ACTIVISION 2008 ANNUAL REPORT ACTIVISION 2008 ANNUAL 3100 Ocean Park Boulevard Santa Monica, California 90405 tel: (310) 255-2000 fax: (310) 255-2100 www.activision.com 2008 ANNUAL REPORT Activision, Inc._ 2008 annual report Corporate Information Officers Robert J. Corti Corporate Headquarters Madrid, Spain Chairman of Avon Products Robert A. Kotick Activision, Inc. Ontario, Canada Foundation Chairman and Chief Executive 3100 Ocean Park Boulevard Paris, France Officer, Activision Ronald Doornink Santa Monica, California 90405 Quebec City, Canada Senior Advisor, Activision, Inc. (310) 255-2000 Fiscal 2008 was a monumental year for Activision. The strength Brian G. Kelly Seoul, Korea Co-Chairman, Activision Barbara S. Isgur Domestic Offices Shanghai, China Consultant of our balanced product portfolio, coupled with solid execution Michael Griffith Albany, New York Stockholm, Sweden President and Chief Executive Robert J. Morgado Dallas, Texas Sydney, Australia across all of our businesses, resulted in our 16th consecutive year Officer, Activision Publishing Chairman, Eagan, Minnesota Tokyo, Japan Maroley Media Group of revenue growth and the best year in our company’s history. Thomas Tippl Eden Prairie, Minnesota Uxbridge, United Kingdom Chief Financial Officer, Peter J. Nolan Encino, California Venlo, The Netherlands Activision Publishing Managing Partner, Leonard Green & Partners L.P. Fayetteville, Arkansas World Wide Web Site Brian Hodous Foster City, California Chief Customer Officer, Richard Sarnoff www.activision.com Activision Publishing Executive Vice President, Los Angeles, California E-Mail Random House, Inc. Madison, Wisconsin Ann Weiser [email protected] Chief Human Resources Officer, Transfer Agent Mountain View, California Activision Publishing New York, New York Annual Report Continental Stock Transfer & Robin Kaminsky Trust Company Novato, California Activision’s Annual Report for Executive Vice President, 17 Battery Place San Francisco, California the fiscal year ended March 31, New York, New York 10004 Publishing, Santa Monica, California 2008 is available to shareholders Activision Publishing (800) 509-5586 without charge upon request Woodland Hills, California from our corporate offices. George L. Rose Auditor International Offices Chief Legal Officer and PricewaterhouseCoopers LLP Secretary, Activision Publishing Los Angeles, California Amsterdam, The Netherlands Board of Directors Birmingham, United Kingdom Bank Robert A. Kotick Burglengenfeld, Germany U.S. Bank Chairman and Chief Executive Chennai, India Los Angeles, CA Officer, Activision Dublin, Ireland Brian G. Kelly Legnano, Italy Co-Chairman, Activision Liverpool, United Kingdom )%0Y`cc`fe[fccXij ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 e\ki\m\el\j 1 81523_Feature_R1.indd 1 7/22/08 7:11:19 PM For fiscal year 2008, Activision was the #1 U.S. console and handheld game publisher in dollars for the first time ever. 2 3 Kung Fu Panda™ ›› Call of Duty® 4: Modern Warfare™ was the #2 best-selling game in the U.S. and Europe in units for fiscal 2008. 4 5 Call of Duty 4: Modern Warfare ›› Guitar Hero® III: Legends of Rock™ was the #1 best-selling game in the U.S. and Europe in dollars during the fiscal year. 6 7 Guitar Hero®: Aerosmith® ›› During the fiscal year, Activision increased its market share in 49 of the top 50 retailers around the world. 8 9 Quantum of Solace™ ›› To Our Shareholders: F ISCAL 2008 WAS AN EXTRAORDINARY YEAR F OR ACTIVISION SHAREHOLDERS . THE STRENGTH O F OUR PRODUCT PORT F OLIO , COUPLED WITH SUPERB EXECUTION ACROSS ALL O F OUR BUSINESSES , RESULTED IN OUR 16TH CONSECUTIVE YEAR O F REVENUE GROWTH AND THE BEST YEAR IN OUR COMPANY ’ S HISTORY . OVER THE PAST F IVE YEARS , WE HAD A CUMULATIVE AVERAGE GROWTH RATE IN OUR SHARE PRICE O F 50% PER YEAR AND MORE THAN 30% PER YEAR OVER THE PAST 10 YEARS . AMONG OUR MOST SIGNIFICANT ACCOMPLISHMENTS WERE: • DELIVERING RECORD NET REVENUES O F $2.9 BILLION , A 92% INCREASE OVER THE PRIOR YEAR ; OPERATING INCOME O F $480 MILLION , A 558% INCREASE OVER THE PRIOR YEAR ; AND NET INCOME O F $345 MILLION , A 302% INCREASE OVER F ISCAL 2007. • ENDING THE F ISCAL YEAR AS THE #1 CONSOLE AND HANDHELD PUBLISHER IN NORTH AMERICA . (1,3) • GROWING OUR NET REVENUES THREE TIMES F ASTER THAN THE U.S. AND EUROPEAN VIDEO GAME SO F TWARE MARKET . ® ® • PRODUCING THE TOP - TWO BEST - SELLING GAMES WORLDWIDE — Ca l l o f Du t y 4: Mo D e r n Wa r f a r e ™ AND Gu i t a r He r o iii: (2) le G e n D s o f ro C k ™. (2,3) • DEVELOPING THE #1 AND #2 MOVIE - BASED GAMES WORLDWIDE — sp i D e r -Ma n ™ 3 AND transforMers: tH e Ga M e . • INCREASING OUR INTERNATIONAL MARKET SHARE AND REVENUES BY MORE THAN 100% YEAR OVER YEAR . • AND , ORCHESTRATING THE LARGEST HARDWARE LAUNCH IN THE HISTORY O F VIDEO GAMES WITH THE RELEASE O F Gu i t a r He r o iii: le G e n D s o f ro C k . T HESE ACHIEVEMENTS RE F LECT THE LEADERSHIP AND PERSEVERANCE O F OUR EMPLOYEES . THEY ALSO VALIDATE OUR STRATEGY WHICH HAS RESULTED IN OUR INDUSTRY LEADERSHIP POSITION . (1) According to The NPD Group. (2) According to The NPD Group, Charttrack and Gfk. (3) Based on number of dollars. 10 81523_Feature_R2.indd 10 7/28/08 10:43:03 PM OUR RESULTS , H O WEVER , TELL O NLY PART O F THE ST O RY . ON JULY 9, 2008, WE FURTHER STRENGTHENED O UR F O UNDATI O N F O R THE FUTURE BY C O MPLETING A GR O UND - BREAKING MERGER WITH VIVENDI GAMES T O CREATE ACTIVISION BLIZZARD , THE W O RLD ’S M O ST PR O FITABLE PURE -PLAY VIDE O GAME PUBLISHER . THE TRANSACTI O N C O MBINES THE TW O BEST - PERF O RMING C O MPANIES IN THE INDUSTRY — ACTIVISION AND BLIZZARD ENTERTAINMENT — BRINGING T O GETHER ACTIVISION’ S T O P - SELLING P O RTF O LI O O F C O NS O LE AND HANDHELD GAMES WITH VIVENDI G AMES ’ LEADING PC AND O NLINE SUBSCRIPTI O N FRANCHISES . B Y C O MBINING LEADERS IN MASS - MARKET ENTERTAINMENT AND SUBSCRIPTI O N - BASED O NLINE GAMES , ACTIVISION B LIZZARD IS THE O NLY PUBLISHER WITH LEADING MARKET P O SITI O NS ACR O SS ALL CATEG O RIES O F THE RAPIDLY GR O WING INTERACTIVE ENTERTAINMENT S O FTWARE INDUSTRY AND REACHES THE BR O ADEST P O SSIBLE AUDIENCES . W E HAVE BEC O ME THE IMMEDIATE LEADER IN THE HIGHLY PR O FITABLE O NLINE GAMES BUSINESS AND GAIN A LARGE F oo TPRINT IN THE RAPIDLY GR O WING ASIAN MARKETS , INCLUDING CHINA AND KO REA , WHILE MAINTAINING O UR STR O NG O PERATING PERF O RMANCE ACR O SS NO RTH AMERICA AND EUR O PE . WE EXPECT T O HAVE THE HIGHEST O PERATING MARGIN O F ANY THIRD - PARTY PUBLISHER , O NE O F THE M O ST DIVERSIFIED PR O DUCT P O RTF O LI O S IN THE INDUSTRY , AND WE WILL BE UNIQUELY P O ISED T O CAPITALIZE O N THE C O NTINUED W O RLDWIDE GR O WTH IN INTERACTIVE ENTERTAINMENT . B Y jo INING F O RCES WITH VIVENDI GAMES , ACTIVISION ST O CKH O LDERS WILL BENEFIT FR O M SIGNIFICANTLY INCREASED EARNINGS P O WER AND THE RECURRING NATURE AND PREDICTABILITY O F SUBSCRIPTI O N - BASED REVENUES . THE MERGER , WHICH WILL BE ACCRETIVE WITHIN ITS FIRST YEAR , FULFILLS O UR RIG O R O US ACQUISITION REQUIREMENTS . T HESE REQUIREMENTS ENSURE THAT WE PARTNER WITH C O MPANIES THAT HAVE A PR O VEN TRACK REC O RD O F SUCCESS ; STR O NG GL O BAL BRANDS THAT CAN GENERATE ANNUAL REVENUE STREAMS ; A S O LID MANAGEMENT TEAM ; FINANCIAL AND O PERATING MARGIN PERF O RMANCE THAT ENHANCES O UR O WN ; AND PR O VEN TECHN O L O GIES AND DEVEL O PMENT CAPABILITIES. O UR STRINGENT CRITERIA C O UPLED WITH O UR FINANCIAL DISCIPLINE AND F O CUSED C O MMITMENT T O MARGIN EXPANSI O N HAS SET US APART FR O M O UR C O MPETIT O RS AND RESULTED IN O UR LAST TW O ACQUISITIONS — R ED O CTANE , PUBLISHERS O F THE BL O CKBUSTER Gu i t a r He r o FRANCHISE AND BIZARRE CREATI O NS , DEVEL O PERS ® ® O F MICR O S O FT ’ S MULTIMILLION UNIT Pr o j e c t Go t H a m ra c i n G SERIES F O R THE XB O X AND XB O X 360 . WE BELIEVE THESE GUIDING PRINCIPLES WILL C O NTINUE T O P O SITI O N US F O R AN EVEN BRIGHTER FUTURE , AND WE HAVE NEVER 11 81523_Feature_R2.indd 11 7/28/08 10:28:38 PM BEEN MORE CONFIDENT THAT ACTIVISION IS ON THE RIGHT PATH TO GENERATE SUSTAINABLE LONG - TERM VALUE CREATION FOR OUR SHAREHOLDERS . Active Vision $2,898 F OR THE PAST 17 YEARS , ACTIVISION HAS BEEN CHANGING THE WAY CONSUMERS SPEND THEIR LEISURE TIME . WE HAVE BUILT A COMPANY WITH A STRONG CULTURE OF EXCELLENCE , FINANCIAL FOCUS AND THE FLEXIBILITY TO SEIZE CURRENT AND FUTURE INDUSTRY OPPORTUNITIES . T ODAY , THE VIDEO GAME MARKET HAS NEVER BEEN STRONGER . THERE ARE MORE THAN 255 " MILLION CONSOLE AND HANDHELD GAME SYSTEMS WORLDWIDE , AND THERE ARE MORE DEVICES 0) (2) ^ifnk_ THAN EVER BEFORE CAPABLE OF PLAYING GAMES . IN CALENDAR 2008, THE GLOBAL VIDEO GAME SOFTWARE MARKET SHOULD CONTINUE TO HAVE DOUBLE - DIGIT GROWTH , AS THE AUDI - $1,513 ENCE FOR INTERACTIVE ENTERTAINMENT IS EXPANDING AS GAMES HAVE BECOME AN INTEGRAL PART OF LEISURE TIME .