-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NcE/PJ6cPjVRUh8qF/ZhCVg2Ec/acur9Mn9iqqqmE2IIFdSx8NyxHtaKVhS3PGor q8jhSBig/1GLVKDsB4LINg== 0000718877-96-000002.txt : 19960605 0000718877-96-000002.hdr.sgml : 19960605 ACCESSION NUMBER: 0000718877-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVISION INC /NY CENTRAL INDEX KEY: 0000718877 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 942606438 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12699 FILM NUMBER: 96520544 BUSINESS ADDRESS: STREET 1: 11601 WILSHIRE BLVD 3RD FL STREET 2: STE 1000 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104739200 MAIL ADDRESS: STREET 1: 11601 WILSHIRE BLVD 3RD FL STREET 2: STE 1000 CITY: LOS ANGELES STATE: CA ZIP: 90025 FORMER COMPANY: FORMER CONFORMED NAME: MEDIAGENIC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ACTIVISION INC DATE OF NAME CHANGE: 19880829 10-Q 1 THIRD QURATER 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 O R [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-12699 ACTIVISION, INC. (Exact name of registrant as specified in its charter) DELAWARE 94- 2606438 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 11601 WILSHIRE BLVD., LOS ANGELES, CA 90025 (Address of principal executive offices) (Zip Code) (310) 473-9200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes [ X ] No [ ] The number of shares of the registrant's Common Stock outstanding as of February 13, 1996 was 13,748,763. ACTIVISION, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1995 (unaudited) and March 31, 1995 3 Condensed Consolidated Statements of Operations for the quarters and nine months ended December 31, 1995 and 1994 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the quarters and nine months ended December 31, 1995 and 1994 (unaudited) 5 Notes to Condensed Consolidated Financial Statements for the quarter and nine months ended December 31, 1995 (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ACTIVISION, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands except share data) December 31, March 31, 1995 1995 ------------ ----------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 28,077 $ 37,355 Accounts receivable, less allowances of $7,684 and $4,469, respectively 11,575 5,566 Inventories, net 2,670 1,972 Prepaid software and license royalties 3,378 1,082 Other current assets 866 342 --------- ---------- Total current assets 46,566 46,317 Property and equipment, net 2,964 1,643 Other assets 229 60 Excess purchase price over identifiable assets acquired, net 19,901 20,863 ---------- ---------- Total assets $ 69,660 $ 68,883 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,987 $ 2,516 Accrued expenses 6,744 3,153 Deferred revenue 1,740 - ---------- ---------- Total current liabilities 12,471 5,669 Other liabilities 495 510 ---------- ---------- Total liabilities 12,966 6,179 ----------- ---------- Commitments and contingencies Shareholders' equity: Common stock, $.000001 par value, 100,000,000 shares authorized, 14,227,846 and 14,183,594 shares issued and 13,727,846 and 14,183,594 outstanding, respectively - - Additional paid-in capital 67,881 67,667 Accumulated deficit (5,638) (4,822) Cumulative foreign currency translation (271) (141) Less: treasury stock, cost of 500,000 shares (5,278) - --------- ---------- Total shareholders' equity 56,694 62,704 --------- ---------- Total liabilities and shareholders' equity $ 69,660 $ 68,883 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. ACTIVISION, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands except per share data) (Unaudited) Quarter ended Nine months ended December 31, December 31, ------------------------------------- 1995 1994 1995 1994 ------------------------------------- Net revenues $ 17,578$ 26,185 $ 39,745$ 34,069 Cost of goods sold 7,131 16,256 15,428 19,580 -------------------------------------- Gross profit 10,447 9,929 24,317 14,489 ------------------------------------- Operating expenses: Product development 4,163 2,247 12,807 5,315 Sales and marketing 3,200 5,566 9,290 8,187 General and administrative 1,190 871 3,332 2,288 Amortization of intangible assets 321 321 963 963 -------------------------------------- Total operating expenses 8,874 9,005 26,392 16,753 -------------------------------------- Operating income (loss) 1,573 924 (2,075) (2,264) Other income: Interest, net 409 414 1,343 1,151 ---------------------------------------- Income (loss) before provision for income taxes 1,982 1,338 (732) (1,113) Provision for income taxes 34 34 83 88 ------------------------------------------------- - - ------- Net income (loss) $ 1,948 $ 1,304 $ (815)$ (1,201) ======== ======== ======== ======== Net income (loss) per share $ 0.13 $ 0.09 $ (0.06)$ (0.09) ======== ======== ======== ======== Number of