Activision Blizzard (ATVI)

Cash Flows

Cash and cash equivalents were $402.5 million at December 31, 2004 compared to $466.6 million at March 31, 2004.  Activity in cash and cash equivalents for the nine months ended December 31, 2004 included $96.4 million provided by operating activities, $198.3 million used in investing activities, and $30.1 million provided by financing activities. The primary drivers of operating cash flows were net income generated by increased sales volume adjusted for amortization of capitalized software development costs and intellectual property licenses for titles released in the first nine months of fiscal 2005.  This was offset by increased accounts receivable and inventories at the end of the nine months and continued investment in software development and intellectual property rights.  The increase in accounts receivable and inventories was due to high sales volume related to holiday sales and build up of inventory to support that sales volume.  In the nine months ended December 31, 2004, we spent approximately $96.9 million in connection with the development and acquisition of publishing or distribution rights for products being developed by third parties and the execution of new license agreements granting us long-term rights to intellectual property of third parties, as well as incurrence of product development costs relating to internally developed products.

We expect that we will continue to make significant expenditures relating to our investment in software development and intellectual property licenses.  Our future cash commitments relating to these investments are detailed below in “Commitments.”  Cash flows from operations are affected by our ability to release highly successful titles.  Though many of these titles have substantial production or acquisition costs and marketing budgets, once a title recoups these costs, incremental net revenues typically will directly and positively impact cash flows.  We currently expect that a primary source of future liquidity, both short-term and long-term, will be our current cash and short-term investments combined with cash flows from continuing operations.

For the nine months ended December 31, 2004, cash flows used in investing activities were principally due to the purchase of short-term investments.  Cash provided by financing activities for the same period is the result of the issuance of common stock related to employee stock option and stock purchase plans.