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GT Interactive Reports Record Revenues For Fourth Quarter and Year.

NEW YORK--(BUSINESS WIRE)--Feb. 17, 1998--

--Fourth Quarter Net Income Before Special Charges was $16.4

Million, or

$.24 per Share, Up 80 Percent From the Fourth Quarter of

1996 -

--Fourth Quarter Revenues Increased 58 Percent to a Record

$213.6 Million--

--Fiscal 1997 Net Income Before Special Charges Increased 23

Percent to $33.9 Million, or $.51 per Share, Compared to Fiscal 1996 -

--Fiscal 1997 Revenues Were a Record $530.7 Million,

a 45 Percent Increase Over Previous Year--

--Company Adopts New Policy Regarding Prepaid Royalties;

Charge for Change of Estimate of $73.8 Million-

GT Interactive Software Corp. (NASDAQ: GTIS) today reported record revenues of $213.6 million for the fourth quarter ended December 31, 1997, a 58 percent increase over the $135 million reported in the comparable 1996 quarter. Operating income before goodwill, interest expense and special charges was $25.6 million as compared to $12.6 million in the prior year, a 103 percent increase. Net income before special charges for the quarter was $16.4 million versus $9.1 million, an 80 percent increase over the same period last year. Earnings per share before special items for the quarter were $.24 as compared to $.13, an 85 percent increase. After special charges GT Interactive reported an operating loss of $63.1 million for the quarter. Net loss after special charges was $42.5 million, or $.63 for the quarter.

For the full year, GT Interactive reported revenues of $530.7 million as compared to $365.5 million in 1996, a 45 percent increase. Operating income before goodwill, interest expense and special charges in 1997 rose 38 percent from $41.6 million to $57.5 million. Net income before special charges for the full year was $33.9 million, or $.51 per share, as compared to $27.3 million or $.40 per share, up 23 percent from the prior year. The net loss after special charges was $25 million, or $.37 per share, for the full year.

During the quarter, GT Interactive took a special non-cash charge of $11 million, or $.16 per share, as a write-off of Research and Development purchased as part of the company's $14 million acquisition of SingleTrac Entertainment Technologies. In addition, a special item of $2.4 million, or $.02 per share, was incurred as payment of retention bonuses at SingleTrac. As a result of the canceled MicroProse acquisition, GT Interactive incurred a special charge of $1.1 million, or $.01 per share, for legal, printing and other fees. For the change of estimate related to the prepaid royalty change in accounting discussed later in this press release, the company incurred a one-time non- cash charge of $73.8 million or $.68 per share.

"This quarter our business continued to thrive in all core areas, with total front-line publishing up 122 percent and value publishing up 62 percent while revenues from international front-line publishing rose 189 percent," said Ron Chaimowitz, president and chief executive officer of GT Interactive.

Chaimowitz continued, "This strong growth in the quarter was fueled by the significant global success of both Abe's Oddysee for PlayStation and PC, and Duke Nukem on the consoles. Publishing, driven by our first internally developed products, comprised 62 percent of overall revenues, and 41 percent of publishing revenues came from sales overseas for the quarter. We also had an exceptional quarter for the console market, with 71 percent of front- line revenues coming from these platforms."

"This obvious strength in publishing has grown and transformed GT Interactive from a distribution-centric business into an entertainment content provider," Chaimowitz added

Change in Accounting; Fourth Quarter Write Down

There has recently been an increased rate of change and complexity in the underlying technology of GT Interactive's products, coupled with increased competitiveness for shelf space and buyer selectivity in a hit-driven market place, and generally shorter product life cycles. In this environment, GT Interactive has determined to rapidly increase its focus on building internal development, strategic alliances and acquisitions, and to reduce its relative dependence on third party developers.

GT Interactive (along with its industry competitors) has historically capitalized royalties advanced to third party developers as a prepayment in current assets and evaluated the realization of these royalty advances on a quarterly basis. The market changes noted above have made it increasingly difficult to evaluate the likelihood of individual product acceptance and success. As a result, GT Interactive wrote off, in the fourth quarter, royalty advances on products that are currently in development or on sale of $73.8 million.

In connection with this change in the dynamics of the market place, GT Interactive will prospectively expense royalty advances in a manner comparable with internal software development costs, which are expensed as incurred, until technological feasibility is confirmed.

"We have always been in the forefront of our industry in presenting a clear vision of a dynamically changing environment," Chaimowitz said, regarding the changes. "We believe that these actions reflect the clarity of our leadership and willingness to address fundamental changes in our marketplace."