shares used in computing net income (loss) per common share 15,209 13,907 14,077 13,860 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. ACTIVISION, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the nine months ended December 31, (in thousands) (Unaudited) Increase (Decrease) in Cash 1995 1994 ---------- ---------- Net cash used in operating activities $ (1,840) $ (12,460) ---------- ---------- Cash flows from investing activities: Capital expenditures (2,244) (637) Restricted cash - 1,500 ---------- ---------- Net cash provided (used) by investing activities (2,244) 863 ---------- ---------- Cash flows from financing activities: Payments under line of credit agreements - (4,695) Borrowings under line of credit agreements - 4,695 Proceeds from exercise of common stock options 214 105 Purchase of treasury stock (5,278) - ----------- ---------- Net cash provided (used) by financing activities (5,064) 105 ----------- ---------- Effect of exchange rate changes on cash (130) (24) ----------- ---------- Net decrease in cash and cash equivalents (9,278) (11,516) ----------- ---------- Cash and cash equivalents at beginning of period 37,355 38,093 ----------- ---------- Cash and cash equivalents at end of period $ 28,077 $ 26,577 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of Activision, Inc. and its subsidiaries. The information furnished is unaudited and reflects all adjustments which, in the opinion of management, are necessary to provide a fair statement of the results for the interim periods presented. The financial statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended March 31, 1995. Certain amounts in the condensed consolidated financial statements have been reclassified to conform with the current period's presentation. These reclassifications had no impact on previously reported working capital or results of operations. 2. INVENTORIES Inventories comprise (amounts in thousands): December 31, March 31, 1995 1995 Finished goods $ 1,976 $ 1,769 Purchased parts and components 694 203 ------- ------- $ 2,670 $ 1,972 ====== ====== 3. DEFERRED REVENUE Revenue from licensing agreements which provide customers the right to multiple copies in exchange for guaranteed amounts is recognized upon delivery of the product master or the first copy; when per copy royalties on sales exceed the minimum guaranteed quantities, revenue is recognized. The Company defers recognition of revenue from licensing agreements until the completion by the Company of its future obligations under such agreements including, but not limited to, the achievement of technological feasibility of the products or assets to be delivered under such obligations and future collectibility. Deferred revenue of $1,740,000 as of December 31, 1995 represents minimum guarantee payments received by the Company in advance of future deliveries of products or product components under such agreements. 4. AMORTIZATION OF INTANGIBLE ASSETS Effective April 1, 1992, Disc Company, Inc. ("TDC"), a Delaware corporation and a wholly-owned subsidiary of International Consumer Technologies Corporation, was merged with and into the Company, with the Company as the surviving corporation. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as an intangible asset in the amount of $24,417,000. This intangible asset is being amortized on a straight-line basis over a 20 year period. Amortization was approximately $305,000 for each of the quarters ended December 31, 1995 and 1994 and $916,000 for each of the the nine month periods ended December 31, 1995 and 1994. The Company systematically evaluates current and expected cash flow from operations on a non-discounted basis for the purpose of assessing the recoverability of recorded intangible assets. Some of the factors considered in this evaluation include operating results, business plans, budgets and economic projections. Should such factors indicate that recoverability might be impaired, the Company would appropriately adjust the recorded amount of the intangible asset and/or the period over which the recorded intangible asset is amortized. 5. EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per common share is computed using the weighted average number of common and, when dilutive, common equivalent shares outstanding during the period. For the quarter ended December 31, 1995, the weighted average number of shares in the computation of earnings per share was increased by approximately 1,239,000 of common equivalent shares. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a diversified international publisher of interactive entertainment software. The Company develops and publishes entertainment software for a variety of platforms, including both personal computer CD-ROM desk-top systems, such as the Windows 95 operating system, and videogame set-top hardware systems, such as the Sega Saturn and Sony Playstation. The Company distributes its products worldwide through its direct sales force and, to a lesser extent, through third party distributors and licensees. RESULTS OF OPERATIONS Net revenues for the quarter and nine months ended December 31, 1995 decreased 33% and increased 17%, respectively, from the same periods last year. The increase in desk-top net revenues during the current quarter was primarily due to continuing strong sales of "Mechwarrior 2" (DOS CD) which was released in July 1995, as well as the initial release of "Mechwarrior 2" (Windows 95 CD), five "Mighty Morphin Power Ranger" titles (Windows and Mac CD), "Mechwarrior 2 Expansion Pack: Ghost Bear's Legacy" (DOS CD) and "Earthworm Jim" (Windows 95 CD). The decrease in set-top net revenues during the current quarter was due to the Company's strategic change in its business emphasis from cartridge-based set-top system to CD-based desk-top systems. On-line, OEM, licensing and other net revenues increased during the current quarter due to OEM and licensing revenues related to "Mechwarrior 2", "Pitfall: The Mayan Adventure", "Shanghai: Great Moments" and "Earthworm Jim". Net revenues by territory were as follows (amounts in thousands):
Quarter Ended December 31, Nine Months Ended December 31, ---------------------------------------------------------- 1995 1994 1995 1994 ----------------------------------------------------------- % of Net % of Net % of Net % of Net Amount Revenues Amount Revenues Amount Revenues Amount Revenues North America $ 13,062 74.3% $18,751 71.6% $30,034 75.6% $24,847 72.9% Europe 1,791 10.2% 6,562 25.0% 3,819 9.6% 7,174 21.1% Japan 1,901 10.8% 249 1.0% 3,797 9.6% 1,085 3.2% Australia and Pacific Rim 824 4.7% 623 2.4% 2,095 5.2% 963 2.8% -------------------------------------------------------------------- $ 17,578 100.0% $ 26,185 100.0% $ 39,745 100.0% $34,069 100.0% ====================================================================
Net revenues by device/medium were as follows (amounts in thousands):
Quarter Ended December 31, Nine Months Ended December 31, ----------------------------------------------------------- 1995 1994 1995 1994 % of Net % of Net % of Net % of Net Amount Revenues Amount Revenues Amount Revenues Amount Revenues Set-top $ 1,323 7.5% $23,308 89.0% $ 4,092 10.3% $ 24,607 72.2% Desk-top 12,066 68.7% 1,487 5.7% 27,603 69.5% 5,205 15.3% On-line, OEM, licensing and other 4,189 23.8% 1,390 5.3% 8,050 20.2% 4,257 12.5% -------------------------------------------------------------------- $ 17,578 100.0% $26,185 100.0% $39,745 100.0% $34,069 100.0% ======= ====== ======= ====== ====== ===== ======= =======
For purposes of the foregoing presentation, net revenues from set-top systems relate to sales of entertainment software products designed by the Company for operation on a hardware device that is connected to a television set and displayed on a television screen. Examples of set-top systems include Super Nintendo Entertainment System ("SNES"), Sega Genesis ("SGS"), Sega Saturn ("Saturn"), Sony Playstation ("Playstation"), Atari Jaguar, CD-I and 3DO Multiplayer ("3DO"). The Company designs products for operation on many of these systems, and normally it is required to pay a license fee for the right to create products for a particular system. Net revenues from desk-top systems relate to sales of those entertainment software products designed by the Company for operation through a personal computer's operating system software and that is displayed on the computer's monitor. Examples of computer operating systems include MS-DOS, Windows and the Macintosh operating system. The Company generally is not obligated to pay an operating system license fee for the right to produce desk-top products. Included in on-line, OEM, licensing and other revenues is approximately $750,000 related to the settlement and sale of certain product licensing rights back to the original licensor. Net revenues by source were as follows (amounts in thousands):
Quarter Ended December 31 Nine Months Ended December 31, ------------------------------------------------------- 1995 1994 1995 1994 -------------------------------- ----------------------- % of Net % of Net % of Net % of Net Amount Revenues AmountRevenues AmountRevenues AmountRevenues Activision Studios $ 15,815 90.0% $26,124 99.8% $37,091 93.3% $33,362 97.9% Acquisitions and Affiliated Labels 1,763 10.0% 61 0.2% 2,654 6.7% 707 2.1% ----------------------------------------------------------- $ 17,578 100.0% $26,185 100.0% $39,745 100.0% $34,069 100.0% ======= ======= ======= ======= ======= ====== ======== =====
