Activision Announces Third Quarter 2003 Financial Results

Jan 22, 2003

Company Delivers Record Net Revenues and Net Income for Q3 and First Nine Months

SANTA MONICA, Calif., Jan. 22 /PRNewswire-FirstCall/ -- Activision, Inc. (Nasdaq: ATVI) today announced results for the third fiscal quarter ended December 31, 2002.

Net revenues were $378.7 million, compared to net revenues of $371.3 million reported for the third quarter last fiscal year. Net income for the third fiscal quarter increased 13.3% to $44.3 million, compared to net income of $39.1 million for the prior year and earnings per diluted share were $0.63 compared to $0.66, reported for the same period last year.

For the nine-month period ended December 31, 2002 the company announced record results. Net revenues were $739.1 million, an increase of 18.9% over net revenues of $621.5 million reported for the nine-month period last fiscal year. Net income for the nine-month period increased 79% to $74.1 million, or $1.06 per diluted share, compared to net income of $41.4 million, or $0.73 per diluted share, reported for the same period last year.

The company provided its outlook for its fourth quarter 2003. It expects revenues of $100 million and a loss per share of $0.15. For fiscal year 2003,Activision is increasing its expected net revenues from $823 million to $839 million and earnings per share from $0.88 to $0.91.

Robert A. Kotick, Chairman and CEO of Activision, said, "Activision has a solid financial base and one of the strongest balance sheets in our industry. We are a disciplined company with exceptional talent. We will continue to make investments in our future through high profile intellectual property rights acquisitions and developer acquisitions and alliances. Our strong portfolio of properties coupled with our development capabilities should enable us to deliver games that can take full advantage of the mass-market penetration rates of the console platforms that we expect in the future."

Activision also issued its revised outlook for fiscal year 2004. The company expects revenues of $750 million and earnings per share of $0.70. For the first quarter of fiscal year 2004, the company expects revenues of $130 million and a loss per share of $0.07.

Business Highlights
    --  According to NPD, for calendar year 2002, Activision had two of the
        top 5 selling video game franchises for the U.S. console and hand-held
        markets -- Spider-Man and Tony Hawk's Pro Skater.
    --  During the quarter, Activision announced three significant
        partnerships:
        --  The company acquired console software developer Luxoflux
            Corporation, which is currently in development with True Crime:
            Streets of L.A. and the sequel to DreamWorks Pictures' blockbuster
            Academy Award(R) winning feature film "Shrek" which is being
            co-developed and co-published by TDK Mediactive, Inc. and
            Activision.
        --  The company was named master videogame licensee for Lemony
            Snicket's A Series of Unfortunate Events, the best-selling
            children's book series that is in development for a feature film
            by Paramount Pictures and Nickelodeon Movies.  The license grants
            Activision the exclusive right to develop and publish products for
            all video game consoles, hand-held platforms and the PC based on
            the franchise, A Series of Unfortunate Events.
        --  The company signed an exclusive multi-title, multi-year agreement
            to publish real-time PC strategy games developed by Stainless
            Steel Studios, creators of the critically acclaimed, best-selling
            PC strategy title Empire Earth, which has sold more than
            a million units worldwide since its initial release.
    --  On January 8, 2003, Activision announced that it had expanded its
        long-term, broad-based strategic alliance with Marvel Enterprises and
        signed a multi-year extension for their current video game licensing
        agreements.  The expanded agreements grant Activision the exclusive
        rights to develop and publish video game products based on Marvel's
        comic book franchises Spider-Man(TM), X-MEN(TM), Fantastic Four(TM)
        and Iron Man(TM) through 2009.
    --  On January 20, 2003, Activision announced a strategic multi-year,
        multi-property publishing agreement with DreamWorks SKG that grants
        Activision the exclusive interactive rights to publish games based on
        DreamWorks' three upcoming computer-animated feature films --
        "Sharkslayer," "Madagascar," and "Over the Hedge" -- and their
        sequels.  Under the terms of the agreement, Activision has acquired
        the rights to develop and publish games for the console, hand-held and
        PC platforms.


During the quarter, Activision released 20 new games, including Tony Hawk's Pro Skater 4, X-Men: Next Dimension, Minority Report, Star Trek: Star Fleet Command III and Disney's Tarzan. Looking ahead, the company has several upcoming titles including Tenchu: Wrath of Heaven, X2: Wolverine's Revenge, DOOM III, Pitfall Harry, a new Tony Hawk title, True Crime: Streets of L.A. and id Software's Return to Castle Wolfenstein for the consoles.

As previously announced, on October 4, 2002, Activision's Board of Directors authorized the company to repurchase up to $150 million of shares of its common stock in the open market or in privately negotiated transactions, including privately negotiated structured call option transactions, and through transactions in the options markets. As a result of this program, during the third quarter of fiscal 2003, Activision repurchased approximately 1,815,000 shares of its common stock at an average price of $13.15 per share.

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 revenues of $786 million for the fiscal year ended March 31, 2002.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, 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.




