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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 l934.

For the quarterly period ended July 31, 2003

Commission file number 0-29230

TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 51-0350842
(State or Other Jurisdiction
of Incorporation or Organization		 (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 September 8, 2003, there were 43,304,649 shares of the Registrant’s Common Stock outstanding.

 

TAKE-TWO INTERACTIVE SOFTWARE, INC.
QUARTER ENDED JULY 31, 2003
       
INDEX      
       
PART I. FINANCIAL INFORMATION    
       
Item 1. Financial Statements    
       
    1
       
    2
       
    3
       
    5
       
    6
       
Item 2.   18
       
Item 3. Quantitative & Qualitative Disclosures About Market Risk   36
       
Item 4. Controls and Procedures   36
       
PART II. OTHER INFORMATION    
       
Item 1. Legal Proceedings   37
       
Item 2. Changes in Securities   37
       
Item 6. Exhibits and Reports on Form 8-K   37
       
  Signatures   38

 

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PART I.      FINANCIAL INFORMATION
Item 1.       Financial Statements

TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
As of July 31, 2003 and October 31, 2002 (unaudited)
(In thousands, except share data)
    July 31,
2003		   October 31,
2002		  
   
 
 
ASSETS              
Current assets              
Cash and cash equivalents
   $ 225,859   $ 108,369  
Accounts receivable, net of provision for doubtful accounts, returns and sales allowances of $40,500 and $29,194 at July 31, 2003 and October 31, 2002, respectively
     65,996     107,188  
Inventories
     73,902     74,391  
Prepaid royalties
     15,576     13,723  
Prepaid expenses and other current assets
     30,055     19,569  
Deferred tax asset
     5,392     5,392  
   
 
 
Total current assets
     416,780     328,632  
   
 
 
               
Fixed assets, net
     20,078     15,319  
Prepaid royalties
     8,182     12,203  
Capitalized software development costs, net
     13,986     10,385  
Investments
     —     97  
Goodwill, net
     101,095     61,529  
Intangibles, net
     39,888     55,293  
Deferred tax asset
     7,983     7,983  
Other assets, net
     565     266  
   
 
 
Total assets
   $ 608,557   $ 491,707  
   
 
 
               
LIABILITIES and STOCKHOLDERS’ EQUITY              
               
Current liabilities              
Accounts payable
   $ 56,105   $ 79,660  
Accrued expenses and other current liabilities
     46,311     49,821  
Income taxes payable
     15,458     1,603  
Current portion of capital lease obligation
     101     95  
   
 
 
Total current liabilities
     117,975     131,179  
Capital lease obligation, net of current portion     99     201  
Deferred tax liability     6,178     3,885  
   
 
 
Total liabilities
     124,252     135,265  
   
 
 
               
Stockholders’ equity              
Common stock, par value $.01 per share; 50,000,000
shares authorized; 43,287,167 and 40,361,739 shares
issued and outstanding, at July 31, 2003 and October 31, 2002, respectively
     433     404  
Additional paid-in capital
     327,410     273,502  
Deferred compensation
     (3,162 )   (227 )
Retained earnings
     161,154     87,804  
Accumulated other comprehensive loss
     (1,530 )   (5,041 )
   
 
 
Total Stockholders’ Equity
     484,305     356,442  
   
 
 
Total Liabilities and Stockholders’ Equity
   $ 608,557   $ 491,707  
   
 
 

The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.

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TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
For the three and nine months ended July 31, 2003 and 2002 (unaudited)
(In thousands, except per share data)
    Three months ended
July 31,		     Nine months ended
July 31,		  
    2003   2002     2003   2002  
   
 
   
 
 
Net sales   $ 155,587   $ 122,461     $ 758,594   $ 575,717  
   
 
   
 
 
Cost of sales                            
Product costs
    81,642     62,567       384,984     303,880  
Royalties
     10,434     12,245       66,782     53,894  
Software development costs
    1,842     2,125       8,558     6,018  
   
 
   
 
 
Total cost of sales
     93,918     76,937       460,324     363,792  
   
 
   
 
 
Gross profit
     61,669     45,524       298,270     211,925  
   
 
   