Net revenues from Activision Studios relate to those entertainment software products (both set-top and desk-top) designed, developed and produced through the Company's Activision Studios division and that are owned by the Company. Net revenues from Acquisitions and Affiliated Labels relate to those entertainment software products developed by third parties for which the Company obtains all or certain distribution rights. Such distribution rights may take the form of a co-ownership arrangement or a license, and the Company's obligation to incur marketing, promotion, sales and advertising expenses in connection with the rights being acquired may vary from product to product. Cost of Goods Sold Cost of goods sold related to set-top, desk-top and OEM revenues represent the manufacturing and related costs of computer software and video games. Manufacturers of the Company's computer software are located in the United States and Europe and are readily available. Set-top cartridges and CDs are manufactured by the respective video game console manufacturers, such as Nintendo, Sega and Sony, who require significant lead time to fulfill the Company's orders. Also included in cost of goods sold is royalty expense related to amounts due to developers, title owners or other royalty participants based on product sales. Various contracts are maintained with developers, product title owners or other royalty participants which state a royalty rate and term of agreement, among other items. The decrease in cost of goods sold is a result of the shift in the Company's strategy from cartridge-based set-top products to CD-based desk-top products. Gross Profit For the quarter ended December 31, 1995, gross profit as a percentage of net revenues was 59.4% compared to 37.9% for the quarter ended December 31, 1994. The majority of the Company's revenues in the quarter ended December 31, 1995 were derived from desk-top products that carry a higher gross profit than set-top products. In contrast, revenues derived from set-top products represented a greater portion of total net revenues in the quarter ended December 31, 1994. The increase in gross profit also was due to the increase in on-line, OEM, licensing and other revenues, which carry higher gross profit. Gross profit increased as a percent of net revenues from 42.5% for the nine months ended December 31, 1994 to 61.2% for the nine months ended December 31, 1995. The increase in gross margin over this period was primarily due to the overall shift in the Company's product mix from cartridge-based set-top products to CD-based desk-top products. Operating Expenses
Quarter Ended December 31, Nine Months Ended December 31, ---------------------------------------------------------- 1995 1994 1995 1994 ---------------------------------------------------------- % of Net % of Net % of Net % of Net Amount Revenues Amount Revenues Amount Revenues Amount Revenues Product development $4,163 23.7% $2,247 8.6% $12,807 32.2% $5,315 15.6% Sales and marketing 3,200 18.2% 5,566 21.3% 9,290 23.4% 8,187 24.0% General and administrative 1,190 6.8% 871 3.3% 3,332 8.4% 2,288 6.7% Amortization of intangible assets 321 1.8% 321 1.2% 963 2.4% 963 2.8% ------------------------------------------------------------- $ 8,874 50.5% $9,005 34.4% $26,392 66.4% $16,753 49.1% ======= ======= ====== ======= ======= ======== ====== ======
Product development expenses increased due to the continued growth of the Company's product development departments, the increased number of products in product development and the increase in costs associated with enhanced production content and new technologies incorporated into such products. Approximately $3,507,000 and $8,249,000 of product development expenses for the quarter and nine months ended December 31, 1995, respectively, relate to products which will be released in subsequent periods. Sales and marketing expenses decreased for the quarter as a result of a reduction in broadcast advertising, although such reduction was partially offset by the growth of the sales and marketing departments. General and administrative expenses increased due to an increase in head count related expenses as compared to the same period in the prior year. Amortization of intangible assets represents the amortization of the excess purchase price over identifiable assets acquired from the acquisition of Disc Company, Inc. on April 1, 1992 and the amortization of capitalized reorganization costs. Other Income (Expense) Interest income, net, was $409,000 and $1,343,000 for the quarter and nine months ended December 31, 1995, respectively, compared to approximately $414,000 and $1,151,000 for the quarter and nine months ended December 31, 1994. The decrease for the quarter ended December 31, 1995 was due to lower average cash balances during the period as a result of the Company's purchases of its common