Activision Announces Second Quarter 2006 Results

Nov 2, 2005

- Company's Q2 Results Exceed Outlook - - Company Increases FY 2006 Revenue Outlook -

SANTA MONICA, Calif., Nov 02, 2005 /PRNewswire-FirstCall via COMTEX News Network/ -- Activision, Inc. (Nasdaq: ATVI) today announced financial results for the second fiscal quarter ended September 30, 2005.

Net revenues were $222.5 million, an increase of $22.5 million from the company's prior outlook of $200 million. Net revenues for the second quarter of last fiscal year were $310.6 million. Net loss for the second fiscal quarter was $13.2 million, as compared with a net income for the second fiscal quarter last year of $25.5 million. Loss per share was $0.05, which is $0.02 better than the company's prior outlook of a loss per share of $0.07, as compared with earnings per diluted share of $0.09 reported for the same period last year.

Net revenues for the six-month period ended September 30, 2005, were $463.6 million, as compared to net revenues of $521.9 million reported for the six-month period of last fiscal year. Net loss for the six-month period was $16.8 million, or a loss per share of $0.06, as compared with net income of $37.5 million, or earnings per diluted share of $0.14, reported for the same period last year.

Robert A. Kotick, Chairman and CEO of Activision, stated, "Our second quarter revenues and earnings exceeded our expectations, despite having difficult year-over-year comparables. To date, seven of our games have shipped more than one million units each. We remain focused on big propositions and in the third quarter will release the strongest holiday slate in our history. We are optimistic about our holiday titles, although we remain cautious of the many variables that can affect the holiday selling season and our own performance. As we look toward the future, we will continue to leverage our expanding portfolio of franchises and world class development capabilities to strengthen our global competitive position."

Kotick continued, "We are excited about the long-term opportunities that will result from the next-generation consoles and handheld platforms. These new platforms combined with the ever increasing installed base of current- generation console hardware and our strong portfolio of brands should enable us to continue to take advantage of the positive market fundamentals over the long-term."

Business Highlights

Activision's second quarter results were driven by sales of Ultimate Spider-Man(TM) for the PlayStation(R) 2 computer entertainment system, Xbox(R) video game system from Microsoft, Nintendo(R) Game Cube., Nintendo Game Boy(R) Advance, Nintendo(R) DS(TM) video game platforms and the PC; and X-Men Legends II: Rise of Apocalypse and World Series of Poker for the PlayStation(R) 2 computer entertainment system, Xbox(R) video game system from Microsoft, Nintendo(R) Game Cube(TM), the PC and the PlayStation(R) Portable Entertainment Platforms (PSP(TM)). The company also released Tony Hawk's Underground 2 Remix and Spider-Man 2(TM) in conjunction with the European launch of the PSP hardware.

Other highlights include:

     *  On September 12, 2005, Activision announced the appointment of Thomas
        Tippl as Chief Financial Officer and Director of Activision
        Publishing, Inc.   A 14-year veteran of Procter & Gamble, Tippl has
        held leadership positions in investor relations, global treasury,
        financial and strategic planning, acquisitions and divestitures and
        financial management of business units in Asia, Europe and North
        America.

     *  During the second quarter, Activision's Board of Directors approved a
        four-for-three split of its common shares.  The split was announced on
        September 28, 2005 and was paid on October 24, 2005 to shareholders of
        record as of the close of business on October 10, 2005.

Activision's third quarter slate will be driven primarily by proven franchises which include Tony Hawk's American Wasteland(TM) for the PlayStation 2 computer entertainment system, Xbox video game system, the soon- to-be released Xbox 360(TM) video game and entertainment system, Nintendo GameCube, Nintendo Game Boy Advance and the Nintendo DS; Call of Duty 2(TM) and Quake 4(TM) for the PC and Xbox 360 video game and entertainment system; Call of Duty 2: Big Red One(TM) and True Crime: New York City(TM) for the PlayStation 2 computer entertainment system, Xbox video game system and Nintendo GameCube; and Shrek(R) SuperSlam for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube, Nintendo Game Boy Advance and the Nintendo DS. Additionally, the company will introduce two new intellectual properties GUN(TM), from our internal studio Neversoft, which is being developed for the PlayStation 2 computer entertainment system, Xbox video game system, Xbox 360(TM) video game and entertainment system, Nintendo GameCube, and the PC; and The Movies(TM) for the PC.

Kotick continued, "Our ability to release our largest holiday slate in the company's history -- eight big propositions -- prior to Thanksgiving is a testament to our extraordinarily talented employees' dedication, innovation, passion and commitment, as well as our organization's institutionalized product development processes which enable us to manage a large portfolio of global products while providing consistency with launch dates and product quality."

Company Outlook

For the full fiscal year, Activision raised its net revenue outlook to $1.48 billion, and expects earnings per diluted share of $0.52.

The company reconfirmed its net revenue outlook for the third quarter and expects net revenues of $790 million and earnings per diluted share of $0.52. For the fourth quarter, Activision expects net revenues of $226 million and earnings per diluted share of $0.05.

