,copyrights,software,technology,or other intellectual property or proprietary rights in the development of our products.Depending upon the agreement with

119、 the rights holder,we may obtain the rights to use acquired intellectual property in multiple products over multiple years,or alternatively,for a single product.We evaluate the future recoverability of capitalized intellectual property licenses on a quarterly basis.The recoverability of capitalized

120、intellectual property license costs is evaluated based on the expected performance of the specific products in which the licensed trademark or copyright is to be used.As many of our intellectual property licenses extend for multiple products over multiple years,we also assess the recoverability of c

121、apitalized intellectual property license costs based on certain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property,whether there are any future planned theatrical releases or television series based on the intellectual property

122、,and the rights holders continued promotion and exploitation of the intellectual property.Prior to the related products release,we expense,as part of“cost of salesintellectual property licenses,”capitalized intellectual property costs when we believe such amounts are not recoverable.Capitalized inte

123、llectual property costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation.Criteria used to evaluate expected product performance include:historical performance of com-parable products using comparable technology;orders for the

124、 product prior to its release;and estimated performance of a sequel product based on the performance of the product on which the sequel is based.24AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TCommencing upon the related products release,capitalized intellectual property license costs are a

125、mortized to“cost of salesintellectual property licenses”based on the ratio of current revenues for the specific product to total projected revenues for all products in which the licensed property will be utilized.As intellectual property license contracts may extend for multiple years,the amorti-zat

126、ion of capitalized intellectual property license costs relating to such contracts may extend beyond one year.For intellectual property included in products that have been released and unreleased products,we evaluate the future recoverability of capitalized amounts on a quarterly basis.The primary ev

127、aluation criterion is actual title performance.Significant management judgments and estimates are utilized in the assessment of the recover-ability of capitalized costs.In evaluating the recoverability of capitalized costs,the assessment of expected product performance utilizes forecasted sales amou

128、nts and estimates of additional costs to be incurred.If revised forecasted or actual product sales are less than,and/or revised forecasted or actual costs are greater than,the original forecasted amounts utilized in the initial recoverability analysis,the net realizable value may be lower than origi

129、nally estimated in any given quarter,which could result in an impairment charge.Additionally,as noted above,as many of our intellectual property licenses extend for multiple products over multiple years,we also assess the recoverability of capitalized intellectual property license costs based on cer

130、tain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property,whether there are any future planned theatrical releases or television series based on the intellectual property and the rights holders continued promotion and exploitatio

131、n of the intellectual property.Material differences may result in the amount and timing of charges for any period if management makes different judgments or utilizes different estimates in evaluating these qualitative factors.Stock-Based Compensation.On April 1,2006,we adopted Statement of Financial

132、 Accounting Standards No.123(revised 2004),“Share-Based Payment”(“SFAS 123R”),which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors,including employee stock options and employee stock purchases related to the Employe

133、e Stock Purchase Plan(“employee stock purchases”),based on estimated fair values.SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion No.25,“Accounting for Stock Issued to Employees”(“APB 25”).In March 2005,the SEC issued Staff Accounting Bulletin No.107(“SAB 107”)r

134、elating to SFAS 123R.We have applied the provisions of SAB 107 in our adop-tion of SFAS 123R.We adopted SFAS 123R using the modified prospective transition method,which requires the appli-cation of the accounting standard as of April 1,2006,the first day of our fiscal year 2007.The Companys Consolid

135、ated Financial Statements as of and for the fiscal year ended March 31,2007 reflect the impact of SFAS 123R.In accordance with the modified prospective transition method,the Companys Consolidated Financial Statements for prior periods have not been restated to reflect,and do not include,the impact o

136、f SFAS 123R.See Note 14 for additional information.In November 2005,the Financial Accounting Standards Board(“FASB”)issued FASB Staff Position(“FSP”)No.FAS 123(R)-3,“Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards”(“FSP 123R-3”).We have elected not to adopt th

137、e alternative transition method Managements Discussion and Analysis of Financial Condition and Results of Operations25AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tprovided in the FSP 123R-3 for calculating the tax effects of stock-based compensation pursuant to SFAS 123R.We followed paragr

138、aph 81 of SFAS No.123R to calculate the initial pool of excess tax benefits and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123R.SFAS 123R requi

139、res companies to estimate the fair value of share-based payment awards on the measurement date using an option-pricing model.The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statement of Operatio

140、ns.Stock-based compensation expense recognized under SFAS 123R for the fiscal year ended March 31,2007 was$25.5 million.Prior to the adoption of SFAS 123R,the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed und

141、er Statement of Financial Accounting Standards No.123,“Accounting for Stock-Based Compensation”(“SFAS 123”).Under APB 25,compensation expense was recorded for the issuance of stock options and other stock-based compensation based on the intrinsic value of the stock options and other stock-based comp

142、ensation on the date of grant or measurement date.Under the intrinsic value method,compensation expense was recorded on the measurement date only if the current market price of the underlying stock exceeded the stock option or other stock-based awards exercise price.For the fiscal years ended March

143、31,2006 and 2005,we recognized$3.1 million and$3.4 million,respectively,in stock-based compensation expense related to employee stock options and restricted stock,under APB 25.See Note 14 to the Consolidated Financial Statements for additional information.Stock-based compensation expense recognized

144、during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.Stock-based compensation expense recognized in our Consolidated Statements of Operations for the fiscal year ended March 31,2007 includes compensation expense fo

145、r share-based payment awards granted prior to,but not yet vested as of,April 1,2006 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123,and compensation expense for the share-based payment awards granted subsequent to April 1,2006 based on the grant d

146、ate fair value estimated in accordance with the provisions of SFAS 123R.As stock-based compensation expense recognized in the Consolidated Statements of Operations for the fiscal year ended March 31,2007 is based on awards ultimately expected to vest,it has been reduced for estimated forfei-tures.SF

147、AS 123R requires forfeitures to be estimated at the time of grant and revised,if necessary,in subsequent periods if actual forfeitures differ from those estimates.As of April 1,2005,we changed our method of valuation for share-based awards to a binomial-lattice model from the Black-Scholes option-pr

148、icing model(“Black-Scholes model”)which was used for options granted prior to April 1,2005 for FAS 123 fair value disclosures.For additional information,see Note 14 to the Consolidated Financial Statements.Our determination of fair value of share-based payment awards on the date of grant using an op

149、tion-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.These variables include,but are not limited to our expected stock price volatility over the term of the awards,and actual and projected employee stock option exercis

150、e behaviors.26AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TSelected Consolidated Statements of Operations DataThe following table sets forth certain Consolidated Statements of Operations data for the periods indicated as a percentage of consolidated net revenues and also breaks down net re

151、venues by territory,business segment,and platform,as well as operating income by business segment (in thousands):Fiscal year ended March 31,200720062005Net revenues$1,513,012100%$1,468,000100%$1,405,857100%Costs and expenses:Cost of salesproduct costs799,58752734,87450658,94947 Cost of salessoftware

