Activision, Inc. — 2004 Annual Report Management’s Discussion and Analysis of Financial Condition  and Results of Operations Investment income, net for the year ended March 31, 2003 was $8.6 million as compared to $2.5 million for the  year ended March 31, 2002. The increase is primarily due to higher average cash and short-term investment balances during fiscal 2003, partially offset by lower market rates. The income tax provision of $37.2 million for the year ended March 31, 2003 reflects our effective income tax  rate of 36%. The significant items that generated the variance between our effective rate and our statutory rate of 35% were state taxes and an increase in our deferred tax asset valuation allowance, partially offset by research and development tax credits and the impact of foreign tax rate differentials. The realization of deferred tax assets depends primarily on the generation of future taxable income. We believe that it is more likely than not that we will generate  taxable income sufficient to realize the benefit of net deferred tax assets recognized. Our quarterly operating results have in the past varied significantly and will likely vary significantly in the future, depend- ing on numerous factors, several of which are not under our control. For a detailed description of these factors see our Form 10-K filed with the Securities and Exchange Commission. Our business also has experienced and is expected to continue to experience significant seasonality, largely due to consumer buying patterns and our product release sched- ule focusing on those patterns. Net revenues typically are significantly higher during the fourth calendar quarter, prima- rily due to the increased demand for consumer software during the year-end holiday buying season. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. (1) Consolidated financial information has been restated for the effect of our three-for-two stock split effected in the form of a 50% stock dividend to shareholders of record as of February 23, 2004, paid March 15, 2004. (2) See Note 5, “Software Development Costs and Intellectual Property Licenses” of the Notes to the Consolidated Financial Statements included elsewhere in  this Annual Report. page 34 Quarterly Operating Results Investment Income, Net (In thousands) % of % of March 31, Consolidated March 31, Consolidated Increase/ Percent 2003 Net Revenue 2002 Net Revenue (Decrease) Change $8,560 1% $2,546 1% $6,014 236% Provision for Income Taxes (In thousands) % of % of March 31, Pre-Tax March 31, Pre-Tax Increase/ Percent 2003 Income 2002 Income (Decrease) Change $37,227 36% $30,882 37% $6,345 21% Restated (1) March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, Quarter ended 2004 2003 (2) 2003 2003 2003 (2) 2002 2002 2002 Net revenues $162,897 $508,511 $117,523 $158,725 $125,001 $378,685 $169,172 $191,258 Operating income (loss) 4,643 116,961 (16,933) 5,146 (14,444) 66,761 11,334 31,196 Net income (loss) 6,664 76,981 (10,093) 4,163 (7,957) 44,347 9,086 20,704 Basic earnings (loss)  per share 0.05 0.58 (0.08) 0.03 (0.06) 0.30 0.06 0.15 Diluted earnings (loss)  per share 0.04 0.53 (0.08) 0.03 (0.06) 0.28 0.06 0.14 The following table is a comparative breakdown of our quarterly results for the immediately preceding eight quarters (amounts in thousands, except per share data):