Take-Two Interactive Software, Inc. Reports Third Quarter Fiscal 2010 Financial Results

Q3 Non-GAAP EPS of $0.28 Exceeds Guidance
Guidance Raised for Fiscal 2010; Company Expects to Report Non-GAAP EPS of $0.60 to $0.70 per Diluted Share for this Fiscal Year

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) today announced financial results for its third quarter ended July 31, 201Net revenue for the third fiscal quarter was $354.1 million, a sharp increase compared to $94.9 million reported for the same quarter of fiscal 2009.

Take-Two attributed its significantly better-than-expected results for the fiscal 2010 third quarter primarily to the strong performance of Red Dead Redemption, which has sold in more than 6.9 million units worldwide since its launch in May 2010.

The Company’s catalog also contributed to its third quarter sales, including Grand Theft Auto: Episodes from Liberty City, Grand Theft Auto IV, NBA® 2K10 and Borderlands™. In addition, digitally delivered content has continued to be a meaningful component of Take-Two’s sales.

Income from continuing operations for the third quarter was $12.4 million or $0.14 per diluted share, compared to a loss from continuing operations of $58.3 million or $0.76 per share in the third quarter of fiscal 2009. Excluding certain non-cash and non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, non-GAAP net income was $26.0 million or $0.28 per diluted share in the third quarter of fiscal 2010, compared to a non-GAAP net loss of $52.3 million or $0.68 per share in the third quarter of 2009.

For the nine months ended July 31, 2010, net revenue was $785.3 million, compared to $418.5 million for the same period a year ago. Loss from continuing operations for the first nine months of fiscal 2010 was $4.5 million or $0.06 per share, compared to loss from continuing operations of $122.6 million or $1.60 per share for the 2009 period. Excluding certain non-cash and non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, non-GAAP net income was $33.6 million or $0.39 per diluted share in the first nine months of 2010, compared to a non-GAAP net loss of $98.3 million or $1.28 per share in the comparable period of 2009.

Product Highlights

• Rockstar Games launched Red Dead Redemption on May 18, during the Company’s third fiscal quarter. The title has sold in over 6.9 million units worldwide to date and has been a commercial and critical success, with a near-perfect score of 95* from Metacritic.com.
• Rockstar Games announced a robust plan to support Red Dead Redemption with several downloadable content packs.
• 2K Sports announced that it signed NBA legend, Michael Jordan, to be the cover athlete for NBA® 2K11.
• 2K Games announced new downloadable content packs for BioShock® 2 and Borderlands™ that are planned for release during the Company’s fourth fiscal quarter.
• The release of L.A. Noire is now expected during the first half of calendar 2011.
• 2K Games and its studio, Irrational Games, announced that BioShock® Infinite is in development and planned for release during calendar 2012.

Financial Guidance

Take-Two is increasing its guidance for the fourth quarter and fiscal year ending October 31, 2010, and currently expects to be profitable for the full fiscal year. In addition to the continued strength of Red Dead Redemption, this outlook reflects the contributions of Borderlands™, NBA® 2K10, BioShock® 2 and various catalog titles during the first nine months of the fiscal year, as well as a fourth quarter roster led by Mafia® II, NBA® 2K11 and Sid Meier’s Civilization® V. This revised guidance also reflects the movement of L.A. Noire out of the fourth quarter of fiscal 2010.

Key assumptions and dependencies underlying the Company’s guidance include continued consumer acceptance of the Xbox 360, PlayStation 3 and Wii; the ability to develop and publish products that capture market share for these current generation systems while continuing to leverage opportunities on certain prior generation platforms; the timely delivery of the titles detailed in this release; as well as no significant changes in foreign exchange rates.

