EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended April 30, 2003 | ||
0-29230
(Commission file number)
TAKE-TWO
INTERACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified
in Its Charter)
| Delaware
(State
or Other Jurisdiction
of
Incorporation or Organization) |
51-0350842 (I.R.S. Employer Identification No.) |
||
622 Broadway, New York, New
York 10012
(Address of principal executive offices) (zip code)
Registrant's Telephone Number, Including Area Code (646) 536-2842
Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days. Yes
No 
Indicate by check mark whether the
Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes No
As of June 3, 2003, there were 41,669,399 shares of the Registrant's Common Stock outstanding.
TAKE-TWO INTERACTIVE SOFTWARE,
INC.
QUARTER ENDED APRIL 30, 2003
INDEX
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | ||
| 1 | ||
| 2 | ||
|
|
||
| 3 | ||
| 5 | ||
| 6 | ||
| Item 2. | 18 | |
| Item 3. | 36 | |
| Item 4. | 36 | |
| PART II. OTHER INFORMATION | ||
| Item 1. | 37 | |
| Item 2. | 37 | |
| Item 4. | 37 | |
| Item 5. | 37 | |
| Item 6. | 37 | |
| 38 | ||
| 39 | ||
| 40 |
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAKE-TWO INTERACTIVE SOFTWARE,
INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
As of April 30, 2003 and October 31,
2002 (unaudited)
(In thousands, except share data)
| April
30,
2003 |
October
31,
2002 |
|||||
| ASSETS | ||||||
| Current assets | ||||||
Cash and cash equivalents |
$ |
188,350 |
$ |
108,369 | ||
Accounts
receivable, net of provision for doubtful accounts, returns and sales allowances of $42,831 and $29,194 at April 30, 2003 and October 31, 2002, respectively |
100,213 | 107,188 | ||||
Inventories |
71,342 | 74,391 | ||||
Prepaid royalties |
12,566 | 13,723 | ||||
Prepaid
expenses and other current assets |
15,614 | 19,569 | ||||
Deferred
tax asset |
5,392 | 5,392 | ||||
Total
current assets |
|
393,477 | |
|
328,632 | |
Fixed
assets, net |
18,432 | 15,319 | ||||
Prepaid
royalties |
7,183 | 12,203 | ||||
Capitalized
software development costs, net |
11,780 | 10,385 | ||||
Investments |
– | 97 | ||||
Goodwill,
net |
99,831 | 61,529 | ||||
Intangibles,
net. |
42,102 | 55,293 | ||||
Deferred
tax asset |
7,983 | 7,983 | ||||
Other
assets, net |
190 | 266 | ||||
Total
assets |
$ |
580,978 | |
$ |
491,707 | |
LIABILITIES
and STOCKHOLDERS’ EQUITY |
||||||
Current
liabilities |
||||||
Accounts
payable |
$ |
63,902 | $ |
79,660 | ||
Accrued
expenses and other current liabilities |
49,527 | 49,821 | ||||
Income
taxes payable |
16,124 | 1,603 | ||||
Current
portion of capital lease obligation |
100 | 95 | ||||
Total
current liabilities |
129,653 | 131,179 | ||||
Capital
lease obligation, net of current portion |
125 | 201 | ||||
Deferred
tax liability |
6,178 | 3,885 | ||||
Total
liabilities |
|
135,956 | |
|
135,265 | |
Stockholders’
equity |
|
|
|
|
||
Common
stock, par value $.01 per share; 50,000,000 shares authorized; 41,526,787
and 40,361,739 shares issued and outstanding, at April 30, 2003 and October
31, 2002, respectively |
|
415 | |
|
404 | |
Additional
paid-in capital |
|
295,245 | |
|
273,502 | |
Deferred
compensation |
|
(1,908 | ) |
|
(227 | ) |
Retained
earnings |
|
153,505 | |
|
87,804 | |
Accumulated
other comprehensive loss |
|
(2,235 | ) |
|
(5,041 | ) |
Total Stockholders’ Equity |
445,022 | 356,442 | ||||
Total
Liabilities and Stockholders’ Equity |
$ |
580,978 | |
$ |
491,707 | |
The
accompanying notes are an integral part of the unaudited consolidated
condensed financial statements. |
||||||
1
TAKE-TWO INTERACTIVE SOFTWARE,
INC. and SUBSIDIARIES
Consolidated Condensed Statements
of Operations
For the three and six months ended April
30, 2003 and 2002 (unaudited)
(In thousands, except per share data)
| Three months
ended April 30, |
Six months ended April 30, |
|||||||||||
| |
|
|||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||
| Net sales | $ | 194,213 | $ | 170,330 | $ | 603,007 | $ | 453,256 | ||||
| Cost of sales | ||||||||||||
|
Product
costs |
98,914 | 84,614 | 303,342 | 241,313 | ||||||||
Royalties |
19,460 | 21,481 | 56,348 | 41,649 | ||||||||
|
Software
development costs |
3,365 | 938 | 6,716 | 3,893 | ||||||||
|
Total
cost of sales |
121,739 | 107,033 | 366,406 | 286,855 | ||||||||
|
Gross
profit |
72,474 | 63,297 | 236,601 | 166,401 | ||||||||
Operating
expenses |
||||||||||||
|
Selling
and marketing |
22,461 | 20,522 | 56,915 | 42,517 | ||||||||
General
and administrative |
16,970 | 18,924 | 48,329 | 37,921 | ||||||||
|
Research
and development |
4,761 | 3,937 | 10,376 | 5,891 | ||||||||
Depreciation
and amortization |
3,197 | 2,159 | 10,759 | 4,073 | ||||||||
|
Total
operating expenses |
