A07-98-0019

Copyright 1998 Thunderbird, TheAmerican GraduateSchool of International Management. All rightsreserved.

Thiscasewasprepared byProfessor Allen Morrison with assistancefromJan Visser, AndresMaldonado, and Heather
Leonard for thepurposeof classroomdiscussion only, and not to indicateeither effectiveor ineffectivemanagement. The
namesof thereal companywhich served asthebasisfor thiscaseaswell asfinancial data havebeen disguised.
Gamet ronics
Early Wednesday morning, August 10, 1994, Tom Katz, the new CEO and President of
GAMETRONICS (a manufacturer of video game software), settled into his chair at his
office in San Jos, California, and began to scan the morning newspaper. The phone rang.
It was Marti n Fueller, a controlli ng shareholder and Chai rman of the Board of
GAMETRONICS. Fueller told Katz that he had just received a call from a close friend in
New York with some troubling news. Rumors were circulating in the arbitrage department
of one of the large securities firms that Sony Corp. was planning a hostile takeover of
GAMETRONICS. Fueller said that he did not believe a takeover could be achieved with-
out his consent since he held 42.5% of GAMETRONICS shares. He also told Katz that
while he had not yet been contacted by Sony, if the rumors proved correct, he probably
would receive a call within the next week or two.
As the conversation progressed, Fueller acknowledged that over the past year he had
grown increasingly concerned about the companys lackluster performance. Of course you
know, Tom, he said, you have my full support. But we have to act. I am giving you one
week to put together a plan. One that we can live with, not only now, but into the future.
After Katz hung up the phone, he called his secretary and canceled all meetings for the day.
Then he sat staring out his fourth-story window, wondering why only two months earlier
he had been so happy to assume his new position as president.
The Video Game Indust ry
The video game industry was composed of a wide range of small, medium and large com-
panies in both software and hardware segments. Both sides of the industry were closely tied
together through their mutual dependence on technological innovation and an often fickle
market. Over its short twenty-year life, the industry suffered cycles of enormous prosperity
followed by often significant downturns. In the early 1970s, the industry sprang to life with
Pongas well as several derivative products. During the late 1970s and early 1980s, the
industry experienced a major boom led by upstart Atari. After 1982, the bottom fell out of
Ataris sales as a consequence of its inability to come up with newer, more interesting and
more appealing video games. In 1985, the industry began recovering and during the late
1980s and early 1990s, video game hardware and software sales and profits boomed.
2 A07-98-0019
The industrys recovery in the late 1980s was led by Japan-based Nintendo, which
offered an array of innovative games based on 8-bit technology. To entice parents to pur-
chase their machines, Nintendo sold hardware at prices close to its costs. Only after the
machines were purchased did parents learn that an enormous investment would be re-
quired in new software to maintain their childrens interests. Nintendos strategy of squeez-
ing most of its profits out of the software side of the business became a model for other
competitors. To maximize returns, only the most critical hardware and software design and
marketing functions were kept in-house. In 1992, Nintendo employed just 892 people and
generated sales of $5.5 billion.
In 1989, Sega, a medium-sized Japanese video game manufacturer, entered the market
with Genesis. Genesisemployed superior 16-bit technology, which resulted in more realistic
and complex graphics compared to the Nintendo system. Sega also attracted consumers
with rock-bottom hardware prices. It combined this approach with lower licensing fees for
software suppliers. Lower fees attracted some of the best software developers in the indus-
try, and the resulting line of new games led to soaring sales. In 1992, Segas sales topped $4
billion.
By 1994, worldwide video game hardware and software industry revenues topped $11.3
billion. The industry was effectively controlled by Nintendo with 46% market share and
Sega with 36% market share. The remaining 18% share was split among several other
minor players. By 1994, both Nintendo and Sega had an installed base of approximately 65
million machines across the United States, Europe, and Asia-Pacific.
Despite an enormous boom in sales during the late 1980s and early 1990s, the indus-
try in 1994 was starting to show signs of another downturn. Beginning in early 1993 and
continuing through mid-1994, Sega and Nintendo had been engaged in an ongoing price
war that emerged from the growing software inventories that the two firms had been unable
to sell. The failure of both companies to keep introducing innovative new games appeared
to be a major problem. As Mike Anderson, account manager at one major retail outlet
indicated:
Consumersaretired of havingto paylargeamountsof moneyfor thesamegames; both Sega
and Nintendo thought loweringpriceswasthewayto get rid of inventoriesbystealing
market sharefromeach other or byattractingnew consumers. Thishasnot been thean-
swer.... What customerswant isnew technology. Thecurrent generation of video gamesis
losingsteam; consumersarewaitingfor a new lineof video gamesthat should bereadyfor
late1994 or for thebeginningof 1995.
