Current Report

Exhibit 99.1

 

 

FOR IMMEDIATE RELEASE

 

CONTACT:

 

Meg Maise (Corporate Press/Investor Relations)

Take-Two Interactive Software, Inc.

(646) 536-2932

meg.maise@take2games.com

 

Take-Two Interactive Software, Inc. Reports

Third Quarter Fiscal 2009 Financial Results

 

New York, NY — September 1, 2009 — Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today announced financial results for its third quarter ended July 31, 2009.

 

Net revenue for the third fiscal quarter was $138.6 million, compared to $433.8 million for the same quarter of fiscal 2008, which benefited from the post-launch performance of Grand Theft Auto IV , the blockbuster title that surpassed all-time records for the launch of an entertainment property. Third quarter fiscal 2009 sales were led by catalog titles, including Grand Theft Auto IV , along with The BIGS 2™ and Major League Baseball ® 2K9.

 

Net loss for the third quarter was $55.5 million or $0.72 per share, compared to net income of $51.8 million or $0.67 per share in the third quarter of fiscal 2008.

 

The third quarter results include $4.6 million in stock-based compensation expense ($0.06 per share) and $0.4 million in professional fees and expenses related to unusual matters ($0.01 per share). Results for the third quarter of 2008 included $12.6 million in stock-based compensation expense ($0.16 per share) and $7.2 million in professional fees and expenses related to unusual matters, as well as business reorganization costs ($0.09 per share).

 

Non-GAAP net loss was $50.4 million or $0.66 per share in the third quarter of fiscal 2009, compared to non-GAAP net income of $71.5 million or $0.93 per share in the third quarter of 2008.  (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on non-GAAP items).

 

For the nine months ended July 31, 2009, net revenue was $625.1 million, compared to $1,214.1 million for the same period a year ago, which included the release and strong post-launch performance of Grand Theft Auto IV . Net loss for the first nine months of fiscal 2009 was $115.9 million or $1.51 per share, compared to net income of $112.1 million or $1.48 for the 2008 period. Results for the first nine months of fiscal 2009 include $16.1 million in stock-based compensation expense ($0.21 per share) and $7.1 million in professional fees and expenses related to unusual matters ($0.09 per share). Results for the first nine months of fiscal 2008 included $31.1 million in stock-based compensation expense ($0.41 per share) and $13.5 million in professional fees and expenses related to unusual matters, as well as business reorganization costs ($0.18 per share).

 

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Non-GAAP net loss was $92.7 million or $1.21 per share in the first nine months of 2009, compared to non-GAAP net income of $156.6 million or $2.07 per share in the comparable period of 2008.  (Please refer to Non-GAAP Financial Measures and reconciliation tables included later in this release for additional information and details on non-GAAP items).

 

Business Highlights

 

Among the recent developments, Take-Two noted the following:

 

·                   Take-Two completed a $138 million convertible debt offering.

·                   Rockstar Games announced Agent , a new wholly owned intellectual property being developed exclusively for the PLAYSTATION®3 system by Rockstar North.

·                   2K Sports secured a multi-year license to develop an online version of the NBA simulation game in China, Taiwan, South Korea and Southeast Asia; and announced a partnership with Tencent Holdings Limited, one of China’s leading online game operators, to co-develop and distribute NBA 2K Online in China.

·                   2K Games launched its celebrated Sid Meier’s Civilization® Revolution™ for iPhone ™ and iPod® touch.

 

Financial Guidance

 

Take-Two’s guidance for the fourth fiscal quarter and fiscal year ending October 31, 2009 is provided below.

 

		Fourth quarter ending 10/31/2009		Fiscal year ending 10/31/2009
Revenue		$350 to $375 million		$0.975 to $1.0 billion
Non-GAAP EPS		$0.30 to $0.35		$(0.81) to $(0.87)
Stock-based compensation expense per share (a)		$0.08		$0.30
Expenses related to unusual legal matters per share		$0.01		$0.10

 

(a) The Company’s stock-based compensation expense for the fourth quarter and fiscal year 2009 includes the cost of approximately 2 million stock options and 1.5 million shares previously issued to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these options and shares is dependent upon several factors, including future changes in Take-Two’s stock price.

