Activision Announces Record First Quarter 2005 Results

Jul 21, 2004

Net Revenues Hit Q1 All Time High, Rising 33% Year Over Year
Company Increases Q2 and Fiscal 2005 Net Revenues and E.P.S. Outlook
FY 2005 Earnings Per Diluted Share Outlook Up 28% Year Over Year

SANTA MONICA, Calif., July 21 /PRNewswire-FirstCall/ -- Activision, Inc. (Nasdaq: ATVI) today announced financial results for the first fiscal quarter ended June 30, 2004.

Net revenues were $211.3 million as compared to net revenues of $158.7 million reported for the first quarter last fiscal year. Net income for the first fiscal quarter was $12.0 million, an increase of $7.8 million, as compared with net income of $4.2 million for the previous first quarter. Earnings per diluted share were $0.08, an increase of $0.05, as compared with $0.03 per diluted share reported for the same period last year.

Robert A. Kotick, Chairman and CEO of Activision, stated, "In addition to delivering record net revenues for the first quarter, we also significantly increased our earnings. Both Shrek 2 and Spider-Man 2 were top-selling titles, and as of today, the two titles combined have shipped more than five million units. In the past nine months, all five games created by our internal development studios have each shipped more than one million units, with three shipping more than three million units."

Kotick continued, "Our focus on big propositions is yielding superb results and we intend to continue leveraging our increasing portfolio of franchises. For the balance of this year and next year, 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, and increase our return on invested capital as we have over the past few years. As we look toward the future, Activision will also selectively develop groundbreaking original content, as we did last year with the introductions of True Crime: Streets of L.A. and Call of Duty."

Business Highlights

Activision's results were driven by strong global consumer response to its products across all platforms. During the quarter, the company released Shrek 2 and Spider-Man 2 for the PlayStation® 2 computer entertainment system, Xbox® video game system, Nintendo® GameCube, Nintendo Game Boy® Advance and the PC and True Crime: Streets of L.A. for the PC.

Other highlights include:
     *  Today, Activision announced that one of its wholly owned studios,
        Neversoft, the creators behind the Tony Hawk franchise, is in
        development on a compelling new intellectual property that will bring
        Neversoft's world renowned development prowess to a new genre.  The
        unnamed title is slated for release in fiscal 2006, alongside a new
        game based on the Tony Hawk franchise that Neversoft will also develop
        for fiscal 2006.

     *  According to NPD TRSTS, Spider-Man 2 was the #1 best-selling video
        game in the U.S. across all platforms for the month of June.
        Additionally, Shrek 2 was the #1 best-selling title across all
        platforms for the month of May and the #2 game behind Spider-Man 2 in
        June.

     *  On July 16, Activision Value Publishing announced a multi-year
        alliance with Discovery Consumer Products to develop and distribute
        video games based on the popular television series American Chopper.

     *  On July 14, Activision confirmed that id Software's highly anticipated
        DOOM 3(TM) for the PC has entered manufacturing and will begin
        shipping to retail stores worldwide the week of August 2.

     *  On July 7, Activision announced that the company's North American
        Publishing unit has shipped more than two million units of its
        Spider-Man 2 video game timed to the theatrical release of Sony
        Pictures Entertainment's Columbia Pictures "Spider-Man(R) 2".

     *  On April 8, Activision announced that it had partnered with Nielsen
        Entertainment to develop a new initiative that will allow video game
        companies to supply advertisers with audience measurement metrics to
        help them assess the impact of in-game ad exposure.  The new
        initiative will provide tools for advertisers to effectively measure
        everything from ad exposure to demographics to audience recall when it
        comes to video game use.


Activision also increased its outlook for fiscal 2005. For the second quarter, the company expects net revenues of $254 million and earnings per diluted share of $0.08. For the third quarter, it expects net revenues of $515 million and earnings per diluted share of $0.52. For the fourth quarter, Activision expects net revenues of $120 million and earnings per diluted share of $0.01. For the full fiscal year, the company expects net revenues of $1.10 billion and earnings per diluted share of $0.69. The company's previous fiscal year outlook was $1.05 billion in net revenues and earnings per diluted share of $0.64. The company's revised outlook represents a 16% increase in net revenues and a 28% increase in earnings per diluted share year over year.

Looking ahead to the second quarter, Activision's slate will be driven by Doom 3 and Rome: Total War, two of the most anticipated PC games of the year; Call of Duty: United Offensive, the expansion pack to the best-selling, critically acclaimed PC title Call of Duty; DreamWork's Shark Tale, for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube, Nintendo Game Boy Advance and the PC; and X-Men Legends for the PlayStation 2 computer entertainment system, Xbox video game system and Nintendo GameCube.

Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its Q1 fiscal year 2005 results and outlook. The company welcomes all members of the financial and media communities to visit the "Investor Relations" area of http://www.activision.com to listen to the conference call via live Webcast or to listen to the call live by dialing into (719) 457-2617 in the U.S.

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 $948 million for the fiscal year ended March 31, 2004.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, 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 http://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,
                                                     2004               2003
                                                                      Restated

     Net revenues                                  $211,276           $158,725
     Costs and expenses:
         Cost of sales - product costs               89,088             76,610
         Cost of sales - software
          royalties and amortization                 12,283             15,498
         Cost of sales - intellectual
          property licenses                          17,648             10,143
         Product development                         21,105             13,580
         Sales and marketing                         41,734             26,285
         General and administrative                  13,685             11,463
              Total operating expenses              195,543            153,579
     Operating income                                15,733              5,146
     Investment income, net                           2,112              1,257
     Income before provision for income
      taxes                                          17,845              6,403
     Provision for income taxes                       5,888              2,240
     Net income                                     $11,957             $4,163


     Basic earnings per share                         $0.09              $0.03
     Weighted average common shares
      outstanding                                   137,765            132,069


     Diluted earnings per share                       $0.08              $0.03
     Weighted average common shares
      outstanding assuming dilution                 153,407            140,655

     Share and earnings per share data have been restated to reflect our
      three-for-two stock split for shareholders of record as of
      February 23, 2004, paid March 15, 2004.


     ACTIVISION, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS
     (In thousands)

                                                   June 30,          March 31,
                                                     2004              2004
     ASSETS
         Current assets:
            Cash, cash equivalents and
             short-term investments                $539,146          $587,649
            Accounts receivable, net                123,048            62,577
            Inventories                              39,635            26,427
            Software development                     75,696            58,320
            Intellectual property
             licenses                                15,159            32,115
            Deferred income taxes                    23,497            26,127
            Other current assets                     21,184            18,660
                 Total current assets               837,365           811,875
         Software development                        21,660            28,386
         Intellectual property licenses              17,630            16,380
         Property and equipment, net                 24,841            25,539
         Deferred income taxes                        6,666             9,064
         Other assets                                 1,243             1,080
         Goodwill                                    76,436            76,493
                          Total assets             $985,841          $968,817

     LIABILITIES AND SHAREHOLDERS' EQUITY
         Current liabilities:
            Accounts payable                        $75,558           $72,874
            Accrued expenses                         56,534            63,205
                  Total current
                   liabilities                      132,092           136,079
         Shareholders' equity:
            Common stock                                -                  --
            Additional paid-in capital              770,257           758,626
            Retained earnings                       220,236           208,279
            Treasury stock                         (144,128)         (144,128)
           Accumulated other
            comprehensive income                     7,384              9,961
                 Total shareholders'
                  equity                           853,749            832,738
                     Total liabilities
                      and shareholders'
                      equity                      $985,841           $968,817



     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter Ended June 30, 2004 and 2003
     (Amounts in thousands)

                                                                     Percent
                                                                     Increase
                                         Quarter Ended              (Decrease)

                               June 30, 2004        June 30, 2003
                             Amount  %of Total    Amount  %of Total

     Geographic Revenue
      Mix
       United States       $125,191      59%      $82,739      52%      51%
       International         86,085      41%       75,986      48%      13%
       Total net revenues  $211,276     100%     $158,725     100%      33%

     Activity/Platform
      Mix
       Publishing:
        Console            $119,127      74%      $88,484       77%     35%
        Hand-held            18,430      11%        4,596        4%    301%
        PC                   24,095      15%       21,325       19%     13%
        Total publishing   $161,652      77%     $114,405       72%     41%

     Distribution:
       Console              $39,194      79%      $35,342       80%     11%
       Hand-held              3,655       7%        2,912        6%     26%
       PC                     6,775      14%        6,066       14%     12%
       Total distribution   $49,624      23%      $44,320       28%     12%
       Total net revenues  $211,276     100%     $158,725      100%     33%


     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter Ended June 30, 2004 and 2003

                                           Quarter Ended      Quarter Ended
                                           June 30, 2004      June 30, 2003

     Publishing Net Revenues

        PC                                      15%                19%

        Console                                 74%                77%
            PlayStation  2                      42%                37%
            Microsoft Xbox                      16%                31%
            Nintendo GameCube                   15%                 5%
            PlayStation                          1%                 4%

        Hand-held                               11%                 4%
            Game Boy Advance                    11%                 4%

        Total publishing net revenues          100%               100%



SOURCE Activision, Inc.