Exacerbating the problems for both Sega and Nintendo was the arrival of several new
competitors. The evolution of video games into virtual reality capabilities attracted the
interest of other high-tech companies seeking a place on the new information superhigh-
way. Sony, for example, announced that it would be entering the market in late 1994 in
Japan and early 1995 in the U.S. with compact disk (CD) technology. Sonys new machine,
called the Playstation, was equipped with 32-bit chips that could support more complex
software and sophisticated graphics programs. In bringing CD games to the market, Sony
planned to tap its enormous Hollywood movie library. Atari also re-entered the market
A07-98-0019 3
with a new hardware game system call Jaguar; Commodore and Phillips were also getting
ready with CD-based game systems.
Beyond these dedicated video game competitors was the growing threat of personal
computer (PC) based games. While in 1994 it was estimated that about 85% of video
games were sold in cartridge format, the rapidly escalating graphics and sound quality of
PCs suggested that the PC-based video game sales would grow at a disproportionate rate.
The movement towards PC-based games was also attracting a variety of new software en-
trants. For example, in the fall of 1994, Walt Disney entered the software fray by introduc-
ing two interactive, multimedia PC-based games: Aladdin Activity Center and DisneysAni-
mated Storybook: TheLion King.
Nintendo and Sega Strike Back
Motivated by fear of fleeing sales, both Sega and Nintendo began developing their own
CD-based systems in the early 1990s. To cut development time and incorporate the most
advanced technology available, Sega established a series of collaborative agreements with
leading technology companies. Agreements were made with AT&T to develop telephone
communication capabilities for the games, with Hitachi to manufacture microprocessor
chips, with Yamaha to produce greater sound capabilities, and with JVC to assemble the
machines. Sega was also holding discussions with Microsoft to develop a range of new
software products. The result was a prototype 3-D, combination CD and cartridge system
called Saturn. By mid-1994, Sega was reported to have a $200 million annual research and
development budget, much of it going towards Saturn. While the company hoped to have
the system on the market by late 1994, the coordination of software and hardware develop-
ment was proving to be a significant challenge.
Nintendos strategy for the mid and late 1990s centered on Project Reality, which was
intended as a 32-bit replacement for Super Nintendo. In proceeding with Project Reality, the
company announced it would be sticking to cartridges as opposed to CD technology. Ac-
cording to one company spokesperson:
CD technologytakeslonger than cartridgesto seek out and displayimageson thescreen and,
therefore, doesnot test hard trigger reflexes. Theformat isverycomplex and that iswhythere
areso few good CD games.
1
Despite this concern, CD-ROM games were cheaper to manufacture than cartridge
gamesroughly two dollars to make one CD-ROM game, compared with ten dollars to
make a cartridge. For consumers, however, cheaper games were offset by significantly more
expensive CD-ROM hardware.
Not surprisingly, many in the industry debated the attractiveness of CD-ROM tech-
nology. Even within companies, opinions differed. For example, at Electronic Arts Inc., a
major manufacturer of game software, Bing Gordon, an Executive Vice President, argued
that although the whole industry believes CD-ROM is the wave of the future, there is
1
Sega Trying Video Component Strategy, Television Digest, 21 March 1994, p. 11.
4 A07-98-0019
reason to believe that the mass market is not going to understand the value of the improved
play as justification for the higher price CD-ROM-equipped console.
2
This view was not
shared by his boss, Lawrence Probst, Chairman of Electronic Arts, who actually set com-
pany strategy. According to Probst, Our strategy is to get there (CD-ROM-based games)
early, be prolific and carve out market share.
3
Even Nintendo seemed to be hedging its
bets. Despite its public statements of disinterest in CD-based games, the company was
negotiating a partnership with Silicon Graphics Inc. to develop unspecified multimedia
(PC/CD-ROM-based) applications.
Software Developers
Individual software companies developed from as few as one to as many as fifteen or more
games per year. Games were typically for either Nintendo or Sega. Once developed, game
manufacturers would approach the target company for licensing opportunities. If a game
was not accepted, the approval process began all over again after repackaging in an alternate
format. With few exceptions, Nintendo and Sega insisted that outside software developers
sign exclusive contracts and pay royalties that could amount to as much as 30% for the
privilege of writing games for Nintendo and Sega systems. Even in cases where developers
were not required to sign exclusivity contracts, they risked losing all future sales if either
Nintendo or Sega found out they had been double-dealing.
