Activision Announces First Quarter 2006 Results

Jul 28, 2005

- Q1 Net Revenues Increase 14% -
- To Date Three Games Ship More Than One Million Units -
- Company Increases Financial Outlook For Fiscal 2006 -

SANTA MONICA, Calif., July 28, 2005 /PRNewswire-FirstCall via COMTEX/ -- Activision, Inc. (Nasdaq: ATVI) today announced financial results for the first fiscal quarter ended June 30, 2005.

Net revenues were a record $241.1 million as compared to net revenues of $211.3 million reported for the first quarter last fiscal year. Net loss for the first fiscal quarter was $3.6 million, as compared with net income of $12.0 million for the previous first quarter. Loss per share was $0.02, as compared with $0.06 earnings per diluted share reported for the same period last year.

Robert A. Kotick, Chairman and CEO of Activision, stated, "Fiscal 2006 is off to a strong start. To date DOOM 3(TM), Madagascar(TM) and Fantastic 4(TM) each have shipped in excess of one million units. During the quarter, we continued to strengthen our business. With $786 million in cash and short-term investments, one of the industry's strongest balance sheets and a strong product development slate, we have entered fiscal year 2006 with numerous competitive advantages."

Kotick continued, "We remain focused on our big propositions and intend to continue leveraging our increasing portfolio of franchises. Our production strategy centers around developing games based on proven, predictable brands. This strategy should enable us to grow our revenues, earnings and operating margin as we have over the past five years."

Business Highlights

Activision's results were driven by strong global consumer response to its new products across all platforms. During the quarter, the company released DOOM 3 for the Xbox(R) video game system, DOOM 3: Resurrection of Evil(TM) for the PC, Madagascar for the PlayStation(R) 2 computer entertainment system, Xbox video game system, Nintendo(R) GameCube(TM), PC, Nintendo Game Boy(R) Advance(TM) and Nintendo DS and Fantastic 4 for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube, PC and Nintendo Game Boy Advance. Additionally, Activision shipped LucasArts' Star Wars(R): Episode III Revenge of the Sith(TM) for the PlayStation 2 computer entertainment system and Xbox video game system in Europe.

Other highlights include:

     *  According to NPD Funworld, DOOM(R) Collector's Edition was the #1
        best-selling video game in the U.S. on the Xbox platform for the month
        of April.  Additionally, Madagascar was the #1 best-selling children's
        title and the #2 selling game across all platforms for the month of
        June.

     *  On May 3, 2005, Activision announced that it acquired game developer
        Toys For Bob.  Activision has worked with Toys For Bob since 2002,
        most recently on Madagascar, which is based on DreamWorks Animation's
        feature film.

     *  On May 25, Activision announced that it acquired game developer
        Beenox, Inc.  The acquisition further bolsters Activision's internal
        development capabilities by providing it with a foothold in the
        Canadian province of Quebec, one of the fastest growing development
        talent pools in North America.

     *  On June 9, Activision announced a strategic alliance with Harrah's
        Entertainment, Inc. to develop and publish video games based on the
        popular World Series of Poker Tournament.

     *  On June 16, Activision named Michael Griffith as President and Chief
        Executive Officer of Activision Publishing, Inc.  In his new role,
        Griffith will assume responsibility for Activision Publishing's
        operational management including its studio, publishing and corporate
        activities.  A 24-year veteran of Procter & Gamble, Griffith brings an
        exceptionally well-balanced blend of management leadership and sales
        and marketing experience to Activision Publishing.

     *  Activision previously reported that on July 11, 2003, the Securities
        and Exchange Commission commenced a non-public investigation entitled
        "In the Matter of Certain Video Game Manufacturers and Distributors".
        Activision recently was advised by the staff of the Securities and
        Exchange Commission that Activision is no longer a subject of this
        investigation and the matter is closed with regard to Activision.

Looking ahead to the second quarter, Activision's slate will be driven by the U.S. launches of Ultimate Spider-Man(TM) for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube, PC, Nintendo Game Boy Advance and Nintendo DS and X-Men Legends II: Rise of Apocalypse(TM) for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube and PC; and the worldwide launch of World Series of Poker(R) for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube and PSP. Additionally, the company will release Spider-Man 2(TM) the game and Tony Hawk's Underground 2 Remix in Europe timed to the launch of the PSP.

Company Outlook

Activision increased its financial outlook for fiscal 2006 to $1.47 billion in net revenues and earnings per diluted share of $0.69. For the second quarter of the fiscal year 2006, the company expects net revenues of $200 million and a loss per share of $0.10. For the third quarter, it expects net revenues of $790 million and earnings per diluted share of $0.69. For the fourth quarter, Activision expects net revenues of $240 million and earnings per diluted share of $0.09.

Conference Call

Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its fiscal 2006 first quarter results and outlook for the remainder of fiscal 2006. The company welcomes all members of the financial and media communities to visit the "Investor Relations" area of www.activision.com to listen to the conference call via a live Webcast or to listen to the call live by dialing into (719) 955-1564 in the U.S.

About Activision

Headquartered in Santa Monica, California, Activision, Inc. is a leading worldwide developer, publisher and distributor of interactive entertainment and leisure products. Founded in 1979, Activision posted net revenues of $1.4 billion for the fiscal year ended March 31, 2005.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, Spain, Japan, Australia, Scandinavia and the Netherlands. More information about Activision and its products can be found on the company's World Wide Web site, which is located at www.activision.com.

Note: The statements made in this press release that are not historical facts are "forward-looking" statements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The company cautions readers of this press release that a number of important factors could cause Activision's actual future results to differ materially from those expressed in any such forward-looking statements.

