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Take-Two Interactive Soware, Inc.
Annual Report 2008

Table of contents

  • Page 1
    Take-Two Interactive Software, Inc. Annual Report 2008

  • Page 2
    ... - Grand Theft Auto IV: The Lost and Damned - Grand Theft Auto IV Phenomenal critical and commercial success that redefined how people play video games. The Lost and Damned, the first downloadable episode for Grand Theft Auto IV, expanded the game with new storylines, characters and features.

  • Page 3
    ... of the Year awards in 2007 and among the all-time highest rated games for both Xbox 360 and PLAYSTATION 3. The Barker - Carnival Games - Carnival Games A smash hit franchise on the Wii and DS with over 4 million units sold. Big Daddy - BioShock Kevin Garnett - NBA 2K9 - NBA 2K9 Once again the...

  • Page 4
    ...- Ongoing innovation through gameplay, technology, new revenue streams and distribution opportunities. - Home to the leading creative talent, building and developing a strong portfolio of top selling franchises. Seth Krauss Executive Vice President and General Counsel Karl Slatoff Executive Vice...

  • Page 5
    ... addition to creating unique entertainment experiences, we are innovating through new revenue streams and distribution opportunities. We launched our first downloadable content offering for BioShock in 2008 and redefined what downloadable content can be with the February 2009 release of The Lost...

  • Page 6
    ... 31, 2008. Our strategy has been to release only a select number of triple-A games that are internally owned and developed, as well as selectively publishing some licensed titles. We believe this continues to be the right strategy for our business. Our team is prepared to manage these challenging...

  • Page 7
    Form 10-K Take-Two Interactive Software, Inc.

  • Page 8

  • Page 9
    ..., New York, New York (Address of principal executive offices) 51-0350842 (I.R.S. Employer Identification No.) 10012 (zip code) Registrant's telephone number, including area code: (646) 536-2842 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.01...

  • Page 10
    ... Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...

  • Page 11
    ...'s PLAYSTATION↦3 (''PS3'') and PlayStation↦2 (''PS2'') computer entertainment systems; Sony's PSP↦ (PlayStation↦Portable) (''PSP'') system; Microsoft's Xbox 360↦ (''Xbox 360'') video game and entertainment system; Nintendo's Wii↩ (''Wii'') and DS↩ (''DS'') systems; and for the PC and...

  • Page 12
    ....1 (2) Current generation includes PS3, Xbox 360 and Wii (3) Handheld includes PSP and DS Source: International Development Group, November 2008 Revenue in our distribution segment is derived from the sale of third party software titles, accessories and hardware in North America. Operating margins...

  • Page 13
    ... acclaimed BioShock title, to continue to develop new and successful franchises in the future. Our 2K Sports series, which includes Major League Baseball 2K, NBA 2K and NHL 2K, provides us with consistent revenue streams because we publish them on an annual basis. We established the 2K Play label to...

  • Page 14
    ...''). We released downloadable content for BioShock↦ on the PlayStation↦Network, and plan to release downloadable content for Grand Theft Auto IV on Xbox Live↦, Microsoft's online entertainment and gaming network, in fiscal 2009. We currently include advertising in many of our sports titles. We...

  • Page 15
    ... major sports league licenses including long-term, third party exclusive licensing relationships with Major League Baseball Properties, the Major League Baseball Players Association and Major League Baseball Advanced Media. 2K Play. Our 2K Play label focuses on developing and publishing titles...

  • Page 16
    ... to develop titles for the PC. Sony. Sony Computer Entertainment, Inc. grants us the right and license to develop, market, publish and distribute software titles for the PS3, PS2 and PSP. We are required to submit products to Sony for approval and to make royalty payments to Sony based on the number...

  • Page 17
    ...and entertainment industries. We believe that the shared demographics between various media and some of the software titles marketed by our publishing labels provide excellent cross-promotional opportunities. We continue to work with popular recording artists to create sophisticated game soundtracks...

  • Page 18
    ... Arts, Midway Games and THQ and international companies, such as Capcom, Eidos, Konami, Namco-Bandai, SEGA and Ubisoft. • Sony, Microsoft and Nintendo for licenses to properties and the sale of interactive entertainment software, each of which is a large developer and marketer of software for...

