Activision Reports Record Third Quarter Fiscal Year 2007 Preliminary Results

Feb 7, 2007

-- #2 U.S. Console and Handheld Publisher for Fiscal Third Quarter -- -- Four Top 11 Best-Selling Titles in December Quarter -- -- Raises FY 2007 Net Revenue Outlook to $1.40 Billion and Diluted E.P.S. Outlook --

SANTA MONICA, Calif., Feb 07, 2007 (BUSINESS WIRE) -- Activision, Inc. (Nasdaq: ATVI) today announced preliminary financial results for the fiscal 2007 third quarter and nine months ended December 31, 2006, additional preliminary financial results for the fiscal second quarter ended September 30, 2006 and outlook for future periods. The fiscal 2007 results and outlook do not take into account any adjustments for additional expenses that may be required in connection with the ongoing review of Activision's historical stock option grant practices, discussed more fully in our recent press releases and filings with the SEC. The fiscal 2007 results also exclude any adjustments that may be required by the occurrence of an event subsequent to this release that affects the estimates inherent in the process of preparing those results and should be considered preliminary until Activision files its quarterly reports on Form 10-Q for the second and third quarters of fiscal 2007. Further, the historical results do not take into account any restatements that may be required in connection with that review, or the determination of the company's audit committee on January 23, 2007 that the company's financial statements (as well as earnings releases and similar communications) relating to the fiscal periods referred to in this release (and other periods dating back to fiscal 1992) should no longer be relied upon, and, therefore, are presented for comparative purposes only.

For the third quarter of fiscal 2007, ended December 31, 2006, the company expects net revenues of $822.8 million, an increase of $6.6 million as compared to net revenues of $816.2 million previously reported for the third quarter of fiscal 2006. Net income for the fiscal third quarter is expected to rise to $124.8 million, an 84% increase compared with net income of $67.9 million previously reported for the previous-year fiscal third quarter. Earnings per diluted share for the quarter are expected to be $0.41, as compared with earnings per diluted share previously reported for the prior-year fiscal third quarter of $0.23. Excluding the impact of equity-based compensation, the company expects to report earnings per diluted share of $0.42 for the fiscal third quarter.

For the fiscal second quarter ended September 30, 2006, Activision still expects to report net revenues of $188.2 million, as compared to net revenues of $222.5 million previously reported for the second quarter of the prior fiscal year. The company expects to report a loss per share of $0.06, as compared to the previously reported loss per share of $0.05 for the previous fiscal year's second quarter. Excluding the impact of equity-based compensation, the company expects to report a loss per share of $0.05 for the fiscal second quarter.

For the nine-month period ended December 31, 2006, the company expects net revenues of $1.20 billion, as compared to net revenues of $1.28 billion previously reported for the comparable nine-month period of last fiscal year. The company also expects earnings per diluted share for the nine-month period of $0.30, an increase of 76% as compared to earnings per diluted share of $0.17 previously reported for the comparable period of last fiscal year. Excluding the impact of equity-based compensation, the company expects earnings per diluted share of $0.33 for the nine months ended December 31, 2006.

Robert Kotick, Chairman and CEO of Activision, Inc., commented, "Net revenues for Activision's third quarter of fiscal 2007 are expected to be the highest in the company's history. For the month of November, Activision was the #1 U.S. console and handheld publisher and the #2 publisher for the fiscal third quarter. We achieved these results with a smaller, focused slate that was anchored by four key titles - Call of Duty(R) 3, Marvel(TM): Ultimate Alliance(TM), Tony Hawk's Project 8(TM) and Guitar Hero II(TM) and strong execution by our global sales and marketing teams."

Kotick continued, "During the quarter, we grew both the Call of Duty and Tony Hawk franchises and established two new franchises, Marvel: Ultimate Alliance and Guitar Hero. Strong launches for both PLAYSTATION(R) 3 in the U.S. and the Wii(TM) in the U.S. and Europe, as well as continued consumer adoption of the Xbox 360(TM) worldwide, suggests a great deal of momentum for next-generation videogame system adoption in the coming years. As we look toward the future, we remain excited about the improving market conditions for our industry. The combination of our product slate, the opportunities created by next-generation console systems, the increasing installed base of current-generation console hardware, continued growth in handhelds, as well as higher barriers to entry for new and existing competitors, positions us well to expand our net revenues, earnings and operating margins in the future."