152、 royalties and amortization132,3539147,82210123,8009 Cost of salesintellectual property licenses46,125357,666462,1975 Product development133,0739132,651987,7766 Sales and marketing196,21313283,39519230,29916 General and administrative132,514996,366763,2284 Total costs and expenses1,439,865951,452,77

153、4991,226,24987Income from operations73,147515,2261179,60813Investment income,net36,678230,630213,0921 Income before income tax provision109,825745,8563192,70014Income tax provision24,03815,60557,6434Net income$85,7876%$40,2513%$135,05710%Net Revenues by Territory:North America$753,37650%$710,04048%$

154、696,32550%Europe718,97347717,49449675,07448 Other40,663340,466334,4582 Total net revenues$1,513,012100%$1,468,000100%$1,405,857100%Net Revenues by Segment/Platform Mix:Publishing:Console$886,79559%$812,34555%$713,94751%Hand-held153,35710158,86111138,69510 PC78,8865183,45713220,08715 Total publishing

155、 net revenues1,119,038741,154,663791,072,72976 Distribution:Console238,66216196,41313256,45218 Hand-held122,293876,973523,2822 PC33,019239,951353,3944 Total distribution net revenues393,97426313,33721333,12824 Total net revenues$1,513,012100%$1,468,000100%$1,405,857100%Operating Income(Loss)by Segme

156、nt:Publishing$64,0764%$(6,715)%$155,86311%Distribution9,071121,941123,7452 Total operating income$73,1475%$15,2261%$179,60813%Managements Discussion and Analysis of Financial Condition and Results of Operations27AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TResults of OperationsFiscal Years

157、 Ended March 31,2007 and 2006Net RevenuesWe primarily derive revenue from sales of packaged interactive software games designed for play on video game consoles(such as the PS2,PS3,Xbox360,and Wii),PCs,and hand-held game devices(such as the GBA,NDS,and PSP).We also derive revenue from our distributio

158、n business in Europe that provides logistical and sales services to third-party publishers of interactive entertain-ment software,our own publishing operations and third-party manufacturers of interactive enter-tainment hardware.The following table details our consolidated net revenues by business s

159、egment and our publishing net revenues by territory for the years ended March 31,2007 and 2006(in thousands):For the fiscal years ended March 31,20072006Increase/(Decrease)Change PercentPublishing net revenues North America$753,376$710,040$43,3366%Europe324,999404,157(79,158)(20)%Other40,66340,46619

160、70%Total international365,662444,623(78,961)(18)%Total publishing net revenues1,119,0381,154,663(35,625)(3)%Distribution net revenues393,974313,33780,63726%Consolidated net revenues$1,513,012$1,468,000$45,0123%Consolidated net revenues increased 3%from$1,468.0 million for the fiscal year ended March

161、 31,2006 to$1,513.0 million for the fiscal year ended March 31,2007.This increase in consolidated net revenues was driven by the following:Strong performance of our North American publishing unit led to a year over year increase in net revenues of$43.3 million or 6%.In the third quarter of fiscal 20

162、07,we released a focused but high quality slate of titles,which resulted in strong consumer demand for our new releases in the third quarter,continuing reorders in the fourth quarter and strong price realization.In fiscal 2007,our major releases included Call of Duty 3,Guitar Hero II,Marvel:Ultimate

163、 Alliance,Tony Hawks Project 8,Over the Hedge,X-Men:Official Game,Shrek Smash n Crash Racing,Tony Hawks Downhill Jam,World Series of Poker:Tournament of Champions,Pimp My Ride,and titles for our Cabelas,History Channel and new Barbie franchises.In fiscal 2006,we released the following major releases

164、:Doom 3 for the Xbox,Madagascar,Fantastic Four,Ultimate Spider-Man,X-Men Legends II,THAW,Call of Duty 2,Call of Duty 2:Big Red One,GUN,True Crime:New York City,QUAKE 4,Shrek SuperSlam,The Movies,Cabelas Dangerous Hunts 2,and World Series of Poker.An increase in net revenues from our distribution bus

165、iness due to a stronger release schedule for certain third-party publishers,higher revenues from hardware sales related to the launch of PS3 and Nintendo Wii,as well as ongoing sales of NDS and PSP,and the addition of a signifi-cant new customer in the second quarter of fiscal 2007.Impact of the yea

166、r over year strengthening of the Great Britain Pound(“GBP”),Euro(“EUR”)and Australian Dollar(“AUD”)in relation to the United States Dollar(“USD”).Foreign exchange rates increased reported net revenues by approximately$51.6 million or 4%for the year ended 28AC T I V I S I O N,I N C.2 0 0 7 A N N UA L

167、 R E P O R TMarch 31,2007.Excluding the impact of changing foreign currency rates,our consolidated net revenues remained about in line with prior year.Partially offset by:A decrease in publishing net revenues from our European publishing operations primarily due to a more focused slate in fiscal 200

168、7,and a decrease in our affiliate business as only one title,LucasArts LEGO Star Wars II:The Original Trilogy was released in 2007,whereas two strong affiliate titles,LucasArts Star Wars:Episode III Revenge of the Sith and LucasArts Star Wars Battlefront II,were released in fiscal 2006.In fiscal 200

169、8,we plan to leverage our traditional core franchises,such as Spider-Man,Shrek,Call of Duty and Tony Hawk,and extend our market leadership in the music-based gaming genre with Guitar Hero.In addition,we expect strong market growth as the next generation consoles gain critical mass.As a result,we ant

170、icipate revenues will increase in fiscal 2008 in comparison to the record net revenues achieved in fiscal 2007.North America Publishing Net Revenues(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$753,37650%$710,04048

171、%$43,3366%North America publishing net revenues increased 6%from$710.0 million for the year ended March 31,2006 to$753.4 million for the year ended March 31,2007.Although the company released fewer titles in fiscal 2007,the high quality slate drove strong consumer demand and enabled the company to m

172、aintain pricing and record lower provisions for returns and price protection than in fiscal 2006.Net revenues were impacted by strong performances from Guitar Hero II,Call of Duty 3,Marvel:Ultimate Alliance and Tony Hawks Project 8.North America publishing net revenues increased as a percentage of c

173、onsolidated net revenues from 48%for the year ended March 31,2006 to 50%for the year ended March 31,2007.The increase in the percentage of consolidated net revenues is due to a combination of strong performance in North America and a decrease in our international publishing net revenues due to a sma

174、ller slate and a decrease in the number of affiliate titles in Europe released in fiscal 2007.International Publishing Net Revenues(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$365,66224%$444,62330%$(78,961)(18)%In

175、ternational publishing net revenues decreased by 18%from$444.6 million for the year ended March 31,2006 to$365.7 million for the year ended March 31,2007.Additionally,international publishing net revenues as a percentage of consolidated net revenues decreased from 30%for the year ended March 31,2006

176、 to 24%for the year ended March 31,2007.The decrease in international publishing net revenues was primarily due to the decrease in the number of titles released inter-nationally in fiscal 2007.Additionally,in Europe,our net revenues were impacted by a decrease in revenues from our affiliate titles.F