  • Page 19
    ... platforms; access to distribution channels; price; marketing; and customer service. Our business is driven by hit titles, which require increasing budgets for development and marketing. Competition for our titles is influenced by the timing of competitive product releases and the similarity of such...

  • Page 20
    ...titles and titles based on other brands. Although we entered into new long-term employment agreements with members of the creative team of our Rockstar Games publishing label, we may not be able to continue to retain these personnel at current compensation levels, or at all. The loss of the services...

  • Page 21
    ...products for these platforms. We derive most of our revenue from the sale of products for play on video game platforms manufactured by third parties, such as Sony's PLAYSTATION 3, PlayStation 2 and PSP, Microsoft's Xbox 360 and Nintendo's Wii and DS. The success of our business is dependent upon the...

  • Page 22
    ...a timely manner, our sales and results of operations could suffer. We may need to raise additional capital if we incur losses. Although we achieved profitability for the year ended October 31, 2008, we have incurred significant losses in the past. If we incur losses in the future, we may be required...

  • Page 23
    ...the Company's shares, enacting a bylaw amendment allegedly designed to entrench the current board by preventing stockholders from nominating and electing alternative directors, agreeing to an amendment to a management agreement with ZelnickMedia, issuing a proxy statement for the 2008 annual meeting...

  • Page 24
    ... of the time and attention of our management team, any of which could materially and adversely affect our business, results of operations and financial condition. Moreover, there can be no assurance as to the reaction of our employees, stockholders, publishers, developers, customers, distributors...

  • Page 25
    ... intellectual property owned by others. For example, our 2K Sports products include rights licensed from major sports leagues and players' associations. Similarly, some of our other titles are based on licenses of popular entertainment products. Competition for these licenses is intense. If...

  • Page 26
    ... release schedules and cost projections. The development cycle for new titles generally ranges from 12 to more than 24 months. Development times and costs of current generation software have increased substantially as a result of the additional and enhanced features available in the newest games...

  • Page 27
    ...selling prices of interactive entertainment products as our industry transitions to current generation technology and increased competition in the value software market. A number of software publishers who compete with us have developed and commercialized or are currently developing online games for...

  • Page 28
    ... reputation could be harmed, which could impact sales of other video games we sell. If any of these consequences were to occur, our business and financial performance could be significantly harmed. Many of our Rockstar titles and certain of our 2K Games titles have been rated ''M'' by the ESRB. If...

  • Page 29
    ... licenses require that we obtain approval for the publication of new titles on a title-by-title basis. As a result, the number of titles we are able to publish for these hardware platforms, our ability to manage the timing of the release of these titles and, accordingly, our net revenue from titles...

  • Page 30
    ... costly and may distract our developers from working on new products. If, despite testing, errors are found in new products or releases after shipments have been made, we could experience a loss of or delay in timely market acceptance, product returns, loss of revenue, increases in costs relating to...

  • Page 31
    ... to produce and develop software titles at sufficient levels in the future. We are subject to risks and uncertainties of international trade, including fluctuations in the values of local foreign currencies against the dollar. Sales in international markets, primarily in Europe, have accounted for...

  • Page 32
    ...our games will be onlineenabled in the future, and we could be required to recognize the related revenue over an extended period of time rather than at the time of sale. As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting...

  • Page 33
    ...our outstanding shares of common stock. EA's unsolicited tender offer caused our stock price to fluctuate significantly, was a significant distraction for our management, created uncertainty for our employees, and created uncertainty for current and potential publishers, developers, distributors and...

  • Page 34
    ...'' contained in Grand Theft Auto: San Andreas and the backdating of stock options, including the investigation thereof conducted by the Special Litigation Committee of the Board of Directors and the restatement of our financial statements relating thereto. This complaint was filed against us, our...

  • Page 35
    ... shares of common stock, enacting a bylaw amendment allegedly designed to entrench the current board by preventing stockholders from nominating and electing alternative directors, agreeing to an amendment to a management agreement with ZelnickMedia and issuing a proxy statement for the 2008 annual...

