EX-99 2 ex99-1.txt PRESS RELEASE Exhibit 99.1 Contacts: Bill Chardavoyne Chief Financial Officer (310) 255-2229 bchardavoyne@activision.com --------------------------- Kristin Mulvihill Southey Vice President, Investor Relations (310) 255-2635 ksouthey@activision.com ----------------------- Maryanne Lataif Vice President, Corporate Communications (310) 255-2704 mlataif@activision.com ---------------------- Draft 4 ACTIVISION ANNOUNCES RECORD SECOND QUARTER 2005 RESULTS - Net Revenues Hit Q2 All Time High, Increasing 164% Year Over Year - - Diluted E.P.S. Grew to $0.17 From a Loss Per Share of $0.08 - - Net Revenues for Six Month Period Rise 89% - - Company Increases FY 2005 Outlook - Santa Monica, CA - October 26, 2004 - Activision, Inc. (Nasdaq: ATVI) today announced financial results for the second fiscal quarter ended September 30, 2004. Net revenues were $310.6 million, an increase of $193.1 million or 164%, as compared to net revenues of $117.5 million reported for the second quarter last fiscal year. Net income for the second fiscal quarter was $25.5 million, as compared with a net loss for the second fiscal quarter last year of $10.1 million. Earnings per diluted share were $0.17, as compared with a loss per share of $0.08 reported for the same period last year. Net revenues for the six-month period ended September 30, 2004, were $521.9 million, an increase of $245.7 million or 89%, as compared to net revenues of $276.2 million reported for the six-month period of last fiscal year. Net income for the six-month period was $37.5 million, or earnings per diluted share of $0.24, as compared with net loss of $5.9 million, or a loss per share of $0.04, reported for the same period last year. (more) Activision Announces Q2 FY 2005 Results Robert A. Kotick, Chairman and CEO of Activision, stated, "In addition to delivering record net revenues and earnings for the quarter, we also significantly increased our market position in North America and Europe. As of this date, five of our games have shipped more than one million units each and three of those titles have achieved multi-million unit status. Our focus on big propositions is yielding tremendous results worldwide. As we look to the future, we will continue to leverage our increasing portfolio of franchises as we expand and strengthen our competitive position." Kotick continued, "We are very excited about future growth opportunities that will result from the Nintendo(R) DS, PlayStation(R) Portable, wireless gaming, in-game advertising and the next-generation of console hardware. These emerging opportunities combined with the ever increasing installed base of console hardware and our strong portfolio of brands should enable us to continue growing our revenues, earnings and operating margin as we have over the past several years." Business Highlights Activision's second quarter results were driven by strong worldwide sales of Spider-Man 2(TM), which was the comany's best-selling title for the quarter, and newly released games across all platforms including Doom 3(TM), Rome: Total War(TM) and Call of Duty: United Offensive(TM) for the PC, X-Men (TM) Legends and DreamWorks' Shark Tale for the PlayStation(R) 2 computer entertainment system, Xbox(R) video game system from Microsoft and Nintendo(R) Game Cube(TM) and DreamWorks' Shark Tale for the Nintendo Game Boy(R) Advance and PC. The company's catalogue titles Shrek 2 (TM), Tony Hawk's Underground and True Crime: Streets of L.A. (TM) also performed well. The company strengthened its market position worldwide resulting in a number of unprecedented rankings. Activision was the #1 PC publisher in North America for the month of August, according to NPD Techworld; the #1 publisher overall in the U.K. for the months of July and August, according to Chart Track; and the #1 publisher overall in Germany and the #2 publisher overall in France for the month of August, according to Media Control and GfK respectively. Other highlights include: o On October 21, Activision confirmed that based on strong consumer response to its