47,389 | 45,542 | 126,379 | 90,402 | ||||||||
|
Income
from operations |
25,085 | 17,755 | 110,222 | 75,999 | ||||||||
|
Interest
(income) expense, net |
(743 | ) | 53 | (1,088 | ) | 1,027 | ||||||
Gain
on Internet investments |
– | (32 | ) | (39 | ) | (159 | ) | |||||
|
Class
action settlement costs |
– | 1,468 | – | 1,468 | ||||||||
|
Total
non-operating (income) expenses |
(743 | ) | 1,489 | (1,127 | ) | 2,336 | ||||||
|
Income
before income taxes |
25,828 | 16,266 | 111,349 | 73,663 | ||||||||
Provision
for income taxes |
10,589 | 6,629 | 45,648 | 29,197 | ||||||||
|
Net
income |
$ | 15,239 | $ | 9,637 | $ | 65,701 | $ | 44,466 | ||||
| Per share data: | ||||||||||||
|
Basic: |
||||||||||||
|
Weighted
average common shares outstanding |
41,262 | 37,057 | 41,020 | 36,888 | ||||||||
|
Net
income per share |
$ | 0.37 | $ | 0.26 | $ | 1.60 | $ | 1.21 | ||||
Diluted: |
||||||||||||
|
Weighted
average common shares outstanding |
42,281 | 38,768 | 42,279 | 38,280 | ||||||||
|
Net
income per share |
$ | 0.36 | $ | 0.25 | $ | 1.55 | $ | 1.16 | ||||
The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
2
TAKE-TWO INTERACTIVE SOFTWARE,
INC. and SUBSIDIARIES
Consolidated Condensed Statements
of Cash Flows
For the six months ended April 30,
2003 and 2002 (unaudited)
(In thousands)
| Six months ended April 30, | ||||||
| 2003 | 2002 | |||||
|
Cash
flows from operating activities: |
||||||
|
Net income |
$ | 65,701 | $ | 44,466 | ||
|
Adjustment to reconcile net
income to net cash provided by operating activities: |
||||||
|
Depreciation
and amortization |
6,352 | 4,073 | ||||
|
(Gain) loss on disposal of fixed
assets |
(30 | ) | 122 | |||
|
Gain on sale
of Internet investments |
(39 | ) | (159 | ) | ||
|
Amortization of various expenses
and discounts |
3,856 | 2,529 | ||||
|
Impairment
of intellectual property and technology |
7,892 | – | ||||
|
Non-cash charges for consolidation
of distribution facilities |
5,406 | – | ||||
|
Write off
of prepaid royalties and capitalized software |
6,712 | 3,187 | ||||
|
Tax benefit from exercise of
stock options |
3,403 | 3,782 | ||||
|
Issuance of
compensatory stock and stock options |
900 | 2,299 | ||||
|
Foreign currency transaction
loss (gain) |
435 | (241 | ) | |||
|
Changes in
operating assets and liabilities, net of effects of acquisitions: |
||||||
|
Decrease in
accounts receivable, net |
6,814 | 31,867 | ||||
|
Decrease in
inventories |
4,378 | 15,450 | ||||
|
Increase in
prepaid royalties |
(6,528 | ) | (1,984 | ) | ||
|
Decrease (increase)
in prepaid expenses and other current assets |
6,731 | (9,667 | ) | |||
|
(Increase)
decrease in capitalized software development costs |
(1,070 | ) | 1,423 | |||
|
Decrease in
other non-current assets |
– | 1,411 | ||||
|
Decrease in
accounts payable |
(20,509 | ) | (21,871 | ) | ||
|
(Decrease)
increase in accrued expenses and other current liabilities |
(686 | ) | 17,675 | |||
|
Increase in
income taxes payable |
15,032 | 13,794 | ||||
|
Net cash
provided by operating activities |
104,750 | 108,156 | ||||
|
Cash flows from investing
activities:
|
||||||
|
Purchase of
fixed assets |
(7,563 | ) | (6,834 | ) | ||
|
Proceeds from sale of investments
|
114 | 5,888 | ||||
|
Acquisitions,
net of cash acquired |
(27,225 | ) | – | |||
|
Direct transaction costs, current
and prior year acquisitions |
(70 | ) | – | |||
|
Net cash
used in investing activities |
(34,744 | ) | (946 | ) | ||
|
Cash flows from financing
activities: |
||||||
|
Net repayments
under lines of credit |
– | (54,044 | ) | |||
|
Proceeds from exercise of stock
options and warrants |
9,213 | 7,396 | ||||
|
Deferred financing
costs |
– | (463 | ) | |||
|
Repayment of capital lease obligation |
(71 | ) | (73 | ) | ||
|
Net cash
provided by (used in) financing activities |
9,142 | (47,184 | ) | |||
|
Effect of foreign exchange rates
|
833 | 3,535 | ||||
|
Net increase
in cash for the period |
79,981 | 63,561 | ||||
|
Cash and cash equivalents, beginning
of the period |
108,369 | 6,056 | ||||
|
Cash and cash
equivalents, end of the period |
$ | 188,350 | $ | 69,617 | ||
The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
3
TAKE-TWO INTERACTIVE SOFTWARE,
INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(continued)
For the six months ended April 30, 2003 and 2002
(unaudited)
(In thousands)
Six
months ended April 30, |
||||||||
| 2003 | 2002 | |||||||
| Supplemental information on intangibles and businesses acquired: | ||||||||
| Fair value of assets acquired | ||||||||
| Cash | $ | 1,275 | $ | – | ||||
| Other current assets | 438 | – | ||||||
| Property and equipment, net | 481 | – | ||||||
| Intangible assets | 4,720 | – | ||||||
| Goodwill | 37,425 | – | ||||||