Activision Reports Third Quarter and Nine Month Fiscal 2006 Results

Feb 6, 2006

Feb 06, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Activision, Inc. (Nasdaq: ATVI) today announced financial results for the third quarter and nine months ended December 31, 2005.

Net revenues for the third quarter were a record $816.2 million or 20% higher, as compared to $680.1 million for the third quarter of fiscal year 2005. Net income for the third quarter was $67.9 million, compared with net income of $97.3 million for the previous fiscal third quarter. Diluted earnings per share were $0.23 per diluted share, compared to $0.35 per diluted share reported for the prior fiscal third quarter.

For the nine-month period ended December 31, 2005, the company announced record net revenues of $1.28 billion, as compared to net revenues of $1.20 billion reported for the nine-month period last fiscal year. The company also announced earnings per diluted share for the nine-month period of $0.17, as compared to earnings per diluted share of $0.49 for the same period last fiscal year.

Robert Kotick, Chairman and CEO of Activision, Inc., commented, "Net revenues for the third quarter and first nine months of fiscal year 2006 were the highest in the company's history. According to NPD we were the #2 overall software publisher in the U.S. and remain the number #1 market share publisher for the Xbox 360. We ended the quarter with approximately $765 million in cash and short-term investments and $1.2 billion in shareholders' equity."

Kotick continued, "Despite these achievements, we were disappointed with our earnings performance this quarter which was the result of weaker than expected market conditions in the U.S. and Europe due to the transition from current-generation consoles to the next generation of video game systems."

"In the long term, we are planning for market growth that historically follows the introduction of new console hardware. To leverage this future growth and prepare for fiscal 2008, which we expect will be the biggest year in Activision's history, we will continue to focus on investment in our product development resources and intellectual property portfolio, growing our international operations and optimizing our worldwide cost structure and resource allocation," Kotick added.

Business Highlights

Between October and December, Activision released eight new games: Tony Hawk's American Wasteland, Call of Duty(R) 2, Call of Duty(R) 2: Big Red One, Quake 4(TM), GUN(TM), True Crime(R): New York City, Shrek(R) SuperSlam and The Movies(TM).

Business highlights include:

    *  Call of Duty 2 was the #2 best-selling PC game in the U.S. for the
       quarter, according to The NPD Group.

    *  Call of Duty 2 was also the #1 Xbox 360 title in the U.S., according to
       The NPD Group.  The Xbox 360 game had the highest attach rate of any
       console launch in video game history.

    *  GUN was the #1 best-selling game based on a new intellectual property
       in the U.S., according to The NPD Group.  GUN marks the third
       consecutive year that Activision has created the #1 new intellectual
       property in the marketplace.

    *  Tony Hawk's American Wasteland was the #4 best-selling title in the
       U.S., according to The NPD Group.  The game marks the seventh title in
       the franchise that has been a Top 10 holiday title.

    *  For the quarter, Activision was the #2 publisher overall and the
       #1 publisher overall for the Xbox 360 platform, according to The NPD
       Group.

    *  On November 9, Activision and Marvel Entertainment expanded their
       long-term, broad-based strategic alliance by signing a multi-year
       extension to their current video game licensing agreements for the
       Spider-Man(TM) and X-Men(TM) franchises through 2017.

    *  On November 9, Activision signed an agreement with Spider-Man
       Merchandising L.P., a limited partnership between Marvel Entertainment,
       Inc. and Sony Pictures Consumer Products Inc., to extend
       its exclusive worldwide publishing rights to the phenomenally
       successful Spider-Man(R) motion pictures through 2017.

    *  On November 11, Activision signed a multi-year agreement with
       DreamWorks Animation which grants Activision the exclusive video game
       rights to four upcoming feature films from DreamWorks Animation --
       "Bee Movie," "Kung Fu Panda,"  "Rex Havoc" and "How to Train Your
       Dragon."  The deal also extends Activision's video game rights beyond
       "Shrek 3" to include potential future films in the "Shrek" franchise.

    Company Outlook

Based on weaker than expected market conditions in the third quarter, Activision revised its outlook for the fiscal year 2006 and the fourth quarter. For the fiscal year, Activision expects net revenues of $1.405 billion to $1.415 billion and earnings per share of $0.09 to $0.11. For the fourth quarter, the company expects $125 million to $135 million in net revenues and a loss per share of $0.07 to $0.09.

For fiscal year 2007, Activision expects net revenues to slightly exceed $1 billion and a modest increase in year-over-year earnings per share, excluding the impact of adopting FASB 123(R), which relates to the expensing of stock options and other share-based payments. For fiscal year 2008, the company expects net revenues to exceed $1.6 billion.

Conference Call

Today at 4:30 p.m. EST, Activision's management will host a conference call and Webcast to discuss its third 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 (719) 457-2637 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, sales of the company's titles during the remainder of fiscal 2006, consumer spending trends, the seasonal and cyclical nature of the interactive game market, the company's ability to predict consumer preferences among competing hardware platforms including next-generation hardware, software pricing, product returns and price protection product delays, retail acceptance of our products, delays in hardware launches, 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.

