Infogrames Entertainment: Fiscal 2006-2007 Financial Results

Regulatory News: Revenue at 305.3 million euros, down 16.5% Net loss down to €103.1m Growth and operating profit in Europe REINFORCEMENT OF THE FINANCIAL MEANS Major Shareholder commits to exercise warrants Extension of credit facility ANNOUNCEMENT OF THE RELAUNCH STRATEGY Infogrames Entertainment (Paris:IFG) (NASDAQ:ATAR) has published its consolidated financial statements for the year ended March 31, 2007. 1. FISCAL 2006-2007 CONSOLIDATED FINANCIAL RESULTS 1.1. Consolidated income statement (IFRS) Discontinued operations during the past fiscal year (sale of the Paradigm, Shiny, Melbourne House and Reflections development studios and of the related Driver license) were accounted for in accordance with IFRS 5: Revenues and expenses related to discontinued operations are presented under the line "Income (loss) from discontinued operations”. In order to provide a better comparable basis, a new presentation was made of the consolidated accounts for the year ended March 31, 2006. Atari, Inc., the Group’s US subsidiary, announced on June 14, 2007 that the publication of its Annual report for the year ended March 31, 2007 would be delayed to the end of June, due to the additional time required to finalize the determination of the amount of the goodwill impairment charge that will be reflected in its year-end financial statements. The Group anticipates that the finalization will not lead to any material variance. 1.1.1. Revenue Revenue for the period to March 31, 2007 was €305.3m, compared with €365.5m the previous year. As a reminder, revenue of €25.7m were generated in fiscal 2005-2006 from operations subsequently discontinued, so that published total revenue for that fiscal year amounted to €391.2m. Aggregate revenue for the period was down 16.5%, reflecting declining sales in the United States, which represented 30% of the worldwide total. European sales showed growth and contributed to 62% of the Group’s total and Asia to the remaining 8%. 1.1.2. Gross profit Gross profit amounted to €126.0m for the period, or €19.5m lower than the previous year. However, the gross margin was up by 1.5% to 41.3%. 1.1.3. Current Operating Income A loss of €39.3m before interest and taxes was reported for the period, an improvement over the loss of €55.2m last year. The improvement of 15.9 million euros was achieved despite an increase of 4.3 million euros in research and development expenditures and was primarily attributable to: reductions in marketing and selling expenses (by €24.7m or 29.8%) savings from overheads and administrative expenses through restructurings in both the United States and Europe. Overheads declined by 23.4% to €49.2. 1.1.4. Operating income The operating loss for the year totaled 61.8 million euros, compared with 153.0 million euros last year, showing a reduction of 91.2 million euros. Prior year’s operating income included capital gain of €36.6m from the sale of license to Hasbro. Goodwill impairment amounted to €17.3m for the year, versus 125.4 million euros last year. It concerned primarily the "US distribution” cash-generating unit (CGT), which was fully written off during the fiscal year 2006/07. 1.1.5. Financial expenses Net financial expenses for the year amounted to €42.5m, compared to €23.4m last year, reflecting primarily: higher cost of debt, which rose to €25.6m (including €3.3m of restructuring fees) from €20.1m last year; the charge of €18.7m resulting from the OCEANE bonds exchange tender offer. 