Take-Two Interactive Software, Inc. Announces Fourth Quarter and
Fiscal
Year
End 2001 Financial Results and Fiscal 2002 Guidance
Company Restates Fiscal 2000 and First Three
Quarters of
Fiscal 2001
Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
today announced
the following:
Restatement of Historical Financial Statements
Based on the Company's completion of a detailed
review of certain
transactions and accounting policies, as
well as an investigation by
counsel and a forensic accounting
team, the Company has restated its
financial results for the four quarters
and fiscal year ended October
31, 2000
and each of the first three quarters of fiscal 2001.
The restatement relates to adjustments arising
from: (i) revenue
recognition issues; (ii) acquisition accounting;
and (iii) the
prepayment of debt. A summary of the
effect of the restatement is set
forth in the tables below:
(In thousands, except per share
data)
Year Ended Nine Months Ended
--------------------------------------------------
Reported Restated Reported Restated
Statement of
Operations Data:
Net sales $387,006 $364,001 $309,048 $327,797
Income from
operations $45,061 $33,309 $23,610 $35,555
Net income (loss) $24,963 $6,417 $(3,765) $(3,275)
Diluted net income
(loss) per share $0.88 $0.23 $(0.11) $(0.10)
Pro Forma Net Income:
Net income excluding:
operating Internet
impairment charges,
non-operating and
extraordinary items
and cumulative
effect(1) $25,436 $17,750 $12,557 $18,822
Diluted net income per
share excluding:
operating Internet
impairment charges,
non-operating and
extraordinary items
and cumulative
effect(1)(2) $0.90 $0.63 $0.37 $0.55
(In thousands, except
per share data) Net Sales Net Income (Loss)
Reported Restated
Reported Restated
----------------------------------------------
Year Ended October
31, 2000
First Quarter $122,890 $120,247
$4,787 $3,966
Second Quarter 70,036 69,519 3,354
(8,460)
Third Quarter 71,473 66,093 3,449 2,221
Fourth Quarter 122,607 108,142
13,373 8,690
Nine Months Ended
First Quarter $131,226 $157,853
$7,750 $8,232
Second Quarter 93,320 88,617
(11,924) (11,636)
Third Quarter 84,502 81,327 409
129
Diluted Net Income
Pro Forma Net Income
(Loss) Per Share
(Loss) Per Share
(1)(2)
Reported Restated Reported Restated
------------------------------------------------
Year Ended
First Quarter $0.20 $0.16 $0.20 $0.17
Second Quarter 0.13 (0.33) 0.14 0.14
Third Quarter 0.12 0.07 0.12 0.07
Fourth Quarter 0.42 0.27 0.42 0.25
Nine Months Ended
First Quarter $0.24 $0.25 $0.24 $0.41
Second Quarter (0.37) (0.36) 0.12 0.12
Third Quarter 0.01 0.00 0.04 0.04
----------------------------------------------------------------------
(1) Pro Forma Net Income is calculated as follows:
Net Income less
the following line items, tax
effected: Cumulative Effect of Change in
Accounting Principle, Extraordinary
Item, Gain on
Loss on Available-for-Sale
Internet Securities, Equity in Loss of
Affiliate, and $4.2 million of operating
expenses for the Impairment
of Certain Internet Assets in
fiscal 2001. See attached table of
Reconciliation
of Net Income to Pro Forma Net Income.
(2) In addition, fiscal 2001 restated first
quarter results
include net sales of $27.2 million
and income from operations of $8.9
million attributable to the adoption
of SAB 101. Such net sales and
income from operations were also
recorded in the fourth quarter of
fiscal 2000. Restated Pro Forma Net
Income for the first quarter and
first nine months of fiscal 2001
would have been $0.25 and $0.39 per
diluted share, respectively, inclusive
of Cumulative Effect of Change
in Accounting Principle.
----------------------------------------------------------------------
Based on the completion of an investigation
by counsel and a
forensic accounting team, the Company
has eliminated sales of products
made to certain independent third-party
distributors that were
improperly recognized as revenue and
returned to, or repurchased by,
the Company in subsequent periods,
resulting in an aggregate decrease
in net sales of $15.4 million
and diluted net income per share of
$0.15 for
fiscal 2000.
For the first nine months of fiscal 2001, net
sales decreased by $6.7 million;
however, net income increased by $2.4
million and diluted net income per
share increased by $0.07 as a
result of adjusting previously reported
cost of sales.