stock in the open market in December 1995, while the increase for the nine months ended December 31, 1995 was due to the higher yields earned on cash and cash equivalents. Provision for Income Taxes Income taxes represent foreign taxes withheld which may be available in the future as tax credits against future tax liability. In addition, the Company has significant net operating losses which may be carried forward against a portion of future taxable income for both federal and state tax purposes. SEASONALITY The Company's quarterly operating results have in the past varied significantly and will likely in the future vary significantly depending on a variety of factors, many of which are not under the Company's control. For example, net revenues may be higher during the fourth calendar quarter as a result of increased demand for consumer software during the year-end holiday buying season. Net revenues in other quarters can vary significantly as a result of the timing of new product introductions. Products are generally shipped as orders are received, and consequently the Company operates with little or no backlog. Net revenues in any quarter are therefore substantially dependent on orders booked and shipped in that quarter. The Company's expense levels are based in large part on the Company's product development and marketing budgets. The majority of product development and marketing costs are expensed as incurred, which is often before a product is ever released. As the Company increases its development and marketing activities, current expenses will increase and, if sales from previously released products are below expectations, net income is likely to be disproportionately affected. Due to all of the foregoing, revenues and operating results for any future quarter are not predictable with any significant degree of accuracy. Accordingly, the Company believes that period- to-period comparisons of operating results are not necessarily meaningful and should not be relied upon as indications of future performance. LIQUIDITY AND CAPITAL RESOURCES On January 31, 1994, the Company completed a private placement of approximately 5,000,000 shares of its common stock. The net proceeds from this private placement, approximately $39.5 million, together with funds from operations, have been the Company's primary source of liquidity for the fiscal year ended March 31, 1995 and for the current fiscal year. At December 31, 1995, the Company had a balance of approximately $28.1 million of cash and cash equivalents. The Company uses its working capital to finance ongoing operations, including acquisitions of inventory and equipment, to fund the development, production, marketing and selling of new products, and to obtain intellectual property rights for future products from third parties. The Company's working capital decreased $6.6 million from March 31, 1995 to December 31, 1995 as a result of the Company's purchases of its common stock in the open market in the amount of $5.3 million, the funding of the Company's expanding operations and additional capital expenditures. At December 31, 1995, net accounts receivable and inventories were $14.2 million, an increase of $6.7 million from $7.5 million as of March 31, 1995. The increase is due primarily to an increase in the Company's product sales in the third quarter of the fiscal year as compared to the quarter ended March 31, 1995. As of December 31, 1995, total accounts payable and accrued liabilities were approximately $10.7 million versus $5.7 million at March 31, 1995. The increase at December 31, 1995 is related to the the increase in cost of goods sold as well as operating expenses related to the increase in the Company's product sales in the third quarter of the current fiscal year. Management believes that the Company's existing capital resources are sufficient to meet its current operational requirements for the foreseeable future. The Company's management currently believes that inflation has not had a material impact on continuing operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 13, 1996 ACTIVISION, INC. /S/Robert A. Kotick Chairman, Chief Executive February 13, 1996 (Robert A. Kotick) Officer (Principal Executive Officer) and Director /S/Brian G. Kelly Chief Operating and Financial February 13, 1996 (Brian G. Kelly) Officer and Director (Principal Financial Officer) /S/Barry J. Plaga Chief Accounting Officer February 13, 1996 (Barry J. Plaga) (Principal Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 0000718877 ACTIVISION, INC. 3-MOS MAR-31-1996 DEC-31-1995 28,077 0 19,259 7,684 2,670 46,566 5,212 (2,248) 69,660 12,471 0 0 0 0 56,694 69,660 17,578 17,578 7,131 7,131 8,874 0 0 1,982 34 1,948 0 0 0 1,948 .13 .13
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