## Notes to Consolidated Financial Statements 

## 1. Summary of Significant Accounting Policies 

## Business 

Activision, Inc. (“Activision” or “we”) is a leading international publisher of interactive entertainment software products. We have built a company with a diverse portfolio of products that spans a wide range of categories and target markets and that is used on a variety of game hardware platforms and operating systems. We have created, licensed and acquired a group of highly recognizable brands, which we market to a variety of consumer demographics. 

Our products cover game categories such as action/adventure, action sports, racing, role-playing, simulation, first- person action and strategy. Our target customer base ranges from game enthusiasts and children to mass-market con- sumers and “value” buyers. We currently offer our products primarily in versions that operate on the Sony PlayStation 2 (“PS2”), Nintendo GameCube (“GameCube”) and Microsoft Xbox (“Xbox”) console systems, Nintendo Game Boy Advance (“GBA”) hand-held device and the personal computer (“PC”). In prior years, we have also offered our products on the Sony PlayStation (“PS1”) and Nintendo 64 (“N64”) console systems and Nintendo Game Boy Color (“GBC”) hand-held device. In addition, Sony announced that it would be entering the hand-held hardware market with the introduction of its hand-held gaming device, PlayStation Portable (“PSP”). Nintendo also announced that it plans to launch a new dual-screened, portable game system Nintendo Dual Screen (“NDS”). We are currently developing titles for the PSP and NDS. We are also planning to develop titles for the next-generation console systems expected to be developed by Sony, Microsoft and Nintendo for release in the next two to three years. 

Our publishing business involves the development, marketing and sale of products directly, by license or through our affiliate label program with certain third-party publishers. Our distribution business consists of operations in Europe that provide logistical and sales services to third-party publishers of interactive entertainment software, our own publishing operations and manufacturers of interactive entertainment hardware. 

We maintain operations in the United States, Canada, the United Kingdom (“UK”), Germany, France, Italy, Japan, Australia, Sweden and the Netherlands. In fiscal year 2004, international operations contributed approximately 53% of net revenues. 

## Principles of Consolidation 

The consolidated financial statements include the accounts of Activision, Inc., a Delaware corporation, and its wholly- owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 

## Cash, Cash Equivalents and Short-term Investments 

Cash and cash equivalents include cash, money markets and short-term investments with original maturities of not more than 90 days. 

Short-term investments generally mature between three months and two years. Investments with maturities beyond one year may be classified as short-term based on their liquid nature and because such securities represent the investment of cash that is available for current operations. All of our short-term investments are classified as available-for-sale and are carried at fair market value with unrealized appreciation (depreciation) reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity. The specific identification method is used to determine the cost of securities disposed with realized gains and losses reflected in investment income, net. 

## Concentration of Credit Risk 

Financial instruments which potentially subject us to concentration of credit risk consist principally of temporary cash investments and accounts receivable. We place our temporary cash investments with financial institutions. At various times during the fiscal years ended March 31, 2004 and 2003, we had deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit at these financial institutions. 

