Chastened Take-Two Doesn't Find Its Voice

Take-Two(TTWO - Cramer's Take - Stockpickr) apologized for its recent accounting woes on a conference call Thursday but managed to avoid questions about when its video games are expected to ship and whether the practice of buying from itself has actually stopped.

"We sincerely regret the company's need to halt trading in our stock," CEO Kelly Sumner said. "We apologize for the events that led to the restatement of our financial results."

Executives said they didn't know when the stock would resume trading, only that Nasdaq is reviewing the information it requested. A Nasdaq spokesman said no decision has been made yet as to when trading will resume. The stock has been halted since Jan. 22.

During the call, several analysts asked questions about the Securities and Exchange Commission investigation, but the firm declined to comment. It also refused to say whether its questionable accounting practices have actually ended.

"Can you detail what this idea of buying from yourself is and how you've changed that policy?" asked Banc of America analyst Gary Cooper. Sumner said he couldn't disclose anything beyond what has already been said in the 10-K and press release because of pending litigation.

"Well, has it stopped?" pushed Cooper. One again, Sumner declined to comment.

Take-Two restated its financial results for 2000 and each of the first three quarters of fiscal 2001 to eliminate sales of products that were recognized as revenue and later returned or purchased by the company in subsequent periods.

The company also announced Wednesday that its chief financial officer of two months, Albert Pastino, had resigned. But some analysts thought that resignation meaningless because most of the accounting irregularities occurred prior to his arrival, and the CFO in charge before him, John David, remains with the company. Take-Two noted that some staff members have been reassigned but wouldn't say what role David now has at the company.

As for the product schedule, Take-Two's management was equally evasive, saying it had little visibility on the Duke Nukem Forever game, which had been scheduled for release in the fall. This game would be a "high" contributor to top-line growth and a "reasonably good" contributor to bottom-line growth, the firm said.

Jeffrey Thomison, an analyst at J.J.B. Hilliard & Lyons, said the delay of Duke Nukem is actually a positive development because it would enable the company to spread out its blockbuster titles over the course of a couple of years, rather than releasing them all in 2002.

Sumner said a new Grand Theft Auto III product, which has yet to be announced, is scheduled to be released at the end of the year and is included in the firm's 2002 guidance. But executives said the success of that game depends on the exact timing of the release and the competition.

Unsurprisingly, Sumner declined to talk about the pending class-action lawsuits against the company, nor would he say if the company has reserves to cover liabilities from those suits.

While many analysts have maintained their buy ratings on the stock since the company's first announcement that it would restate earnings in December, analysts from U.S. Bancorp Piper Jaffray and Dougherty & Co. downgraded the stock Thursday.

"We continue to have concerns regarding management credibility and any potential ongoing SEC investigation into accounting policies," U.S. Bancorp analyst Anthony Gikas wrote in a research note. "We have no visibility into the SEC probe."

While Gikas cut his rating to outperform from strong buy, he continues to maintain that Take-Two's business fundamentals are strong and he raised his fiscal 2002 revenue and earnings estimates. He did concede, though, that the stock is suitable only for speculative investors and estimated it would fall roughly 20% if and when it finally does resume trading.