Additionally, the Company has restated the
following items as a
result of its expanded year-end review
of its accounting policies and
other transactions:
-- The reversal of revenue that was previously
recognized for
items that had
not shipped within the fourth quarter of fiscal
2000, resulting in a shifting in net sales
of $3.8 million and
diluted net income
per share of $0.03 from the fourth quarter
of fiscal 2000
to the first quarter of fiscal 2001.
-- The effect of the adoption of SAB 101
for revenue recognition
in the first
quarter of 2001 to recognize revenue when both
title and all
risks of loss transfer to customers, resulting
in an increase
in net sales of $27.2 million for the first
quarter of fiscal
2001, an increase in income from operations
of $8.9 million
($5.3 million net of tax) and no change in net
income.
-- A non-cash adjustment to record the Company's
proportionate
share of the
GAAP losses incurred by
prior to their
acquisition by the Company. In accordance with
EITF 99-10, the Company was required to
record its share of
Gathering's GAAP losses based on the Company's
distribution
and royalty advances
to Gathering, in addition to its equity
ownership share
of the losses. This resulted in a charge of
$19.2 million ($12.1 million net of tax),
representing a net
loss of $0.43
per diluted share, for the year ended October
31, 2000.
-- A $4.3 million decrease in net sales
and a $0.06 decrease in
diluted earnings
per share due to certain other reallocations
of purchase price
related to acquisitions made by the Company
in fiscal 2000
and 2001, net of benefits realized through the
reduction of
amortization expense for these entities in both
fiscal 2000 ($2.6
million) and 2001 ($1.7 million).
-- An additional charge of $438,000, net
of tax, or $0.01 per
diluted share,
to the extraordinary charge previously recorded
related to the
repayment of the Company's subordinated
indebtedness
in July 2001.
Set forth below are the results of operations
for the fourth
quarter and fiscal year ended
guidance for fiscal 2002. In addition,
all financial data in this
release reflects the effects of this
restatement.
Fourth Quarter and Fiscal Year Ended
Net sales for the fourth quarter ended
$123.3 million,
with a net loss of $5.3 million, or $0.15 per share.
Excluding the loss on available-for-sale
Internet securities, net loss
for the fourth quarter of fiscal
2001 was $4.9 million, net of tax, or
$0.13 per
share.
The fourth quarter results reflect the shift of $17
million in net sales and $0.11 in
diluted earnings per share from the
fourth quarter of fiscal 2001 to
the first quarter of fiscal 2002 for
products shipped in October 2001 but
not received by customers until
November 2001.
Net sales for the fiscal year ended
million, with a net loss of $8.6 million,
or $0.25 per share. Fiscal
2001 results include the effect
of the Company's adoption of SAB 101,
whereby revenue is recognized when
both title and all risks of loss
transfer to customers, resulting in
an increase in net sales of $27.2
million for the first quarter of fiscal
2001, an increase in income
from operations of $8.9 million
(cumulative effect, net of taxes, of
$5.3 million)
and no change in net income. Excluding operating
Internet impairment charges,
non-operating and extraordinary items and
cumulative effect of change in accounting
principle, pro forma tax
effected net income was $14.0 million,
or $0.40 per diluted share for
fiscal 2001.
Guidance
The Company expects that during fiscal 2002
it will benefit from
strong industry fundamentals, including
continued demand for Sony's
PlayStation(R)2, Microsoft's Xbox and Nintendo's
GameCube.
The Company's fiscal 2002 financial guidance
is $660 million in
net sales and $1.63 of diluted
earnings per share, including the
effect of adopting SFAS 142 "Amortization
of Goodwill and Other
Intangibles," which no
longer requires amortization of goodwill
(approximately
$0.14 per share for fiscal 2002).
The Company expects to report $280 million
in net sales and $0.90
of diluted earnings per share
in the first quarter ended January 31,
2002, including
the effect of adopting SFAS 142. Profitability in the
first quarter was significantly
enhanced by the success of Grand Theft
Auto 3, which
is an internally developed and owned title. The first
quarter estimated results include
the shift of $17 million in net
sales and $0.11 in diluted earnings
per share from the fourth quarter
of fiscal 2001 to the first quarter
of fiscal 2002 for products
shipped in October 2001 but not received
by customers until November
2001.
The Company's guidance for the second quarter
ending April 30,
2002 is $125 million in net
sales and $0.23 of diluted earnings per
share, including the effect of adopting
SFAS 142.
Liquidity
The Company operated on a cash flow positive
basis for the year
ended
positive cash flow from operations,
as compared to a deficit of $54
million for fiscal 2000, with approximately
$3 million in operating
cash flow generated during the
fourth quarter of fiscal 2001. The
Company expects to generate
positive cash flow for fiscal 2002. DSO's
at
2000.
