10-QPeriod: Q1 FY2002

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q1 Ended Apr 30, 2001

Filed June 8, 2001For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) filed its 10-Q for the period ending April 30, 2001, reporting significant year-over-year growth in net sales, driven by both its publishing and distribution segments. The company saw a substantial increase in revenue from PlayStation 2 titles, indicating a strategic shift towards newer console platforms. However, this growth was overshadowed by substantial non-cash charges, including impairment losses on Internet assets and investments in companies like Gameplay and eUniverse. These charges resulted in a net loss for the quarter and year-to-date, a reversal from the profitability reported in the prior year's comparable periods. Despite the reported net loss, the company's cash flow from operations showed a significant improvement compared to the previous year, largely due to better management of working capital. The company's liquidity appears adequate, with increased cash and cash equivalents and available credit lines to fund ongoing operations and future expansion. Investors should monitor the company's ability to manage its significant intangible assets, the impact of ongoing investments in new platforms, and the recovery of its impaired investments.

Key Highlights

  • 1Net sales increased by 33.3% to $93.3 million for the three months ended April 30, 2001, compared to the prior year, driven by strong performance in both publishing and distribution.
  • 2Publishing revenue grew 40.2% due to increased sales of titles for Sony PlayStation and the newly launched PlayStation 2.
  • 3A substantial non-cash impairment charge of $20.75 million on available-for-sale Internet securities (primarily investments in Gameplay and eUniverse) and a $4.19 million charge for Internet assets led to a net loss of $11.9 million for the quarter.
  • 4Excluding impairment charges, the company would have reported a net income of $3.87 million for the quarter, indicating underlying operational profitability.
  • 5Cash flow from operating activities improved significantly, showing $23.3 million in provided cash for the six months ended April 30, 2001, compared to $19.5 million used in the prior year's period.
  • 6The company's balance sheet shows an increase in cash and cash equivalents to $6.89 million as of April 30, 2001, up from $5.25 million at the end of the previous fiscal year.
  • 7Intangible assets, including goodwill and capitalized software development costs, represent a significant portion of the company's total assets, standing at over $124 million.

Frequently Asked Questions

The net loss of $11.9 million for the three months ended April 30, 2001, was primarily due to significant non-cash impairment charges totaling $24.9 million. These charges included a $20.75 million loss on investments in available-for-sale Internet securities (like Gameplay and eUniverse) and a $4.19 million charge related to Internet assets. Excluding these one-time charges, the company would have reported a net income of $3.87 million.

The company's liquidity appears stable. Cash and cash equivalents increased to $6.89 million as of April 30, 2001. Furthermore, cash flow from operations significantly improved, generating $23.3 million in the first six months of fiscal 2001 compared to a cash outflow in the prior year. The company also has access to substantial lines of credit, indicating it can fund its operations and growth initiatives.

The company is experiencing strong growth from PlayStation 2 titles, which now account for a significant portion of its publishing revenue. This reflects a strategic focus on newer, higher-margin platforms. While PC sales are decreasing as a percentage of revenue, console sales are expected to continue driving publishing revenues. This shift is positive for future growth prospects, though console titles may have different margin profiles than PC titles.

The company carries substantial intangible assets, including goodwill and capitalized software development costs. The recent significant impairment charges highlight the risk associated with investments in other companies and technology assets, which can be volatile. Investors should be aware that future impairments could negatively impact profitability. The company is actively managing these risks, but the inherent nature of the tech and gaming industry involves considerable uncertainty.