 

Key assumptions and dependencies underlying the Company’s guidance include continued consumer acceptance of the Xbox 360® video game and entertainment system from Microsoft, PLAYSTATION®3 computer entertainment system and Wii™ home video game system from Nintendo; the ability to develop and publish products that capture market share for these current generation systems while continuing to leverage opportunities on certain prior generation platforms; as well as the timely delivery of the titles detailed in this release.

 

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Product Releases

 

The following titles shipped during the third quarter of fiscal 2009:

 

Title		Platform
Birthday Party Bash		Wii
The BIGS™ 2		Multiple platforms
Sid Meier’s Civilization IV ® : The Complete Edition		Games for Windows®

 

Following are the key titles planned for release in the fourth quarter of fiscal 2009:

 

Title		Platform
Borderlands™		Xbox 360, PS3, PC
Grand Theft Auto: Chinatown Wars		PSP, iPhone, iPod touch
Grand Theft Auto: Episodes from Liberty City		Xbox 360
Grand Theft Auto: The Ballad of Gay Tony		Xbox LIVE ® (downloadable episode)
NBA® 2K10		Multiple platforms
NHL® 2K10		Multiple platforms
Rockstar Games and Timbaland present Beaterator		PSP, iPhone, iPod touch

 

Take-Two’s lineup of key titles announced to date for fiscal 2010 includes:

 

Title		Platform
BioShock® 2		Xbox 360, PS3, PC
Mafia® II		Xbox 360, PS3, PC
Max Payne 3		Xbox 360, PS3, PC
Red Dead Redemption		Xbox 360, PS3

 

Management Comment

 

“We remain focused on our core strategy of delivering high quality interactive entertainment experiences and exceptional value through our catalog of proven titles. While the economy and retail environment continue to be challenging, we are optimistic that ‘must have’ triple-A and value products will be key drivers this holiday season. That said, we are maintaining a prudent approach to our business outlook for the remainder of this year and as we head into fiscal 2010. We will continue to invest our resources in initiatives that will enhance our industry-leading creativity and innovation,” said Strauss Zelnick, Chairman of Take-Two.

 

Ben Feder, Chief Executive Officer of Take-Two, noted, “Our strong lineup for the balance of this year includes a broad array of titles that we believe will appeal to both hard core and casual gamers. Anchored by several new titles from our blockbuster Grand Theft Auto series and the latest installment of our #1-rated NBA 2K franchise, our holiday portfolio will also feature Borderlands , a genre-defining new intellectual property. Looking ahead, we will continue to support our product development efforts with a solid balance sheet, operational improvements, and a creative team that is among the most talented in our industry.”

 

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Conference Call

 

Take-Two will host a conference call today at 4:30 p.m. Eastern Time to review these results and discuss other topics.  The call can be accessed by dialing (877) 407-0984 or (201) 689-8577.  A live listen-only webcast of the call will be available by visiting http://ir.take2games.com and a replay will be available following the call at the same location.

 

Non-GAAP Financial Measures

 

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items.  Non-GAAP gross profit, income (loss) from operations, net income (loss) and earnings (loss) per share are measures that exclude certain non-recurring or non-cash items and should be considered in addition to results prepared in accordance with GAAP.  They are not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results.  These non-GAAP financial measures may be different from similarly titled measures used by other companies.

 

The non-GAAP measures exclude the following items from the Company’s statements of operations:

 

·                   Business reorganization, restructuring and related expenses

·                   Stock-based compensation

·                   Professional fees and expenses associated with unusual legal and other matters, including the Company’s concluded process to evaluate its strategic alternatives

·                   Income tax effects of the items listed above

 

In addition, the Company may consider whether other significant non-recurring items that arise in the future should also be excluded from the non-GAAP financial measures it uses.

 

The Company believes that these non-GAAP financial measures, when taken into consideration with the corresponding GAAP financial measures, are important in gaining an understanding of the Company’s ongoing business. These non-GAAP financial measures also provide for comparative results from period to period.  Therefore, the Company believes it is appropriate to exclude certain items as follows:

 

Business reorganization, restructuring and related expenses

In March 2007, the Company’s stockholders elected a new slate of members to Take-Two’s Board of Directors, who immediately removed the Company’s former President and Chief Executive Officer. Subsequently, the Company’s former Chief Financial Officer resigned.  As a result of these actions and the implementation of a business reorganization plan, the Company incurred significant costs in the fiscal years ended October 31, 2007 and October 31, 2008 to reduce headcount, relocate employees and consolidate sales and operational functions. These costs were related to severance, asset write-offs and associated professional fees.  As of October 31, 2008, the Company had substantially concluded the reorganization plan.

