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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16986
ACCLAIM ENTERTAINMENT, INC.
(Exact name of the registrant as specified in its charter)
Delaware 38-2698904
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification No.)
One Acclaim Plaza, Glen Cove, New York 11542
(Address of principal executive offices)
(516) 656-5000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.02 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ___
As at December 7, 1995, approximately 49,700,000 shares of Common Stock of the
Registrant were outstanding and the aggregate market value of voting common
stock held by non-affiliates was approximately $510,000,000.
The registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on
Form 10-K for the fiscal year ended August 31, 1995 as set forth
in the pages attached hereto:
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
Acclaim Entertainment, Inc. ("Acclaim"), together with its
subsidiaries (Acclaim and its subsidiaries are collectively
hereinafter referred to as the "Company"), is a mass market
entertainment company whose principal business to date has been as
a leading publisher of interactive entertainment software
("Software") for use with dedicated interactive entertainment
hardware platforms ("Entertainment Platforms"). The Company also
engages in (i) the development and publication of comic books,
which commenced in July 1994 through the acquisition of Acclaim
Comics, Inc. ("Acclaim Comics"), formerly Voyager Communications,
Inc., (ii) the distribution of Software for affiliated labels,
which commenced in the first quarter of fiscal 1995, (iii) the
marketing of its motion capture technology and studio services,
which commenced in the first quarter of fiscal 1995 and (iv) the
distribution of coin-operated, location-based ticket redemption
games, which commenced in August 1995 through the acquisition of
Lazer-Tron Corporation ("Lazer- Tron"). The Company plans to engage
in the distribution of coin- operated video arcade games, commencing
in the spring of 1996, and the electronic distribution of
interactive entertainment software through the partnership (the
"Joint Venture") established in October 1994 between a subsidiary
of Acclaim and a subsidiary of Tele-Communications, Inc. ("TCI"),
commencing not earlier than fiscal 1997.
The interactive entertainment industry is characterized by
rapid technological change, resulting in hardware platform and
related Software product cycles. No single hardware platform or
system has achieved long-term dominance. The Company's revenues
have traditionally been derived from sales of Software for the
then dominant platforms. Accordingly, the Company's revenues are
subject to fluctuation and have been and, in the future, could be
materially adversely affected during transition periods when new
hardware platforms have been introduced but none has achieved mass
market acceptance or become dominant.
From inception through fiscal 1991, substantially all of the
Company's revenues were derived from sales of Software for the
8-bit Nintendo Entertainment System ("NES"). Although the Company
commenced the publication of Software for Game Boy, the portable
system marketed by Nintendo Co., Ltd. (Japan) (Nintendo and its
subsidiary, Nintendo of America, Inc., are collectively
hereinafter referred to as "Nintendo"), in fiscal 1990, for the
Super Nintendo Entertainment System ("SNES") in fiscal 1991 and
for Genesis and Game Gear, the 16-bit dedicated and portable
hardware systems, respectively, marketed by Sega Enterprises Ltd.
("Sega") in fiscal 1992, the Company did not derive significant
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revenues from the sale of portable or 16-bit Software until fiscal
1992.
The interactive entertainment industry is currently
undergoing, and management anticipates that in both the short- and
long-term future it will continue to undergo, significant changes
due, in large part, to (i) the success of personal
computer/compact disk/multimedia hardware systems ("Multimedia/PC
Systems"), (ii) the introduction of the next generation of
Entertainment Platforms incorporating 32- and 64-bit processors,
(iii) the development of remote and electronic delivery systems
and (iv) the entry and participation of new companies in the
industry. The new hardware platforms are equipped with read-only
memory ("ROM") cartridges, compact disk ("CD"), flash memory
and/or other technologies as the dominant software storage device.
In 1993, Sega introduced the Sega CD, a CD player which
consists of an attachment for its 16-bit Genesis system.
Additional CD platforms, including personal computer systems for
which Software products are published, are currently marketed by
Philips, Commodore, Apple, IBM, IBM-compatible manufacturers and
The 3DO Company ("3DO"). Atari launched Jaguar, its 64-bit
cartridge-based system, in November 1993 and Sega launched 32X,
its 32-bit cartridge-based attachment for its 16-bit Genesis
system, in November 1994. Sega and Sony Corporation ("Sony")
launched 32-bit CD-based systems in Japan in November 1994. Sega
shipped limited quantities of its Saturn system in the United
States commencing in May 1995 and Sony released its
PlayStation(Trademark) system in the United States in September 1995.
Nintendo has announced plans to release Ultra 64, its new 64-bit ROM
cartridge-based system, in Japan in the spring of 1996. The Company
commenced the development and sale of Software for the Sega CD System
in fiscal 1994 and for Sega's 32X and Saturn systems and for Sony's
PlayStation(Trademark) in fiscal 1995.
The Company believes that sales of new 16-bit hardware
systems peaked in calendar 1993, have decreased substantially
since that time and will continue to do so, and that 16-bit
Software sales peaked in calendar 1994 (the year following the
peak year for hardware sales).
The Company believes that hardware incorporating 32- and 64-
bit processors, including Multimedia/PC Systems, will become the
dominant hardware platforms in the interactive entertainment
industry over the next few years. The Company believes that
Sega's Saturn and Sony's PlayStation(Trademark) have both achieved
commercial success in Japan and, based on preliminary sales
information, that the limited quantities of the PlayStation(Trademark)
shipped to date have achieved high retail sell through in the United
States. However, there can be no assurance that either of these
platforms or any of the other newly introduced or announced platforms
will achieve commercial success or the timing or impact thereof on
the industry.
The Company's strategy is to develop and/or publish Software
for the hardware platforms that currently dominate the market and
to develop Software for the hardware platforms that the Company
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perceives as having the potential to achieve mass market
acceptance, rather than to be the first Software publisher for an
emerging hardware platform. However, in order to promote its
strategic relationships, the Company may from time to time publish
Software for a hardware platform before it attains mass market
appeal. No assurance can be given that the Company will correctly
identify the systems with mass market potential or be successful
in publishing Software for such platforms and systems.
In the late 1980's and early 1990's management believed that
the floppy and personal computer market was characterized by (i)
numerous hardware and software incompatibilities; (ii) high price
points for Multimedia/PC Systems; (iii) a large number of
software titles; and (iv) consumer demographics that were
different from those of the Company's core customers.
Accordingly, the Company participated in this category through
distribution agreements which, in the opinion of management,
provided the greatest return on the investment of time and effort
needed to service a fragmented market. However, based on
management's belief that, by 1995, this category had
sufficient mass market penetration to warrant publishing Software
directly and due to technological advancements incorporated in the
newer Multimedia/PC Systems and the higher gross margins realized by
publishers of Software for this category, the Company commenced
marketing Software for Multimedia/PC Systems in fiscal 1995 and
intends to expand the number of Software titles for Multimedia/PC
Systems marketed by it in fiscal 1996.
Based on the decline of the 16-bit hardware market and the
related slowdown in retail sell-through of 16-bit Software
published by the Company as well as on an industry-wide basis,
management believes that, in order to reduce inventory levels,
certain retailers have reduced purchases of the Company's 16-bit
Software as compared to prior fiscal quarters and that these and
other retailers will continue to reduce purchases of the Company's
16-bit Software over the next several fiscal quarters. Management
anticipates that such reduction in retail purchasing will decrease
the Company's rate of growth as discussed below. The slow down in
retail sell-through of 16-bit Software has caused and could continue
to cause increased retail inventories, which, in turn, caused and
could continue to cause the Company to liquidate excess inventory
levels at retail by offering price protection and other concessions
to its customers in future periods. As the transition to the next
generation of Entertainment Platforms continues and as new
Entertainment Platforms and Multimedia/PC Systems achieve market
acceptance, management believes that the risk of returns of the
Company's 16-bit Software titles has increased and will continue to
increase. No assurance can be given that future price protection,
returns and other similar concessions will not exceed the
Company's reserves for such concessions and, if so exceeded, the
Company's results of operations and financial condition will be
materially adversely affected. In addition, the Company has
incurred and expects to continue to incur higher marketing
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expenses in connection with the sale of 16-bit Software, which
higher expenses are anticipated to affect adversely the Company's
profitability.
As a result of the Company's acquisitions of Iguana,
Sculptured and Probe in 1995, the Company's fixed costs relating
to the development of Software will be higher commencing in fiscal
1996 as compared to prior periods. However, this increase in
research and development expenses will be offset in part by
reduced royalties payable to developers, a variable cost which is
currently included in selling, advertising, general and
administrative expenses. In addition, to the extent the Company
incurs development costs related to a particular Software title in
any period in which that Software title is not shipped, the
Company's general and administrative expenses in such period will
be materially higher as compared to its historical rate and the
Company's profitability will be materially adversely affected.
The Company has also incurred and expects to continue to incur
increased research and development as well as general and
administrative expenses in connection with the start-up of its new
business operations. If the Company is not successful in
generating revenues from these new businesses, its profitability
will be adversely affected.
The release of individual "hit" Software products or families
of products can significantly affect revenues. Historically,
"hit" products or families of products have accounted for
significant portions of the Company's gross revenues during
particular periods. In prior periods, the Simpsons family of
products and the WWF family of products have accounted for
significant portions of the Company's gross revenues. In fiscal
1995, the Batman Forever and NBA Jam Tournament Edition families
of products each accounted for a significant portion of gross
revenues; in fiscal 1994, the Mortal Kombat II and NBA Jam
families of titles each accounted for a significant portion of
gross revenues; and in fiscal 1993, the Mortal Kombat family of
titles accounted for a significant portion of gross revenues. See
"Legal Proceedings."
The timing of the release of Software products can cause
quarterly revenue and earnings fluctuations. A significant
portion of the Company's revenues in any quarter are generally
derived from Software products or families of products first
shipped in that quarter. Product development schedules are
difficult to predict due, in large part, to the difficulty of
scheduling accurately the creative process and, with respect to
Software for new hardware platforms, the use of new development
tools and the learning process associated with development for new
technologies, including the Company's own motion capture and
related technologies. As the industry trend toward more
sophisticated Entertainment Platforms and Multimedia/PC Systems
continues, the related Software products frequently include more
original, creative content and are more complex to develop and,
accordingly, cause additional development and scheduling risk. As
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a result, the Company's quarterly results of operations are
difficult to predict and the failure to meet product development
schedules or even minor delays in product deliveries could cause a
shortfall in shipments in any given quarter, which could cause the
results of operations and net income for such quarter to fall
significantly below anticipated levels.
Due to the decline of the market for Software for 16-bit
Entertainment Platforms in 1995 and the related transition to
Multimedia/PC Systems and the next generation of Entertainment
Platforms, the Company experienced a lower rate of growth in
fiscal 1995 as compared to fiscal 1994 and 1993. Preliminary
retail sales information in respect of Christmas 1995 indicates
that, to date, sales have fallen short of expectations. Sales of
higher-priced Software products have been adversely impacted
during the pre-Christmas season, with the result that sales of
comparable units of Software will result in lower revenues as
compared to prior periods which will, in turn, adversely affect
profitability. Accordingly, management anticipates that it will
increase its reserves to higher levels relative to its sales
during the first half of fiscal 1996 than has been its historic
practice. In addition, management believes that the current
market for Software for 16-bit Entertainment Platforms supports
fewer "hit" and higher-priced titles. Management anticipates, as
a result of the foregoing, that its results of operations and
profitability during the first two quarters of fiscal 1996 will be
materially lower than comparable periods in fiscal 1995 and that
the Company's results of operations and profitability during
fiscal 1996 will be lower than in fiscal 1995.
The Company's ability to sustain its results of operations
and profitability and to generate sales growth in the long-term
future will be dependent in large part on (i) the Company's
ability to identify, develop and publish "hit" Software titles for
the hardware platforms that are established in the mass market,
(ii) the growth of the interactive entertainment Software market
and (iii) the Company's ability to develop and generate revenues
from its other entertainment operations.
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Results of Operations
The following table sets forth certain statements of
consolidated earnings data as a percentage of net revenues for the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended August 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic revenues 74.8% 76.4% 60.8%
Foreign revenues 25.2 23.6 39.2
----- ----- -----
Net revenues 100.0 100.0 100.0
Cost of revenues 47.4 45.9 52.2
----- ----- -----
Gross profit 52.6 54.1 47.8
Selling, advertising, general
and administrative expenses 37.8 36.8 32.1
Operating interest 0.7 0.4 0.4
Depreciation and amortization 1.7 0.8 0.9
----- ----- -----
Total operating expenses 40.2 38.0 33.4
Earnings from operations 12.5 16.1 14.4
Other income (expense), net 1.0 (0.1) 0.3
Earnings before income taxes 13.5 16.0 14.7
Net earnings 7.9 9.4 8.6
</TABLE>
Net Revenues
The increase in the Company's net revenues from $480.8
million for the year ended August 31, 1994 to $566.7 million for
the year ended August 31, 1995 was predominantly due to increased
sales of CD Software and increased foreign sales and, to a lesser
extent, revenues of Lazer-Tron (which are included in the
Company's results of operations for the year) and Acclaim Comics.
