TAKE-TWO INTERACTIVE OFFERS UPBEAT FORECAST

Analysts were also upbeat Wed. about word from Take-Two that its Rockstar Games division plans to ship hit games Grand Theft Auto 3 and Grand Theft Auto: Vice City as “double pack” for Xbox in Nov. Release will mark debut of hit games on Microsoft’s game console after they became smash hits on PS2. Take-Two said it also plans to ship same double pack for PS2 Oct. 22 in N. America.

Take-Two said its sales in 3rd quarter ended July 31 jumped 27% to $155.6 million from $122.5 million in same quarter year ago as its profit soared 60% to $7.7 million (18? per diluted share) from $4.8 million (12?). Breaking down revenue by category, it said 40% came from PS2 games vs. 51% year ago, 4% came from PlayStation games vs. 6% year ago, 15% came from Xbox vs. 3%, 40% came from PC vs. 37%, 1% came from accessories and other vs. 3% year ago. Nintendo’s game platforms were noticeably absent from results -- but not surprising because Take-Two has concentrated on other platforms.

Company boosted its financial estimate for fiscal year ending Oct. 31 to $1.015 billion in sales and $2.30 diluted profit per share. Take-Two also said it expects to report $1.18 billion in sales and $2.68 diluted profit per share for fiscal year ending Oct. 31, 2004. For first quarter ending Jan. 31, company said it expects to report $412 million in sales and $1.21 diluted profit per share. Take-Two said its fiscal 2003 estimate takes into account distribution deal with TDKM. But Take-Two said it “is currently determining the full impact of the acquisition on its fiscal 2004 [forecast]; on a preliminary basis, the company’s [estimate] assumes the acquisition will add approximately $35 million in net sales, primarily weighted toward the back half of the fiscal year, and have no material effect on its fiscal 2004 diluted net income.” Company also said it “had more than $225 million in cash as of July 31… as compared to approximately $74 million in cash as of July 31, 2002.”

Although Take-Two has maintained strong position over past year, investors haven’t embraced publisher in same way they have competitor Electronic Arts (EA). One likely source of concern has been ongoing SEC investigation of company after controversial accounting practices were uncovered. But in research note Wed., Wedbush Morgan Securities analyst Michael Pachter said: “Once Take-Two is past [first quarter 2004], we believe that investors will have a great deal of confidence in the company’s ability to deliver solid earnings growth over the rest of the year. The company’s balance sheet is very strong, with [nearly] $226 million in cash, no long-term debt, acceptable inventory and receivables levels and a healthy reserve balance.” Pachter said “we expect each [Grand Theft Auto] bundle to sell approximately 1 million units this holiday season.” He also said “we were both surprised and pleased by Take-Two’s announcement of its acquisition of TDK Mediactive..”

Of TDKM acquisition, Take-Two said $22.7 million purchase price consists of about $12.6 million via 23 million shares outstanding at 55? per share and purchase of debt of about $9.9 million. In addition to Shrek, TDKM purchase will also give Take-Two various other franchises based on popular licensed properties, including Pirates of the Caribbean, The Haunted Mansion, The Land Before Time, Robotech, The Muppets, Corvette, Masters of the Universe. Take-Two and TDKM also said they signed separate deal providing former with exclusive N. American distribution rights for certain TDKM titles on various platforms, including The Haunted Mansion, currently slated to ship in mid- Oct. ahead of Thanksgiving theatrical release of Disney feature film of same name. Distribution deal also includes Star Trek: Shattered Universe and Corvette -- both expected to ship in late Oct.

Lapin said: “In a little over two years, TDK Mediactive has become a meaningful player in the interactive entertainment industry by identifying, securing and building strong video game franchises based on popular, well established licensed brands… [Also,] we believe our proven product development and marketing capabilities will enhance [TDKM’s] product offerings and our distribution resources will offer additional outlets for [TDKM’s] products.”

In recent quarters, TDKM CEO Vincent Bitetti has been among most outspoken members of publishing community in saying that it had become very difficult to get adequate shelf space at retail for many games. As one of N. America’s largest publishers, Take- Two hasn’t faced same problem. Commenting on acquisition deal Wed., Bitetti said: “As a leader in the interactive entertainment industry, Take-Two’s infrastructure, financial resources and successful track record will enable us to significantly expand our business.” He added: “We appreciate the cooperation of TDK USA, our majority shareholder, in facilitating and supporting this transaction.”