(Tables to Follow)



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

                               Quarter ended            Nine months ended
                                December 31,               December 31,
                              2005        2004          2005         2004

    Net revenues            $816,242    $680,094    $1,279,875   $1,201,996
    Costs and expenses:
      Cost of sales -
       product costs         367,685     316,494       617,021      528,759
      Cost of sales -
       software royalties
       and amortization      104,264      58,200       139,267      116,846
      Cost of sales -
       intellectual
       property licenses      26,376      22,598        55,765       57,797
      Product development     53,139      25,068        99,013       66,054
      Sales and marketing    155,999     105,248       258,957      200,216
      General and
       administrative         24,712      15,407        65,780       44,854

        Total operating
         expenses            732,175     543,015     1,235,803    1,014,526
    Operating income          84,067     137,079        44,072      187,470
    Investment income, net     9,162       3,197        22,840        7,954
    Income before income
     tax provision            93,229     140,276        66,912      195,424
    Income tax provision      25,284      43,014        15,794       60,662

    Net income               $67,945     $97,262       $51,118     $134,762

    Basic earnings
     per share                 $0.25       $0.39         $0.19        $0.55
    Weighted average common
     shares outstanding      274,965     248,569       272,089      246,577

    Diluted earnings
     per share                 $0.23       $0.35         $0.17        $0.49
    Weighted average common
     shares outstanding
     assuming dilution       298,752     276,608       295,963      274,521

    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)
                                                 December 31,     March 31,
                                                     2005           2005
    ASSETS
      Current assets:
        Cash, cash equivalents and
         short-term investments                    $764,606       $840,864
        Accounts receivable, net                    414,492        109,144
        Inventories                                  84,828         48,018
        Software development                         24,528         73,096
        Intellectual property licenses                5,382         21,572
        Deferred income taxes                         8,861          6,760
        Other current assets                         23,751         23,010

          Total current assets                    1,326,448      1,122,464
      Software development                           11,799         18,518
      Intellectual property licenses                 80,073         14,154
      Property and equipment, net                    39,180         30,490
      Deferred income taxes                          36,758         28,041
      Other assets                                    1,234          1,635
      Goodwill                                      100,462         91,661

          Total assets                           $1,595,954     $1,306,963


    LIABILITIES AND SHAREHOLDERS' EQUITY
      Current liabilities:
        Accounts payable                           $213,874       $108,984
        Accrued expenses                            171,384         98,067

          Total current liabilities                 385,258        207,051
        Other liabilities                             1,216             --

          Total liabilities                         386,474        207,051
      Shareholders' equity:
        Common stock                                     --             --
        Additional paid-in capital                  812,435        741,680
        Retained earnings                           397,732        346,614
        Accumulated other comprehensive income        2,521         11,618
        Unearned compensation                        (3,208)            --

          Total shareholders' equity              1,209,480      1,099,912

            Total liabilities and
             shareholders' equity                $1,595,954     $1,306,963



    ACTIVISION, INC. AND SUBSIDIARIES
    FINANCIAL INFORMATION
    For the Quarter and Nine Months Ended December 31, 2005 and 2004
    (Amounts in thousands)

                                                                    Percent
                                                                   Increase
                                        Quarter Ended             (Decrease)
                           December 31, 2005      December 31, 2004
                           Amount  % of Total    Amount    % of Total
    Geographic Revenue
     Mix
      North America       $402,314      49%     $344,342       51%      17%
      International        413,928      51%      335,752       49%      23%
      Total net
       revenues           $816,242     100%     $680,094      100%      20%


    Segment/Platform Mix
    Publishing:
      Console             $479,686      59%     $382,400       56%      25%
      Hand-held             74,032       9%       63,243        9%      17%
      PC                   113,782      14%       68,410       11%      66%
      Total publishing
       net revenues       $667,500      82%     $514,053       76%      30%

    Distribution:
      Console              $95,408      12%     $134,503       20%     -29%
      Hand-held             37,154       4%        7,923        1%     369%
      PC                    16,180       2%       23,615        3%     -31%
      Total distribution
       net revenues       $148,742      18%     $166,041       24%     -10%
      Total net
       revenues           $816,242     100%     $680,094      100%      20%


                                                                    Percent
                                                                   Increase
                                     Nine Months Ended            (Decrease)
                           December 31, 2005    December 31, 2004
                           Amount   % of Total   Amount    % of Total
    Geographic Revenue
     Mix
      North America       $626,538      49%     $627,238       52%       0%
      International        653,337      51%      574,758       48%      14%
      Total net
       revenues         $1,279,875     100%   $1,201,996      100%       6%


    Segment/Platform Mix
    Publishing:
      Console             $730,073      57%     $647,069       54%      13%
      Hand-held            143,650      11%      105,342        9%      36%
      PC                   154,735      12%      189,689       15%     -18%
      Total publishing
       net revenues     $1,028,458      80%     $942,100       78%       9%

    Distribution:
      Console             $163,344      13%     $203,626       17%     -20%
      Hand-held             60,229       5%       15,134        1%     298%
      PC                    27,844       2%       41,136        4%     -32%
      Total distribution
       net revenues       $251,417      20%     $259,896       22%      -3%
      Total net
       revenues         $1,279,875     100%   $1,201,996      100%       6%



    ACTIVISION, INC. AND SUBSIDIARIES
    FINANCIAL INFORMATION
    For the Quarter and Nine Months Ended December 31, 2005 and 2004

                                                       Nine         Nine
                            Quarter      Quarter      Months       Months
                             Ended        Ended       Ended        Ended
                          December 31, December 31, December 31, December 31,
                              2005         2004         2005         2004

    Publishing Net Revenues

      PC                      17%          13%         15%          20%

      Console                 72%          75%         71%          69%
        Sony
         PlayStation 2        39%          44%         38%          41%
        Microsoft Xbox        15%          21%         19%          18%
        Microsoft
         Xbox 360             11%           0%          7%           0%
        Nintendo GameCube      7%          10%          7%          10%

      Hand-held               11%          12%         14%          11%
        Nintendo Game Boy
         Advance               6%          10%          7%          10%
        Nintendo Dual
         Screen                2%           2%          2%           1%
        Sony PlayStation
         Portable              3%           0%          5%           0%

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

SOURCE Activision, Inc.

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, both of Activision, Inc.
http://www.prnewswire.com

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