177、iscal 2006 included the successful LucasArts titles,Star Wars:Episode III Revenge of the Sith and Star Wars Battlefront II,while fiscal 2007 included one major affiliate Managements Discussion and Analysis of Financial Condition and Results of Operations29AC T I V I S I O N,I N C.2 0 0 7 A N N UA L

178、R E P O R Tlabel release,LucasArts Lego Star Wars II:The Original Trilogy.The decrease in international publishing net revenues was partially offset by a year over year strengthening of the EUR and the GBP in relation to the USD,which increased reported net revenues for fiscal 2007 by approximately$

179、24.2 million.Excluding the impact of changing foreign currency rates,our international publishing net revenues decreased 23%year over year.Publishing Net Revenues by PlatformPublishing net revenues decreased 3%from$1,154.7 million for the year ended March 31,2006 to$1,119.0 million for the year ende

180、d March 31,2007.The following table details our publishing net rev-enues by platform and as a percentage of total publishing net revenues for the years ended March 31,2007 and 2006(in thousands):Year Ended March 31,2007%of Publishing Net RevsYear Ended March 31,2006%of Publishing Net RevsIncrease/(D

181、ecrease)Percent ChangePublishing Net Revenues PC$78,8867%$183,45716%$(104,571)(57)%Console Sony PlayStation 353,8425%53,842 n/a Sony PlayStation 2500,92745%422,23936%78,68819%Microsoft Xbox360200,39418%102,8099%97,58595%Microsoft Xbox54,2325%205,86418%(151,632)(74)%Nintendo Wii54,6365%54,636 n/a Nin

182、tendo GameCube22,7612%80,9647%(58,203)(72)%Other3%469%(466)(99)%Total console886,79580%812,34570%74,4509%Hand-held Game Boy Advance48,4784%79,7387%(31,260)(39)%PlayStation Portable49,9314%52,0165%(2,085)(4)%Nintendo Dual Screen54,9485%27,1072%27,841103%Total hand-held153,35713%158,86114%(5,504)(3)%T

183、otal publishing net revenues$1,119,038100%$1,154,663100%$(35,625)(3)%Personal Computer Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$78,8867%$183,45716%$(104,571)(57)%Net revenues from sales of titles for t

184、he PC decreased 57%from$183.5 million and 16%of publishing net revenues for the year ended March 31,2006 to$78.9 million and 7%of publishing net revenues for the year ended March 31,2007.The decreases were primarily due to the strong performance of our fiscal 2006 PC releases,as well as a decrease i

185、n the number of titles released for the PC during 30AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tfiscal 2007 as compared to fiscal 2006.In fiscal 2006,we released the highly successful PC title,Call of Duty 2,which was ranked by NPD Funworld as the#2 best-selling PC title in the United Sta

186、tes for the third quarter of fiscal 2006,as well as QUAKE 4,The Movies,and Doom 3:Resurrection of Evil.This compares to fiscal 2007 where net revenues were primarily derived from catalog sales of Call of Duty 2,QUAKE 4 and The Movies,as well as revenues from our European affiliate title LucasArts LE

187、GO Star Wars II:The Original Trilogy.We expect fiscal 2008 PC publishing net revenues to increase due to the release of Enemy Territory:QUAKE Wars,and Call of Duty 4,as well as PC releases of large scale movie titles(Spider-Man 3,Shrek the Third,and Transformers).QUAKE and Call of Duty had no PC rel

188、eases in the fiscal 2007 base period and should attract a significant audience on the PC platform in fiscal 2008.Sony PlayStation 3 Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$53,8425%$%$53,842n/aThe PS3

189、was released in November 2006 in North America and in March 2007 in Europe.Consistent with our goal of having a significant presence at the launch of each new platform,we released three titles concurrently with the hardware releases:Call of Duty 3,Marvel:Ultimate Alliance,and Tony Hawks Project 8.Al

190、l of these titles were released at premium retail pricing(i.e.,$59.99 in the United States).We expect net revenues from sales of titles for the PS3 to increase as the installed base of hard-ware grows.Sony PlayStation 2 Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%

191、of Publishing Net RevenuesIncrease/(Decrease)Percent Change$500,92745%$422,23936%$78,68819%Net revenues from sales of titles for the PS2 increased 19%from$422.2 million for the year ended March 31,2006 to$500.9 million for the year ended March 31,2007.Although we released a fewer number of major tit

192、les for the PS2 in fiscal 2007,the strong performance of these releases,particu-larly the PS2 exclusive title Guitar Hero II,resulted in higher net revenues in absolute dollars and as a percentage of publishing net revenues.The key titles impacting the fiscal 2007 results were Call of Duty 3,the#3 t

193、itle overall for the third quarter of fiscal 2007 according to NPD Funworld,and Guitar Hero II(game and accessories),the#1 best-selling title on the PS2 platform for the third quarter of fiscal 2007 per NPD Funworld.In addition,we released Marvel:Ultimate Alliance,Over the Hedge,Tony Hawks Project 8

194、,X-Men:The Official Game,Shrek Smash n Crash Racing and our European affiliate title,LucasArts LEGO Star Wars II:The Original Trilogy.This compares to fiscal 2006 where we released the PS2 titles Call of Duty 2:Big Red One,Tony Hawks American Wasteland,Shrek SuperSlam,GUN,True Crime:New York City,Ma

195、dagascar,Fantastic Four,X-Men Legends II,Ultimate Spider-Man and two affiliate titles in Europe,LucasArts Star Wars:Episode III Revenge of the Sith and Star Wars Battlefront II.Managements Discussion and Analysis of Financial Condition and Results of Operations31AC T I V I S I O N,I N C.2 0 0 7 A N

196、N UA L R E P O R TAlthough we expect net revenues from sales of titles for the PS2 to decline over time as consumers transition to next generation platforms,we continue to expect significant net revenues for PS2 for fiscal 2008 as we plan to develop and release many of our key titles on this platfor

197、m.Microsoft Xbox360 Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$200,39418%$102,8099%$97,58595%Net revenues from sales of titles for the Xbox360 increased 95%from$102.8 million for the year ended March 31,

198、2006 to$200.4 million for the year ended March 31,2007.As a percentage of publishing net revenues,net revenues from sales of titles for the Xbox360 doubled from 9%for the year ended March 31,2006 to 18%for the year ended March 31,2007.These increases are due to the growing installed base for the Xbo

199、x360,as well as an increase in the number of titles released.In fiscal 2007,we released ten titles for this platform,and according to NPD Funworld,three of our titles,Call of Duty 3,Tony Hawks Project 8 and Marvel:Ultimate Alliance ranked among the top ten Xbox 360 titles during the third quarter of

200、 fiscal 2007.In fiscal 2006,we released four titles concurrently with the November 2005 launch of the Xbox360 hardware,Call of Duty 2,THAW,QUAKE 4,and GUN,and we experienced strong sales for these four titles although limited by hardware availability.We expect net revenues from sales of titles for t