The increase in the Company's net revenues from $327.1
million for year ended August 31, 1993 to $480.8 million for the
year ended August 31, 1994 was predominantly due to increased unit
sales of 16-bit Software in North America and, to a lesser extent,
sales of its newly introduced CD Software, which was offset by
declines in 8-bit and portable Software sales and, to a lesser
extent, slightly lower foreign sales. The Company believes that
the lower foreign sales for the year ended August 31, 1994 were
the result of industry declines in the European and Asian markets.
The Company is substantially dependent on Sony, Sega and
Nintendo as the sole manufacturers of the hardware platforms
marketed by them and as the sole licensors of the proprietary
information and technology needed to develop Software for those
platforms. In fiscal years 1993, 1994 and 1995, the Company
derived 66%, 45% and 47% of its gross revenues, respectively, from
sales of Nintendo-compatible products and in fiscal years 1993,
1994 and 1995, the Company derived 34%, 55% and 46% of its gross
revenues, respectively, from sales of Sega-compatible products.
The Company anticipates that its revenues from sales of
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Sony-compatible products and from Software for Multimedia/PC Systems
will also be material in fiscal 1996.
The majority of the Company's gross revenues were derived
from the following product categories:
1995 1994 1993
---- ---- ----
8-Bit Software --- 1.0% 12.0%
Portable Software 10.0% 13.0 23.0
16-Bit Software 74.0 83.0 65.0
CD Software 10.0 2.0 ---
The results of operations of Lazer-Tron, which was acquired
on August 31, 1995, are included in the consolidated financial
statements of the Company for fiscal 1995 but were not material to
the results of operations of the Company.
Gross Profit
Gross profit fluctuates as a result of four factors: (i) the
level of manufacture by the Company of its Sega Software; (ii) the
percentage of CD Software sales; (iii) the percentage of foreign
sales; and (iv) the percentage of foreign sales to third party
distributors.
The Company arranges for the manufacture of its Sega Software
under a license granted by Sega. The Company believes that it has
improved cash flows and better control over the flow of its
inventory as a result of the decreased lead time resulting from
its ability to manufacture Software. The cost of Software
manufactured by the Company, together with the royalties payable
to Sega for such manufacturing, is lower than the cost of the
Company's Software products when manufactured by Sega. The
royalty payable to Sega for Software manufactured by the Company
is included as an operating expense, rather than as part of cost
of revenues and increased levels of manufacturing by the Company
result in higher gross profit as a percentage of net revenues.
See "Business -- License Agreements."
The Company's margins on sales of CD Software are higher than
those on cartridge Software as a result of significantly lower
product costs. As the percentage of sales of the Company's CD
Software increases, the Company expects that its gross margin will
also increase (subject to the other variables listed above).
The Company's margins on foreign sales are typically lower
than those on domestic sales due to higher prices charged by
hardware licensors for Software distributed by the Company outside
North America. The Company's margins on foreign sales to third
party distributors are approximately one-third lower than those on
sales that the Company makes directly to foreign retailers.
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Management anticipates that the Company's future gross profit
will be affected by (i) its product mix (i.e., the percentage of CD
Software and cartridge Software sales and sales related to the
Company's new businesses) and (ii) the percentage of returns, price
protection and other similar concessions in respect of the
Company's 16-bit Software sales. The Company's gross margins on
coin-operated video arcade games are anticipated to be
substantially lower than on its cartridge and CD Software.
Although gross margins on sales of CD Software are and are
anticipated to continue to be higher than those on sales of
cartridge Software, management believes that it will be required to
effect stock-balancing programs for its CD Software products for
personal computer systems to allow for their historically higher
rate of return. As the percentage of sales of CD Software for
personal computer systems increases, management anticipates that its
reserves for such returns will increase, thereby offsetting a
portion of the higher gross margins generated from CD Software
sales. Additionally, returns and other similar concessions to
retailers in respect of 16-bit Software sales in fiscal 1996 are
expected to have a material adverse effect on the Company's gross
margins in future periods.
Gross profit increased from $260.0 million (54% of net
revenues) for the year ended August 31, 1994 to $298.2 million
(53% of net revenues) for the year ended August 31, 1995. The
dollar increase is predominantly attributable to increased sales
volume. The reduction in gross profit as a percentage of net
revenues is primarily attributable to the lower percentage of
sales of Sega Software (all of which was manufactured by the
Company) during fiscal 1995, which was offset by increased sales
of higher margin CD Software in that year.
Gross profit increased from $156.3 million (48% of net
revenues) for the year ended August 31, 1993 to $260.0 million
(54% of net revenues) for the year ended August 31, 1994,
predominantly due to increased sales volume. The percentage
increase is predominantly due to an increased level of domestic
manufacturing of Genesis Software as the royalty payable to Sega
for Software manufactured by the Company is included as an
operating expense, rather than as part of cost of revenues and,
accordingly, increased levels of manufacturing by the Company
result in higher gross profit as a percentage of net revenues. In
addition, the Company's gross profit was slightly higher on sales
of Genesis Software compared to SNES Software, particularly
Genesis Software manufactured by the Company.
The Company purchases substantially all of its products at
prices payable in United States dollars. Appreciation of the yen
could result in increased prices charged by either Nintendo or
Sega to the Company (although, to date, neither Nintendo nor Sega
has effected such a price increase), which the Company may not be
able to pass on to its customers and which could adversely affect
its results of operations.
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Operating Expenses
Selling, advertising, general and administrative expenses
increased from $176.7 million (37% of net revenues) for fiscal
1994 to $214.1 million (38% of net revenues) for fiscal 1995. The
percentage increase is attributable to increased expenses across
the board, which increases were offset, in part, by reduced
royalties payable to Sega.
Selling, advertising, general and administrative expenses
increased from $104.9 million (32% of net revenues) for the year
ended August 31, 1993 to $176.7 million (37% of net revenues) for
the year ended August 31, 1994. The increase is predominantly
attributable to increased advertising costs resulting from
television campaigns, increased manufacturing royalties payable to
Sega as a result of the higher proportion of Software manufactured
by the Company during the fiscal year ended August 31, 1994, and a
third royalty (in addition to that generally payable to the owner
of the Property and the developer) associated with NBA Jam payable
by the Company to the NBA.
Operating interest expense was $1.2 million (0.4% of net
revenues) for fiscal 1993, $2.0 million (0.4% of net revenues) for
fiscal 1994 and $4.0 million (0.7% of net revenues) for fiscal
1995, primarily as a result of increased sales volume which
resulted in higher outstanding balances under the Company's
principal credit facility.
Depreciation and amortization increased from $3.2 million for
fiscal 1993 to $3.8 million for fiscal 1994 to $9.5 million for
fiscal 1995. The increase in fiscal 1995 is primarily
attributable to increased amortization of the excess of costs over
net assets acquired arising from the acquisition of Acclaim Comics
and Iguana and increased depreciation relating to the acquisition
of the Company's new corporate headquarters.
Quarterly Results of Operations
The following tables set forth certain statements of
consolidated earnings data for each of the Company's last eight
quarters and such data as a percentage of the Company's net
revenues for each period. This quarterly financial information is
unaudited but gives effect to all adjustments (all of which were
normal recurring entries) necessary, in the opinion of management
of the Company, to present fairly this information.
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The results of operations for any quarter should not be taken
as indicative of results for the full fiscal year.
<TABLE>
<CAPTION>
(in 000's) Three Months Ended
-----------------------------------------------------------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1995 1995 1995 1994 1994 1994 1994 1993
-------- ------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic revenues $93,008 $83,954 $131,427 $115,207 $117,886 $66,837 $84,107 $98,449
Foreign revenues 40,484 23,700 29,846 49,097 30,982 22,160 31,424 28,911
------- ------- -------- -------- -------- ------- ------- -------
Net revenues 133,492 107,654 161,273 164,304 148,868 88,997 115,531 127,360
Cost of revenues 63,588 53,792 73,456 77,665 75,606 37,853 51,167 56,118
------- ------- -------- -------- -------- ------- ------- -------
Gross profit 69,904 53,862 87,817 86,639 73,262 51,144 64,364 71,242
Total operating
expenses 63,863 39,669 64,821 59,203 48,573 37,585 46,492 49,892
------- ------- -------- -------- -------- ------- ------- -------
Earnings from
operations 6,041 14,193 22,996 27,436 24,689 13,559 17,872 21,350
Earnings before
income taxes 10,313 15,062 23,633 27,266 24,428 13,378 18,138 21,051
Net earnings 6,101 8,855 13,856 15,958 14,132 7,949 10,638 12,336
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------
Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1995 1995 1995 1994 1994 1994 1994 1993
-------- ------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic revenues 69.7% 78.0% 81.5% 70.1% 79.2% 75.1% 72.8% 77.3%
Foreign revenues 30.3 22.0 18.5 29.9 20.8 24.9 27.2 22.7
----- ----- ----- ----- ----- ----- ----- -----
Net revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues 47.6 50.0 45.5 47.3 50.8 42.5 44.3 44.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit 52.4 50.0 54.5 52.7 49.2 57.5 55.7 55.9
Total operating expenses 47.8 36.8 40.2 36.0 32.6 42.3 40.2 39.1
----- ----- ----- ----- ----- ----- ----- -----
Earnings from operations 4.5 13.2 14.3 16.7 16.6 15.2 15.5 16.8
Earnings before
income taxes 7.7 14.0 14.7 16.6 16.4 15.0 15.7 16.5
Net earnings 4.6 8.2 8.6 9.7 9.5 8.9 9.2 9.7
</TABLE>
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Seasonality
The Company's business is seasonal, with higher revenues and
operating income typically occurring during its first, second and
fourth fiscal quarters (which correspond to the Christmas and
post-Christmas selling season). The timing of the delivery of
Software titles and the releases of new products cause significant
fluctuations in the Company's quarterly revenues and earnings.
Liquidity and Capital Resources
The Company's primary source of liquidity during the fiscal
years ended August 31, 1994 and 1995 was cash flows from
operations and, in fiscal 1995, such cash flows were augmented by
the sale of shares of TCI capital stock received by the Company in
connection with the Company's sale of shares of its common stock
to TCI. See Note 4 of the Notes to Consolidated Financial
Statements. The Company had net cash from operations of
approximately $29.1 million in fiscal 1994 and used net cash from
operations of approximately $7.2 million in fiscal 1995. The
decrease in net cash from operations in fiscal 1995 is primarily
attributable to relatively higher levels of cash paid to suppliers
and employees and higher payments of interest to the Company's
commercial lenders in connection with higher outstanding balances
on the Company's working capital loans and acquisition financing.
The Company generally purchases its inventory of Nintendo and
Sega (to the extent not manufactured by the Company) Software by
opening letters of credit when placing the purchase order. At
August 31, 1993, 1994 and 1995, amounts outstanding under letters
of credit were approximately $57.7 million, $48.6 million and
$24.1 million, respectively.
The Company has a revolving credit and security agreement
with its principal domestic bank in the amount of $70 million,
which agreement expires on January 31, 1996. The credit agreement
will be automatically renewed for another year by its terms,
unless terminated upon 90 days' prior notice by either party. The
Company draws down working capital advances and opens letters of
credit against the facility in amounts determined on a formula
based on factored receivables and inventory, which advances are
secured by the Company's assets. This bank also acts as the
Company's factor for the majority of its North American
receivables, which are assigned on a nonrecourse, pre-approved
basis. The factoring charge is 0.25% of the receivables assigned
and the interest on advances is at the bank's prime rate minus
one-half of one percent. At August 31, 1995, the Company had $32
million available under such facility.
The Company currently has a $30 million trade finance
facility with another bank. The Company's Asian and European
subsidiaries currently have independent facilities totalling
approximately $20 million and $25 million, respectively, with
various banks.
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In connection with its acquisition by the Company, Acclaim
Comics entered into a credit agreement with Midland Bank plc
("Midland") for a loan (the "Loan") of $40 million. In connection
with the establishment of the Joint Venture and the related stock
swap with TCI, the Company reached an agreement with Midland
pursuant to which it repaid $15 million of the Loan and the
remaining $25 million principal amount of the Loan is being
amortized over a four and one-half year period terminating in July
1999. See Note 11 of the Notes to Consolidated Financial
Statements. The Loan, which is a direct obligation of Acclaim
Comics, bears interest, at the borrower's option, at either (i)
the higher of the federal funds rate plus one-half of one percent
and the lender's prime rate, in each case, plus 125 basis points
or (ii) the London interbank offered rate plus 250 basis points,
and is secured by a first priority lien on substantially all of
the assets of Acclaim Comics. The Loan is also guaranteed by
Acclaim and certain of its subsidiaries and is secured by a first
priority lien on all of the issued and outstanding shares of
Acclaim Comics and by a third priority lien on substantially all
of the assets of the Company. The credit agreement and related
documents establishing and securing the Loan, as well as the
guarantees delivered by Acclaim and its subsidiaries, contain
customary financial, affirmative and negative covenants, including
mandatory prepayments from excess cash flow of Acclaim Comics and
from the proceeds of asset sales or sales of equity by the Company
and restrictions on the declaration or payment of dividends by
Acclaim Comics and the Company.
