Activision Reports Fiscal 2006 Year End Results

May 4, 2006
Activision Reports Fiscal 2006 Year End Results

SANTA MONICA, Calif., May 4, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Activision, Inc. (Nasdaq: ATVI) today announced record net revenues for the fiscal year ended March 31, 2006.

Net revenues for the fiscal year ended March 31, 2006 were $1,468 million, as compared to $1,406 million for the fiscal year ended March 31, 2005. Net income for the fiscal year was $41.9 million, or $0.14 per diluted share, as compared to net income of $138.3 million, or $0.50 per diluted share reported for the last fiscal year.

Net revenues for the fourth quarter ended March 31, 2006 were $188.1 million, as compared to $203.9 million that the company reported for the fourth quarter of the last fiscal year. For the fourth quarter, the company reported a net loss of $9.2 million, or a loss per share of $0.03, as compared to net income of $3.6 million, or earnings per diluted share of $0.01 for the fiscal year 2005 fourth quarter.

Robert Kotick, Chairman and CEO of Activision, Inc. commented, "Activision's fiscal year 2006 net revenues totaled $1,468 million, marking 14 consecutive years of revenue growth. We delivered better than expected results for the fourth quarter. Our balance sheet remains one of the strongest in the industry with nearly $1 billion in cash and short-term investments and $1.2 billion in shareholder's equity. In fiscal 2006, we strengthened our market position, although our operating results were impacted by the challenges of a console transition. We ended the fiscal year as the #2 U.S. software publisher overall and had the #1 game on the next-generation Xbox 360 platform, Call of Duty 2(TM), according to the NPD Group."

Kotick added, "Looking ahead, we will continue to leverage our assets -- the competitive leadership of our world-class franchises, production capabilities and worldwide distribution resources. Our leadership position will provide us with a competitive advantage in our continued efforts to provide superior returns to our shareholders. We are planning for and investing in the market growth that historically follows the introduction of new console hardware. We remain focused on expanding operating margins by growing our balanced franchise portfolio, delivering compelling game experiences, increasing our international market position and improving operational efficiency worldwide."

Business Highlights

Yesterday, Activision announced that it has been awarded the rights to develop and publish interactive entertainment games based on the James Bond license through 2014. Under the terms of the agreement, Activision has obtained the worldwide rights to develop games for all current and next-generation consoles, the PC and hand-held platforms for the James Bond license. The license grants Activision the right to develop and publish games based on subsequent movies, as well as non-movie games.

Since the initial release of Dr. No in 1962, James Bond films have grossed more than $3.6 billion theatrically worldwide, and approximately 30 million units of video games based on the world of James Bond have been sold to date. Bond is one of the most successful franchises in film history and continues to have popular global appeal.

During the fiscal year, Activision's game slate was based on such franchises as Call of Duty(TM), DOOM(R), QUAKE(R), Shrek(TM)(R), Spider-Man(R), True Crime(TM), Tony Hawk(TM), World Series of Poker(R) and X-Men(R).

*  Sales of the Tony Hawk games exceeded $1 billion and the franchise was
       a top-10 selling game for the sixth consecutive year.
    *  The company successfully launched an internally developed game GUN(TM)
       which marks the third consecutive year that Activision has created the
       #1 new intellectual property in the marketplace.
    *  Additionally, the company's multi-title approach with Call of Duty 2
       and Call of Duty 2: Big Red One(TM) drove the brand to be its
       best-selling franchise of fiscal 2006.
    *  Call of Duty 2 ended the year as #1 best-selling Xbox 360 game.

    Other business highlights are as follows:

During the fiscal year, Activision signed four exclusive long-term licensing agreements and acquired two development studios. These initiatives will allow the company to plan its game slate three to five years in advance and make prudent investments that may facilitate future growth.

*  Activision expanded its alliance with Marvel Enterprises for the
       Spider-Man(TM) and X-Men(TM) franchises and its agreement with
       Spider-Man Merchandising L.P. and Sony Pictures Consumer Products Inc.,
       to extend its worldwide publishing rights to the phenomenally
       successful Spider-Man(R) motion pictures through 2017.  To date, games
       based on the Spider-Man and X-Men franchises have generated more than
       $785 million in video game sales worldwide.

    *  Activision signed a multi-year agreement with DreamWorks Animation for
       the exclusive video game rights to four upcoming feature films -- "Bee
       Movie," "Kung Fu Panda,"  "Rex Havoc" and "How to Train Your Dragon."
       The deal also extended its rights beyond "Shrek 3" to include potential
       future films in the "Shrek" franchise.  The company's alliance with
       DreamWorks has resulted in more than $300 million in video game sales

    *  Activision entered into an agreement with The Hasbro Properties Group
       to develop console, handheld and PC games based on Hasbro's renowned
       Transformers brand.  Transformers has been one of the best-selling
       boys' action brands in a wide-range of categories, from toys to
       publishing to apparel, since its launch as a global property in 1984.