201、he XBox360 to significantly increase in the upcoming fiscal year due to the growing installed base and our strong slate of Xbox360 titles.Microsoft Xbox Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$54,2325

202、%$205,86418%$(151,632)(74)%Net revenues from sales of titles for the Xbox decreased 74%from$205.9 million for the year ended March 31,2006 to$54.2 million for the year ended March 31,2007.As a percentage of publishing net revenues,net revenues from sales of titles for the Xbox decreased from 18%for

203、the year ended March 31,2006 to 5%for the year ended March 31,2007.These decreases were primarily attributable to a slowdown in sales for the Xbox as customers upgrade to the Xbox360,and the reduction in the number of titles released by us for this platform.In fiscal 2007 we released five major titl

204、es for Xbox:Call of Duty 3,Tony Hawks Project 8,Marvel:Ultimate Alliance,Over the Hedge and X-Men:The Official Game.In fiscal 2006,we released our largest slate including Call of Duty:Big Red One,Tony Hawks American Wasteland,GUN,Ultimate Spider-Man,X-Men Legends II,True Crime:New York City,Shrek:Su

205、perSlam,Madagascar,Fantastic Four and the Xbox exclusive,Doom 3.We expect our fiscal 2008 net revenues from sales of titles for the Xbox to decrease as consumers transition to next generation platforms and as we stop developing new titles for this platform.32AC T I V I S I O N,I N C.2 0 0 7 A N N UA

206、 L R E P O R TNintendo Wii Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$54,6365%$%$54,636n/aThe Nintendo Wii was released in November 2006.Consistent with our goal of having a significant presence at the l

207、aunch of each next generation platform,we released five titles concurrently with the release of Wii:Call of Duty 3,Marvel:Ultimate Alliance,World Series of Poker:Tournament of Champions,Rapala Tournament Fishing,and Tony Hawks Downhill Jam.With the strong consumer demand for the platform,our five re

208、leases performed well,three of which were top ten Wii titles in the third quarter of fiscal 2007,according to NPD Funworld:Call of Duty 3,Marvel Ultimate Alliance and Tony Hawks Downhill Jam.We expect net revenues from sales of titles for the Wii to significantly increase with the growth of the inst

209、alled base and an increase in the number of titles on our slate for fiscal 2008.Due to its mass market appeal,we believe that the Wii will provide a significant opportunity for us in the upcoming fiscal years.Nintendo GameCube Net Revenues(in thousands)March 31,2007%of Publishing Net RevenuesMarch 3

210、1,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$22,7612%$80,9647%$(58,203)(72)%Net revenues from sales of titles for the Nintendo GameCube decreased 72%from$81.0 million for the year ended March 31,2006 to$22.8 million for the year ended March 31,2007.The decrease in absolute doll

211、ars and as a percentage of publishing net revenues reflects a decrease in the number of new releases in fiscal 2007 compared to fiscal 2006 and a significant slowdown in sales on the GameCube platform as customers transition to the next generation platforms.In fiscal 2006,we released nine major titl

212、es:Madagascar,Tony Hawks American Wasteland,Ultimate Spider-Man,Fantastic Four,Call of Duty:Big Red One,True Crime:New York City,GUN,Shrek SuperSlam and X-Men Legends II.This compares to fiscal 2007 when we released four titles:Over the Hedge,X-Men:The Official Game,Shrek Smash n Crash Racing,and ou

213、r European affiliate title,LucasArts LEGO Star Wars II:The Original Trilogy.We expect net revenues for the GameCube to significantly decrease in fiscal 2008.Net revenues will be generated from catalog sales only,as we will no longer develop titles for this platform.Hand-held(in thousands)March 31,20

214、07%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$153,35713%$158,86114%$(5,504)(3)%Net revenues from sales of titles for the hand-held platforms decreased 3%from$158.9 million for the year ended March 31,2006 to$153.4 million for the year ended Ma

215、rch 31,2007.Hand-held net revenues as a percentage of publishing net revenues decreased slightly from 14%to 13%.Within the hand-held platforms,net revenues for the GBA platform decreased 39%,from$79.7 million for the prior fiscal year,to$48.5 million for fiscal 2007,PSP decreased by 4%,from$52.0 mil

216、lion to$49.9 million,and net revenues for the NDS doubled from$27.1 million for fiscal 2006 to$54.9 million for Managements Discussion and Analysis of Financial Condition and Results of Operations33AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tthe current year.The decrease in net revenues f

217、or GBA is primarily related to slower GBA sales due to wider acceptance of the NDS platform.The net revenue increase for NDS reflects the strong performance of our key fiscal 2007 titles which include Over the Hedge,Tony Hawks Downhill Jam,X-Men:The Official Game,Spider-Man:Battle for New York and L

218、ucasArts LEGO Star Wars II:The Original Trilogy in Europe,as the platform continued to gain consumer acceptance and market share.PSP net revenues for fiscal 2007 were slightly lower than the previous year.In fiscal 2006,we released a stronger PSP slate and our titles performed well with the consumer

219、 excitement for the March 2005 North America platform launch,and the September 2005 European platform launch.The 2006 slate included Tony Hawks Underground 2,Spider-Man 2,X-Men Legends II,World Series of Poker,and two affiliate titles in Europe.Our key releases in fiscal 2007 were Marvel:Ultimate Al

220、liance,Tony Hawks Project 8,Call of Duty:Roads to Victory,and one European affiliate title,LucasArts LEGO Star Wars II:The Original Trilogy.With the installed base of the NDS and PSP continuing to increase,we expect that fiscal 2008 hand-held net revenues will continue to increase year over year.Ove

221、rallThe platform mix of our future publishing net revenues will likely be impacted by a number of factors,including the ability of hardware manufacturers to continue to increase their installed hard-ware base for the next-generation platforms,as well as the performance of key product releases from o

222、ur product release schedule.We expect that net revenues from console titles will continue to represent the largest component of our publishing net revenues with Xbox 360 having the largest percentage of that business in fiscal 2008 due to its large installed hardware base and our strong slate of tit

223、les.We expect significant growth in net revenues from PS3 and Wii next-generation console systems and a decrease in the percentage of PS2 business in fiscal 2008.With the installed base of the NDS and PSP platforms continuing to increase,we also expect to see a continued increase in our hand-held bu

224、siness in line with the growth in the installed base.Our net revenues from PC titles will be primarily driven by our product release schedule.A significant portion of our revenues and profits are derived from a relatively small number of popu-lar titles and brands each year and revenues and profits

225、are significantly affected by our ability to release highly successful“hit”titles.For example,for the year ended March 31,2007,29%of our consolidated net revenues and 39%of worldwide publishing net revenues were derived from net revenues from our Call of Duty 3,Guitar Hero II,and Marvel:Ultimate All

226、iance 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 the

227、se select titles.We expect that a limited number of titles and brands will continue to produce a disproportionately large amount of our net revenues and profits.Three key factors that could affect future publishing and distribution net revenue performance are console hardware pricing,software pricin

