TAKE-TWO INTERACTIVE SOFTWARE, INC.
2018 ANNUAL REPORT
25 YEARS OF PHENOMENAL ENTERTAINMENT
Generated significant cash flow and ended the fiscal year with
$1.4 BILLION
$1.991 BILLION
Net Bookings from recurrent
consumer spending grew
in cash and short-term investments
Delivered total Net Bookings of
5% year-over-year increase
48%
48%
to a new record
and accounted for
of total Net Bookings
11
95 MILLION
One of the most critically-acclaimed and commercially
successful video games of all time with over
units
sold-in
to date
Series with at least one five-million
unit selling release and 60 individual
multi-million unit selling titles
Digitally-delivered
Net Bookings grew
25%
68%
and accounted for
of total Net Bookings
3,250
Employees working in game
development and 18 studios
around the world
Sold-in over 9 million units to date and is our
highest-selling sports title ever
TAKE-TWO INTERACTIVE SOFTWARE, INC. 2018 ANNUAL REPORT
DEAR
SHAREHOLDERS,
Fiscal 2018 was another outstanding year for Take-Two, underscored by operating results that greatly
surpassed the initial outlook that we provided at the start of the year. We delivered $1.8 billion in net
revenue, Net Bookings grew 5% to nearly $2.0 billion, and we generated earnings growth and margin
expansion. Our strong business performance converted into substantial net cash provided by operating
activities, which grew 19% to $393 million and, as of March 31, 2018, we had over $1.4 billion in cash and
short-term investments. It bears noting that we achieved these results despite an unusually light release
schedule, reflecting the strength of our robust catalog led by Grand Theft Auto and the substantial
contribution that we now receive from recurrent consumer spending. Today, our enterprise is a global
leader in the interactive entertainment industry and a significantly higher-margin business than at any
time in our history.
OUR KEY ACHIEVEMENTS
(cid:81) We delivered record digitally-delivered net revenue and Net Bookings. Digitally-delivered net revenue grew
23% to $1.13 billion and digitally-delivered Net Bookings grew 25% to $1.35 billion.
(cid:81) We generated record net revenue and Net Bookings from recurrent consumer spending. Recurrent
consumer spending accounted for 42% of total net revenue and 48% of total Net Bookings.
(cid:81) Grand Theft Auto V and
V
Grand Theft Auto Online continued to exceed our expectations in fiscal 2018 –
as they have in every year since their release nearly five years ago – with combined Net Bookings from
the titles growing year-over-year. Grand Theft Auto V has sold-in over 95 million units
V
as the highest-rated title of the current console generation and the “must have” game for purchasers of
PlayStation 4 and Xbox One. Moreover, Grand Theft Auto Online broke monthly audience records in June,
July and December, added more new users than in fiscal 2017 and delivered its biggest year yet for virtual
currency sales. Rockstar Games achieved these results through the ongoing release of a wide array of free
additional content.
, reflecting its status
(cid:81) We released NBA 2K18, which is now our highest-selling sports title ever with sell-in to date of over 9
million units – up 17% over last year’s release. In addition, our NBA 2K series continues to benefit from
growing engagement and recurrent consumer spending. During fiscal 2018, average revenue per user,
revenue per hour and unique multiplayer users all increased double-digits, and recurrent consumer
spending on NBA 2K grew 34% to a new record
K
.
(cid:81) We successfully launched WWE 2K18, which has been enhanced by an array of downloadable add-on
content, including a Season Pass. The WWE brand is as popular as ever, and we believe there is a substantial
long-term opportunity to grow our WWE 2K series by leveraging further the development and marketing
expertise of 2K and Visual Concepts.
(cid:81) We formed Private Division, our new publishing label that focuses on bringing titles from top independent
developers to market. Private Division will publish several titles based on new IP from renowned industry
creative talent, including Panache Digital Games, The Outsiders, Obsidian Entertainment and V1 Interactive.
Private Division is also the publisher of Kerbal Space Program, which Take-Two acquired in May 2017.
(cid:3)
(cid:81) During fiscal year 2018, we repurchased 1.51 million shares of Take-Two common stock for $154.8 million.
(cid:81) On March 19, 2018, Take-Two was added to the S&P 500® index.
