Business Context and Reporting Period
Company: GRAVITY Co., Ltd. (NasdaqGM: GRVY)
Reporting Date: February 13, 2013
Period Covered: Fiscal quarter ended December 31, 2012 (Q4 2012)
Business Overview: Gravity is a South Korean online game developer and publisher. Its principal product is Ragnarok Online, offered in 59 markets. The company also owns a 50.83% stake in Gravity Games Corporation.
Key Financial Metrics and Material Changes
Potential Impairment Charges: The Company announced it may record impairment charges on intangible assets and goodwill totaling approximately KRW 12,117 million (US$ 11,059 thousand) in Q4 2012.
- Intangible Assets: Approximately KRW 8,503 million (US$ 7,761 thousand) related to the online game "East Road" under development by Gravity Games.
- Goodwill: Approximately KRW 3,614 million (US$ 3,298 thousand) related to Gravity Games.
Cash Flow Impact: The filing explicitly states these impairment charges will have no cash flow effect.
Material Change Driver: The potential charges arise because Gravity Games is highly likely to discontinue development of "East Road" due to a lack of funds. Gravity Games intends to reallocate limited resources to the development and customer service of "Dragonica," a game commercially offered in 40 countries.
Other Financial Data: The filing text does not provide clear values for total revenue, net profit, operating margins, debt levels, or liquidity ratios for the period. These figures are expected to be included in the annual general meeting notice on February 27, 2013, and the Form 20-F filing on April 26, 2013.
Guidance, Outlook, and Risks
Management Commentary: Management is shifting focus from the "East Road" project to "Dragonica" due to funding constraints at the subsidiary level. The recognition of charges is contingent on the finalization of impairment testing.
Upcoming Filings and Reporting:
- February 27, 2013: Condensed financial statements for the year ended December 31, 2012 (including potential impairment charges) prepared under Korean Accounting Standards for Non-Public Entities (KAS-NPE) will be filed on Form 6-K.
- March 27, 2013: Annual general meeting of shareholders; full financial statements (KAS-NPE) will be reported.
- April 26, 2013: Expected filing of the annual report and consolidated financial statements prepared under U.S. GAAP on Form 20-F.
Risks and Contingencies: The primary risk is the finalization of the impairment charges, which will negatively impact reported earnings for Q4 2012. The filing includes standard forward-looking statements regarding future performance and development efforts.
Investor Verification Checklist
- Verify the final amount of impairment charges in the Form 6-K filed on February 27, 2013.
- Confirm the impact of these charges on the Q4 2012 and full-year 2012 net income in the upcoming Form 20-F.
- Monitor the development status and commercial performance of "Dragonica" as the new strategic focus.
- Review the full consolidated financial statements (U.S. GAAP) upon the April 26, 2013 filing to assess overall liquidity and debt positions not detailed in this press release.