Management Comment

Strauss Zelnick, Chairman of Take-Two, said, “Our strategic focus on producing a select number of high quality titles, diversifying our product portfolio, and capitalizing on new revenue opportunities has enabled Take-Two to deliver significant growth and profitability in the third quarter and positioned the Company for a strong finish to the fiscal year. At a time when the interactive entertainment industry has continued to feel the impact of an uncertain economy, the exceptional response to Red Dead Redemption shows the value of compelling content and its power to capture consumer interest. These results clearly demonstrate the Company’s capacity to translate its world-class creative resources into meaningful financial performance and a solid competitive position in our industry.”

Ben Feder, Chief Executive Officer of Take-Two, noted, “Our results for the third quarter and our expectations for the remainder of fiscal 2010 reflect significant progress toward achieving our goals. First, we expect to be profitable in a fiscal year without a major multi-platform Grand Theft Auto release. Second, Take-Two’s broad array of hit franchises highlights our ability to deliver a diverse product line. Third, Red Dead Redemption has shown that our creative teams can produce multiple mega-hit franchises. Our fourth quarter roster, including Mafia II, Sid Meier’s Civilization V and NBA 2K11, demonstrates our continued ability to create a well-balanced lineup across all of our labels and build upon Take-Two’s industry-leading franchises. Finally, we are making strides in extending the value of our intellectual property into two key areas, Asia and online distribution.”

Product Releases

The following titles released in the third quarter of fiscal 2010:

The following titles released to date in the fourth quarter of fiscal 2010:

Take-Two's lineup of titles announced to date for the remainder of fiscal 2010 includes:

Conference Call

Take-Two will host a conference call today at 4:30 p.m. Eastern Time to review these results and discuss other topics. The call can be accessed by dialing (877) 407-0984 or (201) 689-8577. A live listen-only webcast of the call will be available by visiting http://ir.take2games.com and a replay will be available following the call at the same location.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses non-GAAP measures of financial performance that exclude certain non-recurring or non-cash items. Non-GAAP gross profit, income (loss) and earnings (loss) per share are measures that exclude certain non-recurring or non-cash items and should be considered in addition to results prepared in accordance with GAAP. They are not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results. These non-GAAP financial measures may be different from similarly titled measures used by other companies.

The non-GAAP measures exclude the following items from the Company’s statements of operations:

• Stock-based compensation;
• Business reorganization, restructuring and related expenses;
• Gain (loss) on sale of subsidiaries and income (loss) from discontinued operations;
• Professional fees and expenses associated with unusual legal and other matters;
• Non-cash interest expense related to convertible debt; and
• Non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options.

In addition, the Company may consider whether other significant non-recurring items that arise in the future should also be excluded from the non-GAAP financial measures it uses.

The Company believes that these non-GAAP financial measures, when taken into consideration with the corresponding GAAP financial measures, are important in gaining an understanding of the Company’s ongoing business. These non-GAAP financial measures also provide for comparative results from period to period. Therefore, the Company believes it is appropriate to exclude certain items as follows:

Stock-based compensation

The Company does not consider stock-based compensation charges when evaluating business performance and management does not contemplate stock-based compensation expense in its short and long-term operating plans. The Company places greater emphasis on stockholder dilution than accounting charges when assessing the impact of stock-based equity awards.

Business reorganization, restructuring and related expenses

From time to time, the Company may engage in business reorganization and restructuring activities, which may result in costs related to severance, asset write-offs and associated professional fees. The Company does not engage in reorganization activities on a regular basis and therefore believes it is appropriate to exclude business reorganization, restructuring and related expenses from its non-GAAP financial measures.

Gain (loss) on sale of subsidiaries and income (loss) from discontinued operations

The Company recognized a loss in the third quarter for a post-closing adjustment related to the sale of a subsidiary in the second quarter of fiscal 2010. The Company does not engage in sales of subsidiaries on a regular basis and therefore believes it is appropriate to exclude such gains (losses) from its non-GAAP financial measures. As the company is no longer active in its discontinued operations, it believes it is appropriate to exclude income (losses) thereon from its non-GAAP financial measures.