Operating Highlights GT Interactive reported the following activities in 1997:

- Publishing revenues rose 64 percent from $197 million

in 1996 to $324 million in 1997, accounting for 61 percent

of revenues as compared to 54 percent in the prior year;

- Overall front-line publishing revenues were up 81

percent while international front-line publishing revenues

increased 170 percent for the year;.

- Sales of console titles comprised 49 percent of the

company's front-line software revenues in 1997, up from 9

percent in the prior year, a 10-fold increase;

- Achieved the number two market share in Games (units)

and the number one share in Value-priced software (units,

dollars) for the second consecutive year, according to PC

Data. Deer Hunter, a GT Value Division WizardWorks game, was

among the top 20 best-selling PC games of the year;

- Acquired SingleTrac Entertainment Technologies, a

leading Salt Lake City-based software developer which

created the best-selling Twisted Metal and Jet Moto game

series for PlayStation;

- Sold one million units worldwide of Oddworld: Abe's

Oddysee for PlayStation and PC, an original, internally

developed property;

- Sold one million units worldwide of Duke Nukem for the

Nintendo N64 and PlayStation;

- Launched new internal developer Cavedog Entertainment

and its debut product, Total Annihilation, a critically

acclaimed real-time strategy game;

- Released 16 new front-line PC titles and 22 console

games worldwide;

- Obtained exclusive interactive publishing and

merchandising rights to 3D Realms' Duke Nukem Forever and an

option for a sequel;

- Launched an affiliated label program to sell and

distribute software from a variety of publishers on a global

basis. Empire Interactive became the company's first

affiliate label with such products as Pro Pinball:

Timeshock, Flying Corp. Gold, Combat Chess and The Golf Pro

with Gary Player;

Strong 1998 Product Lineup Anticipated

"This has been a year of notable transformation for GT Interactive, accomplished through achievement of our objectives in all areas of our business," Chaimowitz concluded. "We have become a strong publisher with a significantly lower emphasis on distribution; we have demonstrated our ability to create original, internally developed hit brands with the global launch of both Abe's Oddysee and Total Annihilation, for which we are developing sequels in 1998; we have expanded from a PC-only company to a multiplatform console publisher, and we have a powerful global presence that continues to grow. In 1998 we believe we have the strongest lineup of products in the company's history, and we plan to build upon that strength."

Among the titles GT Interactive plans to introduce in 1998 are: Unreal (PC); Total Annihilation '98 (PC), sequel to the successful real-time strategy game; Oddworld: Abe's Exoddus (PlayStation, PC), the sequel to Abe's Oddysee; Duke Nukem Forever (PC); Duke Nukem: Time to Kill (PlayStation, N64); Mike Piazza's Strike Zone (N64), the company's first baseball game; Trans Am Racing (PC); Rogue Trip and Streak (PlayStation), original games from internal studio SingleTrac; and a sequel to Deer Hunter (PC).

In addition, Humongous Entertainment plans to unveil new entries featuring its popular original characters Freddi Fish, Spy Fox and Pajama Sam, as well as its first products based on Nickelodeon's successful Blues Clues television franchise.

Change in Fiscal Year

Consistent with its industry, GT Interactive said that its Board approved a change in the company's fiscal year end, from December 31 to March 31. The company plans to publish results for the period January 1, 1998 through March 31, 1998 and also report its 1999 fiscal year that will commence April 1, 1998 and end March 31, 1999.

Headquartered in NY, GT Interactive Software Corp. is a leading global publisher of interactive entertainment and edutainment under the GT Interactive, Humongous Entertainment, Cavedog Entertainment, SingleTrac and MacSoft brands, for personal computers as well as game consoles from Sony and Nintendo. A leader in value-priced software under the WizardWorks, CompuWorks and Slash brands, GT Interactive operates development studios in Seattle, Salt Lake City and San Luis Obispo, CA. Located at on the World Wide Web, GT Interactive is publicly traded on the NASDAQ market under the symbol GTIS. -0-

Certain statements contained in this press release may be deemed forward-looking statements that involve a number of risks and uncertainties. The company's actual results may differ materially from the expectations expressed in such forward-looking statements. Among the factors that could cause actual results to differ materially are worldwide business and industry conditions, including consumer buying and retailer ordering patterns, product delays, changes in research and development spending, company customer relations, in particular, levels of sales to Wal-Mart and other mass merchants, retail acceptance of the company's published and third-party titles, competitive conditions and other risks detailed, from time to time, in the company's SEC filings, including, but not limited to, the company's form 10-K for the year ended December 31, 1996. -0-