Software played a major role in determining the fate of the major hardware vendors.
Of the software used by Nintendo, approximately 65% was developed externally; for Sega,
the figure was 55%. With software development costs soaring due to increasingly complex
operating systems, many industry observers predicted that both Nintendo and Sega would
promote fewer, more expensive games in the future.
In many cases, both Nintendo and Sega relied on the same software development
companies. Segas growing market share was generally well received by software companies
because it meant less reliance on Nintendo. In 1994, Nintendo had begun changing its
rigid licensing stance in the face of increased competition. In exceptional circumstances,
Nintendo had even begun paying development fees to certain software companies plus
royalties that ranged between 2% and 12%.
In 1994, only about 30% of the games developed were accepted by Sega and Nintendo.
Part of the problem was that software companies had to consider the constantly changing
tastes of end users who were, as Bobby Kotick, CEO of Activision, defined, boys from six
to sixteen and guys who cant get a date on Saturday night.
4
Terry Munson, a Nintendo
employee who answered telephone questions from stumped players, believed that a really
successful title was one that kids enjoyed for a month. The impact of a fickle market was
perhaps best summed up by Nintendo of America President Minoru Arakawa: If we dont
supply kids with interesting new products all the time, we get killed and buried.
5
2
Sega Trying Video Component Strategy, Television Digest, 21 March 1994, p. 11.
3
Jim Carlton, Electronic Arts Shifts Focus to CD-ROM Video Games, TheWall Street Journal, 7
September 1994, p. B6.
A07-98-0019 5
A combination of both design talent and an eye for ever-changing market demands
was essential in developing winning software. Many industry observers were increasingly
convinced that market research was producing too many me-too games and that true block-
busters could only come from design genius. While market research could indicate an insa-
tiable demand for hit games like Mortal Kombat and Street Fighter II, many copycat games
had only limited appeal. Totally new game concepts frequently came from within the mind
of the designer. This view was expressed by Sigeru Miyamoto, the chief developer of
Nintendos Super Mario Brothers: I am not creating a game, I am in the game. The game is
not for children, it is for me.
6
Despite the demand for highly innovative software designers, in many cases these indi-
viduals were difficult to work with. Many designers were perfectionists who became so
obsessive in the design process that they had enormous problems getting up to speed on
new projects. In addition, top designers often lacked interpersonal skills and had a difficult
time working in teams. Finally, good designers commanded top salaries but reciprocated
with limited company loyalty.
Gamet r onics
GAMETRONICS manufactured and developed video game software that was distributed
throughout the United States and several European and Asian countries. In 1993, net com-
pany sales reached $58.34 million and operating profits topped $7.98 million. (See Exhib-
its 1, 2, and 3 for a review of GAMETRONICS performance.) The company had 156
employees worldwide, divided primarily between software development, operations, sales
and service. In 1994, all GAMETRONICS video game software was licensed or sold to
Sega and Nintendo. These companies, in turn, added their own labels and distributed the
product worldwide
GAMETRONICS was started in 1980 as a wholly owned affiliate of Fueller Corp.
Fueller was begun by Martin Fueller in 1963 with inheritance money received from his
grandfather, who had built a sizable fortune in the 1920s and 1930s in the textile industry.
During much of the 1960s and 1970s, Fueller was engaged in plastic production with
plants in West Virginia, New York, and Illinois. In 1978, the company started manufactur-
ing plastic floppy disk covers for the computer industry and became a principal supplier for
Apple II computers. At the end of the same year, Fuellersfloppy disk business was incorpo-
rated under the name of Protoinfo, Inc. This company operated with relative success until
heightened competition in the mid-1980s pushed Protoinfoout of the floppy disk cover
business. Protoinfothen refocused its efforts on the manufacturing of plastic parts for com-
puter components. In 1994, Protoinfohad sales of $32 million in plastic computer keys,
laptop computer casings, and floppy disk storage and carrying cases.
4
V. Rice and B. Snyder, Busy Going Hollywood, PC Week, 29 November 1993, p. A6 (1).
5
Ibid, p. A7.
6
As quoted in David Sheaf, GameOver: How Nintendo Zapped an American Industry, Captured your Dollars,
and Enslaved your Children (New York: Random House, 1993), p. 51.
