Activision Reports Record Third Quarter and Nine Month Fiscal 2004 Results

Jan 28, 2004

Q3 Net Revenues Increase 34% and Diluted E.P.S. Grows 88%
Company Has Three Top-Five Holiday Games According to NPD
Company Provides Record Outlook for FY 2005 Net Revenues of $1 Billion

SANTA MONICA, Calif., Jan. 28 /PRNewswire-FirstCall/ -- Activision, Inc. (Nasdaq: ATVI) today announced record financial results for the third quarter and nine months ended December 31, 2003.

Net revenues for the third quarter were $508.5 million or 34% higher, as compared to $378.7 million for the fiscal year 2003 third quarter. Net income for the third quarter rose to $77.0 million, a 74% increase, compared with net income of $44.3 million for the previous third quarter. Diluted earnings per share grew 88% to $0.79 per diluted share, compared to $0.42 per diluted share reported for the last fiscal third quarter.

For the nine-month period ended December 31, 2003, the company announced record net revenues of $784.8 million, as compared to net revenues of $739.1 million reported for the nine-month period last fiscal year. The company also announced record earnings per diluted share for the nine-month period of $0.74, as compared to earnings per diluted share of $0.71 for the same period last year.

Activision increased its net revenues and earnings per diluted share outlook for fiscal year 2004 to $910 million in net revenues and earnings per diluted share of $0.72 from the company's prior outlook of $870 million and diluted earnings per share of $0.56. The company also increased its fourth quarter outlook to $125 million in net revenues and a loss per share of $0.02 from its previous outlook of $114 million in net revenues and a loss per share of $0.05.

Activision also provided its outlook for fiscal year 2005, beginning in April 2004, of $1 billion in net revenues, an increase of 10% over the prior year and earnings per diluted share of $0.90, which represents a 25% increase year over year. For the first quarter of FY 2005, the company expects net revenues of $170 million and earnings per diluted share of $0.05.

Robert Kotick, Chairman and CEO of Activision, Inc. commented, "I am very pleased to announce that the company delivered record results for the third quarter and first nine months of fiscal 2004. Our three holiday titles, Tony Hawk's Underground, True Crime: Streets of L.A. and Call of Duty, were all top-five selling games for the holiday season and represent some of the highest quality, most innovative products that we have ever created. The success of our two new original properties, True Crime: Streets of L.A. and Call of Duty, and the new direction for the Tony Hawk brand have resulted in three new franchises from which we expect to develop a variety of games for multiple platforms for years to come."

Kotick continued, "We have one of the strongest balance sheets in our industry and ended the quarter with $552 million in cash and short-term investments, low inventories and $796 million in shareholders' equity. We believe that our fiscal year 2005 financial results will be driven by our robust and exciting slate that includes Spider-Man 2, Shrek 2, Doom 3, Shark Tale, Lemony Snicket's A Series of Unfortunate Events, Call of Duty: Finest Hour, Rome: Total War and a sequel to the best-selling game Tony Hawk's Underground. Our planned product slate combined with the growing installed base of console hardware should enable us to continue to expand the scale and scope of our business."

Business Highlights

Activision's third quarter results were driven by solid performance of its titles across all platforms worldwide. During the quarter, the company ranked as the #2 U.S. publisher overall on the console platforms, according to NPD Funworld, due to strong consumer response to Tony Hawk' Underground and True Crime: Streets of L.A. Between October and December, Activision released five new titles: Tony Hawk's Underground, an all-new Tony Hawk experience; True Crime: Streets of L.A., a driving, fighting and shooting game featuring Snoop Dogg and an original soundtrack featuring more than 50 West Coast hip hop artists; Call of Duty, a World War II based first-person action game; Empires: Dawn of the Modern World, a real time strategy game spanning five eras from the Medieval Age to World War II; and an all new title in the Cabela's franchise, Cabela's Dangerous Hunts.

Activision continued its market leadership position in both the sports and first-person action genres with Tony Hawk's Underground and Call of Duty. The company was the only publisher to have an original intellectual property, True Crime: Streets of L.A., rank as a top-five console/handheld title for the holiday season.