The Company's total debt level at
approximately $54 million, a significant
decrease from historical
levels. The Company had no borrowings
under its lines of credit as of
approximately $95 million at
Subsequent to
of credit with its principal
lender in
borrowings scaling up to $50 million.
The Company is also in the
process of extending its European
line of credit, which expires in
March 2002. On a going forward
basis, the Company expects to operate
with substantially reduced borrowings
as it continues to focus on
improved capital efficiency.
Paul Eibeler, President,
commented, "Take-Two is currently
experiencing much improved liquidity. The
retail success of our
products in both
improved cash management and limited
use of debt based financing has
resulted in the Company achieving its
strongest working capital levels
in history."
Published Products
During the fourth quarter of fiscal 2001, the
Company launched
Grand Theft Auto 3 for Sony's
PlayStation(R)2. According to
NPDFunworld, Grand Theft Auto 3 was ranked
the number one selling
video game across all platforms
in
selling video game across all platforms
in the
same period, according to ChartTrack. During the quarter, the Company
also shipped Smuggler's Run 2 for
PlayStation(R)2, 4x4 Evo 2 for the
Xbox, Stronghold for the PC, and
Spec Ops: Covert Assault for its
value line of PlayStation products.
In December, the Company shipped Max Payne
for the PlayStation(R)2
and Xbox
in
these next-generation platforms
and on the PC.
The Company's product release schedule for
Spring/Summer is
extremely promising, including the highly
anticipated State of
Emergency scheduled to launch
for PlayStation(R)2 in mid February,
Grand Theft Auto 3, Hidden
& Dangerous 2 and Mafia for the PC, Spec
Ops: Airborne Assault for the
PlayStation, and Smuggler's Run 2 for
the GameCube.
Fall/Winter product releases are expected to
include new titles
for the Company's Grand Theft
Auto and Midnight Club brands, as well
as the launch of MTV's Celebrity
Deathmatch.
The Company also continues to look forward
to the release of Duke
Nukem' Forever for PC, but this
title is not factored into the
Company's
fiscal 2002 guidance.
Going forward, the Company plans to launch
new brands, and
continue to aggressively develop brand
extensions for Max Payne,
Smuggler's Run, Serious Sam,
Austin Powers and Oni, as well as
additional extensions for Grand Theft
Auto and Midnight Club.
Distribution
During fiscal 2001, the Company's Jack of All
Games distribution
subsidiary benefited from the sustained
overall strength of the
interactive entertainment sector, and
in particular, from the
continuing strong demand for PlayStation
and PlayStation(R)2 hardware
and software.
Additional Information
The Company announced that it has hired Karl
Winters as its Chief
Financial Officer to replace
Albert Pastino, who resigned due to
personal reasons. Mr. Pastino has agreed to serve as a special
consultant to the Audit Committee for
a limited time.
Mr. Winters, who is a CPA and holds an MBA,
has served in a
variety of senior financial positions
over the last 18 years,
including Chief Financial Officer of
United Auto Group. His experience
also includes 10 years in Coopers
& Lybrand's auditing area, with a
focus on consumer product companies.
During his tenure at Coopers &
Lybrand, Mr. Winters served in a two-year
management assignment at the
firm's National Accounting and SEC
Directorate office.
The Securities and Exchange Commission has
issued a formal order
of investigation into, among
other things, certain accounting matters
relating to the Company's financial
statements, periodic reporting and
internal accounting control provisions.
Management Comments
Paul Eibeler, President,
commented, "While our fiscal 2001
operating results did not meet our expectations,
we are encouraged by
the Company's momentum, evidenced
by our number three ranking among
third-party video game publishers in
to NPDFunworld.
The success of our publishing operations has enabled
us to make significant balance
sheet and cash flow improvements."
Kelly Sumner, Chief Executive Officer, stated,
"We would like to
extend our sincerest apologies for
the halt in trading of our stock,
and any inconvenience caused by
the postponement of our conference
call originally scheduled for
events that caused the Company to
restate its financial statements,
and we are highly committed to
taking every appropriate action to
ensure that such events will not
happen in the future."
Mr. Sumner added, "The increasing installed
base of
next-generation console platforms, broadening
gamer demographics,
continued strength of our catalog products
and anticipated demand for
our new products, such as State
of
Grand Theft Auto 3 for the
PC, have given the Company an exceptional
start for 2002. These factors should
result in additional improvements
in our operating results and
overall financial condition. Furthermore,
we believe that Karl Winters,
our new Chief Financial Officer, will
provide the financial expertise and
discipline that is required to
manage our rapidly growing company."