228、g,and transitions in console platforms.As console hard-ware moves through its life cycle,hardware manufacturers typically enact price reductions.Reductions in the price of console hardware typically result in an increase in the installed base of hardware owned by consumers.Historically,we have seen

229、that lower console hardware prices put downward pressure on software pricing.However,we expect console software launch pricing for the Xbox360 and PS3 to hold at current levels as a result of the strong consumer acceptance of these price points that has occurred since the launch of the next generati

230、on platforms and the greater product capability and value of next generation titles.We continue to expect software pricing on 34AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TPS2 to hold at$39.99 with continued momentum on this platform.We will not be launching any new NGC or Xbox title in f

231、iscal year 2008.Distribution Net Revenues(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$393,97426%$313,33721%$80,63726%Distribution net revenues for the year ended March 31,2007 increased 26%from the prior fiscal ye

232、ar,from$313.3 million to$394.0 million.Foreign exchange rates increased reported distribution net revenues by approximately$27.3 million for the year ended March 31,2007.Excluding the impact of the changing foreign currency rates,our distribution net revenues increased$53.3 million or 17%year over y

233、ear.This year over year increase was primarily due to the strong releases for certain third-party publishers,increased hardware sales primarily related to the launch of two new platforms in fiscal 2007,the PS3 and the Nintendo Wii,as well as ongoing sales of NDS and PSP hardware,and the addition of

234、a new customer in the second quarter of fiscal 2007.The mix of distribution net revenues between hardware and software sales varied year over year with approximately 17%of distribution net revenues from hardware sales in the year ended March 31,2007 as compared to 20%in the prior fiscal year.Fiscal

235、2007 results included the hardware releases of the Nintendo Wii in November 2006 and the PS3 in late March 2007.Fiscal 2006 included the release of the PSP in Europe in the second quarter and the Xbox360 in November 2005.The mix of future distribution net revenues will be driven by a number of facto

236、rs including the occurrence of further hardware price reductions instituted by hardware manufacturers,and our ability to establish and maintain distribution agreements with hardware manufacturers,third-party software publishers and retail customers.We expect our fiscal 2008 distribution net revenues

237、 to decrease in absolute dollars and as a percent-age of consolidated net revenues when compared with fiscal 2007 primarily due to the loss of a customer at the end of fiscal 2007 and strong growth of our publishing business.Costs and ExpensesCost of SalesProduct Costs(in thousands)March 31,2007%of

238、Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$799,58752%$734,87450%$64,7139%Cost of salesproduct costs represented 52%and 50%of consolidated net revenues for the years ended March 31,2007 and 2006,respectively.In absolute dollars,cost of salespr

239、oduct costs increased 9%from$734.9 million for the year ended March 31,2006 to$799.6 million for the year Managements Discussion and Analysis of Financial Condition and Results of Operations35AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tended March 31,2007.The primary factors affecting the

240、 increase in cost of salesproduct costs in absolute dollars and as a percentage of consolidated net revenues were:An increase in consolidated net revenues of 3%from$1,468.0 million for the year ended March 31,2006 to$1,513.0 million for the year ended March 31,2007.A higher percentage of our busines

241、s relating to distribution which carries higher product costs than our publishing business.Higher net revenues from products for console platforms in absolute dollars and as a percent-age of publishing net revenues from$812.3 million and 70%of publishing net revenues in fiscal 2006 to$886.8 million

242、and 80%of publishing net revenues in fiscal 2007.Console products have higher costs of salesproduct costs associated with them than PC products,due to the royalty payments to hardware manufacturers.Partially offset by:Non-recurring write-downs of inventory costs recorded in fiscal 2006 in the amount

243、 of$14.5 million due to the high level of inventory for certain titles due to weaker market conditions and a slow down in re-orders caused by the console transition.We expect cost of salesproduct costs as a percentage of net revenues to decrease in fiscal 2008 as compared to fiscal 2007 primarily du

244、e to a larger proportion of our business being derived from the publishing segment in fiscal 2008.Cost of SalesSoftware Royalties and Amortization(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$132,35312%$147,82213%$(15,

245、469)(10)%Cost of salessoftware royalties and amortization for the year ended March 31,2007 decreased as a percentage of publishing net revenues from the prior fiscal year,from 13%to 12%.In absolute dollars,cost of salessoftware royalties and amortization for the year ended March 31,2007 also decreas

246、ed from the prior fiscal year,from$147.8 million to$132.4 million.The decreases were mainly due to:A decrease in the number of titles released in fiscal 2007 as compared to the prior year when we had the largest slate of new releases in our history.A decrease in amortization of software development

247、costs from internally developed games,was partially offset by increases in royal-ties for games developed by third-party developers.Non-recurring costs recorded in fiscal 2006 totaling$12.6 million,related to impairment charges for a title in development in 2006,and recoverability write-offs related

248、 to released titles.We expect costs of salessoftware royalties and amortization to increase in fiscal 2008 in proportion to the expected increase in publishing net revenues.Cost of SalesIntellectual Property Licenses(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Ne

249、t RevenuesIncrease/(Decrease)Percent Change$46,1254%$57,6665%$(11,541)(20)%36AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TCost of salesintellectual property licenses for the year ended March 31,2007 decreased in absolute dollars and as a percentage of publishing net revenues over the same

250、period last year,from$57.7 million to$46.1 million and from 5%to 4%,respectively.The decreases in both absolute dollars and as a percentage of publishing net revenues were due mainly to a decrease in the number of titles with associated intellectual property in fiscal 2007 compared to fiscal 2006.In

251、 fiscal 2007,we released the following titles with associated intellectual property:Marvel:Ultimate Alliance,Over the Hedge,X-Men:Official Game,Guitar Hero II,Tony Hawks Project 8 and Tony Hawks Downhill Jam.In fiscal 2006,we released the following titles with associated intellectual property:Doom 3

252、 for the Xbox,Madagascar,Fantastic Four,Ultimate Spider-Man,X-Men Legends II,THAW,Quake IV,and Shrek SuperSlam.We expect intellectual property licenses to increase in absolute dollars and as a percentage of publishing net revenues in fiscal 2008 as a result of our planned title slate which includes

253、several key releases with licensed intellectual property such as Spider-Man:The Movie 3,Transformers,Shrek the Third,and Bee Movie.Product Development(in thousands)March 31,2007%of Publishing Net RevenuesMarch 31,2006%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$133,07312%$132,65111%$

254、422%Product development expenses of$133.1 million and$132.7 million represented 12%and 11%of publishing net revenues for the years ended March 31,2007 and 2006,respectively.The increases in both absolute dollars and as a percentage of net revenues were primarily generated by:Increased costs incurred

255、 to fund more product development capacity at certain studios as well as the addition of Red Octane.Increases in product development expenses of$4.8 million in fiscal 2007 related to stock-based compensation expense as a result of the implementation of SFAS 123R.Compensation provided to employees in