Business Highlights

Activision's fiscal third quarter results were driven by solid performance of its titles across all platforms worldwide. During the fiscal third quarter, Activision was the only publisher that had four of the top 11 best-selling games in the U.S., according to The NPD Group - Guitar Hero II, Call of Duty 3, Marvel: Ultimate Alliance and Tony Hawk's Project 8.

Between October and December, Activision released three launch titles for the PLAYSTATION 3 -- Call of Duty 3, Marvel(TM): Ultimate Alliance and Tony Hawk's Project 8, and five launch titles for the Wii -- Call of Duty 3, Marvel: Ultimate Alliance, Rapala Tournament Fishing, Tony Hawk's Downhill Jam and World Series of Poker: Tournament of Champions.

Additionally, the company released Guitar Hero II for the PlayStation(R) 2 computer entertainment system and several handheld games including GUN(TM) Showdown, Activision(R) Hits Remixed, Over the Hedge(TM): Hammy Goes Nuts! and Spider-Man(TM): Battle for New York.

Other business highlights for the fiscal third quarter include:

-- According to The NPD Group, during the quarter, Activision ranked as a top-three U.S. publisher on the Xbox 360, Wii and PLAYSTATION 3 and was the only publisher to achieve this status across all of the next-generation consoles.

-- During the quarter, Activision ranked as the #1 U.S. publisher on the PlayStation 2 computer entertainment system, according to The NPD Group.

-- Guitar Hero II was the #1 console and handheld game in dollars for the U.S. for the month of December and the #2 game overall for the quarter, according to The NPD Group. Additionally, during the quarter, the company announced that Guitar Hero II is currently in development for the Xbox 360 and will be released this spring.

-- According to The NPD Group, for the third quarter, Call of Duty 3 was the #4 best-selling console and handheld game in dollars in the U.S.

-- Marvel: Ultimate Alliance was the #10 best-selling console and handheld game in dollars for the third quarter, according to The NPD Group.

-- For the eighth consecutive year, the Tony Hawk franchise was a top 10 brand in the U.S. for the fiscal third quarter, according to The NPD Group.

For the fourth quarter, Activision will release Call of Duty(R): Roads to Victory for the PSP worldwide, as well as Tony Hawk's Project 8, Call of Duty 3 and Marvel: Ultimate Alliance for PLAYSTATION 3 in Europe.

Company Outlook

For fiscal year 2007, Activision is increasing its net revenue outlook to $1.40 billion, from $1.37 billion which was given on January 25, 2007. The company also is raising its diluted earnings per share outlook for the year to $0.21. Excluding the impact of equity-based compensation, the company expects diluted earnings per share of $0.26.

For its fiscal fourth quarter, the company is increasing its net revenue outlook to $200 million, from its previous outlook of $170 million, based on better visibility regarding the allocation of PLAYSTATION 3 hardware to its European distribution business. The company now expects a loss per share of $0.09 for the fiscal fourth quarter. Excluding the impact of equity-based compensation, the company expects a loss per share of $0.08, as compared to its previous loss per share outlook of $0.09.

As previously announced, the company believes that its fiscal fourth quarter results will be significantly impacted by higher legal expenses and professional fees relating primarily to its internal review of historical stock option practices, including the special sub-committee review, Nasdaq proceedings, informal SEC inquiry and derivative litigation, and the company's decision to move the release of Enemy Territory(TM): QUAKE Wars into fiscal year 2008.

The company also reaffirmed its fiscal year 2008 net revenue outlook which is expected 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 preliminary financial results from the company's third fiscal quarter and outlook for future periods. 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) 457-2653 in the U.S.

A "replay" of the call will be available for two business days beginning approximately two hours after the call's conclusion. If you would like to take advantage of this special service, you can access it by calling (719) 457-0820 and entering the pass-code: 5492474. In addition, the replay on the Internet will be archived at http://www.activision.com.

Non-GAAP Financial Measures

Activision provides net earnings (loss) per share data which excludes the impact of expenses related to stock options, employee stock purchase plan, and restricted stock under Statement of Financial Accounting Standards No. 123 (revised 2004), "Share Based Payment" (FAS 123R) and the associated tax benefit.