  • Page 36
    ... of the County of New York requesting production of documents covering various periods beginning on January 1, 1997, including those relating to, among other things: the so-called ''Hot Coffee'' scenes in Grand Theft Auto: San Andreas; the work of our Board of Directors, all board committees and the...

  • Page 37
    ... expect to declare or pay any cash dividends in the foreseeable future. The payment of dividends in the future is within the discretion of our Board of Directors and will depend upon future earnings, capital requirements and other relevant factors. Our current credit agreement restricts the payment...

  • Page 38
    ... stock price is not necessarily indicative of future stock price performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Take-Two Interactive Software, Inc., The NASDAQ Composite Index and a Peer Group 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 2003 2004 2005 2006 2007 2008...

  • Page 39
    ... per share data): 2008 2007 Years Ended October 31, 2005(2) 2006(1) 2004(3) STATEMENT OF OPERATIONS DATA: Net revenue Cost of goods sold Gross profit Selling and marketing General and administrative Research and development Business reorganization and related Impairment of goodwill and long-lived...

  • Page 40
    ...'s PLAYSTATION↦3 (''PS3'') and PlayStation2↦ (''PS2'') computer entertainment systems; Sony's PSP↦ (PlayStation↦Portable) (''PSP'') system; Microsoft's Xbox 360↦ (''Xbox 360'') video game and entertainment system; Nintendo's Wii↩ (''Wii'') and DS↩ (''DS'') systems; and for the PC and...

  • Page 41
    ... developers generally give us exclusive publishing and marketing rights and require us to make advance royalty payments, pay royalties based on product sales and satisfy other conditions. We continue to develop new revenue streams as they evolve, including higher margin sources such as downloadable...

  • Page 42
    ... Internal 2K Games 2K Sports 2K Games 2K Play Rockstar Games Rockstar Games 2K Sports 2K Play 2K Play 2K Play Rockstar Games DS DS PS3, Xbox 360, PS2 PC PS2, PSP PS2 Wii, PS2 Xbox 360, Wii PS3, Xbox 360, Wii, PS2, PSP DS PS3, Xbox 360 Xbox 360 PS3, Xbox 360, Wii, DS DS PS3, Xbox 360, DS Wii...

  • Page 43
    2008 Financial Summary The release of Grand Theft Auto IV on April 29, 2008 highlighted our 2008 fiscal year, driving a significant increase in revenue and net income. It has been reported that the title surpassed all-time entertainment records for first day and first week retail sales, with ...

  • Page 44
    ... see Note 1 to the Consolidated Financial Statements included in Item 8. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Revenue Recognition We recognize revenue upon the transfer of title and risk of loss to our...

  • Page 45
    ... and game design documentation. We enter into agreements with third party developers that require us to make advance payments for game development and production services. In exchange for our advance payments, we receive the exclusive publishing and distribution rights to the finished game title as...

  • Page 46
    ... frequently contain provisions that could require us to pay royalties to the license holder based on pre-agreed unit sales thresholds. Amortization of capitalized software development costs and licenses commences when a product is released and is recorded on a title-by-title basis in cost of goods...

  • Page 47
    ... market prices when available and independent appraisals, as appropriate, to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate. Stock-based Compensation We account for stock-based...

  • Page 48
    ... financial position, cash flows or results of operations. In June 2007, the FASB ratified the Emerging Issues Task Force's (''EITF'') consensus conclusion on EITF 07-03, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development. EITF...

  • Page 49
    ... have experienced fluctuations in quarterly and annual operating results as a result of: the timing of the introduction of new titles; variations in sales of titles developed for particular platforms; market acceptance of our titles; development and promotional expenses relating to the introduction...

  • Page 50
    ... 31, 2008 2007 2006 Net revenue: Publishing Distribution Net revenue Cost of goods sold Gross profit Selling and marketing General and administrative Research and development Business reorganization and related Impairment of long-lived assets Depreciation and amortization Total operating expenses...

