Activision Blizzard Inc. (ATVI) 2001年年度報告「NASDAQ」.pdf

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1、Annual Reportcorporate information2001building the foundation for growthwere primed forgrowthas Sonys PlayStation?2,Microsofts Xbox?,and NintendosGameCube?and Game Boy?Advance usher in a new era of video gaming.Internet connectivity,DVD capability and backwardcompatibility will expand video gaming i

2、nto a broader form of mass-market entertainment.The new video game systems,along withthe impending introduction of various wireless technologies and a moreubiquitous broadband infrastructure,can push household penetrationto new heights.Activisions strong brands,deep management andproven development

3、capabilities position us to leverage these excitingmarket opportunities.(in thousands of dollars except per share data)200120002000*199919981997Net Revenues.620,183572,205583,930436,526312,906190,446Operating Income(Loss).39,807(30,325)39,86726,6679,21811,497Net Earnings(Loss).20,507(34,088)19,81714

4、,8914,9707,583Earnings Per Common Share:Basic Earnings(Loss)Per Share.0.82(1.38)0.800.650.220.36Diluted Earnings(Loss)Per Share.0.75(1.38)0.740.620.210.351Financial HighlightsActivision,Inc.*Excludes charges incurred in conjunction with the implementation of the Companys strategic restructuring plan

5、 in the fourth quarter of fiscal 2000.Net Revenues(in millions of dollars)99 0100*$0$175$350$525$70097 98Net Earnings(in millions of dollars)99 0100*$0$5$10$15$20$2597 98Diluted Earnings Per Share(per common share)99 0100*$0$0.15$0.30$0.45$0.60$0.7597 98With the launch of the PlayStation 2 last fall

6、,fiscal 2001marked the beginning of a new cycle.Over the last five years,we witnessed the transformation of the video game industry from an enthusiast market to a well-established mass-market entertainment medium.The release of the next-generationconsole systems will continue expanding the audience

7、forvideo games.Many of the young people who grew up inthe 1980s and 1990s playing games are still playing today,and millions of new consumers enter the market each year.DRIVING FUTURE GROWTHActivision is poised to capitalize on the tremendous opportunities ahead.For the past five years,we have been

8、focused on building the infrastructure and scale necessary to be a leader in the interactive entertainmentbusiness.In fiscal 2001,our goal was to increase our product development resources and strengthen our financialposition to take advantage of the market opportunitiesahead.We now have a strong fo

9、undation for theCompanys continued success.Our product slate for fiscal year2002 will fully leverage the current-andnew-generation console platforms andincludes the highest percentage of gamesbased on proven brand franchises in theCompanys history.With over$600 millionin revenue,we have achieved a s

10、cale thatshould provide greater predictability in ouroperating results and opportunitiesfor operating margin expansion.Activisions market positionhas never been stronger.We have a product portfolio based on some of the worlds most recognized brands coupled with thefinancial flexibility to capitalize

11、 on the opportunitiesafforded by the changes occurring within our industry.We have better products,a greater number of strategicpartners,more satisfied customers,the most productiveand dedicated employees and a stronger management than we have ever had.We remain steadfast in our commitment to operat

12、ea professionally managed,highly disciplined Company a company that is prosperous and growing,as well asfinancially prudent and focused on profitability.We are committed to delivering strong financial results while providing growing audiences around the world with themost compelling interactive ente

13、rtainment experiences.We would like to thank our employees for their hardwork and dedication and our customers and shareholdersfor their continued commitment and support.Sincerely,Robert A.KotickChairman&Chief Executive OfficerBrian G.KellyCo-ChairmanRonald DoorninkPresident&Chief Operating Officer

14、3Activision,Inc.Fiscal 2001 marked a year of record performance forActivision.The Companys net revenues grew to$620 million and net income rose to$21 million.Both net revenues and net income were the highest in our history.We ended the fiscal year as the#2 independentU.S.video game publisher on cons

15、ole and hand-heldplatforms and we were the fastest growing major publisheroverall.The market value of the Company is beginning toreflect the intrinsic value we have created over the lastdecade.This fiscal year,the Companys stock price rose102%,versus a 60%decline in the Nasdaq CompositeIndex for the

16、 same period.Our brand focused multi-platform strategy continues to drive our success.We achieved record financial results in a challenging software market,due toour prudent planning and platform and product strategiesthat were well aligned with the market opportunities.FISCAL 2001 WAS A GREAT YEAR

17、FOR ACTIVISIONDuring the fiscal year,Activision increased its U.S.dollarmarket share on the console and hand-held systems by 3.3share points,despite a 2%decline in the overall U.S.videogame market.We accomplished this by releasing productsbased on well-established brands for the PC,PlayStation?game

18、console and PlayStation?2 computer entertainmentsystem,Nintendo?64,Sega Dreamcast?and NintendoGame Boy?Color.More than 75%of our publishing revenue was derived from sales of games based on provenbrand franchises,a key component of our business plan thatmarkedly increased the predictability of our op

19、erating results.We gained market share across all of the gamingplatforms and achieved record financial performance whileincreasing our product development spending on games forthe new generation console systems by$19 million dollars.We currently have 55 games in planning and developmentfor Sonys Pla

20、yStation 2,Microsofts Xbox?video gamesystem and Nintendos GameCube?and Game Boy?Advance.We expect our investments in next-generationproducts to fuel our revenue growth over the next fewyears and provide greater opportunities for operatingmargin expansion.Despite our increased investment in product d

21、evelopment,our financial position is stronger than ever.As a result of our record performance in fiscal 2001,weended the year with a significantly strengthened balancesheet.Our cash balance increased by$75 million to$126million and we reduced our days sales outstanding from 94 days to 54 days.We als

22、o significantly improved our capital structure.As of June 21,2001,we completed the retirement of$60 million of Convertible SubordinatedNotes.Substantially all of the holders of the ConvertibleSubordinated Notes elected to convert the Notes to common stock prior to the redemption date.Additionally,we

23、 repaid in full the remaining$8.5 million balance of our three-year$25 million termloan and renegotiated our revolving credit facility with a more favorable cost structure.Unencumbered by debt,Activision now possesses greater financial flexibility as wemove into the growth cycle provided by the laun

24、ch of thenew video game platforms.REMARKABLE GROWTH AWAITS USThe launch of the next-generation gaming systems heraldsa new and exciting period in our industry.As we have seenwith other platform introductions,the hardware cyclescomprise five-year increments.The first two years are staging years,follo

25、wed by three years of rapid growth.LucasArts Entertainment Marvel Entertainment Viacom Consumer Products The Walt Disney Companyto our shareholders:to our shareholders:corporate information22001 Annual Report5Activision,Inc.LEVERAGING BRANDS ACROSS MULTIPLE PLATFORMSAll of Activisions brands are sel

26、ected and designed to deliver compelling interactive entertainment experiences to audiences around the world.During the fiscal year,we achieved record performance despite a market transition.Our results canbe attributed to our strategy of leveraging our brandsacross multiple gaming platforms and the

27、 fact that 75%of our revenues were derived from games based on provenfranchises.As a result of these strategies and our strongproduct portfolio,Activision was the only U.S.publisherto have top-ten games on all the established console andhand-held platforms during calendar 2000.The success of our bra

28、nds is based on our insightinto consumer trends and behaviors.In fiscal 1999,we wereone of the first video game companies to recognize thegrowing popularity of action sports.In 1999,we dominatedthe action sports video game market with the success ofTony Hawks Pro Skater.In September 2000,we launched

29、the sequel,Tony Hawks Pro Skater 2 which became the#1 selling PlayStation game in dollars sales for the calendaryear.Last year,the Tony Hawk franchise accounted formore than$150 million in publishing revenues worldwide.The success of the Tony Hawks Pro Skater franchise,as well as our recently releas

30、ed BMX biking game Mat Hoffmans Pro BMX,have established Activisionas the leader in this rapidly growing category with a 65%market share.In fiscal year 2002,Activision plans to develop and release a dynamic slate of games across all platformsincluding the PlayStation 2,PlayStation,Xbox,GameCube,Game

31、 Boy Advance,Game Boy Color,Nintendo 64,Dreamcast and PC.Our lineup includesBloody Roar?3;Bomberman?Tournament;Doom?;Jackie Chan Adventures?;Mat Hoffmans ProBMX?;Pinobee?:Wings of Adventure;Return to Castle Wolfenstein?;Shaun PalmersPro Snowboarder?;Spider-Man 2 Enter:Electro?;Star Trek?:Armada II;S

32、tar Trek?Bridge Commander?;Stuart Little?:The Journey Home;Supercar Street Challenge?;The Weakest Link?;Tomb Raider:Curse of the Sword?;Tony Hawks Pro Skater?3;and X-Men:Mutant Academy 2?.42001 Annual ReportA 20-year reputation for quality titles with great gameplay hasestablished Activision as a br

33、and of choice among consumers.Our research has shown that Activision ranks as one of the most recognized names among interactive entertainment companies.Ourproperties include established brands like Disney,Marvel,Star Trek,Star Wars and Tony Hawk as well as emerging brands like Mat Hoffman.Recognize

34、d brands provide us withconsistency and predictability in our financial results and emerging brands offer us significant financial potential for the future.weve got the brands MarvelLucasArts Entertainment MarvelMarvel Entertainment Viacom Consumer Products The Walt Disney Companyto our shareholders

35、:corporate information7Activision,Inc.PREPPED FOR NEXT-GENERATION CONSOLESActivisions strong brands with proven market performanceand its multi-platform development strategy shouldcontinue to give the Company an advantage in the newconsole era.Our established brands provide us with theflexibility to

36、 investigate and develop new properties andgame concepts without sacrificing the financial stabilityand predictability that is crucial to our investors.Past experience has shown us the importance of having a strong slate of products for these new game systems as the installed base increases.During f

37、iscal 2001,we doubled our product development spending on gamesfor the next-generation platforms.We believe that over thenext two years,our game slate will allow us to take fulladvantage of the accelerated market growth resulting fromthese new platform launches.During fiscal 2002,we plan to increase

38、 the number of games based on branded properties and designedby proven development talent.We believe that establishedbrands and franchises with broad appeal are more criticalthan ever before as new consumers are apt to buy gamesbased on branded rather than unbranded properties.Publishers with easily

39、 recognizable franchises should bebetter positioned to take advantage of the mass-marketopportunities on the current hardware systems,as well as to capitalize on the next-generation console systems.These factors,coupled with our industry-leadingdevelopment capabilities and worldwide distribution net

40、work,will allow Activision to take full advantage of the future market opportunities presented by the next-generation console systems.62001 Annual Reportweve got gameWith the launch of Sonys PlayStation 2,calendar 2000 marked thebeginning of another transition phase for the industry.Calendar 2001wil

41、l benefit from the release of three additional gaming platforms Microsofts Xbox and Nintendos GameCube and Game Boy Advance.By allowing consumers to play games with greater levels of realism and detail,watch DVD movies,listen to CDs and access the Internet,these new systems will increase the install

42、ed base of gamers tounprecedented levels.8 82001 Annual ReportEmerging technologies are changing our lives.The infrastructure for global communication is forming at a breakneck pace,driven by the thirst to move information in real time over the Internet.Withmicroprocessors being incorporated into nu

43、merous electronic devicesfrom digital assistants to cellular telephones,the reach of interactiveentertainment is growing faster than ever.These new technologies willprovide consumers in different time zones,continents and cultures withpreviously unimaginable game experiences.By continuing to leverag

44、eour multi-platform strategy,Activision will be able to take advantage of the growth and margin expansion opportunities afforded by thesenew systems.were connected9The following table summarizes certain selected consolidated financialdata,which should be read in conjunction with the CompanysConsolid

45、ated Financial Statements and Notes thereto and withManagements Discussion and Analysis of Financial Condition andResults of Operations included elsewhere herein.The selected consoli-dated financial data presented below as of and for each of the fiscalyears in the five-year period ended March 31,200

46、1 are derived from theaudited consolidated financial statements of the Company.TheConsolidated Balance Sheets as of March 31,2001 and 2000 and theConsolidated Statements of Operations and Statements of Cash Flowsfor each of the fiscal years in the three-year period ended March 31,2001,and the report

47、s thereon,are included elsewhere in this Annual Report.Restated(1)Fiscal years ended March 31,(In thousands,except per share data)20012000199919981997STATEMENT OF OPERATIONS DATA:Net revenues.$620,183$572,205$436,526$312,906$190,446Cost of salesproduct costs.324,907319,422260,041176,188103,124Cost o

48、f salesroyalties and software amortization.89,70291,23836,99029,84013,108Income(loss)from operations.39,807(30,325)26,6679,21811,497Income(loss)before income tax provision.32,544(38,736)23,6368,10611,578Net income(loss).20,507(34,088)14,8914,9707,583Basic earnings(loss)per share.0.82(1.38)0.650.220.