Such factors include, without limitation, product delays, retail acceptance of our products, industry competition, rapid changes in technology and industry standards, protection of proprietary rights, maintenance of relationships with key personnel, vendors and third-party developers, international economic and political conditions, integration of recently acquired subsidiaries and identification of suitable future acquisition opportunities. These important factors and other factors that potentially could affect the company's financial results are described in our filings with the Securities and Exchange Commission, including the company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers of this press release are referred to such filings. The company may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in the company's assumptions or otherwise. The company undertakes no obligation to release publicly any revisions to its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

ACTIVISION, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
     (In thousands, except earnings per share data)

                                                     Quarter ended June 30,
                                                    2005               2004


    Net revenues                                  $241,093           $211,276
    Costs and expenses:
        Cost of sales - product costs              136,754             89,088
        Cost of sales - software
         royalties and amortization                 14,576             12,283
        Cost of sales - intellectual
         property licenses                          20,940             17,648
        Product development                         17,802             21,105
        Sales and marketing                         46,318             41,734
        General and administrative                  18,151             13,685
             Total operating expenses              254,541            195,543
    Operating income (loss)                        (13,448)            15,733
    Investment income, net                           7,348              2,112
    Income (loss) before provision
     (benefit) for income taxes                     (6,100)            17,845
    Provision (benefit) for income taxes            (2,515)             5,888
    Net income (loss)                              $(3,585)           $11,957


    Basic earnings (loss) per share                 $(0.02)             $0.07
    Weighted average common shares
     outstanding                                   201,856            183,686


    Diluted earnings (loss) per share               $(0.02)             $0.06
    Weighted average common shares
     outstanding assuming dilution                 201,856            204,539


     Share and earnings per share data have been restated to reflect our
     four-for-three stock split for shareholders of record as of March 7,
     2005, paid March 22, 2005.


    ACTIVISION, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands)
                                                  June 30,         March 31,
                                                    2005              2005
    ASSETS
        Current assets:
           Cash, cash equivalents and
            short-term investments                $785,899          $840,864
           Accounts receivable, net                 94,804           109,144
           Inventories                              45,136            48,018
           Software development                     97,825            73,096
           Intellectual property licenses           14,336            21,572
           Deferred income taxes                     8,568             6,760
           Other current assets                     23,237            23,010
                Total current assets             1,069,805         1,122,464
        Software development                         9,764            18,518
        Intellectual property licenses              20,605            14,154
        Property and equipment, net                 31,911            30,490
        Deferred income taxes                       35,536            28,041
        Other assets                                 1,299             1,635
        Goodwill                                    98,527            91,661
                         Total assets           $1,267,447        $1,306,963

    LIABILITIES AND SHAREHOLDERS' EQUITY
        Current liabilities:
           Accounts payable                        $65,447          $108,984
           Accrued expenses                         88,558            98,067
                 Total current
                  liabilities                      154,005           207,051
           Other liabilities                            93                --

                       Total liabilities           154,098           207,051
        Shareholders' equity:
           Common stock                                 --                --
           Additional paid-in capital              764,560           741,680
           Retained earnings                       343,029           346,614
           Treasury stock                               --                --
           Accumulated other
            comprehensive income                     7,743            11,618
           Unearned compensation                    (1,983)               --
                 Total shareholders'
                  equity                         1,113,349         1,099,912
                     Total liabilities
                      and shareholders'
                      equity                    $1,267,447        $1,306,963



     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter Ended June 30, 2005 and 2004
     (Amounts in thousands)

                                                                       Percent
                                                                      Increase
                                                Quarter Ended       (Decrease)
                                        June 30, 2005   June 30, 2004
                                                  % of            % of
                                         Amount  Total   Amount  Total
    Geographic Revenue Mix
       United States                    $112,320   47%  $125,191   59%   -10%
       International                     128,773   53%    86,085   41%    50%
       Total net revenues               $241,093  100%  $211,276  100%    14%


    Activity/Platform Mix
    Publishing:
       Console                          $142,362   59%  $119,127   56%    20%
       Hand-held                          25,331   10%    18,430    9%    37%
       PC                                 25,858   11%    24,095   12%     7%
       Total publishing                 $193,551   80%  $161,652   77%    20%

    Distribution:
       Console                           $38,088   16%   $39,194   18%    -3%
       Hand-held                           3,908    2%     3,655    2%     7%
       PC                                  5,546    2%     6,775    3%   -18%
       Total distribution                $47,542   20%   $49,624   23%    -4%
       Total net revenues               $241,093  100%  $211,276  100%    14%


     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter Ended June 30, 2005 and 2004




                                              Quarter Ended      Quarter Ended
                                              June 30, 2005      June 30, 2004

    Publishing Net Revenues

       PC                                              14%                15%

       Console                                         73%                74%
           Sony PlayStation  2                         34%                42%
           Microsoft Xbox                              34%                16%
           Nintendo GameCube                            5%                15%
           Sony PlayStation                             0%                 1%

       Hand-held                                       13%                11%
           Game Boy Advance                             8%                11%
           Nintendo Dual Screen                         3%                 0%
           PlayStation Portable                         2%                 0%

       Total publishing net revenues                  100%               100%

SOURCE Activision, Inc.

Bill Chardavoyne, Chief Financial Officer, +1-310-255-2229,
bchardavoyne@activision.com, Kristin Mulvihill Southey, Vice President, Investor
Relations, +1-310-255-2635, ksouthey@activision.com, or Maryanne Lataif, Vice
President, Corporate Communications, +1-310-255-2704, mlataif@activision.com, all of
Activision, Inc.
http://www.prnewswire.com

Copyright (C) 2005 PR Newswire. All rights reserved.

News Provided by COMTEX