256、 fiscal 2007 to cure tax penalties related to previously-exercised stock options.Partially offset by:Product cancellation charges of$11.4 million,including termination fees,incurred during fiscal 2006.Given the market conditions,the lower than expected performance of some of our third quarter fiscal

257、 2006 releases,and risks associated with console transition,we performed a thorough review of the then pending product slate.To better align opportunities associated with the next-generation console platforms with income potential and risks associated with certain titles in development,we canceled d

258、evelopment of certain titles and permanently removed them from our future title slate.There were no product cancellation charges during fiscal 2007.The implementation during fiscal 2007 of certain cost control initiatives including sharing technologies and tools across multiple platforms and studios

259、,increasing our development schedules to facilitate a longer pre-production phase and more predictable workflow times,and outsourcing certain areas of game development to lower cost service providers.Managements Discussion and Analysis of Financial Condition and Results of Operations37AC T I V I S I

260、 O N,I N C.2 0 0 7 A N N UA L R E P O R TSales and Marketing(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$196,21313%$283,39519%$(87,182)(31)%Sales and marketing expenses of$196.2 million and$283.4 million represent

261、ed 13%and 19%of consolidated net revenues for the years ended March 31,2007 and 2006,respectively.The decrease in both absolute dollars and as a percentage of net revenues was a result of the implementation of a more targeted media program which worked more efficiently helped by the overall strength

262、 and high quality of our fiscal 2007 title slate.We also released fewer titles in fiscal 2007 compared to fiscal 2006,where we had the largest slate of new releases in our history.The decreases were partially offset by expenses of$5.1 million in fiscal 2007 related to stock-based compensation expens

263、e as a result of the implementation of SFAS 123R,as well as sales and marketing expenses associated with the acquisition of the Guitar Hero franchise.General and Administrative(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent

264、 Change$132,5149%$96,3667%$36,14838%General and administrative expenses of$132.5 million and$96.4 million represented 9%and 7%of consolidated net revenues for the years ended March 31,2007 and 2006,respectively.The increases were primarily due to increased legal expenses and professional fees relati

265、ng primarily to our inter-nal review of historical stock option granting practices,the consolidation of RedOctane into our results of operations,amortization of intangible assets related to the RedOctane acquisition,and stock-based compensation expense of$10.0 million in fiscal 2007 as a result of t

266、he implementation of SFAS 123R.These increases were partially offset by the benefits of our cost optimization program launched in the fourth quarter of fiscal 2006 and gains on foreign currency.Operating Income(in thousands)March 31,2007%of Segment Net RevsMarch 31,2006%of Segment Net RevsIncrease/(

267、Decrease)Percent ChangePublishing$64,0766%$(6,715)(1)%$70,7911,054%Distribution 9,0712%21,9417%(12,870)(59)%Consolidated$73,1475%$15,2261%$57,921380%Publishing operating income for the year ended March 31,2007 increased$70.8 million from the same period last year,from an operating loss of$6.7 millio

268、n to operating income of$64.1 million.The increase is primarily due to:The strong performance of our fiscal 2007 titles.A decrease in provision for returns and price protection in fiscal 2007 from 18%of consolidated net revenues in fiscal 2006 compared to 9%of consolidated net revenues in fiscal 200

269、7,primar-ily due to improved market conditions and stronger sell-through of our 2007 title releases.38AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R T A significant decrease in sales and marketing spending as a result of improved efficiency in executing our marketing programs.The implementati

270、on of certain cost control initiatives resulting in decreased product develop-ment and general and administrative expenses(excluding expenses related to our internal review of historical stock option granting practices and expenses relating to the informal SEC inquiry and derivative litigation).Fisc

271、al 2006 results included cancellation,impairment,and earn-out recoverability charges total-ing$24.0 million.See additional description of charges incurred in the cost of salessoftware royalties and amortization and the product development discussions.Fiscal 2006 results also included write-downs of

272、inventory costs of$14.5 million.See additional description in the cost of salesproduct costs discussion.Partially offset by:Stock-based compensation expenses of$22.4 million for the year ended March 31,2007 as a result of the implementation of SFAS 123R.Legal and other professional fees of$26.9 mill

273、ion associated with our internal review of histori-cal stock option granting practices,including expenses relating to the informal SEC inquiry and derivative litigation.Amortization of intangible assets related to the RedOctane acquisition of$11.7 million.Distribution operating income for the year e

274、nded March 31,2007 decreased over the same period last year,from$21.9 million to$9.1 million.The decrease in operating income in 2007 was primarily due to increased business from large mass-market customers for which we earn smaller margins,an increase in hardware sales which carries a lower margin

275、than software,and higher reserves for inventory obsolescence.Investment Income,Net(in thousands)March 31,2007%of Consolidated Net RevenuesMarch 31,2006%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$36,6782%$30,6302%$6,04820%Investment income,net for the year ended March 31,2007 was$3

276、6.7 million as compared to$30.6 million for the year ended March 31,2006.The increase was primarily due to higher yields earned on our short-term investments and cash equivalents,and a realized gain in the third quarter of fiscal 2007 of$1.8 million on the sale of an investment in common stock.Provi

277、sion for Income Taxes(in thousands)March 31,2007%of Pre Tax IncomeMarch 31,2006%of Pre Tax IncomeIncrease/(Decrease)Percent Change$24,03822%$5,60512%$18,433329%The income tax provision of$24.0 million for the year ended March 31,2007 reflects our effective income tax rate of 22%.This is higher than

278、prior years as a result of an increase in pretax income for the year ended March 31,2007,versus the amount of pretax income for the year ended March 31,2006,without a corresponding increase in the benefit of book/tax differences.The significant items that generated the variance between our effective

279、 rate and our statutory rate of 35%were research Managements Discussion and Analysis of Financial Condition and Results of Operations39AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Tand development tax credits,the impact of foreign tax rate differentials,and the elimination of the valuation

280、allowance for research and development tax credits,partially offset by state taxes and the establishment of tax reserves for these credits and other deferred tax assets.The realization of deferred tax assets depends primarily on the generation of future taxable income.We believe that it is more like

281、ly than not that we will generate taxable income sufficient to realize the benefit of net deferred tax assets recognized.Net IncomeNet income for the year ended March 31,2007 was$85.8 million or$0.28 per diluted share,as com-pared to$40.3 million or$0.14 per diluted share for the year ended March 31

282、,2006.Results of OperationsFiscal Years Ended March 31,2006 and 2005Net RevenuesWe primarily derive revenue from sales of packaged interactive software games designed for play on video game consoles(such as the PS2,Xbox,Xbox360,and GameCube),PCs,and hand-held game devices(such as the GBA,NDS,and PSP

283、).We also derive revenue from our distribution business in Europe that provides logistical and sales services to third-party publishers of interactive enter-tainment software,our own publishing operations and third-party manufacturers of interactive entertainment hardware.The following table details

284、 our consolidated net revenues by business segment and our publishing net revenues by territory for the years ended March 31,2006 and 2005(in thousands):For the years ended March 31,20062005Increase/(Decrease)Percent ChangePublishing net revenues North America$710,040$696,325$13,7152%Europe404,15734

