Atari axes two studios, announces poor Q3 results

Atari this week reported decreased revenues for its fiscal third quarter and announced its decision to close publishing studios located in Santa Monica, California and Beverly, Massachusetts as part of what President and CEO Jim Caparro described as a broad strategic plan to strengthen Atari's position in the marketplace and enhance shareholder value.

The company did not disclose how many people were affected by the deal, but in an email sent out to staff Caparro said the decision "was not made easily," adding that "in an increasingly competitive environment, there are times when tough - and unpleasant - choices have to be made."

Net income for the three months ended 31st December 2004 was down on the previous year at $19.6 million, or $0.16 per share, compared to $23 million, or $0.19 per share in the same period a year previously - reflecting a dip in net revenue from $190.6m to $161.8m. Atari attributed this fall in revenue to a lower number of titles in the quarter, strong competition and the shortage of console hardware in the marketplace over the festive period.

Net income for the nine-month period ended 31st December was $14.8m, or $0.12 per share, compared with $18.1m, or $0.20 per share, before a $39.4m, or $0.44 per share, one-time non-cash dividend relating to the company's September 2003 recapitalisation and public offering.

Atari has now revised its fiscal fourth quarter expectations, reckoning on net revenue in the range of $70-80m with a net loss in the range of breakeven-to-$10m prior to any restructuring charges associated with, among other things, the closure of the two publishing offices in California and Massachusetts. The company now anticipates net revenue for the fiscal year ending 31st March 2005 to be in the region of $413-423m, with net income between $4m and $15m.

Marking the results and announcement of closures this week, Caparro said the company had spent the last eight weeks conducting rigorous self-examination, "realistically assessing our organisational complexity, identifying a multitude of untapped opportunities, and mapping out the strategy for realising our primary objectives: to strength Atari's competitive position in the marketplace and enhance shareholder value."

He said "aggressive steps" were being taken to address "structural, operation and financial issues", and promised "a complete transformation of the senior management team and a realignment of responsibilities" to tighten up procedures and practices, noting the recent appointment of senior executives including a new Chief Financial Officer as a demonstration of that intent.

Atari has "initiated a complete redirection of our product portfolio" to focus on products that research suggested had "the greatest potential to deliver a significant return on investment," he said, while it continues to assess what certain non-core assets bring to the company.

Discussing the studio closures, Caparro said the company would "relocate the functions handled by those studios to Atari's corporate headquarters in New York," and that the closures, along with recent management changes and other divestitures, will result in a reduction in annual expenses. "The company expects it will take a restructuring reserve during the 2005 fiscal fourth quarter to reflect severance packages, lease obligations and other related items," he added.

Finally, Mr. Caparro said he was "extremely optimistic" about the publisher's future and said there was "enormous potential to unlock and create added value between Atari and its majority shareholder, Infogrames Entertainment, SA."