This financial measure is not determined in accordance with generally accepted accounting principles (GAAP), and the exclusion of those amounts has the effect of increasing non-GAAP earnings per share by that same amount per share as compared to GAAP earnings per share for the period.

Management compensates for this exclusion by presenting the most comparable GAAP measure, net income, directly ahead of non-GAAP net income (loss) in this earnings release and by providing a reconciliation that shows and describes the adjustments made in the accompanying tables. Management does not believe this exclusion is material, particularly when such measure is disclosed with its most comparable GAAP financial measure, net income (loss).

Management believes that the presentation of this non-GAAP financial measure provides investors with additional useful information to measure the company's financial performance because it allows for a better comparison of results in the periods reported herein to those in prior periods that did not include FAS 123R equity-based compensation expense. This non-GAAP financial measure should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Non-GAAP net earnings (loss) do not include certain expenses required to be recorded in order to present earnings in accordance with GAAP and the term non-GAAP net earnings (loss) does not have a standardized meaning. Therefore, other companies may use the same or similarly named measure but exclude different items, which may not provide investors a comparable view of the company's performance in relation to other companies in the same industry.

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 $1.47 billion for the fiscal year ended March 31, 2006.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, Japan, Australia, Sweden, Spain, the Netherlands and South Korea. 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.

Cautionary Notes Regarding Financial Results and Outlook and Other Forward-Looking Statements:

The financial results and outlook reported in this press release do not take into account any adjustments or restatements that may be required in connection with the ongoing review of the company's historical stock option grant practices by the sub-committee of independent directors of the company. Further information on that review is discussed in the company's filings with the SEC.

As previously disclosed, the company's financial statements, earnings releases and similar communications relating to fiscal periods commencing with the company's 1992 fiscal year should no longer be relied upon and historical financial results are presented for comparative purposes only. The company expects to restate previously issued financial statements relating to such periods and any restatement of the company's historical financial statements could result in changes to the company's fiscal year 2007 financial statements. Further, until the company files its quarterly reports on Form 10-Q for the quarters ended September 30, 2006 and December 31, 2006, the company will be required to adjust the financial results for those quarters to account for any subsequent events that affect the estimates inherent in the process of preparing results for those quarters and those results should be considered preliminary until the company files those reports. 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, the adjustments and restatements referred to above, the findings of the special sub-committee, the effect of the special sub-committee's review and conclusions and developments on the informal inquiry opened by the SEC in July 2006 and the derivative litigation filed in July 2006 against certain current and former directors and officers of the company, the possibility that additional claims and proceedings will be commenced, including additional stockholder litigation, employee litigation, and additional action by the SEC and/or other regulatory agencies, expenses resulting from or relating to the special sub-committee review and related regulatory proceedings and litigation, the company's ability to timely file required reports with the SEC, and the possibility that the company will be subject to delisting from the Nasdaq Global Select Market due to its inability to timely file periodic reports under the Securities Exchange Act of 1934. Other factors that could cause Activision's actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, without limitation, other litigation (unrelated to stock option granting practices), sales of the company's titles, shifts 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), declines in software pricing, product returns and price protection, product delays, retail acceptance of the company's products, adoption rate of new hardware and related software, 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, natural disasters, integration of recently acquired subsidiaries, and identification of suitable future acquisition opportunities. These important factors and other factors that potentially could cause actual future results to differ materially from current expectations are described in our filings with the SEC, including the company's most recent annual report on Form 10-K, quarterly report on Form 10-Q and current reports on Form 8-K dated October 25, 2006; November 6, 2006; November 15, 2006; and January 25, 2007. Readers of this press release are referred to such filings. The forward-looking statements in this press release are based upon information available to the company as of the date of the release, and the company assumes no obligations to update any such forward-looking statement. The company may change its intention, belief or expectation, at any time and without notice, based upon any changes in the enumerated factors or in the company's assumptions, or otherwise, and forward-looking statements believed to be true when made may ultimately prove to be incorrect. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the company's control and may cause our actual results to differ materially from our current expectations.