 

The Company does not engage in reorganization activities on a regular basis and therefore believes it is appropriate to exclude business reorganization expenses from its non-GAAP financial measures.

 

Stock-based compensation

The Company does not consider stock-based compensation charges when evaluating business performance and management does not contemplate stock-based compensation expense in its short and long-term operating plans.  The Company places greater emphasis on stockholder dilution than accounting charges when assessing the impact of stock-based equity awards.

 

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Professional fees and expenses associated with unusual legal and other matters, including the Company’s concluded strategic review process

The Company incurred significant legal, consulting and investment banking expenses in the fiscal year ended October 31, 2008 related to the tender offer by Electronic Arts Inc. to acquire all of the Company’s outstanding shares, which was launched in March 2008 and expired in August 2008, and the Company’s related strategic review process which was completed in October 2008.

 

Additionally, the Company has realized significant legal and other professional fees associated with both the investigation of its historical stock option granting process and the Company’s responses to related governmental inquiries and civil lawsuits. The Company has also incurred legal expenses related to the tender offer by Electronic Arts. One of management’s primary objectives is to bring conclusion to its outstanding legal matters.  The Company continues to incur expenses for professional fees and has accrued for legal settlements that are outside its ordinary course of business. As a result, the Company has excluded such expenses from its non-GAAP financial measures.

 

EBITDA and Adjusted EBITDA

Earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) is a financial measure not calculated and presented in accordance with U.S. GAAP.  Management uses EBITDA adjusted for business reorganization and related expenses (“Adjusted EBITDA”), among other measures, in evaluating the performance of the Company’s business units.  Adjusted EBITDA is also a significant component of the Company’s incentive compensation plans. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net income/(loss) prepared in accordance with GAAP.

 

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

 

About Take-Two Interactive Software

 

Headquartered in New York City, Take-Two Interactive Software, Inc. is a global developer, marketer, distributor and publisher of interactive entertainment software games for the PC, PLAYSTATION®3 and PlayStation®2 computer entertainment systems, PSP® (PlayStation®Portable) system, Xbox 360® video game and entertainment system from Microsoft, Wii™ and Nintendo DS™. The Company publishes and develops products through its wholly owned labels Rockstar Games, 2K Games, 2K Sports and 2K Play; and distributes software, hardware and accessories in North America through its Jack of All Games subsidiary. Take-Two’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at 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

 

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generation platforms, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, our reliance on a primary distribution service provider for a significant portion of our products, our ability to raise capital if needed, risks associated with international operations, and the matters relating to the investigation by a special committee of our board of directors of the Company’s stock option grants and the claims and proceedings relating thereto (including stockholder and derivative litigation and negative tax or other implications for the Company resulting from any accounting adjustments or other factors). Other important factors and information are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2008, in the section entitled “Risk Factors,” as updated in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2009, 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.

 

# # #

 

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TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

 

		Three months ended July 31,						Nine months ended July 31,
		2009			2008			2009			2008
Net revenue		$	138,564		$	433,836		$	625,096		$	1,214,088
Cost of goods sold:
Product costs		80,550			154,362			339,493			487,557
Software development costs and royalties		17,156			45,721			68,470			126,122
Internal royalties		368			51,971			30,498			110,769
Licenses		16,835			7,602			38,951			39,475
Total cost of goods sold		114,909			259,656			477,412			763,923
Gross profit		23,655			174,180			147,684			450,165
Selling and marketing		25,335			42,856			97,153			122,534
General and administrative		29,583			45,678			100,745			126,916
Research and development		13,887			17,239			49,589			47,877
Business reorganization and related		—			1,771			—			2,877
Depreciation and amortization		4,456			6,201			14,342			20,126
Total operating expenses		73,261			113,745			261,829			320,330
Income (loss) from operations		(49,606		)	60,435			(114,145		)	129,835
Interest and other expense, net		(3,192		)	(518		)	(2,310		)	(865		)
Income (loss) before income taxes		(52,798		)	59,917			(116,455		)	128,970
Provision (benefit) for income taxes		2,675			8,091			(515		)	16,919
Net income (loss)		$	(55,473	)	$	51,826		$	(115,940	)	$	112,051
Earnings (loss) per share:
Basic		$	(0.72	)	$	0.68		$	(1.51	)	$	1.50
Diluted		$	(0.72	)	$	0.67		$	(1.51	)	$	1.48
Weighted average shares outstanding:
Basic		76,994			75,866			76,561			74,701
Diluted		76,994			76,975			76,561			75,640