Conference Call

Today at 4:30 p.m. EST, Activision's management will host a conference call and webcast to discuss its second quarter fiscal year 2006 results and outlook. 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 live webcast or to listen to the call live by dialing into (913) 981-4902 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      Six months ended
                                         September 30,       September 30,
                                        2005      2004      2005      2004
                                                Restated            Restated

    Net revenues                      $222,540  $310,626  $463,633  $521,902
    Costs and expenses:
       Cost of sales - product costs   112,582   123,177   249,336   212,265
       Cost of sales - software
        royalties and amortization      20,427    46,363    35,003    58,646
       Cost of sales - intellectual
        property licenses                8,449    17,551    29,389    35,199
       Product development              28,072    19,881    45,874    40,986
       Sales and marketing              56,640    53,234   102,958    94,968
       General and administrative       22,917    15,762    41,068    29,447
            Total operating expenses   249,087   275,968   503,628   471,511
    Operating income (loss)            (26,547)   34,658   (39,995)   50,391
    Investment income, net               6,330     2,645    13,678     4,757
    Income (loss) before provision
     (benefit) for income taxes        (20,217)   37,303   (26,317)   55,148
    Provision (benefit) for income
     taxes                              (6,975)   11,760    (9,490)   17,648
    Net income (loss)                 $(13,242)  $25,543  $(16,827)  $37,500

    Basic earnings (loss) per share     $(0.05)    $0.10    $(0.06)    $0.15
    Weighted average common shares
     outstanding                       272,129   246,231   270,643   245,576

    Diluted earnings (loss) per share   $(0.05)    $0.09    $(0.06)    $0.14
    Weighted average common shares
     outstanding assuming dilution     272,129   271,439   270,643   272,227


    Share and earnings per share data have been restated to reflect our
    four-for-three stock splits for shareholders of record as of March 7,
    2005, paid March 22, 2005 and for shareholders of record as of October 10,
    2005, paid October 24, 2005.



    ACTIVISION, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands)
                                                September 30,       March 31,
                                                    2005              2005
    ASSETS
        Current assets:
           Cash, cash equivalents and
            short-term investments                $750,259          $840,864
           Accounts receivable, net                116,879           109,144
           Inventories                              52,035            48,018
           Software development                    110,248            73,096
           Intellectual property licenses           10,513            21,572
           Deferred income taxes                    11,616             6,760
           Other current assets                     30,712            23,010
              Total current assets               1,082,262         1,122,464
        Software development                        12,643            18,518
        Intellectual property licenses              18,825            14,154
        Property and equipment, net                 35,668            30,490
        Deferred income taxes                       48,181            28,041
        Other assets                                 1,239             1,635
        Goodwill                                    98,683            91,661
                   Total assets                 $1,297,501        $1,306,963

    LIABILITIES AND SHAREHOLDERS' EQUITY
        Current liabilities:
           Accounts payable                        $90,838          $108,984
           Accrued expenses                         85,759            98,067
              Total current liabilities            176,597           207,051
           Other liabilities                           656                --

              Total liabilities                    177,253           207,051
        Shareholders' equity:
           Common stock                                 --                --
           Additional paid-in capital              787,454           741,680
           Retained earnings                       329,787           346,614
           Accumulated other comprehensive
            income                                   4,890            11,618
           Unearned compensation                    (1,883)               --
              Total shareholders' equity         1,120,248         1,099,912
                   Total liabilities and
                    shareholders' equity        $1,297,501        $1,306,963



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

                                                                    Percent
                                                                    Increase
                                       Quarter Ended               (Decrease)
                         September 30, 2005     September 30, 2004
                          Amount   % of Total   Amount  % of Total
    Geographic Revenue
      North America      $111,904      50%    $157,705      51%       -29%
      International       110,636      50%     152,921      49%       -28%
      Total net
       revenues          $222,540     100%    $310,626     100%       -28%

    Activity/Platform
     Mix
    Publishing:
      Console            $108,025      48%    $145,542      47%       -26%
      Hand-held            44,287      20%      23,669       8%        87%
      Total publishing   $167,407      75%    $266,395      86%       -37%

    Distribution:
      Console             $29,848      13%     $29,929      10%         0%
      Hand-held            19,167       9%       3,556       1%       439%
      PC                    6,118       3%      10,746       3%       -43%
      Total distribution  $55,133      25%     $44,231      14%        25%
      Total net revenues $222,540     100%    $310,626     100%       -28%



                                                                    Percent
                                                                    Increase
                                      Six Months Ended             (Decrease)
                         September 30, 2005     September 30, 2004
                          Amount   % of Total   Amount  % of Total
    Geographic Revenue
     Mix
       North America     $224,224      48%    $282,896      54%       -21%
       International      239,409      52%     239,006      46%         0%
       Total net
       revenues          $463,633     100%    $521,902     100%       -11%

    Activity/Platform
     Mix
    Publishing:
       Console           $250,387      54%    $264,669      51%        -5%
       Hand-held           69,618      15%      42,099       8%        65%
       PC                  40,953       9%     121,279      23%       -66%
       Total publishing  $360,958      78%    $428,047      82%       -16%

    Distribution:
       Console            $67,936      15%     $69,123      13%        -2%
       Hand-held           23,075       5%       7,211       1%       220%
       PC                  11,664       2%      17,521       4%       -33%
       Total
        distribution     $102,675      22%     $93,855      18%         9%
       Total net
        revenues         $463,633     100%    $521,902     100%       -11%



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

                                   Quarter    Quarter  Six Months  Six Months
                                    Ended      Ended      Ended      Ended
                                  September  September  September  September
                                      30,        30,        30,        30,
                                     2005       2004       2005       2004

    Publishing Net Revenues

      PC                               9%        36%        11%        28%

      Console                         65%        55%        70%        62%
         Sony PlayStation 2           39%        33%        36%        37%
         Microsoft Xbox               15%        14%        26%        15%
         Nintendo GameCube            11%         8%         8%        10%

      Hand-held                       26%         9%        19%        10%
         Nintendo Game Boy Advance    12%         9%        10%        10%
         Nintendo Dual Screen          3%         0%         3%         0%
         Sony PlayStation Portable    11%         0%         6%         0%

      Total publishing net revenues  100%       100%       100%       100%

SOURCE Activision, Inc.

Bill Chardavoyne, Chief Financial Officer, +1-310-255-2229,
bchardavoyne@activision.com, or 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.
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