2K Sports 2003 Annual Report Download - page 34

1. DESCRIPTION OF THE BUSINESS
Take-Two Interactive Software, Inc. (the “Company”) was incorpo-
rated in the State of Delaware in September 1993. The Company
develops interactive software games designed for PCs, video game
consoles and handheld platforms and publishes games developed
internally and by third parties. The Company also distributes games
for video game consoles and handheld platforms published internally
and by third parties, as well as hardware and accessories manufac-
tured by third parties.
2. RESTATEMENT OF FINANCIAL STATEMENTS
The Company restated its previously issued financial statements
for the fiscal years ended October 31, 2000 (not presented herein),
2001 and 2002 to reflect its revised revenue recognition policy. Under
this policy, the Company recognizes as a reduction of net sales a
reserve for estimated future price concessions in the period in which
the sale is recorded. Measurement of the reserve is based on, among
other factors, an historical analysis of price concessions, an assess-
ment of field inventory levels and sell-through for each product,
current industry conditions and other factors affecting the estimated
timing and amount of concessions management believes will be
granted. The Company previously recognized price concession
reserves in the period in which it communicated the price concessions
to its customers. The Company also restated its financial statements
for the years ended October 31, 2000 and 2001 to increase its provi-
sion for returns at October 31, 2000 by approximately $4.9 million for
certain sales transactions primarily to retail customers in fiscal 2000,
and to reflect the fiscal 2001 returns as a reduction of the revised
October 31, 2000 reserve for returns rather than the previously
reported reduction of sales in fiscal 2001. Additionally, fiscal 2000 and
2001 revenues were restated for approximately $0.2 million to adjust
for sales cut-off transactions at the end of fiscal 2000. The impact of
these changes on opening retained earnings as of November 1, 2000
was $2.6 million. See Note 19.
The Company’s 2002 financial statements have been restated
as follows:
Year Ended October 31, 2002
Statement of Operations Data: As Reported As Restated
Net sales $793,976 $794,676
Product costs $410,118 $411,518
Royalties $ 80,774 $ 80,442
Cost of sales $499,016 $500,084
Gross profit $294,960 $294,592
Depreciation and amortization $ 11,187 $ 10,829
Income from operations $122,715 $122,705
Income before provision for income taxes $120,948 $120,938
Provision for income taxes $ 49,383 $ 49,375
Net income $ 71,565 $ 71,563
Basic net income per share $ 1.88 $ 1.88
Diluted net income per share $ 1.81 $ 1.81
As of October 31, 2002
Balance Sheet Data: As Reported As Restated
Accounts receivable, net* $107,188 $105,576
Prepaid royalties, current $ 13,723 $ 14,215
Deferred tax asset $ 5,392 $ 6,245
Total current assets $328,632 $328,365
Total assets $491,707 $491,440
Accrued expenses and other current liabilities* $ 49,821 $ 50,698
Income taxes payable $ 1,603 $ 1,357
Total current liabilities $131,179 $131,810
Retained earnings $ 87,804 $ 86,906
Total liabilities and stockholders’ equity $491,707 $491,440
* Restated amounts reflect a reclassification relating to the presentation of
allowances.
The Company’s Consolidated Statement of Operations for the
year ended October 31, 2001 has been restated as follows:
Year Ended October 31, 2001
Statement of Operations Data: As Reported As Restated
Net sales $448,801 $451,396
Product costs $283,522 $282,279
Royalties $ 18,573 $ 19,875
Cost of sales $306,264 $306,323
Gross profit $142,537 $145,073
Income from operations $ 25,841 $ 28,377
Loss before benefit for income taxes and
cumulative change in accounting principle* $ (6,660) $ (4,124)
Benefit for income taxes* $ (3,417) $ (2,450)
Net loss before cumulative change
in accounting principle $ (3,243) $ (1,674)
Cumulative change in accounting principle $ (5,337) $ (5,244)
Net loss $ (8,580) $ (6,918)
Basic net loss per share $ (0.25) $ (0.20)
Diluted net loss per share $ (0.25) $ (0.20)
* As required by Statement of Financial Accounting Standards No. 145, “Rescis-
sion of FASB Statements No. 4, 44 and 64, Amendment to FASB Statement No.
13, and Technical Corrections”, the $1,948 net loss on extinguishment of debt
for the year ended October 31, 2001, previously classified as an extraordinary
item, has been reclassified in the As Reported column in the above table as
follows: $3,165 of loss on extinguishment to non-operating expenses and
$1,217 of tax benefit to benefit for income taxes.
All applicable amounts relating to the aforementioned restate-
ments have been reflected in these consolidated financial statements
and notes thereto.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the financial state-
ments of the Company and its wholly owned subsidiaries and for enti-
ties for which the Company is deemed to be the primary beneficiary
as defined in FASB Interpretation No. 46, “Consolidation of Variable
Interest Entities.” All material intercompany balances and transactions
have been eliminated in consolidation.
TAKE-TWO INTERACTIVE SOFTWARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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