 

OTHER INFORMATION

 

		Three months ended July 31,				Nine months ended July 31,
		2009		2008		2009		2008
Total revenue mix
Publishing		69	%	88	%	67	%	81	%
Distribution		31	%	12	%	33	%	19	%
Geographic revenue mix
North America		74	%	54	%	75	%	65	%
International		26	%	46	%	25	%	35	%
Publishing revenue platform mix
Microsoft Xbox 360		32	%	44	%	33	%	43	%
Nintendo Wii		16	%	7	%	15	%	8	%
PC		14	%	2	%	14	%	3	%
Sony PLAYSTATION 3		12	%	37	%	13	%	33	%
Sony PlayStation 2		12	%	5	%	9	%	8	%
Sony PSP		10	%	3	%	8	%	4	%
Nintendo DS		4	%	2	%	8	%	1	%

 

 

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

		July 31,			October 31,
		2009			2008
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	174,789		$	280,277
Accounts receivable, net of allowances of $44,412 and $68,448 at July 31, 2009 October 31, 2008, respectively		70,133			157,458
Inventory		63,617			104,235
Software development costs and licenses		142,385			113,436
Prepaid taxes and taxes receivable		8,256			23,763
Prepaid expenses and other		38,894			44,605
Total current assets		498,074			723,774
Fixed assets, net		27,634			32,361
Software development costs and licenses, net of current portion		87,673			61,991
Goodwill		233,605			230,809
Other intangibles, net		23,897			26,123
Other assets		15,515			8,294
Total assets		$	886,398		$	1,083,352
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	72,351		$	156,167
Accrued expenses and other current liabilities		128,441			153,089
Deferred revenue		25,705			56,163
Total current liabilities		226,497			365,419
Long-term debt		138,000			70,000
Income taxes payable		10,540			26,399
Other long-term liabilities		1,311			6,416
Total liabilities		376,348			468,234
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized		—			—
Common stock, $.01 par value, 150,000 shares authorized; 79,663 and 77,694 shares issued and outstanding at July 31, 2009 and October 31, 2008, respectively		797			777
Additional paid-in capital		603,751			603,579
Retained earnings (accumulated deficit)		(97,665		)	18,275
Accumulated other comprehensive income (loss)		3,167			(7,513		)
Total stockholders’ equity		510,050			615,118
Total liabilities and stockholders’ equity		$	886,398		$	1,083,352

 

 

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

		Nine months ended July 31,
		2009			2008
Operating activities:
Net income (loss)		$	(115,940	)	$	112,051
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Amortization and impairment of software development costs and licenses		61,163			104,565
Depreciation and amortization of long-lived assets		14,342			20,126
Amortization and impairment of intellectual property		448			1,632
Stock-based compensation		16,114			31,062
Deferred income taxes		(488		)	99
Foreign currency transaction gain and other		(1,898		)	1,203
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable		87,325			(1,417		)
Inventory		40,618			27,757
Software development costs and licenses		(111,602		)	(115,913		)
Prepaid expenses, other current and other non-current assets		18,727			9,474
Deferred revenue		(30,458		)	(3,212		)
Accounts payable, accrued expenses, income taxes payable and other liabilities		(125,111		)	80,421
Total adjustments		(30,820		)	155,797
Net cash provided by (used for) operating activities		(146,760		)	267,848
Investing activities:
Purchase of fixed assets		(7,788		)	(9,026		)
Purchases of businesses, net of cash acquired		(500		)	(4,037		)
Net cash used for investing activities		(8,288		)	(13,063		)
Financing activities:
Proceeds from exercise of employee stock options		4			25,363
Net payments on line of credit		(70,000		)	(18,000		)
Proceeds from issuance of Convertible Notes		138,000			—
Purchase of convertible note hedges		(43,592		)	—
Issuance of warrants to purchase common stock		26,342			—
Payment of debt issuance costs		(4,833		)	(962		)
Net cash provided by financing activities		45,921			6,401
Effects of exchange rates on cash and cash equivalents		3,639			(242		)
Net increase (decrease) in cash and cash equivalents		(105,488		)	260,944
Cash and cash equivalents, beginning of year		280,277			77,757
Cash and cash equivalents, end of period		$	174,789		$	338,701

