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Take-Two News Release

Take-Two Interactive Software, Inc. Reports Strong Results for Fiscal Third Quarter 2014

Non-GAAP Net Revenue Grew to $767.7 Million

Non-GAAP Net Income Increased to $1.70 Per Diluted Share

Increases Financial Outlook for Fiscal Year 2014

NEW YORK--(BUSINESS WIRE)--Feb. 3, 2014-- Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today reported strong financial results for fiscal third quarter 2014, ended December 31, 2013. In addition, the Company increased its financial outlook for fiscal year 2014, ending March 31, 2014, and provided its initial financial outlook for fiscal fourth quarter 2014, ending March 31, 2014.

GAAP Financial Results

For fiscal third quarter 2014, GAAP net revenue increased to $1.86 billion, as compared to $415.8 million for fiscal third quarter 2013. GAAP net income from continuing operations was $578.4 million, or $4.69 per diluted share, as compared to $70.9 million, or $0.66 per diluted share, for the year-ago period. As of December 31, 2013, the Company had cash and cash equivalents of $972.2 million.

Non-GAAP Financial Results

For fiscal third quarter 2014, Non-GAAP net revenue grew to $767.7 million, as compared to $405.0 million for the year-ago period. Non-GAAP net income increased to $210.7 million, or $1.70 per diluted share, as compared to $78.8 million, or $0.67 per diluted share, for the year-ago period.

The largest contributors to net revenue in fiscal third quarter 2014 were Grand Theft Auto V®, NBA® 2K14, and WWE® 2K14. Non-GAAP net revenue from digitally-delivered content grew 42% year-over-year to $132.8 million, driven by the Grand Theft Auto series, the NBA 2K franchise, and offerings for Borderlands® 2 and BioShock® Infinite. Catalog sales accounted for $113.0 million of Non-GAAP net revenue led by offerings for Borderlands 2, the Grand Theft Auto series, XCOM®: Enemy Unknown, BioShock Infinite, and Sid Meier’s Civilization® V.

Management Comments

“Take-Two’s business continued to outperform expectations significantly during the fiscal third quarter,” said Strauss Zelnick, Chairman and CEO of Take-Two. “Our results were driven by robust holiday demand for Grand Theft Auto V, the franchise record-breaking launch of NBA 2K14, the successful release of WWE 2K14, and strong growth in digitally-delivered revenues led by Grand Theft Auto Online. Take-Two was the top video game publisher of 2013, according to the NPD Group, underscoring our positive momentum over the past year.

“As a result of our third quarter performance, we have once again raised our revenue and earnings outlook for fiscal 2014, which is poised to be a record year for Take-Two. Looking ahead, we firmly expect to deliver Non-GAAP earnings in fiscal 2015 and every year for the foreseeable future. This confidence is based on our development pipeline of groundbreaking new intellectual properties and offerings from our proven franchises, which bear the hallmark of our commitment to provide the highest quality entertainment experiences.”

Business and Product Highlights

Since October 1, 2013:

  • Take-Two finished as the top video game publisher of 2013.*
  • Take-Two deployed $276.8 million to repurchase 16.24 million shares of its common stock, including 12.02 million shares repurchased from the Icahn Group.

Rockstar Games:

  • Launched Grand Theft Auto Online, the dynamic and persistent online game, which is free with every copy of Grand Theft Auto V.
  • Grand Theft Auto V finished as the best-selling video game of 2013.* To date, Grand Theft Auto V has sold-in more than 32.5 million units.
  • Released Grand Theft Auto: San Andreas for select iOS, Android, Amazon Kindle and Windows Phone devices.