  • Page 51
    ... of Grand Theft Auto IV. Wii software sales accounted for $112.0 million of our net publishing revenue in 2008, reflecting higher sales of Carnival Games and an increase in the number of titles we released on the Wii such as Major League Baseball↦ 2K8 and Top Spin 3. Sales on the prior generation...

  • Page 52
    ...as a percentage of net revenue due to both higher royalty expense and lower revenue generated from our Major League Baseball license, partially offset by lower licensing rates in connection with other 2008 titles, including Don King Presents: Prizefighter and Top Spin 3. Gross profit as a percentage...

  • Page 53
    ... of international sales. The decrease in gross margin mainly related to a $3.7 million write-down of inventory in 2008 in conjunction with our plan to reduce the number of titles that we manage and distribute in order to focus on higher gross margin products and improve the division's operating...

  • Page 54
    ... costs to move our 2K headquarters to California, and $4.4 million in professional fees and other costs related to the replacement of prior management and the election of five new directors to our Board of Directors at our annual stockholders' meeting. In 2008 we substantially completed our...

  • Page 55
    ...2007 on the Xbox 360 and PC, and which had sales of $85.1 million. In addition, revenue from our baseball titles increased by $38.2 million due to better performance of Major League Baseball↦ 2K7 compared to its predecessor title and a greater number of product releases, including The BIGS on five...

  • Page 56
    ... increase in the gross profit margin of our internally developed titles, particularly BioShock and our sports products. Both Major League Baseball 2K7 and our NBA 2K series had significantly higher gross margins than their predecessor games due to higher revenues on a comparable amount of software...

  • Page 57
    ... in sales volume and average selling price of value and frontline software titles as the gaming industry transitions to current generation platforms. In addition, we experienced a decline in sales of our PC products of $10.0 million, or 18.5%. Foreign currency exchange rates increased net revenue by...

  • Page 58
    ...of video game accessories, which operates within our publishing segment. The impairment charges reflected a decline in the fair value of Joytech's business resulting from increased competition and a decline in the price and sales volume of prior generation accessories due to weaker market conditions...

  • Page 59
    ...25% at October 31, 2008). We are also required to pay an annual fee on the unused available balance, ranging from 0.25% to 0.75% based on amounts borrowed. Availability under the Amended Credit Agreement is restricted by our domestic and United Kingdom based accounts receivable and inventory balance...

  • Page 60
    ... and technology for use in the publishing, marketing and distribution of our software titles. Our licensing and marketing commitments primarily reflect agreements with major sports leagues and players' associations and expire at various times through October 2012; • Contractual advances and...

  • Page 61
    ... our current year acquisitions of Rockstar New England, formerly known as Mad Doc Software, and 2K Czech, formerly known as Illusion Softworks, partially offset by the sale of assets to Ditan. In 2008, we issued 1,496,647 shares of unregistered common stock valued at $27.9 million in connection with...

  • Page 62
    ... 2008, 40.7% of the Company's revenue ...management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Inherent Limitations Over Internal Controls Our internal control over financial reporting is designed...

  • Page 63
    ... on this evaluation, management has concluded that our internal control over financial reporting was effective as of October 31, 2008. Our independent registered public accounting firm, E&Y, has issued an attestation report on our internal control over financial reporting. The report on the audit of...

  • Page 64
    ... Business Conduct and Ethics applicable to its directors and all employees, including senior financial officers, is available on the Company's website at www.take2games.com. If the Company makes any amendment to its Code of Business Conduct and Ethics that is required to be disclosed pursuant to the...

  • Page 65
    ... the Company dated March 24, 2008. 3.3 Certificate of Designation of Series B Preferred Stock of Take-Two Interactive Software, Inc., filed as an exhibit to the Company's Registration Statement on Form 8-A on March 26, 2008 and incorporated herein by reference Stockholders Rights Agreement, dated as...

  • Page 66
    ... dated July 26, 2007 to the Management Agreement dated March 30, 2007 between Take-Two Interactive Software, Inc. and ZelnickMedia Corporation. Licensed Publishing Agreement dated April 1, 2000 between Sony Computer Entertainment America, Inc. and the Company* Xbox Publisher License Agreement dated...

