Acclaim Entertainment, Inc. Reports Profitable First Quarter Of FY 2002

Business Wire, Jan 10, 2002

Business and Technology Editors

GLEN COVE, N.Y.--(BUSINESS WIRE)--January 10, 2002

Convertible Notes Reduced by 10%;

Increases Guidance for Fiscal Year 2002

and Provides Guidance for Fiscal Year 2003

Acclaim Entertainment, Inc. (NASDAQ.SC: AKLM), a leading global video entertainment software developer and publisher, today reported profitable results of $17.4 million, or $0.21 per diluted share, in net earnings on net revenue of $81.0 million for the first fiscal quarter ended on December 2, 2001. The profit results were in line with previous guidance and analyst estimates. The Company maintains its previously stated guidance for fiscal 2002 of first half net revenues of $146.0 million, by increasing its second quarter fiscal year 2002 net revenue guidance by $5.0 million to $65.0 million. The increase of $5.0 million is attributable to the initial split shipment of Legends of Wrestling(TM) that occurred on the cusp of the first and second quarters of fiscal year 2002.

"The first quarter was a solid quarter for the Company," said Gregory Fischbach, Chief Executive Officer of Acclaim. "Although we did not break a hit, our product line was well accepted by critics, retail and consumers. The bulk of our advertising dollars were spent very effectively in the weeks before Christmas, generating the sell through that retail expected, leaving us with few, if any inventory issues at the retail level."

"Throughout this holiday season, we saw the realization of our next-generation multi-platform strategy, as we had a dynamic portfolio for the PlayStation(R)2 computer entertainment system, and launch titles for the Nintendo GameCube(TM) and Microsoft Xbox(TM). During Christmas, we achieved 4% share of the PlayStation(R)2 market and 7% of the Nintendo GameCube market, as well as introduced our first of 12 titles for the Microsoft Xbox(TM)."

"Domestically, we were excited by the success of two new brands that we launched, Burnout(TM) and Legends of Wrestling(TM), which we feel have the potential to become long-term franchises. Our international operations, also benefited during this holiday season, from the releases of three top-ten PlayStation(R)2 titles in England, Crazy Taxi(TM), Dave Mirra Freestyle BMX(TM) 2 and Burnout(TM)."

First Quarter Fiscal Year 2002 Operating Expenses

Operating expenses for the first quarter of $31.6 million decreased 7.2% or $2.5 million from $34.0 million over the same period of the prior fiscal year. The decrease was attributable to a $4.4 million reduction in expenses previously accrued with respect to certain now expired intellectual property agreements. This was offset by a $2.0 million increase in TV and media marketing expenses to coincide with the launch of the Company's latest software titles.

First Quarter Fiscal Year 2002 Gross Revenue By Platform

Gross revenue by platform during the first fiscal quarter of 2002, primarily consisted of 128-bit software (84%); 32-bit software (6%); portable cartridges (8%) and personal computer games and other (2%). On a geographic basis, North American and International operations generated 70% and 30% of gross revenue, respectively. In addition, Acclaim's six internal development studios generated 42% of the Company's gross revenue during the quarter, of which All-Star Baseball 2002(TM), Crazy Taxi(TM), Legends of Wrestling(TM) and 18 Wheeler American Pro Trucker(TM) accounted for approximately 30% of total revenue.

Profitable performance for the first quarter of fiscal 2002 was highlighted by the releases of 13 SKU's: Burnout(TM), Legends of Wrestling(TM), Jeremy McGrath Supercross(TM) World, Paris-Dakar Rally(TM) and 18 Wheeler(TM) American Pro Trucker for the PlayStation(R)2 computer entertainment system; All-Star Baseball 2002(TM), Dave Mirra Freestyle BMX(TM) 2, Crazy Taxi(TM) and XG3 Extreme-G Racing(TM) for the Nintendo GameCube(TM); Dave Mirra Freestyle BMX(TM) 2 for Microsoft's Xbox(TM) video game console and Nintendo's Game Boy(R) Advance; and Mary-Kate and Ashley: Crush Course(TM) for Game Boy(R) Color and PC. Furthermore, the continued sale of catalog products and ongoing success of Dave Mirra Freestyle BMX(TM), Crazy Taxi(TM), ATV: Quad Power Racing(TM) and the Mary-Kate and Ashley brands across multiple formats, continued to contribute to a profitable quarter.

Reduction of Convertible Notes

In the early part of its 2002 fiscal year, $3.0 million of the Company's 10% convertible subordinated notes were converted to equity, reducing the total outstanding amount to $26.2 million, which are due at maturity on March 1, 2002. Based on its fiscal 2002 operating plan projections, the Company expects to generate sufficient positive cash flow from operations to meet its currently projected cash and operating requirements for the next twelve months, including the repayment of the subordinated notes at maturity. The projections assume the Company meets its sales forecast by successfully achieving its planned product release schedule, continues to realize savings from its previously implemented expense reductions and continues to enjoy the support of its lead lender and vendors.