During 1995, the Company received a waiver through August 31,
1995 with respect to its failure to meet a financial covenant made
in connection with the Loan, which is required to be met on a
quarterly basis. The lender has advised the Company that it intends
to amend that financial covenant so that the Company will be in
compliance in future periods. However, since the covenant has not
yet been amended, the Company has reclassified the outstanding
balance of the Loan as a current liability. If the covenant is not
amended on or prior to January 14, 1995 (the date on which the
Company is required to certify to Midland its compliance with the
financial covenant at November 30, 1995) and the Company fails to
meet the current covenant as of November 30, 1995 and Midland does
not otherwise waive compliance by the Company with such covenant,
the Company would be required to repay the Loan in full on January
14, 1996.
During the year ended August 31, 1994, the Company acquired
certain marketable securities which were financed with cash flows
from operations. Substantially all of the securities were
disposed of during the fiscal year.
The Company completed the purchase of a 70,000 square foot
building and an adjoining parcel of land in April 1994. The
purchase price for such property (on which the Company's motion
capture studio is now located), and capital expenditures of
approximately $18 million for improvements to the property through
August 31, 1995, were financed with cash flows from operations.
Management believes that cash flow from operations and the
Company's borrowing facilities will be adequate to provide for the
Company's liquidity and capital needs for the foreseeable future.
The Company is party to various litigations arising in the
course of its business, the resolution of none of which, the
Company believes, will have a material adverse effect on the
Company's liquidity or financial condition. The Company is also
party to class action litigations. See "Legal Proceedings"
and Note 19 of the Notes to Consolidated Financial Statements.
13
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Certified Public Accountants
Board of Directors and Stockholders,
Acclaim Entertainment, Inc.
We have audited the accompanying consolidated balance sheets
of Acclaim Entertainment, Inc. and Subsidiaries as of August 31,
1995 and 1994 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the
three-year period ended August 31, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Acclaim Entertainment, Inc. and Subsidiaries
as of August 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the years in the three-year
period ended August 31, 1995 in conformity with generally accepted
accounting principles.
We have also audited financial statement schedule II of
Acclaim Entertainment, Inc. and Subsidiaries for each of the years
in the three-year period ended August 31, 1995. In our opinion,
the financial statement schedule presents fairly, in all material
respects, the information required to be set forth therein.
As described in Note 19, the Company and certain officers
have been named as defendants in various class action claims, the
outcome of which cannot presently be determined. Accordingly, no
provision for any liability that might result upon the resolution
of these matters has been made in the consolidated financial
statements.
GRANT THORNTON LLP
New York, New York
December 8, 1995
14
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000s, except per share data)
August 31,
1995 1994
---- ----
ASSETS
CURRENT ASSETS
Cash $ 44,749 $ 34,676
Marketable securities 26,503 1,926
Accounts receivable - net 179,311 164,794
Inventories 16,015 15,295
Prepaid expenses 41,083 23,214
Other current assets 18,825 10,796
------- ------
TOTAL CURRENT ASSETS 326,486 250,701
------- -------
OTHER ASSETS
Fixed assets - net 33,970 15,638
Excess of cost over net assets acquired - net of
accumulated amortization of $9,091 and $5,951,
respectively 59,837 59,400
Other assets 33,186 10,139
------- -------
TOTAL ASSETS $453,479 $335,878
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 49,072 $ 69,376
Short-term borrowings 4,233 1,757
Accrued expenses 47,017 43,914
Income taxes payable 180 2,031
Current portion of long-term debt 25,196 1,538
Obligation under capital leases - current 333 265
------- -------
TOTAL CURRENT LIABILITIES 126,031 118,881
------- -------
LONG-TERM LIABILITIES
Long-term debt ---- 40,196
Obligation under capital leases - noncurrent 408 719
Other long-term liabilities 53 839
------- -------
TOTAL LIABILITIES 126,492 160,635
------- -------
MINORITY INTEREST 1,628 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000 shares
authorized; None issued -- --
Common stock, $0.02 par value; 100,000 and
50,000 shares authorized, respectively; 46,281 and
39,348 shares issued and outstanding, respectively 926 787
Additional paid-in capital 168,785 69,246
Retained earnings 153,141 106,571
Treasury stock (807) (807)
Unrealized gain on available-for-sale securities 2,503 --
Foreign currency translation adjustment 811 (554)
------- -------
TOTAL STOCKHOLDERS' EQUITY 325,359 175,243
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $453,479 $335,878
------- -------
See notes to consolidated financial statements.
15
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(in 000s, except per share data)
Fiscal Year Ended August 31,
1995 1994 1993
---- ---- ----
NET REVENUES $566,723 $480,756 $327,091
COST OF REVENUES 268,501 220,744 170,748
------- ------- -------
GROSS PROFIT 298,222 260,012 156,343
------- ------- -------
OPERATING EXPENSES
Selling, advertising, general and
administrative expenses 214,056 176,725 104,986
Operating interest 3,957 1,979 1,183
Depreciation and amortization 9,543 3,838 3,227
------- ------- -------
TOTAL OPERATING EXPENSES 227,556 182,542 109,396
------- ------- -------
EARNINGS FROM OPERATIONS 70,666 77,470 46,947
------- ------- -------
OTHER INCOME (EXPENSE)
Interest income 2,131 1,338 1,078
Other income (expense) 6,859 (1,143) 1,347
Interest expense (3,382) (670) (1,287)
------- ------- -------
EARNINGS BEFORE INCOME TAXES 76,274 76,995 48,085
------- ------- -------
PROVISION FOR INCOME TAXES 31,625 31,940 19,975
------- ------- -------
EARNINGS BEFORE MINORITY INTEREST 44,649 45,055 28,110
------- ------- -------
MINORITY INTEREST 121 -- 75
------- ------- -------
NET EARNINGS $44,770 $45,055 $28,185
------- ------- -------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.86 $1.00 $0.63
------- ------- -------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT 52,300 45,150 44,875
SHARES OUTSTANDING ------- ------- -------
See notes to consolidated financial statements.
16
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(in 000s, except per share data)
<TABLE>
<CAPTION>
Preferred Stock(1) Common Stock Common Unrealized Foreign
Issued Issued Additional Stock Due Gain On Currency
------------------ ------------ Paid-In Retained Treasury From Marketable Translation
Shares Amount Shares Amount Capital Earnings Stock MCA Securities Adjustment
------ ------ ------ ------ ---------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance August 31, 1992 -- -- 23,303 $466 $30,533 $ 33,579 -- $(807) -- $ 935
---- ----- ------ --- ------ ------- --- ---- ----- ------
Net Earnings -- -- -- -- -- 28,185 -- -- -- --
Exercise of Stock Options -- -- 1,536 31 6,716 -- -- -- -- --
50% Stock Dividend -- -- 12,420 248 -- (248) -- -- -- --
Tax Benefit from Exercise of
Stock Options -- -- -- -- 1,128 -- -- -- -- --
Shares Received from MCA -- -- -- -- -- -- $(807) 807 -- --
Foreign Currency Translation Loss -- -- -- -- -- -- -- -- -- (3,899)
---- ----- ------ --- ------ ------- --- ---- ----- ------
Balance August 31, 1993 -- -- 37,259 745 38,377 61,516 (807) 0 -- (2,964)
---- ----- ------ --- ------ ------- --- ---- ----- ------
Net Earnings -- -- -- -- -- 45,055 -- -- -- --
Issuances -- -- 971 19 14,981 -- -- -- -- --
Exercise of Stock Options -- -- 1,118 23 7,435 -- -- -- -- --
Tax Benefit from Exercise of
Stock Options -- -- -- -- 8,453 -- -- -- -- --
Foreign Currency Translation Gain -- -- -- -- -- -- -- -- -- 2,410
---- ----- ------ --- ------ ------- --- ---- ----- ------
Balance August 31, 1994 -- -- 39,348 787 69,246 106,571 (807) 0 -- (554)
---- ----- ------ --- ------ ------- --- ---- ----- ------
Net Earnings -- -- -- -- -- 44,770 -- -- -- --
Issuances -- -- 5,182 104 83,659 -- -- -- -- --
Exercise of Stock Options -- -- 628 13 4,170 -- -- -- -- --
Pooling of Interests with Lazer-Tron -- -- 1,123 22 10,609 1,800 -- -- -- --
Tax Benefit from Exercise of
Stock Options -- -- -- -- 1,101 -- -- -- -- --
Foreign Currency Translation Gain -- -- -- -- -- -- -- -- -- 1,365
Unrealized Gain on
Marketable Securities -- -- -- -- -- -- -- -- $2,503 --
---- ----- ------ --- ------ ------- --- ---- ----- ------
Balance August 31, 1995 -- -- 46,281 $926 $168,785 $153,141 $(807) $ 0 $2,503 $ 811
---- ----- ------ --- ------ ------- --- ---- ----- ------
<CAPTION>
Total
-----
<S> <C>
Balance August 31, 1992 $ 64,706
------
Net Earnings 28,185
Exercise of Stock Options 6,747
50% Stock Dividend --
Tax Benefit from Exercise of
Stock Options 1,128
Shares Received from MCA --
Foreign Currency Translation Loss (3,899)
-------
Balance August 31, 1993 96,867
-------
Net Earnings 45,055
Issuances 15,000
Exercise of Stock Options 7,458
Tax Benefit from Exercise of
Stock Options 8,453
Foreign Currency Translation Gain 2,410
-------
Balance August 31, 1994 175,243
-------
Net Earnings 44,770
Issuances 83,763
Exercise of Stock Options 4,183
Pooling of Interests with Lazer-Tron 12,431
Tax Benefit from Exercise of
Stock Options 1,101
Foreign Currency Translation Gain 1,365
Unrealized Gain on
Marketable Securities 2,503
-------
Balance August 31, 1995 $325,359
=======
</TABLE>
(1) The Company is authorized to issue 1,000 shares of preferred stock at a par
value of $0.01 per share, none of which shares is presently issued and
outstanding.
See notes to consolidated financial statements.
17
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in 000s, except per share data)
Fiscal Year Ended August 31,
1995 1994 1993
---- ---- ----
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Cash received from customers $ 570,698 $ 470,396 $ 299,517
Cash paid to suppliers and employees (550,629) (409,767) (276,743)
Interest received 2,131 1,338 1,078
Interest paid (7,339) (2,649) (2,470)
Income taxes paid (22,127) (30,236) (16,974)
--------- --------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (7,266) 29,082 4,408
--------- --------- --------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Acquisition of subsidiaries, net 1,743 (47,805) --
Investment in marketable securities -- (10,375) --
Sales of marketable securities 57,160 8,314 --
Acquisition of fixed assets, excluding
capital leases (29,862) (10,195) (2,308)
Disposal of fixed assets 284 15 --
Acquisition of other assets (2,919) (2,954) (148)
--------- --------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 26,406 (63,000) (2,456)
--------- --------- --------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from term loan -- 40,000 --
Proceeds from short-term bank loans 11,304 14,278 51,034
Payment of short-term bank loans (8,769) (20,313) (44,159)
Payment of mortgage (1,342) (87) (87)
Exercise of stock options 4,183 7,458 6,747
Payment of obligation under capital
leases (292) (156) (446)
Issuance of common stock 1,398 -- --
Payment of long-term debt (16,046) -- --
--------- --------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (9,564) 41,180 13,089
--------- --------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 497 1,669 (2,982)
--------- --------- --------
NET INCREASE IN CASH 10,073 8,931 12,059
CASH AT BEGINNING OF YEAR 34,676 25,745 13,686
--------- --------- --------
CASH AT END OF YEAR $ 44,749 $ 34,676 $ 25,745
--------- --------- --------
18
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Continued)
(in 000s, except per share data)
Fiscal Year Ended August 31,
1995 1994 1993
---- ---- ----
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings $ 44,770 $45,055 $ 28,185
-------- ------- -------
Adjustment to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,543 3,838 3,227
(Gain) loss on investment in marketable
securities (5,968) 135 --
(Decrease) increase in allowance for returns
and discounts (18,747) 10,748 12,080
Deferred taxes 8,610 (3,571) (4,037)
Minority interest in net earnings of
consolidated subsidiary (121) -- (75)
Other non-cash charges 1,752 32 17
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 9,713 (69,982) (53,081)
Decrease (Increase) in inventories 1,298 8,643 (14,114)
(Increase) in prepaid expenses (17,345) (3,446) (9,073)
(Increase) Decrease in other current assets (8,813) 2,111 8
Decrease in advance payment to suppliers -- 2,492 2,277
(Decrease) Increase in trade accounts payable (23,031) 10,940 25,938
Increase in accrued expenses 580 13,147 13,889
(Decrease) Increase in income taxes payable (9,507) 8,940 (833)
-------- ------- -------
Total adjustments (52,036) (15,973) (23,777)
-------- ------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ (7,266) $29,082 $ 4,408
-------- ------- -------
Supplemental schedule of noncash investing and financing activities:
In fiscal 1995, the Company purchased all of the capital stock of Iguana
Entertainment, Inc. for $5,513, net of cash received. In connection with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired $ 9,179
Cash paid for the capital stock (5,513)
-------
Liabilities assumed $ 3,666
-------
In fiscal 1995, the Company issued 4,349 shares of its common stock, valued at
$71,472, in exchange for 3,403 shares of Tele-Communications, Inc. Class A
common stock.