                        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,
                             2002         2001          2002          2001

    Net revenues          $378,685      $371,341     $739,115      $621,523
    Costs and expenses:
      Cost of sales -
       product costs       204,881       195,560      369,004       347,840
      Cost of sales -
       software royalties
       and amortization     33,503        34,997       67,396        47,699
      Cost of sales -
       intellectual
        property licenses   14,918        23,087       32,704        33,546
      Product development   13,758        10,848       38,768        29,059
      Sales and marketing   33,875        31,883       84,644        67,064
      General and
       administrative       10,989        13,165       37,308        32,603
       Total operating
        expenses           311,924       309,540      629,824       557,811
    Operating income        66,761        61,801      109,291        63,712
    Investment income,
     net                     2,533           271        6,554         1,923
    Income before provision
     for income taxes       69,294        62,072      115,845        65,635
    Provision for
     income taxes           24,947        22,962       41,708        24,281
    Net income             $44,347       $39,110      $74,137       $41,354

    Basic earnings
     per share               $0.66         $0.75        $1.15         $0.84
    Weighted average
     common shares
     outstanding            66,806        52,359       64,559        49,254

    Diluted earnings
     per share               $0.63         $0.66        $1.06         $0.73
    Weighted average
     common shares
     outstanding
     assuming dilution      70,821        59,293       69,885        56,635


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

                                                  December 31,     March 31,
                                                      2002            2002
    ASSETS
      Current assets:
        Cash, cash equivalents and
         short-term investments                     $528,858       $279,007
        Accounts receivable, net                     158,393         76,733
        Inventories                                   37,284         20,736
        Software development                          43,657         36,263
        Intellectual property licenses                10,612          6,326
        Deferred income taxes                         27,345         22,608
        Other current assets                          11,553         15,200
          Total current assets                       817,702        456,873
      Software development                             7,818          3,254
      Intellectual property licenses                  42,221         10,899
      Property and equipment, net                     19,741         17,832
      Deferred income taxes                           11,806         28,795
      Other assets                                     3,729          3,242
      Goodwill                                        68,100         35,992
          Total assets                              $971,117       $556,887

    LIABILITIES AND STOCKHOLDERS' EQUITY
      Current liabilities:
        Current portion of long-term debt               $145           $168
        Accounts payable                             106,658         64,410
        Accrued expenses                              93,815         59,096
          Total current liabilities                  200,618        123,674
      Long-term debt, less current portion             2,676          3,122
          Total liabilities                          203,294        126,796
      Stockholders' equity:
        Common stock                                      --             --
        Additional paid-in capital                   678,697        397,528
        Retained earnings                            138,521         64,384
        Treasury stock                               (44,182)       (20,323)
        Accumulated other comprehensive
         loss and other equity                        (5,213)       (11,498)
          Total stockholders' equity                 767,823        430,091
            Total liabilities and
             stockholders' equity                   $971,117       $556,887


                        ACTIVISION, INC. AND SUBSIDIARIES
                              FINANCIAL INFORMATION
         For the Quarter and Nine Months Ended December 31, 2002 and 2001
                              (Amounts in thousands)

                                                                     Percent
                                                                    Increase
                                        Quarter Ended              (Decrease)
                             December 31,             December 31,
                                 2002                     2001
                          Amount    % of Total     Amount   % of Total
    Geographic Revenue
     Mix
      United States     $179,643        47%      $194,497       52%      -8%
      International      199,042        53%       176,844       48%      13%
      Total net
       revenues         $378,685       100%      $371,341      100%       2%

    Activity/Platform Mix
    Publishing:
      Console           $211,993        83%      $176,081       68%      20%
      Hand-held           19,574         7%        31,879       12%     -39%
      PC                  25,162        10%        52,777       20%     -52%
      Total publishing  $256,729        68%      $260,737       70%      -2%

    Distribution:
      Console           $108,535        89%       $78,272       71%      39%
      Hand-held            6,058         5%        18,559       17%     -67%
      PC                   7,363         6%        13,773       12%     -47%
      Total
       distribution     $121,956        32%      $110,604       30%      10%
      Total net
       revenues         $378,685       100%      $371,341      100%       2%

                                                                     Percent
                                                                    Increase
                                     Nine Months Ended             (Decrease)
                            December 31,            December 31,
                                2002                    2001
                          Amount    % of Total    Amount    % of Total
    Geographic Revenue
     Mix
      United States     $380,045        51%      $332,441       53%      14%
      International      359,070        49%       289,082       47%      24%
      Total net
       revenues         $739,115       100%      $621,523      100%      19%


    Activity/Platform Mix
    Publishing:
      Console           $409,919        77%      $255,181       58%      61%
      Hand-held           45,061         8%       101,479       23%     -56%
      PC                  81,992        15%        84,535       19%      -3%
      Total publishing  $536,972        73%      $441,195       71%      22%

    Distribution:
      Console           $172,241        85%      $121,315       67%      42%
      Hand-held           11,798         6%        35,593       20%     -67%
      PC                  18,104         9%        23,420       13%     -23%
      Total
       distribution     $202,143        27%      $180,328       29%      12%
      Total net
       revenues         $739,115       100%      $621,523      100%      19%


                        ACTIVISION, INC. AND SUBSIDIARIES
                              FINANCIAL INFORMATION
         For the Quarter and Nine Months Ended December 31, 2002 and 2001

                         Quarter       Quarter     Nine Months   Nine Months
                          Ended         Ended         Ended         Ended
                       December 31, December 31,  December 31,  December 31,
                           2002         2001          2002          2001

    Publishing
     Net Revenues

      PC                   10%           20%           15%           19%

      Console              83%           68%           77%           58%
        PlayStation 2      48%           33%           42%           21%
        Microsoft Xbox     13%            4%           13%            2%
        Nintendo GameCube  12%            6%           13%            4%
        PlayStation        10%           20%            8%           23%
        Nintendo 64         0%            4%            1%            7%
        Sega Dreamcast      0%            1%            0%            1%

    Hand-held               7%           12%            8%           23%
        Game Boy Advance    6%            7%            7%           15%
        Game Boy Color      1%            5%            1%            8%

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


SOURCE Activision, Inc.