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Take-Two Interactive Software, Inc. Reports Strong Results For Second Quarter Fiscal 2013

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, marketer and publisher of interactive entertainment for consumers around the globe. The Company develops and publishes products through its two wholly-owned labels Rockstar Games and 2K, which publishes its titles under the 2K Games, 2K Sports and 2K Play brands. Our products are designed for console systems, handheld gaming systems and personal computers, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at http://www.take2games.com.

All trademarks and copyrights contained herein are the property of their respective holders.

Cautionary Note Regarding Forward-Looking Statements

The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including: our dependence on key management and product development personnel, our dependence on our Grand Theft Auto products and our ability to develop other hit titles for current generation platforms, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, our ability to raise capital if needed and risks associated with international operations. Other important factors and information are contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2012, in the section entitled "Risk Factors," and the Company's other periodic filings with the SEC, which can be accessed at www.take2games.com. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
       
Three months ended September 30, Six months ended September 30,
  2012     2011     2012     2011  
 
 
Net revenue $ 273,084   $ 107,034   $ 499,223   $ 441,414  
 
Cost of goods sold:
Software development costs and royalties 77,535 17,248 182,539 101,850
Product costs 73,314 40,137 145,573 138,588
Licenses 7,228 10,739 15,748 22,393
Internal royalties   410     6,579     1,358     23,091  
Total cost of goods sold   158,487     74,703     345,218     285,922  
 
Gross profit 114,597 32,331 154,005 155,492
 
Selling and marketing 65,851 28,773 144,858 103,456
General and administrative 30,809 25,785 74,011 56,362
Research and development 19,320 15,998 34,632 32,517
Depreciation and amortization   2,550     3,284     5,319     6,529  
Total operating expenses   118,530     73,840     258,820     198,864  
Loss from operations (3,933 ) (41,509 ) (104,815 ) (43,372 )
Interest and other, net   (7,419 )   (4,333 )   (15,468 )   (8,013 )
Loss from continuing operations before income taxes (11,352 ) (45,842 ) (120,283 ) (51,385 )
Provision for income taxes   1,085     1,419     2,926     4,495  
Loss from continuing operations (12,437 ) (47,261 ) (123,209 ) (55,880 )
Loss from discontinued operations, net of taxes   (54 )   (110 )   (120 )   (204 )
Net loss $ (12,491 ) $ (47,371 ) $ (123,329 ) $ (56,084 )
 
Earnings (loss) per share:
Continuing operations $ (0.15 ) $ (0.57 ) $ (1.45 ) $ (0.68 )
Discontinued operations   -     -     -     -  
Basic earnings (loss) per share $ (0.15 ) $ (0.57 ) $ (1.45 ) $ (0.68 )
 
Continuing operations $ (0.15 ) $ (0.57 ) $ (1.45 ) $ (0.68 )
Discontinued operations   -     -     -     -  
Diluted earnings (loss) per share $ (0.15 ) $ (0.57 ) $ (1.45 ) $ (0.68 )
 
Weighted average shares outstanding:        
Basic 85,396 82,940 85,197 82,722
Diluted   85,396     82,940     85,197     82,722  
 
 
 
Three months ended September 30, Six months ended September 30,
OTHER INFORMATION   2012     2011     2012     2011  
 
Geographic revenue mix
United States 56 % 48 % 52 % 46 %
International 44 % 52 % 48 % 54 %
 
Platform revenue mix
Microsoft Xbox 360 47 % 39 % 45 % 47 %
Sony PlayStation 3 31 % 30 % 35 % 38 %
PC and other 20 % 16 % 17 % 10 %
Sony PSP 1 % 4 % 1 % 2 %
Sony PlayStation 2 1 % 3 % 1 % 1 %
Nintendo DS 0 % 4 % 1 % 1 %
Nintendo Wii 0 % 4 % 0 % 1 %
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
   
September 30, March 31,
  2012     2012  
 
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 328,284 $ 420,279
Accounts receivable, net of allowances of $61,008 and $51,002 at September 30, 2012
and March 31, 2012, respectively 154,951 45,035
Inventory 60,568 22,477
Software development costs and licenses 212,547 211,224
Prepaid expenses and other   41,593     44,602  
Total current assets   797,943     743,617  
 
Fixed assets, net 21,879 18,949
Software development costs and licenses, net of current portion 68,881 104,755
Goodwill 228,588 228,169
Other intangibles, net 11,101 16,266
Other assets   36,353     37,671  
Total assets $ 1,164,745   $ 1,149,427  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 125,079 $ 46,681
Accrued expenses and other current liabilities 172,104 156,768
Deferred revenue 38,284 13,864
Liabilities of discontinued operations   1,464     1,412  
Total current liabilities   336,931     218,725  
 
Long-term debt 325,539 316,340
Other long-term liabilities 16,193 16,316
Liabilities of discontinued operations, net of current portion   1,573     2,319  
Total liabilities   680,236     553,700  
Commitments and contingencies
 