6 A07-98-0019
With growing contacts in the computer industry, Martin Fueller had become con-
vinced that the real profits in the industry lay in software development. Concern that the
giant computer companies would be hard to work with, combined with Ataris spectacular
profits in the late 1970s, convinced Fueller that niche, game-based software would offer the
easiest avenue to success. In 1979, a separate software development division was created at
Protoinfo. Six software engineers were hired, each a recent graduate in computer science.
One of these engineers, Harold Green, age 26, was appointed general manager of software
operations. After nine months of development, the company entered the market with its
first video game, Martian Invasion. Within six months, 320,000 copies had been sold with
an average retail price of $19.95. Protoinforeceived about $7.00 for each game cartridge.
With this initial success, the video game business at Protoinfo was spun off into
GAMETRONICS, a wholly owned affiliate of Fueller. Harold Green was appointed Presi-
dent. By 1983 the engineering staff had tripled to eighteen people. An additional fifteen
people had been hired in manufacturing and shipping, and an additional six employed as
full-time sales representatives.
In 1985, after several years of good returns, Martin Fueller took GAMETRONICS
public, selling some 57.5% of his shares in the process. At the time, net sales were near
$12.8 million, and operating profits were almost $2.5 million. In looking back on the
events surrounding the public offering, Martin Fueller commented:
Wedecided to takeit public becausetheindustryhad such a promisingfuture. Priceswere
goingwild. At thetimeof theinitial offering, thestock wastradingat 32 timesearnings.
Myother businesseswerent doinganywherenear that well. In retrospect, it wasalmost
certainlya mistake. Back then, Microsoft onlyhad salesof $140 million. Look at Bill Gates
today. I actuallythought that I needed themoney. A friend had meconvinced of a great
opportunityto buyinto an under-utilized plasticsresin plant that Monsanto had put on the
block. I thought it would bea great fit with Protoinfo. I ended up buyinga 20% share. Yet
resin priceshavebeen very volatileand I havenever been satisfied with itsperformance.
In taking GAMETRONICS public, Fueller was able to maintain effective control
because no other single shareholder held more than 2% of the stock.
Sales climbed each year during the next eight years. They were helped by highly favor-
able industry conditions and a string of software hits including Alligator Warrior, Super
Racer, Cliff Diver and JungleWarfare. As performance picked up, Martin Fueller devoted
more and more of his time to outside interests, although he would visit every month to
check the books. Harold Green was left to make critical decisions.
Changes in Top Management
In May 1994, Harold Green announced that he would be stepping down as president of
GAMETRONICS to assume a senior management position at a major Utah-based soft-
ware development company. One month later, Martin Fueller appointed 42-year-old Tom
Katz to the vacated position of President and CEO of GAMETRONICS. Katz, who was at
the time serving as Vice President of Sales and Marketing, assumed his new duties on
June 6.
A07-98-0019 7
Tom Katz was raised in the New York City borough of Queens and in 1975 graduated
from City University of New York with an undergraduate degree in Computer Science.
Upon graduating, he immediately entered the MBA program at Fordham University and
placed in the top 5% of his 1977 graduating class. Interested in working in the computer
industry, Katz accepted an offer from a major Boston-based software manufacturer. Over
the next three years, Katz became the top performer at the company where his responsibili-
ties included selling pre-installed software packages to large accounts including Wang, IBM,
Toshiba, and COMPAQ.
Katz first became acquainted with GAMETRONICS and Green at a software trade
show in Las Vegas in 1983. Over the next two years both men kept in contact, and in
November 1985 Green asked whether Katz would ever be interested in working for
GAMETRONICS. One month later, Katz joined the company in the newly created posi-
tion of Vice President of Sales. When Green left the company, Fueller turned to Katz as the
obvious replacement: He has the experience and the results behind him to successfully lead
the company through the changing future of the video game manufacturing industry.
The majority of employees were also delighted at the news. Gerry Oswald, head of
production, was quoted at the time as saying:
Thisistheright decision. Thepresident needsto besomeonewho will moveGAMETRONICS
towardsthefutureof thevideo gameindustry. Tomistheperson who will initiatechanges
and listen to theideasof not onlycustomers, but employeesaswell.
Emerging Challenges
In assuming his new position, Katz was aware of several challenges facing the company.
One problem was that sales increases seemed to be much more a function of title prolifera-
tion than of market hits. The companys best selling game, JungleWarfare, accounted for
18% of GAMETRONICS sales, representing approximately 700,000 units at $15 each.
While this resulted in a solid market position, it was not a blockbuster. True blockbuster
games generated sales of over one million cartridges and provided enormous cash flow.