1.1.6. Net loss from discontinued operations Discontinued operations generated a loss of €8.8m, resulting from the proceeds of €21.5m from the sale of assets, the allocation of goodwill (€16.3m), the charge for impairment of assets (€4.1m), operating expenses of the period (€9.0m) and a tax expense of €0.9m. 1.1.7. Net loss (Group share) With an improvement of €46.7m, net loss of the year (Group share), amounted to €103.1m. 1.1.8. Operating income by region A breakdown of financial results by region shows the good performance of European operations, which posted operating income of €9.2m for the period. The United States business had a negative impact of €64.0m on the Group’s operating income. In millions of euros   United States   Europe   Asia   Corporate   Total Revenue   91.2    189.3    24.8        305.3  Current operating income   (46.2)   10.6    (0.1)   (3.6)   (39.3) Operating income   (64.0)   9.2    (0.1)   (6.9)   (61.8) 1.2. Consolidated balance sheet The Infogrames Group’s consolidated balance sheet reflects the impact of financial restructuring measures carried out during the period, including: a €74,0m equity issue the exchange tender offer for the OCEANE 2003/09 bonds the redemption of the 2005/08 Notes new credit facilities Goodwill was valued at €89m, a decline of €39.9m resulting from: the allocation of goodwill to discontinued operations (€16.3m) additional impairment charge of €17.3m. Consolidated shareholders’ equity amounts to 8€5.2m on March 31, 2007, showing an increase of €75.4m compared to previous year. As of March 31, 2007, a total of 241 million warrants (€36m) remained outstanding. As a result of the financial restructuring plan implemented during the period, the Group’s net debt was reduced by €132.7m to €40.5m on March 31, 2007. In millions of euros March 31, 2007 March 31, 2006 Change         Long-term debt 12.5  158.4  -145.9  Short-term debt 74.6  57.4  17.2  Cash and cash equivalents (46.6) (42.6) - 4.0  Net debt 40.5  173.2  - 132.7  Net debt consists of the following: In millions of euros March 31, 2007 March 31, 2006 Change         OCEANE 2011 bonds 5.3  5.3  0.0  OCEANE 2020 bonds 0.6  99.7  - 99.1  2008 Notes 0.0  32.3  - 32.3  Bank loans 46.3  23.4  22.9  Production funds 17.1  26.6  - 9.5  Leases and sale-leasebacks 5.3  6.1  - 0.8  Factoring 3.7  2.5  1.2  Accrued interest expense 3.6  7.7  - 4.1  Other short-term financing 5.2  12.2  - 7.0  Cash and cash equivalents (46.6) (42.6) - 4.0  Net debt 40.5  173.2  - 132.7  INFORMATION CONCERNING ATARI INC. Atari, Inc. reported a net loss of approximately US$ 17.2 m (or $1.28 per share) for the year ended March 31, 2007, before taking account the expected charge for impairment of goodwill. This loss of US$ 17.2m will be increased by a charge of impairment for a maximum of US$ 54.1m. Revenue for the year was approximately US$ 121.6m. The Atari, Inc. press release of June 14, 2007 can be downloaded from the company’s website at www.atari.com. Atari, Inc. will issue its financial statements related to fiscal 2006/07 at the end of June. 3. REINFORCEMENT OF FINANCIAL MEANS Infogrames and its principal financial partners reached an agreement on June 20, 2007 concerning the financing of the Group’s relaunch plan. The company obtained from Blue Bay Recovery Fund, major shareholder of the Group, the commitment to exercise 50 million warrants for a value of €7.5m before July 31st, 07, as a sign of support for the execution of the strategy. The existing bank agreement was amended to increase credit facilities by an aggregate of €33.5m reaching €68.5m. The new facilities may be withdrawn immediately up to €7.5m, an additional €15m after September 15, 2007 and the balance of €11m will be available on November 15, 2007. These new facilities have the same maturity date as current existing lines. 