Take-Two and TDKM said that “pursuant to the agreement and plan of merger, a wholly-owned subsidiary of Take-Two will merge with and into TDK Mediactive, resulting in TDK Mediactive becoming an as yet to be named subsidiary of Take-Two.” They added: “TDK USA Corporation and certain other shareholders owning approximately 77.8% of the outstanding voting stock of TDK Mediactive have irrevocably voted their shares in favor of adoption of the merger, assuring sufficient stockholder approval to adopt the merger agreement.” Companies said Bitetti “will be joined by several other key TDK Mediactive executives at Take- Two.” But it was unclear Wed. exactly what role Bitetti will have. Companies said deal was “subject to customary closing conditions, including the transfer of certain key licenses, and is expected to be consummated by early November.”

In addition to Grand Theft Auto double pack in Q1, Take-Two said its Rockstar label also plans to ship Max Payne 2: The Fall of Max Payne in N. America Oct. 15 for PC with PS2 and Xbox versions expected to follow in Q1 2004. Rockstar also plans to ship Grand Theft Auto 3 for PS2 and PC in Japan for first time later this month under licensing deal with Capcom. Next installment in Grand Theft Auto series is slated to ship at some point in fiscal 2004 -- but company didn’t say exactly when. Games from Take-Two’s Gathering division that are slated to ship in Q4 include Railroad Tycoon 3 and Hidden & Dangerous 2 -- sequels for franchises that each sold over 1 million units -- and Space Colony for PC. Company’s Gotham Games division, meanwhile, expects to ship Conflict: Desert Storm II and Starsky & Hutch in N. America only for PC, PS2, Xbox. Gotham is also shipping MTV’s Celebrity Deathmatch for GameCube, PC, PlayStation, PS2, Xbox.

Lapin said: “As we approach the busy holiday season and enter fiscal 2004, we believe we are in the strongest position in Take-Two’s history. Rockstar’s portfolio of blockbuster franchises and highly anticipated new brands, combined with Gathering’s exciting lineup of proprietary and licensed properties, and [TDKM’s] mass market and children’s titles, represents a compelling and diversified product pipeline. With Jack of All Games’ complementary distribution business providing incremental visibility and predictability to our business model, we anticipate another robust year for Take-Two.”

Analysts were also upbeat Wed. about positive comments made by Take-Two competitor EA -- #1 third-party game publisher in N. America -- on its recently-shipped football titles. EA said Madden NFL 2004 “sold through more than 2 million units in just over 3 weeks,” while NCAA Football 2004 “has sold through close to 1 million units.” EA Senior Vp-Mktg. Frank Gibeau said: “The data we're getting from retailers indicates this could be another record breaking year for Madden NFL and NCAA Football… Consumer enthusiasm for our football titles suggests it’s going to be an unprecedented year for the entire EA Sports brand.” EA said that based on internal tracking, it estimated: “Both games are maintaining strong momentum at retail. To date, total sales of the 2 EA Sports football games are just below 3 million units. Madden is the #1 football title on [all current major game platforms while] NCAA Football 2004 is the #2 football title on all platforms. Both games are currently tracking ahead of the record volume established in 2002, when independent data showed they were the number 1 and number 2 selling football titles with a collective category market share of 82.1%.”

Also encouraging to EA were comments from retail. Electronics Boutique CEO Jeff Griffiths said: “Based on the first 3 weeks of sales across all platforms, Madden NFL 2004 is the fastest selling game in the history of EBGames.” Echoing him was GameStop COO-Pres. Dan DeMatteo, who said: “EA broke the record. Madden’s first week numbers made it the fastest-selling game we've ever had in our stores.”

EA’s Gibeau also said Sept. EA Sports releases include NASCAR Thunder 2004, NHL 2004, Tiger Woods PGA Tour 2004. He added: “In October, we'll launch a major marketing campaign to promote breakthrough game play innovations in NBA Live 2004. We'll finish up the year in sports with FIFA 2004 and NCAA March Madness 2004 launching in November.” In late afternoon trading Wed., EA shares were up 13? (.14%) at $91.14.