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 April 30, 2004
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 including 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
Act). Yes No
As of June 8, 2004, there were 44,896,871 shares of the Registrant’s Common Stock outstanding.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
QUARTER ENDED APRIL 30, 2004
| PART I. | FINANCIAL INFORMATION |
| Item 1. | Financial Statements |
Consolidated Condensed Balance Sheets
As of April 30, 2004 and October 31, 2003 (unaudited)
(In thousands, except share data)
| April 30, | October 31, | ||||||
| 2004 | 2003 | ||||||
ASSETS |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ | 261,333 | $ | 183,477 | |||
Accounts receivable, net of allowances of $64,071 and $62,817 at April 30, 2004 and October 31, 2003, respectively |
68,601 | 166,536 | |||||
Inventories |
100,038 | 101,748 | |||||
Prepaid royalties |
23,331 | 12,196 | |||||
Prepaid expenses and other current assets |
38,894 | 41,112 | |||||
Deferred tax asset |
8,333 | 8,333 | |||||
Total current assets |
500,530 | 513,402 | |||||
Fixed assets, net |
25,691 | 22,260 | |||||
Prepaid royalties |
6,677 | 8,439 | |||||
Capitalized software development costs, net |
20,782 | 16,336 | |||||
Goodwill |
123,755 | 101,498 | |||||
Intangibles,
net |
36,650 | 44,836 | |||||
Other assets, net |
451 | 527 | |||||
Total assets |
$ | 714,536 | $ | 707,298 | |||
LIABILITIES and STOCKHOLDERS’ EQUITY |
|||||||
Current liabilities |
|||||||
Accounts payable |
$ | 70,978 | $ | 106,172 | |||
Accrued expenses and other current liabilities |
64,551 | 56,707 | |||||
Income taxes payable |
2,706 | 2,265 | |||||
Current portion of capital lease obligation |
112 | 103 | |||||
Total current liabilities |
138,347 | 165,247 | |||||
Capital lease obligation, net of current portion |
29 | 73 | |||||
Deferred tax liability |
8,486 | 8,486 | |||||
Total liabilities |
146,862 | 173,806 | |||||
Stockholders’ equity |
|||||||
Common
stock, par value $.01 per share; 100,000,000
shares authorized; 44,823,915 and 44,227,215 shares issued and outstanding
at April 30, 2004 and October 31, 2003, respectively |
448 | 442 | |||||
Additional paid-in capital |
365,563 | 350,852 | |||||
Deferred compensation |
(1,554 | ) | (1,890 | ) | |||
Retained earnings |
202,206 | 185,024 | |||||
Accumulated other comprehensive income (loss) |
1,011 | (936 | ) | ||||
Total Stockholders’ Equity |
567,674 | 533,492 | |||||
Total Liabilities and Stockholders’ Equity |
$ | 714,536 | $ | 707,298 | |||
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, 2004 and 2003 (unaudited)
(In thousands, except per share data)
| Three months ended April 30, |
Six months ended April 30, |
||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| (Restated) | (Restated) | ||||||||||||
Net sales |
$ | 153,368 | $ | 193,023 | $ | 528,880 | $ | 604,031 | |||||
Cost of sales |
|||||||||||||
Product costs |
104,573 | 98,914 | 328,951 | 303,342 | |||||||||
Royalties |
13,016 | 19,261 | 33,014 | 56,543 | |||||||||
Software development costs |
1,573 | 3,365 | 5,555 | 6,716 | |||||||||
Total cost of sales |
119,162 | 121,540 | 367,520 | 366,601 | |||||||||
Gross profit |
34,206 | 71,483 | 161,360 | 237,430 | |||||||||
Operating expenses |
|||||||||||||
Selling and marketing |
22,271 | 22,461 | 58,173 | 56,915 | |||||||||
General and administrative |
24,050 | 16,970 | 48,090 | 48,329 | |||||||||
Research and development |
8,228 | 4,761 | 21,657 | 10,376 | |||||||||
Depreciation and amortization |
3,910 | 3,197 | 7,655 | 10,759 | |||||||||
Total operating expenses |
58,459 | 47,389 | 135,575 | 126,379 | |||||||||
Income (loss) from operations |
(24,253 | ) | 24,094 | 25,785 | 111,051 | ||||||||
Interest income, net |
648 | 743 | 1,074 | 1,088 | |||||||||
Gain on Internet investments |
— | — | — | 39 | |||||||||
Total non-operating income |
648 | 743 | 1,074 | 1,127 | |||||||||
Income (loss) before income taxes |
(23,605 | ) | 24,837 | 26,859 | 112,178 | ||||||||
Provision (benefit) for income taxes |
(9,029 | ) | 10,214 | 9,677 | 46,020 | ||||||||
Net income (loss) |
$ | (14,576 | ) | $ | 14,623 | $ | 17,182 | $ | 66,158 | ||||
Per share data: |
|||||||||||||
Basic: |
|||||||||||||
Weighted average common shares outstanding |
44,594 | 41,262 | 44,489 | 41,020 | |||||||||
Net income (loss) per share |
$ | (0.33) | $ | 0.35 | $ | 0.39 | $ | 1.61 | |||||
Diluted: |
|||||||||||||
Weighted average common shares outstanding |
44,594 | 42,281 | 45,485 | 42,279 | |||||||||
Net income (loss) per share |
$ | (0.33 | ) | $ | 0.35 | $ | 0.38 | $ | 1.56 | ||||
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, 2004 and 2003 (unaudited)
(In thousands)
| Six months ended April 30, | |||||||
| 2004 | 2003 | ||||||
| (Restated) | |||||||
Cash flows from operating activities: |
|||||||
Net income |
$ | 17,182 | $ | 66,158 | |||
Adjustment to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
7,655 | 6,352 | |||||
Gain on disposal of fixed assets and sale of Internet investments |
(646 | ) | (69 | ) | |||
Amortization
of intangible assets and other |
12,625 | 3,856 | |||||
Impairment
of intellectual property and technology |
— | 7,892 | |||||
Non-cash charges for consolidation of distribution facilities |
— | 5,406 | |||||
Provision for doubtful accounts, returns and sales allowances |
73,134 | 59,631 | |||||
Write off of prepaid royalties and capitalized software |
2,175 | 6,712 | |||||
Tax benefit from exercise of stock options |
1,433 | 3,403 | |||||
Compensatory
stock and stock options |
1,220 | 900 | |||||
Foreign currency transaction loss |
177 | 435 | |||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|||||||
Decrease (increase) in accounts receivable |
33,096 | (54,759 | ) | ||||
Decrease in inventories |
1,857 | 4,378 | |||||
Increase in prepaid royalties |
(10,146 | ) | (6,334 | ) | |||
Decrease in prepaid expenses and other current assets |
365 | 7,160 | |||||
Increase in capitalized software development costs |
(4,353 | ) | (1,070 | ) | |||
Decrease in accounts payable |
(25,237 | ) | (20,509 | ) | |||
(Decrease) increase in accrued expenses and other current liabilities |
(10,316 | ) | 232 | ||||
(Decrease) increase in income taxes payable |
(160 | ) | 14,976 | ||||
Net cash provided by operating activities |
100,061 | 104,750 | |||||
Cash flows from investing activities: |
|||||||
Purchase of fixed assets |
(8,332 | ) | (7,563 | ) | |||
Proceeds from sale of fixed assets and investments |
871 | 114 | |||||
Payments for intangible assets |
(3,100 | ) | — | ||||
Acquisitions, net of cash acquired |
(19,632 | ) | (27,295 | ) | |||
Net cash used in investing activities |
(30,193 | ) | (34,744 | ) | |||
Cash flows from financing activities: |
|||||||
Proceeds from exercise of stock options and warrants |
7,240 | 9,213 | |||||
Other financing |
(53 | ) | (71 | ) | |||
Net cash provided by financing activities |
7,187 | 9,142 | |||||
Effect of foreign exchange rates |
801 | 833 | |||||
Net increase in cash for the period |
77,856 | 79,981 | |||||
Cash and cash equivalents, beginning of the period |
183,477 | 108,369 | |||||
Cash and cash equivalents, end of the period |
$ | 261,333 | $ | 188,350 | |||
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, 2004 and 2003 (unaudited)
(In thousands)
| Six months ended April 30, | |||||||
| 2004 | 2003 | ||||||
Supplemental information on businesses acquired: |
|||||||
Fair value of assets acquired |
|||||||
Cash |
$ | 800 | $ | 1,275 | |||
Other current assets |
2,148 | 438 | |||||
Property and equipment, net |
761 | 481 | |||||
Intangible assets |
6,326 | 4,720 | |||||
Goodwill |
22,257 | 37,425 | |||||
Less, liabilities assumed |
|||||||
Current liabilities |
(13,864 | ) | (3,281 | ) | |||
Stock
issued |
(5,160 | ) | (6,557 | ) | |||
Intercompany payables and advances |
7,164 | (5,931 | ) | ||||
Cash paid |
20,432 | 28,570 | |||||
Less cash acquired |
(800 | ) | (1,275 | ) | |||
Net cash paid |
$ | 19,632 | $ | 27,295 | |||
The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
4
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Stockholders’ Equity
For the year ended October 31, 2003 and the six months ended April 30, 2004 (unaudited)
(In thousands)
| Common Stock |
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| Shares | Amount | Additional Paid-in Capital |
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