Take-Two Seeks 15-Day Extension for Filing its Annual Report
Grand Theft Auto: San Andreas publisher Take-Two Interactive asked the SEC for a 15-day extension in the filing of its 10-K annual report as it works to fix serious accounting flaws, the company said Wed. It said it expects to file the 10-K on or before the extended deadline.
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The announcement came less than 2 weeks after the publisher released only “preliminary” fiscal 2005 and 4th- quarter results, saying it needed more time to complete the report (CED Jan 9 p8). It said it expects results won’t differ from that preliminary report, which said 4th- quarter profit would plummet to 27 cents per share from $1.36 a year earlier, on a sales decline to $308 million from $438 million. It blamed the lower Q4 results largely on a difficult comparison with the same quarter a year earlier, when it released the hit game Grand Theft Auto: San Andreas. Also to blame were “the continued sluggish retail environment for videogames and the lighter than expected” volume of Xbox 360 hardware shipments” at launch, Take-Two said.
Take-Two said Wed. its fiscal 2005 income took an $18.61 million hit from the fallout over San Andreas in N. America, when the Entertainment Software Rating Board re- rated the title to “AO” from “M” in wake of discovery of hidden sexual scenes (CED July 22 p7). It said the hit was mainly the result of product returns costs and related expenses.
The publisher also warned Wed. that it believes the report of its independent accountant to be included in the 10-K filing “will contain an adverse opinion with respect to the effectiveness of [its] internal control over financial reporting as of October 31.” Take-Two said that although its management hadn’t completed its probe of internal financial reporting controls, it nevertheless had found 2 “material weaknesses” in the company’s accounting practices. As a result, it said, there’s “more than a remote likelihood” that a significant “misstatement” of past financial statements will emerge. Among the flaws: (1) Take-Two “did not maintain effective controls over the existence and valuation of its accounts payable related to inventory purchases” -- specifically in relation to the identification, analysis and reconciliation of “amounts related to inventory purchases included in accounts payable to underlying supporting documentation” as a result of audit adjustments in its 2005 consolidated financial statements. (2) Take-Two “did not maintain effective controls over the accuracy of the amortization of its capitalized software development costs.”
The company admitted its management “may ultimately identify additional control deficiencies that may constitute additional material weaknesses” before it files the 10-K report. But Take-Two said it already had “taken several steps towards remediation of the material weaknesses” already uncovered and “plans to implement appropriate corrective actions that are required to improve the design and operating effectiveness of its internal control over financial reporting, including the enhancement of its policies, systems and procedures.”