Activision 2Q sales top expectations

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Activision Inc. said Wednesday its second-quarter sales fell 15% from last year, but surpassed the company's own guidance and analysts' expectations. The video game publisher also said an internal review of its past practices regarding stock options indicates that grant dates may have been manipulated.

Revenue for the quarter dropped to $188.2 million from $222.5 million last year.

Sales in the second quarter easily topped the company's August forecast of $130 million. The mean estimate from a Thomson Financial poll was for sales of $134.7 million. Activision shares rose $1.14, or 8%, in after-hours trading after closing down 56 cents, or 3.8%, to $14.27 on the Nasdaq.

Activision, whose games include "Doom" and the "Tony Hawk" series, said it would be unable to release full second-quarter results until it completes a review of its historical stock option grants.

Activision is one of at least 94 companies under review by federal regulators for possibly backdating stock option grants and misstating expenses related to those grants in its financial results. At issue in many of the investigations is a practice known as backdating. Stock options are issued retroactively to coincide with low points in a company's share price, potentially fattening profits for options recipients when they sell their shares at higher market prices.

If they aren't properly disclosed, backdated options can falsely inflate corporate profits and result in an underpayment of taxes.

Looking forward, Activision increased its 2007 sales outlook to $1.15 billion, up from $1.08 billion, based on better-than-expected sales. Analysts expect $1.09 billion in revenue.

The company believes better sales in the third quarter and full year may be offset by higher legal expenses related to the options probe, as well as the delayed European release of Sony's Playstation 3 system until March 2007.

For 2008, the company backed previous guidance for $1.6 billion in sales. Wall Street is currently looking for $1.64 billion in revenue.

Shares of Activision were trading at $15.25 in the after-hours session, up 98 cents, or 6.9%, from Wednesday's closing price of $14.27 on the Nasdaq.
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