49、36Diluted earnings(loss)per share.0.75(1.38)0.620.210.35Basic weighted average common shares outstanding.24,86524,69122,86122,03820,961Diluted weighted average common shares outstanding.27,40024,69123,93222,90921,650SELECTED OPERATING DATA:EBITDA(2).46,07515,54133,15514,56415,690CASH(USED IN)PROVIDE

50、D BY:Operating activities.147,52977,38918,19031,6704,984Investing activities.(74,595)(99,547)(64,331)(43,814)(19,617)Financing activities.2,54742,0287,22062,86211,981RestatedAs of March 31,20012000199919981997BALANCE SHEET DATA:Working capital.$182,980$158,225$136,355$115,782$52,142Cash and cash equ

51、ivalents.125,55049,98533,03774,31923,352Goodwill,net.10,31612,34721,64723,47323,756Total assets.359,957309,737283,345229,366132,203Long-term debt.63,40173,77861,14361,1925,907Redeemable and convertible preferred stock.1,500Shareholders equity.181,306132,009127,19097,47580,321(1)Consolidated financia

52、l information for fiscal years 19991996 has been restated retroactively for the effects of the September 1999 acquisition of Neversoft,accounted for as a pooling of interests.Consolidated financialinformation for fiscal years 19981996 has been restated retroactively for the effects of the acquisitio

53、ns of S.B.F.Services,Limited dba Head Games Publishing and CD Contact Data GmbH,in June 1998 and September1998,respectively,accounted for as pooling of interests.Consolidated financial information for fiscal year 1997 has been restated retroactively for the effects of the acquisitions of Raven Softw

54、are Corporation,NBG EDVHandelsund Verlags GmbH and Combined Distribution(Holdings)Limited in November 1997,August 1997 and November 1997,respectively,accounted for as pooling of interests.(2)EBITDA represents income(loss)before interest,income taxes and,depreciation and amortization on property and

55、equipment and goodwill.The Company believes that EBITDA provides useful information regarding the Companys ability to service its debt;however,EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles and should not be considered a substitute for net

56、income,as anindicator of the Companys operating performance,or cash flow or as a measure of liquidity.Selected Consolidated Financial DataActivision,Inc.The following table sets forth certain consolidated statements of operations data for the periods indicated as a percentage of total net revenuesan

57、d also breaks down net revenues by territory and platform,as well as operating income by business segment:Fiscal years ended March 31,(In thousands)200120001999Net revenues.$620,183100%$572,205100%$436,526100%Costs and expenses:Cost of salesproduct costs.324,90752%319,42256%260,04160%Cost of salesro

58、yalties and software amortization.89,70214%91,23816%36,9909%Product development.41,3968%26,2755%22,8755%Sales and marketing.85,37814%87,30315%66,42015%General and administrative.37,4916%36,6746%21,9485%Amortization of intangible assets.1,5020%41,6187%1,5850%Total costs and expenses.580,37694%602,530

59、105%409,85994%Income(loss)from operations.39,8076%(30,325)(5%)26,6676%Interest income(expense),net.(7,263)(1%)(8,411)(2%)(3,031)(1%)Income(loss)before income tax provision.32,5445%(38,736)(7%)23,6365%Income tax provision(benefit).12,0372%(4,648)(1%)8,7452%Net income(loss).$20,5073%$(34,088)(6%)$14,8

60、913%102001 Annual ReportManagements Discussion and Analysis of Financial Condition and Results of OperationsOVERVIEWThe Company is a leading international publisher,developer and dis-tributor of interactive entertainment and leisure products.TheCompany currently focuses its publishing,development an

61、d distributionefforts on products designed for personal computers(“PCs”)as well asthe Sony PlayStation(“PSX”)and PlayStation 2(“PS2”)andNintendo N64(“N64”)console systems and Nintendo Game Boyhand-held game devices.The Company is also currently focusing on thedevelopment of products for Microsoft Xb

62、ox(“Xbox”)and NintendoGameCube console systems and Nintendo Game Boy Advance hand-helddevice.During January 2001,Sega Corp.,the maker of the SegaDreamcast(“Dreamcast”)console system announced that it would quitmaking the Dreamcast in March 2001.Net revenues from the Dreamcasthave historically repres

63、ented only a small percentage of the Companystotal net revenues.Accordingly,the Company believes that the departureof the Dreamcast console system from the market will not have a mate-rial impact upon its financial position or results of operations.The Company distributes its products worldwide thro

64、ugh its directsales forces,through its distribution subsidiaries,and through thirdparty distributors and licensees.The Companys financial information as of and for the year endedMarch 31,1999 has been restated to reflect the effect of pooling ofinterests transactions as discussed elsewhere in this A

65、nnual Report.The Company recognizes revenue from the sale of its products oncethey are shipped and are available for general release to customers.Subject to certain limitations,the Company permits customers toobtain exchanges and returns within certain specified periods and pro-vides price protectio

66、n on certain unsold merchandise.Revenue fromproduct sales is reflected after deducting the estimated allowance forreturns and price protection.Management of the Company estimatesthe amount of future returns and price protection based upon historicalresults and current known circumstances.With respec

67、t to license agree-ments that provide customers the right to multiple copies in exchangefor guaranteed amounts,revenue is recognized upon delivery.Per copyroyalties on sales that exceed the guarantee are recognized as earned.Cost of sales-product costs represents the cost to purchase,manu-facture an

68、d distribute PC and console product units.Manufacturers of the Companys PC software are located worldwide and are readilyavailable.Console CDs and cartridges are manufactured by the respective video game console manufacturers,Sony,Nintendo and Segaor its agents,who often require significant lead tim

69、e to fulfill theCompanys orders.Cost of sales-royalties and software amortization representsamounts due developers,product owners and other royalty participantsas a result of product sales,as well as amortization of capitalized soft-ware development costs.The costs incurred by the Company to develop

70、products are accounted for in accordance with accounting standardsthat provide for the capitalization of certain software development costs once technological feasibility is established and such costs aredetermined to be recoverable.Additionally,various contracts are main-tained with developers,prod

71、uct owners or other royalty participants,which state a royalty rate,territory and term of agreement,among otheritems.Commencing upon product release,prepaid royalties and capital-ized software costs are amortized to cost of salesroyalties and software amortization based on the ratio of current reven

72、ues to totalprojected revenues,generally resulting in an amortization period of oneyear or less.For products that have been released,management evaluates thefuture recoverability of prepaid royalties and capitalized software costson a quarterly basis.Prior to a products release,the Company charges t

73、oexpense,as part of product development costs,capitalized costs when,inmanagements estimate,such amounts are not recoverable.The followingcriteria is used to evaluate recoverability:historical performance of com-parable products;the commercial acceptance of prior products releasedon a given game eng

74、ine;orders for the product prior to its release;esti-mated performance of a sequel product based on the performance of theproduct on which the sequel is based;and actual development costs of aproduct as compared to the Companys budgeted amount.11Fiscal years ended March 31,(In thousands)200120001999

75、NET REVENUES BY TERRITORY:United States.$352,89357%$282,84749%$149,70534%Europe.256,22841%277,48549%278,03264%Other.11,0622%11,8732%8,7892%Total net revenues.$620,183100%$572,205100%$436,526100%ACTIVITY/PLATFORM MIX:Publishing:Console.$349,52875%$281,20471%$111,66254%PC.116,53425%115,48729%93,88046%

76、Total publishing net revenues.466,06275%396,69169%205,54247%Distribution:Console.117,36576%129,07374%156,58468%PC.36,75624%46,44126%74,40032%Total distribution net revenues.154,12125%175,51431%230,98453%Total net revenues.$620,183100%$572,205100%$436,526100%OPERATING INCOME(LOSS)Publishing.$35,6875%

77、$(35,049)(6%)$12,3983%Distribution.4,1201%4,7241%14,2693%Total operating income(loss).$39,8076%$(30,325)(5%)$26,6676%Activision,Inc.RESULTS OF OPERATIONSFISCAL YEARS ENDEDMARCH 31,2001 AND 2000Net income for fiscal year 2001 was$20.5 million or$0.75 per dilutedshare,as compared to net loss of$34.1 m

78、illion or$1.38 per dilutedshare in fiscal year 2000.The 2000 results were negatively impacted bya strategic restructuring charge totaling$70.2 million,approximately$61.8 million net of tax,or$2.50 per diluted share.See the analysis ofthe results of operations for the fiscal years ended March 31,2000

79、 and1999 for a detailed discussion of the restructuring plan.During fiscal2001,the Company completed those restructuring initiatives.Net RevenuesNet revenues for the year ended March 31,2001 increased 8%from thesame period last year,from$572.2 million to$620.2 million.Thisincrease was driven by the

80、performance of the Companys publishingsegment,partially offset by declines experienced in the Companys dis-tribution segment.Publishing net revenues for the year ended March 31,2001increased 17%from$396.7 million to$466.1 million.This increaseprimarily was due to publishing console net revenues incr

81、easing 24%from$281.2 million to$349.5 million.The increase in publishing con-sole net revenues was attributable to the release in fiscal 2001 of severaltitles that sold very well in the marketplace,including Tony Hawks ProSkater 2(PSX,Dreamcast and Game Boy),Spider-Man(PSX,N64 andGame Boy),X-Men Mut

82、ant Academy(PSX and Game Boy),as well as continuing strong sales of the original Tony Hawks Pro Skater(PSX andN64).Publishing PC net revenues for the year ended March 31,2001remained relatively constant with the prior year,increasing 1%from$115.5 million to$116.5 million.For the year ended March 31,