 
 
                             
Operating expenses                            
Selling and marketing
     20,013     15,912       76,928     58,429  
General and administrative
     19,372     17,390       67,701     55,311  
Research and development
     7,043     1,812       17,419     7,703  
Depreciation and amortization
     2,930     2,541       13,689     6,614  
   
 
   
 
 
Total operating expenses
     49,358     37,655       175,737     128,057  
   
 
   
 
 
Income from operations
     12,311     7,869       122,533     83,868  
   
 
   
 
 
Interest (income) expense, net
     (625 )   (299 )     (1,713 )   728  
Gain on Internet investments
     —     —       (39 )   (159 )
Class action settlement costs
     —     —       —     1,468  
   
 
   
 
 
Total non-operating (income) expenses
     (625 )   (299 )     (1,752 )   2,037  
   
 
   
 
 
Income before income taxes
     12,936     8,168       124,285     81,831  
                             
Provision for income taxes     5,287     3,402       50,935     32,599  
   
 
   
 
 
Net income
  $ 7,649   $ 4,766     $ 73,350   $ 49,232  
   
 
   
 
 
Per share data:                            
Basic:
                            
Weighted average common shares outstanding
     42,266     38,705       41,424     37,500  
   
 
   
 
 
Net income per share
   $ 0.18   $ 0.12     $ 1.77   $ 1.31  
Diluted:
  
 
   
 
 
Weighted average common shares outstanding
     43,548     40,231       42,701     38,947  
   
 
   
 
 
Net income per share
   $ 0.18   $ 0.12     $ 1.72   $ 1.26  
   
 
   
 
 

The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.

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TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the nine months ended July 31, 2003 and 2002 (unaudited)
(In thousands)
    Nine months ended July 31,  
    2003     2002  
   
   
 
Cash flows from operating activities:                
Net income
   $ 73,350     $ 49,232  
Adjustment to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
    9,281       6,614  
(Gain) loss on disposal of fixed assets
     (56 )     122  
Gain on sale of Internet investments
     (39 )     (159 )
Change in deferred taxes
     —       (3,917 )
Amortization of various expenses and discounts
    5,741       4,526  
Impairment of intellectual property and technology
    7,892       —  
Non-cash charges for consolidation of distribution facilities
     5,474       —  
Write off of prepaid royalties and capitalized software
     6,712       9,366  
Tax benefit from exercise of stock options
     11,931       4,365  
Compensatory stock and stock options
    2,173       2,299  
Foreign currency transaction (gain) loss
     (88 )     148  
Changes in operating assets and liabilities, net of effects of acquisitions:
                
Decrease in accounts receivable, net
     45,696       33,664  
Decrease in inventories
     1,798       11,838  
Increase in prepaid royalties
     (11,850 )     (7,124 )
Increase in prepaid expenses and other current assets
     (7,324 )     (3,526 )
(Increase) decrease in capitalized software development costs
    (3,113 )     305  
Decrease in accounts payable
     (30,300 )     (10,914 )
(Decrease) increase in accrued expenses and other current liabilities
     (7,537 )     9,108  
Increase in income taxes payable
     14,767       12,871  
   
   
 
Net cash provided by operating activities
     124,508       118,818  
   
   
 
Cash flows from investing activities:                
Purchase of fixed assets
     (11,359 )     (8,853 )
Proceeds from sale of investments
     114       5,888  
Acquisitions, net of cash acquired
     (27,966 )     (10,106 )
Other investing activities
     (490 )     —  
   
   
 
Net cash used in investing activities
     (39,701 )     (13,071 )
   
   
 
Cash flows from financing activities:                
Net repayments under lines of credit
     (34 )     (54,118 )
Proceeds from exercise of stock options and warrants
     30,341       11,346  
Deferred financing costs
    (150 )     (463 )
Repayment of capital lease obligation
     (96 )     (69 )
   
   
 
Net cash provided by (used in) financing activities
     30,061       (43,304 )
   
   
 
Effect of foreign exchange rates     2,622       5,399  
   
   
 
Net increase in cash for the period
     117,490       67,842