Activision, Inc. — 2004 Annual Report Consolidated Statements of Cash Flows (In thousands) For the years ended March 31, 2004 2003 2002 Cash flows from operating activities: Net income $ 77,715 $ 66,180 $ 52,238 Adjustments to reconcile net income to net cash provided by  operating activities: Deferred income taxes 15,147 3,355 (23,352) Depreciation and amortization 10,774 11,880 7,350 Amortization and write-offs of capitalized software  development costs and intellectual property licenses 87,922 100,415 62,456 Tax benefit of stock options and warrants exercised 12,417 23,884 48,513 Change in operating assets and liabilities (net of effects  of acquisitions): Accounts receivable (42,497) 61,922 (2,010) Inventories (6,850) 1,159 23,152 Software development and intellectual property licenses (115,202) (151,594) (76,993) Other assets (5,232) 1,836 (1,753) Accounts payable 23,005 (19,072) 3,357 Accrued expenses and other liabilities 10,204 (8,990) 18,834 Net cash provided by operating activities 67,403 90,975 111,792 Cash flows from investing activities: Cash used in business acquisitions (net of cash acquired) (3,480) (21,199) — Capital expenditures (11,976) (11,877) (9,150) Purchase of short-term investments (195,587) (408,175) — Proceeds from sales and maturities of short-term investments 195,874 287,145 — Other — (995) 449 Net cash used in investing activities (15,169) (155,101) (8,701) Cash flows from financing activities: Proceeds from issuance of common stock to employees 26,483 20,547 59,836 Proceeds from issuance of common stock pursuant to warrants — — 1,044 Payment on term loan — — (8,550) Notes payable, net (2,818) (720) (1,792) Redemption of convertible subordinated notes — — (62) Proceeds from issuance of common stock pursuant to underwritten  public offering, net of offering costs — 248,072 — Purchase of structured stock repurchase transactions (52,621) (110,000) — Settlement of structured stock repurchase transactions 166,521 — — Purchase of treasury stock (19,996) (93,809) (74) Net cash provided by financing activities 117,569 64,090 50,402 Effect of exchange rate changes on cash 11,195 6,583 (36) Net increase in cash and cash equivalents 180,998 6,547 153,457 Cash and cash equivalents at beginning of period 285,554 279,007 125,550 Cash and cash equivalents at end of period $ 466,552 $ 285,554 $279,007 The accompanying notes are an integral part of these consolidated financial statements. page 46