10-QPeriod: Q2 FY2007

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report for Q2 Ended Jul 31, 2006

Filed March 1, 2007For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. reported a significant net loss for the nine months ended July 31, 2006, totaling $170.9 million, a stark contrast to the net income of $16.5 million in the same period of the previous year. This downturn is primarily attributed to a substantial increase in cost of goods sold, particularly royalties and software development costs, alongside increased operating expenses, including impairment charges for goodwill and long-lived assets. The company also experienced a notable decline in net revenues, down 13.8% year-over-year, driven by lower sales in both its publishing and distribution segments. The balance sheet shows a decrease in total assets to $855.1 million from $935.2 million, with a significant drop in accounts receivable and inventory. Cash and cash equivalents saw an increase to $179.1 million, indicating a strong focus on liquidity. However, the company also faces ongoing legal proceedings and significant commitments, including substantial minimum guaranteed licensing and marketing obligations, which warrant investor attention.

Key Highlights

  • 1Significant net loss of $170.9 million for the nine months ended July 31, 2006, compared to a net income of $16.5 million in the prior year period.
  • 2Net revenues decreased by 13.8% to $771.3 million for the nine months ended July 31, 2006.
  • 3Total assets decreased to $855.1 million as of July 31, 2006, from $935.2 million as of October 31, 2005.
  • 4Cash and cash equivalents increased to $179.1 million as of July 31, 2006, providing a stronger liquidity position.
  • 5Increased cost of goods sold, including higher royalties and software development costs, significantly impacted profitability.
  • 6The company recorded impairment charges of $14.8 million for goodwill and long-lived assets during the nine months ended July 31, 2006.
  • 7Significant ongoing legal proceedings and substantial future contractual obligations (licensing, marketing, software development) are noted.

Frequently Asked Questions

The substantial net loss of $170.9 million for the nine months ended July 31, 2006, is primarily due to a significant increase in cost of goods sold, particularly higher royalty and software development costs. Additionally, operating expenses increased, including notable impairment charges for goodwill and long-lived assets. A decline in net revenues also contributed to the overall financial performance.

The company's total assets decreased to $855.1 million from $935.2 million, driven by reductions in accounts receivable and inventory. While liabilities also decreased, the overall asset reduction and increased losses led to a decrease in total stockholders' equity. However, cash and cash equivalents saw a healthy increase to $179.1 million, improving the company's liquidity position.

Yes, the company is involved in several significant legal proceedings, including class-action lawsuits related to 'Grand Theft Auto: San Andreas' content and consumer deception claims, as well as shareholder derivative actions concerning stock option granting practices. Furthermore, the company has substantial future contractual obligations, particularly in licensing and marketing agreements totaling over $356 million, which represent a significant financial commitment.

The trend indicates a challenging outlook, with net revenues declining by 13.8% for the nine-month period and a significant net loss reported. The increase in cost of goods sold and operating expenses, including impairment charges, suggests that profitability will remain under pressure. Investors should closely monitor future product releases, sales performance, and the company's ability to manage its costs and legal liabilities.