Professional fees and expenses associated with unusual legal and other matters

The Company has incurred significant legal and other professional fees associated with both the investigation of its historical stock option granting practices and the Company’s responses to related governmental inquiries and civil lawsuits. One of management’s primary objectives is to bring conclusion to its outstanding legal matters. The Company has incurred expenses for professional fees and has accrued for legal settlements that are outside its ordinary course of business. As a result, the Company has excluded such expenses from its non-GAAP financial measures.

Non-cash interest expense related to convertible debt

The Company adopted a new accounting standard in the first quarter of fiscal 2010 that requires convertible debt to be bifurcated into debt and equity components. As a result of the new standard, the Company has begun to record non-cash interest expense on its convertible notes, in addition to the interest expense already recorded for coupon payments. The Company excludes the non-cash portion of the interest expense from its non-GAAP financial measures because these amounts are unrelated to its ongoing business operations.

Non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options

The Company recorded non-cash tax expense for the impact of deferred tax liabilities associated with tax deductible amortization of goodwill and the impact of the cancellation of stock options. Due to the nature of the adjustment as well as the expectation that it will not have any cash impact in the foreseeable future, the Company believes it is appropriate to exclude this expense from its non-GAAP financial measures.

EBITDA and Adjusted EBITDA

Earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) is a financial measure not calculated and presented in accordance with U.S. GAAP. Management uses EBITDA adjusted for business reorganization and related expenses (“Adjusted EBITDA”), among other measures, in evaluating the performance of the Company’s business units. Adjusted EBITDA is also a significant component of the Company’s incentive compensation plans. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net income/(loss) prepared in accordance with GAAP.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

*According to Metacritic.com as of 9/1/10.

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a global developer, marketer and publisher of interactive entertainment software games for the PC, PlayStation®3 and PlayStation®2 computer entertainment systems, PSP® (PlayStation®Portable) system, Xbox 360® video game and entertainment system from Microsoft, Wii™, Nintendo DS™, iPhone®, iPod® touch and iPad™. The Company publishes and develops products through its wholly owned labels Rockstar Games and 2K, which publishes its titles under 2K Games, 2K Sports and 2K Play. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at www.take2games.com.

All trademarks and copyrights contained herein are the property of their respective holders.

Cautionary Note Regarding Forward-Looking Statements

The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including: our dependence on key management and product development personnel, our dependence on our Grand Theft Auto products and our ability to develop other hit titles for current generation platforms, the timely release and significant market acceptance of our games, the ability to maintain acceptable pricing levels on our games, our ability to raise capital if needed and risks associated with international operations. Other important factors and information are contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2009, in the section entitled "Risk Factors," as updated in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, and the Company's other periodic filings with the SEC, which can be accessed at www.take2games.com. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

*Earnings (loss) per share ("EPS") may not add due to rounding

(1) For the three months ended July 31, 2010, non-GAAP EPS — diluted EPS has been calculated using the “if-converted” method as a result of the Convertible Senior Notes ("Convertible Notes") issued in June 2009. Non-GAAP net income used for computing non-GAAP EPS has been adjusted by $1,647 related to interest and debt issuance costs, net of tax. The shares used for computing includes 12,927 shares related to the potential dilution from the Convertible Notes. The “if-converted” method was not used for GAAP EPS presented as the assumed conversion would have been anti-dilutive.

(2) Basic and diluted include participating shares of 6,013.

*Earnings (loss) per share ("EPS") may not add due to rounding

*Earnings (loss) per share ("EPS") may not add due to rounding

(1) For the nine months ended July 31, 2010, non-GAAP EPS — diluted EPS has been calculated using the “if-converted” method as a result of the Convertible Senior Notes ("Convertible Notes") issued in June 2009. Non-GAAP net income used for computing non-GAAP EPS has been adjusted by $5,007 related to interest and debt issuance costs, net of tax. The shares used for computing includes 12,927 shares related to the potential dilution from the Convertible Notes. The “if-converted” method was not used for GAAP EPS presented as the assumed conversion would have been anti-dilutive.

(2) Basic and diluted include participating shares of 6,041.