83、2001,distribution net revenuesdecreased 12%from prior fiscal year from$175.5 million to$154.1million.The decrease was mainly attributable to the continued weaknessin the European console market as a result of the transition to next-generation console systems.Based on previous new hardware launches,t

84、he Company expects that its distribution business will benefit in futureperiods from the introduction of PS2 and other next-generation con-soles.In the fourth quarter of fiscal 2001,distribution had its bestresults in eight quarters,reflecting the accelerating opportunities fromthe introduction of n

85、ew console systems.Domestic net revenues grew 25.0%from$282.8 million to$352.9million.International net revenues decreased by 8%from$289.4 millionto$267.3 million.The increase in domestic net revenues is reflective ofthe increases in the Companys publishing segment as described aboveand the decrease

86、 in international net revenues is reflective of thedeclines in the Companys distribution segment as described above.Costs and ExpensesCost of salesproduct costs represented 52%and 56%of net revenuesfor the year ended March 31,2001 and 2000,respectively.The decreasein cost of salesproduct costs as a

87、percentage of net revenues for theyear ended March 31,2001 was due to the decrease in distribution netrevenue,partially offset by a higher publishing console net revenue mix.Distribution products have a higher per unit product cost than publish-ing products,and console products have a higher per uni

88、t product costthan PC products.Cost of salesroyalty and software amortization expense repre-sented 14%and 16%of net revenues for the year ended March 31,2001 and 2000,respectively.The decrease in cost of salesroyalty andsoftware amortization expense as a percentage of net revenues is reflec-tive of

89、the$11.9 million of write-offs recorded in the fourth quarter offiscal 2000 relating to the Companys restructuring plan as laterdescribed in the analysis of the results of operations for the fiscal yearsended March 31,2000 and 1999.122001 Annual ReportProduct development expenses of$41.4 million and

90、$26.3 millionrepresented 8%and 5%of net revenues for the fiscal year ended March31,2001 and 2000,respectively.These increases in product develop-ment expenses in dollars and as a percentage of net revenues reflect theCompanys investment in the development of products for next-generationconsole and h

91、and-held devices,including PS2,Xbox,GameCube andGame Boy Advance.The increases are also reflective of the increase inthe number of titles expected to be released in fiscal 2002,52 titles,compared to fiscal 2001,35 titles.Of the 52 titles expected to bereleased in fiscal 2002,19 titles are for next-g

92、eneration platforms,which have higher development costs than existing-platform titles.Sales and marketing expenses of$85.4 million and$87.3 millionrepresented 14%and 15%of net revenues for the fiscal year endedMarch 31,2001 and 2000,respectively.This decrease reflects theCompanys ability to generate

93、 savings by building on the existing aware-ness of our branded products and sequel titles sold during fiscal 2001.General and administrative expenses for the year ended March 31,2001 remained constant with the prior fiscal year,increasing 2%from$36.7 million to$37.5 million.As a percentage of net re

94、venues,fiscal2001 general and administrative expenses also remained relatively con-stant with the prior fiscal year at approximately 6%.Amortization of intangibles decreased substantially from$41.6million in fiscal 2000 to$1.5 million in fiscal 2001.This was due tothe write-off in fiscal 2000 of goo

95、dwill acquired in purchase acquisi-tions in conjunction with the Companys restructuring plan as subse-quently described.Operating Income(Loss)Operating income(loss)for the year ended March 31,2001,was$39.8million,compared to$(30.3)million in fiscal 2000.This increase inconsolidated operating income

96、is primarily the result of increased oper-ating income in the Companys publishing business.Publishing operating income(loss)for the year ended March 31,2001 increased to$35.7 million,compared to$(35.0)million in theprior fiscal year.The increase reflects the charges incurred in fiscal 2000in conjunc

97、tion with the Companys restructuring plan as subsequentlydescribed,which predominantly impacted the Companys publishingsegment.Distribution operating income for the year ended March 31,2001 remained flat at$4.1 million,compared to$4.7 million in theprior fiscal year.Other Income(Expense)Interest exp

98、ense,net of interest income,decreased to$7.3 million forthe year ended March 31,2001,from$8.4 million for the year endedMarch 31,2000.This decrease in interest expense was due to loweraverage borrowings on the revolving portion of the Companys$125.0million term loan and revolving credit facility(the

99、“U.S.Facility”)during fiscal 2001 when compared to prior fiscal year,as well asincreased interest earned as a result of higher investable cash balancesthroughout the year.Provision for Income TaxesThe income tax provision of$12.0 million for the fiscal year endedMarch 31,2001,reflects the Companys e

100、ffective income tax rate ofapproximately 37%.The significant items generating the variancebetween the Companys effective rate and its statutory rate of 35%arestate taxes and nondeductible goodwill amortization,partially offset bya decrease in the Companys deferred tax asset valuation allowance andre

101、search and development tax credits.The realization of deferred taxassets primarily is dependent on the generation of future taxableincome.Management believes that it is more likely than not that theCompany will generate taxable income sufficient to realize the benefitof net deferred tax assets recog

102、nized.RESULTS OF OPERATIONSFISCAL YEARS ENDEDMARCH 31,2000 AND 1999Net loss for fiscal year 2000 was$34.1 million or$1.38 per dilutedshare,as compared to net income of$14.9 million or$0.62 per dilutedshare in fiscal year 1999.The 2000 results were negatively impacted bya strategic restructuring char

103、ge totaling$70.2 million,approximately$61.8 million net of tax,or$2.50 per diluted share.Strategic Restructuring PlanIn the fourth quarter of fiscal 2000,the Company finalized a strategicrestructuring plan to accelerate the development and sale of interactiveentertainment and leisure products for th

104、e next-generation consoles andthe Internet.Costs associated with this plan amounted to$70.2 mil-lion,approximately$61.8 million net of taxes,and were recorded in theconsolidated statement of operations in the fourth quarter of fiscal year2000 and classified as follows(amounts in millions):Net revenu

105、es.$11.7Cost of salesroyalties and software amortization.11.9Product development.4.2General and administrative.5.2Amortization of intangible assets.37.2$70.2The component of the charge included in amortization of intangi-ble assets represented a write down of intangibles including goodwill,relating

106、to Expert Software,Inc.(“Expert”),one of the Companysvalue publishing subsidiaries,totaling$26.3 million.The Companyconsolidated Expert into Head Games,forming one integrated businessunit.As part of this consolidation,the Company discontinued substan-tially all of Experts product lines,terminated su

107、bstantially all ofExperts employees and phased out the use of the Expert name.In addi-tion,a$10.9 million write down of goodwill relating to TDC,an OEMbusiness unit,was recorded.During fiscal 1999,the OEM market wentthrough radical changes due to price declines of PCs and hardwareaccessories.The sum

108、 of the undiscounted future cash flow of theseassets was not sufficient to cover the carrying value of these assets andas such was written down to fair market value.The component of the charge included in net revenues and general andadministrative expense represents costs associated with the planned

109、 termi-nation of a substantial number of third party distributor relationships inconnection with the Companys realignment of its worldwide publishingbusiness to leverage its existing sales and marketing organizations andimprove the control and management of its products.These actionsresulted in an i

110、ncrease in the allowance for sales returns of$11.7 millionand the allowance for doubtful accounts of$3.4 million.The plan alsoincluded a severance charge of$1.2 million for employee redundancies.13The components of the charge included in cost of salesroyaltiesand software amortization and product de

111、velopment represent costs towrite down certain assets associated with exiting certain product lines andre-evaluating other product lines which resulted in reduced expectations.During fiscal 2001,the Company completed the restructuring ini-tiatives associated with the fiscal 2000 restructuring plan w

112、ithout anysignificant adjustments.Net RevenuesNet revenues for the year ended March 31,2000 increased 31%from thesame period last year,from$436.5 million to$572.2 million.The increasewas due to a 53%increase in console net revenues from$268.2 million to$410.3 million,slightly offset by a 4%decrease

113、in PC net revenues from$168.3 million to$161.9 million.Domestic net revenues grew 89%from$149.7 million to$282.8 million.International net revenues remainedfairly constant,increasing 1%from$286.8 million to$289.4 million.Publishing net revenues for the year ended March 31,2000increased 93%from$205.5

114、 million to$396.7 million.This increase pri-marily was due to publishing console net revenues increasing 152%from$111.7 million to$281.2 million.The increase in publishing consolenet revenues was attributable to the release in fiscal 2000 of a largernumber of titles that sold well in the marketplace

115、,including Blue Stinger(Dreamcast),Space Invaders(PlayStation,N64 and Game Boy Color)andDisney/Pixars Toy Story 2(PlayStation and N64),Disneys Tarzan(N64and Game Boy),Disney/Pixars A Bugs Life(N64),Vigilante 8:SecondOffense(PlayStation,N64 and Game Boy),WuTang:Shaolin Style(PlayStation)and Tony Hawk

116、s Pro Skater(PlayStation,N64 and GameBoy).Publishing PC net revenues for the year ended March 31,2000increased 23%from$93.9 million to$115.5 million.This increase pri-marily was due to the release of QUAKE III Arena,Cabelas Big Game HunterIII,Star Trek:Hidden Evil,Star Trek:Armada and Soldier of For

117、tune.For the year ended March 31,2000,distribution net revenuesdecreased 24%from prior fiscal year from$231.0 million to$175.5million.The decrease was mainly attributable to the pricing reductionsinitiated by leading retail chains in the United Kingdom(the“UK”),which in turn reduced market share for

118、 the independent retail channel inthe UK to which the Companys CentreSoft subsidiary is the soleauthorized Sony PlayStation distributor,as well as the unfavorableimpact of foreign currency translation rates.Net OEM licensing,on-line and other revenues for the fiscal yearended March 31,2000 increased

119、 40%from$19.0 million to$26.7 mil-lion.The increase was primarily due to an increase in licensing revenues,partially offset by a decrease in OEM revenues.Licensing revenuesincreased due to an increase in the number of licensing arrangementsentered into by the Company during fiscal 2000.OEM revenuesd

120、ecreased due to the radical changes being experienced in the OEMmarket in fiscal 2000,which resulted from declining prices of personalcomputers and hardware accessories and the reluctance of hardwaremanufacturers to produce large inventories.Costs and ExpensesCost of salesproduct costs represented 5

121、6%and 60%of net revenuesfor the year ended March 31,2000 and 1999,respectively.The decreasein cost of salesproduct costs as a percentage of net revenues for theyear ended March 31,2000 was due to the decrease in distribution netrevenue,partially offset by a higher publishing console net revenue mix.