About Take-Two Interactive Software
Headquartered in
Inc. is an integrated global
developer, marketer, distributor, and
publisher of interactive entertainment
software games and accessories
for the PC, PlayStation(R), Nintendo
Game Boy Color, Nintendo
GameCube, Nintendo Game Boy Advance,
PlayStation(R)2 and the Xbox(TM).
The Company publishes and develops
products through various wholly
owned subsidiaries including: Rockstar
Games,
TalonSoft, Joytech, DMA Design, PopTop, Global
Star and under the
Take-Two
brand name.
The Company maintains sales and marketing offices
in
publicly traded on NASDAQ under the
symbol TTWO. For more corporate
and product information please
visit our website at
www.take2games.com.
All trademarks and copyrights contained herein
are the property of
their respective holders.
1995: The statements contained
herein which are not historical facts
are considered forward-looking
statements under federal securities
laws. Such forward-looking statements
are based on the beliefs of our
management as well as assumptions made
by and information currently
available to them. The words "expect,"
"anticipate," "believe," "may,"
"estimate,"
"intend" and similar expressions are intended to identify
such forward-looking statements.
Forward-looking statements involve
risks, uncertainties and assumptions
including, but not limited to:
risks associated with our future
growth and operating results; our
ability to continue to successfully
manage growth and integrate the
operations of acquired businesses; the
availability of adequate
financing to fund periodic cash flow
shortages; credit risks; seasonal
factors; inventory obsolescence; technological
change; competitive
factors; product returns; failure
of retailers to sell-through our
products; the timing of the introduction
and availability of the
company's new software products and
third-party hardware platforms;
market and industry factors adversely
affecting the carrying value of
our assets; unfavorable general
economic conditions (including the
current economic downturn); and acts
of war and terrorism, any or all
of which could have a material
adverse effect on our business,
operating results and financial condition.
Actual operating results
may vary significantly from such
forward-looking statements. The
Company has no obligation to
update such forward-looking statements.
TAKE-TWO INTERACTIVE SOFTWARE,
INC. and SUBSIDIARIES
Consolidated Condensed Statements
of Operations
For the three months ended
and the year ended
(In thousands, except share
data)
Three months
Year Ended
ended October 31, October
31,
2001 2000
2001 2000
(Restated) (Restated)
--------- ---------
--------- ---------
Net sales $ 123,259 $ 108,142 $ 451,056 $
364,001
Cost of sales (includes
impairment charge on
Internet assets of
$3,786 for the year ended
------- ------- -------
-------
Gross profit 27,221 34,795 144,792
128,023
------- ------- -------
-------
Operating expenses:
Selling and marketing
(includes impairment
charge on Internet
assets of $401 for the
year ended
General and administrative
13,952 10,683
44,867 36,409
Research and development costs
1,205 1,022
6,190 5,668
Depreciation and amortization
3,411 1,845
12,641 8,680
Abandoned offering costs
- - -
1,103
------- ------- -------
-------
Total operating expenses
36,935 22,161 118,951
94,714
(Loss)income
from operations (9,714) 12,634 25,841
33,309
Interest expense 1,261 1,553
8,510 6,069
Gain on sale of subsidiary
- (1,690)
(651) (1,690)
Loss on available-for-sale
Internet securities 723 -
21,477 -
Equity in loss of affiliate
- - -
19,969
------- ------- -------
-------
Total interest expense, gain
on sale, loss on securities,
and equity in loss of
affiliate 1,984 (137) 29,336
24,348
(Loss) income before income
taxes, extraordinary
item and
cumulative effect of
change
in accounting principle
(11,698) 12,771 (3,495)
8,961
(Benefit) provision
for income taxes (6,393) 4,081 (2,200)
2,544
------- ------- -------
-------
(loss)
income before
extraordinary item
and cumulative effect
of change in
accounting principle
(5,305) 8,690 (1,295)
6,417
Extraordinary item, loss
on early extinguishment
of
debt, net of taxes of
$1,217 - -
1,948 -
Cumulative effect of change
in accounting principle,
net of taxes of $3,558
- -
5,337 -
-------- -------- --------
--------
Net (Loss) income $ (5,305) $ 8,690 $ (8,580) $