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,
-------------------------- ------------------- -----------------------
                               2006      2005        2006        2005
-------------------------- --------- --------- ----------- -----------

Net revenues               $822,833  $816,242  $1,199,074  $1,279,875
Costs and expenses:
 Cost of sales - product
  costs                     383,020   367,685     619,017     617,021
 Cost of sales - software
  royalties and
  amortization               77,384   104,264     105,567     139,267
 Cost of sales -
  intellectual property
  licenses                   23,566    26,376      37,838      55,765
 Product development         37,147    53,139      88,346      99,013
 Sales and marketing         90,159   155,999     158,056     258,957
 General and
  administrative             44,438    24,712      88,989      65,780
-------------------------- --------- --------- ----------- -----------
   Total operating
    expenses                655,714   732,175   1,097,813   1,235,803
-------------------------- --------- --------- ----------- -----------
Operating income            167,119    84,067     101,261      44,072
Investment income, net        9,724     9,162      26,031      22,840
-------------------------- --------- --------- ----------- -----------
Income before income tax
 provision                  176,843    93,229     127,292      66,912
Income tax provision         52,072    25,284      37,728      15,794
-------------------------- --------- --------- ----------- -----------
Net income                 $124,771   $67,945     $89,564     $51,118
========================== ========= ========= =========== ===========


-------------------------- --------- --------- ----------- -----------
Basic earnings per share      $0.44     $0.25       $0.32       $0.19
Weighted average common
 shares outstanding         282,512   274,965     280,499     272,089
-------------------------- --------- --------- ----------- -----------


-------------------------- --------- --------- ----------- -----------
Diluted earnings per share    $0.41     $0.23       $0.30       $0.17
Weighted average common
 shares outstanding
 assuming dilution          305,197   298,752     302,398     295,963
-------------------------- --------- --------- ----------- -----------

-------------------------- --------- --------- ----------- -----------

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)

----------------------------------- --------- -------------- ---------
                                     Quarter ended December 31, 2006
----------------------------------- ----------------------------------
                                      GAAP    Equity-Based   Non-GAAP
                                               Compensation
                                               Adjustment(a)
----------------------------------- --------- -------------- ---------

Net revenues                        $822,833             $-  $822,833
Costs and expenses:
   Cost of sales - product costs     383,020              -   383,020
   Cost of sales - software
    royalties and amortization        77,384          1,771    75,613
   Cost of sales - intellectual
    property licenses                 23,566              -    23,566
   Product development                37,147          1,193    35,954
   Sales and marketing                90,159          1,315    88,844
   General and administrative         44,438          2,988    41,450
----------------------------------- --------- -------------- ---------
        Total operating expenses     655,714          7,267   648,447
----------------------------------- --------- -------------- ---------
Operating income (loss)              167,119         (7,267)  174,386
Investment income, net                 9,724              -     9,724
----------------------------------- --------- -------------- ---------
Income before income tax provision
 (benefit)                           176,843         (7,267)  184,110
Income tax provision (benefit)        52,072         (2,827)   54,899
----------------------------------- --------- -------------- ---------
Net income (loss)                   $124,771        $(4,440) $129,211
=================================== ========= ============== =========

----------------------------------- --------- -------------- ---------
Basic earnings (loss) per share        $0.44         $(0.02)    $0.46
Weighted average common shares
 outstanding                         282,512        282,512   282,512
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------
Diluted earnings (loss) per share      $0.41         $(0.01)    $0.42
Weighted average common shares
 outstanding assuming dilution       305,197        305,197   305,197
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------

(a)Includes expense related to stock options, employee stock purchase
    plan, and restricted stock under Statement of Financial Accounting
    Standards No. 123 (revised 2004), "Share Based Payment." See
    explanation above regarding the Company's practice on reporting
    non-GAAP financial measures.

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)

------------------------------- ----------- -------------- -----------
                                 Nine months ended December 31, 2006
------------------------------- --------------------------------------
                                   GAAP     Equity-Based    Non-GAAP
                                             Compensation
                                             Adjustment(a)
------------------------------- ----------- -------------- -----------

Net revenues                    $1,199,074             $-  $1,199,074
Costs and expenses:
   Cost of sales - product
    costs                          619,017              -     619,017
   Cost of sales - software
    royalties and amortization     105,567          1,796     103,771
   Cost of sales - intellectual
    property licenses               37,838              -      37,838
   Product development              88,346          3,443      84,903
   Sales and marketing             158,056          3,160     154,896
   General and administrative       88,989          8,535      80,454
------------------------------- ----------- -------------- -----------
        Total operating
         expenses                1,097,813         16,934   1,080,879
------------------------------- ----------- -------------- -----------
Operating income (loss)            101,261        (16,934)    118,195
Investment income, net              26,031              -      26,031
------------------------------- ----------- -------------- -----------
Income (loss) before income tax
 benefit                           127,292        (16,934)    144,226
Income tax provision (benefit)      37,728         (6,587)     44,315
------------------------------- ----------- -------------- -----------
Net income (loss)                  $89,564       $(10,347)    $99,911
=============================== =========== ============== ===========