    *  Activision strengthened its internal development capabilities with two
       game developer acquisitions -- Toys For Bob, Inc. and Beenox, Inc.
       Toys For Bob created Madagascar(TM), which was based on DreamWorks
       Animation's feature film and ended calendar 2005 as the #1 best-selling
       children's movie game in the U.S.  Beenox provided us with a foothold
       in the Canadian province of Quebec, one of the fastest growing
       development talent pools in North America.

In fiscal 2006, Activision's European publishing net revenues grew 18% to more than $400 million. The company sells direct to retail in the seven largest European markets -- UK, France, Germany, Benelux, Nordic, Spain and Italy and during the fiscal year added Austria. Through its direct model, Activision is increasing volume, market share, retail presence, customer relationships and logistic and financial efficiencies.

For the first quarter of fiscal 2007, Activision will release games based on two highly anticipated summer movie releases, DreamWorks Animation's "Over the Hedge" and Twentieth Century Fox and Marvel Studio's "X-Men: The Last Stand."

Company Outlook

For fiscal 2007, Activision expects net revenues of $1.025 billion and earnings per diluted share of $0.10, including the impact of adopting FAS 123(R), which relates to the expensing of stock options and other share-based payments. Excluding the impact of FAS 123(R), the company expects earnings per diluted share of $0.15. This is consistent with the company's previously provided outlook.

For the first quarter of the fiscal year 2007, the company expects net revenues of $145 million and a loss per share of $0.11, including the impact of adopting FAS 123(R). The company's loss per share outlook for the first quarter excluding the impact of FAS 123(R) is expected to be $0.10.

Activision also reaffirmed its fiscal year 2008 outlook. The company expects net revenues to exceed $1.6 billion.

Conference Call

Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its fiscal 2006 year-end results and outlook for fiscal 2007. The company welcomes all members of the financial and media communities to visit the "Investor Relations" area of to listen to the conference call via a live Webcast or to listen to the call live by dialing into in the U.S. (719) 457-2637 in the U.S.

About Activision

Headquartered in Santa Monica, California, Activision, Inc. is a leading worldwide developer, publisher and distributor of interactive entertainment and leisure products. Founded in 1979, Activision posted net revenues of $1,468 million for the fiscal year ended March 31, 2006.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, Spain, Japan, Australia, Scandinavia and the Netherlands. More information about Activision and its products can be found on the company's World Wide Web site, which is located at

Note: The statements made in this press release that are not historical facts are "forward-looking" statements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The company cautions readers of this press release that a number of important factors could cause Activision's actual future results to differ materially from those expressed in any such forward-looking statements. Such factors include, without limitation, sales of the company's titles during the remainder of fiscal 2007, consumer spending trends, the seasonal and cyclical nature of the interactive game market, the company's ability to predict consumer preferences among competing hardware platforms including next-generation hardware, software pricing, product returns and price protection product delays, retail acceptance of our products, delays in hardware launches, industry competition, rapid changes in technology and industry standards, protection of proprietary rights, maintenance of relationships with key personnel, vendors and third-party developers, international economic and political conditions, integration of recently acquired subsidiaries and identification of suitable future acquisition opportunities. These important factors and other factors that potentially could affect the company's financial results are described in our filings with the Securities and Exchange Commission, including the company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers of this press release are referred to such filings. The company may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in the company's assumptions or otherwise. The company undertakes no obligation to release publicly any revisions to its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

    (In thousands, except earnings per share data)

                                  Quarter ended March 31, Year ended March 31,
                                     2006      2005       2006        2005

    Net revenues                   $188,125  $203,861  $1,468,000  $1,405,857
    Costs and expenses:
       Cost of sales - product
        costs                       117,853   130,190     734,874     658,949
       Cost of sales - software
        royalties and amortization    8,555     6,954     147,822     123,800
       Cost of sales -
        intellectual property
        licenses                      1,901     4,400      57,666      62,197
       Product development           32,769    20,489     131,782      86,543
       Sales and marketing           24,263    29,842     283,220     230,058
       General and administrative    28,899    14,885      94,679      59,739
            Total operating
             expenses               214,240   206,760   1,450,043   1,221,286
    Operating income (loss)         (26,115)   (2,899)     17,957     184,571
    Investment income, net            7,790     5,138      30,630      13,092
    Income (loss) before income
     tax provision                  (18,325)    2,239      48,587     197,663
    Income tax provision (benefit)   (9,106)   (1,334)      6,688      59,328
    Net income (loss)               $(9,219)   $3,573     $41,899    $138,335

    Basic earnings (loss) per share  $(0.03)    $0.01       $0.15       $0.55
    Weighted average common shares
     outstanding                    276,506   260,551     273,177     250,023

    Diluted earnings (loss) per
     share                           $(0.03)    $0.01       $0.14       $0.50
    Weighted average common shares
     outstanding assuming dilution  276,506   287,485     299,437     278,860

Share and earnings per share data have been restated to reflect our four-for-three stock split for shareholders of record as of October 10, 2005, paid October 24, 2005.

