UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 7, 2005
(February 7, 2005)
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ACTIVISION, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-12699 95-4803544
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3100 Ocean Park Blvd., Santa Monica, CA 90405
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(Address of Principal Executive Offices) (Zip Code)
(310) 255-2000
Registrant's telephone number, including area code
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- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On February 7, 2005, Activision, Inc. (the "Company") issued a press
release announcing its financial results for the fiscal quarter ended December
31, 2004. A copy of the press release is attached hereto as Exhibit 99.1.
The information in this Form 8-K and the Exhibit attached hereto shall not
be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933, except as shall be expressly set forth by specific
reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
99.1 Press Release of the Company, dated February 7, 2005.
Use of Non-GAAP Financial Information
- -------------------------------------
The Company's press release, and other communications from time to time, include
certain non-GAAP financial measures. A "non-GAAP financial measure" is defined
as a numerical measure of a company's financial performance, financial position
or cash flows that excludes (or includes) amounts that are included in (or
excluded from) the most directly comparable measure calculated and presented in
accordance with GAAP in the Company's financial statements.
The attached press release utilizes a measure of free cash flow. Free cash flow
is defined as operating cash flow less capital expenditures. The Company's
management believes that although free cash flow does not represent the amount
of money available for the Company's discretionary spending because certain
obligations of the Company must be funded out of free cash flow, it nevertheless
provides a useful measure of liquidity for assessing the amount of cash
available for general corporate and strategic purposes after funding operating
activities and capital expenditures, and deferred costs.
In addition, return on invested capital, also included in the attached press
release, is a non-GAAP financial measure. Management defines "return on invested
capital" as net income, less investment income plus tax paid on investment
income. Invested capital is calculated as average total assets (over a trailing
four-quarter period), less average cash and short term investments (over a
trailing four-quarter period), less average non-interest bearing current
liabilities (over a trailing four-quarter period). Management believes that
return on invested capital is useful because it provides investors with
additional useful information for evaluating the efficiency of the Company's
capital deployed in its operations. Return on invested capital does not consider
whether the business is financed with debt or equity, but rather calculates a
return on all capital invested in the business.
The non-GAAP financial measures used by the Company in the attached press
release may not be comparable to similarly titled measures used by other
companies and should not be considered in isolation or as a substitute for
measures of performance or liquidity prepared in accordance with GAAP.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACTIVISION, INC.
By:/s/ Ronald Doornink
---------------------
Name: Ronald Doornink
Title: President
Date: February 7, 2005
3
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
99.1 Press Release of Activision, Inc., dated February 7, 2005.
4
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
FOR IMMEDIATE RELEASE
ACTIVISION REPORTS RECORD THIRD QUARTER AND
NINE MONTH FISCAL 2005 RESULTS
- Q3 Net Revenues Increase 34% Year Over Year -- Largest Quarter in
Company's History -
- Net Revenues for Nine Months Grow 53% -
- Company Increases Net Revenue and E.P.S. Outlook for FY 2005 -
- Company Expects Net Revenue, E.P.S. and Operating Margin Growth for FY 2006 -
Santa Monica, CA - February 7, 2005 - Activision, Inc. (Nasdaq: ATVI) today
announced record financial results for the third quarter and nine months ended
December 31, 2004.
Net revenues for the third quarter were $680.1 million or 34% higher, as
compared to $508.5 million for the third quarter of fiscal year 2004. Net income
for the third quarter rose to $97.3 million, a 26% increase, compared with net
income of $77.0 million for the previous fiscal third quarter. Diluted earnings
per share grew 19% to $0.63 per diluted share, compared to $0.53 per diluted
share reported for the prior fiscal third quarter.
For the nine-month period ended December 31, 2004, the company announced
record net revenues of $1.2 billion, an increase of 53%, as compared to net
revenues of $784.8 million reported for the nine-month period last fiscal year.
The company also announced record earnings per diluted share for the nine-month
period of $0.87, an increase of 78%, as compared to earnings per diluted share
of $0.49 for the same period last fiscal year.
(more)
Activision Reports Record Q3 2005 Earnings Results
Activision increased its net revenues and earnings per diluted share
outlook for fiscal year 2005 to $1.352 billion in net revenues and earnings per
diluted share of $0.87 from the company's prior outlook of $1.265 billion in net
revenues and diluted earnings per share of $0.81. The company's revised outlook
represents a 43% increase in net revenues and a 61% increase in earnings per
diluted share year over year.
The company also increased its outlook for the fourth quarter of fiscal
year 2005 to $150 million in net revenues from $128 million, despite moving id
Software's DOOM 3 for the Xbox and the DOOM 3 PC expansion pack to fiscal 2006.