------------------------------- ----------- -------------- -----------
Basic earnings (loss) per share      $0.32         $(0.04)      $0.36
Weighted average common shares
 outstanding                       280,499        280,499     280,499
------------------------------- ----------- -------------- -----------

------------------------------- ----------- -------------- -----------
Diluted earnings (loss) per
 share                               $0.30         $(0.03)      $0.33
Weighted average common shares
 outstanding assuming dilution     302,398        302,398     302,398
------------------------------- ----------- -------------- -----------

------------------------------- ----------- -------------- -----------

(a)Includes expense related to stock options, employee stock purchase
    plan, and restricted stock under Statement of Financial Accounting
    Standards No. 123 (revised 2004), "Share Based Payment." See
    explanation above regarding the Company's practice on reporting
    non-GAAP financial measures.

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
----------------------------------------------------------------------
                                              December 31,  March 31,
                                                 2006         2006
--------------------------------------------- ------------ -----------
ASSETS
--------------------------------------------- ------------ -----------
 Current assets:
      Cash, cash equivalents and short-term
       investments                               $805,200    $944,960
      Accounts receivable, net                    454,699      28,782
      Inventories                                  85,800      61,483
      Software development                         97,727      40,260
      Intellectual property licenses               31,128       4,973
      Deferred income taxes                         5,148       9,664
      Other current assets                         15,627      25,933
--------------------------------------------- ------------ -----------
           Total current assets                 1,495,329   1,116,055
--------------------------------------------- ------------ -----------
 Software development                               3,876      20,359
 Intellectual property licenses                    62,300      82,073
 Property and equipment, net                       46,713      45,368
 Deferred income taxes                             21,923      53,813
 Other assets                                       8,259       1,409
 Goodwill                                         188,398     100,446
--------------------------------------------- ------------ -----------
                  Total assets                 $1,826,798  $1,419,523
============================================= ============ ===========

--------------------------------------------- ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------- ------------ -----------
 Current liabilities:
      Accounts payable                           $193,873     $88,994
      Accrued expenses                            203,670     103,169
--------------------------------------------- ------------ -----------
            Total current liabilities             397,543     192,163
--------------------------------------------- ------------ -----------
      Other liabilities                            41,128       1,776
--------------------------------------------- ------------ -----------

                Total liabilities                 438,671     193,939
--------------------------------------------- ------------ -----------
 Shareholders' equity:
      Common stock                                      -           -
      Additional paid-in capital                  891,379     823,735
      Retained earnings                           478,077     388,513
      Accumulated other comprehensive income       18,671      16,369
      Unearned compensation                             -      (3,033)
--------------------------------------------- ------------ -----------
            Total shareholders' equity          1,388,127   1,225,584
--------------------------------------------- ------------ -----------
                Total liabilities and
                 shareholders' equity          $1,826,798  $1,419,523
============================================= ============ ===========

--------------------------------------------- ------------ -----------

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Quarter and Nine Months Ended December 31, 2006 and 2005
(Amounts in thousands)

                                                             Percent
                                                             Increase
                                 Quarter Ended              (Decrease)
                    --------------------------------------- ----------
                    December 31, 2006    December 31, 2005
                       Amount   % of        Amount   % of
                                 Total                Total
------------------  ----------- ------ - ----------- ------ ----------
Geographic Revenue
 Mix
 North America        $463,019     56%     $402,314     49%        15%
 International         359,814     44%      413,928     51%      (13%)
------------------  ----------- ------ - ----------- ------ ----------
 Total net
  revenues            $822,833    100%     $816,242    100%         1%
------------------  ----------- ------ - ----------- ------ ----------