2K:

  • Launched NBA 2K14, which is the fastest-selling release in the history of our top-selling and top-rated NBA video game simulation franchise** that has sold-in nearly 35 million units to date. Developed by Visual Concepts, NBA 2K14 has already sold-in more than 5 million units and is Take-Two’s first offering for the PlayStation®4 computer entertainment system and Xbox One, the all-in-one games and entertainment system from Microsoft. The title is also available for the Xbox 360, PS3 and PC.
  • Launched WWE 2K14 for the Xbox 360 and PS3. Developed by Yukes, WWE 2K14 is being supported with downloadable add-on content, including a Season Pass.
  • Released the Borderlands 2 Game of the Year Edition for the Xbox 360, PS3 and PC. Borderlands 2 is now the highest-selling title in 2K’s history with more than 8.5 million units sold-in to date.
  • Released XCOM: Enemy Within, the expanded experience of Firaxis Games’ “Game of the Year” award-winning strategy title, XCOM: Enemy Unknown, for the Xbox 360, PS3, PC and Mac.
  • Announced that Evolve is planned for launch on the Xbox One, PS4 and PC in fall 2014. Developed by Turtle Rock Studios, the renowned creators of Left 4 Dead, Evolve™ is an all-new shooter that blends cooperative and competitive multiplayer experiences.

* According to The NPD Group’s Retail Tracking Service.

** According to 2008-2013 Metacritic.com and The NPD Group estimates of U.S. retail video game sales through December 2013.

Financial Outlook for Fiscal 2014

Take-Two is increasing its financial outlook for fiscal year 2014 primarily to reflect its strong fiscal third quarter results and lower share count due to its repurchase of 16.24 million shares in November, 2013. In addition, the Company is providing its initial financial outlook for its fiscal fourth quarter ending March 31, 2014 as follows:

       

Fourth Quarter

Fiscal Year

Ending 3/31/2014 (2)

   

Ending 3/31/2014 (2)

Non-GAAP Net Revenue

$170 to $200 Million

$2.35 to $2.38 Billion

 

Non-GAAP net income per diluted share

$0.00 to $0.10

$4.15 to $4.25

 

Net effect from deferral in net revenues and related cost of goods sold

$0.10

$0.21

 

Stock-based compensation expense per share (1)

$0.09

$0.56

 

Business reorganization, restructuring and related expenses

$0.02

$0.03

 

Non-cash amortization of discount on convertible notes per share

$0.04

$0.20

 

Loss on extinguishment of debt

$0.00

$0.07

 

Gain on convertible note hedge and warrants, net

$0.00

($0.04)

 

Non-cash tax expense per share

$0.00

$0.02

 

1)

 

The Company's stock-based compensation expense for the periods above includes the cost of approximately 1.9 million restricted shares previously granted 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.

2)

In connection with the redemption of the Company’s 4.375% Notes, the weighted average fully diluted share count used to calculate all Non-GAAP per share amounts includes the 12.93 million shares underlying the 4.375% Notes through June 12, 2013 (notice of redemption date) and the 3.2 million shares ultimately issued upon conversion of the 4.375% Notes subsequent to June 12, 2013.

 

Key assumptions and dependencies underlying the Company’s financial outlook include: the timely delivery of the titles included in this financial outlook; the ability to develop and publish products that capture market share for video game and computer entertainment systems; and stable foreign exchange rates. See also “Cautionary Note Regarding Forward Looking Statements” below.

Product Releases

The following titles were released since October 1, 2013:

           

Label

   

Title

   

Platforms

   

Release Date

Rockstar Games

Grand Theft Auto Online

Xbox 360, PS3

October 1, 2013

2K

NBA 2K14

Xbox 360, PS3, PC, iOS, Android

October 1, 2013*

2K

Borderlands 2 Game of the Year Edition

Xbox 360, PS3, PC

October 8, 2013*

2K

The Bureau: XCOM Declassified Hanger 6 R&D (DLC)

Xbox 360

October 8, 2013

2K

XCOM: Enemy Unknown for iOS Multiplayer Update

iOS

October 10, 2013

2K

NBA 2K14 Superfan Pack

Xbox 360, PS3

October 15, 2013

2K

Sid Meier’s Civilization V: Scrambled Continents (DLC)

PC

October 17, 2013

2K

Borderlands 2: Headhunter 1: TK Baha’s Bloody Harvest (DLC)

Xbox 360, PS3, PC

October 22, 2013

2K

Holiday Bundle: Spec Ops® : The Line, Mafia II & Borderlands 2

Xbox 360, PS3

October 22, 2013

2K

Holiday Bundle: BioShock, Borderlands 2 & XCOM: Enemy Unknown

Xbox 360, PS3

October 22, 2013

2K

Holiday Bundle: BioShock 2, The Darkness II™ & Mafia II

Xbox 360, PS3

October 22, 2013

2K

Holiday Bundle: XCOM: Enemy Unknown & Sid Meier’s Civilization V

PC

October 22, 2013

2K

WWE 2K14

Xbox 360, PS3

October 29, 2013*

2K

MyNBA 2K14

iOS, Google Play, Android

November 1, 2013

2K

Sid Meier's Ace Patrol: Pacific Skies

PC (Steam exclusive)

November 5, 2013

2K

Sid Meier’s Civilization V: Scrambled Nations (DLC)

PC

November 5, 2013

2K

Sid Meier's Ace Patrol: Pacific Skies

iOS

November 7, 2013

2K

BioShock Infinite: Burial at Sea – Episode 1 (DLC)

Xbox 360, PS3, PC

November 12, 2013

2K

XCOM: Enemy Within

Xbox 360, PS3, PC, Mac

November 12, 2013*

2K

WWE 2K14: nWo Pack (DLC)

Xbox 360, PS3

November 12, 2013

2K

NBA 2K14

PS4

November 15, 2013

2K

NBA 2K14

Xbox One

November 19, 2013

2K

Borderlands 2: Headhunter 2: Wattle Gobbler (DLC)

Xbox 360, PS3, PC

November 26, 2013

2K

WWE 2K14: WWE Superstars and Moves Pack (DLC)

Xbox 360, PS3

December 3, 2013

Rockstar Games

Grand Theft Auto: San Andreas

iOS

December 12, 2013

2K

Sensei Wars©

iOS, Google Play, Android

December 12, 2013

2K

Borderlands 2: Headhunter 3: How Marcus Saved Mercenary Day (DLC)

Xbox 360, PS3, PC, Mac

December 17, 2013

Rockstar Games

Grand Theft Auto: San Andreas

Android, Kindle

December 20, 2013

2K

WWE 2K14: WWE Legends and Creations Pack (DLC)

Xbox 360, PS3

January 7, 2014

Rockstar Games

Grand Theft Auto: San Andreas

Windows Phone

January 27, 2014

 

*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

   

Release Date

2K

Sid Meier’s Civilization V: The Complete Edition

PC

February 4, 2014

2K

Borderlands 2 & Dishonored™ Bundle

Xbox 360, PS3 , PC

February 11, 2014

2K

The Elder Scrolls® V: Skyrim & BioShock Infinite Bundle

Xbox 360, PS3 , PC

February 11, 2014

2K

XCOM: Enemy Unknown: The Complete Edition

PC

March 4, 2014

2K

BioShock Infinite: Burial at Sea – Episode 2 (DLC)

Xbox 360, PS3, PC

TBA

2K

Evolve

Xbox One, PS4, PC

Fall 2014

2K

NBA 2K15

TBA

Fiscal 2015

2K

WWE 2K15

TBA

Fiscal 2015

 

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. 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 the impact of certain items as follows:

  • Net effect from deferral in net revenues and related cost of goods sold - the Company defers revenue and related costs from the sale of certain titles that have undelivered elements upon the sale of the game and recognizes that revenue upon the delivery of the undelivered elements. As there is no impact to the Company’s operating cash flow, management excludes the impact of deferred net revenue and related costs from its Non-GAAP financial measures when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, we believe that these Non-GAAP financial measures provide a more timely indication of trends in our business, provide comparability with the way our business is measured by analysts, and provide consistency with industry data sources.
  • 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 – although the Company has incurred business reorganization expenses in the past, each charge relates to a discrete event based on a unique set of business objectives. Management does not believe these charges reflect the Company's primary business, ongoing operating results or future outlook. As such, the Company believes it is appropriate to exclude these expenses and related charges from its Non-GAAP financial measures.
  • Non-cash amortization of discount on convertible notes – the Company records non-cash amortization of discount on convertible notes as interest expense 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.
  • Loss on extinguishment of debt – the Company recorded a loss on extinguishment of debt as a result of settling its 4.375% Convertible Notes in August 2013. The Company excludes the impact of such transactions when evaluating the Company’s operating performance. Management does not believe this loss reflects the Company's primary business, ongoing operating results or future outlook. As such, the Company believes it is appropriate to exclude this loss from its Non-GAAP financial measures.
  • Gain on convertible note hedge and warrants, net – the Company entered into unwind agreements with respect to its convertible note hedge and warrant transactions. As a result of the unwind agreements, these transactions were accounted for as derivatives whereby gains and losses resulting from changes in the fair value were reported in gain on convertible note hedge and warrants, net. The Company excludes the impact of such transactions when evaluating the Company’s operating performance. Management does not believe these gains and losses reflect the Company's primary business, ongoing operating results or future outlook. As such, the Company believes it is appropriate to exclude these gains and losses from its Non-GAAP financial measures.
  • 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.
  • 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.

These Non-GAAP financial measures 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.

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. 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 and next-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, 2013, in the section entitled "Risk Factors," the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013, 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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
   
Three months ended December 31, Nine months ended December 31,
  2013     2012     2013     2012  
 
 
Net revenue $ 1,863,869   $ 415,773   $ 2,155,360   $ 914,996  
 
Cost of goods sold:
Internal royalties 502,169 7,903 510,371 9,261
Product costs 374,710 99,020 438,839 244,593
Software development costs and royalties 200,333 77,641 305,151 260,180
Licenses   42,522     31,735     51,678     47,483  
Total cost of goods sold   1,119,734     216,299     1,306,039     561,517  
 
Gross profit 744,135 199,474 849,321 353,479
 
Selling and marketing 70,476 60,724 213,419 205,582
General and administrative 34,718 32,880 110,601 106,891
Research and development 29,233 22,369 76,624 57,001
Depreciation and amortization   3,413     2,509     9,837     7,828  
Total operating expenses   137,840     118,482     410,481     377,302  
Income (loss) from operations 606,295 80,992 438,840 (23,823 )
Interest and other, net (5,949 ) (8,094 ) (26,018 ) (23,562 )
Loss on extinguishment of debt - - (9,014 ) -
Gain on convertible note hedge and warrants, net   -     -     3,461     -  
Income (loss) from continuing operations before income taxes 600,346 72,898 407,269 (47,385 )
Provision for income taxes   21,902     2,021     14,804     4,947  
Income (loss) from continuing operations 578,444 70,877 392,465 (52,332 )
(Loss) income from discontinued operations, net of taxes   (18 )   488     (73 )   368  
Net income (loss) $ 578,426   $ 71,365   $ 392,392   $ (51,964 )
 
Earnings (loss) per share:
Continuing operations $ 5.88 $ 0.76 $ 4.02 $ (0.61 )
Discontinued operations   -     -     -     -  
Basic earnings (loss) per share $ 5.88   $ 0.76   $ 4.02   $ (0.61 )
 
Continuing operations $ 4.69 $ 0.66 $ 3.29 $ (0.61 )
Discontinued operations   -     -     -     -  
Diluted earnings (loss) per share (1) $ 4.69   $ 0.66   $ 3.29   $ (0.61 )
 
Weighted average shares outstanding:(2)        
Basic 98,290 93,338 97,529 85,382
Diluted   125,042     119,359     127,833     85,382  
 

(1)

 

For the three months ended December 31, 2013, diluted EPS has been calculated using the “if-converted” method as a result of the issuances of the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes") and 1.00% Convertible Notes in June 2013 (the "1.00% Convertible Notes and together with the 1.75% Convertible Notes, the "1.75% and 1.00% Convertible Notes"). The three months ended December 31, 2013 diluted net income has been adjusted by $7,418 related to interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2013 diluted EPS include 26,455 shares related to the potential dilution from the 1.75% and 1.00% Convertible Notes.

 

For the three months ended December 31, 2012, 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 "4.375% and 1.75% Convertible Notes") for which diluted net income has been adjusted by $7,834 related to interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2012 diluted EPS include 26,021 shares related to the potential dilution from the 4.375% and 1.75% Convertible Notes.

 
For the nine months ended December 31, 2013, 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"), the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes") and 1.00% Convertible Notes in June 2013 (the "1.00% Convertible Notes and together with the 4.375% Convertible Notes and 1.75% Convertible Notes, the "Convertible Notes"). For the nine months ended December 31, 2013 diluted net income has been adjusted by $26,221 related to interest and debt issuance costs, net of tax. In connection with the redemption of the Company’s 4.375% Convertible Notes, diluted EPS has been calculated using the weighted average for the 12,927 shares underlying the 4.375% Convertible Notes through August 30, 2013 (redemption date). Subsequent to August 30, 2013, diluted EPS has been calculated using the weighted average for the 3,217 shares ultimately issued upon conversion of Company’s 4.375% Convertible Notes. The shares used for computing the nine months ended December 31, 2013, diluted EPS include 29,810 shares related to the potential dilution from the Convertible Notes.
 
The “if-converted” method was not used for the nine months ended December 31, 2012 as the assumed conversion would have been anti-dilutive.
 

(2)

For the three and nine months ended December 31, 2013 and the three months ended December 31, 2012, the diluted shares used in the computation of EPS include participating shares of 13,230, of 10,559 and of 7,596, respectively.

 
    Three months ended December 31,     Nine months ended December 31,

OTHER INFORMATION

2013     2012 2013     2012
 
Geographic revenue mix
United States 44% 65% 46% 58%
International 56% 35% 54% 42%
 
Platform revenue mix
Console 97% 80% 93% 80%
PC and other 3% 18% 7% 18%
Handheld 0% 2% 0% 2%
 
Net revenue by distribution channel:
Physical retail and other 93% 78% 87% 80%
Digital online 7% 22% 13% 20%
 
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
       
December 31, March 31,
  2013     2013  
 
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 972,170 $ 402,502

Accounts receivable, net of allowances of $129,422 and $64,081 at December 31, 2013 and March 31, 2013, respectively

189,519 189,596
Inventory 45,035 30,218
Software development costs and licenses 92,767 198,955
Prepaid expenses and other   246,165     44,881  
Total current assets   1,545,656     866,152  
 
Fixed assets, net 38,768 25,362
Software development costs and licenses, net of current portion 101,075 95,241
Goodwill 226,835 225,992
Other intangibles, net 5,297 8,827
Other assets   67,720     56,265  
Total assets $ 1,985,351   $ 1,277,839  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,850 $ 79,932
Accrued expenses and other current liabilities 598,437 228,916
Deferred revenue 51,366 26,919
Liabilities of discontinued operations   827     1,232  
Total current liabilities   693,480     336,999  
 
Long-term debt 448,737 335,202
Other long-term liabilities 21,135 17,087
Liabilities of discontinued operations, net of current portion   -     556  
Total liabilities   1,163,352     689,844  
Commitments and contingencies
 
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized - -

Common stock, $.01 par value, 200,000 shares authorized; 104,787 and 93,743 shares issued and 88,549 and 93,743 outstanding at December 31, 2013 and March 31, 2013, respectively

1,048 937
Additional paid-in capital 944,010 832,460
Retained earnings (accumulated deficit) 151,562 (240,830 )
Treasury stock, at cost (16,238 common shares at December 31, 2013) (276,836 ) -
Accumulated other comprehensive income (loss)   2,215     (4,572 )
Total stockholders' equity   821,999     587,995  
Total liabilities and stockholders' equity $ 1,985,351   $ 1,277,839  
 
 
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
   
Nine months ended December 31,
  2013       2012  
 
Operating activities:
Net income (loss) $ 392,392 $ (51,964 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses 252,229 189,319
Depreciation and amortization 9,837 7,828
Loss (gain) from discontinued operations 73 (368 )
Amortization and impairment of intellectual property 3,375 6,678
Stock-based compensation 57,594 22,778
Deferred income taxes (5,487 ) 24
Amortization of discount on Convertible Notes 17,507 13,971
Amortization of debt issuance costs 1,510 1,521
Loss on extinguishment of debt 9,014 -
Gain on convertible note hedge and warrants, net (3,461 ) -
Other, net (414 ) 735
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable 77 (49,206 )
Inventory (14,817 ) (7,210 )
Software development costs and licenses (151,275 ) (150,479 )
Prepaid expenses, other current and other non-current assets (205,948 ) (498 )
Deferred revenue 24,447 12,484
Accounts payable, accrued expenses and other liabilities 345,174 47,072
Net cash used in discontinued operations   (1,034 )   (1,223 )
Net cash provided by operating activities   730,793     41,462  
 
Investing activities:
Purchase of fixed assets (23,455 ) (12,317 )
Payments in connection with business combinations, net of cash acquired   (1,000 )   -  
Net cash used in investing activities   (24,455 )   (12,317 )
 
Financing activities:
Repurchase of common stock (276,836 ) -
Proceeds from issuance of 1.00% Convertible Notes 283,188 -
Payment for extinguishment of 4.375% Convertible Notes (165,999 ) -
Proceeds from termination of convertible note hedge transactions 84,429 -
Payment for termination of convertible note warrant transactions (55,651 ) -
Payment of debt issuance costs for the issuance of 1.00% Convertible Notes     (2,815 )   -  
Net cash used in financing activities   (133,684 )   -  
 
Effects of foreign exchange rates on cash and cash equivalents   (2,986 )   (701 )
 
Net increase in cash and cash equivalents 569,668 28,444
Cash and cash equivalents, beginning of period   402,502     420,279  
Cash and cash equivalents, end of period $ 972,170   $ 448,723  
 
           
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
RECONCILIATION OF GAAP TO Non-GAAP MEASURES (Unaudited)
(in thousands, except per share amounts)
     
 
Three months ended December 31, Nine months ended December 31,
  2013     2012     2013     2012  
Net Revenues
GAAP Net Revenues $ 1,863,869 $ 415,773 $ 2,155,360 $ 914,996
Net effect from deferral in net revenues   (1,096,213 )   (10,766 )   25,205     4,183  
Non-GAAP Net Revenues $ 767,656   $ 405,007   $ 2,180,565   $ 919,179  
 
Gross Profit
GAAP Gross Profit $ 744,135 $ 199,474 $ 849,321 $ 353,479
Net effect from deferral in net revenues and related cost of goods sold (428,128 ) (6,421 ) 12,737 3,611
Stock-based compensation   27,220     1,790     29,176     8,034  
Non-GAAP Gross Profit $ 343,227   $ 194,843   $ 891,234   $ 365,124  
 
Income from Operations
GAAP (Income) Loss from Operations $ 606,295 $ 80,992 $ 438,840 $ (23,823 )
Net effect from deferral in net revenues and related cost of goods sold (428,128 ) (6,421 ) 12,737 3,611
Stock-based compensation 36,328 8,681 57,594 22,778
Business reorganization, restructuring and related   1,718     384     1,930     758  
Non-GAAP Income from Operations $ 216,213   $ 83,636   $ 511,101   $ 3,324  
 
Net Income (Loss)
GAAP Net Income (Loss) $ 578,426 $ 71,365 $ 392,392 $ (51,964 )
Net effect from deferral in net revenues and related cost of goods sold (411,470 ) (6,421 ) 12,737 3,611
Stock-based compensation 36,328 8,681 57,594 22,778
Business reorganization, restructuring and related 1,718 384 1,930 758
Non-cash amortization of discount on Convertible Notes 5,211 4,772 17,507 13,971
Loss on extinguishment of debt - - 9,014 -
Gain on convertible note hedge and warrants, net - - (3,461 ) -
Non-cash tax expense 481 482 1,443 1,438
Discontinued operations   18     (488 )   73     (368 )
Non-GAAP Net Income (Loss) $ 210,712   $ 78,775   $ 489,229   $ (9,776 )
 
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ 4.69 $ 0.66 $ 3.29 $ (0.61 )
Non-GAAP earnings (loss) per share (1) $ 1.70 $ 0.67 $ 3.99 $ (0.11 )
 
Number of diluted shares used in computation
GAAP 125,042 119,359 127,833 85,382
Non-GAAP (2) 125,042 119,359 125,044 85,382
 

(1)

 

For the three months ended December 31, 2013, Non-GAAP diluted EPS has been calculated using the “if-converted” method as aresult of the issuances of the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes") and 1.00% Convertible Notes in June 2013 (the "1.00% Convertible Notes and together with the 1.75% Convertible Notes, the "1.75% and 1.00% Convertible Notes"). The three months ended December 31, 2013 diluted net income has been adjusted by $2,207 related to coupon interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2013 diluted EPS include 26,455 shares related to the potential dilution from the 1.75% and 1.00% Convertible Notes.

 

For the three months ended December 31, 2012, 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 "4.375% and 1.75% Convertible Notes") for which diluted net income has been adjusted by $3,062 related to coupon interest and debt issuance costs, net of tax. The shares used for computing the three months ended December 31, 2012 diluted EPS include 26,021 shares related to the potential dilution from the 4.375% and 1.75% Convertible Notes.

 
For the nine months ended December 31, 2013, 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"), the 1.75% Convertible Notes in November 2011 (the "1.75% Convertible Notes") and 1.00% Convertible Notes in June 2013 (the "1.00% Convertible Notes and together with the 4.375% Convertible Notes and 1.75% Convertible Notes, the "Convertible Notes"). For the nine months ended December 31, 2013 diluted net income has been adjusted by $8,714 related to coupon interest and debt issuance costs, net of tax. In connection with the redemption of the Company’s 4.375% Convertible Notes, Non-GAAP diluted EPS has been calculated using the weighted average for the 12,927 shares underlying the 4.375% Convertible Notes through June 12, 2013 (notice of redemption date). Subsequent to June 12, 2013, Non-GAAP diluted EPS has been calculated using the weighted average for the 3,217 shares ultimately issued upon conversion of Company’s 4.375% Convertible Notes. The shares used for computing the nine months ended December 31, 2013, Non-GAAP diluted EPS include 26,097 shares related to the potential dilution from the Convertible Notes.
 

The “if-converted” method was not used for the nine months ended December 31, 2012 as the assumed conversion would have been anti-dilutive.

 

(2)

For the three and nine months ended December 31, 2013 and the three months ended December 31, 2012, the diluted shares used in the computation of Non-GAAP EPS include participating shares of 13,230, of 10,559 and of 7,596, respectively.

Source: Take-Two Interactive

Take-Two Interactive Software, Inc.
Investor Relations:
Henry A. Diamond, 646-536-3005
Senior Vice President
Investor Relations & Corporate Communications
Henry.Diamond@take2games.com
or
Corporate Press:
Alan Lewis, 646-536-2983
Vice President
Corporate Communications & Public Affairs
Alan.Lewis@take2games.com