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overall decline in net income for Ñscal 2005, (2) higher accounts receivable balances due to the timing of sales
in the fourth quarter of Ñscal 2005 and (3) higher cash payments for income taxes. These declines were
partially oÅset by higher balances in our current liabilities. We expect to continue to generate signiÑcant
operating cash Öow in Ñscal 2006. For the year ended March 31, 2005, our primary use of cash in non-
operating activities consisted of net purchases of $1,446 million in short-term investments, $126 million in
capital expenditures, primarily related to the expansions of our Los Angeles and Vancouver studios as well as
upgrades to our worldwide ERP systems, $90 million for our purchase of a 19.9 percent investment in Ubisoft,
$81 million for our acquisitions of 100 percent of Criterion and an additional 44 percent of DICE, and
$41 million towards the repurchase and retirement of our common stock. These non-operating expenditures
were partially oÅset by $241 million in proceeds from the sale of our common stock through stock plans and
$16 million in proceeds from the sale of property during the year ended March 31, 2005. We anticipate
making continued capital investments in our Vancouver studio during Ñscal 2006 as well as completing the
remaining $709 million of our $750 million share repurchase program by September 30, 2005.
Short-term investments and marketable equity securities
The composition of our portfolio of cash, cash equivalents and short-term investments changed from primarily
cash equivalents, which were $1.991 billion as of March 31, 2004, to primarily short-term investments, which
were $1.688 billion as of March 31, 2005 and, therefore, our portfolio is more susceptible to changes in short-
term interest rates. As of March 31, 2005, our short-term investments had gross unrealized losses of
approximately $22 million or 1.3 percent of the total in short-term investments. From time-to-time, we may
liquidate some or all of our short-term investments to fund operational needs or other activities, such as capital
expenditures, business acquisitions, or stock repurchase programs. Depending on the short-term investments
that we liquidate to fund these activities, we could recognize a portion of the gross unrealized losses.
Marketable equity securities increased to $140 million as of March 31, 2005, from $1 million as of March 31,
2004, primarily due to our purchase of a 19.9 percent investment in Ubisoft Entertainment.
Receivables, net
Our gross accounts receivable balance was $458 million and $367 million as of March 31, 2005 and March 31,
2004, respectively. The increase in our accounts receivable balance was primarily due to an increase in our
fourth quarter gross sales (prior to reserve adjustments) versus the prior year and the timing of those sales,
which occurred later in the fourth quarter of Ñscal 2005 than in the prior year. We expect to collect a
substantial portion of these amounts in the three months ended June 30, 2005. Reserves for sales returns,
pricing allowances and doubtful accounts increased from $155 million as of March 31, 2004 to $162 million as
Annual Report
of March 31, 2005. Both the sales return and price protection reserves increased in absolute dollars and as a
percentage of trailing six month net revenue and remained relatively Öat as a percentage of trailing nine month
net revenue as of March 31, 2005. We believe these reserves are adequate based on historical experience and
our current estimate of potential returns and allowances.
Inventories
Inventories increased to $62 million as of March 31, 2005 from $55 million as of March 31, 2004 primarily
due to overall growth in Europe. We typically have a higher inventory balance, as a percentage of net revenue,
on hand in Europe than in North America, due to the need to provide multiple language versions of each title
in that region. No single title represented more than $4 million of inventory as of March 31, 2005.
Other current assets
Other current assets increased to $164 million as of March 31, 2005, from $163 million as of March 31, 2004,
primarily due to the amortization of certain prepaid amounts and collections of advertising credits owed to us
by our suppliers oÅset by higher prepaid royalties as we continue to invest in our product development.
43