122、Distribution products have a higher per unit product cost than publish-ing products,and console products have a higher per unit product costthan PC products.Cost of salesroyalty and software amortization expense represented 16%and 9%of net revenues for the year ended March 31,2000 and 1999,respectiv

123、ely.The increase in cost of salesroyalty andsoftware amortization expense as a percentage of net revenues was pri-marily due to changes in the Companys product mix,with an increasein the number of branded products with higher royalty obligations ascompared to the prior fiscal year and increases in a

124、mortization expensesrelating to the release of a greater number of products with capitalizabledevelopment costs.The increase also partially resulted from$11.9 mil-lion of write-offs recorded in the fourth quarter of fiscal 2000 relatingto the Companys restructuring plan as previously described.Produ

125、ct development expenses for the year ended March 31,2000increased 15%from the same period last year from$22.9 million to$26.3 million.The increase was primarily due to a$4.2 million chargeto product development costs relating to the Companys restructuringplan as previously described.As a percentage

126、of net revenues,total product creation costs(i.e.,royalties and software amortization expense plus product developmentexpenses)increased from 14%to 21%for the year ended March 31,2000.Such increases were attributable to the increases in product devel-opment costs,as described above.Sales and marketi

127、ng expenses for the year ended March 31,2000increased 31%from the same period last year,from$66.4 million to$87.3 million,but remained relatively constant as a percentage of net rev-enues at 15%at March 31,2000 and 1999.The increase in the amountof sales and marketing expenses primarily was due to a

128、n increase in thenumber of titles released and an increase in television advertising duringthe final quarter of fiscal 2000 to support the Companys premium titles.General and administrative expenses for the year ended March 31,2000 increased 67%from the prior fiscal year,from$21.9 million to$36.7 mi

129、llion.As a percentage of net revenues,general and administra-tive expenses remained relatively constant at approximately 5%to 6%.The increase in the amount of general and administrative expenses wasdue to an increase in worldwide administrative support needs and head-count related expenses and charg

130、es incurred in conjunction with theCompanys restructuring plan previously described.Amortization of intangibles increased substantially from$1.6 mil-lion in fiscal 1999 to$41.6 million in fiscal 2000.This was due to thewrite-off of goodwill acquired in purchase acquisitions.Operating Income(Loss)Ope

131、rating income(loss)for the year ended March 31,2000,was$(30.3)million,compared to$26.7 million in fiscal 1999.Publishing operating income(loss)for the year ended March 31,2000 decreased 382%to$(35.0)million,compared to$12.4 million inthe prior fiscal year.The decrease reflects the charges incurred i

132、n con-junction with the Companys restructuring plan as previously described,which predominantly impacted the Companys publishing segment.Distribution operating income for the year ended March 31,2000decreased 67%to$4.7 million,compared to$14.3 million in the priorfiscal year.The period over period c

133、hange primarily was due to a decreasein distribution sales and the UK price reductions,as noted earlier.Activision,Inc.142001 Annual ReportOther Income(Expense)Interest expense,net of interest income,increased to$8.4 million forthe year ended March 31,2000,from$3.0 million for the year endedMarch 31

134、,1999.This increase primarily was the result of interest costsassociated with the Companys$125 million term loan and revolvingcredit facility obtained in June 1999.Provision for Income TaxesThe income tax benefit of$4.6 million for the year ended March 31,2000 reflected the Companys effective income

135、 tax rate of approxi-mately 12%.The significant items that generated the variance betweenthe Companys effective rate and its statutory rate of 34%were nonde-ductible goodwill amortization and an increase in the Companysdeferred tax asset valuation allowance,partially offset by research and developme

136、nt tax credits.The realization of deferred tax assets pri-marily is dependent on the generation of future taxable income.Management believes that it is more likely than not that the Companywill generate taxable income sufficient to realize the benefit of netdeferred tax assets recognized.Quarterly O

137、perating ResultsThe Companys quarterly operating results have in the past varied sig-nificantly and will likely vary significantly in the future,depending on numerous factors,several of which are not under the Companyscontrol.See“Managements Discussion and Analysis of FinancialCondition and Results

138、of OperationsStrategic Restructuring Plan.”The Companys business also has experienced and is expected to con-tinue to experience significant seasonality,in part due to consumer buy-ing patterns.Net revenues typically are significantly higher during thefourth calendar quarter,primarily due to the inc

139、reased demand for con-sumer software during the year-end holiday buying season.Accordingly,the Company believes that period-to-period comparisons of its operat-ing results are not necessarily meaningful and should not be relied uponas indications of future performance.The following table is a compar

140、ative breakdown of the Companys quarterly results for the immediately preceding eight quarters(amounts inthousands,except per share data):March 31,Dec.31,Sept.30,June 30,March 31,Dec.31,Sept.30,June 30,Quarter ended20012000200020002000(1)199919991999(2)Net revenues.$126,789$264,473$144,363$84,558$10

141、3,838$268,862$115,363$84,142Operating income(loss).2,01534,7549,536(6,498)(65,990)38,2413,525(6,101)Net income(loss).87520,5054,306(5,179)(52,877)22,3011,063(4,575)Basic earnings(loss)per share.0.030.840.18(0.21)(2.07)0.890.04(0.19)Diluted earnings(loss)per share.0.030.700.17(0.21)(2.07)0.750.04(0.1

142、9)(1)See“Managements Discussion and Analysis of Financial Condition and Results of OperationsStrategic Restructuring Plan.”(2)Restated for acquisition of Neversoft.LIQUIDITY AND CAPITAL RESOURCESThe Companys cash and cash equivalents increased$75.6 million,from$50.0 million at March 31,2000 to$125.6

143、 million at March 31,2001.This was in comparison to a$17.0 million increase in cash flowsin fiscal year 2000 from$33.0 million at March 31,1999 to$50.0million at March 31,2000.This increase in cash in fiscal year 2001resulted from$81.6 million and$2.5 million provided by operatingactivities and fina

144、ncing activities,respectively,offset by$8.6 millionutilized in investing activities.The cash provided by operating activitiesprimarily was the result of changes in accounts receivable and accountspayable,driven by a seasonal change in working capital needs.The cashused in investing activities primar

145、ily is the result of capital expenditures.The cash provided by financing activities is primarily the result of$33.6 million of cash proceeds from the issuance common stock pur-suant to employee stock option plans,the employee stock purchase planand warrants.These inflows were partially offset by$16.

146、1 in net cashpayments on borrowings,as well as$15.0 million of cash used by theCompany to purchase its common stock under its repurchase program.In connection with the Companys purchases of Nintendo N64hardware and software cartridges for distribution in North America andEurope,Nintendo requires the

147、 Company to provide irrevocable lettersof credit prior to accepting purchase orders from the Company.Furthermore,Nintendo maintains a policy of not accepting returns ofNintendo N64 hardware and software cartridges.Because of these andother factors,the carrying of an inventory of Nintendo N64 hardwar

148、eand software cartridges entails significant capital and risk.As of March31,2001,the Company had$5.4 million of N64 hardware and soft-ware cartridge inventory on hand,which represented approximately 12%of all inventory.In December 1997,the Company completed the private placementof$60.0 million princ

149、ipal amount of 634%convertible subordinatednotes due 2005(the“Notes”).The Notes are convertible,in whole orin part,at the option of the holder at any time after December 22,1997(the date of original issuance)and prior to the close of business on thebusiness day immediately preceding the maturity dat

150、e,unless previouslyredeemed or repurchased,into common stock,$.000001 par value,ofthe Company,at a conversion price of$18.875 per share,(equivalent toa conversion rate of 52.9801 shares per$1,000 principal amount ofNotes),subject to adjustment in certain circumstances.The Notes areredeemable,in whol

151、e or in part,at the option of the Company at anytime on or after January 10,2001.If redemption occurs prior toDecember 31,2003,the Company must pay a premium on suchredeemed Notes.Subsequent to March 31,2001,the Company calledfor the redemption of the Notes.In connection with that call,as of June20,

152、2001,holders have converted for common stock approximately$60.0 million aggregate principal amount of their convertible subordi-nated notes.The Company has a$100.0 million revolving credit facility and a$25.0 million term loan with a syndicate of banks(the“U.S.Facility”).The revolving portion of the

153、 U.S.Facility provides the Company withthe ability to borrow up to$100.0 million and issue letters of credit upto$80 million on a revolving basis against eligible accounts receivable15and inventory.The$25.0 million term loan portion of the U.S.Facilitywas used to fund the acquisition of Expert Softw

154、are,Inc.in June 1999and to pay costs related to such acquisition and the securing of the U.S.Facility.The term loan has a three year term with principal amortizationon a straight-line quarterly basis beginning December 31,1999 and aborrowing rate based on the banks base rate(which is generally equiv

155、a-lent to the published prime rate)plus 2%or LIBOR plus 3%.Therevolving portion of the U.S Facility has a borrowing rate based on thebanks base rate plus 1.75%or LIBOR plus 2.75%and matures June2002.The U.S.Facility had a weighted average interest rate of approxi-mately 9.70%for the year ending Marc

156、h 31,2001.The Company paysa commitment fee of 12%on the unused portion of the revolving line.The U.S.Facility is collateralized by substantially all of the assets of theCompany and its U.S.subsidiaries.The U.S.Facility contains variouscovenants which limit the ability of the Company to incur additio

157、nalindebtedness,pay dividends or make other distributions,create certainliens,sell assets,or enter into certain mergers or acquisitions.TheCompany is also required to maintain specified financial ratios relatedto net worth and fixed charges.As of March 31,2001,the Companywas in compliance with these

158、 covenants.As of March 31,2001,approx-imately$8.5 million was outstanding under the term loan portion ofthe U.S.Facility.As of March 31,2001,there were no borrowings out-standing and$18.2 million letters of credit outstanding against therevolving portion of the U.S.Facility.In May 2001,the Company r

159、epaid the remaining$8.5 million bal-ance of the term loan portion of the U.S.Facility.In conjunction withthe accelerated repayment of the term loan,the Company amended theU.S.Facility effective May 7,2001.The amended and restated U.S.Facility eliminates the term loan,reduces the revolvers to$78.0 mi

160、llion,reduces the interest rate to Prime plus 1.25%or LIBOR plus 2.25%,eliminates certain covenants,increases the advance rates and reduces thefee paid for maintenance of the facility.The Company has a revolving credit facility through its CDContact subsidiary in the Netherlands(the“Netherlands Faci

161、lity”).The Netherlands Facility permits revolving credit loans and letters ofcredit up to Netherlands Guilder(“NLG”)26 million($10 million)atMarch 31,2001,based upon eligible accounts receivable and inventorybalances.The Netherlands Facility is due on demand,bears interest at aEurocurrency rate plus

162、 1.50%(weighted average interest rate of 7.40%as of March 31,2001)and matures August 2003.The Company had$1.8 million of borrowings outstanding under the Netherlands Facilityat March 31,2001.There were no letters of credit under theNetherlands Facility as of March 31,2001.The Company also has revolv

163、ing credit facilities with its CentreSoftsubsidiary located in the United Kingdom,(the“UK Facility”)and itsNBG subsidiary located in Germany,(the“German Facility”).The UKFacility can be used for working capital requirements and provides forBritish Pounds(“GBP”)7 million($10.0 million)of revolving lo

164、ansand GBP 3 million($4.3 million)of letters of credit,bears interest atLIBOR plus 2%,is collateralized by substantially all of the assets of thesubsidiary and matures in July 2001.The UK Facility also contains var-ious covenants that require the subsidiary to maintain specified finan-cial ratios re

165、lated to,among others,fixed charges.The Company was incompliance with these covenants as of March 31,2001.No borrowingswere outstanding against the UK Facility at March 31,2001.Letters ofcredit of GBP 3.0 million($4.3 million)were outstanding against theUK Facility at March 31,2001.The German Facili