------------------  ----------- ------ - ----------- ------ ----------
Segment/Platform
 Mix
Publishing:
 Console              $543,709     66%     $479,686     59%        13%
 Hand-held              71,294      9%       74,032      9%       (4%)
 PC                     33,368      4%      113,782     14%      (71%)
------------------  ----------- ------ - ----------- ------ ----------
 Total publishing
  net revenues         648,371     79%      667,500     82%       (3%)
------------------  ----------- ------ - ----------- ------ ----------

Distribution:
 Console               102,515     12%       95,408     12%         7%
 Hand-held              57,047      7%       37,154      4%        54%
 PC                     14,900      2%       16,180      2%       (8%)
------------------  ----------- ------ - ----------- ------ ----------
 Total
  distribution net
  revenues             174,462     21%      148,742     18%        17%
------------------  ----------- ------ - ----------- ------ ----------
 Total net
  revenues            $822,833    100%     $816,242    100%         1%
------------------  ----------- ------ - ----------- ------ ----------

                                                             Percent
                                                             Increase
                               Nine Months Ended            (Decrease)
                    --------------------------------------- ----------
                    December 31, 2006    December 31, 2005
                       Amount   % of        Amount   % of
                                 Total                Total
------------------  ----------- ------ - ----------- ------ ----------
Geographic Revenue
 Mix
 North America        $636,882     53%     $626,538     49%         2%
 International         562,192     47%      653,337     51%      (14%)
------------------  ----------- ------ - ----------- ------ ----------
 Total net
  revenues          $1,199,074    100%   $1,279,875    100%       (6%)
------------------  ----------- ------ - ----------- ------ ----------


------------------  ----------- ------ - ----------- ------ ----------
Segment/Platform
 Mix
Publishing:
 Console              $718,034     60%     $730,073     57%       (2%)
 Hand-held             121,080     10%      143,650     11%      (16%)
 PC                     69,423      6%      154,735     12%      (55%)
------------------  ----------- ------ - ----------- ------ ----------
 Total publishing
  net revenues         908,537     76%    1,028,458     80%      (12%)
------------------  ----------- ------ - ----------- ------ ----------

Distribution:
 Console               164,640     14%      163,344     13%         1%
 Hand-held              98,632      8%       60,229      5%        64%
 PC                     27,265      2%       27,844      2%       (2%)
------------------  ----------- ------ - ----------- ------ ----------
 Total
  distribution net
  revenues             290,537     24%      251,417     20%        16%
------------------  ----------- ------ - ----------- ------ ----------
 Total net
  revenues          $1,199,074    100%   $1,279,875    100%       (6%)
------------------  ----------- ------ - ----------- ------ ----------

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Quarter and Nine Months Ended December 31, 2006 and 2005

                                   -------- -------- -------- --------
                                                      Nine     Nine
                                   Quarter  Quarter   Months   Months
                                     Ended    Ended    Ended    Ended
                                   December December December December
                                     31,      31,      31,      31,
                                     2006     2005     2006     2005

---------------------------------- -------- -------- -------- --------
Publishing Net Revenues

 PC                                      5%      17%       8%      15%
---------------------------------- -------- -------- -------- --------

 Console                                84%      72%      79%      71%
---------------------------------- -------- -------- -------- --------
  Sony PlayStation 3                     4%       0%       3%       0%
  Sony PlayStation 2                    45%      39%      44%      38%
  Microsoft Xbox 360                    22%      11%      19%       7%
  Microsoft Xbox                         5%      15%       6%      19%
  Nintendo Wii                           7%       0%       5%       0%
  Nintendo GameCube                      1%       7%       2%       7%

 Hand-held                              11%      11%      13%      14%
---------------------------------- -------- -------- -------- --------
  Sony PlayStation Portable              4%       3%       4%       5%
  Nintendo Dual Screen                   4%       2%       4%       2%
  Nintendo Game Boy Advance              3%       6%       5%       7%

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

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

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,
----------------------------------------------------------------------
                                    2006     2005     2006     2005
----------------------------------------------------------------------

