Take-Two Needs Another Take on Earnings Reports - TheStreet

Take-Two Interactive Software (TTWO) - Get Report postponed the release of its fourth-quarter earnings and fiscal year-end 2001 financial results on Tuesday evening -- shortly before a conference call was to begin -- raising new questions about the company's accounting methods.

In a statement, Take-Two Interactive said it is continuing to evaluate restated financial statements for its fiscal year 2000, its nine months ended July 31, 2001, and the three months ended Oct. 31, 2001, and Jan. 31, 2002.

"The Company anticipates that certain of its previously announced estimates will have positive adjustments and others will have negative adjustments," the company wrote in a release.

"I have not talked to the company yet, but it sounds like the auditors are dotting the I's and crossing the T's," says Paul Kaump, an analyst with Dougherty & Co. "It seems like the auditors are being especially cautious with this one."

On Dec. 17, Take-Two announced that it would restate the financial results from fiscal year 2000 and the first three quarters of 2001 due to accounting irregularities. Essentially, Take-Two said it bought video games from itself by recognizing revenues on products sold to distributors. The products were later returned or purchased by the company.

The

Securities and Exchange Commission

is investigating the matter, and shareholders have filed numerous class-action lawsuits.

On Thursday, the company was expected to give clearer guidance about the audit of its financials first mentioned on Dec. 17. No official restatement of earnings for fiscal year 2000 and the first three quarters of 2001 have been made.

"When you have a company that sells to itself and has to restate earnings, investors shouldn't have any basis to believe management," says Marc Cohodes, analyst from Rocker Partners, a hedge fund that shorts the stock. (Rocker Partners owned 7.2% of

TheStreet.com

as of Sept. 30, 2001.)

Some investors have taken a recent interest in the company's stock due to a highly publicized release of a new Take-Two video game, Grand Theft Auto III, in which players perform criminal acts. In December, Grand Theft Auto was the bestselling video game in the U.S. and U.K., outselling the No. 2 and three video games by a 2-1 margin, according to industry tracker NPD. In just three months, the game has sold 2.5 million units worldwide.

Since Oct. 25, when the game was released in the U.S., Take-Two's stock has soared 47.4%.

Some analysts have speculated on whether the popularity of the game could overshadow the company's past accounting misstatements. "Retailers have indicated to me they've never seen a game sell the way Grand Theft Auto III has sold," says Ed Williams, an analyst with Gerard Klauer Mattison. "GTA III will help the company's balance sheet."

"The important thing is what is going forward," says Paul Kaump of Dougherty and Co. "It's unfortunate that the company is hamstringed by the auditing issues right now."

But the

Enron

debacle has almost every company, analyst and investor worried about anything that smacks of earnings misstatements. While Take-Two's postponement of its earnings release did nothing to repair the relationship between management and Wall Street, some analysts stressed that it demonstrates auditors were showing more caution.

"The auditors of the company might have found additional information that it needed to clarify," says Arvind Bhatia, an analyst with SWS Securities.