AKLM Acclaim Entertainment (MM)

Acclaim Entertainment, Inc. Reports Results for Fourth Quarter and Fiscal Year 2004 GLEN COVE, N.Y., July 2 /PRNewswire-FirstCall/ -- Acclaim Entertainment, Inc. (NASDAQ:AKLM) today announced its financial results for the fourth quarter and fiscal year ended March 31, 2004. Acclaim's net revenue for the fiscal year ended March 31, 2004 was $142.7 million as compared to $210.1 million for the twelve months ended March 31, 2003. For fiscal year 2004, the Company reported a net loss of $56.4 million, or $0.53 per diluted share, as compared to a net loss of $84.8 million, or $0.92 per diluted share for the twelve months ended March 31, 2003. Net revenue for the fourth quarter of fiscal year 2004 was $29.0 million as compared to $28.0 million for the same period of the prior year. For the fourth quarter of fiscal 2004, the Company reported a net loss of $25.4 million, or $0.23 per diluted share, as compared to a net loss of $45.0 million, or $0.49 per diluted share for the same period of the prior year. Gross Profit The Company's gross profit for its fiscal year ended March 31, 2004 was $64.1 million as compared to $78.1 million for the twelve months ended March 31, 2003. The decrease in gross profit for fiscal year 2004 was primarily due to lower revenues, partially offset by a decrease in the amortization of capitalized software development costs as compared to the same period of the prior year. Gross profit for the fourth quarter of fiscal 2004 was $10.7 million compared to a gross loss of $9.6 million for the same period of the prior year. The increase in gross profit was primarily due to more normalized provisions for price concessions and returns, and a decrease in the amortization of capitalized software development costs as compared to the same period of the prior year. Operating Expenses As part of the Company's operating plan, operating expenses for fiscal year 2004 decreased by $46.9 million to $109.3 million from $156.2 million for the comparable period of the prior year. Operating expenses for the fourth quarter of fiscal 2004 decreased by $1.8 million to $32.2 million from $34.0 million for the same period of the prior year. The $46.9 million decrease in fiscal 2004, resulted primarily from the closure of the Salt Lake City development studio, reduction in worldwide headcount, reduction in sales and marketing costs, and the reduction of general and administrative expenses. Other Expenses Interest expense, net of $5.4 million for the twelve months ended March 31, 2004 increased by $0.4 million, as compared to $5.0 million for the comparable period of the prior year. This increase was primarily due to charges associated with the issuance of our 9% and 16% convertible subordinated notes (the "Convertible Notes"). Non-cash financing expense of $3.3 million for fiscal 2004 increased $2.2 million from the same period of the prior year. The increase relates primarily to costs associated with (i) the issuance of warrants to purchase shares of the Company's common stock, (ii) the issuance of the Convertible Notes and (iii) the issuance, and continued holding in escrow, of 4.0 million shares of common stock for two of the Company's major shareholders in connection with their cash deposits of $2.0 million with GMAC as a limited guarantee of the Company's obligations. The liability related to the pending issuance of the 4.0 million shares of common stock is being adjusted to the market value of the shares on a quarterly basis pending stockholder ratification of the share issuance. Other expenses for fiscal 2004 of $2.4 million were $1.8 million greater than the comparable period of the prior year. This increase was primarily due to charges from foreign currency transaction losses, penalties paid to purchasers of the Company's 16% convertible subordinated notes (the "16% Notes"), as well as the increase in the fair value of the derivative securities underlying the 16% Notes. Gross Revenue The following table details the Company's gross revenue by platform, studio, segment and new title releases: Three Months Ended Twelve Months Ended March 31, March 31, March 31, March 31, 2004 2003 2004 2003 (Unaudited) (Unaudited) (Unaudited) Cartridge-based software: Nintendo Game Boy 3% 3% 2% 5% Subtotal for cartridge-based software 3% 3% 2% 5% Disc-based software: Sony PlayStation 2: 128-bit 57% 65% 55% 55% Sony PlayStation 1: 32-bit 2% 1% 3% 2% Microsoft Xbox: 128-bit 23% 19% 24% 17% Nintendo GameCube: 128-bit 14% 10% 13% 19% Subtotal for disc-based software 96% 95% 95% 93% PC software 1% 2% 3% 2% Total 100% 100% 100% 100% Gross revenue by studio: Internal 21% 54% 38% 50% External 79% 46% 62% 50% Total 100% 100% 100% 100% Gross revenue by segment: Domestic 39% 59% 45% 60% International 61% 41% 55% 40% Total 100% 100% 100% 100% New titles released 15 12 47 47 Liquidity The Company's short-term liquidity has been supplemented with borrowings under its North American and International credit facilities with GMAC Commercial Finance, LLC ("GMAC"), its primary lender, as well as the private placement of its 16% and 9% Convertible Subordinated Notes. As of March 31, 2004, GMAC had advanced the Company a supplemental discretionary loan of $2.0 million, which was repaid as of April 8, 2004. On May 4, 2004, the Company entered into a Waiver and Amendment Agreement relating to its North American credit agreement