Take-Two Slumps To Major Loss On Restructuring Charges

Major game publisher Take-Two, which includes the 2K Games, Rockstar Games, Global Star and Jack Of All Games subsidiaries, has announced its financial results for its second quarter ended April 30, 2006, revealing somewhat higher revenues, but an overall $50.4 million loss, citing low margins and game cancellations as a major factor in the extremely disappointing results. Specifically, the company reports net revenues for the second quarter at $265.1 million, compared to $222.1 million for the same period in 2005. However, net loss for the quarter was $50.4 million or $0.71 per share, compared to a net loss of $8.2 million or $0.12 per share in the prior year's second quarter - analysts had been expecting just $0.11 per share loss for this latest quarter. Thus, while revenues for the second quarter of fiscal 2006 were up, Take-Two's profitability in the quarter was impacted by a variety of factors, including the significant percentage of publishing revenues from co-published and licensed titles (such as The Elder Scrolls IV: Oblivion, a major seller for the company), which generally have lower margins than internally owned, internally developed titles. While Take-Two admitted that strong sales of 2005's Grand Theft Auto: San Andreas made accurate comparison between this and the prior year difficult, the company nonetheless attributed the lower year to date results to continued retail weakness in both North America and Europe as the industry began to transition to new hardware platforms. In addition, second quarter results include an unexpected charge of $26.3 million, or $0.24 per share on a tax effected basis, due to the company's asset write-offs and studio closures, including Rockstar Vienna and Indie Built Studio in Salt Lake City, which were made "in an effort to better deal with difficult business environment and market conditions." Take-Two realized non-cash charges in the second quarter of $24.3 million related to the write-off of several titles in development and certain trademarks and acquired intangibles, and incurred severance and other costs of $2 million from the closure of the two studios. Additionally, Take-Two confirmed that it expects to incur additional costs of approximately $3 million in the third quarter related to the closure of a third as-yet-unnamed development studio, and approximately $3 million in the aggregate during the third and fourth quarters for the relocation of its international publishing headquarters from to Geneva, Switzerland. Take-Two's second quarter results were led by sales of The Elder Scrolls IV: Oblivion for PC and Xbox 360, a title co-published by 2K and Bethesda Softworks. Other leading 2K titles in the quarter included Major League Baseball 2K6, Top Spin 2 and 24: The Game. Rockstar Games' largest contributors to the quarter's results included Grand Theft Auto: Liberty City Stories for the PSP, Grand Theft Auto: San Andreas for the PlayStation 2 computer entertainment system, and Midnight Club 3: DUB Edition REMIX for the PlayStation 2, both Greatest Hits titles. Also noted: revenues at the Company's Jack of All Games distribution business decreased year over year in the second quarter, due primarily to reduced sales of current generation hardware and software products and a decrease in average selling prices of interactive entertainment products as the industry transitions to next-generation platforms. However, the company noted that: "...hardware and accessory revenues increased year over year due to the introduction and increased availability of Xbox 360 hardware." Paul Eibeler, President and Chief Executive Officer of Take-Two, stated of the results: "While near-term financial results continue to be impacted by the console transition, we are confident that we have positioned Take-Two for the long-term by streamlining our organization while maintaining an extremely talented global development team. We will continue to focus on creating compelling content, operating in a cost-efficient manner as we navigate the console transition, and aligning our resources to drive improved financial performance in 2007 and beyond." Looking forward, third quarter releases that have already shipped include Rockstar Games presents Table Tennis for Xbox 360. Rockstar also released Grand Theft Auto: Liberty City Stories for PlayStation 2 in North America; the title will be in European stores on June 23rd. 2K shipped The Da Vinci Code for current generation console systems and PC, and its third quarter lineup also includes Prey for PC and Xbox 360, along with the Sid Meier's Civilization IV: Warlords expansion and CivCity: Rome, both for PC. Additional products planned for 2006 from Rockstar Games include Grand Theft Auto: Vice City Stories for the PSP, scheduled for October release, "an additional PSP title based on another premier brand", and Bully. 2K's fall/winter releases include Sid Meier's Railroads!, Stronghold Legends and Dungeon Siege II: Broken World, all for PC; Dungeon Siege: Throne of Agony for the PSP; and Family Guy for current generation console systems. 2K Sports has various titles planned including NBA 2K7, NHL 2K7, College Hoops 2K7, and additional products based on the Major League Baseball license. Global Star is planning Family Feud for multiple platforms, among other titles. For 2007 and 2008, Take-Two anticipates a strong next generation lineup from Rockstar Games including the simultaneous launch of Grand Theft Auto IV on PlayStation 3 computer entertainment system and Xbox 360 in October 2007, along with sequels to several of Rockstar's other successful franchises. Additionally, Rockstar will provide exclusive episodic content for Xbox Live. 2K's 2007 releases will include the PC and next generation console title BioShock from 2K's Irrational Games development studio; The Darkness for next generation platforms based on the popular Top Cow Productions' comic book franchise; and Ghost Rider for current generation systems, based on the Marvel Super Hero and upcoming feature film scheduled for release in spring 2007. For 2007 and 2008, 2K Sports anticipates a solid lineup of sports titles based on licenses with Major League Baseball, the National Basketball Association, the National Hockey League and the National Collegiate Athletic Association, as well as "proprietary unlicensed sports brands including tennis and boxing games." Take-Two continues to expect to return to profitability in its fourth quarter of fiscal 2006, but those trading the company's stock were not happy with the results, sending Take-Two shares down over 2 dollars to $14.60 in after-hours trading. [UPDATE - 3.28pm PST, 06/08/06 - added information on upcoming Rockstar and Take-Two articles.]