2K Sports 2004 Annual Report Download - page 56

In November 2002, the Company acquired all of the outstanding capital stock of Angel Studios, Inc.
(“Angel”), the developer of Midnight Club and Smuggler’s Run. The purchase price consisted of 235,679
shares of restricted common stock (valued at $6,557), $28,512 in cash and $5,931 (net of $801 of royalties
payable to Angel) of prepaid royalties previously advanced to Angel. In connection with the acquisition, the
Company recorded identifiable intangibles of $4,720 (comprised of intellectual property of $2,810, technology
of $1,600 and non-competition agreements of $310), goodwill of $37,425 and net liabilities of $1,145.
2002 Transaction
In August 2002, the Company acquired all of the outstanding capital stock of Barking Dog Studios Ltd.
(“Barking Dog”), a Canadian-based development studio. The purchase price consisted of 242,450 shares of
restricted common stock (valued at $3,801), $3,000 in cash, $825 of prepaid royalties previously advanced to
Barking Dog and assumed net liabilities of $70. In connection with the acquisition, the Company recorded
identifiable intangibles of $1,800, comprised of non-competition agreements of $1,600 and intellectual
property of $200, and goodwill of $6,772.
4. PREPAID ROYALTIES
The following table provides the details of total prepaid royalties:
Years Ended October 31,
2004 2003 2002
Balance, November 1 ................................................. $ 20,635 $ 26,418 $ 33,149
Additions ............................................................. 66,055 30,034 28,555
Amortization .......................................................... (39,114) (19,065) (21,238)
Reclassification ....................................................... — (7,251) 1,419
Write down ........................................................... (5,752) (9,525) (15,126)
Foreign exchange ..................................................... 378 24 (341)
Ending balance ....................................................... 42,202 20,635 26,418
Less current balance ................................................... 38,220 12,196 14,215
Balance, October 31 .................................................. $ 3,982 $ 8,439 $ 12,203
Included in prepaid royalties at October 31, 2004 and 2003, respectively, are $35,124 and $14,241 related to
titles that have not been released yet.
The reclassification for the year ended October 31, 2003 principally reflects the transfer of prepaid royalties
paid to Angel Studios, Inc. and Frog City, Inc. prior to their acquisition by the Company as a component of
the purchase price of the acquisitions.
5. INVENTORIES, NET
As of October 31, 2004 and 2003, inventories consist of:
2004 2003
Parts and supplies ................................................. $ 7,146 $ 4,793
Finished products ................................................. 147,199 96,955
Total .............................................................. $154,345 $101,748
Estimated product returns included in inventories at October 31, 2004 and 2003 are $7,371 and $8,706,
respectively. Allowances to reduce inventory amounts to net realizable value are $7,520 and $3,781 at
October 31, 2004 and 2003.
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
3. BUSINESS ACQUISITIONS AND CONSOLIDATION (Continued)
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