Net revenues                      $188,172 $222,540 $376,241 $463,633
Costs and expenses:
 Cost of sales - product costs     127,374  112,582  235,997  249,336
 Cost of sales - software
  royalties and amortization         8,933   20,427   28,183   35,003
 Cost of sales - intellectual
  property licenses                  4,356    8,449   14,272   29,389
 Product development                25,777   28,072   51,199   45,874
 Sales and marketing                31,703   56,640   67,897  102,958
 General and administrative         23,101   22,917   44,551   41,068
----------------------------------------------------------------------
      Total operating expenses     221,244  249,087  442,099  503,628
----------------------------------------------------------------------
Operating loss                     (33,072) (26,547) (65,858) (39,995)
Investment income, net               8,032    6,330   16,307   13,678
----------------------------------------------------------------------
Loss before income tax benefit     (25,040) (20,217) (49,551) (26,317)
Income tax benefit                  (7,659)  (6,975) (14,344)  (9,490)
----------------------------------------------------------------------
Net loss                          $(17,381)$(13,242)$(35,207)$(16,827)
======================================================================


----------------------------------------------------------------------
Basic loss per share                $(0.06)  $(0.05)  $(0.13)  $(0.06)
Weighted average common shares
 outstanding                       280,627  272,129  279,487  270,643
----------------------------------------------------------------------


----------------------------------------------------------------------
Diluted loss per share              $(0.06)  $(0.05)  $(0.13)  $(0.06)
Weighted average common shares
 outstanding assuming dilution     280,627  272,129  279,487  270,643
----------------------------------------------------------------------

----------------------------------------------------------------------

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)

----------------------------------- --------- -------------- ---------
                                     Quarter ended September 30, 2006
----------------------------------- ----------------------------------
                                      GAAP    Equity-Based   Non-GAAP
                                               Compensation
                                               Adjustment(a)
----------------------------------- --------- -------------- ---------

Net revenues                        $188,172             $-  $188,172
Costs and expenses:
   Cost of sales - product costs     127,374              -   127,374
   Cost of sales - software
    royalties and amortization         8,933              -     8,933
   Cost of sales - intellectual
    property licenses                  4,356              -     4,356
   Product development                25,777            774    25,003
   Sales and marketing                31,703            790    30,913
   General and administrative         23,101          2,900    20,201
----------------------------------- --------- -------------- ---------
        Total operating expenses     221,244          4,464   216,780
----------------------------------- --------- -------------- ---------
Operating loss                       (33,072)        (4,464)  (28,608)
Investment income, net                 8,032              -     8,032
----------------------------------- --------- -------------- ---------
Loss before income tax benefit       (25,040)        (4,464)  (20,576)
Income tax benefit                    (7,659)        (1,783)   (5,876)
----------------------------------- --------- -------------- ---------
Net loss                            $(17,381)       $(2,681) $(14,700)
=================================== ========= ============== =========

----------------------------------- --------- -------------- ---------
Basic loss per share                  $(0.06)        $(0.01)   $(0.05)
Weighted average common shares
 outstanding                         280,627        280,627   280,627
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------
Diluted loss per share                $(0.06)        $(0.01)   $(0.05)
Weighted average common shares
 outstanding assuming dilution       280,627        280,627   280,627
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------

(a)Includes expense related to stock options, employee stock purchase
    plan, and restricted stock under Statement of Financial Accounting
    Standards No. 123 (revised 2004), "Share Based Payment." See
    explanation above regarding the Company's practice on reporting
    non-GAAP financial measures.

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)

----------------------------------- --------- -------------- ---------
                                     Six months ended September 30,
                                                   2006
----------------------------------- ----------------------------------
                                      GAAP    Equity-Based   Non-GAAP
                                               Compensation
                                               Adjustment(a)
----------------------------------- --------- -------------- ---------

Net revenues                        $376,241             $-  $376,241
Costs and expenses:
   Cost of sales - product costs     235,997              -   235,997
   Cost of sales - software
    royalties and amortization        28,183             25    28,158
   Cost of sales - intellectual
    property licenses                 14,272              -    14,272
   Product development                51,199          2,250    48,949
   Sales and marketing                67,897          1,845    66,052
   General and administrative         44,551          5,547    39,004
----------------------------------- --------- -------------- ---------
        Total operating expenses     442,099          9,667   432,432
----------------------------------- --------- -------------- ---------
Operating loss                       (65,858)        (9,667)  (56,191)
Investment income, net                16,307              -    16,307
----------------------------------- --------- -------------- ---------
Loss before income tax benefit       (49,551)        (9,667)  (39,884)
Income tax benefit                   (14,344)        (3,760)  (10,584)
----------------------------------- --------- -------------- ---------
Net loss                            $(35,207)       $(5,907) $(29,300)
=================================== ========= ============== =========