In fiscal 1994, the Company purchased all of the capital stock of Acclaim Comics
for $62,805, net of cash received. In connection with the acquisition,
liabilities assumed were as follows:
Fair value of assets acquired $ 67,478
Cash paid for the capital stock (50,588)
Fair market value of common stock issued (15,000)
--------
Liabilities assumed $ 1,890
--------
See notes to consolidated financial statements.
19
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of
Acclaim Entertainment, Inc. and its subsidiaries (the "Company").
All material intercompany balances and transactions have been
eliminated.
B. Marketable Securities
The Company determines the appropriate classification of debt
and equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Securities are
classified as held-to-maturity when the Company has the intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at cost and investment income is included in
earnings. The Company classifies certain highly liquid securities
as trading securities. Trading securities are stated at fair
value and unrealized holding gains and losses are included in
income. Securities that are not classified as held-to-maturity or
trading are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized holding
gains and losses, net of tax, reported as a separate component of
stockholders' equity.
C. Inventories
Inventories are stated at the lower of FIFO cost (first-in,
first-out) or market and consist principally of finished goods.
D. Fixed Assets
Property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives of the assets, or, where applicable, the terms of the
respective leases, whichever is shorter. The asset values of
capitalized leases are included in fixed assets and the associated
liabilities are reflected as obligations under capital leases.
E. Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on the
straight-line basis over periods ranging from five to forty years
from the original date of acquisition. In March 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121") that establishes
accounting standards for the impairment of long-lived assets,
certain intangibles, and goodwill related to those assets to be
20
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. In conformity with SFAS No. 121,
it is the Company's policy to evaluate and recognize an impairment
if it is probable that the recorded amounts are in excess of
anticipated undiscounted future cash flows.
F. Net Revenues
Revenues are recorded when products are shipped to customers.
The Company records allowances for returns and discounts, based
upon management's evaluation of historical experience as well as
current industry trends. The Company also recognizes revenue on
sub-licensing of its intellectual properties. Such revenues are
recognized under royalty agreements when the Company fulfills all
of its obligations in accordance with such agreements.
G. Foreign Currency Translations
In accordance with Statement of Financial Accounting
Standards No. 52, assets and liabilities of foreign operations are
translated at current rates of exchange while results of
operations are translated at average rates in effect for the
period. Unrealized gains and losses from the translation of
foreign assets and liabilities are classified as a separate
component of stockholders' equity. Included in other income
(expense) are realized gains and (losses) from foreign currency
transactions of $5,092 and ($4,576), $2,610 and ($3,336) and
$5,468 and ($3,862) for fiscal years 1995, 1994 and 1993,
respectively. The Company does not enter into material foreign
currency hedging transactions.
H. Reclassifications
Certain reclassifications were made to prior period amounts
to conform to current period classifications.
2. LICENSE AGREEMENTS
The Company has various license agreements with Nintendo Co.,
Ltd. (Japan) (Nintendo Co., Ltd. and its subsidiary, Nintendo of
America, Inc., are collectively herein referred to as "Nintendo")
pursuant to which it has the nonexclusive right to utilize the
"Nintendo" name and its proprietary information and technology in
order to develop and market interactive entertainment software
("Software") for use with the 8-bit Nintendo Entertainment System
("NES"), the Nintendo Game Boy portable game console ("Game Boy")
and the 16-bit Nintendo Entertainment System ("SNES") in various
territories throughout the world. The license agreements with
21
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
2. LICENSE AGREEMENTS (continued)
Nintendo for the different platforms expire at various times
between 1996 and 1997.
In April 1992, the Company entered into an agreement with
Sega Enterprises Ltd. ("Sega"), pursuant to which the Company
received the nonexclusive right to utilize the "Sega" name and its
proprietary information and technology in order to develop and
distribute Software titles for use with the 8-bit Sega Master
System ("Master System"), the 16-bit Sega Genesis ("Genesis")
system, the Sega Game Gear ("Game Gear") portable system and the
Sega CD ("Sega CD") system for a two-year period which expired in
January 1994. The Company exercised its option to extend the Sega
Agreement, which agreement, as amended, has been extended for a
two-year period expiring December 31, 1995.
In December 1994, the Company entered into agreements with
divisions of Sony Electronic Publishing Company pursuant to which
the Company received the nonexclusive right to utilize its
proprietary information and technology in order to develop and
distribute Software titles for use with the CD-based
PlayStation(Trademark) for a four-year period expiring in December
1998 in the United States and a five-year period expiring in December
1999 in Japan.
3. ACQUISITIONS
IGUANA ENTERTAINMENT, INC.
On January 4, 1995, the Company acquired Iguana
Entertainment, Inc. ("Iguana"), a developer of interactive video
games, pursuant to the terms of an Agreement and Plan of Merger
dated December 20, 1994. The acquisition was accounted for as a
purchase. The operating results of Iguana are included in the
Statements of Consolidated Earnings from the acquisition date.
Accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values at the date of
acquisition.
In consideration for the stock of Iguana, the Company paid
$5,000 in cash. The total cost of the acquisition was $7,342,
(which includes direct acquisition costs) of which $2,357 was
allocated to identified net tangible assets. The remaining
balance of $4,985 represents the excess of the purchase price over
the valuation of the net assets acquired, which is being amortized
on a straight-line basis over five years.
Pro forma results of operations, assuming the acquisition had
been made at the beginning of each year presented, would not be
materially different from the results reported.
22
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
3. ACQUISITIONS (continued)
LAZER-TRON CORPORATION
On August 31, 1995, the Company acquired Lazer-Tron
Corporation ("Lazer-Tron"), a developer and manufacturer of
coin-operated redemption games, pursuant to an Agreement and Plan
of Merger dated March 22, 1995, as amended. Under the terms of
the agreement, Lazer-Tron shareholders received 0.314 of a share
of the Company's common stock for each share of Lazer-Tron common
stock. Accordingly, the Company issued approximately 1,123 shares
of its common stock for all the outstanding shares of Lazer-Tron
common stock. Additionally, outstanding options and warrants to
acquire Lazer-Tron common stock were converted to options and
warrants to acquire 318 shares of the Company's common stock.
The acquisition was accounted for as a pooling of interests
and accordingly, the Company's financial statements for the year
ended August 31, 1995 have been restated to include the results of
Lazer-Tron. Prior period financial statements were not restated
as the acquisition did not have a material effect upon previously
reported net income of the consolidated entities.
ACCLAIM COMICS, INC.
On July 29, 1994, the Company acquired Acclaim Comics, Inc.
(formerly Voyager Communications Inc.) ("Acclaim Comics"),
publisher of Valiant Comics, pursuant to the terms of an Agreement
and Plan of Merger dated April 30, 1994. The acquisition was
accounted for as a purchase. The operating results of Acclaim
Comics are included in the Statements of Consolidated Earnings
from the acquisition date. Accordingly, the acquired assets and
liabilities have been recorded at their estimated fair values at
the date of acquisition.
In consideration for the stock of Acclaim Comics, the Company
paid $65,000 comprised of (i) $50,000 in cash and (ii) 971 shares
of the Company's common stock. The total cost of the acquisition
was $65,588 (which includes direct acquisition costs) of which
$9,505 was allocated to identified net tangible assets. The
remaining balance of $56,083 represents the excess of the purchase
price over the valuation of the net assets acquired, which will be
amortized on a straight-line basis over forty years. In
connection with the acquisition, Acclaim Comics obtained a $40,000
term loan. (See note 11.)
23
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
3. ACQUISITIONS (continued)
The following unaudited combined pro forma information shows
the results of operations for the periods presented as though the
purchase of Acclaim Comics had been made at the beginning of each
of the fiscal years.
Twelve Months Ended
August 31,
1994 1993
---- ----
Net sales $504,436 $357,354
Net earnings 47,695 34,678
Net earnings per share 1.04 0.76
The pro forma results of operations are not necessarily
indicative of the actual results of operations that would have
occurred had the purchase been made at the beginning of the
respective fiscal years, or of results which may occur in the
future.
4. MARKETABLE SECURITIES
On October 19, 1994, Acclaim Cable Holdings, Inc., a wholly-
owned subsidiary of the Company, entered into a Partnership
Agreement (the "Partnership Agreement") with TCI GameCo Ventures,
Inc., an indirect wholly-owned subsidiary of Tele-Communications,
Inc. ("TCI"), for the creation of a Delaware limited partnership
(the "Joint Venture"), the interests in which are indirectly held
65% by the Company and 35% by TCI. The principal purposes of the
Joint Venture are to develop and acquire (including by purchase or
license), entertainment software for interactive networks, as well
as to promote a standard for broadband network gaming to be
incorporated into advanced set-top boxes.
In connection with the execution of the Partnership
Agreement, the Company entered into an Exchange Agreement (the
"Exchange Agreement") with TCI and TCI GameCo Holdings, Inc. ("TCI
Sub"), pursuant to which the Company issued and sold to TCI Sub
4,349 shares of the Company's common stock in exchange for 3,403
shares of Class A Common Stock of TCI. Marketable securities at
August 31, 1995 consist primarily of Class A Common Stock of TCI.
Such shares have been classified as "available-for-sale"
securities and accordingly, are stated at fair market value and
unrealized holding gains of $2,503 (net of income taxes of $1,784)
are classified as a component of stockholders' equity. In fiscal
1995, other income includes realized gains from the sale of
marketable securities of $5,968, as determined using the specific
cost method.
24
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
5. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
August 31,
1995 1994
---- ----
Receivables assigned to factor $155,782 $147,457
Less advances from factor 37,082 12,192
-------- --------
Due from factor 118,700 135,265
Unfactored accounts receivable 33,093 7,848
Accounts receivable - Foreign 41,743 47,235
Other receivables 5,410 9,773
Allowances for returns
and discounts (19,635) (35,327)
-------- --------
$179,311 $164,794
-------- --------
Pursuant to a factoring agreement, the Company's principal
bank acts as its factor for the majority of its North American
receivables, which are assigned on a pre-approved, nonrecourse
basis. The factoring charge amounts to 0.25% of the receivables
assigned. The Company's obligations to the bank are
collateralized by all of the Company's and its North American
subsidiaries' accounts receivable, inventories and equipment. The
Company has entered into a revolving credit and security agreement
with the same bank, which expires on January 31, 1996, in the
amount of $70 million. Pursuant to the terms of the agreement,
which can be cancelled by either party upon 90 days' written
notice, the Company is required to maintain specified levels of
working capital and net worth. The Company draws down working
capital advances and opens letters of credit against the facility
in amounts determined on a formula based on factored receivables,
inventory and cost of imported goods under outstanding letters of
credit. Interest is charged at the bank's prime lending rate
minus one-half of one percent (8.25% at August 31, 1995) per annum
on such advances. Pursuant to the terms of certain distribution,
warehouse and credit and collection agreements, certain of the
Company's foreign accounts receivable are due from certain
distributors. These receivables are not collateralized and as a
result management continually monitors the financial condition of
these distributors. No additional credit risk beyond amounts
provided for collection losses is believed inherent in the
Company's accounts receivable. At August 31, 1995 and 1994, the
balance due from a distributor was approximately 19% and 47% of
Accounts receivable - Foreign, respectively.
25
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
6. PREPAID EXPENSES
Prepaid expenses are comprised of the following:
August 31,
1995 1994
---- ----
Royalty advances $25,640 $18,392
Prepaid advertising costs 6,292 2,875
Other prepaid expenses 9,151 1,947
------- -------
$41,083 $23,214
------- -------
Royalty advances represent advance payments made to
independent developers and licensors of intellectual properties.
All payments with respect to these agreements are recoupable
against future royalties in excess of minimum nonrefundable
advances made in respect of games licensed under the terms of
these agreements. Prepaid advertising costs consist principally
of advance payments in respect of television and other media
advertising. Advertising expenses are charged to operations upon
first utilization. Advertising expenses for fiscal years 1995, 1994
and 1993 were approximately $33,145, $30,329 and $15,562,
respectively.
7. FIXED ASSETS
The major classes of fixed assets are as follows:
August 31,
1995 1994
---- ----
Buildings and improvements $21,351 $3,307
Furniture, fixtures
and equipment 19,608 8,493
Automotive equipment 1,368 1,327
------- -------
42,327 13,127
Less: accumulated depreciation (8,357) (4,366)
Construction in progress --- 6,877
------- -------
$33,970 $15,638
------- -------
26
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
8. OTHER ASSETS
Other assets are comprised of the following:
August 31,
1995 1994
---- ----
Deferred compensation $10,652 ---
Royalty advances 5,000 $3,675
Investments 4,000 ---
Other assets 13,534 6,464
------- -------
$33,186 $10,139
------- -------
Deferred compensation represents escrow accounts on behalf of
certain executives pursuant to employment agreements. Such amounts
will be recorded as expense when earned over the terms of the
agreements, generally three to five years, and are recoverable by the
Company if the executives' employment with the Company is terminated
upon the occurrence of certain events specified in the respective
employment agreements.
9. SHORT-TERM BORROWINGS
Short-term borrowings consist of notes payable to banks in
Japan and are guaranteed by the Company. The notes are
short-term, maturing within 90 days and are collateralized by
inward letters of credit and promissory notes from distributors.
The annual interest rate applicable to the bank loans at August
31, 1995 was 3%. Such agreement also provides that the bank has
the right to offset cash of the Company collected under the inward
letters of credit and promissory notes from distributors and
deposited with it against the associated short-term notes.
10. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
August 31,
1995 1994
---- ----
Accrued royalties payable $18,712 $22,209
Accrued selling expenses 8,957 6,711
Accrued payroll and
payroll taxes 5,750 4,932
Other accrued taxes 3,606 3,661
Other accrued expenses 9,992 6,401
------- -------
$47,017 $43,914
------- -------
27
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
11. LONG-TERM DEBT
Long-term debt consists of the following:
August 31,
1995 1994
---- ----
(A) Term loan $25,000 $40,000
(B) Mortgage note --- 1,342
Other 196 392
------- -------
25,196 41,734
Less: current portion 25,196 1,538
------- -------
$ 0 $40,196
------- -------
(A) In connection with its acquisition by the Company,
Acclaim Comics entered into a credit agreement for a loan (the
"Loan") of $40 million. In connection with the establishment of
the Joint Venture and the related stock swap with TCI, the Company
reached an agreement with the lender pursuant to which it repaid
$15 million of the Loan and the remaining $25 million principal
amount of the Loan is being amortized over a four and one-half
year period terminating in July 1999. The Loan, which is a direct
obligation of Acclaim Comics, bears interest, at the borrower's
option, at either (i) the higher of the federal funds rate plus
one-half of 1% and the lender's prime rate, in each case, plus 125
basis points or (ii) London interbank offered rate plus 250 basis
points (8.375% at August 31, 1995), and is collateralized by a
first priority lien on substantially all of the assets of Acclaim
Comics. The credit agreement and related documents establishing
and securing the Loan, as well as the guarantees delivered by the
Company, contain customary financial, affirmative and negative
covenants, including mandatory prepayments from excess cash flow of
Acclaim Comics and from the proceeds of asset sales or sales of
equity by the Company and restrictions on the encumbrance of assets
and on the declaration or payment of dividends by Acclaim Comics
and the Company. During 1995, the Company received a waiver through
August 31, 1995 with respect to a financial covenant under the
credit agreement. The lender has advised the Company that it
intends to amend that covenant so that the Company will be in
compliance. However, because the revised covenant is not yet in
effect, the Company has reclassified the outstanding balance of the
loan as a current liability.
(B) The mortgage note bore interest at 1/2% above the bank's
prime lending rate (7.75% at August 31, 1994) and was payable in
monthly installments of $7 plus interest commencing March 1, 1990
up to and including February 1, 1995. On March 1, 1995, the
principal balance with accrued interest was due and paid.
28
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
11. LONG-TERM DEBT (continued)
The annual maturities for the years ending August 31 are as
follows:
1996 $25,196
-------
$25,196
-------
12. OBLIGATIONS UNDER CAPITAL AND OPERATING LEASES
The Company is committed under various capital leases for
automotive and computer equipment expiring at various dates
through 1999. Future minimum payments required under such leases
are as follows:
Years ending August 31,
1996 $379
1997 209
1998 207
1999 28
----
Total minimum lease payments 823
Less: amount representing
interest 82
----
Present value of net minimum
lease payments $741
----
The present value of net minimum lease payments is reflected
on the balance sheet as current and noncurrent obligations under
capital leases of $333 and $408, respectively.
The Company has operating leases for rental space and
equipment which expire on various dates through 2003. The leases
provide for contingent rentals based upon escalation clauses.
Future minimum rental payments required under such leases are as
follows:
Years ending August 31,
1996 $1,996
1997 1,976
1998 1,701
1999 1,022
2000 954
Thereafter 1,374
------
Total minimum lease payments $9,023
------
29
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
13. PROVISION FOR INCOME TAXES
During fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes. The statement requires the use of the asset and liability
approach for financial accounting and reporting for income taxes.
Financial statements for prior years have not been restated and
the cumulative effect of the accounting change was not material.
The provision for taxes on income consists of the following:
1995 1994 1993
---- ---- ----
Current:
Federal $20,131 $21,382 $17,322
Foreign (457) 991 1,627
State 2,240 4,685 3,935
------- ------- -------
21,914 27,058 22,884
------- ------- -------
Deferred:
Federal 8,880 (3,551) (3,760)
Foreign (270) (20) (277)
------- ------- -------
8,610 (3,571) (4,037)
------- ------- -------
Charge in lieu of income taxes 1,101 8,453 1,128
------- ------- -------
Total income tax provision $31,625 $31,940 $19,975
------- ------- -------
The following is a reconciliation of the federal statutory
tax rate with the effective tax rate:
1995 1994 1993
---- ---- ----
Statutory tax rate 35.0% 35.0% 34.6%
State income taxes, net of
federal income tax benefit 2.2 3.6 5.5
Nondeductible amortization 2.1 1.0 1.4
Foreign tax rates, net of
foreign tax credits 0.2 1.3 ---
Other, net 2.0 0.6 ---
---- ---- ----
Effective rate 41.5% 41.5% 41.5%
---- ---- ----
30
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
13. PROVISION FOR INCOME TAXES (continued)
The deferred tax assets and deferred tax liabilities recorded
on the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Reserves and allowances $1,662 --- $9,371 ---
Investment in subsidiary 3,664 --- 4,274 ---
Unrealized gains on marketable
securities --- $1,784 --- ---
Foreign net operating loss
carryforwards 1,059 --- 487
Other 692 43 507 $243
------ ------ ------- ----
7,077 1,827 14,639 243
Valuation allowance 548 -- 487 --
------ ------ ------- ----
$6,529 $1,827 $14,152 $243
------ ------ ------- ----
</TABLE>
At August 31, 1995 and 1994, one of the Company's foreign
subsidiaries had unused tax benefits of $548 and $487,
respectively, related to foreign net operating loss carryforwards.
A full valuation allowance has been recognized to offset the
related deferred tax asset due to the uncertainty of realizing the
benefit of the loss carryforwards. Deferred tax assets of $2,259
and $10,796 are classified as other current assets at August 31,
1995 and 1994, respectively. During fiscal 1995, additional tax
benefits at $1,187 attributable to Acclaim Comics were recorded as
a reduction of the excess cost over the net assets acquired.
Included in other current assets are refundable income taxes of
$14,171 at August 31, 1995.
A provision for additional taxes on income which would become
payable upon the repatriation of the earnings from its foreign
subsidiaries has not been provided since, upon repatriation, the
tax consequences of such distributions would be substantially
offset by available foreign tax credits.
14. STOCK SPLIT
On August 2, 1993, the Board of Directors authorized a
three-for-two stock split of the Company's common stock in the
form of a 50% stock dividend, to stockholders of record on August
12, 1993. Except for shares authorized, all references to number
of shares and to per share information in the consolidated
financial statements have been adjusted to reflect the stock split
on a retroactive basis.
31
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
15. EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
Earnings per common share and common share equivalents are
computed by dividing net earnings by the weighted average number
of common shares and common share equivalents outstanding. The
weighted average number of common shares and common share
equivalents used in computing net earnings per common share for
the years ended August 31, 1995, 1994 and 1993 were 52,300, 45,150
and 44,875, respectively. Antidilutive stock options and warrants
were not included.
16. STOCK OPTION PLAN
In May 1988, the Board of Directors adopted a stock option
plan whereby the Company may grant options for the purchase of up
to 2,250 shares of its common stock to key employees. On May 22,
1990, the stockholders authorized an increase from 2,250 to 4,500
in the number of shares subject to options under the plan and
authorized the grant of such options to any employee, not only to
key employees of the Company. The Board and the stockholders
subsequently approved certain changes in the 1988 Stock Option
Plan, including an increase in the number of shares with respect
to which options may be granted thereunder to 15,000. The
exercise price per share of all options heretofore granted has
been the market price, or 110% thereof for certain employees, or,
for non-incentive options, not less than 85% of market price, of
the Company's common stock on the date of grant. Generally,
outstanding options become exercisable evenly over a three year
period from the date of grant (although this may be accelerated
due to retirement or death). Outstanding options must be
exercised within ten years from the date of the grant, or within
five years from the date of the grant for certain employees. The
1988 Stock Option Plan terminates in May 1998. At August 31,
1995, options to purchase approximately 4,193 shares were
exercisable.
32
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
16. STOCK OPTION PLAN (continued)
Transactions are summarized as follows:
<TABLE>
<CAPTION>
Shares Under Option
------------------------- Exercise
Incentive Non-Incentive Price
--------- ------------- --------
<S> <C> <C> <C>
Outstanding, August 31, 1992 2,616 3,898 $0.89-5.92
----- ------
Granted 1,831 1,900 $11.17-21.33
Exercised (832) (736) $0.89-4.58
Cancelled (20) --- $1.95-5.92
----- ------
Outstanding, August 31, 1993 3,595 5,062 $0.89-21.33
----- ------
Granted 864 2,303 $13.25-25.25
Exercised (451) (635) $1.95-11.17
Cancelled (450) (1,726) $1.95-25.25
----- ------
Outstanding, August 31, 1994 3,558 5,004 $0.89-21.75
----- ------
Conversion of Lazer-Tron Options 108 27 $5.41-40.61
Granted 1,596 2,861 $13.75-24.00
Exercised (464) (43) $1.95-17.92
Cancelled (427) (2,022) $3.92-20.63
----- ------
Outstanding, August 31, 1995 4,371 5,827 $0.89-40.61
----- ------
</TABLE>
In addition, options to purchase 37 shares of common stock at
$4.17 per share, 37 shares of common stock at $5.67 per share, 37
shares of common stock at $4.58 per share, 56 shares of common stock
at $2.08 per share, 150 shares of common stock at $2.04 per share,
11 shares of common stock at $3.92 per share, 19 shares of common
stock at $13.25 per share, 56 shares of common stock at $16.00 per
share and 250 shares of common stock at $13.25 per share were granted
outside the 1988 Stock Option Plan.
17. STOCK WARRANTS
At August 31, 1995, 2,625 stock warrants were outstanding and
exercisable. The stock warrants entitle the holders thereof to
purchase 1,500 shares of common stock at $2.42 per share and 1,125
shares of common stock at $3.00 per share. The stock warrants
expire in 1996.
In addition, at August 31, 1995, the 851 outstanding stock
warrants to purchase shares of Lazer-Tron (see note 3) were
converted into warrants entitling the holders thereof to purchase
17 shares of common stock at $30.57 per share, 40 shares of common
stock at $9.55 per share and 105 shares of common stock at $15.92
per share. In addition, certain of such warrants entitle the
holders thereof to receive warrants to purchase 20 shares of
common stock at $15.92 per share. All of these warrants expire at
various times between 1996 and 1998.
33
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
18. MAJOR SUPPLIERS AND CUSTOMERS AND RELATED PARTY TRANSACTIONS
A. Major Suppliers and Customers
The Company is substantially dependent on Nintendo as the
sole manufacturer of SNES and Game Boy hardware and a significant
portion of the Software for those platforms and as the sole
licensor of the proprietary information and the technology needed
to develop the Software for those platforms; and on Sega as the
sole manufacturer of Genesis, Master System, Game Gear and Sega CD
hardware and a portion of Software for those platforms and as the
sole licensor of the proprietary information and the technology
needed to develop Software for those platforms. In fiscal years
1995, 1994 and 1993, the Company derived 47%, 45% and 66% of its
gross revenues, respectively, from sales of Nintendo-compatible
products and in fiscal years 1995, 1994 and 1993, the Company
derived 46%, 55% and 34% of its gross revenues, respectively, from
sales of Sega-compatible products.
