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Activision Reports Third Quarter and Nine Month Fiscal 2006 Results

Feb 06, 2006: Activision, Inc. (Nasdaq: ATVI) today announced financial results for the third quarter and nine months ended December 31, 2005.

Net revenues for the third quarter were a record $816.2 million or 20% higher, as compared to $680.1 million for the third quarter of fiscal year 2005. Net income for the third quarter was $67.9 million, compared with net income of $97.3 million for the previous fiscal third quarter. Diluted earnings per share were $0.23 per diluted share, compared to $0.35 per diluted share reported for the prior fiscal third quarter.

For the nine-month period ended December 31, 2005, the company announced record net revenues of $1.28 billion, as compared to net revenues of $1.20 billion reported for the nine-month period last fiscal year. The company also announced earnings per diluted share for the nine-month period of $0.17, as compared to earnings per diluted share of $0.49 for the same period last fiscal year.

Robert Kotick, Chairman and CEO of Activision, Inc., commented, "Net revenues for the third quarter and first nine months of fiscal year 2006 were the highest in the company's history. According to NPD we were the #2 overall software publisher in the U.S. and remain the number #1 market share publisher for the Xbox 360. We ended the quarter with approximately $765 million in cash and short-term investments and $1.2 billion in shareholders' equity."

Kotick continued, "Despite these achievements, we were disappointed with our earnings performance this quarter which was the result of weaker than expected market conditions in the U.S. and Europe due to the transition from current-generation consoles to the next generation of video game systems."

"In the long term, we are planning for market growth that historically follows the introduction of new console hardware. To leverage this future growth and prepare for fiscal 2008, which we expect will be the biggest year in Activision's history, we will continue to focus on investment in our product development resources and intellectual property portfolio, growing our international operations and optimizing our worldwide cost structure and resource allocation," Kotick added.

Business Highlights

Between October and December, Activision released eight new games: Tony Hawk's American Wasteland, Call of Duty® 2, Call of Duty® 2: Big Red One, Quake 4TM, GUNTM, True Crime®: New York City, Shrek® SuperSlam and The MoviesTM.

Business highlights include:

  • Call of Duty 2 was the #2 best-selling PC game in the U.S. for the quarter, according to The NPD Group.
  • Call of Duty 2 was also the #1 Xbox 360 title in the U.S., according to The NPD Group. The Xbox 360 game had the highest attach rate of any console launch in video game history.
  • GUN was the #1 best-selling game based on a new intellectual property in the U.S., according to The NPD Group. GUN marks the third consecutive year that Activision has created the #1 new intellectual property in the marketplace.
  • Tony Hawk's American Wasteland was the #4 best-selling title in the U.S., according to The NPD Group. The game marks the seventh title in the franchise that has been a Top 10 holiday title.
  • For the quarter, Activision was the #2 publisher overall and the #1 publisher overall for the Xbox 360 platform, according to The NPD Group.
  • On November 9, Activision and Marvel Entertainment expanded their long-term, broad-based strategic alliance by signing a multi-year extension to their current video game licensing agreements for the Spider-ManTM and X-MenTM franchises through 2017.
  • On November 9, Activision signed an agreement with Spider-Man Merchandising L.P., a limited partnership between Marvel Entertainment, Inc. and Sony Pictures Consumer Products Inc., to extend its exclusive worldwide publishing rights to the phenomenally successful Spider-Man® motion pictures through 2017.
  • On November 11, Activision signed a multi-year agreement with DreamWorks Animation which grants Activision the exclusive video game rights to four upcoming feature films from DreamWorks Animation -- "Bee Movie," "Kung Fu Panda," "Rex Havoc" and "How to Train Your Dragon." The deal also extends Activision's video game rights beyond "Shrek 3" to include potential future films in the "Shrek" franchise.

Company Outlook

Based on weaker than expected market conditions in the third quarter, Activision revised its outlook for the fiscal year 2006 and the fourth quarter. For the fiscal year, Activision expects net revenues of $1.405 billion to $1.415 billion and earnings per share of $0.09 to $0.11. For the fourth quarter, the company expects $125 million to $135 million in net revenues and a loss per share of $0.07 to $0.09.

For fiscal year 2007, Activision expects net revenues to slightly exceed $1 billion and a modest increase in year-over-year earnings per share, excluding the impact of adopting FASB 123®, which relates to the expensing of stock options and other share-based payments. For fiscal year 2008, the company expects net revenues 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 its third quarter fiscal year 2006 results and outlook. 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) 457-2637 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 $1.4 billion for the fiscal year ended March 31, 2005.

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 www.activision.com.

Note: The statements made in this press release that are not historical facts are "forward-looking" statements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The company cautions readers of this press release that a number of important factors could cause Activision's actual future results to differ materially from those expressed in any such forward-looking statements.

Such factors include, without limitation, sales of the company's titles during the remainder of fiscal 2006, 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.

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