corporate information building the2001 foundation for growth Annual Report we’re primed for growth as Sony’s PlayStationா 2, Microsoft’s Xboxீ, and Nintendo’s GameCubeீ and Game Boy ா Advance usher in a new era of video gaming. Internet connectivity, DVD capability and backward compatibility will expand video gaming into a broader form of mass-market entertainment. The new video game systems, along with the impending introduction of various wireless technologies and a more ubiquitous broadband infrastructure, can push household penetration to new heights. Activision’s strong brands, deep management and proven development capabilities position us to leverage these exciting market opportunities. Financial Highlights (in thousands of dollars except per share data) 2001 2000 2000* 1999 1998 1997 Net Revenues . 620,183 572,205 583,930 436,526 312,906 190,446 Operating Income (Loss) . 39,807 (30,325) 39,867 26,667 9,218 11,497 Net Earnings (Loss). 20,507 (34,088) 19,817 14,891 4,970 7,583 Earnings Per Common Share: Basic Earnings (Loss) Per Share . 0.82 (1.38) 0.80 0.65 0.22 0.36 Diluted Earnings (Loss) Per Share . 0.75 (1.38) 0.74 0.62 0.21 0.35 $700 $25 $0.75 $20 $0.60 $525 $15 $0.45 $350 $10 $0.30 $175 $5 $0.15 $0 $0 $0 ’97 ’98 ’99 ’00* ’01 ’97 ’98 ’99 ’00* ’01 ’97 ’98 ’99 ’00* ’01 Net Revenues Net Earnings Diluted Earnings Per Share (in millions of dollars) (in millions of dollars) (per common share) *Excludes charges incurred in conjunction with the implementation of the Company’s strategic restructuring plan in the fourth quarter of fiscal 2000. 1 Activision, Inc. to our shareholders: Fiscal 2001 marked a year of record performance for We currently have 55 games in planning and development With the launch of the PlayStation 2 last fall, fiscal 2001 of the world’s most recognized brands coupled with the Activision. The Company’s net revenues grew to $620 for Sony’s PlayStation 2, Microsoft’s Xbox௣ video game marked the beginning of a new cycle. financial flexibility to capitalize on the opportunities million and net income rose to $21 million. Both net system and Nintendo’s GameCube௣ and Game Boy௡ Over the last five years, we witnessed the afforded by the changes occurring within our industry. LucasArtsrevenues and net income wereEntertainment the highest in our history. Advance. We expect our investments in next-generation transformation of the video game industry from an We have better products, a greater number of strategic We ended the fiscal year as the #2 independent products to fuel our revenue growth over the next few enthusiast market to a well-established mass-market partners, more satisfied customers, the most productive U.S. video game publisher Marvel on console and Entertainment hand-held years and provide greater opportunities for operating entertainment medium. The release of the next-generation and dedicated employees and a stronger management than platforms and we were the fastest growing major publisher margin expansion. console systems will continue expanding the audience for we have ever had. overall. The market value of the Company isViacom beginning to ConsumerDespite our increased Products investment in product video games. Many of the young people who grew up in We remain steadfast in our commitment to operate reflect the intrinsic value we have created over the last development, our financial position is stronger than ever. the 1980s and 1990s playing games are still playing today, a professionally managed, highly disciplined Company — decade. This fiscal year, the Company’s stock price rose As a result of our record performance in fiscal 2001, we and millions of new consumers enter the market each year. a company that is prosperous and growing, as well as 102%, versus a 60% decline in the Nasdaq Composite Theended theWalt year with aDisney significantly strengthened Company balance financially prudent and focused on profitability. We are DRIVING FUTURE GROWTH Index for the same period. sheet. Our cash balance increased by $75 million to $126 committed to delivering strong financial results while Activision is poised to capitalize on the tremendous Our brand focused multi-platform strategy million and we reduced our days sales outstanding from providing growing audiences around the world with the opportunities ahead. For the past five years, we have continues to drive our success. We achieved record 94 days to 54 days. most compelling interactive entertainment experiences. been focused on building the infrastructure and scale financial results in a challenging software market, due to We also significantly improved our capital We would like to thank our employees for their hard necessary to be a leader in the interactive entertainment our prudent planning and platform and product strategies structure. As of June 21, 2001, we completed the work and dedication and our customers and shareholders business. In fiscal 2001, our goal was to increase our that were well aligned