285、1,94662,21118%Other40,46634,4586,00817%Total international444,623376,40468,21918%Total publishing net revenues1,154,6631,072,72981,9348%Distribution net revenues313,337333,128(19,791)(6)%Consolidated net revenues$1,468,000$1,405,857$62,1434%Consolidated net revenues increased 4%from$1,405.9 million

286、for the year ended March 31,2005 to$1,468.0 million for the year ended March 31,2006.This increase in consolidated net revenues was solely generated by our publishing business and was driven by the following:An increase year over year in the number of titles released.Our fiscal 2006 launch schedule

287、included the largest slate of new releases in our history.In fiscal 2006,we released seventeen major titles including the following major releases:Doom 3 for the Xbox,Madagascar,Fantastic Four,Ultimate Spider-Man,X-Men Legends II,THAW,Call of Duty 2,Call of Duty 2:Big Red One,GUN,True Crime:New York

288、 City,QUAKE 4,Shrek SuperSlam,The Movies,Cabelas Dangerous Hunts 2,and World Series of Poker.In addition,four of these titles,Call of Duty 2,THAW,QUAKE 4,and GUN,were released concurrently with the release of the Xbox360 platform at a premium retail price of$59.99.This compares to fourteen titles in

289、 fiscal 2005,which included the following major 40AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R Treleases:Spider-Man 2,Call of Duty:Finest Hour,Tony Hawks Underground 2(“THUG 2”),Shrek 2,X-Men Legends,Doom 3,Lemony Snickets A Series of Unfortunate Events,Shark Tale,Cabelas Big Game Hunter 20

290、05,and Rome:Total War.Additionally in fiscal 2006,we achieved our goal of increasing the number of million and multi-million unit selling titles.An increase in our hand-held platform presence growing publishing hand-held revenues by$20.2 million or 15%from$138.7 million for the year ended March 31,2

291、005 to$158.9 million for the year ended March 31,2006.This was driven by an increase in the number of hand-held titles released combined with titles being released across more hand-held platforms with the fiscal 2005 introductions of the PSP and NDS.Partially offset by:An increase in provision for r

292、eturn and price protection throughout fiscal 2006 from 12%of net revenues in fiscal 2005 to 18%of net revenues in fiscal 2006,due to challenging market conditions and the ongoing console transition.A decrease in net revenues from our distribution business due mostly to the effect of year over year w

293、eakening of the Euro(“EUR”)and Great Britain Pound(“GBP”)in relation to the United States Dollar(“USD”).Foreign exchange rates decreased reported distribution net revenues by approximately$14.9 million for the year ended March 31,2006.Excluding the impact of changing foreign currency rates,our distr

294、ibution net revenues decreased 1%year over year.North America Publishing Net Revenues(in thousands)March 31,2006%of Consolidated Net RevenuesMarch 31,2005%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$710,04048%$696,32550%$13,7152%North America publishing net revenues increased 2%fro

295、m$696.3 million for the year ended March 31,2005 to$710.0 million for the year ended March 31,2006.The increase reflects our largest slate of releases in company history and expansion of our hand-held presence with products for PSP,NDS,and GBA.This was offset by weaker market conditions resulting in

296、 higher provisions for returns and price protection.North America publishing net revenues decreased as a percentage of consolidated net revenues from 50%for year ended March 31,2005 to 48%for the year ended March 31,2006.The decrease is due to a larger increase in our international publishing net re

297、venues due to successful expansion efforts into new territories and the strong performance of our affiliate titles in Europe.International Publishing Net Revenues(in thousands)March 31,2006%of Consolidated Net RevenuesMarch 31,2005%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$444,62

298、330%$376,40427%$68,21918%International publishing net revenues increased by 18%from$376.4 million for the year ended March 31,2005 to$444.6 million for the year ended March 31,2006.Additionally,international publishing net revenues as a percentage of consolidated net revenues increased from 27%for t

299、he year ended Managements Discussion and Analysis of Financial Condition and Results of Operations41AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TMarch 31,2005 to 30%for the year ended March 31,2006.The increases were due mainly to our successful expansion efforts into new territories combi

300、ned with strong performance from our affiliate label products which included the successful LucasArts titles,Star Wars:Episode III Revenge of the Sith and Star Wars Battlefront II.The increase in international publishing net revenues was partially offset by a weakening of the EUR and the GBP in rela

301、tion to the USD of approximately$14.5 million.Excluding the impact of changing foreign currency rates,our international publishing net revenues increased 22%year over year.Publishing Net Revenues by PlatformPublishing net revenues increased 8%from$1,072.7 million for the year ended March 31,2005 to$

302、1,154.7 million for the year ended March 31,2006.The following table details our publishing net revenues by platform and as a percentage of total publishing net revenues for the years ended March 31,2006 and 2005(in thousands):Year Ended March 31,2006%of Publishing Net RevsYear Ended March 31,2005%o

303、f Publishing Net RevsIncrease/(Decrease)Percent ChangePublishing Net Revenues PC$183,45716%$220,08721%$(36,630)(17)%Console Sony PlayStation 2422,23936%417,31039%4,9291%Microsoft Xbox205,86418%196,89418%8,9705%Microsoft Xbox360102,8099%102,809%Nintendo GameCube80,9647%96,9369%(15,972)(16)%Other469%2

304、,807%(2,338)(83)%Total console812,34570%713,94766%98,39814%Hand-held Game Boy Advance79,7387%101,7969%(22,058)(22)%PlayStation Portable52,0165%19,2002%32,816171%Nintendo Dual Screen27,1072%17,6992%9,40853%Total hand-held158,86114%138,69513%20,16615%Total publishing net revenues$1,154,663100%$1,072,7

305、29100%$81,9348%Personal Computer Net Revenues(in thousands)March 31,2006%of Publishing Net RevenuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$183,45716%$220,08721%$(36,630)(17)%42AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TNet revenues from sales of titles f

306、or the PC decreased 17%from$220.1 million and 21%of publishing net revenues for the year ended March 31,2005 to$183.5 million and 16%of publishing net revenues for the year ended March 31,2006.The decrease in both absolute dollars and as a percentage of publishing revenue was due to the slate of PC

307、titles released in fiscal 2005 in comparison to fiscal 2006.In fiscal 2005,we released the highly successful PC titles Doom 3 and Rome:Total War and also had strong continued sell-through of our catalog title,Call of Duty.Although we had strong sales from our fiscal 2006 PC titles,Call of Duty 2,The

308、 Movies,and QUAKE 4,in fiscal 2005,according to NPD Funworld,we were the only publisher to have three top-ten PC titles for calendar year 2004.Sony PlayStation 2 Net Revenues(in thousands)March 31,2006%of Publishing Net RevenuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrease)Percent Chang

309、e$422,23936%$417,31039%$4,9291%Net revenues from sales of titles for the PS2 increased 1%from$417.3 million for the year ended March 31,2005 to$422.2 million for the year ended March 31,2006.The slight increase was primarily due to an increase in the number of major titles released for the PS2 from