with GMAC to allow for a supplemental discretionary loan of $3.0 million, the waiver of the Company's covenant defaults under the credit agreement and the termination of the North American and International credit agreements on June 20, 2004. On June 18, 2004, the Company entered into an Extension Agreement with GMAC that amended the Waiver and Amendment agreement it signed with GMAC on May 4, 2004. Under the Extension Agreement, GMAC has agreed to extend, from June 20, 2004 to August 4, 2004, the date upon which the Company's banking agreement with GMAC will terminate. Additionally, on May 4, 2004, the Company entered into a letter of intent with a proposed new lender, for a $30.0 million asset based credit facility, with an equity component, to replace the credit agreement with GMAC. The Company is currently working with the proposed new lender in order to implement timely the new credit facility which is subject to the execution of definitive documentation by both parties; provided, however that there can be no assurance that the new credit facility or any other banking facility will be consummated. Failure to obtain a new banking facility would materially adversely affect the Company's operations and liquidity and the Company could be forced to cease operations or seek bankruptcy protection. In February 2004, the Company completed the sale of its 9% senior convertible subordinated notes from which it raised gross proceeds of $15.0 million. In September and October 2003, the Company completed the sale of its 16% convertible subordinated notes, resulting in gross proceeds of $11.9 million. Subsequent to March 31, 2004, investors holding $5.5 million of the 16% convertible subordinated notes had converted their notes into 9.6 million shares of the Company's common stock. The Company is in default on its 16% convertible notes with respect to interest payments and certain payments due under the notes resulting from the delay in registering the Company's shares issuable upon conversion of the notes. The Company is in continued discussions with the holders of the convertible notes and believes that it will be successful in obtaining a waiver of those defaults; however, there can be no assurance that the Company will be successful in obtaining these waivers. The Company's future liquidity will significantly depend in whole or in part on its ability to (1) replace by August 4, 2004, the current credit agreement with a credit agreement from a new lender, (2) timely develop and market new software products that meet or exceed its operating plans, (3) continue to realize long-term benefits from its previously implemented expense reductions, (4) resolve or obtain waivers for any defaults under its convertible note and note purchase agreements and (5) continue to receive the support of certain key suppliers and vendors. If the Company does not timely implement the new credit facility, substantially achieve its overall projected revenue levels as reflected in its business operating plan, continue to realize additional benefits from the expense reductions it has already implemented, and continue to receive the support of key suppliers and vendors, the Company will need to make further significant expense reductions, including, without limitation, sale of assets or the consolidation or closing of certain operations, additional staff reductions, and the delay, cancellation or reduction of certain product development and marketing programs. Additionally, some of these measures may require third party consents or approvals from our primary lender and others, and there can be no assurance those consents or approvals will be obtained. If these measures are not attained, the Company cannot assure its stockholders that its future operating cash flows will be sufficient to meet its operating requirements and debt service requirements. If any of the preceding events were to occur, the Company's operations and liquidity would be materially and adversely affected and it could be forced to cease operations or seek bankruptcy protection. Organizational/Management Changes On February 23, 2004, the Company appointed Dominique Cor as Managing Director of the Acclaim's Paris-based division. In addition, on April 15, 2004, the Company appointed Martin Currie as Vice President of Marketing Communications, and Nique Fajors as Vice President of Brand Management. Product Release Schedule Acclaim's projected product release schedule through the spring of 2005 includes: Summer 2004: PlayStation(R)2 computer entertainment system: - SHOWDOWN(TM): Legends of Wrestling(TM)* Xbox(R): - SHOWDOWN(TM): Legends of Wrestling(TM)* - Worms 3D - Special Edition(TM) PC: - Alias(TM)* Fall 2004: PlayStation(R)2 computer entertainment system: - 100 Bullets(TM) - Juiced(TM) - The Bard's Tale(TM)* - The Red Star(TM) - Worms Forts: Under Siege!(TM) Xbox(R): - 100 Bullets(TM) - Juiced(TM) - The Bard's Tale(TM)* - The Red Star(TM) - Worms Forts: Under Siege!(TM) PC: - Juiced(TM) - The Bard's Tale(TM)* - Worms Forts: Under Siege!