6,417
======== ======== ========
========
Per share data:
Diluted:
Weighted average
common shares outstanding
36,521 32,158
33,961 28,330
======== ======== ========
========
Net (Loss) income before
extraordinary item per
share $ (0.15) $ 0.27 $
(0.04) $ 0.23
Extraordinary item per share
- -
(0.06) -
Cumulated effect of change
in
accounting principle
per share - -
(0.16) -
Net (loss) income
-------- -------- --------
--------
per share - Diluted
$ (0.15) $ 0.27 $
(0.25) $ 0.23
======== ======== ========
========
OTHER INFORMATION Three months Year Ended
ended October 31, October
31,
2001 2000
2001 2000
------ ------
------ ------
Total revenue mix
Distribution 44% 53% 46% 49%
Publishing 56% 47% 54% 51%
Geographic revenue mix
International 33% 15% 24% 28%
Publishing platform revenue
mix
Video Game Consoles 66% 69% 58% 51%
Nintendo Color Gameboy 3%
5% 2% 7%
PC 28% 25% 35% 37%
Accessories 3% 1% 5% 5%
Reconciliation of Net Income
to Pro Forma Net Income
Year ended Nine Months ended
----------------- -------------------
As Reported Restated As Reported Restated
Net income (loss) $24,963 $6,417 $(3,765) $(3,275)
Exclude items to be
tax-effected:
Impairment charge
of Internet assets
recorded in
cost of sales - - 3,786 3,786
Impairment charge of
Internet assets
recorded in
selling &
marketing - - 401 401
Gain on sale of
subsidiary - (1,690) - -
Loss on
available-for-sale
Internet securities - - 20,754 20,754
Equity in loss
of affiliate 763 19,969 - -
-----------------------------------------------
Total 763 18,279 24,941 24,941
Pro Forma effective
tax rate 38% 38% 38% 38%
Total exclusions
after tax 473 11,333 15,463 15,463
Additional items to be
excluded, already
presented
tax-effected:
Gain on sale of
subsidiary, recorded
free of tax - - (651) (651)
Extraordinary item, loss
on early extinguishment
of debt, net
of taxes - - 1,510 1,948
Cumulative effect
of change in
accounting principle,
net of taxes - - - 5,337
Pro Forma net income
excluding after-tax
operating Internet
impairment charges,
non-operating and
extraordinary items
and cumulative effect
of change in
accounting
principle $25,436 $17,750 $12,557 $18,822
Weighted average common
shares outstanding
- Diluted
28,330 28,330 34,285 34,285
==================================================
Pro Forma net income
per share excluding
after-tax operating
Internet impairment
charges, non-operating
and extraordinary
items and cumulative
effect of change
in accounting
principle - Diluted
$0.90 $0.63 $0.37 $0.55
=================================================
TAKE-TWO INTERACTIVE SOFTWARE, INC. and
SUBSIDIARIES
Consolidated Condensed Balance
Sheets
As of
(In thousands, except share
data)
October
31,October 31,
2001 2000
Restated
----------
---------
ASSETS:
Current assets:
Cash and cash equivalents
$ 6,056 $ 5,245
Accounts receivable, net of
provision
for doubtful accounts
and sales
allowances of $26,106
and $11,615 at
Inventories, net 61,937
53,798
Prepaid royalties 21,892 24,093
Prepaid expenses and other
current assets 17,925 10,386
Investments 6,241
2,926
Deferred tax asset 13,873 9,243
---------
---------
Total current assets 222,874 216,474
Property and equipment, net
11,033 5,260
Prepaid royalties 11,097 1,303
Capitalized software development
costs, net 11,934
9,613
Investments 75 28,487
Intangibles, net 88,175
66,562
Deferred tax asset 7,892 -
Other assets 1,917
2,558
---------
---------
Total assets $ 354,997
$ 330,257
=========
=========
LIABILITIES and STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable $ 60,223 $ 46,566
Accrued expenses 20,250
16,189
Lines of credit 54,073
84,605
Current portion of capital
lease obligation 99 89
---------
---------
Total current liabilities
134,645 147,449
Capital lease obligation, net
of current portion 291 348
Loan payable, net of discount
- 12,268
---------
---------
Total liabilities 134,936 160,065
---------
---------
Stockholders' equity
Common stock, par value $.01
per share;
50,000,000 shares authorized; 36,640,972,
and 31,172,866 shares
issued and outstanding
at
Additional paid-in capital 213,908 157,738
Deferred compensation - (5)
Retained earnings 16,239 24,819
Accumulated other comprehensive
loss (10,452) (12,672)
---------
---------
Total stockholders' equity
220,061 170,192
---------
---------
Total liabilities and stockholders'
equity $ 354,997 $ 330,257
=========
=========