  • Page 67
    ... Number Exhibit Description Incorporated by Reference Filed Form Filing Date Exhibit Herewith 10.20 Xbox 360 Publisher License Agreement dated November 17, 2006, between Microsoft Licensing, GP and the Company 10-Q 6/9/2006 10.1 12/20/2007 10.22 12/20/2007 10.23 12/20/2007 10.24 9/5/2008...

  • Page 68
    Exhibit Number Exhibit Description Incorporated by Reference Filed Form Filing Date Exhibit Herewith 31.2 Chief Financial Officer Certification ...Act of 2002 X 32.1 X 32.2 X + * Represents a management contract or compensatory plan or arrangement. Portions hereof have been omitted and...

  • Page 69
    TAKE-TWO INTERACTIVE SOFTWARE, INC. YEAR ENDED OCTOBER 31, 2008 INDEX TO FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets-At October 31, 2008 and 2007 Consolidated Statements of Operations-For the years ended October 31, 2008, 2007 and ...

  • Page 70
    ... with the standards of the Public Company Accounting Oversight Board (United States), Take-Two Interactive Software, Inc.'s internal control over financial reporting as of October 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 71
    ... PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Take-Two Interactive Software, Inc. We have audited Take-Two Interactive Software, Inc.'s internal control over financial reporting as of October 31, 2008, based on criteria established in Internal Control-Integrated Framework issued...

  • Page 72
    ... current liabilities Deferred revenue Line of credit Income taxes payable Other long-term liabilities Total liabilities Commitments and contingencies Stockholders' Equity: Common Stock, $.01 par value, 100,000 shares authorized; 77,694 and 74,273 shares issued and outstanding at October 31, 2008...

  • Page 73
    TAKE-TWO INTERACTIVE SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) For the Years Ended October 31, 2008 2007 2006 Net revenue Cost of goods sold Gross profit Selling and marketing General and administrative Research and development Business ...

  • Page 74
    ... Prepaid expenses, other current and other non-current assets Accounts payable, accrued expenses, deferred revenue and other liabilities Total adjustments Net cash provided by (used for) operating activities Investing activities: Purchase of fixed assets Cash received from sale of business Payments...

  • Page 75
    TAKE-TWO INTERACTIVE SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands) Years Ended October 31, 2008 2007 2006 Supplemental information of businesses acquired: Fair value of assets acquired Current assets Non-current assets Intangible assets Goodwill Less, liabilities ...

  • Page 76
    ... Cummulative effect of adoption of FIN48 Proceeds from exercise of stock options Stock-based compensation Issuance of common stock in connection with acquisition Issuance of restricted stock, net of forfeitures and cancellations Balance, October 31, 2008 70,667 $707 $451,470 $(12,581) $ 245,548 (184...

  • Page 77
    ..., 2K Games, 2K Sports and 2K Play, develops, markets and publishes software titles for the following leading gaming and entertainment hardware platforms: Sony Microsoft Nintendo PLAYSTATION↦ 3 PlayStation↦ 2 PSP↦ (PlayStation↦ Portable) Xbox 360↦ WiiTM DS↩ We also develop and publish...

  • Page 78
    ... and game design documentation. We enter into agreements with third party developers that require us to make advance payments for game development and production services. In exchange for our advance payments, we receive the exclusive publishing and distribution rights to the finished game title as...

  • Page 79
    ... frequently contain provisions that could require us to pay royalties to the license holder based on pre-agreed unit sales thresholds. Amortization of capitalized software development costs and licenses commences when a product is released and is recorded on a title-by-title basis in cost of goods...

  • Page 80
    ... tax expense or benefit in the period in which they become known. Revenue Recognition We earn our revenue from the sale of internally developed interactive software titles and from the sale of titles developed by and/or licensed from third party developers (''Publishing revenue''). We also earn 70

  • Page 81
    ...game advertising are reported on the balance sheet as deferred revenue until we meet our performance obligations, at which point we recognize the revenue, which is generally at the time of the initial release of the product. Revenue is recognized after deducting estimated reserves for returns, price...

