Activision, Inc. (Nasdaq:ATVI) today announced record financial results for the first fiscal quarter ended June 30, 2007.

Net revenues were $495.5 million, a 163% increase, as compared to net revenues of $188.1 million reported for the first quarter last fiscal year. Net income for the first fiscal quarter was $27.8 million, or $0.09 earnings per diluted share, as compared to a net loss of $18.3 million, or a loss per share of $0.07 reported for the previous first quarter. Excluding the impact of expenses related to equity-based compensation, the company reported net income of $32.8 million and earnings per diluted share of $0.11 for the first quarter. This compares to a net loss of $14.7 million and loss per share of $0.05, excluding the impact of expenses related to equity-based compensation for the first quarter of last fiscal year.

Robert Kotick, Chairman and CEO of Activision, stated, "During the quarter, we shipped more than eight million units of new game releases worldwide and for the first six months of the calendar year, Activision was the #1 third-party U.S. publisher on the console and handheld platforms. As a result of our strong performance, we are raising our fiscal year 2008 net revenue and earnings outlook and are increasing our fiscal year operating margin outlook to a company record"

Kotick continued, "Our focus on growing our strong franchises and next- generation console leadership position is yielding superb results. We intend to continue expanding our franchise portfolio, strengthening our development capabilities and improving our operating efficiency over the balance of the fiscal year. We believe this strategy will create strengths and capabilities that should enable us to continue growing our revenues, operating margin and earnings per share, as well as increase our return on invested capital."

Business Highlights

Activision’s record first quarter performance was driven by strong consumer response to its proven franchises, Guitar Hero II^TM, Spider-Man 3^TM and Shrek The Third^TM, as well as its new intellectual property TRANSFORMERS: The Game, which was released in the U.S. during the quarter.

According to The NPD Group, during the quarter, Activision was the #1 U.S. publisher on both the Xbox 360^TM video game and entertainment system and the PlayStation^® 2 computer entertainment system. The company also ranked as the #1 third-party publisher on the PLAYSTATION^® 3 computer entertainment system and the Nintendo platforms in the U.S. Activision grew its U.S. console and hand-held market share to 16.9%, as compared with 8.5% over the same period last year.

Other quarterly business highlights are as follows:

- Guitar Hero II and Spider-Man 3 were two of the top-three best-selling titles for the quarter in the U.S., according to The NPD Group. Guitar Hero II was the #1 best-selling U.S. console game overall, and Spider-Man 3 was the #3 best-selling U.S. console and handheld game.

- Shrek The Third was the #1 kid’s movie-based title in the U.S. for the months of May and June combined, according to The NPD Group.

- In the U.S., Activision was the #1 third-party handheld publisher, according to The NPD Group.

- Activision’s international publishing revenues grew 240% year over year.

- In Europe, Spider-Man 3 was the #1 best-selling console and handheld game for the quarter in the U.K., Germany and France, according to Charttrack and Gfk.

- On May 11, 2007, Activision completed its acquisition of DemonWare, the leading provider of network middleware technologies for console and PC games headquartered in Dublin, Ireland.

For the second quarter, Activision has already shipped TRANSFORMERS: The Game internationally in connection with the film’s theatrical release and Guitar Hero^TM Encore: Rocks The 80s^TM for the PlayStation 2 computer entertainment system. Activision also expects to ship Enemy Territory^TM: Quake Wars on the PC.

Company Outlook

Today, Activision increased its fiscal year 2008 net revenue and earnings per share outlook. For the full fiscal year, the company expects net revenues of $1.87 billion and earnings per diluted share of $0.51, including the impact of equity-based compensation expense, compared to the company’s previous fiscal year outlook of $1.8 billion in net revenues and earnings per diluted share of $0.45. Excluding the impact of equity-based compensation expense, the company expects earnings per diluted share of $0.61.

For the second quarter, the company expects net revenues of $250 million and a loss per share of $0.04, including the impact of equity-based compensation expense. Excluding the impact of equity-based compensation expense, the company expects a loss per share of $0.03.

Conference Call

Today at 4:30 p.m. EDT, Activision’s management will host a conference call and Webcast to discuss its first 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 www.activision.com to listen to the conference call via live Webcast or to listen to the call live by dialing into (719) 457-2699 in the U.S.

Non-GAAP Financial Measures

Activision provides net earnings (loss) per share data both including and excluding the impact of expenses related to stock options, employee stock purchase plans, restricted stock awards and other share-based compensation and the associated tax benefits.

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

Net earnings (loss) per share excluding the impact of expenses related to equity-based compensation is not determined in accordance with generally accepted accounting principles (GAAP), and the exclusion of those amounts has the effect of increasing non-GAAP earnings per share by that same amount per share as compared to GAAP earnings per share for the period. Activision recognizes that there are limitations associated with the use of this non-GAAP financial measure as it does not reflect all of the expenses associated with our results as determined in accordance with GAAP and may reduce comparability to other companies that calculate similar non-GAAP measures differently. Management compensates for the limitations resulting from the exclusion of expenses related to stock-based compensation by considering the amount and impact of equity-based compensation expenses separately and by considering the company’s GAAP as well as non-GAAP results and, in this release, by presenting the most comparable GAAP measure, net income (loss), directly ahead of non-GAAP net income (loss) in this release and by providing a reconciliation that shows and describes the adjustments made in the accompanying tables. Management does not believe the limitations resulting from this exclusion are material, particularly when this non-GAAP financial measure is disclosed with its most comparable GAAP financial measure, net income (loss). Management believes that the presentation of this non-GAAP financial measure provides investors with additional useful information to measure the company’s financial performance because it allows for a better comparison of results in the periods reported herein to those in historical periods.

This non-GAAP financial measure should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Non-GAAP net earnings (loss) do not include certain expenses required to be recorded in order to present earnings in accordance with GAAP. This non-GAAP financial measure is not based on a comprehensive set of accounting rules or principles and the term non-GAAP net earnings (loss) does not have a standardized meaning. Therefore, other companies may use the same or similarly named measure but exclude different items, which may not provide investors a comparable view of the company’s performance in relation to other companies in the same industry.