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized - -

Common stock, $.01 par value, 200,000 and 150,000 shares authorized at September 30, 2012 and March 31, 2012, respectively; 92,093 and 90,215 shares issued and outstanding at September 30, 2012 and March 31, 2012, respectively

921 902
Additional paid-in capital 811,036 799,431
Accumulated deficit (334,668 ) (211,339 )
Accumulated other comprehensive income   7,220     6,733  
Total stockholders' equity   484,509     595,727  
Total liabilities and stockholders' equity $ 1,164,745   $ 1,149,427  
 

 TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 (in thousands)

   
Six months ended September 30,

 

  2012     2011  
 

Operating activities:

Net loss $ (123,329 ) $ (56,084 )
 
Adjustments to reconcile net loss to net cash used in operating activities:

Amortization and impairment of software development costs and licenses

142,286 84,361
Depreciation and amortization 5,319 6,529
Loss from discontinued operations 120 204
Amortization and impairment of intellectual property 4,944 716
Stock-based compensation 14,097 12,660
Amortization of discount on Convertible Notes 9,199 4,060
Amortization of debt issuance costs 1,017 626
Other, net 362 91
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable (109,916 ) 64,645
Inventory (38,091 ) (20,499 )
Software development costs and licenses (111,317 ) (87,584 )
Prepaid expenses, other current and other non-current assets 3,319 (14,734 )
Deferred revenue 24,420 3,759
Accounts payable, accrued expenses and other liabilities 96,066 (7,821 )
Net cash used in discontinued operations   (814 )   (1,161 )
Net cash used in operating activities   (82,318 )   (10,232 )
 

Investing activities:

Purchase of fixed assets (8,021 ) (4,780 )
Net cash used in discontinued operations   -     (1,475 )
Net cash used in investing activities   (8,021 )   (6,255 )
 

Financing activities:

Proceeds from exercise of employee stock options   -     195  
Net cash provided by financing activities   -     195  
 
Effects of foreign exchange rates on cash and cash equivalents   (1,656 )   5,673  
 
Net decrease in cash and cash equivalents (91,995 ) (10,619 )
Cash and cash equivalents, beginning of period   420,279     280,359  
Cash and cash equivalents, end of period $ 328,284   $ 269,740  
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
RECONCILIATION OF GAAP TO Non-GAAP MEASURES (Unaudited)
(in thousands, except per share amounts)
               

Three months ended September 30,

 

Six months ended September 30,

  2012     2011     2012     2011  
Net Revenues
GAAP Net Revenues $ 273,084 $ 107,034 $ 499,223 $ 441,414
Net effect from deferral in net revenues   14,949     -     14,949     -  
Non-GAAP Net Revenues $ 288,033   $ 107,034   $ 514,172   $ 441,414  
 
Gross Profit
GAAP Gross Profit $ 114,597 $ 32,331 $ 154,005 $ 155,492
Net effect from deferral in net revenues 10,032 - 10,032 -
Stock-based compensation   1,296     381     6,244     3,585  
Non-GAAP Gross Profit $ 125,925   $ 32,712   $ 170,281   $ 159,077  
 
Income (Loss) from Operations
GAAP Loss from Operations $ (3,933 ) $ (41,509 ) $ (104,815 ) $ (43,372 )
Net effect from deferral in net revenues 10,032 - 10,032 -
Stock-based compensation 7,091 4,612 14,097 12,660
Business reorganization and related 374 768 374 768
Professional fees and legal matters   -     -     -     176  
Non-GAAP Income (Loss) from Operations $ 13,564   $ (36,129 ) $ (80,312 ) $ (29,768 )
 
Net Income (Loss)
GAAP Net Loss $ (12,491 ) $ (47,371 ) $ (123,329 ) $ (56,084 )
Net effect from deferral in net revenues 10,032 - 10,032 -
Stock-based compensation 7,091 4,612 14,097 12,660
Business reorganization and related 374 768 374 768
Professional fees and legal matters - - - 176
Non-cash amortization of discount on Convertible Notes 4,656 2,063 9,199 4,060
Non-cash tax expense 483 466 956 821
Discontinued operations   54     110     120     204  
Non-GAAP Net Income (Loss) $ 10,199   $ (39,352 ) $ (88,551 ) $ (37,395 )
 
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ (0.15 ) $ (0.57 ) $ (1.45 ) $ (0.68 )
Non-GAAP earnings (loss) per share $ 0.11 $ (0.47 ) $ (1.04 ) $ (0.45 )
 
Number of diluted shares used in computation
GAAP 85,396 82,940 85,197 82,722
Non-GAAP (1) 91,743 82,940 85,197 82,722
 
(1) For the three months ended September 30, 2012, the diluted shares used in the computation of Non-GAAP diluted EPS include participating shares of 6,347.




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