The Company markets its products primarily to mass
merchandise companies, large retail toy store chains, department
stores and specialty stores. Sales to one customer represented
approximately 11%, 12% and 13% of revenues for the years ended
August 31, 1995, 1994 and 1993, respectively.
B. Related Party Transactions
Sales commissions are payable to companies owned or
controlled by one of the Company's principal stockholders for
sales obtained by these companies. These commissions amounted to
approximately $2,249, $3,657 and $2,326 for the years ended August
31, 1995, 1994 and 1993, respectively, of which $458 and $1,236
are included in accrued expenses at August 31, 1995 and 1994,
respectively.
19. COMMITMENTS AND CONTINGENCIES
In February 1986, Nintendo was named as a defendant in a
patent infringement suit brought in the District Court of the
Southern District of New York by Alpex Computer Corporation
("Alpex"), alleging that certain aspects of the NES and NES
Software infringe a patent held by Alpex relating to the use in
NES Software of rotating images, and seeking compensatory and
injunctive relief. By letter dated April 14, 1988, Alpex alleged
possible patent infringement by the Company and informed the
Company that it was willing to offer the Company a license for its
patent. Alpex also indicated that it was its intention to pursue
remedies against all infringers of its patent. The Company was
informed by Nintendo that Nintendo believed the Alpex patent to be
invalid and that the NES and NES Software did not infringe such
34
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
19. COMMITMENTS AND CONTINGENCIES (continued)
patent. The Company did not further pursue its options with Alpex
and, to date, no actual claim of infringement has been made
against the Company nor has the Company been named in any
litigation by Alpex nor has the Company received any further
communication from Alpex.
In June 1994, Alpex's patent infringement suit against
Nintendo was tried and a jury found Alpex's patent to be valid and
infringed by certain NES Software, including "Wizards and
Warriors" and "Rambo" which are Software titles published by the
Company. On August 1, 1994, damages of approximately $208.2
million (which are payable by Nintendo) were awarded by the jury.
In October 1995, Nintendo appealed the liability verdict and the
damages award. To date, no damages have been sought from the
Company in respect of the NES Software titles published by the
Company and found by the jury to infringe Alpex's patent or in
respect of any other titles published by the Company, although
there can be no assurance that such damages will not be sought.
The Company cannot predict the final outcome of the litigation
between Alpex and Nintendo. However, based on the Software
products identified as infringing the Alpex patent in the
litigation, the Company believes that the impact, if any, of the
litigation on the Company would not be material.
LJN Toys, Ltd., a subsidiary of the Company, is a party to
various lawsuits arising in the course of its business prior to
its acquisition by the Company. However, MCA INC., the former
owner, has agreed to defend and indemnify the Company from
liabilities arising out of such lawsuits. Additionally, the
Company is a defendant in various lawsuits arising in the ordinary
course of business. It is the opinion of management of the
Company that it has meritorious defenses against all such claims
and that the outcome of such litigation would not have a material
adverse effect on the financial condition of the Company.
In April 1994, the Company and its executive officers were
sued in four actions, which were consolidated in July 1994. In
the amended class action complaint, the plaintiffs claim
unspecified damages based on their allegation that, by no later
than January 12, 1994, the Company knew or should have known that
(i) it was likely that its license agreement with WMS Industries,
Inc. ("WMS") would not be renewed, (ii) the nonrenewal of the
license agreement would have a material adverse impact on the
Company, (iii) any joint venture or other agreement between WMS
and the Company that might be entered into in the future, however
unlikely that may be, would be on terms substantially less
advantageous to the Company than the license agreement and (iv)
statements by the Company's representative that rumors relating to
the nonrenewal of the license agreement were "unsubstantiated" and
35
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
19. COMMITMENTS AND CONTINGENCIES (continued)
that talks between the Company and WMS were continuing, were
materially false and misleading. Accordingly, the plaintiffs
claim that the defendants should have disclosed the likely
nonrenewal of the license agreement in the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30, 1993, which
was filed on January 13, 1994. The effect of nonrenewal of the
Company's license agreement with WMS is that the Company does not
have a right of first refusal with respect to arcade games
released by WMS after March 21, 1995. Sales of Mortal Kombat
Software products (a game released by WMS) represented a
significant portion of the Company's revenues in fiscal 1993,
sales of each of Mortal Kombat II and NBA Jam Software products
(games released by WMS) represented a significant portion of the
Company's revenues in fiscal 1994 and sales of NBA Jam Tournament
Edition Software products (a game released by WMS) represented a
significant portion of the Company's revenues in fiscal 1995.
Discovery in the actions is on going. The Company believes that
the actions are without merit and lack any basis in fact and
intends to defend the actions vigorously.
On April 28, 1995, Lazer-Tron and certain of its directors
and officers were named as defendants in a lawsuit filed in the
Superior Court of the State of California, County of Alameda --
Eastern Division. This action, titled Goldstein v. Lazer-Tron
Corporation, et al., was filed seeking, among other things,
certification of the lawsuit as a class action on behalf of all
Lazer-Tron shareholders, a preliminary and permanent injunction to
prohibit consummation of the merger and to compel the individual
defendants to fulfill what the plaintiff claimed were their
fiduciary duties to, among other things, cooperate with any other
entity with an interest in acquiring Lazer-Tron and enhance Lazer-
Tron's value as a merger candidate. On May 30, 1995, an amended
complaint was filed. The plaintiff alleged that the individual
defendants violated state law by committing unfair business
practices, and breached their fiduciary duties as a result of the
manner in which, and the timing of, the determination to merge
Lazer-Tron occurred, the manner in which negotiations with Acclaim
were conducted and in recommending approval of the merger
agreement and the merger. The merger was consummated on August
31, 1995. Lazer-Tron intends to defend this action vigorously.
By complaints dated December 4, 1995 and December 5, 1995,
the Company was sued in eight actions (the "Actions") entitled (i)
Mohammed Ali Kahn v. Gregory E. Fischbach, James Scoroposki,
Robert Holmes and Acclaim Entertainment, Inc. (CV 95 4983), (ii)
Richard J. Wenski, individually and on behalf of all other persons
similarly situated, v. Acclaim Entertainment. Inc., Gregory E.
Fischbach, Robert Holmes and Anthony Williams (CV 95 4996), (iii)
Yosef Stern v. Acclaim Entertainment, Inc.; Gregory E. Fischbach;
36
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
19. COMMITMENTS AND CONTINGENCIES (continued)
James Scoroposki: Robert Holmes and Anthony Williams (CV 95 4990),
(iv) Marc Jaffe, on behalf of himself and all others similarly
situated, v. Acclaim Entertainment, Inc., Gregory E. Fischbach,
James Scoroposki, Robert Holmes, and Anthony Williams (CV 95
4989), (v) Robert Bloom v. Acclaim Entertainment, Inc. and Robert
Holmes (CV 95 4993), (vi) James Bencivenga, on behalf of himself
and all others similarly situated, v. Gregory E. Fischbach, James
Scoroposki, Robert Holmes, Anthony Williams and Acclaim
Entertainment, Inc. (CV 95 4985), (vii) Henry Vredeveld, on behalf
of himself and all others similarly situated, v. Anthony Williams
and Acclaim Entertainment, Inc. (CV 95 4979), (viii) Michael Leitzes,
individually and on behalf of all others similarly situated, v.
Acclaim Entertainment, Inc., Robert Holmes and Gregory Fischbach (CV
95 5004), and (ix) Alan Yakuboff, on behalf of himself and all others
similarly situated, v. Acclaim Entertainment, Inc., Gregory E.
Fischbach, James Scoroposki and Anthony Williams (CV 95 5017), all in
the United States District Court in the Eastern District of New York.
The individual named defendants are directors and/or executive
officers of the Company. The plaintiffs, on behalf of a class of the
Company's stockholders, claim unspecified damages arising from the
Company's December 4, 1995 announcement that it is revising results
for the fiscal year ended August 3l, 1995 to reflect a decision to
defer $18 million of revenues and $10.5 million of net income
previously reported on October 17, 1995 for the fiscal year ended
August 31, 1995. The Company intends to defend the Actions
vigorously.
At August 31, 1995, the Company had outstanding letters of
credit aggregating approximately $24,085 for the purchase of
merchandise. In addition to its factoring and revolving credit
arrangement (see note 5), the Company currently has a $30,000
trade finance facility with another bank. The Company's
subsidiaries had independent facilities totalling approximately
$45,000 with various banks at August 31, 1995.
Trade accounts payable include $22,000 and $34,542 at August
31, 1995 and 1994, respectively, which were collateralized under
outstanding letters of credit.
The Company has established an Employee Savings Plan (the
"Plan") as of April 1, 1995, which qualifies as a deferred salary
arrangement under section 401(k) of the Internal Revenue Code.
The Plan is available to all United States employees who meet the
eligibility requirements. Under the Plan, participating employees
may elect to defer a portion of their pretax earnings, up to the
maximum allowed by the Internal Revenue Service (up to 15% or
$9,240 for calendar year 1995). All amounts vest immediately.
Generally, the Plan assets in a participant's account will be
distributed to a participant or his or her beneficiaries upon
termination of employment, retirement, disability or death. The
Plan provides for, at the Company's option, additional
contributions to the Plan by the Company. No additional
37
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
19. COMMITMENTS AND CONTINGENCIES (continued)
contributions were made during fiscal 1995. All Plan
administrative fees are paid by the Company.
The Company has entered into employment agreements with
certain of its directors and officers which provide for annual
bonus payments based on consolidated income before income taxes,
in addition to their base compensation.
20. OPERATIONS IN GEOGRAPHIC AREAS
The Company is primarily engaged in one industry segment, the
development, marketing and distribution of Software products. The
following information sets forth geographic information on the
Company's sales, earnings from operations and identifiable assets.
<TABLE>
<CAPTION>
North Consoli-
America Europe Asia Eliminations dated
------- ------ ---- ------------ --------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1995:
Sales to unaffiliated customers $443,893 $95,556 $27,274 --- $566,723
Transfers between geographic areas 11,388 102 --- $(11,490) ---
-------- ------- ------- -------- --------
Total net revenues $455,281 $95,658 $27,274 $(11,490) $566,723
-------- ------- ------- -------- --------
Earnings from operations $51,062 $17,732 $1,872 $ --- $70,666
-------- ------- ------- -------- --------
Identifiable Assets at August 31, 1995 $423,759 $19,259 $10,461 $ --- $453,479
-------- ------- ------- -------- --------
Year ended August 31, 1994:
Sales to unaffiliated customers $384,540 $78,878 $17,338 --- $480,756
Transfers between geographic areas 11,057 333 11,728 $(23,118) ---
-------- ------- ------- -------- --------
Total net revenues $395,597 $79,211 $29,066 $(23,118) $480,756
-------- ------- ------- -------- --------
Earnings from operations $63,607 $9,438 $4,425 $ --- $77,470
-------- ------- ------- -------- --------
Identifiable Assets at August 31, 1994 $297,604 $32,982 $5,292 $ --- $335,878
-------- ------- ------- -------- --------
Year ended August 31, 1993:
Sales to unaffiliated customers $209,826 $91,793 $25,472 --- $327,091
Transfers between geographic areas 8,094 --- 33,181 $(41,275) ---
-------- ------- ------- -------- --------
Total net revenues $217,920 $91,793 $58,653 $(41,275) $327,091
-------- ------- ------- -------- --------
Earnings from operations $19,295 $20,888 $6,764 $ --- $46,947
-------- ------- ------- -------- --------
Identifiable Assets at August 31, 1993 $166,092 $21,998 $18,681 $ --- $206,771
-------- ------- ------- -------- --------
</TABLE>
38
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in 000s, except per share data)
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly
financial information:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
November 30, February 28, May 31, August 31,
1994 1995 1995 1995 Total
------------ ------------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Net revenues $164,304 $161,273 $107,654 $133,492 $566,723
Cost of revenues 77,665 73,456 53,792 63,588 268,501
Net earnings 15,958 13,856 8,855 6,101 44,770
Net earnings per share $0.34 $0.28 $0.17 $0.11 $0.86
<CAPTION>
Quarter Ended
------------------------------------------------------------------
November 30, February 28, May 31, August 31,
1993 1994 1994 1994 Total
------------ ------------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Net revenues $127,360 $115,531 $88,997 $148,868 $480,756
Cost of revenues 56,118 51,167 37,853 75,606 220,744
Net earnings 12,336 10,638 7,949 14,132 45,055
Net earnings per share $0.27 $0.24 $0.18 $0.31 $1.00
</TABLE>
The sum of the quarterly net earnings per share amounts do
not equal the annual amount reported, as per share amounts are
computed independently for each quarter and for the twelve months
based on the weighted average common and common equivalent shares
outstanding in each such period.
22. SUBSEQUENT EVENTS
On October 9, 1995, the Company acquired Sculptured Software,
Inc. ("Sculptured") and on October 16, 1995, the Company acquired
Probe Entertainment Limited ("Probe"). Sculptured and Probe are
developers of interactive video games. Both transactions will be
accounted for as poolings of interests and were effected through
the exchange of 2,745 shares of common stock of the Company for
all the issued and outstanding shares of Sculptured and Probe.
The operations of Sculptured and Probe are not material to the
Company's consolidated operations.
39
<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning each
of the directors and officers of the Company:
Principal
Name Occupation Age
---- ---------- ---
Gregory E. Fischbach Co-Chairman of the Board 53
and Chief Executive
Officer of the Company
James Scoroposki Co-Chairman of the Board, 47
Senior Executive Vice
President, Secretary and
Treasurer of the Company
Robert Holmes President, Chief 42
Operating Officer and
General Manager of
the Company
Bernard J. Fischbach Attorney 49
Michael Tannen Chief Executive Officer 55
and President of Kinnevik
Media Ventures, Inc.
Robert H. Groman Attorney 53
James Scibelli President of Roberts & 45
Green, Inc.
Bruce W. Ravenel Senior Vice President & 45
Chief Operating Officer
of TCI Technology
Ventures, Inc.
Anthony R. Williams Executive Vice President 37
and Chief Financial and
Accounting Officer
Gregory E. Fischbach, a founder of the Company, has been
Chief Executive Officer of the Company since its formation and
Co-Chairman of the Board since March 1989. Mr. Fischbach was
also President of the Company from its formation to January 1990.
From June 1986 until January 1987, he was President of RCA/Ariola
International, responsible for the management of its record
operations outside the U.S. and in charge of its seventeen
operating subsidiaries.
40
<PAGE>
James Scoroposki, a founder of the Company, has been Senior
Executive Vice President since December 1993, Co-Chairman of the
Board since March 1989 and Secretary and Treasurer of the Company
since its formation. Mr. Scoroposki was also Chief Financial
Officer of the Company from April 1988 to May 1990 and Executive
Vice President of the Company from formation to November 1993.
Since December 1979, he has also been the President and sole
shareholder of Jaymar Marketing Inc. ("Jaymar"), a sales
representation organization. See "Certain Relationships and
Related Transactions."
Robert Holmes was named President of the Company in January
1990. Mr. Holmes was Senior Vice President from April 1987 to
January 1990. He has been General Manager of the Company since
April 1987 and Chief Operating Officer since March 1989. From
1983 to 1987, he served in a variety of positions at Activision,
Inc., an international home computer and video game software
company.
Bernard J. Fischbach has been engaged in the private
practice of law in Los Angeles, California since 1976 with
Fischbach, Perlstein, Lieberman & Yanny and its predecessor
firms. See "Certain Relationships and Related Transactions."
Michael Tannen has, since 1988, been the President and Chief
Executive Officer of InterVision, Inc., a subsidiary of Millicom
Incorporated, a company involved in publishing, television
production and home video distribution and sales, and Chief
Executive Officer of Kinnevik Media Ventures, Ltd., a media
service subsidiary of A.B. Kinnevik, a Swedish conglomerate
engaged, among other things, in international satellite
television broadcasting, cable television networks and cellular
mobile telephone and paging operations.
Robert H. Groman has, for more than the preceding five
years, been a partner in the general practice law firm of Groman,
Ross & Tisman, P.C. (and its predecessor firms) located in Long
Island, New York. See "Certain Relationships and Related
Transactions."
James Scibelli has, since March 1986, served as president of
Roberts & Green, Inc., a New York financial consulting firm
offering a variety of financial and investment consulting
services. Mr. Scibelli is also a director of Boardwalk Casino,
Inc., which owns and operates a hotel and casino, and of B.U.M.
International, Inc., a factory outlet based retailer of
contemporary men's, women's and children's casual apparel and
accessories.
Bruce W. Ravenel is Senior Vice President and Chief
Operating Officer of TCI Technology Ventures, Inc. ("TCI
Technology"), an indirect wholly-owned subsidiary of Tele-
Communications, Inc. ("TCI"), and is responsible for operational
41
<PAGE>
management of its investment activities, new services and
technology development activities. From 1991 to 1994, he served
as Senior Vice President of TCI Venture Capital, a division of
TCI, and from July 1989 to October 1991, Mr. Ravenel served as
Director of Strategic Alliance Management for US WEST, Inc. Mr.
Ravenel is a nominee for directorship of United Video Satellite
Group, Inc., a company which provides satellite-delivered video,
audio, data and program promotion services to multi-channel
television systems, satellite dish owners, radio stations and
private network users primarily throughout North America.
Anthony Williams, age 37, was named Executive Vice President
and Chief Financial and Accounting Officer of the Company in
October 1992. From May 1990 to October 1992, Mr. Williams was
Vice President, Finance, and Chief Financial Officer of the
Company. Mr. Williams was Director, Finance and Operations, of
the Company from April 1988 to May 1990.
The Board of Directors has an Audit Committee, the members
of which are Messrs. Tannen, Groman and Scoroposki. The Audit
Committee has such powers as may be assigned to it by the Board
of Directors from time to time. It is charged with recommending
to the Board of Directors the engagement or discharge of
independent public accountants, reviewing the plan and results of
the auditing engagement with the officers of the Company, and
reviewing with the officers of the Company the scope and nature
of the Company's internal accounting controls.
The Board of Directors also has a Compensation and Stock
Option Committee (the "Compensation Committee"), the members of
which are Messrs. Tannen and Scibelli. The Compensation
Committee has such powers as may be assigned to it by the Board
of Directors from time to time. It is charged with determining
compensation packages for the Chief Executive Officer and the
Senior Executive Vice President of the Company, establishing
salaries, bonuses and other compensation for the Company's
executive officers and with administering the Company's 1988
Stock Option Plan (the "Plan") and the Company's 1995 Restricted
Stock Plan, and recommending to the Board of Directors changes to
the Plan.
Messrs. Gregory E. and Bernard J. Fischbach are brothers.
There is no family relationship among any other directors or
executive officers of the Company.
Mr. Ravenel was elected as a director of the Company in
February 1995 in connection with the sale by the Company of
4,348,795 shares of its common stock to TCI GameCo Holdings, Inc.
("TCI Sub"), a wholly-owned subsidiary of TCI, in February 1995.
In addition, in February 1995, Messrs. G. Fischbach and
Scoroposki entered into a voting agreement with TCI Sub pursuant
to which each party agreed to vote all shares beneficially owned
by it in favor of those individuals nominated by the Board of
42
<PAGE>
Directors of the Company for election to the Board of Directors
at any annual or special meeting of the stockholders of the
Company at which directors are to be elected provided that,
subject to certain exceptions, such nominees include Messrs. G.
Fischbach and Scoroposki (or their designees or successors) and
one individual proposed by TCI Sub. There is no other
arrangement or understanding pursuant to which any person has
been elected as a director or executive officer of the Company.
Directors are elected annually by the stockholders and hold
office until the next annual meeting and until their respective
successors are elected and qualified. The executive officers of
the Company are elected annually by the Board of Directors and
hold office until their respective successors are elected and
qualify.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all plan and non-plan compensation
awarded to, earned by or paid to the Company's Chief Executive Officer and its
three other executive officers (together, the "Named Executive Officers") who
were serving as executive officers during and at the end of the last completed
fiscal year ended August 31, 1995 for services rendered in all capacities to the
Company for each of the Company's last three fiscal years:
<TABLE>
<CAPTION>
Annual All Other
Compensation Long Term Compensation Compensation*
------------------------------- ---------------------- ----------------------------
Awards
------
Securities
Name and Underlying
Principal Salary Bonus Options
Position Year $ $ # $
- -------- ---- ------- ------ ----------- -------
<S> <C> <C> <C> <C> <C>
Gregory E. Fischbach 1995 $775,000 $2,775,000 150,000 $17,000
Co-Chairman and 1994 775,000 2,685,000 300,000 14,500
Chief Executive Officer 1993 776,000 1,683,000 150,000 13,900
James Scoroposki 1995 500,000 2,350,000 150,000 4,600
Co-Chairman, Senior 1994 483,000 2,685,000 300,000 4,300
Executive Vice President, 1993 483,000 1,683,000 150,000 4,000
Treasurer and Secretary
Robert Holmes 1995 550,000 2,350,000 325,000 6,000
President and Chief 1994 500,000 1,467,000 450,000 5,400
Operating Officer 1993 400,000 841,000 150,000 5,000
Anthony Williams 1995 225,000 45,000 140,000 2,000
Executive Vice President 1994 200,000 100,000 200,000 1,800
and Chief Financial 1993 175,000 85,000 100,000 1,800
and Accounting Officer
- ------------------------------------------------
* Represents dollar value of insurance premiums paid by the Company
during the fiscal year with respect to term life insurance for the
benefit of the Named Executive Officers.
No restricted stock awards, stock appreciation rights or long-term
incentive plan awards (all as defined in the proxy regulations promulgated by
the Securities and Exchange Commission) were awarded to, earned by, or paid to
the Named Executive Officers during any of the Company's last three fiscal
years.
43
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of
stock options to purchase the Company's common stock, par value $0.02 per share
(the "Common Stock"), pursuant to the Plan granted to the Named Executive
Officers during the fiscal year ended August 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
Number Percent of Potential
of Total Realizable Value
Securities Options at Assumed Annual
Underlying Granted to Rates of Stock
Options Employees Exercise Expira- Price Appreciation
Granted in Fiscal Price tion For Option Term
-----------------------------
5% 10%
Name (#) Year ($/sh) Date ($) ($)
- ---- --------- ---------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Gregory E. Fischbach 150,000 7.1% $13.75 2/28/2005 $1,297,500 $3,286,500
James Scoroposki 150,000 7.1 $13.75 2/28/2005 1,297,500 3,286,500
Robert Holmes (1) 325,000 15.4 $13.75 2/28/2005 2,811,250 7,120,750
Anthony Williams 140,000 6.6 $13.75 2/28/2005 1,211,000 3,067,400
All Stockholders (2) 730,609,406 1,851,367,915
</TABLE>
- ----------------------
(1) Represents options granted subject to stockholder approval of
amendments to the Plan, which amendments are intended to be the subject
of a proposal to be included in the Company's Proxy Statement relating
to its annual meeting of stockholders to be held in 1996.
(2) These figures were calculated assuming that the price of the 46,008,149
shares of Common Stock issued and outstanding on August 31, 1995
increased from $25.25 per share (the market price of a share of Common
Stock on August 31, 1995) at compound rates of 5% and 10% per year for
ten years. The purpose of including this information is to indicate the
potential realizable value at the assumed annual rates of stock price
appreciation for the ten-year option term for all of the Company's
stockholders.
44
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to each exercise
of stock options during the fiscal year ended August 31, 1995 by the Named
Executive Officers and the value at August 31, 1995 of unexercised stock options
held by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options In-the-Money
at Fiscal Options at
Year-End Fiscal Year-End(1)
Shares Acquired Value (#) ($)
on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name (#) ($)
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gregory Fischbach -0- $-0- 1,215,000/300,000 $25,470,939/3,337,500
James Scoroposki -0- $-0- 1,350,000/300,000 28,585,939/3,337,500
Robert Holmes(2) -0- $-0- 1,083,752/575,000 21,863,774/6,947,500
Anthony Williams -0- $-0- 283,166/259,334 5,248,007/3,087,931
</TABLE>
- --------------------------
(1) Fair market value of securities underlying the options at fiscal year end
minus the exercise price of the options.
(2) Includes options to purchase 325,000 shares granted subject to stockholder
approval of an amendment to the Plan.
Directors' Compensation
Directors who are not also employees of the Company receive
a $10,000 annual fee, reimbursement of expenses for attending
meetings of the Board and generally receive an annual grant of
options to purchase 18,750 shares under the Plan. See "Certain
Relationships and Related Transactions."
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements
The Company has employment agreements with each of Gregory
Fischbach and James Scoroposki, providing for Mr. G. Fischbach's
employment as Chief Executive Officer and for Mr. Scoroposki's
employment as Senior Executive Vice President, Secretary and
Treasurer, for terms expiring in August 1999.
45
<PAGE>
The agreements with Messrs. G. Fischbach and Scoroposki provide for
annual base salaries of $775,000 and $500,000, respectively, for the term of the
agreements. In addition, each of the agreements provides for annual bonus
payments to Mr. Fischbach in an amount equal to 3.25% of the Company's net
pre-tax profits for each fiscal year and to Mr. Scoroposki in an amount equal to
2.75% of the Company's net pre-tax profits for each fiscal year. The agreement
with Mr. Scoroposki specifically allows him to devote that amount of his
business time to the business of certain sales representative organizations
controlled by him as does not interfere with the services to be rendered by him
to the Company. The sales representative organizations under his control have
officers and employees who oversee the operations of such organizations. Mr.