action role playing game X-Men Legends, the company is developing a sequel based on the ever-popular Marvel franchise with Raven Software. o According to NPD, Doom 3 is the #1 best-selling PC game in North America year to date. (more) Activision Announces Q2 FY 2005 Results o On October 18, Activision announced that the company is launching a groundbreaking test with Nielsen Entertainment using its newly released Tony Hawk's Underground 2 game to determine how long and how often players interact with brands. The Chrysler Group will be the first advertiser to take part in the test, which will measure consumer interaction with the Jeep(R) brand. o Additionally on October 18, Activision and Nielsen Entertainment announced the results of a new study that examined the ability of game players to recall brand name products that were integrated within the video game experience. Among the study's key findings were: brands with which gamers must actively interact substantially impact consumer awareness and recall; and that highly integrated ads tend to enhance a gamer's interest in purchasing the advertised products. o On October 13, Activision confirmed that the company is in development on new games based on Spider-Man 2(TM) and Tony Hawk's Underground 2 which are expected to be launch titles for SCEA'S PlayStation(R) Portable Entertainment Platform. o On September 22, Activision announced that the company's first title for the Nintendo(R) DS video game platform will be a new video game based on Spider-Man 2, which is currently the #1 best-selling movie game of 2004 according to NPD Funworld. Company Outlook Activision also increased its outlook for fiscal 2005. For the full fiscal year, the company expects net revenues of $1.15 billion, an increase of $50 million, and earnings per diluted share of $0.75. The company's previous fiscal year outlook was $1.10 billion in net revenues and earnings per diluted share of $0.69. For the third quarter, the company expects net revenues of $500 million and earnings per diluted share of $0.49 as compared to its previous outlook of $515 million in net revenues and earnings per diluted share of $0.52. The change in Activision's third quarter outlook was based on over performance of its titles in the second quarter, which the company expects will result in lower likelihoods of reorders during the third quarter, and the movement of Doom 3 for the Xbox into the fourth quarter. For the fourth quarter, Activision expects net revenues of $128 million and earnings per diluted share of $0.01, as compared with its previous outlook of net revenues of $120 million and earnings per diluted share of $0.01. (more) Activision Announces Q2 FY 2005 Results Kotick continued, "We are on track to deliver another record year of net revenues and operating margin. Our net revenues exceeded $1 billion for the trailing 12 month period. We ended the quarter with more than $600 million in cash and short term investments. For the trailing 12 months, free cash flow was $122 million and return on invested capital was 42%." Looking ahead to the third quarter, Activision's slate will be driven by Tony Hawk's Underground 2 and Lemony Snicket's A Series of Unfortunate Event(TM) for the PlayStation 2 computer entertainment system, Xbox video game system, Nintendo GameCube, Nintendo Game Boy Advance and the PC; Call of Duty: Finest Hour(TM) for the PlayStation 2 computer entertainment system, Xbox video game system and Nintendo GameCube; Vampire: The Masquerade(R)-Bloodlines(TM) and Shrek 2: Team Action for the PC; Spider-Man 2 for the Nintendo DS and Shrek 2(TM): Beg for Mercy! for the Nintendo Game Boy Advance. Non-GAAP Financial Measures The company's press release includes the non-GAAP financial measures of "free czsh flow" and "return on invested capital." A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measure appears at the end of this press release. Conference Call Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its second quarter fiscal year 2005 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 (913) 981-4903 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 $948 million for the fiscal year ended March 31, 2004. Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Italy, Japan, Australia, Scandinavia and the Netherlands. More information about Activision and its products can be found on the company's World Wide Web site, which is located at www.activision.com. (more) Activision Announces Q2 FY 2005 Results 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, 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. 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. (Tables to Follow) ACTIVISION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data) Six Months Quarter ended September 30, ended September 30, 2004 2003 2004 2003 ---------- ------------ ----------- ----------- Net revenues $ 310,626 $ 117,523 $ 521,902 $ 276,248 Costs and expenses: Cost of sales - product costs 123,177 72,391 212,265 149,001 Cost of sales - software royalties and amortization 46,363 11,397 58,646 26,895 Cost of sales - intellectual property licenses 17,551 7,401 35,199 17,544 Product development 19,881 15,894 40,986 29,474 Sales and marketing 53,234 17,237 94,968 43,522 General and administrative 15,762 10,136 29,447 21,599 ---------- ------------ ----------- ----------- Total operating expenses 275,968 134,456 471,511 288,035 Operating income (loss) 34,658 (16,933) 50,391 (11,787) Investment income, net 2,645 1,404 4,757 2,661 Income (loss) before provision for income taxes 37,303 (15,529) 55,148 (9,126) Provision (benefit) for income taxes 11,760 (5,436) 17,648 (3,196) ---------- ------------ ----------- ----------- Net income (loss) $ 25,543 $ (10,093) $ 37,500 $ (5,930) ========== ========== ========== =========== Basic earnings per share $ 0.18 $ (0.08) $ 0.27 $ (0.04) Weighted average common shares outstanding 138,505 132,243 138,137 132,158 Diluted earnings per share $ 0.17 $ (0.08) $ 0.24 $ (0.04) Weighted average common shares outstanding assuming dilution 152,685 132,243 153,127 132,158 Share and earnings per share data have been restated to reflect our three-for-two stock split for shareholders of record as of February 23, 2004, paid March 15, 2004. ACTIVISION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, March 31, 2004 2004 ------------- ------------- ASSETS Current assets: Cash, cash equivalents and short-term investments $ 606,087 $ 587,649 Short-term investments - - Accounts receivable, net 138,586 62,577 Inventories 63,690 26,427 Software development 79,432 58,320 Intellectual property licenses 15,945 32,115 Deferred income taxes 21,203 26,127 Other current assets 29,930 18,660 ------------- ------------- Total current assets 954,873 811,875 ============= ============= Software development 21,023 28,386 Intellectual property licenses 19,885 16,380 Property and equipment, net 24,712 25,539 Deferred income taxes 5,056 9,064 Other assets 1,018 1,080 Goodwill 77,602 76,493 ------------- ------------- Total assets 1,104,169 $ 968,817 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ - $ - Accounts payable 103,001 72,874 Accrued expenses 113,341 63,205 ------------- ------------- Total current liabilities 216,342 136,079 Long-term debt, less current portion - - Deferred income taxes - - Convertible subordinated notes ------------- ------------- Total liabilities 216,342 136,079 Shareholders' equity: Common stock - - Additional paid-in capital 777,337 758,626 Retained earnings 245,779 208,279 Treasury stock (144,128) (144,128) Accumulated other comprehensive income 8,839 9,961 ------------- ------------- Total shareholders' equity 887,827 832,738 Total liabilities and shareholders' equity $ 1,104,169 $ 968,817 ============= =============