166、ty can be used forworking capital requirements and provides for revolving loans up toDeutsche Marks(“DM”)4 million($1.8 million),bears interest at7.0%,is collateralized by a cash deposit of approximately GBP 650,000($928,000)made by the Companys CentreSoft subsidiary and has noexpiration date.No bor

167、rowings were outstanding against the GermanFacility as of March 31,2001.In the normal course of business,the Company enters into contrac-tual arrangements with third parties for the development of products.Under these agreements,the Company commits to provide specifiedpayments to a developer,conting

168、ent upon the developers achievement ofcontractually specified milestones.Assuming all contractually specifiedmilestones are achieved,for contracts in place as of March 31,2001,thetotal future minimum contract commitment is approximately$62.1 mil-lion,which is scheduled to be paid as follows(amounts

169、in thousands):Year ending March 31,2002.$35,1972003.13,5282004.6,2502005.2,9252006.1,675Thereafter.2,500$62,075Additionally,as of March 31,2001,under the terms of a produc-tion financing arrangement,the Company has a commitment to pur-chase two future PlayStation 2 titles from independent third part

170、ydevelopers for an estimated$5.7 million.Failure by the developers tocomplete the project within the contractual time frame or specificationsalleviates the Companys commitment.The Company historically has financed its acquisitions through theissuance of shares of its common stock.The Company will co

171、ntinue toevaluate potential acquisition candidates as to the benefit they bring tothe Company and as to the ability of the Company to make such acqui-sitions and maintain compliance with its bank facilities.In May 2000,the Board of Directors authorized the Company topurchase up to$15.0 million in sh

172、ares of its common stock as well asits convertible subordinated notes.The shares and notes could be pur-chased in the open market or in privately negotiated transactions at suchtimes and in such amounts as management deemed appropriate,depend-ing on market conditions and other factors.During fiscal

173、2001,theCompany repurchased 2.3 million shares of its common stock forapproximately$15.0 million.The Company believes that it has sufficient working capital($183.0 million at March 31,2001),as well as proceeds available fromthe U.S.Facility,the UK Facility,the Netherlands Facility and theGerman Faci

174、lity,to finance the Companys operational requirements forat least the next twelve months,including acquisitions of inventory andequipment,the funding of the development,production,marketing andsale of new products,the acquisition of intellectual property rights forfuture products from third parties

175、and the repurchase of common stockand notes under the Companys repurchase plan.Activision,Inc.162001 Annual ReportINFLATIONThe Companys management currently believes that inflation has nothad a material impact on continuing operations.EURO CONVERSIONOn January 1,1999,eleven of the fifteen member cou

176、ntries of theEuropean Union adopted the“euro”as their common currency.Thesovereign currencies of the participating countries are scheduled toremain legal tender as denominations of the euro between January 1,1999 and January 1,2002.Beginning January 1,2002,the participatingcountries will issue new e

177、uro-denominated bills and coins for use incash transactions.No later than July 1,2002,the participating coun-tries will withdraw all bills and coins denominated in the sovereign cur-rencies,so that the sovereign currencies no longer will be legal tenderfor any transactions,making conversion to the e

178、uro complete.TheCompany has performed an internal analysis of the possible implica-tions of the euro conversion on the Companys business and financialcondition,and has determined that the impact of the conversion will beimmaterial to its overall operations.The Companys wholly owned sub-sidiaries ope

179、rating in participating countries represented 8%and 12%ofthe Companys consolidated net revenues for the years ended March 31,2001 and 2000,respectively.IMPLEMENTATION OF SAB 101The Securities and Exchange Commission(“SEC”)issued StaffAccounting Bulletin(“SAB”)101,Revenue Recognition in FinancialStat

180、ements,in December 1999.The SAB summarizes certain of theSEC staffs views in applying generally accepted accounting principlesto revenue recognition in financial statements.During the year endedMarch 31,2001,the Company performed a review of its revenue recog-nition policies and determined that it i

181、s in compliance with SAB 101.RECENTLY ISSUED ACCOUNTING STANDARDSStatement of Financial Accounting Standards No.133,“Accounting forDerivative Instruments and Hedging Activities,”(“SFAS No.133”)assubsequently amended by SFAS No.137 and SFAS No.138,is effec-tive for all fiscal years beginning after Ju

182、ne 15,2000.SFAS No.133establishes accounting and reporting standards for derivative instru-ments and for hedging activities.It requires that an entity recognize allderivatives as either assets or liabilities in the statement of financialposition and measure those instruments at fair value.The Compan

183、ydoes not currently participate in hedging activities or own derivativeinstruments but plans to adopt SFAS No.133 beginning April 1,2001.Management does not believe the adoption of SFAS No.133 will havea material impact on the financial position or results of operations ofthe Company.QUANTITATIVE AN

184、D QUALITATIVE DISCLOSURESABOUT MARKET RISKMarket risk is the potential loss arising from fluctuations in marketrates and prices.The Companys market risk exposures primarilyinclude fluctuations in interest rates and foreign currency exchangerates.The Companys market risk sensitive instruments are cla

185、ssified as“other than trading.”The Companys exposure to market risk as dis-cussed below includes“forward-looking statements”and represents anestimate of possible changes in fair value or future earnings that wouldoccur assuming hypothetical future movements in interest rates or for-eign currency exc

186、hange rates.The Companys views on market risk arenot necessarily indicative of actual results that may occur and do notrepresent the maximum possible gains and losses that may occur,sinceactual gains and losses will differ from those estimated,based uponactual fluctuations in foreign currency exchan

187、ge rates,interest rates andthe timing of transactions.Interest Rate RiskThe Company has a number of variable rate and fixed rate debt obliga-tions,denominated both in U.S.dollars and various foreign currenciesas detailed in Note 10 to the Consolidated Financial Statementsappearing elsewhere in this

188、Annual Report.The Company managesinterest rate risk by monitoring its ratio of fixed and variable rate debtobligations in view of changing market conditions.Additionally,in thefuture,the Company may consider the use of interest rate swap agree-ments to further manage potential interest rate risk.As

189、of March 31,2001,the carrying value of the Companys vari-able rate debt was$10.3 million,which includes the U.S.Facility($8.5million)and the Netherlands Facility($1.8 million).As of March 31,2000,the carrying value of the Companys variable rate debt was$26.0million,which included the U.S.Facility($2

190、2.5 million)and theNetherlands Facility($3.5 million).A hypothetical 1%increase in theapplicable interest rates of the Companys variable rate debt wouldincrease annual interest expense by approximately$103,000 and$260,000,as March 31,2001 and 2000,respectively.The Company additionally has 634%conver

191、tible subordinated notesdue 2005(the“Notes”)that have a carrying value of$60.0 million asof March 31,2001 and 2000.The Notes have a fair value of$60.0 mil-lion and$51.6 million as of March 31,2001 and 2000,respectively.The fair value of the Notes was determined based on quoted marketprices.A hypothe

192、tical 1%increase in market rates would decrease theirfair value by approximately$600,000 and$516,000 as of March 31,2001 and 2000,respectively.Subsequent to March 31,2001,the Companys holdings of marketrisk sensitive instruments changed.Subsequent to March 31,2001,theCompany called for the redemptio

193、n of$60.0 million of the Notes.Inconnection with that call,as of June 20,2001,holders have convertedto common stock approximately$60.0 million aggregate principalamount of their Notes.Additionally,in May 2001,the Company repaidin full the remaining$8.5 million balance of the term loan portion ofthe

194、U.S.Facility.Foreign Currency Exchange Rate RiskThe Company transacts business in many different foreign currenciesand may be exposed to financial market risk resulting from fluctuationsin foreign currency exchange rates,particularly GBP.The volatility ofGBP(and all other applicable currencies)will

195、be monitored frequentlythroughout the coming year.While the Company has not traditionallyengaged in foreign currency hedging,the Company may in the futureuse hedging programs,currency forward contracts,currency optionsand/or other derivative financial instruments commonly utilized toreduce financial

196、 market risks if it is determined that such hedging activ-ities are appropriate to reduce risk.17To the Board of Directors and Shareholders:In our opinion,the accompanying consolidated balance sheet as ofMarch 31,2001 and the related consolidated statements of opera-tions,changes in shareholders equ

197、ity and cash flows present fairly,inall material respects,the financial position of Activision,Inc.and itssubsidiaries(the“Company”)at March 31,2001,and the results of their operations and their cash flows for the year then ended inconformity with accounting principles generally accepted in theUnite

198、d States of America.These financial statements are the respon-sibility of the Companys management;our responsibility is toexpress an opinion on these financial statements based on our audit.We conducted our audit of these statements in accordance with audit-ing standards generally accepted in the Un

199、ited States of America,which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement.An audit includes examining,on a test basis,evidencesupporting the amounts and disclosures in the financial statements,assess

200、ing the accounting principles used and significant estimatesmade by management,and evaluating the overall financial statementpresentation.We believe that our audit provides a reasonable basis forour opinion.PricewaterhouseCoopers LLPLos Angeles,CAMay 9,2001The Board of Directors and Shareholders:We

201、have audited the accompanying consolidated balance sheet ofACTIVISION,INC.and subsidiaries as of March 31,2000 and therelated consolidated statements of operations,changes in shareholdersequity and cash flows for each of the years in the two-year period endedMarch 31,2000.In connection with our audi

202、t of the consolidated finan-cial statements,we also have audited financial statement schedule II foreach of the years in the two-year period ended March 31,2000.Theseconsolidated financial statements and financial statement schedule arethe responsibility of the Companys management.Our responsibility

203、 isto express an opinion on these consolidated financial statements andfinancial statement schedule based on our audits.We conducted our audits in accordance with generally acceptedauditing standards.Those standards require that we plan and performthe audit to obtain reasonable assurance about wheth

204、er the financialstatements are free of material misstatement.An audit includes examin-ing,on a test basis,evidence supporting the amounts and disclosures inthe financial statements.An audit also includes assessing the accountingprinciples used and significant estimates made by management,as wellas e

205、valuating the overall financial statement presentation.We believethat our audits provide a reasonable basis for our opinion.In our opinion,the consolidated financial statements referred toabove present fairly,in all material respects,the financial position ofACTIVISION,INC.and subsidiaries as of Mar

206、ch 31,2000,and theresults of their operations and their cash flows for each of the years inthe two-year period ended March 31,2000,in conformity with gener-ally accepted accounting principles.Also in our opinion,the relatedfinancial statement schedule for each of the years in the two-year periodende

207、d March 31,2000,when considered in relation to the basic consol-idated financial statements taken as a whole,presents fairly,in all mate-rial respects,the information set forth therein.KPMG LLPLos Angeles,CaliforniaMay 5,2000,except as to Note 16,which is as of June 9,2000Report of Independent Accou

208、ntantsActivision,Inc.Report of Independent Accountants182001 Annual ReportConsolidated Balance SheetsMarch 31,(In thousands,except share data)20012000ASSETSCurrent assets:Cash and cash equivalents.$125,550$49,985Accounts receivable,net of allowances of$28,461 and$31,521 at March 31,2001 and 2000,res

209、pectively.73,802108,108Inventories.43,88840,453Prepaid royalties and capitalized software costs.27,50231,655Deferred income taxes.14,29214,159Other current assets.13,19617,815Total current assets.298,230262,175Prepaid royalties and capitalized software costs.14,7039,153Property and equipment,net.15,

