10-QPeriod: Q3 FY2005

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q3 Ended Jan 31, 2005

Filed March 10, 2005For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported a strong financial performance for the third quarter ended January 31, 2005. Net sales increased by 33.8% year-over-year to $502.5 million, driven by robust growth in the publishing segment, largely attributed to the continued success of 'Grand Theft Auto: San Andreas'. Net income more than doubled, rising 74.0% to $55.2 million, or $1.19 per diluted share. The company also demonstrated significant operational efficiency, with income from operations increasing by 45.4% and improved gross margins as a percentage of net sales due to a shift towards higher-margin publishing revenue. Financially, the company's liquidity remains strong, with cash and cash equivalents increasing substantially to $303.1 million. Operating activities generated a healthy $189.5 million in cash. Take-Two has also been active in strategic acquisitions, notably the acquisition of Visual Concepts and Kush Games from SEGA, bolstering its sports development capabilities. While facing ongoing legal matters, including a settlement with the SEC and a new product liability lawsuit, management expresses confidence in its financial position and future prospects, projecting sufficient cash flow for the next twelve months.

Key Highlights

  • 1Net sales surged by 33.8% to $502.5 million for the quarter ended January 31, 2005, up from $375.5 million in the prior year's comparable period.
  • 2Net income more than doubled, increasing by 74.0% to $55.2 million from $31.8 million year-over-year.
  • 3Diluted earnings per share (EPS) grew significantly to $1.19 from $0.70, representing a 70.0% increase.
  • 4The company's publishing segment showed strong growth, increasing 53.4% to $355.4 million, driven by strong sales of 'Grand Theft Auto: San Andreas'.
  • 5Cash and cash equivalents significantly increased to $303.1 million as of January 31, 2005, from $155.1 million as of October 31, 2004.
  • 6Strategic acquisitions were made, including Visual Concepts and Kush Games from SEGA, to strengthen sports development capabilities.
  • 7Income from operations increased by 45.4% to $72.8 million, demonstrating improved operational efficiency.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of the publishing segment, fueled by continued robust sales of 'Grand Theft Auto: San Andreas' for the PlayStation 2. Sales of other sports titles also contributed to the increase.

Take-Two's financial position has significantly improved, with cash and cash equivalents increasing substantially to $303.1 million as of January 31, 2005. This was supported by strong cash flow generated from operating activities, which increased to $189.5 million for the quarter.

During the quarter, Take-Two acquired Visual Concepts Entertainment and Kush Games from SEGA. These acquisitions are expected to bolster the company's sports development capabilities.

The company has submitted an offer of settlement to the SEC regarding a previously announced investigation, which, if approved, would resolve all claims for a $7.5 million civil penalty. Additionally, a new product liability lawsuit has been filed in Alabama related to alleged 'copycat violence' from the company's video games, which Take-Two intends to vigorously defend.