Cash flow was essential for funding new games. Development costs in the industry aver-
aged well over $1 million for each new game; in some well-publicized cases, game develop-
ment costs exceeded $3 million. Of GAMETRONICS library of 138 games, only six had
been introduced within the last twelve months.
GAMETRONICS was also having internal problems with production and inventory
control. All sales of video games to Nintendo and Sega were subject to extensive perfor-
mance paramet ers, and rej ect ed games became t he sol e fi nanci al burden of
GAMETRONICS. In 1993 rejection rates were twice that of industry averages. The rejec-
tions were primarily the result of packaging and labeling problems. In addition, company
managers felt that GAMETRONICS prototype games were often rejected on the apparent
whims of Nintendo and Sega purchasing agents. When a decision wasmade to buy from
GAMETRONICS, Nintendo and Sega demanded almost overnight deliveries. The result
was that GAMETRONICS often over-produced batches of cartridges in expectation of
escalating demand that in many cases never materialized.
8 A07-98-0019
Internal friction mounted when sales did not materialize. In most cases, the sales staff
blamed the software developers for producing inferior games. Software developers, in turn,
blamed the sales and marketing staff for ineffective research and for weak customer con-
tacts. The production department was often blamed for either over-producing or not hav-
ing the right products available when needed. When Katz met individually with managers
to discuss possible solutions, he was disappointed with their responses. Gerry Oswald ar-
gued:
Pressurefromthesalesstaff to havenew productsdeveloped or production increased isunre-
alistic. I dont think theyunderstand what goesinto developingtheproduct and preparingit
for distribution. Even if someof themdo, theydont seemto care.
Paul Frierson, Vice President of Development, argued:
Wearefallingbehind on R&D compared with theothers. Thebudget isnt thereto hirethe
new talent comingon themarket. Furthermore, whatever wedo doesnt seemto begood
enough. A lot of mypeoplearegettingdemoralized.
Before Fuellers call on June 1, Katz had intended to focus his short-term efforts on the
mounting internal problems facing GAMETRONICS. This priority now seemed to fade.
Weighing Options
As Katz considered where to turn, his thoughts shifted to an initiative that Green had
explored but which had been cut short by his departure. It was the option of moving the
company into educational software. The idea had come to Green quite unexpectedly dur-
ing the summer of 1993 when Green heard his neighbors complain that their children
spent too much time playing video games. This comment made Green realize that a move-
ment to educational games could represent a good business opportunity for the company.
Green called Fueller early the next day and told him the idea. Fueller agreed:
Thissoundsgreat. It could bethesolution that would help usoffset theweak demand for
video gamesthat weseemto befacing. It would also help diversifysomeof therisk involved
in beingin a particular segment of theindustry. Education seemslikea low-risk option.
Green started researching the educational software industry and found that it had an
entirely different structure than the video game business. A number of small companies had
been able to survive in the market, thanks to very specialized software development. While
most educational software was distributed through medium- and large-sized companies,
these small firms were able to deliver the product directly to end consumers, typically through
mail order distribution. Since the late 1980s, the industry had expanded, fueled in large
part by a surge in home computer sales. After reviewing the files prepared by Green, Katz
determined that the cost of developing educational software capabilities from scratch would
require a capital investment of approximately $4 million over two years.
Another alternative was to buy an existing educational software company. Green had
already done some preliminary research into this possibility. About three months before he
A07-98-0019 9
left GAMETRONICS, Green had taken a trip to Bombay, India, to follow up on a lead to
buy a small educational software development company called Educomp. Educomps soft-
ware was developed by four Indian nationals who shared ownership of the company. Total
sales for Educomp were approximately $5.2 million, with about $1 million coming from
exports to the U.S. and England. After-tax profits had averaged between 20% and 25% for
the last three years. These returns were significantly higher than industry norms for educa-
tional software companies which averaged between 17% and 18%. While Katz had not had
any direct contact with Educomp, he had been in recent phone contact with Green who
indicated that he would be happy to make formal introductions. In their telephone conver-
sation, Green also offered some additional commentary:
Tom, although it hasnow been a coupleof monthssinceI left, oneof mybigdisappoint-
mentswasin not gettingclosureon Educomp. Thingsjust got too busyat theend. Theyare
good peoplewith world-classtalents. I amsuretheywould still behappyto talk. I wasalso
impressed with theabundanceof inexpensive, talented programmersin India. . . It isobvi-
ouslyyour call. Myguessisthat with theright arguments, you could quiteeasilyget Fueller
to go along.