For the fourth quarter, the company expects earnings per diluted share of $0.01.
During the quarter, Activision plans to release Spider-Man 2(TM) and Tony Hawk's
Underground 2 Remix for the PSP simultaneously with the North American release
of the new handheld platform, as well as, three titles from LucasArts
Entertainment that will be released in Europe - Star Wars(R) Knights of the Old
Republic(R)II: The Sith Lords(TM), Mercenaries(TM) and Star Wars Republic
Commando(TM). In addition, Shrek 2(TM) will be the first of the company's fiscal
2005 games to enter Sony Computer Entertainment America's "Greatest Hits,"
Microsoft's "Platinum Family Hits" and Nintendo of America's "Player's Choice"
programs.
Robert Kotick, Chairman and CEO of Activision, Inc., commented, "For the
first nine months of fiscal year 2005, net revenues have already exceeded net
revenues in fiscal 2004, resulting in 13 consecutive years of revenue growth for
Activision. We ended the quarter with more than $713 million in cash and short
term investments and for the trailing 12 months, our free cash flow was $107
million and return on invested capital was 46%. Our results to date were driven
by the release of over 10 one million-unit selling games. Four of these titles
sold in excess of two million units. These proven franchises should allow us to
continue improving our market position domestically and internationally."
Kotick continued, "As we look toward the future, we are very excited about
the opportunities ahead. The combination of our product slate, the emerging
opportunities created by new hardware technologies and the ever increasing
installed base of current console hardware should enable us to continue
expanding our net revenues, earnings and operating margin. In fiscal 2006, we
will release the strongest game slate in our history which includes new versions
of our top-selling fiscal 2005 franchises -- Tony Hawk, Spider-Man, Shrek, Call
of Duty, DOOM, and X-Men, as well as games based on True Crime, Fantastic Four,
Madagascar, Quake, The Movies, and an original new property from Neversoft, the
development team behind the Tony Hawk series."
Page 2
Activision Reports Record Q3 2005 Earnings Results
Business Highlights
Activision's third quarter results were driven by solid performance of its
titles across all platforms worldwide. During the quarter, the company had five
top 10-best selling games in the U.S., according to NPD -- Call of Duty: Finest
Hour(TM), which has established itself as a new console franchise for the
company, Tony Hawk's Underground 2, DOOM 3(TM), Rome: Total War(TM) and
Spider-Man 2 for the Nintendo DS.
Between October and December, Activision released five new games: Tony
Hawk's Underground 2, an all-new Tony Hawk experience for PlayStation(R) 2
computer entertainment system, Xbox(R) video game system from Microsoft,
Nintendo(R) Game Cube, Nintendo Game Boy(R) Advance and PC; Call of Duty: Finest
Hour, a World War II first-person action game for the PlayStation 2 computer
entertainment system, Xbox video game system from Microsoft and Nintendo Game
Cube; Lemony Snicket's: A Series of Unfortuante Events(TM) for the PlayStation 2
computer entertainment system, Xbox video game system from Microsoft, Nintendo
Game Cube, Nintendo Game Boy Advance and PC; Vampire(R): The Masquerade
Bloodlines(TM) for the PC and Spider-Man 2 for the Nintendo DS.
Other business highlights include:
o On January 20, 2005, Activision announced that the company further
strengthened its next-generation development capabilities through the
acquisition of game developer Vicarious Visions, the creative studio behind
the #1 best-selling third-party Nintendo(R) DS title, Spider-Man 2.
Vicarious Visions' proven proprietary Alchemy(TM) middleware technology and
tools will be combined with Activision's next-generation tools and
libraries to further enhance the company's overall development efforts.
o For calendar 2004, Activision had a number of top-selling titles:
o Spider-Man 2 was the #1 movie-based game in the U.S., according to NPD
Funworld. For the calendar year, the Spider-Man franchise sold more
than seven million units worldwide. Spider-Man 2 for the Nintendo DS
was the #1 best-selling third-party title for the platform in the U.S.
for the calendar year, according to NPD Funworld.
o Tony Hawk's Underground 2 was the #9 best selling title in the U.S.,
according to NPD Funworld. The Tony Hawk brand sold more than six
million units worldwide in the calendar year.
Page 3
Activision Reports Record Q3 2005 Earnings Results
o The Call of Duty franchise sold more than four and a half million
units worldwide in the calendar year and was the best selling game
franchise based on a new intellectual property.
o Shrek 2 was the #1 best-selling children's video game in the U.S.,
according to NPD Funworld. The Shrek 2 franchise sold more than four
million units worldwide in the calendar year.
o According to NPD Techworld, Activision was the fastest growing top-10
U.S. PC publisher for calendar 2004. The company had a 10% PC market
share, the highest in its history, and was the only publisher to have
three top-10 games for the year - DOOM 3, Call of Duty(TM) and Rome:
Total War.