210、24010,815Deferred income taxes.13,7596,055Goodwill,net.10,31612,347Other assets.7,7099,192Total assets.$359,957$309,737LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt.$10,231$16,260Accounts payable.60,98038,286Accrued expenses.44,03949,404Total current liabil

211、ities.115,250103,950Long-term debt,less current portion.3,40113,778Convertible subordinated notes.60,00060,000Total liabilities.178,651177,728Commitments and contingenciesShareholders equity:Preferred stock,$.000001 par value,5,000,000 shares authorized,no shares issued at March 31,2001 and 2000.Com

212、mon stock,$.000001 par value,50,000,000 shares authorized,30,166,455 and 26,488,260 shares issued and 27,282,476 and 25,988,260 shares outstanding at March 31,2001 and 2000,respectively.Additional paid-in capital.200,786151,714Retained earnings(deficit).12,146(8,361)Accumulated other comprehensive l

213、oss.(11,377)(6,066)Less:Treasury stock,cost,2,883,979 and 500,000 shares as of March 31,2001 and 2000,respectively.(20,249)(5,278)Total shareholders equity.181,306132,009Total liabilities and shareholders equity.$359,957$309,737The accompanying notes are an integral part of these consolidated financ

214、ial statements.19For the years ended March 31,(In thousands,except per share data)200120001999Net revenues.$620,183$572,205$436,526Costs and expenses:Cost of salesproduct costs.324,907319,422260,041Cost of salesroyalties and software amortization.89,70291,23836,990Product development.41,39626,27522,

215、875Sales and marketing.85,37887,30366,420General and administrative.37,49136,67421,948Amortization of intangible assets.1,50241,6181,585Total costs and expenses.580,376602,530409,859Income(loss)from operations.39,807(30,325)26,667Interest expense,net.(7,263)(8,411)(3,031)Income(loss)before income ta

216、x provision.32,544(38,736)23,636Income tax provision(benefit).12,037(4,648)8,745Net income(loss).$20,507$(34,088)$14,891Basic earnings(loss)per share.$0.82$(1.38)$0.65Weighted average common shares outstanding.24,86524,69122,861Diluted earnings(loss)per share.$0.75$(1.38)$0.62Weighted average common

217、 shares outstandingassuming dilution.27,40024,69123,932The accompanying notes are an integral part of these consolidated financial statements.Consolidated Statements of OperationsActivision,Inc.202001 Annual ReportConsolidated Statements of Changes in Shareholders EquityAccumulatedAdditional Retaine

218、dOther Compre-Common StockPaid-InEarningsTreasury StockhensiveShareholdersFor the years ended March 31,2001,2000 and 1999(In thousands)SharesAmountCapital(Deficit)SharesAmount Income(Loss)EquityBALANCE,MARCH 31,1998.23,107$91,825$10,836(500)$(5,278)$92$97,475Components of comprehensive income:Net in

219、come for the year.14,89114,891Foreign currency translation adjustment.(2,602)(2,602)Total comprehensive income.12,289Issuance of common stock and common stock warrants.3,3683,368Issuance of common stock pursuant to employee stock option plans.6055,2715,271Issuance of common stock pursuant to employe

220、e stock purchase plan.92798798Tax benefit attributable to employee stock option plans.1,0591,059Tax benefit derived from net operating loss carryforward utilization.2,4302,430Conversion of notes payable to common stock.4,5004,500BALANCE,MARCH 31,1999.23,804109,25125,727(500)(5,278)(2,510)127,190Comp

221、onents of comprehensive income:Net loss for the year.(34,088)(34,088)Foreign currency translation adjustment.(3,556)(3,556)Total comprehensive loss.(37,644)Issuance of common stock and common stock warrants.8,5298,529Issuance of common stock pursuant to employee stock option plans.2,33121,71821,718I

222、ssuance of common stock pursuant to employee stock purchase plan.72762762Tax benefit attributable to employee stock option plans.3,0173,017Tax benefit derived from net operating loss carryforward utilization.1,2661,266Acquisitions and investments made with common stock and common stock options.2817,

223、1717,171BALANCE,MARCH 31,2000.26,488151,714(8,361)(500)(5,278)(6,066)132,009Components of comprehensive income:Net income for the year.20,50720,507Foreign currency translation adjustment.(5,311)(5,311)Total comprehensive income.15,196Issuance of common stock and common stock warrants.1001,0501,050Is

224、suance of common stock pursuant to employee stock option plans.3,49931,69331,693Issuance of common stock pursuant to employee stock purchase plan.79845845Tax benefit attributable to employee stock option plans.11,83211,832Tax benefit derived from net operating loss carryforward utilization.3,6523,65

225、2Purchase of treasury shares.(2,384)(14,971)(14,971)BALANCE MARCH 31,2001.30,166$200,786$12,146(2,884)$(20,249)$(11,377)$181,306The accompanying notes are an integral part of these consolidated financial statements.21For the years ended March 31,(In thousands)200120001999Cash flows from operating ac

226、tivities:Net income(loss).$20,507$(34,088)$14,891Adjustments to reconcile net income(loss)to net cash provided by operating activities:Deferred income taxes.(6,597)(4,311)3,806Depreciation and amortization.6,26845,8666,488Amortization of prepaid royalties and capitalize software costs.68,92578,71427

227、,055Expense related to common stock warrants.1,4065,769388Tax benefit of stock options exercised.11,8323,0171,059Change in assets and liabilities(net of effects of purchases and acquisitions):Accounts receivable.30,0279,900(43,686)Inventories.(5,283)(7,342)(11,506)Prepaid royalties and capitalized s

228、oftware costs.(65,964)(74,506)(60,531)Other assets.6,062(6,307)(6,862)Accounts payable.21,361(8,038)(6,620)Accrued expenses and other liabilities.(6,979)(5,791)33,177Net cash provided by(used in)operating activities.81,5652,883(42,341)Cash flows from investing activities:Cash used in purchase acquis

229、itions(net of cash acquired).(20,523)Capital expenditures.(9,780)(4,518)(3,800)Proceeds from disposal of property and equipment.1,149Net cash used in investing activities.(8,631)(25,041)(3,800)Cash flows from financing activities:Proceeds from issuance of common stock pursuant to employee stock opti

230、on plans.31,69321,7185,271Proceeds from issuance of common stock pursuant to employee stock purchase plan.845762798Proceeds from issuance of common stock pursuant to warrants.1,050Borrowing under line-of-credit agreement.577,590361,1615,300Payment under line-of-credit agreement.(581,618)(355,156)(5,

231、300)Payment on term loan.(11,450)(1,645)Proceeds from term loan.25,000Notes payable,net.(592)(6,457)1,151Cash paid to secure line of credit and term loan.(3,355)Purchase of treasury stock.(14,971)Net cash provided by financing activities.2,54742,0287,220Effect of exchange rate changes on cash.84(2,9

232、22)(2,361)Net increase(decrease)in cash and cash equivalents.75,56516,948(41,282)Cash and cash equivalents at beginning of period.49,98533,03774,319Cash and cash equivalents at end of period.$125,550$49,985$33,037The accompanying notes are an integral part of these consolidated financial statements.

233、Consolidated Statements of Cash FlowsActivision,Inc.222001 Annual ReportNotes to Consolidated Financial Statements1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusinessActivision,Inc.(“Activision”or the“Company”)is a leading interna-tional publisher,developer and distributor of interactive entertainme

234、ntand leisure products.The Company currently focuses its publishing,development and distribution efforts on products designed for personalcomputers(“PCs”)as well as the Sony PlayStation(“PSX”)andPlayStation 2(“PS2”)and Nintendo N64(“N64”)console systemsand Nintendo Game Boy hand-held game devices.Th

235、e Company is alsocurrently focusing on the development of products for the MicrosoftXbox(“Xbox”)and Nintendo GameCube console systems andNintendo Game Boy Advance hand-held device.During January 2001,Sega Corp.,the maker of the Sega Dreamcast(“Dreamcast”)announcedthat it would stop making the Dreamc

236、ast in March 2001.Net revenuesfrom the Dreamcast have historically represented only a small percent-age of the Companys total net revenues.Accordingly,the Companybelieves that the departure of the Dreamcast console system from themarket will not have a material impact upon its financial position orr

237、esults of operations.The Company maintains operations in the U.S.,Canada,theUnited Kingdom,France,Germany,Japan,Australia,Belgium and theNetherlands.For fiscal year 2001,international operations contributedapproximately 43%of net revenues.Principles of ConsolidationThe consolidated financial stateme

238、nts include the accounts of Activision,Inc.,a Delaware corporation,and its wholly-owned subsidiaries(the“Company”or“Activision”).All intercompany accounts and transactionshave been eliminated in consolidation.Basis of PresentationThe consolidated financial statements have been retroactively restated

239、 toreflect the poolings of interests of the Company with JCM Productions,Inc.dba Neversoft Entertainment(“Neversoft”)in September 1999.Cash and Cash EquivalentsCash and cash equivalents include cash,money markets and short-terminvestments with original maturities of not more than 90 days.The Company

240、s cash and cash equivalents were comprised of thefollowing at March 31,2001 and 2000(amounts in thousands):March 31,20012000Cash.$63,018$32,637Money market funds.62,53217,348$125,550$49,985Concentration of Credit RiskFinancial instruments which potentially subject the Company to con-centration of cr

241、edit risk consist principally of temporary cash invest-ments and accounts receivable.The Company places its temporary cashinvestments with financial institutions.At various times during the fiscal years ended March 31,2001 and 2000,the Company haddeposits in excess of the Federal Deposit Insurance C

242、orporation(“FDIC”)limit at these financial institutions.The Companys cus-tomer base includes retail outlets and distributors including consumerelectronics and computer specialty stores,discount chains,video rentalstores and toy stores in the United States and countries worldwide.TheCompany performs

243、ongoing credit evaluations of its customers andmaintains allowances for potential credit losses.The Company generallydoes not require collateral or other security from its customers.As of and for the year ending March 31,2001,the Companys pub-lishing business had one customer that accounted for 10%o

244、f its con-solidated net revenues and 15%of its consolidated accounts receivable,net.For the years ending March 31,2000 and 1999,no single customeraccounted for 10%or more of consolidated net revenues.Fair Value of Financial InstrumentsThe estimated fair values of financial instruments have been dete

245、rminedby the Company using available market information and valuationmethodologies described below.However,considerable judgment isrequired in interpreting market data to develop the estimates of fair value.Accordingly,the estimates presented herein may not be indicative of theamounts that the Compa

246、ny could realize in a current market exchange.The use of different market assumptions or valuation methodologiesmay have a material effect on the estimated fair value amounts.Cash and cash equivalents,accounts receivable,accounts payableand accrued liabilities:The carrying amounts of these instrumen

247、tsapproximate fair value due to their short-term nature.Long-term debt and convertible subordinated notes:The carryingamounts of the Companys variable rate debt approximate fair valuebecause the interest rates are based on floating rates identified by refer-ence to market rates.The fair value of the

