2K Sports 2004 Annual Report Download - page 49

1. DESCRIPTION OF THE BUSINESS
Take-Two Interactive Software, Inc. (the “Company”) was incorporated 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 manufactured by third parties.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the financial statements of the Company and its wholly-owned
subsidiaries and for entities for which the Company is deemed to be the primary beneficiary as defined in
FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”. All material inter-company
balances and transactions have been eliminated in consolidation.
Certain amounts in the financial statements of the prior years have been reclassified to conform to the current
year presentation for comparative purposes.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of net sales and expenses during the reporting periods. The
most significant estimates and assumptions relate to the recoverability of prepaid royalties, capitalized
software development costs and intangibles, valuation of inventories, realization of deferred income taxes
and the adequacy of allowances for returns, price concessions and doubtful accounts. Actual amounts could
differ significantly from these estimates.
Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, approximates fair value because of their short maturities.
The carrying amount of prepaid royalties and capitalized software costs approximates fair value based upon
the recoverability of these assets.
The Company considers all highly liquid instruments purchased with original maturities of three months or
less to be cash equivalents.
The Company transacts business in various foreign currencies and has significant sales and purchase
transactions denominated in foreign currencies. The Company uses forward exchange contracts to mitigate
foreign currency risk associated with foreign currency assets and liabilities, primarily certain intercompany
receivables and payables. The Company does not designate foreign currency forward contracts as hedging
instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. As a
result the Company marks to market its foreign currency forward contracts each period and any gains and
losses are recognized in net income. At October 31, 2004, the Company has forward contracts to buy British
pounds through February 15, 2005. The notional value and fair value of such contracts were $8,002 and
$8,553, respectively.
Concentration of Credit Risk
A significant portion of the Company’s cash balance is maintained with several major financial institutions.
While the Company attempts to limit credit exposure with any single institution, there are times that balances
will exceed insurable amounts.
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
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