    (In thousands)
                                                  March 31,         March 31,
                                                    2006              2005
        Current assets:
           Cash, cash equivalents and
            short-term investments                $944,960          $840,864
           Accounts receivable, net                 28,782           109,144
           Inventories                              61,483            48,018
           Software development                     40,260            73,096
           Intellectual property licenses            4,973            21,572
           Deferred income taxes                    30,017             6,760
           Other current assets                     25,933            23,010
                Total current assets             1,136,408         1,122,464
        Software development                        20,359            18,518
        Intellectual property licenses              82,073            14,154
        Property and equipment, net                 45,368            30,490
        Deferred income taxes                       33,460            28,041
        Other assets                                 1,409             1,635
        Goodwill                                   100,446            91,661
                         Total assets           $1,419,523        $1,306,963

        Current liabilities:
           Accounts payable                        $88,994          $108,984
           Accrued expenses                        103,169            98,067
                 Total current liabilities         192,163           207,051
           Other liabilities                         1,776                --
                       Total liabilities           193,939           207,051
        Shareholders' equity:
           Common stock                                 --                --
           Additional paid-in capital              823,735           741,680
           Retained earnings                       388,513           346,614
           Accumulated other comprehensive
            income                                  16,369            11,618
           Unearned compensation                    (3,033)               --
                 Total shareholders' equity      1,225,584         1,099,912
                     Total liabilities and
                      shareholders' equity      $1,419,523        $1,306,963

    For the Quarter and Year Ended March 31, 2006 and 2005
    (Amounts in thousands)

                                          Quarter Ended             (Decrease)

                                 March 31, 2006     March 31, 2005
                                          % of               % of
                                 Amount   Total     Amount   Total
    Geographic Revenue Mix
       North America            $83,502    44%     $69,087    34%       21%
       International            104,623    56%     134,774    66%      -22%
       Total net revenues      $188,125   100%    $203,861   100%       -8%

    Segment/Platform Mix
       Console                  $82,272    44%     $66,878    33%       23%
       Hand-held                 15,211     8%      33,353    16%      -54%
       PC                        28,722    15%      30,398    15%       -6%
       Total publishing net
        revenues               $126,205    67%    $130,629    64%       -3%

       Console                  $33,069    18%     $52,826    26%      -37%
       Hand-held                 16,744     9%       8,148     4%      105%
       PC                        12,107     6%      12,258     6%       -1%
       Total distribution net
        revenues                $61,920    33%     $73,232    36%      -15%
       Total net revenues      $188,125   100%    $203,861   100%       -8%

                                          Quarter Ended             (Decrease)

                                 March 31, 2006     March 31, 2005
                                          % of               % of
                                 Amount   Total     Amount   Total
    Geographic Revenue Mix
      North America            $710,040    48%    $696,325    50%        2%
      International             757,960    52%     709,532    50%        7%
      Total net revenues     $1,468,000   100%  $1,405,857   100%        4%

    Segment/Platform Mix
      Console                  $812,345    55%    $713,947    51%       14%
      Hand-held                 158,861    11%     138,695    10%       15%
      PC                        183,457    13%     220,087    15%      -17%
      Total publishing net
       revenues              $1,154,663    79%  $1,072,729    76%        8%

      Console                  $196,413    13%    $256,452    18%      -23%
      Hand-held                  76,973     5%      23,282     2%      231%
      PC                         39,951     3%      53,394     4%      -25%
      Total distribution
       net revenues            $313,337    21%    $333,128    24%       -6%
      Total net revenues     $1,468,000   100%  $1,405,857   100%        4%

    For the Quarter and Year Ended March 31, 2006 and 2005

                                    Quarter    Quarter     Year       Year
                                     Ended      Ended      Ended      Ended
                                    March 31,  March 31,  March 31,  March 31,
                                      2006       2005       2006       2005

    Publishing Net Revenues

      PC                               23%        23%        16%        21%

      Console                          65%        51%        70%        66%
         Sony PlayStation  2           27%        26%        36%        39%
         Microsoft Xbox 360            25%         0%         9%         0%
         Microsoft Xbox                 8%        22%        18%        18%
         Nintendo GameCube              5%         3%         7%         9%

      Hand-held                        12%        26%        14%        13%
         Nintendo Game Boy Advance      6%         7%         7%         9%
         Sony PlayStation Portable      4%        15%         5%         2%
         Nintendo Dual Screen           2%         4%         2%         2%

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

SOURCE Activision, Inc.

Kristin Mulvihill Southey, Vice President, Investor Relations, +1-310-255-2635,, or Maryanne Lataif, Vice President, Corporate
Communications, +1-310-255-2704,, both of Activision, Inc.

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