248、 Companys fixed rate debt isbased on quoted market prices,where available,or discounted futurecash flows based on the Companys current incremental borrowing ratesfor similar types of borrowing arrangements as of the balance sheetdate.The carrying amount and fair value of the Companys long-termdebt a

249、nd convertible subordinated notes,was$73.6 million and$60.0million,respectively,as of March 31,2001 and$90.0 million and$81.6 million,respectively,as of March 31,2000.Prepaid Royalties and Capitalized Software CostsPrepaid royalties include payments made to independent software devel-opers under dev

250、elopment agreements and license fees paid to intellectualproperty rights holders for use of their trademarks or copyrights.Intellectual property rights which have alternative future uses are capital-ized.Capitalized software costs represent costs incurred for developmentthat are not recoupable again

251、st future royalties.The Company accounts for prepaid royalties relating to develop-ment agreements and capitalized software costs in accordance withStatement of Financial Accounting Standards(“SFAS”)No.86,“Accounting for the Costs of Computer Software to be Sold,Leased,orOtherwise Marketed.”Software

252、 development costs and prepaid royaltiesare capitalized once technological feasibility is established.Technologicalfeasibility is evaluated on a product by product basis.For productswhere proven game engine technology exists,this may occur early in thedevelopment cycle.Software development costs are

253、 expensed if andwhen they are deemed unrecoverable.Amounts related to software devel-opment which are not capitalized are charged immediately to productdevelopment expense.23The following criteria is used to evaluate recoverability of softwaredevelopment costs:historical performance of comparable pr

254、oducts;thecommercial acceptance of prior products released on a given gameengine;orders for the product prior to its release;estimated perform-ance of a sequel product based on the performance of the product onwhich the sequel is based;and actual development costs of a product ascompared to the Comp

255、anys budgeted amount.Commencing upon product release prepaid royalties and capitalizedsoftware development costs are amortized to cost of salesroyaltiesand software amortization on the ratio of current revenues to total pro-jected revenues,generally resulting in an amortization period of oneyear or

256、less.For products that have been released,management evaluatesthe future recoverability of capitalized amounts on a quarterly basis.As of March 31,2001,prepaid royalties and unamortized capitalizedsoftware costs totaled$38.3 million(including$14.7 million classified asnon-current)and$3.9 million,res

257、pectively.As of March 31,2000,pre-paid royalties and unamortized capitalized software costs totaled$29.2million(including$9.2 million classified as non-current)and$11.6million,respectively.Amortization of prepaid royalties and capitalizedsoftware costs was$68.9 million,$78.7 million and$27.1 million

258、 forthe years ended March 31,2001,2000 and 1999,respectively.InventoriesInventories are valued at the lower of cost(first-in,first-out)or market.Revenue RecognitionProduct Sales:The Company recognizes revenue from the sale of itsproducts once they are shipped and are available for general release to

259、customers.Subject to certain limitations,the Company permits cus-tomers to obtain exchanges or return products within certain specifiedperiods and provides price protection on certain unsold merchandise.Management of the Company estimates the amount of future returns,and price protections based upon

260、 historical results and current knowncircumstances.Revenue from product sales is reflected net of theallowance for returns and price protection.Software Licenses:For those license agreements which provide thecustomers the right to multiple copies in exchange for guaranteedamounts,revenue is recogniz

261、ed at delivery.Per copy royalties on saleswhich exceed the guarantee are recognized as earned.Advertising ExpensesThe Company expenses advertising and the related costs as incurred.Advertising expenses for the years ended March 31,2001,2000 and1999 were approximately$16.5 million,$18.6 million and$1

262、5.6 mil-lion,respectively,and are included in sales and marketing expense in theconsolidated statements of operations.Goodwill and Long-Lived AssetsCost in excess of the fair value of net assets of companies acquired,goodwill,is being amortized on a straight-line basis over periods rangingfrom 5 to

263、20 years.As of March 31,2001 and 2000,accumulated amor-tization amounted to$51.9 million and$50.8 million,respectively.TheCompany accounts for impairment of long-lived assets,including good-will,in accordance with SFAS No.121,“Accounting for Impairment ofLong-Lived Assets and Long-Lived Assets to Be

264、 Disposed Of.”ThisStatement requires that long-lived assets and certain identifiable intangi-bles,including goodwill,be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an assetmay not be recoverable.Recoverability of assets to be held and used

265、ismeasured by a comparison of the carrying amount of the asset to undis-counted cash flows expected to be generated by the asset.If such assetsare considered to be impaired,the impairment to be recognized is meas-ured by the amount by which the carrying amount exceeds the fair valueof the assets.In

266、conjunction with its strategic restructuring plan asdetailed in Note 3,in the fourth quarter of fiscal 2000,the Companyrecorded a charge for impairment of goodwill of$37.2 million.See Note 3for further discussion.Interest Expense,netInterest expense,net is comprised of the following,(amounts in thou

267、sands):March 31,200120001999Interest expense.$(9,399)$(9,375)$(4,974)Interest income.2,1369641,943Net interest income(expense).$(7,263)$(8,411)$(3,031)Income TaxesThe Company accounts for income taxes using SFAS No.109,“Accounting for Income Taxes.”Under SFAS No.109,income taxes areaccounted for und

268、er the asset and liability method.Deferred tax assetsand liabilities are recognized for the future tax consequences attributa-ble to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operatingloss and tax credit carryfor

269、wards.Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recov-ered or settled.The effect on deferred tax assets and liabilities of achange in tax rates is recognized in incom

270、e in the period that includesthe enactment date.Foreign Currency TranslationThe functional currencies of the Companys foreign subsidiaries aretheir local currencies.All assets and liabilities of the Companys foreignsubsidiaries are translated into U.S.dollars at the exchange rate in effectat the end

271、 of the period,and revenue and expenses are translated atweighted average exchange rates during the period.The resulting trans-lation adjustments are reflected as a component of shareholders equity.EstimatesThe preparation of financial statements in conformity with generallyaccepted accounting princ

272、iples requires management to make estimatesand assumptions that affect the reported amounts of assets and liabili-ties at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.Actual results coulddiffer from those estimates.Earnings Per Com

273、mon ShareBasic earnings per share is computed by dividing net income by theweighted average number of common shares outstanding for all periods.Diluted earnings per share is computed by dividing net income by theweighted average number of common shares and common stock equiva-lents from outstanding

274、stock options and warrants and convertible debt.Common stock equivalents are calculated using the treasury stockActivision,Inc.242001 Annual Reportmethod and represent incremental shares issuable upon exercise of theCompanys outstanding options and warrants and conversion of theCompanys convertible

275、debt.However,potential common shares are notincluded in the denominator of the diluted earnings per share calcula-tion when inclusion of such shares would be anti-dilutive,such as in aperiod in which the Company records a net loss.Stock Based CompensationPrior to April 1,1996,the Company accounted f

276、or its stock optionplan in accordance with the provisions of Accounting Principles BoardOpinion No.25,“Accounting for Stock Issued to Employees”(“APBNo.25”),and related interpretations.As such,compensation expensewould be recorded on the date of the grant only if the current marketprice of the under

277、lying stock exceeded the option exercise price.On April 1,1996 the Company adopted SFAS No.123,“Accountingfor Stock-Based Compensation,”which permits entities to recognize asexpense over the vesting period,the fair value of all stock-based awardson the date of the grant.Alternatively,SFAS No.123 als

278、o allows entities to continue to apply the provisions of APB No.25 and providepro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No.123 had beenapplied.The Company has elec

279、ted to continue to apply the provisionsof APB No.25 and provide the pro forma disclosure provisions of SFAS No.123.Warrants granted to non-employees are accounted for in accordancewith the Financial Accounting Standards Boards Emerging Issues TaskForce Issue No.96-18“Accounting for Equity Instrument

280、s that areIssued To Other Than Employees for Acquiring or in Connection WithSelling Goods or Services”(EITF 96-18).Related PartiesAs of March 31,2001 and 2000,the Company had$4.3 million and$2.7million,respectively,of loans outstanding due from employees.The loansbear interest at 6.75%and are primar

281、ily due from Company executives.Implementation of SAB 101The Securities and Exchange Commission(“SEC”)issued StaffAccounting Bulletin(“SAB”)101,Revenue Recognition in FinancialStatements,in December 1999.The SAB summarizes certain of theSEC staffs views in applying generally accepted accounting prin

282、ciplesto revenue recognition in financial statements.During the year endedMarch 31,2001,the Company performed a review of its revenue recog-nition policies and determined that it is in compliance with SAB 101.Recently Issued Accounting StandardsStatement of Financial Accounting Standards No.133,“Acc

283、ounting forDerivative Instruments and Hedging Activities,”(“SFAS No.133”)assubsequently amended by SFAS No.137 and SFAS No.138,is effec-tive for all fiscal years beginning after June 15,2000.SFAS No.133establishes accounting and reporting standards for derivative instru-ments and for hedging activit

284、ies.It requires that an entity recognize allderivatives as either assets or liabilities in the statement of financialposition and measure those instruments at fair value.The Companydoes not currently participate in hedging activities or own derivativeinstruments but plans to adopt SFAS No.133 beginn

285、ing April 1,2001.Management does not believe the adoption of SFAS No.133 will havea material impact on the financial position or results of operations ofthe Company.ReclassificationsCertain amounts in the consolidated financial statements have beenreclassified to conform with the current years prese

286、ntation.Thesereclassifications had no effect on net income(loss),shareholders equityor net increase(decrease)in cash and cash equivalents.2.ACQUISITIONSFISCAL 2000 TRANSACTIONSAcquisition of NeversoftOn September 30,1999,the Company acquired Neversoft,a privatelyheld console software developer,in ex

287、change for 698,835 shares of the Companys common stock.The acquisition was accounted for as a pooling of interests.Accordingly,in fiscal 2000 the Companyrestated the financial statements for all periods prior to the closing ofthe transaction.The following table represents the results of operations o

288、f the pre-viously separate companies for the period before the combination wasconsummated which are included in fiscal year 2000 combined netincome(loss)(amounts in thousands):ActivisionNeversoftTotalSix Months EndedSix Months EndedSix Months EndedFiscal Year 2000Sept.30,1999Sept.30,1999Sept.30,1999

289、Revenues.$199,505$199,505Net income(loss).$(3,028)$(484)$(3,512)Acquisition of Elsinore MultimediaOn June 29,1999,the Company acquired Elsinore Multimedia,Inc.(“Elsinore”),a privately held interactive software development company,in exchange for 204,448 shares of the Companys common stock.The acquis

290、ition was accounted for using the purchase method ofaccounting.Accordingly,the results of operations of Elsinore have beenincluded in the Companys consolidated financial statements from thedate of acquisition.The aggregate purchase price has been allocated tothe assets and liabilities acquired,consi

291、sting mostly of goodwill of$3.0million,that is being amortized over a five year period.Pro forma state-ments of operations reflecting the acquisition of Elsinore are notshown,as they would not differ materially from reported results.Acquisition of Expert SoftwareOn June 22,1999,the Company acquired

292、all of the outstanding capitalstock of Expert Software,Inc.(“Expert”),a publicly held developer andpublisher of value-line interactive leisure products,for approximately$24.7 million.The aggregate purchase price of approximately$24.7million consisted of$20.3 million in cash payable to the former sha

