10-KPeriod: FY2009

TAKE TWO INTERACTIVE SOFTWARE INC Annual Report, Year Ended Oct 31, 2009

Filed December 18, 2009For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) filed its 2009 10-K report on December 18, 2009, reflecting a challenging year marked by a significant net loss and declining revenues. The company, a global publisher, developer, and distributor of interactive entertainment software and hardware, faced headwinds from the economic downturn, increased competition, and the ongoing transition to new gaming platforms. Despite a strong product pipeline including titles from its popular Rockstar Games and 2K labels, revenue for fiscal year 2009 decreased substantially compared to 2008, primarily due to the absence of a blockbuster title comparable to the prior year's 'Grand Theft Auto IV' release. The company reported a net loss of $137.9 million for fiscal year 2009. Key initiatives during the year included a focus on expanding digital distribution channels, developing titles for emerging platforms like the iPhone, and strategically managing its distribution business, which unfortunately resulted in an $14.8 million goodwill impairment charge. The company also issued convertible senior notes to strengthen its financial position. Investors should note the significant reliance on major franchises like 'Grand Theft Auto' and the inherent risks associated with the cyclical nature of the video game industry, product launch timing, and competitive market pressures.

Financial Highlights

30 data points
Beta

Revenue

$701.06M

33.3% Gross Margin

Net Income

-$140.45M

-20.0% Net Margin

EPS (Diluted)

$-1.83

Cash & Equivalents

$204.14M

Free Cash Flow

-$221.38M

Financial Statements
Beta
Revenue$701.06M
Cost of Revenue$467.58M
Gross Profit$233.48M
R&D Expenses$63.75M
Operating Expenses$353.66M
Operating Income-$120.18M
Net Income-$140.45M
EPS (Basic)$-1.83
EPS (Diluted)$-1.83
Shares Outstanding (Basic)76.81M
Shares Outstanding (Diluted)76.81M

Key Highlights

  • 1Net Loss of $137.9 million for the fiscal year ended October 31, 2009, a significant turnaround from a net income of $97.1 million in the prior year.
  • 2Net revenue decreased by 36.4% to $968.5 million in fiscal year 2009, primarily attributed to the lack of a major blockbuster release comparable to 'Grand Theft Auto IV' in fiscal year 2008.
  • 3The 'Grand Theft Auto' franchise, while still a significant revenue driver, saw its contribution decrease, with sales of $416.8 million lower in fiscal year 2009 compared to the prior year.
  • 4Recorded a goodwill and intangible asset impairment charge of $14.8 million related to the distribution segment due to the decline in the retail environment.
  • 5Issued $138.0 million in 4.375% convertible senior notes in June 2009 to raise capital and strengthen its financial position.
  • 6The company continues to diversify revenue streams through digital content (downloadable episodes, in-game advertising) and emerging platforms like the iPhone and iPod touch.
  • 7Significant litigation and legal proceedings, including securities class actions and other claims, were ongoing, with a proposed settlement of approximately $20.1 million for the securities class action.

Frequently Asked Questions

The primary driver of Take-Two's financial performance in fiscal year 2009 was a significant decrease in net revenue, primarily due to the absence of a blockbuster title release comparable to the success of 'Grand Theft Auto IV' in the prior fiscal year. This revenue decline, coupled with ongoing operating expenses, resulted in a substantial net loss for the year.

Take-Two is strategically focusing its development efforts on current generation gaming platforms (PS3, Xbox 360, Wii) which are experiencing increasing installed bases. While they continue to develop titles for prior generation platforms (PS2, DS) where economically attractive, they are reducing the number of titles in development for these older platforms due to declining consumer demand and expect pricing for prior generation titles to continue to decline.

Take-Two's strategy includes focusing on creating premium quality games and successful franchises for sequels, leveraging internally developed intellectual property, expanding its digital distribution channels (downloadable content, in-game advertising), developing for emerging platforms like mobile devices, and increasing its international presence, particularly in the Asia-Pacific markets.

Key risks include a heavy reliance on the success of 'Grand Theft Auto' and other 'hit' titles, product development risks leading to delays and cost overruns, short product life cycles, dependence on the popularity of gaming platforms and relationships with manufacturers, intense competition, dependence on key personnel, and the adverse impact of economic conditions on consumer discretionary spending. The company also faces risks related to legal proceedings and the potential for future equity issuances to dilute existing shareholders.