Accounting & Tax

Third Time Is Not the Charm for Take-Two

The video-game maker best-known for the ''Grand Theft Auto'' series has also spawned a trilogy of restatements.
Stephen TaubFebruary 3, 2004

Take-Two Interactive Software Inc. announced late last week that it would restate nearly five years of earnings. The video-game maker is revising its revenue recognition policies by adopting a new methodology for recording reserves for price concessions.

This is the third restatement for Take-Two, best-known for its blockbuster games in the “Grand Theft Auto” series. The company is one of a number of video game makers under investigation by the Securities and Exchange Commission.

The latest revision will result in changes in reported revenue and earnings as well as related balance-sheet amounts, on both a current and historical basis.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

In a statement Monday elaborating on its announcement, Take-Two said it will recognize as a reduction of net sales a reserve for estimated future price concessions at the time of sale.

Measurement of the reserve, the company added, will be based on an historical analysis of price concessions, an assessment of field inventory levels and sell-through for each product, current industry conditions, and other factors affecting the estimated timing and amount of price concessions management believes will be granted. Take-Two’s previous policy, added the company, generally recognized reserves in the period in which the company communicated price concessions to its customers.

The restatement will affect the company’s financial results for each of the fiscal years ended October 31, 1999; October 31, 2000; October 31, 2001; October 31, 2002; the four quarters of fiscal 2002; and the first three quarters of fiscal 2003.

In addition, the change in its revenue recognition policy will affect the company’s fourth-quarter and full fiscal year 2003 financial results announced on December 18, as well as the company’s previously announced guidance for fiscal 2004.

The company also said it is conducting a further review of certain transactions involving sales of products to retailers in fiscal 2000 and the first three quarters of fiscal 2001. If the review of these additional transactions requires restatement, added Take-Two, it will result in a shift in the timing of the recognition of revenue and product costs, with a corresponding effect on the company’s financial position and results of operations.

The company said it will restate fiscal 2003 earnings from $2.31 per share to a range of $2.27 to $2.30 per share, and 2002 earnings from $1.81 per share to a range of $1.81 to $1.84 per share. The company detailed its restatement in a filing that also noted it would delay the issuance of its fiscal 2003 annual report by 15 days.

In December 2001, Take-Two restated its results for fiscal 2000 and each of the first three quarters of fiscal 2001. The restatement stemmed from revenue recognition for products sold to certain independent third-party distributors that were later returned or purchased by the company in subsequent periods.

The company also announced the hiring of Albert G. Pastino as chief financial officer, succeeding James David Jr., would remained with the company. Less than two months later, Take-Two named Karl Winters as its new CFO, replacing Pastino, and noted that David was no longer with the company. The company also announced an investigation by the SEC.

The following month — March 2002 — Take-Two restated results for the second time, citing math errors for revisions covering the last three quarters of fiscal 2001.

In December 2003, the company, its chairman, an employee, and two former officers received Wells notices informing them that SEC staffers were recommending lawsuits against them.