310、seven major titles in fiscal 2005 to nine major titles in fiscal 2006.This increase was offset by an increase in the provision for returns and price protection on new releases due to weaker market conditions.In addition,Madagascar,which was our fifth best-selling PS2 title for fiscal 2006 in terms o

311、f units sold,was released at a lower initial retail pricing point of$39.99 compared to$49.99 for comparable childrens titles in fiscal 2005.As a percentage of publishing net revenues,net revenues from sales of titles for the PS2 decreased from 39%for the year ended March 31,2005 to 36%for the year e

312、nded March 31,2006.The decrease is due to a change in our platform revenue mix due to the introduction of the Xbox360.Microsoft Xbox Net Revenues(in thousands)March 31,2006%of Publishing Net RevenuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$205,86418%$196,89418%$8,970

313、5%Net revenues from sales of titles for the Xbox increased 5%from$196.9 million for the year ended March 31,2005 to$205.9 million for the year ended March 31,2006 and held steady as a percentage of publishing net revenues at 18%.The increase was primarily attributable to the strong performance of ou

314、r first quarter fiscal 2006 Xbox exclusive release of Doom 3 which had no comparable Xbox exclusive title released in fiscal 2005.This increase was offset by increased provisions for returns and price protection in anticipation of quicker required pricing actions as a result of the introduction of t

315、he Xbox360,which is expected to result in a gradual slowdown in sales for the Xbox as customers upgrade or anticipate upgrading to the next-generation platform.Microsoft Xbox360 Net Revenues(in thousands)March 31,2006%of Publishing Net RevenuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrea

316、se)Percent Change$102,8099%$%$102,809%Managements Discussion and Analysis of Financial Condition and Results of Operations43AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R E P O R TThe Xbox360 was released in November 2005 and was the first of the next-generation hardware to be released.Consistent wit

317、h our goal of having a significant presence at the launch of each new platform,we released four titles concurrently with the release of the Xbox360,Call of Duty 2,THAW,QUAKE 4,and GUN.All of these titles were released at premium retail pricing of$59.99.Although limited by hardware availability in fi

318、scal 2006,we experienced strong sales of these four titles,and,according to NPD Funworld,Call of Duty 2 was the number one title on the Xbox360 and had the highest attach rate of any console launch in video game history.Nintendo GameCube Net Revenues(in thousands)March 31,2006%of Publishing Net Reve

319、nuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$80,9647%$96,9369%$(15,972)(16)%Net revenues from sales of titles for the Nintendo GameCube decreased 16%from$96.9 million for the year ended March 31,2005 to$81.0 million for the year ended March 31,2006.Despite an increas

320、e in the number of titles released for the GameCube from seven major titles for the year ended March 31,2005 to nine major titles for the year ended March 31,2006,the releases in fiscal 2006,which included GUN,Call of Duty 2:Big Red One,THAW,and True Crime:New York City,were less geared toward the d

321、emographics of the GameCube audience as compared to our fiscal 2005 title releases,which included Spider-Man 2 and Shrek 2.Additionally,Madagascar,which was our top selling title on the GameCube in fiscal 2006,was released at a lower initial retail pricing of$39.99 as compared to Spider-Man 2 and Sh

322、rek 2,which were both released at an initial retail price of$49.99.Madagascar was our top selling title on the GameCube for fiscal 2006 and although it performed strongly,it compares to fiscal 2005 where our top two selling titles on the GameCube were Spider-Man 2 and Shrek 2,each of which outperfor

323、med Madagascar.Hand-held(in thousands)March 31,2006%of Publishing Net RevenuesMarch 31,2005%of Publishing Net RevenuesIncrease/(Decrease)Percent Change$158,86114%$138,69513%$20,16615%Net revenues from sales of titles for the hand-held for the year ended March 31,2006 increased 15%from the prior fisc

324、al year,from$138.7 million to$158.9 million.Additionally,hand-held net revenues as a percentage of publishing net revenues increased from 13%for the year ended March 31,2005 to 14%for the year ended March 31,2006.The increases were due to the worldwide intro-ductions of the NDS and PSP hand-held pla

325、tforms in late fiscal 2005 and the continued growth of their installed base throughout fiscal 2006,which resulted in hand-held titles being sold across more platforms.In addition,compared to the other hand-held platforms,titles for the PSP have a higher retail pricing point of$49.99.The major titles

326、 driving hand-held net revenues in fiscal 2006 were Madagascar,Madagascar:Operation Penguin,Fantastic Four,Ultimate Spider-Man,and Shrek SuperSlam for the GBA;Madagascar,Ultimate Spider-Man,Tony Hawks American Sk8land,and Shrek SuperSlam for the NDS;and THUG 2,Spider-Man 2,X-Men Legends II,and Lucas

327、Arts Star Wars Battlefront II for the PSP.This compares to fiscal 2005 where the main titles driving hand-held net revenues were Shrek 2,Spider-Man 2,and DreamWorks Shark Tale for the GBA;Spider-Man 2 for the NDS;and THUG 2 and Spider-Man 2 for the PSP.44AC T I V I S I O N,I N C.2 0 0 7 A N N UA L R

328、 E P O R TDistribution Net Revenues(in thousands)March 31,2006%of Consolidated Net RevenuesMarch 31,2005%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$313,33721%$333,12824%$(19,791)(6)%Distribution net revenues for the year ended March 31,2006 decreased 6%from the prior fiscal year,f

329、rom$333.1 million to$313.3 million.Foreign exchange rates decreased reported distribution net revenues by approximately$14.9 million for the year ended March 31,2006.Excluding the impact of the changing foreign currency rates,our distribution net revenues decreased$4.9 million or 1%year over year.Th

330、e remaining year over year decrease was primarily due to the termination of relation-ships with unprofitable publishers and stronger third-party releases in fiscal 2005.The mix of distribution net revenues between hardware and software sales varied year over year with approximately 20%of distributio

331、n net revenues from hardware sales in the year ended March 31,2006 as compared to 13%in the prior fiscal year.This was mainly attributed to the release of the PSP in Europe in the second quarter of fiscal 2006 and the release of the Xbox360 in November 2005.In both fiscal years,hardware sales were p

332、rincipally comprised of sales of console hardware.Costs and ExpensesCost of SalesProduct Costs(in thousands)March 31,2006%of Consolidated Net RevenuesMarch 31,2005%of Consolidated Net RevenuesIncrease/(Decrease)Percent Change$734,87450%$658,94947%$75,92512%Cost of salesproduct costs represented 50%a

333、nd 47%of consolidated net revenues for the years ended March 31,2006 and 2005,respectively.In absolute dollars,cost of salesproduct costs increased 12%from$658.9 million for the year ended March 31,2005 to$734.9 million for the year ended March 31,2006.The primary factors affecting the increase in cost of salesproduct costs in absolute dollars and as a percentage of consolidated net revenues were: