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Press release from Business Wire

Take-Two Interactive Software, Inc. Reports Financial Results for Third Quarter Fiscal 2012

<p class='bwalignc'> <i>Net Revenue was $236.3 Million</i> </p> <p class='bwalignc'> <i>Non-GAAP Net Income Per Diluted Share was $0.27</i> </p>

Thursday, February 02, 2012

Take-Two Interactive Software, Inc. Reports Financial Results for Third Quarter Fiscal 201216:05 EST Thursday, February 02, 2012 NEW YORK (Business Wire) -- Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today reported results for the third quarter of its fiscal year 2012, ended December 31, 2011, that were in line with its most recent financial outlook. In addition, the Company updated its financial outlook for the fourth quarter and fiscal year 2012, ending March 31, 2012. For the third quarter of fiscal 2012, net revenue was $236.3 million, as compared to $334.3 million for the third quarter of fiscal 2011, which had benefited from the post-launch performance of Red Dead Redemption and the releases of Red Dead Redemption: Undead Nightmare and Grand Theft Auto IV:Complete. GAAP income from continuing operations was $14.2 million, or $0.16 per diluted share, for the third quarter of fiscal 2012, as compared to GAAP income from continuing operations of $40.8 million, or $0.45 per diluted share, for the year-ago period. Non-GAAP net income was $29.0 million, or $0.27 per diluted share, as compared to Non-GAAP net income of $49.5 million, or $0.52 per diluted share, for the year-ago period. The Company's issuance of 1.75% convertible senior notes due 2016 in November 2011 reduced GAAP net income per diluted share by $0.02 and Non-GAAP net income per diluted share by $0.04. The strongest contributors to net revenue in the third quarter were the release of NBA 2K12; catalog sales led by the Grand Theft Auto franchise, Red Dead Redemption, Midnight Club Los Angeles and Borderlands; and continued sales of L.A. Noire. Digitally delivered content accounted for 11% of net revenue, driven by offerings for the Grand Theft Auto franchise – particularly the Grand Theft Auto III – 10th Anniversary Edition for iOS and Android, Red Dead Redemption, Borderlands and L.A. Noire. For the nine-month period ended December 31, 2011, net revenue was $677.7 million, as compared to $954.6 million for the year-ago period. GAAP loss from continuing operations was $41.7 million, or $0.50 per diluted share, as compared to GAAP income from continuing operations of $76.2 million, or $0.88 per diluted share, for the year-ago period. Non-GAAP net loss was $8.4 million, or $0.10 per diluted share, as compared to Non-GAAP net income of $108.8 million, or $1.15 per diluted share, for the year-ago period. Management Comments “During the fiscal third quarter, we continued to execute strategically, creatively and operationally,” said Strauss Zelnick, Chairman and CEO of Take-Two. “We delivered results that were solidly within our expectations, driven by strong holiday demand for NBA 2K12,our popular catalog titles and digital offerings. “Take-Two's future is extraordinarily promising. We have a proven strategy focused on building compelling interactive entertainment franchises, the strongest development pipeline in the Company's history, and ample resources to pursue our many growth opportunities. Fiscal 2013 is expected to be one of our best years ever, with substantial revenue growth and Non-GAAP net income in excess of $2.00 per diluted share. We are well positioned to continue to deliver growth and profitability over the long-term.” Business and Product Highlights Since October 1, 2011: Take-Two raised $250 million through a private offering of 1.75% convertible senior notes due 2016. The net proceeds from the offering will be used for general corporate purposes, which may include acquisitions and other strategic investments and the refinancing of indebtedness. In addition, the Company amended its senior secured revolving credit facility on significantly improved terms. Rockstar Games: Released Red Dead Redemption: Game of the Year Edition, featuring the original title and all subsequently released add-on content. The Red Dead franchise has sold-in over 13 million units worldwide. Announced that Grand Theft Auto V, the next installment in the interactive entertainment industry's most iconic and critically acclaimed franchise, is in full development. Released L.A. Noire: The Complete Edition, featuring the original title and all subsequently released downloadable content, for the Xbox 360, PS3 and PC. L.A. Noire has sold-in nearly 5 million units worldwide since its launch. Released a special edition of Grand Theft Auto III for mobile phones and tablets running iOS and Android in celebration of the game's 10th anniversary. The title is Take-Two's highest selling mobile offering to date. Announced that Max Payne 3 is planned for launch for Xbox 360 and PS3 on May 15, 2012 in North America and May 18, 2012 internationally; and for the PC on May 29, 2012 in North America and June 1, 2012 internationally. 2K: 2K Sports released NBA 2K12 to critical acclaim and the highest review scores in the history of the franchise (90 – Metacritic). The game was supported with the Legends Showcase downloadable content during the 2011 holiday season. The label also released NBA 2K12 for the iPhone, iPod touch and iPad. NBA 2K12 has sold-in nearly 4 million units to date. 2K Sports announced that Cy Young Award winning pitcher, Justin Verlander of the Detroit Tigers, will be the cover athlete for Major League Baseball 2K12 when it launches on March 6, 2012. 2K Games announced that XCOM: Enemy Unknown is in development at Firaxis Games, the creative team behind the iconic Sid Meier's Civilization franchise. This title, which will feature both deep strategy and intense action, is planned for release in fall 2012. Financial Outlook for Fiscal 2012 Take-Two is updating its financial outlook for the fourth quarter and fiscal year ending March 31, 2012 as set forth below. This revised outlook primarily reflects the impact of the previously announced change to the planned release date for Max Payne 3 from fourth quarter fiscal 2012 to first quarter fiscal 2013.     Fourth Quarter     Fiscal YearEnding 3/31/2012     Ending 3/31/2012Net Revenue $112 to $162 Million $790 to $840 Million   Non-GAAP net income (loss) per diluted share   ($0.65) to ($0.50) ($0.75) to ($0.60)   Stock-based compensation expense per share (a) $0.11 $0.39   Non-cash interest expense related to convertible debt $0.05 $0.14   Expenses related to reorganization and unusual legal matters $0.00 $0.02   Non-cash tax expense $0.01 $0.02   (a)   The Company's stock-based compensation expense for the periods above includes the cost of approximately 3.7 million shares issued to ZelnickMedia that are subject to variable accounting. Actual expense to be recorded in connection with these 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 current generation video game and computer entertainment systems; the ability to develop and publish products that capture market share for these systems; the timely delivery of the titles detailed in this release; and stable foreign exchange rates. See also “Cautionary Note Regarding Forward Looking Statements” below. Product Releases The following titles were released since October 1, 2011:             Label     Title     Platforms     Release Date 2K SportsNBA 2K12 Xbox 360, PS3, PS2, PSP, Wii, PC, iOS October 4, 2011 Rockstar Games Red Dead Redemption: Game of the Year Edition Xbox 360, PS3 October 11, 2011* 2K GamesDuke Nukem Forever: Hail to the Icons Parody Pack (DLC) Xbox 360, PS3, PC October 11, 2011 2K Play Dora and Kai-Lan's Pet Shelter DS November 1, 2011 2K Play Team Umizoomi DS November 1, 2011 2K PlayLet's Cheer! Kinect for Xbox 360 November 7, 2011 Rockstar Games L.A. Noire: The Complete Edition PC November 8, 2011* 2K Play Nickelodeon Dance Kinect for Xbox 360, Wii November 8, 2011 Rockstar Games L.A. Noire: The Complete Edition Xbox 360, PS3 November 15, 2011* 2K Play Carnival Games: Wild West 3D 3DS November 21, 2011 2K Sports NBA 2K12 Legends Showcase (DLC) Xbox 360, PS3 November 29, 2011 2K Games Duke Nukem Forever: The Doctor Who Cloned Me (DLC) Xbox 360, PS3, PC December 13, 2011 Rockstar Games Grand Theft Auto III – 10th Anniversary Edition iOS, Android December 15, 2011   *North American release date; international release date typically follows three days after. Take-Two's lineup of future titles announced to date includes:               Label     Title     Platforms     Planned Release 2K Games The Darkness II Xbox 360, PS3, PC February 7, 2012* 2K Sports Major League Baseball 2K12 Xbox 360, PS3, PS2, PSP, Wii, DS, PC March 6, 2012 2K Play Nicktoons MLB 3DS March 6, 2012 Rockstar Games Max Payne 3 Xbox 360, PS3 May 15, 2012* Rockstar Games Max Payne 3 PC May 29, 2012* 2K Games Spec Ops: The Line Xbox 360, PS3, PC First Half Fiscal ‘13 2K Games XCOM: Enemy Unknown Xbox 360, PS3, PC Fall 2012 2K Games BioShock Infinite Xbox 360, PS3, PC Calendar Year 2012 2K Games Borderlands 2 Xbox 360, PS3, PC Fiscal Year 2013 2K Games XCOM Xbox 360, PS3, PC Fiscal Year 2013 Rockstar Games Grand Theft Auto V TBA TBA   *North American release date; international release typically follows three days after. 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 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: 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. As a result, the Company has excluded such expenses from its Non-GAAP financial measures. Business reorganization, restructuring and related expenses – the Company does not engage in reorganization activities on a regular basis and therefore believes it is appropriate to exclude business reorganization, restructuring and related expenses from its Non-GAAP financial measures. Income (loss) from discontinued operations – the Company does not engage in sales of subsidiaries on a regular basis and therefore believes it is appropriate to exclude such gains (losses) from its Non-GAAP financial measures. As the Company is no longer active in its discontinued operations, it believes it is appropriate to exclude income (losses) thereon from its Non-GAAP financial measures. Professional fees and expenses associated with unusual legal and other matters – the Company has incurred 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. Non-cash interest expense related to convertible debt – The Company records non-cash interest expense on its convertible notes in addition to the interest expense already recorded for coupon payments. The Company excludes the non-cash portion of the interest expense from its Non-GAAP financial measures because these amounts are unrelated to its ongoing business operations. Non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill – due to the nature of the adjustment as well as the expectation that it will not have any cash impact in the foreseeable future, the Company believes it is appropriate to exclude this expense from its Non-GAAP financial measures.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, 2011, 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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)(in thousands, except per share amounts)     Three months ended December 31,Nine months ended December 31,2011201020112010     Net revenue $236,325   $ 334,259   $677,739   $ 954,621     Cost of goods sold: Product costs 68,803 98,067 207,391 266,170 Software development costs and royalties 27,236 40,276 129,086 148,906 Internal royalties 9,907 22,001 32,998 105,266 Licenses   20,521     28,306     42,914     48,996   Total cost of goods sold   126,467     188,650     412,389     569,338     Gross profit 109,858 145,609 265,350 385,283   Selling and marketing 40,228 47,861 143,684 144,268 General and administrative 29,705 27,492 86,067 80,314 Research and development 16,823 18,073 49,340 52,328 Depreciation and amortization   2,854     3,501     9,383     11,271   Total operating expenses   89,610     96,927     288,474     288,181   Income (loss) from operations 20,248 48,682 (23,124) 97,102 Interest and other, net   (6,190)   (4,013 )   (14,203)   (10,395 ) Income (loss) from continuing operations before income taxes 14,058 44,669 (37,327) 86,707 (Benefit) provision for income taxes   (127)   3,849     4,368     10,487   Income (loss) from continuing operations 14,185 40,820 (41,695) 76,220 Income (loss) from discontinued operations, net of taxes   (81)   39     (285)   (5,708 ) Net income (loss) $14,104   $ 40,859   $(41,980) $ 70,512     Earnings (loss) per share: Continuing operations $0.16 $ 0.47 $(0.50) $ 0.89 Discontinued operations   -     -     (0.01)   (0.07 ) Basic earnings (loss) per share $0.16   $ 0.47   $(0.51) $ 0.82     Continuing operations $0.16 $ 0.45 $(0.50) $ 0.88 Discontinued operations   -     -     (0.01)   (0.06 ) Diluted earnings (loss) per share (1)$0.16   $ 0.45   $(0.51) $ 0.82     Weighted average shares outstanding: (2)         Basic 89,523 86,321 83,003 85,783 Diluted   89,523     99,260     83,003     98,721     (1)   For the three and nine months ended December 31, 2010, diluted EPS has been calculated using the “if-converted” method as a result of the 4.375% Convertible Notes issued in June 2009 (the "4.375% Convertible Notes"), for which diluted net income has been adjusted by $3,552 and $10,446, respectively, related to interest and debt issuance costs, net of tax. The shares used for computing includes 12,927 shares related to the potential dilution from the 4.375% Convertible Notes. The “if-converted” method was not used for the other periods presented as the assumed conversion would have been anti-dilutive. (2) Basic and diluted include participating shares of 5,958, 5,578 and 5,824 for the three months ended December 31, 2011 and the three and nine months ended December 31, 2010, respectively.                   Three months ended December 31,Nine months ended December 31,OTHER INFORMATION2011201020112010   Geographic revenue mix North America 69% 66% 58% 57% International 31% 34% 42% 43%   Platform revenue mix Microsoft Xbox 360 38% 38% 44% 39% Sony PlayStation 3 38% 37% 38% 40% PC 9% 9% 9% 10% Nintendo Wii 4% 8% 2% 5% Sony PSP 3% 2% 2% 2% Nintendo DS 3% 4% 2% 2% Sony PlayStation 2 2% 2% 2% 2% Other 3% 0% 1% 0%   TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except per share amounts)       December 31,March 31,20112011ASSETS(Unaudited) Current assets: Cash and cash equivalents $453,316 $ 280,359 Accounts receivable, net of allowances of $52,278 and $42,900 at December 31, 2011 and March 31, 2011, respectively 53,274 84,217 Inventory 22,516 24,578 Software development costs and licenses 180,705 131,676 Prepaid taxes and taxes receivable 6,067 8,280 Prepaid expenses and other   36,542     37,493   Total current assets   752,420     566,603     Fixed assets, net 18,556 19,632 Software development costs and licenses, net of current portion 121,843 138,320 Goodwill 223,934 225,170 Other intangibles, net 16,401 17,833 Other assets   7,442     4,101   Total assets $1,140,596   $ 971,659     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $29,400 $ 56,153 Accrued expenses and other current liabilities 126,857 158,459 Deferred revenue 11,794 13,434 Liabilities of discontinued operations   1,027     2,842   Total current liabilities   169,078     230,888     Long-term debt 311,906 107,239 Income taxes payable 12,711 12,037 Other long-term liabilities 3,116 2,961 Liabilities of discontinued operations, net of current portion   2,300     3,255   Total liabilities   499,111     356,380   Commitments and contingencies   Stockholders' equity: Preferred stock, $.01 par value, 5,000 shares authorized - - Common stock, $.01 par value, 150,000 shares authorized; 90,035 and 86,119 shares issued and outstanding at December 31, 2011 and March 31, 2011, respectively 900 861 Additional paid-in capital 786,652 706,482 Accumulated deficit (144,503) (102,523 ) Accumulated other comprehensive (loss) income   (1,564)   10,459   Total stockholders' equity   641,485     615,279   Total liabilities and stockholders' equity $1,140,596   $ 971,659       TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(in thousands)   Nine months ended December 31,2011     2010   Operating activities: Net income (loss) $(41,980) $ 70,512 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Amortization and impairment of software development costs and licenses 117,158 123,345 Depreciation and amortization 9,383 11,271 Loss from discontinued operations 285 5,708 Amortization and impairment of intellectual property 979 2,796 Stock-based compensation 23,463 23,630 Deferred income taxes - 1,491 Amortization of discount on Convertible Notes 7,294 5,440 Amortization of debt issuance costs 1,014 939 Other, net 778 (525 ) Changes in assets and liabilities, net of effect from purchases of businesses: Accounts receivable 30,943 (9,710 ) Inventory 2,062 (4,113 ) Software development costs and licenses (147,315) (118,961 ) Prepaid expenses, other current and other non-current assets 4,125 11,987 Deferred revenue (1,640) (1,532 ) Accounts payable, accrued expenses, income taxes payable and other liabilities (59,574) 42,063 Net cash used in discontinued operations   (1,580)   (9,170 ) Net cash (used in) provided by operating activities   (54,605)   155,171     Investing activities: Purchase of fixed assets (7,984) (8,246 ) Settlement of purchase price related to discontinued operations (1,475) - Cash received from sale of business - 3,075 Payments in connection with business combinations, net of cash acquired   -     (1,000 ) Net cash used in investing activities   (9,459)   (6,171 )   Financing activities: Proceeds from exercise of employee stock options 238 104 Proceeds from issuance of Convertible Notes 250,000 - Payment of debt issuance costs   (6,875)   -   Net cash provided by financing activities   243,363     104     Effects of exchange rates on cash and cash equivalents   (6,342)   2,176     Net increase in cash and cash equivalents 172,957 151,280 Cash and cash equivalents, beginning of year   280,359     145,838   Cash and cash equivalents, end of period $453,316   $ 297,118                       TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIESRECONCILIATION OF GAAP TO Non-GAAP MEASURES (Unaudited)(in thousands, except per share amounts)       Three Months Ended December 31,Nine Months Ended December 31,2011201020112010Gross ProfitGAAP Gross Profit$109,858 $ 145,609 $265,350 $ 385,283 Stock-based compensation   794   1,793     4,379     9,801 Non-GAAP Gross Profit$110,652 $ 147,402   $269,729   $ 395,084   Income (Loss) from OperationsGAAP Income (Loss) from Operations$20,248 $ 48,682 $(23,124) $ 97,102 Stock-based compensation 10,803 5,916 23,463 23,630 Business reorganization and related 247 - 1,015 1,713 Professional fees and legal matters   20   423     196     371 Non-GAAP Income (Loss) from Operations$31,318 $ 55,021   $1,550   $ 122,816   Net Income (Loss)GAAP Net Income (Loss)$14,104 $ 40,859 $(41,980) $ 70,512 Discontinued operations 81 (39 ) 285 5,708 Stock-based compensation 10,803 5,916 23,463 23,630 Professional fees and legal matters 20 423 196 371 Business reorganization and related 247 - 1,015 1,713 Non-cash interest expense 3,234 1,872 7,294 5,440 Non-cash tax expense   465   472     1,286     1,393 Non-GAAP Net Income (Loss)$28,954 $ 49,503   $(8,441) $ 108,767   Diluted Earnings (Loss) Per Share GAAP earnings (loss) per share $0.16 $ 0.45 $(0.51) $ 0.82 Non-GAAP earnings (loss) per share (1)$0.27 $ 0.52 $(0.10) $ 1.15   Number of diluted shares used in computation GAAP 89,523 99,260 83,003 98,721 Non-GAAP (2)115,544 99,260 83,003 98,721   (1)For the three months ended December 31, 2011, Non-GAAP diluted EPS has been calculated using the “if-converted” method as a result of the issuances of the 4.375% Convertible Notes in June 2009 (the "4.375% Convertible Notes") and the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes" and together with the 4.375% Convertible Notes, the "Convertible Notes") for which diluted net income has been adjusted by $2,378 related to interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2011 Non-GAAP diluted EPS include 26,021 shares related to the potential dilution from the Convertible Notes.   For the three and nine months ended December 31, 2010, Non-GAAP diluted EPS has been calculated using the “if-converted” method as a result of the 4.375% Convertible Notes, for which diluted net income has been adjusted by $1,680 and $5,006, respectively, related to interest and debt issuance costs, net of tax. The shares used for computing the three and nine months ended December 31, 2010 Non-GAAP diluted EPS include 12,927 shares related to the potential dilution from the 4.375% Convertible Notes.   The “if-converted” method was not used for the nine months ended December 31, 2011 as the assumed conversion would have been anti-dilutive.   (2)For the three months ended December 31, 2011 and the three and nine months ended December 31, 2010, the diluted shares used in the computation of Non-GAAP EPS include participating shares of 5,958, 5,578 and 5,824, respectively.   Take-Two Interactive Software, Inc.Investor Relations:Henry A. Diamond, 646-536-3005Senior Vice PresidentInvestor Relations & Corporate CommunicationsHenry.Diamond@take2games.comorCorporate Press:Alan Lewis, 646-536-2983Vice PresidentCorporate Communications & Public AffairsAlan.Lewis@take2games.com