2K Sports 2003 Annual Report Download - page 44

12. LOSS ON EARLY EXTINGUISHMENT OF DEBT
In July 2000, the Company entered into a subordinated loan
agreement with Finova Mezzanine Capital Inc. in the principal amount
of $15 million. The loan was payable in full in July 2005, and bore
interest at the rate of 12.5% per annum. In July 2001, the Company
prepaid the outstanding subordinated loan and recorded a loss of
$3,165 related to the deferred financing costs and the unamortized
discount associated with the loan.
13. COMMITMENTS AND CONTINGENCIES
Capital Leases
The Company leases equipment under capital lease agreements,
which extend through fiscal year 2006. Future minimum lease pay-
ments under these capital leases, and the present value of such
payments as of October 31, 2003 are as follows:
Year ending October 31:
2004 $117
2005 74
2006 1
Total minimum lease payments 192
Less: amounts representing interest (16)
Present value of minimum obligations under capital leases $176
Lease Commitments
The Company leases 33 office and warehouse facilities. The
former corporate headquarters are leased under a non-cancelable
operating lease with a company controlled by the father of the
chairman of the board and expires in March 2004. Rent expense and
certain utility expenses under this lease amounted to $444, $403 and
$474, for the years ended October 31, 2003, 2002, and 2001, respec-
tively. The other offices are under non-cancelable operating leases
expiring at various times from December 2003 to October 2013. In
addition, the Company has leased certain equipment, furniture and
auto lease under non-cancelable operating leases which expire
through October 2007.
In September 2002, the Company relocated its principal executive
offices to 622 Broadway, New York, New York. The Company has
recently leased additional space at 622 Broadway to accommodate its
expanded operations. The Company estimates that as of October 31,
2003 it will incur an additional $1,200 in capital expenditures for con-
tinuing renovations and leasehold improvements for this space. In
connection with signing a ten year lease, the Company provided a
standby letter of credit of $1,560, expiring December 31, 2003. As a
result of the relocation, the Company recorded expenses of $363 and
$514 in fiscal 2003 and 2002, respectively, related to lease costs with
regard to the Company’s former executive offices.
Future minimum rentals required as of October 31, 2003 are as
follows:
Year ending October 31:
2004 $ 7,268
2005 5,657
2006 4,840
2007 4,221
2008 4,068
Thereafter 12,032
Total minimum lease payments 38,086
Less minimum rentals to be received under subleases (221)
$37,865
Rent expense amounted to $7,445, $5,090 and $3,353, for the
years ended October 31, 2003, 2002, and 2001, respectively.
Legal and Other Proceedings
The Company received a Wells Notice from the Staff of the
Securities and Exchange Commission stating the Staff’s intention to
recommend that the SEC bring a civil action seeking an injunction
and monetary damages against the Company alleging that it violated
certain provisions of the federal securities laws. The proposed
allegations stem from the previously disclosed SEC investigation into
certain accounting matters related to the Company’s financial state-
ments, periodic reporting and internal accounting controls. The
Company’s Chairman, an employee and two former officers also
received Wells Notices. The Company has entered into discussions
with the Staff to address the issues raised in the Wells Notice. The
SEC’s Staff also raised issues with respect to the Company’s revenue
recognition policies and its impact on its current and historical finan-
cial statements. The Company is unable to predict the outcome of
these matters.
The Company is involved in routine litigation in the ordinary
course of its business, which in management’s opinion will not have
a material adverse effect on the Company’s financial condition, cash
flows or results of operations.
Other
The Company periodically enters into distribution agreements to
purchase various software games that require the Company to make
minimum guaranteed payments. These agreements, which expire
between June 2, 2004 and March 22, 2005, require remaining aggre-
gate minimum guaranteed payments of $14,330 at October 31, 2003,
including $3,491 of payments due pursuant to an agreement with
TDK Mediactive, Inc. (“TDK”). These agreements are collateralized by
a standby letter of credit of $3,600 at October 31, 2003. Additionally,
assuming performance by third-party developers, the Company has
outstanding commitments under various software development
agreements to pay developers an aggregate of $27,224 during fiscal
2004. The Company also expects to spend an additional $4,000 in
connection with the implementation of accounting software systems
for its international operations and the upgrade for its domestic
operations.
TAKE-TWO INTERACTIVE SOFTWARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except per share amounts)
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