(TM) Winter 2005: PlayStation(R)2 computer entertainment system: - Interview with a Made Man(TM) Xbox(R): - Interview with a Made Man(TM) Spring 2005: PlayStation(R)2 computer entertainment system: - ATV Quad Power Racing 3(TM) - Emergency Mayhem(TM) - The Last Job(TM) Xbox(R): - ATV Quad Power Racing 3(TM) - Emergency Mayhem(TM) - The Last Job(TM) * Denotes International release only. About Acclaim Entertainment Based in Glen Cove, N.Y., Acclaim Entertainment, Inc., is a worldwide developer, publisher and mass marketer of software for use with interactive entertainment game consoles including those manufactured by Nintendo, Sony Computer Entertainment and Microsoft Corporation as well as personal computer hardware systems. Acclaim owns and operates five studios located in the United States and the United Kingdom, and publishes and distributes its software through its subsidiaries in North America, the United Kingdom, Australia, Germany, France and Spain. The Company uses regional distributors worldwide. Acclaim also distributes entertainment software for other publishers worldwide, publishes software gaming strategy guides and issues "special edition" comic magazines periodically. Acclaim's corporate headquarters are in Glen Cove, New York and Acclaim's common stock is publicly traded on NASDAQ.SC under the symbol AKLM. For more information please visit our website at http://www.acclaim.com/. The statements contained in this release which are not historical facts are "forward-looking statements." Acclaim cautions readers of this press release that a number of important factors could cause Acclaim's actual future results to differ materially from those expressed in any such forward-looking statements. These important factors, including, without limitation, the financial strength of the interactive entertainment industry, dependence on new product introductions and the ability to maintain the scheduling of such introductions, technological changes, dependence on major platform manufacturers and other factors that could affect Acclaim, are described in Acclaim's Annual Report on Form 10-K for the fiscal year ended March 31, 2004, which was filed with the United States Securities and Exchange Commission. Readers of this press release are referred to such filing. Furthermore, Acclaim's consolidated balance sheet as of March 31, 2003 and the consolidated statements of stockholders' (deficit) equity for the seven months ended March 31, 2003 and each of the years in the two-year period ended August 31, 2002, the consolidated statement of cash flows for each of the years in the two-year period ended August 31, 2002 and consolidated statement of operations for the year ended August 31, 2001 have been restated. Please see Note 2 (Restatement) to Acclaim's Consolidated Financial Statements in its Form 10-K for the fiscal year ended March 31, 2004. ACCLAIM ENTERTAINMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 31, March 31, 2004 2003 (Restated) Assets Current Assets Cash and cash equivalents $1,148 $4,495 Accounts receivable, net 12,156 24,303 Other receivables 802 3,360 Inventories 5,739 7,711 Prepaid expenses and other current assets 5,785 7,076 Capitalized software development costs, net 119 6,944 Building held for sale 6,336 5,424 Total Current Assets 32,085 59,313 Other assets 15,253 20,624 Total Assets $47,338 $79,937 Liabilities and Stockholders' Deficit Current Liabilities Short-term borrowings $41,119 $40,299 Trade accounts payable 33,469 28,477 Accrued expenses 47,264 28,181 Accrued selling expenses 15,087 26,649 Accrued stock-based expenses 3,620 - Accrued restructuring costs 1,047 2,299 Mortgage payable - 4,600 Income taxes payable 1,420 1,234 Total Current Liabilities 143,026 131,739 Long-term liabilities 2,295 3,286 Total Liabilities 145,321 135,025 Stockholders' Deficit Common stock 2,188 1,932 Additional paid-in capital 327,279 313,616 Accumulated deficit (425,249) (368,841) Accumulated other comprehensive loss (2,201) (1,795) Total Stockholders' Deficit (97,983) (55,088) Total Liabilities and Stockholders' Deficit $47,338 $79,937 ACCLAIM ENTERTAINMENT, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Twelve Months Ended March 31, March 31, March 31, March 31, 2004 2003 2004 2003 (Unaudited) (Unaudited) (Unaudited) Net revenue $28,991 $27,960 $142,679 $210,090 Cost of revenue 18,278 37,522 78,598 132,001 Gross profit 10,713 (9,562) 64,081 78,089 Operating expenses Marketing and selling 10,275 9,613 32,183 59,941 General and administrative 10,805 10,868 37,308 42,798 Research and development 10,637 10,937 38,129 46,393 Stock-based compensation 195 79 1,140 79 Restructuring 287 324 514 4,824 Impairment on building held for sale - 2,146 - 2,146 Total operating expenses 32,199 33,967 109,274 156,181 Loss from operations (21,486) (43,529) (45,193) (78,092) Other income (expense) Interest expense, net (1,904) (1,437) (5,420) (4,964) Non-cash financing expense (245) (499) (3,330) (1,078) Other expense (1,706) 423 (2,446) (616) Total other expense (3,855) (1,513) (11,196) (6,658) Loss before income taxes (25,341) (45,042) (56,389) (84,750) Income tax (benefit) provision 19 (62) 19 33 Net loss $(25,360) $(44,980) $(56,408) $(84,783) Net loss per share data: Basic $(0.23) $(0.49) $(0.53) $(0.92) Diluted $(0.23) $(0.49) $(0.53) $(0.92) Media Contact: Financial Contact: Alan B. Lewis Gerard F. Agoglia Acclaim Entertainment, Inc. Acclaim Entertainment, Inc. (516) 656-5000 (516) 656-5000 DATASOURCE: Acclaim Entertainment, Inc. CONTACT: Media, Alan B. Lewis, +1-516-656-5000, or , or Financial, Gerard F. Agoglia, +1-516-656-5000, or , both of Acclaim Entertainment, Inc. Web site: http://www.acclaim.com/

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