Other highlights from the fiscal third quarter are as follows:

 *  According to NPD Funworld, Tony Hawk's Underground was the #2 best
        selling U.S. console/handheld title in aggregate across all platforms.
        Additionally, the Tony Hawk franchise reigned as the #1 franchise from
        a third-party publisher.

     *  True Crime: Streets of L.A. was the #4 best selling U.S.
        console/handheld title in aggregate across all platforms, according to
        NPD Funworld.  True Crime: Streets of L.A. rose up the charts after
        having launched on November 4.

     *  According to NPD Intellect, Call of Duty was the #1 best selling PC
        game in the U.S. for the calendar fourth quarter.  Additionally, the
        game ranked as the #5 best selling PC game for calendar 2003, despite
        having launched on October 29.  On October 30, Activision announced
        that it had acquired Infinity Ward, the developer of Call of Duty.

     *  The Cabela's franchise was the #1 best-selling hunting series for
        calendar 2003 according to NPD.  During the holiday season, Activision
        launched Cabela's Dangerous Hunts for PlayStation(R)2 computer
        entertainment system and the Xbox(R) video game system from Microsoft.


Looking ahead to the fourth quarter of fiscal year 2004, Activision's slate includes Pitfall: The Lost Expedition, an action adventure game for the PlayStation2 computer entertainment system, Xbox video game system from Microsoft, Nintendo® GameCube and Nintendo® Game Boy® Advance; MTX: Mototrax, a comprehensive motocross game for the PlayStation2 computer entertainment system and Xbox video game system from Microsoft; and Tenchu: Return From Darkness, the acclaimed stealth ninja series for the Xbox video game system from Microsoft.

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 $864 million for the fiscal year ended March 31, 2003. 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. Although the company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, a number of important factors could cause our 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.

(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,
                                        2003      2002      2003      2002
                                                Restated            Restated

    Net revenues                      $508,511  $378,685  $784,759  $739,115
    Costs and expenses:
       Cost of sales - product costs   235,301   204,881   384,302   369,004
       Cost of sales - software
        royalties and amortization      23,680    33,503    50,575    67,396
       Cost of sales - intellectual
        property licenses                9,464    14,918    27,008    32,704
       Product development              50,354    13,758    79,828    38,768
       Sales and marketing              58,503    33,875   102,025    84,644
       General and administrative       14,248    10,989    35,847    37,308
            Total operating expenses   391,550   311,924   679,585   629,824
    Operating income                   116,961    66,761   105,174   109,291
    Investment income, net               1,464     2,533     4,125     6,554
    Income before provision for
     income taxes                      118,425    69,294   109,299   115,845
    Provision for income taxes          41,444    24,947    38,248    41,708
    Net income                         $76,981   $44,347   $71,051   $74,137


    Basic earnings per share             $0.87     $0.44     $0.80     $0.77
    Weighted average common shares
     outstanding                        88,763   100,209    88,325    96,839


    Diluted earnings per share           $0.79     $0.42     $0.74     $0.71
    Weighted average common shares
     outstanding assuming dilution      97,351   106,223    95,786   104,822


     Share and earnings per share data have been restated to reflect our
     three-for-two stock split for shareholders of record as of May 16, 2003,
     paid June 6, 2003.



     ACTIVISION, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS
     (In thousands)
                                                 December 31,        March 31,
                                                    2003              2003
    ASSETS
        Current assets:
           Cash, cash equivalents and
            short-term investments                 $551,677         $406,954
           Accounts receivable, net                 241,929           15,822
           Inventories                               35,506           19,577
           Software development                      43,469           26,791
           Intellectual property licenses            26,614            8,906
           Deferred income taxes                     36,170           38,290
           Other current assets                      14,217           10,565
                Total current assets                949,582          526,905
        Software development                         27,394           35,281
        Intellectual property licenses               22,882           36,943
        Property and equipment, net                  26,375           22,265
        Deferred income taxes                            --           10,322
        Other assets                                    844            5,081
        Goodwill                                     74,214           68,019
                         Total assets            $1,101,291         $704,816