ACTIVISION, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Quarter and Six Months Ended September 30, 2004 and 2003 (Amounts in thousands) Percent Increase Quarter Ended (Decrease) September 30, 2004 September 30, 2004 Amount % of Total Amount % of Total Geographic Revenue Mix United States $ 157,705 51% $ 46,450 40% 240% International 152,921 49% 71,073 60% 115% ------------ ---- ---------- ----- ----- Total net revenues $ 310,626 100% $ 117,523 100% 164% Activity/Platform Mix Publishing: Console $ 145,542 55% $ 46,019 64% 216% Hand-held 23,669 9% 4,187 6% 465% PC 97,184 36% 21,590 30% 350% ------------ ---- ----------- ----- ----- Total publishing $ 266,395 86% $ 71,796 61% 271% Distribution: Console $ 29,929 68% $ 33,188 73% -10% Hand-held 3,556 8% 4,730 10% -25% PC 10,746 24% 7,809 17% 38% ------------ ---- ----------- ----- ----- Total distribution $ 44,231 14% $ 45,727 30% -3% ------------ ---- ----------- ----- ----- Total net revenues $ 310,626 100% $ 117,523 100% 164% ============ ==== =========== ===== ===== Percent Increase Six Months Ended (Decrease) September 30, 2004 September 30, 2003 Amount % of Total Amount % of Total Geographic Revenue Mix United States $ 282,896 54% $ 129,189 47% 119% International 239,006 46% 147,059 53% 63% ------------ ---- ---------- ----- ----- Total net revenues $ 521,902 100% $ 276,248 100% 89% Activity/Platform Mix Publishing: Console $ 264,669 62% $ 134,503 72% 97% Hand-held 42,099 10% 8,783 5% 379% PC 121,279 28% 42,915 23% 183% ------------ ---- ----------- ----- ----- Total publishing $ 428,047 82% $ 186,201 67% 130% Distribution: Console $ 69,123 74% $ 68,530 76% 1% Hand-held 7,211 8% 7,642 9% -6% PC 17,521 19% 13,875 15% 26% ------------ ---- ----------- ----- ----- Total distribution $ 93,855 18% $ 90,047 33% 4% ------------ ---- ----------- ----- ----- Total net revenues $ 521,902 100% $ 276,248 100% 89% ============ ==== =========== ===== =====

ACTIVISION, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Quarter and Six Months Ended September 30, 2004 and 2003 Quarter Ended Quarter Ended Six Months Ended Six Months Ended September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003 Publishing Net Revenues PC 36% 30% 28% 23% ----------------------------------- ----------- ------------ ------------ ------------ Console 55% 64% 62% 72% ----------------------------------- ----------- ------------ ------------ ------------ PlayStation 2 33% 32% 37% 35% Microsoft Xbox 14% 18% 15% 26% Ninetendo GameCube 8% 4% 10% 5% Playstation 0% 10% 0% 6% Hand-held 9% 6% 10% 5% ----------------------------------- ----------- ------------ ------------ ------------ Game Boy Advance 9% 5% 10% 5% Game Boy Color 0% 1% 0% 0% ----------------------------------- ----------- ------------ ------------ ------------ Total publishing net revenues 100% 100% 100% 100% ====================================== =========== ============ ============ ============

ACTIVISION, INC. AND SUBSIDIARIES Non-GAAP Disclosures Free Cash Flow (In thousands) Trailing Twelve Three Months Three Months Three Months Three Months Months Ended Ended Ended Ended 09/30/2004 09/30/2004 06/30/2004 03/31/2004 12/31/2003 Net Cash Provided by Operating Activities $130,202 $62,846 $(52,136) $21,069 $98,423 Less: Capital Expenditures $(8,204) $(2,562) $(1,881) $(2,521) $(1,240) Free Cash Flow $121,998 $60,284 $(54,017) $18,548 $97,183

ACTIVISION, INC. AND SUBSIDIARIES Non-GAAP Disclosures Return on Invested Capital (In thousands) Trailing Twelve Three Months Three Months Three Months Three Months NET OPERATING PROFIT AFTER TAXES Months Ended Ended Ended Ended 09/30/2004 09/30/2004 06/30/2004 03/31/2004 12/31/2003 Net income $121,145 $25,543 $11,957 $6,664 $76,981 Less: Investment income (8,272) (2,645) (2,112) (2,051) (1,464) Tax effect on Investment income (B) 2,703 846 697 677 483 Net Operating Profit After Taxes $115,576 $23,744 $10,542 $5,290 $76,000 INVESTED CAPITAL Total assets (A) $1,040,030 $1,104,169 $985,841 $968,817 $1,101,291 Less: Cash and short term investments (A) 571,140 606,087 539,146 587,649 551,677 Current liabilities (A) 196,034 216,342 132,092 136,079 299,623 Invested capital $272,856 $281,740 $314,603 $245,089 $249,991 Return on Invested Capital 42% 8% 3% 2% 30% (A) Amounts for the trailing twelve months represent averages of the previous four fiscal quarters (B) Tax effectd represents investment income multiplied by our effective tax rate.