293、re-holders of Expert,the valuation of employee stock options in theamount of$3.3 million,and other acquisition costs.The acquisition was accounted for using the purchase method ofaccounting.Accordingly,the results of operations of Expert have beenincluded in the Companys consolidated financial state

294、ments from thedate of acquisition.25The aggregate purchase price was allocated to the fair values of theassets and liabilities acquired as follows(amounts in thousands):Tangible assets.$4,743Existing products.1,123Goodwill.28,335Liabilities.(9,532)$24,669However,as more fully described in Note 3,in

295、the fourth quarter offiscal 2000,the Company implemented a strategic restructuring plan toaccelerate the development of games for the next-generation consoles andthe Internet.In conjunction with that plan,the Company consolidatedExpert and its Head Games subsidiary,forming one integrated businessuni

296、t in the value software category.As part of this consolidation,theCompany discontinued several of Experts product lines and terminatedsubstantially all of Experts employees.In addition,the Company phasedout the use of the Expert name.As a result of these initiatives,in fiscal2000,the Company incurre

297、d a nonrecurring charge of$26.3 millionresulting from the write-down of intangibles acquired,including goodwill.FISCAL 1999 TRANSACTIONSThe acquisitions of Head Games and CD Contact were originallytreated as immaterial poolings of interests.However,after reviewing theresults of operations of the ent

298、ities,including the materiality andimpact on the Companys trends,in fiscal 1999 the Company restatedthe financial statements for all periods prior to the closing of eachrespective transaction.Acquisition of Head GamesOn June 30,1998,the Company acquired Head Games in exchange for1,000,000 shares of

299、the Companys common stock.The acquisitionwas accounted for as a pooling of interests.Acquisition of CD ContactOn September 29,1998,the Company acquired CD Contact inexchange for 1,900,000 shares of the Companys common stock andthe assumption of$9.1 million in outstanding debt payable to CDContacts f

300、ormer shareholders.The acquisition was accounted for as apooling of interests.The following table represents the results of operations of the pre-viously separate companies for the periods before the combinationswere consummated that are included in the fiscal 1999 combined netincome of the Company(

301、amounts in thousands):Head GamesCDContactTotalActivisionThree MonthsSix MonthsNeversoftYearYear EndedEndedEndedYear EndedEndedFiscalyear 1999March 31,1999June 30,1998Sept.30,1998March 31,1999March 31,1999Revenues.$412,225$2,195$22,065$41$436,526Net income(loss).$14,194$394$666$(363)$14,8913.STRATEGI

302、C RESTRUCTURING PLANIn the fourth quarter of fiscal 2000,the Company finalized a strategicrestructuring plan to accelerate the development and sale of interactiveentertainment and leisure products for the next-generation consoles andthe Internet.Costs associated with this plan amounted to$70.2 milli

303、on,approximately$61.8 million net of taxes,and were recorded in the consolidated statement of operations in the fourth quarter of fiscal year2000 and classified as follows(amounts in millions):Net revenues.$11.7Cost of salesroyalties and software amortization.11.9Product development.4.2General and a

304、dministrative.5.2Amortization of intangible assets.37.2$70.2The component of the charge included in amortization of intangi-ble assets represented a write down of intangibles including goodwill,relating to Expert Software,Inc.(“Expert”),one of the Companysvalue publishing subsidiaries,totaling$26.3

305、million.The Companyconsolidated Expert into Head Games,forming one integrated businessunit.As part of this consolidation,the Company discontinued substan-tially all of Experts product lines,terminated substantially all ofExperts employees and phased out the use of the Expert name.In addi-tion,a$10.9

306、 million write down of goodwill relating to TDC,an OEMbusiness unit,was recorded.In fiscal 2000,the OEM market wentthrough radical changes due to price declines of PCs and hardwareaccessories.The sum of the undiscounted future cash flow of theseassets was not sufficient to cover the carrying value o

307、f these assets andas such was written down to fair market value.The component of the charge included in net revenues and generaland administrative expense represents costs associated with the plannedtermination of a substantial number of its third party distributor relationships in connection with t

308、he Companys realignment of itsworldwide publishing business to leverage its existing sales and market-ing organizations and improve the control and management of its products.These actions resulted in an increase in the allowance for salesreturns of$11.7 million and the allowance for doubtful accoun

309、ts of$3.4 million.The plan also included a severance charge of$1.2 millionfor employee redundancies.The components of the charge included in cost of salesroyaltiesand software amortization and product development represent costs towrite down certain assets associated with exiting certain product lin

310、es andre-evaluating other product lines which resulted in reduced expectations.During fiscal 2001,the Company completed the restructuring initiatives associated with the fiscal 2000 restructuring plan withoutany significant adjustments.Activision,Inc.262001 Annual Report4.INVENTORIESThe Companys inv

311、entories consist of the following(amounts in thousands):March 31,20012000Purchased parts and components.$1,885$2,857Finished goods.42,00337,596$43,888$40,4535.PROPERTY AND EQUIPMENTProperty and equipment are recorded at cost.Depreciation and amortiza-tion are provided using the straight-line method

312、over the shorter of theestimated useful lives or the lease term:buildings,30 years;computerequipment,office furniture and other equipment,3 years;leaseholdimprovements,through the life of the lease.When assets are retired ordisposed of,the cost and accumulated depreciation thereon are removedand any

313、 resultant gains or losses are recognized in current operations.Property and equipment was as follows(amounts in thousands):March 31,20012000Land.$214$526Buildings.4,0042,468Computer equipment.21,51218,670Office furniture and other equipment.5,5855,800 Leasehold improvements.3,7133,229Total cost of

314、property and equipment.35,02830,693Less accumulated depreciation.(19,788)(19,878)Property and equipment,net.$15,240$10,815Depreciation expense for the years ended March 31,2001,2000and 1999 was$4.8 million,$4.2 million and$4.9 million,respectively.6.ACCRUED EXPENSESAccrued expenses were comprised of

315、 the following(amounts in thousands):March 31,20012000Accrued royalties payable.$14,764$13,300Affiliated label payable.7334,033Accrued selling and marketing costs.4,60310,493Income tax payable.8594,934Accrued interest expense.1,1501,013Accrued bonus and vacation pay.11,9585,514Other.9,97210,117Total

316、.$44,039$49,4047.OPERATIONS BY REPORTABLE SEGMENTS ANDGEOGRAPHIC AREAThe Company publishes,develops and distributes interactive entertain-ment and leisure products for a variety of game platforms,includingPCs,the Sony PlayStation and PlayStation 2 console systems,theNintendo 64 console system,the Ni

317、ntendo Game Boy and the SegaDreamcast console system.The Company has also begun product devel-opment for next-generation console systems and hand held devices,including Microsofts Xbox and Nintendos GameCube and Game BoyAdvance.Based on its organizational structure,the Company operates intwo reporta

318、ble segments:publishing and distribution.The Companys publishing segment publishes titles that are devel-oped both internally through the studios owned by the Company andexternally through third party developers.In the United States,theCompanys products are sold primarily on a direct basis to major

319、com-puter and software retailing organizations,mass market retailers,con-sumer electronic stores,discount warehouses and mail order companies.The Company conducts its international publishing activities throughoffices in the United Kingdom,Germany,France,Australia,Canada andJapan.The Companys produc

320、ts are sold internationally on a direct toretail basis and through third party distribution and licensing arrange-ments and through the Companys wholly-owned distribution sub-sidiaries located in the United Kingdom,the Netherlands and Germany.The Companys distribution segment,located in the UnitedKi

321、ngdom,the Netherlands and Germany,distributes interactive enter-tainment software and hardware and provides logistical services for avariety of publishers and manufacturers.The President and Chief Operating Officer allocates resources toeach of these segments using information on their respective re

322、venuesand operating profits before interest and taxes.The President and ChiefOperating Officer has been identified as the Chief Operating DecisionMaker as defined by SFAS No.131,“Disclosure about Segments of anEnterprise and Related Information,”(“SFAS No.131”).The President and Chief Operating Offi

323、cer does not evaluate indi-vidual segments based on assets or depreciation.The accounting policies of these segments are the same as thosedescribed in the Summary of Significant Accounting Policies.Revenuederived from sales between segments is eliminated in consolidation.27Information on the reporta

324、ble segments for the three years endedMarch 31,2001 is as follows(amounts in thousands):Year ended March 31,2001PublishingDistributionTotalTotal segment revenues.$466,062$154,121$620,183Revenue from sales between segments.(39,331)39,331Revenues from external customers.$426,731$193,452$620,183Operati

325、ng income.$35,687$4,120$39,807Total assets.$271,488$88,469$359,957Year ended March 31,2000PublishingDistributionTotalTotal segment revenues.$396,691$175,514$572,205Revenue from sales between segments.(40,255)40,255Revenues from external customers.$356,436$215,769$572,205Operating income(loss).$(35,0

326、49)$4,724$(30,325)Total assets.$230,961$78,776$309,737Year ended March 31,1999PublishingDistributionTotalTotal segment revenues.$205,542$230,984$436,526Revenue from sales between segments.(19,202)19,202Revenues from external customers.$186,340$250,186$436,526Operating income.$12,398$14,269$26,667Tot

327、al assets.$185,567$97,778$283,345Geographic information for the three years ended March 31,2001is based on the location of the selling entity.Revenues from externalcustomers by geographic region were as follows(amounts in thousands):Year ended March 31,200120001999United States.$352,893$282,847$149,

328、705Europe.256,228277,485278,032Other.11,06211,8738,789Total.$620,183$572,205$436,526Revenues by platform were as follows(amounts in thousands):Year ended March 31,200120001999Console.$466,893$410,277$268,246PC.153,290161,928168,280Total.$620,183$572,205$436,5268.COMPUTATION OF EARNINGS PER SHAREThe

329、following table sets forth the computations of basic anddiluted earnings(loss)per share,(amounts in thousands,except pershare data):Year ended March 31,200120001999NumeratorNumerator for basic and diluted earnings per shareincome(loss)available to common shareholders.$20,507$(34,088)$14,891Denominat

330、orDenominator for basic earnings per shareweighted average common shares outstanding.24,86524,69122,861Effect of dilutive securities:Employee stock options.2,354942Warrants to purchase common stock.181129Potential dilutive common shares.2,5351,071Denominator for diluted earnings per shareweighted av

331、erage common shares outstanding plus assumed conversions.27,40024,69123,932Basic earnings(loss)per share.$0.82$(1.38)$0.65Diluted earnings(loss)per share.$0.75$(1.38)$0.62Options to purchase 2,338,841,2,555,397 and 2,188,175 sharesof common stock were outstanding for the years ended March 31,2001,20

332、00 and 1999,respectively,but were not included in the calcu-lations of diluted earnings(loss)per share because their effect would beanti-dilutive.Convertible subordinated notes were also not included inthe calculations of diluted earnings per share because their effect wouldbe anti-dilutive.Subseque

333、nt to March 31,2001,the Company called for theredemption of its$60.0 million convertible subordinated notes due2005.In connection with that call,holders have converted into commonstock approximately$60.0 million aggregate principal amount of theirconvertible subordinated notes,resulting in the issuance of approxi-mately 3,175,000 shares of common stock to such holders.Activision,Inc.282001 Annual