    LIABILITIES AND SHAREHOLDERS' EQUITY
        Current liabilities:
           Current portion of long-term debt           $--             $147
           Accounts payable                         170,936           45,602
           Accrued expenses                         128,687           58,656
                 Total current liabilities          299,623          104,405
        Long-term debt, less current portion             --            2,671
        Deferred income taxes                         5,381               --

                     Total liabilities              305,004          107,076
        Shareholders' equity:
           Common stock                                  --               --
           Additional paid-in capital               731,345          592,295
           Retained earnings                        201,615          130,564
           Treasury stock                          (144,128)        (121,685)
           Accumulated other
            comprehensive income (loss)               7,455           (3,434)
                 Total shareholders' equity         796,287          597,740
                     Total liabilities
                      and shareholders' equity   $1,101,291         $704,816


     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter and Nine Months Ended December 31, 2003 and 2002
     (Amounts in thousands)

                                                                     Percent
                                                                     Increase
                                                                    (Decrease)
                                              Quarter Ended
                                   December 31, 2003   December 31, 2002
                                               % of               % of
                                     Amount    Total   Amount     Total
    Geographic Revenue Mix
      United States                  $252,114    50%   $179,643    47%    40%
      International                   256,397    50%    199,042    53%    29%
      Total net revenues             $508,511   100%   $378,685   100%    34%


    Activity/Platform Mix
    Publishing:
      Console                        $304,996    80%   $211,993    83%    44%
      Hand-held                        13,367     3%     19,574     7%   -32%
      PC                               64,558    17%     25,162    10%   157%
      Total publishing               $382,921    75%   $256,729    68%    49%

    Distribution:
      Console                        $102,979    82%   $108,535    89%    -5%
      Hand-held                         6,917     6%      6,058     5%    14%
      PC                               15,694    12%      7,363     6%   113%
      Total distribution             $125,590    25%   $121,956    32%     3%
      Total net revenues             $508,511   100%   $378,685   100%    34%



                                                                     Percent
                                                                     Increase
                                                                    (Decrease)
                                            Nine Months Ended
                                   December 31, 2003   December 31, 2002
                                               % of               % of
                                     Amount    Total   Amount     Total
    Geographic Revenue Mix
      United States                  $381,303    49%   $380,045    51%     0%
      International                   403,456    51%    359,070    49%    12%
      Total net revenues             $784,759   100%   $739,115   100%     6%


    Activity/Platform Mix
    Publishing:
      Console                        $439,499    77%   $409,919    77%     7%
      Hand-held                        22,150     4%     45,061     8%   -51%
      PC                              107,473    19%     81,992    15%    31%
      Total publishing               $569,122    73%   $536,972    73%     6%

    Distribution:
      Console                        $171,509    79%   $172,241    85%     0%
      Hand-held                        14,559     7%     11,798     6%    23%
      PC                               29,569    14%     18,104     9%    63%
      Total distribution             $215,637    27%   $202,143    27%     7%
      Total net revenues             $784,759   100%   $739,115   100%     6%



     ACTIVISION, INC. AND SUBSIDIARIES
     FINANCIAL INFORMATION
     For the Quarter and Nine Months Ended December 31, 2003 and 2002




                                                            Nine        Nine
                                      Quarter    Quarter   Months      Months
                                       Ended      Ended    Ended       Ended
                                      Dec. 31,   Dec. 31,  Dec. 31,   Dec. 31,
                                       2003        2002     2003        2002

    Publishing Net Revenues

       PC                               17%       10%        19%        15%

       Console                          80%       83%        77%        77%
           PlayStation  2               48%       48%        44%        42%
           Microsoft Xbox               20%       13%        22%        13%
           Nintendo GameCube            10%       12%         8%        13%
           PlayStation                   2%       10%         3%         8%
           Nintendo 64                   0%        0%         0%         1%

       Hand-held                         3%        7%         4%         8%
           Game Boy Advance              3%        6%         4%         7%
           Game Boy Color                0%        1%         0%         1%

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



SOURCE Activision, Inc.