In addition to considering a move into educational software, Katz was weighing an
option to sell the companys game library. This option was the result of a recent inquiry by
a software distributor who was interested in buying GAMETRONICS library of cartridges
in order to turn them into PC-based games. Under the proposal, GAMETRONICS would
receive $2.6 million in cash for the library with additional annual royalty payments of 4%.
Only existing games would be covered; new titles would not be included. Katz estimated
that royalty payments might amount to as much as $400,000 in the first year, declining
each year thereafter.
Another option was to focus efforts on strengthening the existing development team
at GAMETRONICS. It was clear that the company needed a constant stream of winning
software titles and that pressure to do so would only increase. By focusing on the engineer-
ing core and investing in new computing facilities and manpower, GAMETRONICS could
maximize its chances of staying at the forefront of software development. Katz figured that
if he increased the R&D budget by 20% and allocated one-half of the additional money to
new benefits such as bonuses and other incentives to the designers, morale, and quite pos-
sibly output, would improve significantly. The remaining new money could also fund the
hiring of possibly four new software designers.
A final solution would be to attempt to form an alliance with some as-yet-to-be-deter-
mined large company in the industry. GAMETRONICS was dwarfed in sales by some of
its larger software game competitors such as Virgin Interactive Entertainment (a unity of
Viacom, Inc.), Acclaim Entertainment Co., and Electronic Arts Inc., which had sales that
ranged from $100 million to $1 billion dollars. By working with a company like NEC or
Microsoft, GAMETRONICS would have access to the latest technologies and benefit from
their distribution channels. Katz was uncertain whether an ideal partner would be one in
the software side or one in the hardware side of the industry. He was also aware of a number
of instances where alliances led to a significant loss of autonomy on the part of the smaller
company and wondered how Martin Fueller might perceive this risk.
10 A07-98-0019
With so many options, Katz was uncertain how to proceed. He realized that involving
his top managers in a discussion of the options was highly risky. If word of the potential
acquisition of GAMETRONICS slipped out, the impact on employee morale might be
disastrous. In the back of his mind, Katz wondered whether being acquired would not be
such a bad idea for him personally. New investment would lead to more responsibility and
expanded career options. However, Katz knew that such thoughts could not be shared with
Fueller, who was certain to fight any appearance of an acquisition. As he sat at his desk,
Katz realized that Fueller expected a plan of action. He had maybe a week to put it all
together.
A07-98-0019 11
EXHIBIT1 Gametronics IncomeStatement (In$ Millions)
1985 1990 1991 1992 1993
Net Sales 12.81 39.09 47.81 54.02 58.34
Costsof GoodsSold 6.40 19.74 24.29 27.50 30.12
Gross Profit 6.41 19.35 23.52 26.52 28.22
Selling & Admin Expenses 2.31 7.94 9.75 11.07 12.26
R& D Expenses 1.26 3.91 5.88 6.64 6.87
Depreciation, Amortization 0.35 0.72 0.80 1.07 1.12
Operating Profit 2.49 6.78 7.09 7.74 7.97
Total Interest 0.12 0.43 0.48 0.70 0.76
Non-op Income/Expenses 0.21 1.13 1.27 1.43 1.50
Pretax Income 2.16 5.22 5.34 5.61 5.71
EXHIBIT2 Gametronics Unit andDollar Sales (In$ Millions)
1985 1990 1991 1992 1993
Unit Sales 1.42 3.55 4.20 4.16 3.89
Sales 13.26 41.32 50.68 58.13 63.01
12 A07-98-0019
ASSETS
Cash and Equivalents 3.70
AccountsReceivable 3.52
Inventories 7.12
Other Current Assets 6.56
Total Current Assets 20.90
Gross Plant 6.74
Accumulated Deprecation 1.75
Net Plant 4.99
Deferred Charges 0.46
Intangible Assets 36.49
Other Long-Term Assets 0.32
Total Assets 63.16
LIABILITIES
Notes Payable 1.20
Accounts Payable 4.96
Accrued Expenses 3.96
Taxes Payable 1.81
Other Current Liabilities 1.21
Total Current Liabilities 13.14
Deferred Taxes 0.90
Long-Term Debt 8.20
Other Long-Term Liabilities 0.62
Total Liabilities 22.86
EQUITY
Preferred Stock 27.00
Common Stock 7.00
Retained Earnings 5.70
Other Liabilities 0.60
Total Equity 40.30
Total Liabilities and Equity 63.16
EXHIBIT3 Gametronics BalanceSheet, 1993 (In$ Millions)