with the market opportunities. retirement of $60 million of Convertible Subordinated for their continued commitment and support. product development resources and strengthen our financial Notes. Substantially all of the holders of the Convertible FISCAL 2001 WAS A GREAT YEAR position to take advantage of the market opportunities corporate informationSubordinated Notes elected to convert the Notes to Sincerely, FOR ACTIVISION ahead. We now have a strong foundation for the common stock prior to the redemption date. During the fiscal year, Activision increased its U.S. dollar Company’s continued success. Additionally, we repaid in full the remaining market share on the console and hand-held systems by 3.3 Our product slate for fiscal year $8.5 million balance of our three-year $25 million term share points, despite a 2% decline in the overall U.S. video 2002 will fully leverage the current- and loan and renegotiated our revolving credit facility with game market. We accomplished this by releasing products new-generation console platforms and a more favorable cost structure. Unencumbered by debt, based on well-established brands for the PC, PlayStation௡ includes the highest percentage of games Activision now possesses greater financial flexibility as we game console and PlayStation௡ 2 computer entertainment based on proven brand franchises in the move into the growth cycle provided by the launch of the system, Nintendo௡ 64, Sega Dreamcast௣ and Nintendo Company’s history. With over $600 million new video game platforms. Game Boy௡ Color. More than 75% of our publishing in revenue, we have achieved a scale that revenue was derived from sales of games based on proven REMARKABLE GROWTH AWAITS US should provide greater predictability in our brand franchises, a key component of our business plan that The launch of the next-generation gaming systems heralds operating results and opportunities markedly increased the predictability of our operating results. a new and exciting period in our industry. As we have seen for operating margin expansion. We gained market share across all of the gaming with other platform introductions, the hardware cycles Activision’s market position Robert A. Kotick Brian G. Kelly Ronald Doornink platforms and achieved record financial performance while comprise five-year increments. The first two years are has never been stronger. We have a Chairman & Co-Chairman President & increasing our product development spending on games for staging years, followed by three years of rapid growth. product portfolio based on some Chief Executive Officer Chief Operating Officer the new generation console systems by $19 million dollars. 3 2001 Annual Report Activision, Inc. 2 LEVERAGING BRANDS ACROSS MULTIPLE PLATFORMS All of Activision’s brands are selected and designed to deliver compelling interactive entertainment experiences to audiences around the world. During the fiscal year, we achieved record performance despite a market transition. Our results can The success of the Tony Hawk’s Pro Skater we’ve got the be attributed to our strategy of leveraging our brands franchise, as well as our recently released BMX biking brands across multiple gaming platforms and the fact that 75% game Mat Hoffman’s Pro BMX, have established Activision of our revenues were derived from games based on proven as the leader in this rapidly growing category with a 65% franchises. As a result of these strategies and our strong market share. A 20-year reputation for quality titles with great gameplay has product portfolio, Activision was the only U.S. publisher In fiscal year 2002, Activision plans to develop to have top-ten games on all the established console and and release a dynamic slate of games across all platforms established Activision as a brand of choice among consumers. hand-held platforms during calendar 2000. including the PlayStation 2, PlayStation, Xbox, GameCube, The success of our brands is based on our insight Game Boy Advance, Game Boy Color, Nintendo 64, Our research has shown that Activision ranks as one of the most into consumer trends and behaviors. In fiscal 1999, we were Dreamcast and PC. Our lineup includes Bloody Roar௣ 3; one of the first video game companies to recognize the ௣ ௡ recognized names among interactive entertainment companies. Our Bomberman Tournament; Doom ; Jackie growing popularity of action sports. In 1999, we dominated Chan Adventures௣; Mat Hoffman’s Pro ௣ ௣ properties include established brands like Disney, Marvel, Star Trek, the action sports video game market with the success of BMX ; Pinobee : Wings of Adventure; Tony Hawk’s Pro Skater. In September 2000, we launched Return to Castle Wolfenstein௣; Shaun Palmer’s Star Wars and Tony Hawk as well as emerging brands like the sequel, Tony Hawk’s Pro Skater 2 which became the Pro Snowboarder௣; Spider-Man 2 Enter: #1 selling PlayStation game in dollars sales for the calendar Electro௣; Star Trek௡: Armada II; Mat Hoffman.