Company Outlook
Activision also provided its outlook for fiscal year 2006, which begins in
April 2005, of $1.43 billion in net revenues and earnings per diluted share of
$0.91. For the first quarter of fiscal year 2006, the company expects net
revenues of $215 million and earnings per diluted share of $0.02. Diluted
earnings per share does not include the impact of adopting FASB 123(R), which
relates to the expensing of stock options and other share-based payments.
Non-GAAP Financial Measures
The company's press release includes the non-GAAP financial measures of
"free cash 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 third 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)
981-4910 in the U.S.
Page 4
Activision Reports Record Q3 2005 Earnings Results
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, Spain 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, 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)
Nine Months
Quarter ended December 31, ended December 31,
2004 2003 2004 2003
---------- ------------ ----------- -----------
Net revenues $680,094 $508,511 $1,201,996 $784,759
Costs and expenses:
Cost of sales
- product costs 316,494 235,301 528,759 384,302
Cost of sales
- software royalties
and amortization 58,200 23,680 116,846 50,575
Cost of sales
- intellectual
property licenses 22,598 9,464 57,797 27,008
Product development 25,068 50,354 66,054 79,828
Sales and marketing 105,248 58,503 200,216 102,025
General and administrative 15,407 14,248 44,854 35,847
-------- -------- ---------- --------
Total operating expenses 543,015 391,550 1,014,526 679,585
Operating income 137,079 116,961 187,470 105,174
Investment income, net 3,197 1,464 7,954 4,125
Income before
provision for
income taxes 140,276 118,425 195,424 109,299
Provision
for income taxes 43,014 41,444 60,662 38,248
-------- -------- ---------- --------
Net income $97,262 $76,981 $134,762 $71,051
======== ======== ========== ========
Basic earnings
per share $0.70 $0.58 $0.97 $0.54
Weighted average
common shares outstanding 139,820 133,145 138,700 132,488
Diluted earnings
per share $0.63 $0.53 $0.87 $0.49
Weighted average
common shares
outstanding assuming
dilution 155,592 146,027 154,418 143,679
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)
December 31, March 31,
2004 2004
------------- -------------
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments $ 713,180 $ 587,649
Accounts receivable, net 344,894 62,577
Inventories 41,656 26,427
Software development 61,550 58,320
Intellectual property licenses 19,908 32,115
Deferred income taxes 13,689 26,127
Other current assets 17,424 18,660
------------ -------------
Total current assets 1,212,301 811,875
============ =============
Software development 13,384 28,386
Intellectual property licenses 11,624 16,380
Property and equipment, net 26,798 25,539
Deferred income taxes - 9,064
Other assets 2,530 1,080
Goodwill 77,992 76,493
------------ -------------
Total assets $ 1,344,629 968,817
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 156,376 $ 72,874
Accrued expenses 155,057 63,205
------------ -------------
Total current liabilities 311,433 136,079
Deferred income taxes 12,712 -
------------ -------------
Total liabilities 324,145 136,079
Shareholders' equity:
Common stock - -
Additional paid-in capital 803,753 758,626
Retained earnings 343,041 208,279
Treasury stock (144,128) (144,128)
Accumulated other
comprehensive income 17,818 9,961
------------ -------------
Total shareholders' equity 1,020,484 832,738
------------ -------------
Total liabilities and
shareholders' equity $ 1,344,629 $ 968,817
============ =============
ACTIVISION, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Quarter and Nine Months Ended December 31, 2004 and 2003
(Amounts in thousands)
Percent
Increase
Quarter Ended (Decrease)
December 31, 2004 December 31, 2003
Amount % of Total Amount % of Total
Geographic Revenue Mix
United States $ 344,342 51% $ 252,114 50% 37%
International 335,752 49% 256,397 50% 31%
---------- ---- --------- ---- ---
Total net revenues $ 680,094 100% $ 508,511 100% 34%
---------- ---- --------- ---- ---
Activity/Platform Mix
Publishing:
Console $ 382,400 75% $ 304,996 80% 25%
Hand-held 63,243 12% 13,367 3% 373%
