Legit Reviews

SANTA MONICA, Calif., Feb 07, 2008 -- Activision, Inc. (Nasdaq:ATVI) today announced record financial results for the third fiscal quarter ended December 31, 2007.

Net revenues for the third quarter were a record $1.48 billion, an 80% increase, as compared to net revenues of $824.3 million reported for the same quarter last fiscal year. Net income for the third fiscal quarter was $272.2 million, for $0.86 in earnings per diluted share, as compared to a net income of $142.8 million and earnings per diluted share of $0.46 reported for the third quarter of last fiscal year. Excluding the impact of expenses related to equity-based compensation, the company had adjusted net income of $284.9 million and earnings per diluted share of $0.90 for the third quarter. This compares to adjusted net income of $147.5 million and earnings per diluted share of $0.48, excluding the impact of expenses related to equity-based compensation for the third quarter of last fiscal year.

Net revenues for the nine-month period ended December 31, 2007 were $2.3 billion, as compared to net revenues of $1.2 billion reported for the nine-month period of last fiscal year. Net income for the first nine months was $300.7 million, and earnings per diluted share were $0.96, as compared with net income of $100.2 million and earnings per diluted share of $0.33, for the same period last fiscal year. Excluding the impact of expenses related to equity-based compensation, the company had adjusted net income of $322.6 million and earnings per diluted share of $1.03 for the first nine months of fiscal 2008. This compares to adjusted net income of $111.4 million and earnings per diluted share of $0.37, excluding the impact of expenses related to equity-based compensation for the nine-month period of last fiscal year.

Robert Kotick, Chairman and CEO of Activision stated, "For the first time, we were the #1 U.S. console and handheld publisher for the calendar year, according to The NPD Group. With videogame software sales increasing 37% in the United States overall, the videogame market growth exceeded even our own forecasts, and we believe this momentum will continue over the coming years. Broader audiences are responding to products like Guitar Hero and we expect that the demographics for videogames will continue to expand."

Kotick continued, "We exceeded our quarterly financial goals. Our third quarter net revenues were a record $1.48 billion. We delivered 27% operating margin, which contributed to a 43% return on invested capital for the last 12 months.(1) Two of our wholly owned, internally developed franchises - Call of Duty(R) 4: Modern Warfare(TM) and Guitar Hero(R) III: Legends of Rock(TM) -- set industry records. Our solid performance during the first nine months of the fiscal year has already resulted in our 16th consecutive year of revenue growth and record operating margins. Our product and market momentum gives us confidence to once again raise our fiscal year 2008 net revenues and earnings outlook, as we continue to focus our marketing and sales efforts."

Kotick added, "We are on schedule toward obtaining the stockholder and regulatory approvals needed to complete our business combination with Vivendi Games, which will create the world's largest and most profitable independent video game company and should allow us to continue delivering exceptional returns to our shareholders. The combined company expects to have the broadest, most diverse portfolio of entertainment assets in the industry, positioning it to capitalize on the continued worldwide growth in interactive entertainment."

Business Highlights

Activision's record calendar year results were driven by strong worldwide consumer response to Call of Duty 4: Modern Warfare, Guitar Hero II(TM), Guitar Hero III: Legends of Rock, Spider-Man 3(TM), Shrek The Third(TM), as well as its new intellectual property TRANSFORMERS: The Game. In the U.S., during the calendar year, Activision was the #1 console and handheld publisher for the first time, had the top two best-selling titles overall and grew its market share to a record 17.7%, according to The NPD Group.

Other business highlights:

-- Call of Duty 4: Modern Warfare was the most popular game in units worldwide for calendar 2007, selling more than seven million copies, and the #1 PC game in units and dollars in the U.S. and Europe for the quarter ended December 31, 2007, according to The NPD Group, Charttrack and Gfk.

-- Guitar Hero(R) III: Legends of Rock was the #1 title in dollars for the calendar year worldwide, according to The NPD Group, Charttrack and Gfk. In the U.S., Guitar Hero(R) III: Legends of Rock was the #1 best-selling video game in units and dollars of all time in a single year. Additionally, the Guitar Hero(TM) franchise set an industry record surpassing $1 billion in North American retail sales in just 26 months, according to The NPD Group.

-- Spider-Man 3(TM) was the #1 movie-based video game in dollars worldwide for the calendar year, according The NPD Group, Charttrack and Gfk.

-- For the calendar year, Activision was the #1 publisher on the next-generation consoles in North America, according to The NPD Group.

-- For the quarter ended December 31, 2007, Activision was the #1 U.S. console and handheld publisher overall, according to The NPD Group.

-- For the quarter ended December 31, 2007, Activision's international publishing net revenues grew 106% over the prior year, and for the first nine months of the fiscal year were up 119% as compared to the same period for last fiscal year.