  • Page 82
    ... advertising and market development funds, among others, which are generally based on single exchange transactions. Such amounts are accrued as a reduction to revenue at the later of: (1) The date at which the related revenue is recognized by the vendor, or (2) the date at which the sales incentive...

  • Page 83
    ... to companies in the NASDAQ Industrial Index; (2) internal profitability metrics; and (3) appreciation in the price of our common stock. Market based awards are amortized over the estimated derived service period, which typically ranges from three to four years. Stock-based compensation issued to...

  • Page 84
    ... or the related services are performed. EITF 07-03 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007 (November 1, 2008 for the Company), and requires prospective application for new contracts entered into after the effective date. We do not...

  • Page 85
    ... results of operations. 2. RECENT DEVELOPMENTS During the year ended October 31, 2008, Electronic Arts Inc. (''EA'') extended a tender offer to our stockholders (the ''Offer'') to acquire all outstanding shares of our Common Stock. Our Board of Directors, upon the advice of its financial and legal...

  • Page 86
    ... Intangible Paid Issued Date Assets $4,715 $ 1,353 $ 4,617 $1,275 Acquired Business Mad Doc Software LLC Illusion Softworks Acquisition Date March 2008 Contingent Consideration Up to $15,000 payable in cash or stock, based on meeting certain employment provisions and future product sales. Up to...

  • Page 87
    ... shares of our unregistered common stock and $4,085 of development advances paid prior to the acquisition. We also agreed to make additional contingent deferred cash payments of up to $11,250 based on future product sales, of which approximately $10,000 will be recorded as additional purchase price...

  • Page 88
    ...years 2008 and 2007 we did not recognize an impairment loss on goodwill. In fiscal 2006, we recorded a goodwill impairment charge of $6,341 related to our former Joytech subsidiary, a manufacturer and distributor of video game accessories and peripherals, which operated within our publishing segment...

  • Page 89
    ... 31, 2008 2007 2006 Cost of goods sold Depreciation and amortization Total amortization of intangible assets $2,350 4,229 $6,579 $3,462 3,334 $6,796 $ 9,372 4,628 $14,000 Estimated future amortization of intangible assets that will be recorded in cost of goods sold and operating expenses for...

  • Page 90
    ... margin rate subject to the achievement of certain average liquidity levels. We are also required to pay an annual fee on the unused available balance, ranging from 0.25% to 0.75% based on amounts borrowed. As of October 31, 2008 and October 31, 2007, we had borrowings outstanding of $70,000 and $18...

  • Page 91
    ... 2006, four purported class action complaints were filed against us and certain of our former officers and directors in the U.S. District Court for the Southern District of New York. The actions were consolidated, and in April 2007 the lead plaintiff filed a consolidated second amended complaint...

  • Page 92
    ... District of New York against us, as nominal defendant, and certain of our directors and certain former officers and directors. These actions were consolidated in November 2006 and the plaintiffs filed a consolidated complaint in January 2007, which focused exclusively on our historical stock option...

  • Page 93
    ... shares of common stock, enacting a bylaw amendment allegedly designed to entrench the current board by preventing stockholders from nominating and electing alternative directors, agreeing to an amendment to a management agreement with ZelnickMedia and issuing a proxy statement for the 2008 annual...

  • Page 94
    ... reflect our agreements with major sports leagues and players' associations. Certain of our licensing and marketing agreements also contain provisions that would impose penalties if we fail to meet agreed upon software release dates. Software Development Agreements: We make payments to third party...

  • Page 95
    ... Consideration: Part of our business acquisition strategy has been to make a portion of the purchase price of certain acquisitions dependent on product delivery or future product sales. The amounts and timing of these payments are currently not fixed or determinable. See Note 5 for a discussion of...

  • Page 96
    ... deferred tax assets and liabilities were as follows: October 31, 2008 2007 Current deferred tax assets and (liabilities): Sales returns and allowances (including bad debt) Inventory reserves Deferred rent Deferred revenue Capital loss carryforward Other Capitalized software and depreciation Total...