4. RELAUNCH PLAN One of the highlights of fiscal 2006/07 was the completion of the Group’s debt restructuring plan. Today, Infogrames’ balance sheet is sufficiently restructured to begin a new stage in its development. With a video games market expected to grow significantly, Infogrames and Atari can rely on major assets, including a leading European distribution network and a portfolio of valuable franchises. The three main components of the relaunch strategy are as follows: 4.1 – IMPROVEMENTS IN DISTRIBUTION ATARI GROUP PRODUCTS: using the group’s expertise to increase the visibility of its franchises worldwide ATARI GLOBAL PARTNERSHIPS: strengthening global partnerships ATARI LOCAL PARTNERSHIPS: continuing to open up the Group’s network at the local level 4.2 – TURNAROUND IN PUBLISHING ATARI INSIDE: designing a plan to gradually give new life to the Group’s historic franchises (Alone In the Dark, NeverWinter Nights, Test Drive, V-Rally, Dungeons & Dragons, Baldur’s Gate, Total Annihilation, etc.) – and to generate value from other properties with significant potential. ATARI OPEN TO THE WORLD: developing relationships with gaming communities, relying on independently designed product lines that provide opportunities for the development of new original franchises – while extending the expertise of the local French publishing staff to other countries. ATARI OUT OF THE BOX: creation of new gaming experiences and positioning the Group on the basis of new business models, by developing online features for all key franchises, in-game advertising and more business-to-business services (licensing out, exploitation of the Atari name, spin-offs, etc.). 4.3 – CONTINUED OPTIMIZATION OF OPERATIONS Streamlining the decision-making process to improve productivity and responsiveness Structuring operations on a more global basis to improve operating ratios in connection with anticipated growth Giving more attention to the management of Research and Development budgets so as to improve the return on investments. 2007-2008 PUBLISHING LINE-UP The current expansion of the game line will feature the release of the following titles in 2007-2008: Alone in the Dark PC / PS2 / 360 / Wii Asterix PS2 / Wii / NDS / PC BDZ Budokai 2 PSP DBZ Harukanaru Densetsu NDS DBZ Tenkaichi 3 PS2 / Wii Dungeons & Dragons Tactics PSP Godzilla Unleashed PSP / Wii / NDS Jenga Wii / NDS Lanfeust of Troy NDS Lucky Luke: Go West NDS / PC / Wii My Horse & Me NDS / PC / NDS Naruto Ultimate Ninja 2 (Europe) PS2 NeverWinter Nights 2 exp. pack 1: Mask of the Betrayer PC The Witcher PC About Infogrames Entertainment and Atari Infogrames Entertainment (IESA), the parent company of the Atari Group, is listed on the Paris Euronext stock exchange (ISIN code: FR-0000052573) and has two principal subsidiaries: Atari Europe, a privately-held company, and Atari, Inc., a United States corporation listed on Nasdaq (ATAR). The Atari Group is a producer, publisher and distributor of interactive entertainment software for all market segments and in all existing game formats (Microsoft, Nintendo and Sony) and on CD-ROM for PC. Its games are sold in more than 60 countries. The Atari Group’s extensive catalogue of popular games is based on original franchises (Alone in the Dark, V-Rally, Test Drive, etc.) and international licenses (Dragon Ball Z, Dungeons & Dragons, etc.). For more information: http://www.atari.com Unaudited Consolidated income statements €'m   Actual       Prior year       %FY-PY Net revenues 305,3  100% 365,5  100% -16,5% Cost of goods sold   -179,3    -59%   -220,0    -60%   -18,5% Gross Margin   126,0    41%   145,5    40%   -13,4% R&D expenses a) -57,9  -19% -53,6  -15% 8,0% Marketing & selling expenses -58,2  -19% -82,9  -23% -29,8% General & Administrative expenses   -49,2    -16%   -64,2    -18%   -23,4% Current operating income / (loss)   -39,3    -13%   -55,2    -15%   -28,8% Disposal of Hasbro licence 0,0  0% 36,6  10% -100,0% Gain / (loss) of disposal of assets 2,7  1% 4,2  1% -35,7% Restructuring expenses -8,7  -3% -13,2  -4% -34,1% Impairment of Goodwill -17,3  -6% -125,4  -34% -86,2% Other operating costs   0,8    0%   -    0%   -  Operating income / (loss)   -61,8    -20%   -153,0    -42%   -59,6% Cost of debt -25,6  -8% -20,1  -5% 27,4% Other financial income / (loss) 1,8  1% -3,3  -1% -154,5% Tender offer loss -18,7  -6% -  0% -  Share of net income /loss in equity methods investments -0,5  0% -0,1  0% 400,0% Income taxes   1,1    0%   -1,5    0%   -173,3% Net income / (losses) from continuing operations   -103,7    -34%   -178,0    -49%   -41,7% Net income / (losses) from discontinuing operations   -8,8    -3%   -1,3    0%   576,9% Net loss before minority interests   -112,5    -37%   -179,3    -49% Minority interets   9,4    3%   29,5    8% Net loss   -103,1    -34%   -149,8    -41% Unaudited Consolidated balance sheet €'m   31/03/07    31/03/06    Variance               Goodwill 89,0  128,9  -39,9  Intangible assets 61,9  90,7  -28,8  Tangible assets 7,0  11,3  -4,3  Financial assets 3,1  3,2  -0,1  Other non-current assets 0,2  0,6  -0,4  Deferred tax assets   5,4    5,7    -0,3  Non-current assets   166,6    240,4    -73,8  Inventories 28,0  35,8  -7,8  Trade receivables 60,5  49,6  10,9  Income tax assets 0,4  0,7  -0,3  Other current assets 10,6  17,3  -6,7  Non-current assets classified as held for sale 0,9  -  0,9  Cash and cash equivalents   46,6    42,6    4,0  Current assets   147,0    146,0    1,0  TOTAL ASSETS   313,6    386,4    -72,8                Share capital 12,3  115,7  -103,4  Share premium 952,0  650,3  301,7  Reserves and retained earnings   -897,7    -788,1    -109,6  Shareholders' equity attributable to the Group   66,6    -22,1    88,7  Minority interest   18,6    31,9    -13,3  Total shareholders' equity   85,2    9,8    75,4  Provisions, non-current 0,4  0,3  0,1  Borrowings, non-current 12,5  158,4  -145,9  Deferred tax liabilities -  -  -  Other non-current liabilities   13,1    15,0    -1,9  Non-current liabilities   26,0    173,7    -147,7  Provisions, current 3,8  6,0  -2,2  Borrowings, current 74,6  57,4  17,2  Trade payables 99,5  114,6  -15,1  Income tax liabilities 0,4  0,3  0,1  Other current liabilities 24,1  24,6  -0,5  Liabilities directly associated with non-current assets classified as held for sale   -    -    -  Current liabilities   202,4    202,9    -0,5  TOTAL EQUITY AND LIABILITIES   313,6    386,4    -72,8  Unaudited consolidated cash flow statement Year-ended Year-ended 31/03/2007  31/03/2006  Net income (loss) -112,5  -179,3  Adjustments Depreciation and amortisation of non-current assets 67,1  181,8  Share based payments expenses 0,0  4,5  Net (gain) loss on disposal of intangible or tangible assets 7,7  -41,3  Net (gain) loss on disposal of investment and other financial assets 0,1  0,7  Tender offer net result 18,7  0,0  Other -4,5  0,7  Finance costs recognised in profit or loss 25,6  20,1  Income tax expense recognised in profit or loss -1,1    1,6  Net cash provided (used) by operating activities before changes in working capital, interest and taxes 1,1    -11,2  Income taxes paid -0,1  -0,3  Changes in working capital (Increase)/decrease inventories 6,7  2,8  (Increase)/decrease trade receivables -13,4  -12,7  Increase/(decrease) in trade payables -5,5  12,8  Increase/decrease in other assets and liabilities -0,3    18,0  Net cash (used in)/generated by operating activities -11,5    9,4  Payment for intangible assets -31,3  -59,7  Payment for tangible assets -2,4  -1,6  Payment for financial assets -1,2  -0,2  Proceeds from disposal of intangible assets 7,8  65,8  Issuance and offering of Atari Inc shares 0,0  7,8  Proceeds from disposal of subsidiaries 0,0    -0,5  Net cash (used in)/generated by investing activities -27,1    11,6  Proceeds from equity shares 74,5  8,8  Proceeds from borrowings 38,5  15,4  Net interest paid -16,0  -8,5  Repayment of borrowings -66,4    -21,2  Net cash (used in)/generated by financing activities 30,6    -5,5  Cash (used in)/generated by operating, investing and financing activities of discontinued operations 12,8  -9,6  Net effect of exchange rate -0,8    0,4  Change in net cash 4,0    6,3