-- On December 2, 2007, Activision and Vivendi entered into a definitive agreement to combine Vivendi Games, Vivendi's interactive entertainment business -- which includes Blizzard Entertainment's(R) World of Warcraft(R), the world's #1 massively multiplayer online role playing game franchise -- with Activision, which at closing will create the world's largest pure-play online and console game publisher. On January 16, 2008, the waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act expired and, on January 31, 2008, Activision filed a preliminary proxy statement relating to the transaction with the Securities Exchange Commission. The transaction remains subject to other regulatory approvals, including European antitrust clearance, approval by Activision's stockholders, and other customary closing conditions and Activision continues to target a closing date for the transaction during the first half of calendar year 2008.

Company Outlook

Today, Activision increased its fiscal year 2008 net revenues and earnings per share outlook. For the full fiscal year, Activision expects net revenues of $2.65 billion and earnings per diluted share of $0.97. Excluding the impact of equity-based compensation expense, the company expects earnings per diluted share of $1.07 for the full fiscal year.

For the fourth quarter, Activision expects net revenues of $350 million and earnings per diluted share of $0.02. Excluding the impact of equity-based compensation expense, the company expects earnings per diluted share of $0.04 for the fourth quarter.

Conference Call

Today at 4:30 p.m. EDT, Activision's management will host a conference call and Webcast to discuss its third quarter fiscal year 2008 results and outlook. The company welcomes all members of the financial and media communities to visit the "Investor Relations" area of http://www.activision.com to listen to the conference call via live Webcast, or to listen to the call live by dialing into 719-325-4930 in the U.S.

Non-GAAP Financial Measures

Activision provides net income (loss) and earnings (loss) per share data both including (in accordance with GAAP) and excluding (non-GAAP) the impact of expenses related to employee stock options, employee stock purchase plans, restricted stock rights and other equity-based compensation and the associated tax benefits.

Prior to April 1, 2006, Activision accounted for equity-based compensation under the Accounting Principles Board, Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). In accordance with the APB No. 25, the company historically used the intrinsic value method to account for equity-based compensation. Beginning on April 1, 2006, Activision has accounted for equity-based compensation using the fair value method under the Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("FAS 123(R)").

Net income (loss) and earnings (loss) per share, excluding (in both cases) the impact of expenses related to equity-based compensation, are not determined in accordance with generally accepted accounting principles (GAAP), and the exclusion of those amounts has the effect of increasing non-GAAP net income and non-GAAP earnings per share (and reducing non-GAAP net loss and non-GAAP loss per share) by the same amounts as compared with GAAP net income (loss) and GAAP earnings (loss) per share for the period. Activision recognizes that there are limitations associated with the use of these non-GAAP financial measures as they do not reflect net income (loss), earnings (loss) per share as determined in accordance with GAAP, and may reduce comparability with other companies that calculate similar non-GAAP measures differently.

Management compensates for the limitations resulting from the exclusion of expenses related to equity-based compensation by considering the amount and impact of these expenses separately and by considering Activision's GAAP as well as non-GAAP results and, in this release, by presenting the most comparable GAAP measures, net income (loss) and earnings (loss) per share, directly ahead of non-GAAP net income (loss) and non-GAAP earnings (loss) per share, and by providing a reconciliation in the accompanying table that shows and describes the adjustments made.

Management believes that the presentation of these non-GAAP financial measures provide investors with additional useful information to measure Activision's financial performance because they allow for a better comparison of results in the periods reported herein to those in historical periods. Internally, management uses these non-GAAP financial measures in assessing the company's operating results, as well as in planning and forecasting.

This press release also includes return on invested capital (ROIC), which is a non-GAAP measure determined by taking the ratio of net income, excluding investment income and the related tax effect, to the average of total assets excluding cash and short term investments and non-interest-bearing current liabilities. Management recognizes that there are limitations associated with the metric of ROIC, as it may be defined differently and may not be comparable with other companies that calculate a similar metric. Management believes that ROIC provides useful supplemental information for an investor, and is a tool which management uses internally, and that investors may also use, to analyze and assess profitability in relation to net asset investments.

A reconciliation of these non-GAAP financial measures (net income (loss) and earnings (loss) per share excluding the impact of expenses related to equity-based compensation (including associated tax effect) and ROIC) to the most comparable GAAP financial measures appears at the end of this press release. Management does not believe the limitations described above are material, particularly when each non-GAAP financial measure is disclosed with its most comparable GAAP financial measure, net income (loss), and earnings (loss) per share, and the computation of the metric of ROIC is presented.

These non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Non-GAAP net income (loss) and non-GAAP earnings (loss) per share do not include the impact of certain expenses required to be recorded in order to present net income (loss) and earnings (loss) per share in accordance with GAAP.

These non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net income (loss), non-GAAP earnings (loss) per share, and ROIC do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision's performance in relation to other companies in the same industry.

(1)Return on invested capital (ROIC) is a non-GAAP measure determined by taking the ratio of net income, excluding investment income and the related tax effect, to the average of total assets excluding cash and short-term investments and non-interest-bearing current liablilities.

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 $1.5 billion for the fiscal year ended March 31, 2007.

Activision maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, Japan 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 http://www.activision.com.