Take-Two Restates Results, Replaces CFO

Also, speculative grade default rate approaches 10 percent, Moody's downgrades Boeing, Wal-Mart settles with EEOC for $6.8 million, more.


Where there is smoke, there is fire.

This is the case with video game publisher Take-Two Interactive Software Inc., which on Monday said it will restate its results for fiscal (October) 2000 and each of the first three quarters of fiscal 2001 stemming from how it recognized revenue for products sold to certain independent third-party distributors that were later returned or purchased by the company in subsequent periods, said the company.

As a result, it will cut fiscal 2000 net sales by between $12 million and $15 million and reduce earnings by $3.1 million to $3.7 million. The company also plans to cut its net sales for the first three quarters of fiscal 2001 by about $9.5 million and net income by about $300,000.

“The company is reassessing its method of recognizing revenue with respect to sales to certain third-party distributors,” it added in a statement.

In addition, the company said that it has hired Albert G. Pastino as its Chief Financial Officer. The announcement came in the next-to-last paragraph of a lengthy press release.

Interestingly, it did not say in the press release that Pastino is replacing James David Jr.

Pastino, who is a CPA and holds an MBA, has served in a variety of senior financial and operating positions over the last 35 years, including as a senior partner with Deloitte & Touche, says Take-Two. David will remain with the company, according to Reuters, citing company spokeswoman Dawn Berrie.

Take-Two’s revenue recognition policies were the focus of a Barron’s story over the weekend.

According to published reports, the SEC has questioned David about its method of accounting for revenues and other accounting practices.

Global Speculative Default Rate Nears 10 Percent

The global speculative-grade bond default rate rose in November to 9.8 percent, according to Moody’s Investors Service.

This is up from 9.6 percent in October. However, Moody’s suggested that the default rate could be bottoming.

It noted that the percentage of ratings clustered at the upper end of the speculative-grade ladder slowly has begun to increase.

The trailing 12-month default rate for US-based speculative rated issuers rose to 10.6 percent in November from 10.5 percent in October, while the default rate for issuers in non-US markets jumped to 7.9 percent from 7.5 percent.

For the full year, Moody’s expects the 2001 global default rate to come in near 10 percent for speculative-grade issuers, up from only 5.8 percent in 2000. However, this is still way below the post-Depression peak default rate of 13 percent, set in July 1991.

Still, 2001 has been much worse than the rating agency had anticipated. Last January, it predicted a 2001 calendar-year default rate of 9.5 percent.

“Moody’s default rate forecasting model indicates that the global speculative grade default rate will peak near 10.5 percent just a few months from now in the first quarter of 2002,” it said in a statement.

From a bottom of 27 percent in January, the percentage of the speculative-grade universe rated Ba1, Ba2, or Ba3 (Moody’s highest speculative-grade rating category) has begun to increase, rising to 30 percent last month, the first time since 1999. “We seem to have passed an inflection point in aggregate credit quality,” said David T. Hamilton, director of default research at Moody’s, in a press release.

So far this year, 229 issuers have defaulted on more than $94.5 billion of bonds. These figures exclude last month’s $41 billion exchange of Argentine bonds, which counts as a default under Moody’s definition. During all of last year, 167 issuers defaulted on $49.1 billion of bonds.

The technology/telecommunications sector generated the highest proportion of defaults.

November’s largest corporate default was XO Communications, which suspended payments on some $4.9 billion of debt.

Other Financing News

Meanwhile, Moody’s continued to downgrade investment-grade issues on Monday.

The most high-profile: Boeing. Moody’s downgraded the long-term senior unsecured debt rating of the airplane maker to A2 from A1 and downgraded the long- and short-term debt ratings of Boeing Capital Corp. to A3 and Prime-2 from A2 and Prime-1, respectively.

“These actions reflect the potential negative implications of the materially weakened commercial aerospace market on Boeing’s and BCC’s operating performance,” Moody’s said in a statement.

In IPO news, PayPal Inc., said it would offer 5.4 million shares at between $12 and $14 each.

The company, which enables individuals and businesses transfer money through their e-mail accounts, figures to raise about $63.3 million. About $10 million to $15 million would be used for collateral requirements, and another $10 million to $15 million would be used for capital expenditures, PayPal said in its prospectus.

It is being led by Salomon Smith Barney, Bear Stearns & Co., William Blair & Co. and SunTrust Robinson Humphrey.

  • Ferro Corp., maker of specialty materials and coatings for industry, issued $200 million in seven-year senior notes, led by Credit Suisse First Boston. The deal was upsized from $150 million. The junk offering, rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s, was priced to yield 9.375 percent.

Wal-Mart to Pay $6.8 Million to Settle Labor Charges

Wal-Mart Stores Inc. has agreed to pay $6.8 million to settle a lawsuit alleging it violated the Americans with Disabilities Act, according to the US Equal Employment Opportunity Commission.

Wal-Mart was accused of discriminating against people with disabilities in a pre-employment screening.

The agreement also settles 12 other similar lawsuits filed against Wal- Mart in 11 states. “What is extremely gratifying about this private sector-government resolution is the intensive effort on everybody’s part to rectify past practices and to ensure that the Wal-Mart facilities of the future will be more promising workplaces for current and prospective individuals with disabilities,” EEOC Chairperson Cari Dominguez said in a statement.

The lawsuit alleged that between 1994 and 1998, Wal-Mart requested disability-related information from applicants before making job offers, which violates the Americans with Disabilities Act.

Under the settlement, Wal-Mart will pay $6.8 million to set up two separate funds to compensate plaintiffs in the case and other unidentified plaintiffs who may qualify for compensation.

In Brief

  • Delta Air Lines has cut most of its unrestricted fares. The catch: It’s for travel during non-peak times.

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