 (tables follow)

 GT Interactive Software Corp. And Subsidiaries
 Consolidated Statements Of Operations

 For The Three Months For the Twelve Months
 Ended Dec. 31, Ended Dec. 31,
 ----------------- -----------------
 1996 1997 1996 1997
 ----------------- -----------------

Net sales $ 135,015 $ 213,569 $365,490 $ 530,677
Cost of goods sold 84,348 131,321 214,580 315,134
Selling and distribution
 expenses 23,393 35,580 74,396 101,279
General and administrative
 expenses 14,697 21,117 34,911 56,795
 ------ ------ ------ ------
Operating income before
 royalty advance write-off, 12,577 25,551 41,603 57,469
 acquisition related charges
 and amortization of goodwill
Royalty advance write-off 0 73,821 0 73,821
Purchased R&D 0 11,008 0 11,008
SingleTrac retention bonus 0 2,400 0 2,400
Merger costs 1,024 1,050 3,718 1,050
Amortization of Goodwill 273 382 1,092 1,295
 ------ ------ ------ ------
Operating income (loss) 11,280 (63,110) 36,793 (32,105)
Interest and other income
 (expense), net 1,147 (1,084) 3,974 (2,075)
 ------ ------ ------ ------
Income before income taxes 12,427 (64,194) 40,767 (34,180)
Provision for (benefit from)
 income taxes 3,913 (21,722) 15,628 (9,157)
 ------ ------ ------ ------
 Net income (loss) $ 8,514 $(42,472) $ 25,139 $(25,023)
 ====== ====== ====== ======

Basic net income per share $ 0.13 $ (0.63) $ 0.38 $ (0.37)

Weighted average shares
 outstanding 66,391 67,717 66,391 66,982
 ====== ====== ====== ======
Fully diluted net income
 per share $ 0.13 $ (0.63) $ 0.37 $ (0.37)

Weighted average number of shares
 outstanding 67,896 67,717 68,313 66,982
 ====== ====== ====== ======

 GT Interactive Software Corp. And Subsidiaries
 Consolidated Balance Sheet
 (in thousands)

 Dec. 31, Sept. 30, Dec. 31,
 1996 1997 1997
 --------- ----------- ----------
 (audited) (unaudited) (audited)

Current assets:
 Cash and cash equivalents $ 71,867 $ 8,070 $ 39,608
 Short term investments 4,717 105 105
 Receivables, net 95,941 141,099 215,176
 Inventories, net 60,457 83,047 92,874
 Royalty advances 69,202 87,542 15,879
 Deferred income taxes 15,283 9,452 15,195
 Income taxes receivable - - 10,314
 Prepaid expenses and other
 current assets 6,510 10,796 4,544
 ------- ------- -------
 Total current assets 323,977 340,111 393,695
Property and equipment, net 10,082 19,252 23,245
Investment in affiliates 9,829 9,992 10,089
Goodwill, net 21,003 20,286 23,495
Other assets 2,220 1,176 1,246
 ------- ------- -------
 Total assets $ 367,111 $ 390,817 $ 451,770
 ======= ======= =======
Current liabilities:
 Accounts payable $ 107,842 $ 92,604 $ 148,625
 Accrued liabilities 52,812 44,854 62,697
 Royalties payable 33,378 33,071 47,432
 Deferred income 4,783 596 412
 Current portion of long-
 term liabilities 1,334 8 5
 Due to related party 601 1,143 753
 Income taxes payable 9,575 5,362 -
 ------- ------- -------
 Total current liabilities 210,325 177,638 259,924
Long term debt -- 40,400 54,600
Other non current liabilities 4,648 1,606 1,800
 ------- ------- -------
 Total liabilities 214,973 219,644 316,324
 ------- ------- -------

Commitments and contingencies

 Common stock 664 671 679
 Additional paid-in capital 119,033 120,800 126,662
 Retained earnings 32,441 49,702 8,105
 ------- ------- -------
 Total shareholders' equity 152,138 171,173 135,446
 ------- ------- -------
 Total liabilities and
 stockholders' equity $ 367,111 $ 390,817 $ 451,770
 ======= ======= =======

CONTACT: (investors) (media)

Dawn Berrie Allyne Mills

212/726-4235 212/726-4202
COPYRIGHT 1998 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1998, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Date:Feb 17, 1998
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