  • Page 97
    At October 31, 2008, we had a U.S. federal net operating loss carryforward totaling $173,501, which $79,959 is subject to limitation by the Internal Revenue Service, and that will begin to expire in fiscal 2026 and foreign net operating losses of $17,777 that may be carried forward indefinitely. The...

  • Page 98
    ... with restricted stock awards in 2007. We issue shares to employees on the date the restricted stock is granted and therefore shares granted have voting rights and are considered issued and outstanding. In April 2008, our stockholders approved an increase to the number of shares available for grant...

  • Page 99
    ..., primarily related to the performance of the price of our common stock and internal profitability metrics. On June 13, 2008, pursuant to an amendment to our Management Agreement, we granted 600,000 shares of restricted stock to ZelnickMedia that vest annually over a three year period and 900,000...

  • Page 100
    ... outstanding at October 31, 2008. Pursuant to the Management Agreement, in August 2007, we issued stock options to ZelnickMedia to acquire 2,009,075 shares of our common stock at an exercise price of $14.74 per share, which vest over 36 months and expire 10 years from the date of grant. Each month...

  • Page 101
    ... We are a publisher and distributor of interactive software games designed for personal computers, video game consoles and handheld platforms. Revenue earned by our publishing segment is primarily derived from the sale of internally developed software titles, software titles developed on our behalf...

  • Page 102
    ... income taxes to operating segments. Our accounting policies for segment reporting are the same as for the Company as a whole. Information about our reportable segments was as follows: Net revenue: For the Years Ended October 31, 2008 2007 2006 Publishing Distribution Total net revenue $ 1,229,594...

  • Page 103
    ... reportable segments is as follows: Net revenue by product platform: For the Years Ended October 31, 2008 2007 2006 Publishing: Microsoft Xbox 360 Sony PlayStation 3 Nintendo Wii Sony PlayStation 2 and PlayStation Sony PSP PC Nintendo handheld devices Microsoft Xbox Peripherals and other Nintendo...

  • Page 104
    ... to develop certain of our sports titles; however, we are no longer considered to be the primary beneficiary of Blue Castle's future profits or losses. 18. SUPPLEMENTARY FINANCIAL INFORMATION The following table provides details of our valuation and qualifying accounts: Additions Charged to Revenue...

  • Page 105
    ... and royalties Internal royalties Licenses Cost of goods sold Gross profit Selling and marketing General and administrative Research and development Impairment of goodwill and long-lived assets Depreciation and amortization Total operating expenses Loss from operations Net loss Per share data: Basic...

  • Page 106
    ... Chief Executive Officer December 18, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated. Signature Title Date /s/ BEN FEDER Ben Feder /s/ LAINIE...

  • Page 107
    ... Company Name North America Subsidiaries: 2K Boston, LLC 2K Games, Inc. 2K Marin, Inc. 2K Play, Inc. 2K Sports, Inc. Cat Daddy Games, L.L.C. Firaxis Games, Inc. Gathering of Developers, Inc. Jack of All Games, Inc. Jack of All Games (Canada), Inc. Kush Games, Inc. Rockstar Games, Inc. Rockstar New...

  • Page 108
    ..., Inc. included in its Annual Report (Form 10-K) for the year ended October 31, 2008 and the effectiveness of internal control over financial reporting of Take-Two Interactive Software, Inc., filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP New York, New York December 16...

  • Page 109
    ... and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the...

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    ... and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the...

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    ... THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Take-Two Interactive Software, Inc. (the ''Company'') on Form 10-K for the period ended October 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Ben Feder, as Chief Executive...

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    ... OF 2002 In connection with the Annual Report of Take-Two Interactive Software, Inc. (the ''Company'') on Form 10-K for the period ended October 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Lainie Goldstein, as Chief Financial Officer of the...

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    ... Offices Rockstar Games, Inc. 622 Broadway New York, NY 10012 2K Games, Inc. 2K Sports, Inc. 2K Play, Inc. 10 Hamilton Landing Novato, CA 94949 Jack of All Games, Inc. 9271 Meridian Way West Chester, Ohio 45069 Corporate Information Stockholder Information A copy of the Company's Annual Report on...

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    Take-Two Interactive Software, Inc. Annual Report 2008