 

 

 

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

 

					Non-GAAP Reconciling Items
		Three months			Professional						Non-GAAP three
		ended July 31,			fees and			Stock-based			months ended July 31,
		2009			legal matters			compensation			2009
Net revenue		$	138,564		$	—		$	—		$	138,564
Cost of goods sold:
Product costs		80,550			—			—			80,550
Software development costs and royalties		17,156			—			(631		)	16,525
Internal royalties		368			—			—			368
Licenses		16,835			—			—			16,835
Total cost of goods sold		114,909			—			(631		)	114,278
Gross profit		23,655			—			631			24,286
Selling and marketing		25,335			—			(501		)	24,834
General and administrative		29,583			(421		)	(3,054		)	26,108
Research and development		13,887			—			(430		)	13,457
Business reorganization and related		—			—			—			—
Depreciation and amortization		4,456			—			—			4,456
Total operating expenses		73,261			(421		)	(3,985		)	68,855
Income (loss) from operations		(49,606		)	421			4,616			(44,569		)
Interest and other expense, net		(3,192		)	—			—			(3,192		)
Income (loss) before income taxes		(52,798		)	421			4,616			(47,761		)
Provision (benefit) for income taxes		2,675			—			—			2,675
Net income (loss)		$	(55,473	)	$	421		$	4,616		$	(50,436	)
Earnings (loss) per share:*
Basic		$	(0.72	)	$	0.01		$	0.06		$	(0.66	)
Diluted		$	(0.72	)	$	0.01		$	0.06		$	(0.66	)
Weighted average shares outstanding
Basic		76,994			76,994			76,994			76,994
Diluted		76,994			76,994			76,994			76,994
EBITDA:
Income (loss) before income taxes		$	(52,798	)							$	(47,761	)
Interest		1,928									1,928
Depreciation and amortization		4,456									4,456
EBITDA		$	(46,414	)							$	(41,377	)
Add: Business reorganization and related		—									—
Adjusted EBITDA		$	(46,414	)							$	(41,377	)

 

*Basic and diluted earnings (loss) per share may not add due to rounding

 

 

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

 

					Non-GAAP Reconciling Items
		Three months			Business			Professional						Non-GAAP three
		ended July 31,			reorganization			fees and			Stock-based			months ended July 31,
		2008			and related			legal matters			compensation			2008
Net revenue		$	433,836		$	—		$	—		$	—		$	433,836
Cost of goods sold:
Product costs		154,362			—			—			—			154,362
Software development costs and royalties		45,721			—			—			(3,404		)	42,317
Internal royalties		51,971			—			—			—			51,971
Licenses		7,602			—			—			—			7,602
Total cost of goods sold		259,656			—			—			(3,404		)	256,252
Gross profit		174,180			—			—			3,404			177,584
Selling and marketing		42,856			—			—			(545		)	42,311
General and administrative		45,678			—			(5,379		)	(6,922		)	33,377
Research and development		17,239			—			—			(1,687		)	15,552
Business reorganization and related		1,771			(1,771		)	—			—			—
Depreciation and amortization		6,201			—			—			—			6,201
Total operating expenses		113,745			(1,771		)	(5,379		)	(9,154		)	97,441
Income (loss) from operations		60,435			1,771			5,379			12,558			80,143
Interest and other expense, net		(518		)	—			—			—			(518		)
Income (loss) before income taxes		59,917			1,771			5,379			12,558			79,625
Provision (benefit) for income taxes		8,091			—			—			—			8,091
Net income (loss)		$	51,826		$	1,771		$	5,379		$	12,558		$	71,534
Earnings (loss) per share:*
Basic		$	0.68		$	0.02		$	0.07		$	0.17		$	0.94
Diluted		$	0.67		$	0.02		$	0.07		$	0.16		$	0.93
Weighted average shares outstanding
Basic		75,866			75,866			75,866			75,866			75,866
Diluted		76,975			76,975			76,975			76,975			76,975
EBITDA:
Income (loss) before income taxes		$	59,917											$	79,625
Interest		(689		)										(689		)
Depreciation and amortization		6,201												6,201
EBITDA		$	65,429											$	85,137
Add: Business reorganization and related		1,771												—
Adjusted EBITDA		$	67,200											$	85,137

 

*Basic and diluted earnings (loss) per share may not add due to rounding