----------------------------------- --------- -------------- ---------
Basic loss per share                  $(0.13)        $(0.02)   $(0.10)
Weighted average common shares
 outstanding                         279,487        279,487   279,487
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------
Diluted loss per share                $(0.13)        $(0.02)   $(0.10)
Weighted average common shares
 outstanding assuming dilution       279,487        279,487   279,487
----------------------------------- --------- -------------- ---------

----------------------------------- --------- -------------- ---------

(a)Includes expense related to stock options, employee stock purchase
    plan, and restricted stock under Statement of Financial Accounting
    Standards No. 123 (revised 2004), "Share Based Payment." See
    explanation above regarding the Company's practice on reporting
    non-GAAP financial measures.

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

ACTIVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
----------------------------------------------------------------------
                                             September 30,  March 31,
                                                     2006        2006
-------------------------------------------- ------------- -----------
ASSETS
-------------------------------------------- ------------- -----------
   Current assets:
      Cash, cash equivalents and short-term
       investments                               $747,395    $944,960
      Accounts receivable, net                     97,086      28,782
      Inventories                                  71,063      61,483
      Software development                         95,516      40,260
      Intellectual property licenses               23,996       4,973
      Deferred income taxes                         6,761       9,664
      Other current assets                         37,204      25,933
-------------------------------------------- ------------- -----------
           Total current assets                 1,079,021   1,116,055
-------------------------------------------- ------------- -----------
   Software development                            22,147      20,359
   Intellectual property licenses                  71,100      82,073
   Property and equipment, net                     45,185      45,368
   Deferred income taxes                           69,737      53,813
   Other assets                                     7,274       1,409
   Goodwill                                       188,254     100,446
-------------------------------------------- ------------- -----------
                    Total assets               $1,482,718  $1,419,523
============================================ ============= ===========

-------------------------------------------- ------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------- ------------- -----------
   Current liabilities:
      Accounts payable                            $83,417     $88,994
      Accrued expenses                            115,609     103,169
-------------------------------------------- ------------- -----------
            Total current liabilities             199,026     192,163
-------------------------------------------- ------------- -----------
      Other liabilities                            41,070       1,776
-------------------------------------------- ------------- -----------

                  Total liabilities               240,096     193,939
-------------------------------------------- ------------- -----------
   Shareholders' equity:
      Common stock                                      -           -
      Additional paid-in capital                  876,736     823,735
      Retained earnings                           353,306     388,513
      Accumulated other comprehensive income       12,580      16,369
      Unearned compensation                             -      (3,033)
-------------------------------------------- ------------- -----------
            Total shareholders' equity          1,242,622   1,225,584
-------------------------------------------- ------------- -----------
                Total liabilities and
                 shareholders' equity          $1,482,718  $1,419,523
============================================ ============= ===========

-------------------------------------------- ------------- -----------

(a)The amount shown above for Accounts Receivable, Net at September
    30, 2006 is approximately $1 million higher than the amount
    previously disclosed in our November 6, 2006 press release due to
    subsequent events which affected previously recorded estimates for
    uncollectible accounts.

The fiscal 2007 results and outlook do not take into account any
 adjustments for additional expenses that may be required in
 connection with the previously announced ongoing review of
 Activision's historical stock option grant practices. The fiscal 2007
 results also exclude any adjustments that may be required by the
 occurrence of an event subsequent to this release that affects the
 estimates inherent in the process of preparing those results and
 should be considered preliminary until Activision files its quarterly
 reports on Form 10-Q for the second and third quarters of fiscal
 2007. Further, the historical results do not take into account any
 restatements that may be required in connection with that review, or
 the determination of the company's audit committee on January 23,
 2007 that the company's financial statements (as well as earnings
 releases and similar communications) relating to the fiscal periods
 referred to in this release (and other periods dating back to fiscal
 1992) should no longer be relied upon, and, therefore, are presented
 for comparative purposes only.

SOURCE: Activision, Inc.

Activision, Inc.
Kristin Southey, Vice President, Investor Relations
310-255-2635
ksouthey@activision.com
Maryanne Lataif, Vice President, Corporate Communications
310-255-2704
mlataif@activision.com

Copyright Business Wire 2007

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