PC 68,410 13% 64,558 17% 6%
---------- ---- --------- ---- ---
Total publishing $ 514,053 76% $ 382,921 75% 34%
---------- ---- --------- ---- ---
Distribution:
Console $ 134,503 81% $ 102,979 82% 31%
Hand-held 7,923 5% 6,917 6% 15%
PC 23,615 14% 15,694 12% 50%
---------- ---- --------- ---- ---
Total distribution $ 166,041 24% $ 125,590 25% 32%
---------- ---- --------- ---- ---
Total net revenues $ 680,094 100% $ 508,511 100% 34%
========== ==== ========= ==== ===
Percent
Increase
Nine Months Ended (Decrease)
December 31, 2004 December 31, 2003
Amount % of Total Amount % of Total
Geographic Revenue Mix
United States $ 627,238 52% $ 381,303 49% 64%
International 574,758 48% 403,456 51% 42%
------------ ---- --------- ---- ---
Total net revenues $ 1,201,996 100% $ 784,759 100% 53%
------------ ---- --------- ---- ---
Activity/Platform Mix
Publishing:
Console $ 647,069 69% $ 439,499 77% 47%
Hand-held 105,342 11% 22,150 4% 376%
PC 189,689 20% 107,473 19% 76%
------------ ---- --------- ---- ----
Total publishing $ 942,100 78% $ 569,122 73% 66%
------------ ---- --------- ---- ----
Distribution:
Console $ 203,626 78% $ 171,509 79% 19%
Hand-held 15,134 6% 14,559 7% 4%
PC 41,136 16% 29,569 14% 39%
------------ ---- --------- ---- ----
Total distribution $ 259,896 22% $ 215,637 27% 21%
------------ ---- --------- ---- ----
Total net revenues $ 1,201,996 100% $ 784,759 100% 53%
============ ==== ========= ==== ====
ACTIVISION, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Quarter and Nine Months Ended December 31, 2004 and 2003
Quarter Ended Quarter Ended Nine Months Ended Nine Months Ended
December 31, 2004 December 31, 2003 December 31, 2004 December 31, 2003
Publishing Net Revenues
PC 13% 17% 20% 19%
- ----------------------------------- ----------- ------------ ------------ ------------
Console 75% 80% 69% 77%
- ----------------------------------- ----------- ------------ ------------ ------------
PlayStation 2 44% 48% 41% 44%
Microsoft Xbox 21% 20% 18% 22%
Nintendo GameCube 10% 10% 10% 8%
Playstation 0% 2% 0% 3%
Hand-held 12% 3% 11% 4%
- ----------------------------------- ----------- ------------ ------------ ------------
Game Boy Advance 10% 3% 10% 4%
Nintendo Dual Screen 2% 0% 1% 0%
- ----------------------------------- ----------- ------------ ------------ ------------
Total publishing net revenues 100% 100% 100% 100%
====================================== =========== ============ ============ ============
ACTIVISION, INC. AND SUBSIDIARIES
Non-GAAP Disclosures
Free Cash Flow
(In thousands)
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
12/31/2004 9/30/2004 6/30/2004 3/31/2004
Net Cash Provided by (Used In) Operating
Activities $ 85,668 $ 62,846 $ (52,136) $ 21,069
Less: Capital Expenditures $ (3,587) $ (2,562) $ (1,881) $ (2,521)
---------- ---------- --------- --------
Free Cash Flow $ 82,081 $ 60,284 $ (54,017) $ 18,548
Trailing Twelve Month Free Cash Flow $ 106,896 $ 121,998 $ 30,779 $ 55,427
ACTIVISION, INC. AND SUBSIDIARIES
Non-GAAP Disclosures
Return on Invested Capital
(In thousands)
Three Months Three Months Three Months Three Months
NET OPERATING PROFIT AFTER TAXES Ended Ended Ended Ended
12/31/2004 9/30/2004 6/30/2004 3/31/2004
Net income $ 97,262 $ 25,543 $ 11,957 $ 6,664
Less:
Investment income (3,197) (2,645) (2,112) (2,051)
Tax effect on Investment income (B) 991 846 697 677
---------- ----------- --------- --------
Net Operating Profit After Taxes $ 95,056 $ 23,744 $ 10,542 $ 5,290
Trailing Twelve Month Net Operating
Profit After Taxes $ 134,632 $ 115,576 $ 80,826 $ 73,630
INVESTED CAPITAL
Total assets (A) $1,344,629 $1,104,169 $985,841 $968,817
Less:
Cash and short term investments (A) 713,180 606,087 539,146 587,649
Current liabilities (A) 311,433 216,342 132,092 136,079
---------- ----------- --------- --------
Invested capital $ 320,016 $ 281,740 $314,603 $245,089
Trailing Twelve Month Invested Capital (A) 290,362 272,856 265,585 247,330
Return on Invested Capital 30% 8% 3% 2%
Trailing Twelve Month Return
on Invested Capital 46% 42% 30% 30%
(A) Amounts for the trailing twelve months represent averages of the previous
four fiscal quarters
(B) Tax effect represents investment income multiplied by our effective tax rate.