Scoroposki attends board meetings of such companies but has no active
involvement in their day to day operations. Under the agreements, the Company
provides each of Messrs. G. Fischbach and Scoroposki with $2 million term life
insurance and disability insurance.
If the employment agreement of either of Messrs. G. Fischbach or
Scoroposki is terminated within one year after occurrence of a change in control
of the Company (other than a termination for cause) or if either of Messrs. G.
Fischbach or Scoroposki terminates his employment agreement upon the occurrence
of both a change in control of the Company and a change in the circumstances of
his employment, he would be entitled to receive severance benefits in an amount
equal to the total of (i) three years' base salary and (ii) three times the
largest bonus paid to him for the three fiscal years immediately preceding any
such termination of his employment.
The Company has an agreement in principle with Mr. Holmes for his
employment as President and Chief Operating Officer, which provides for a
current annual base salary of $550,000. The term of the agreement expires on
August 31, 1999. The agreement guarantees Mr. Holmes a 10% annual increase in
his base salary for the term of the agreement. In addition, the agreement
provides for annual bonus payments equal to 2.75% of the Company's net pre-tax
profits for each fiscal year. The Company provides Mr. Holmes with a $2 million
term life insurance policy and disability insurance.
Under the agreement with Mr. Holmes, if his employment is terminated
within one year after occurrence of a change in control of the Company (other
than a termination for cause) or if he terminates his agreement upon the
occurrence of both a change in control of the Company and a change in the
circumstances of his employment, he would be entitled to receive severance
benefits in an amount equal to the total of (i) three years' base salary and
(ii) three times the largest bonus paid to him for the three fiscal years
immediately preceding any such termination of his employment.
46
<PAGE>
The Company also has an agreement in principle with Mr. Williams for
his employment as Executive Vice President and Chief Financial and Accounting
Officer, which provides for a current annual base salary of $225,000. The
agreement expires in August 1999. Mr. Williams is also entitled to a bonus, in
an amount to be determined at the discretion of the Board of Directors, if the
Company achieves certain financial performance objectives. The Company provides
Mr. Williams with a $1 million term life insurance policy and disability
insurance. If Mr. Williams' employment is terminated within one year after
occurrence of a change in control of the Company (other than a termination for
cause) or if he terminates his agreement upon the occurrence of both a change in
control of the Company and a change in the circumstances of his employment, he
would be entitled to receive severance benefits in an amount equal to the total
of (i) one year's base salary and (ii) two times the bonus paid to him for the
fiscal year immediately preceding any such termination of his employment.
Each of the agreements with Messrs. G. Fischbach, Scoroposki, Holmes
and Williams provides that, in the event of a change in control of the Company,
all options theretofore granted to each of them shall vest and become
immediately exercisable and the Company has agreed to indemnify each of them
against any excise taxes imposed on such executive by section 4999(a) of the
Internal Revenue Code of 1986, as amended (including all applicable taxes on
such indemnification payment).
Each of the agreements with Messrs. G. Fischbach, Scoroposki, Holmes
and Williams prohibits disclosure of proprietary and confidential information
regarding the Company and its business to anyone outside the Company both during
and subsequent to employment. In addition, the employees agree, for the duration
of their employment with the Company and for one year thereafter, not to engage
in any competitive business activity, nor to persuade or attempt to persuade any
customer, software developer, licensor, employee or other party with whom the
Company has a business relationship to sever its ties with the Company or reduce
the extent of its relationship with the Company.
In addition, at the end of their respective terms, if the agreements
with each of Messrs. G. Fischbach, Scoroposki, Holmes and Williams are not
renewed on substantially similar terms, the employee would be entitled to
receive severance benefits in an amount equal to the total cash compensation
paid to him during the 12-month period immediately preceding such termination of
his employment.
Benefit Plans
The Company does not have a pension plan. For information
with respect to options granted to executive officers of the
47
<PAGE>
Company under the Company's 1988 Stock Option Plan, see page 44.
Compliance with reporting requirements
The Company believes that, during the fiscal year ended August 31,
1995, all filing requirements under Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act") applicable to its officers, directors and greater
than ten percent beneficial owners were complied with on a timely basis.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Michael Tannen and James
Scibelli, who are intended to be "disinterested persons" within the meaning of
Rule 16b-3(c)(2)(i) promulgated under the Exchange Act and "outside directors"
within the contemplation of section 162(m)(4)(C)(i) of the Internal Revenue Code
of 1986, as amended.
48
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of December 26,
1995 (except as otherwise indicated) with respect to the number of shares of
Common Stock beneficially owned by each person who is known to the Company to
beneficially own more than 5% of the Common Stock, the number of shares of
Common Stock beneficially owned by each director of the Company and each
executive officer of the Company, and the number of shares of Common Stock
beneficially owned by all executive officers and directors of the Company as a
group. Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
Percent of
Amount and Nature of Common Stock
Name and Address Beneficial Ownership (1) Outstanding
- ---------------- ------------------------ ----------------
<S> <C> <C>
Gregory E. Fischbach (2)(3) 7,348,151 14.1%
One Acclaim Plaza
Glen Cove, NY 11542
James Scoroposki (3)(4) 6,742,451 13.0
One Acclaim Plaza
Glen Cove, NY 11542
TCI GameCo Holdings, Inc. (3) 4,348,795 8.8
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111
Merrill Lynch & Co., Inc. (5) 5,714,943 14.4
World Financial Center
North Tower
250 Vesey Street
New York, NY 10281
The Capital Group Companies, 2,830,000 7.2
Inc. (6)
333 South Hope Street
Los Angeles, CA 90071
FMR Corp. (7) 4,504,000 10.0
82 Devonshire Street
Boston, MA 02109
Robert Holmes (8) 1,425,877 2.8
One Acclaim Plaza
Glen Cove, NY 11542
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C>
Bernard J. Fischbach (9) 268,776 *
1925 Century Park East
Suite 1260
Los Angeles, CA 90067
Robert H. Groman (10) 62,500 *
196 Peachtree Lane
Roslyn Heights, NY 11577
Michael Tannen (10) 57,375 *
90 Riverside Drive, #5B
New York, NY 10024
James Scibelli (11) 13,250 *
2936 Bay Drive
Merrick, NY 11566
Bruce W. Ravenel (12) 1,000 *
5619 DTC Parkway
Englewood, CO 80111
Anthony R. Williams (13) 303,166 *
One Acclaim Plaza
Glen Cove, NY 11542
All executive officers and 15,873,718 21.2
directors as a group
(9 persons) (14)
</TABLE>
-------------------
* Less than 1% of class.
(1) Includes shares issuable upon exercise of options or warrants which are
exercisable within the next 60 days.
(2) Includes 2,527,500 shares issuable upon exercise of warrants and
options, 36,276 shares held as co-trustee of trusts for the benefit of
Mr. Scoroposki's children and 156,276 shares settled by Mr. G.
Fischbach in trust for the benefit of his children. Each of Mr. G.
Fischbach and Mr. Scoroposki has agreed to vote, or cause to be voted,
all shares of Common Stock beneficially owned by him in the manner in
which all shares of Common Stock beneficially owned by the other are
voted on all matters presented to a vote of stockholders
at any annual or special meeting of the Company's stockholders.
(3) Messrs. G. Fischbach and Scoroposki and TCI GameCo Holdings, Inc. ("TCI
Sub"), an indirect wholly owned subsidiary of TCI, have entered into
a voting agreement pursuant to which they have agreed to vote all
shares beneficially owned by each of them in favor of those
individuals nominated by the Board of Directors of the Company for
election to the Board of Directors at any annual or special meeting
of the stockholders of the Company at which directors are being
elected provided that, subject to certain exceptions, such nominees
include Messrs. G. Fischbach and Scoroposki (or their designees or
successors) and one individual proposed by TCI Sub.
(4) Includes 2,602,500 shares issuable upon exercise of warrants and
options, 156,276 shares held as co-trustee of trusts for the benefit
of Mr. G. Fischbach's children and 36,276 shares settled by
Mr. Scoroposki in trust for agreed to vote, or cause to be voted, all
shares of Common Stock beneficially owned by him in the manner in
which all shares of Common Stock beneficially owned by the other are
voted on all matters presented to a vote of stockholders at any annual
or special meeting of the Company's stockholders.
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(5) Information in respect of the beneficial ownership of Merrill Lynch &
Co., Inc. ("ML&Co.") has been derived from Amendment No. 1 to its
Schedule 13-G, dated February 10, 1995, filed on its behalf and on
behalf of Merrill Lynch Group, Inc. ("ML Group"), Princeton Services,
Inc. ("PSI"), Merrill Lynch Asset Management, L.P. d/b/a/ Merrill
Lynch Asset Management ("MLAM") and Merrill Lynch Technology Fund,
Inc. ("MLTF") with the Securities and Exchange Commission (the
"Commission"). Based solely on such Amendment No. 1 to Schedule 13-G,
ML&Co., ML Group and PSI are parent holding companies, MLAM is a
registered investment adviser and MLTF is a registered investment
company (for which MLAM acts as investment adviser), which has an
interest that relates to greater than 5% of the Common Stock.
(6) Information in respect of the beneficial ownership of The Capital Group
Companies, Inc. has been derived from its Schedule 13-G, dated
February 6, 1995, filed on its behalf and on behalf of Capital
Research and Management Company ("CRMC"). The Company has been
advised that (a) CRMC is a registered investment adviser and an
operating subsidiary of The Capital Group Companies, Inc., (b) at
December 31, 1994, CRMC exercised investment discretion with respect to
2,830,000 shares of Common Stock, which were owned by various
institutional investors and (c) CRMC has no power to direct the vote
of such shares.
(7) Information in respect of the beneficial ownership of FMR Corp. has
been derived from its Schedule 13-G, dated August 7, 1995, filed on
its behalf and on behalf of Edward C. Johnson 3d, Fidelity Management
& Research Company ("FMRC") and Fidelity Management Fund ("FMF").
Based solely on such Schedule 13-G, FMRC, a wholly-owned subsidiary
of FMR Corp. and a registered investment adviser, is the beneficial
owner of the shares of Common Stock as a result of acting as
investment adviser to several registered investment companies and FMF's
ownership of the Common Stock amounted to 4,484,000 shares.
(8) Includes 1,083,752 shares issuable upon exercise of options.
(9) Represents 112,500 shares issuable upon exercise of options and 156,276
shares held as co-trustee of trusts for the benefit of Mr. G.
Fischbach's children.
(10) Represents shares issuable upon exercise of options.
(11) Includes 6,250 shares issuable upon exercise of options.
(12) Does not include 4,348,795 shares held by TCI Sub. Mr. Ravenel is an
executive officer of TCI Technology, a subsidiary of TCI and an
affiliate of TCI Sub.
(13) Includes 283,166 shares issuable upon exercise of options.
(14) Includes 6,735,543 shares issuable upon exercise of warrants and
options.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James Scoroposki, an officer, director and principal stockholder of
the Company, is the sole stockholder, a director and president of a sales
representative organization selling interactive entertainment software and a 50%
stockholder, a director and executive vice president of another sales
representative organization selling interactive entertainment software. Such
sales representative organizations act as sales representatives for the Company,
receive commissions from the Company with respect to interactive entertainment
software sold by them and will continue to do so during the fiscal year ending
August 31, 1996. For the fiscal year ended August 31, 1995, the commissions paid
by the Company to these sales representative organizations amounted to
approximately $2,249,000. The agreements between the Company and these sales
representatives are on terms that are at least as favorable to the Company as
could have been obtained from unaffiliated third parties. In addition to
representing the Company's products, these companies
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also represent competitors of the Company who distribute interactive
entertainment software, and derive most of their revenue from representing
companies other than the Company.
Mr. Scoroposki is also the sole shareholder of The Crescent Club, which
provides restaurant services and related entertainment and meeting facilities to
the Company and will continue to do so for the fiscal year ending August 31,
1996. For the fiscal year ended August 31, 1995, payments made by the Company to
The Crescent Club amounted to approximately $98,000.
The firm of Fischbach, Perlstein, Liebermann & Yanny, of which Bernard
J. Fischbach is a partner, performs legal services for the Company and will
continue to do so for the fiscal year ending August 31, 1996. Payments made by
the Company for said services amounted to approximately $1,203,000 for the
fiscal year ended August 31, 1995.
The firm of Groman, Ross & Tisman, P.C. of which Robert H. Groman is a
partner, also performs legal services for the Company and will continue to do so
for the fiscal year ending August 31, 1996. Payments made by the Company for
said services amounted to approximately $380,000 for the fiscal year ended
August 31, 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment on Form
10-K/A to its Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCLAIM ENTERTAINMENT, INC.
By /s/ Anthony R. Williams
---------------------------------------
Name: Anthony R. Williams
Title: Executive
Vice President
Date: December 28, 1995
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