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TAKE-TWO INTERACTIVE SOFTWARE, INC. 2018 ANNUAL REPORT
SUCCESSFUL GROWTH STRATEGY
Take-Two’s strategy is to develop the highest-quality, most compelling interactive entertainment franchises in the
business, and deliver them on every platform around the world that is relevant to our audience. Complementing our
core business with offerings that drive ongoing engagement with and recurrent consumer spending (including virtual
currency, in-game purchases and add-on content) on our titles after their initial purchase is an important, high-
margin growth opportunity and, therefore, a key strategic priority of our organization. We now support nearly all
of our new releases with innovative offerings designed to achieve this objective. Recurrent consumer spending also
helps to strengthen our results between front-line releases while providing additional entertainment to consumers.
World-class creative teams: Creativity and innovation remain the core tenets of our organization, and are the
lifeblood for our ongoing success. We have over 3,250 employees working in game development in 18 studios around
the world – including some of the most talented visionaries in the business. The creative teams at Rockstar Games
and 2K are renowned throughout the world for their consistent ability to deliver games that set new benchmarks for
excellence. In addition, our Social Point studio further enhances our organization’s development capabilities with one
of the few creative teams in the world possessing a track record of producing multiple hits in the free-to-play mobile
sector. Whether expanding beloved franchises, launching new intellectual property or providing innovative ways for
audiences to remain captivated and engaged, we have an unwavering commitment to producing the highest quality
entertainment experiences.
Diverse portfolio of industry-leading intellectual property: Take-Two is a financially strong, global interactive
entertainment enterprise with numerous successful franchises encompassing a variety of genres. Our diverse
portfolio of intellectual property includes 11 series with at least one five-million unit selling release, and 60 individual,
multi-million unit selling titles. Since 2007, we have added 9 new brands to our lineup, including hits such as
BioShock, Borderlands, Red Dead Redemption and WWE 2K.
Capitalizing on growth of digital distribution: During fiscal 2018, we continued to capitalize on our industry’s
ongoing transition towards digital distribution, and delivered both record digitally-delivered net revenue and
Net Bookings, including our highest-ever from recurrent consumer spending. In addition to virtual currency for
Grand Theft Auto Online and NBA 2K, recurrent consumer spending was enhanced by a variety of offerings, including
free-to-play games led by WWE SuperCard, which grew over 20% year-over-year and has now been downloaded
nearly 17 million times, Social Point’s mobile titles Dragon City and Monster Legends, and NBA 2K Online – which
remains the #1 PC online sports game in China with over 37 million registered users. Net Bookings from add-on
content grew more than 40%, led by offerings for Sid Meier’s Civilization, particularly the Rise and Fall expansion
pack; XCOM 2, particularly War of the Chosen; WWE 2K; and Mafia III. Our results also benefited from ongoing
growth in full-game downloads, with more than 35% of units for current-generation consoles and over 95% of units
for PC delivered digitally. Moreover, nearly half of our catalog sales for old-generation consoles are being delivered
through digital download. Digital distribution is disproportionately benefitting our catalog, as it gives consumers the
opportunity to buy older titles that no longer receive physical shelf space. Over the long-term, we expect the trend
towards digital distribution to continue, with the percentage of sales of console games through full-game download
continuing to grow.
Interactive entertainment is one of today’s most dynamic and popular
art forms. We are actively investing in a variety of emerging platforms, business models and markets that we believe
have the potential to further diversify our business, expand our audience and enhance our financial performance.
(cid:81) Our January 2017 acquisition of Social Point expands our presence in the free-to-play mobile market, which
is the largest and fastest-growing segment within our industry. We believe that Social Point is a perfect
complement to our business because it produces high-quality entertainment that can attract and retain a
loyal, highly-engaged player base and deliver sustainable results. Social Point focuses on “mid-core” games
that feature greater gameplay depth than casual games, and their titles typically monetize and retain players
2
TAKE-TWO INTERACTIVE SOFTWARE, INC. 2018 ANNUAL REPORT
at higher rates than its competitors in this segment. They have a number of exciting titles planned for launch
in the coming years, and we continue to view Social Point as an important long-term growth opportunity
for Take-Two.
(cid:81) eSports is an exciting growth trend in our industry. To that end, we are very pleased with the progress of the
NBA 2K League – our joint-venture with the NBA that marked the first official competitive gaming league
based on a U.S. professional sports league – which kicked off its inaugural season in May 2018. Following the
qualifying rounds during which more than 76,000 people participated, in April 2018, 102 of the best NBA 2K
players in the world were drafted by 17 NBA teams to compete in a 15-week season that will conclude with
the NBA 2K League Playoffs and Finals in August 2018. The NBA 2K League has been steadily building its
portfolio of high-profile partnerships and sponsorships, including Dell, Intel and Twitch, which is the League’s
official streaming partner. We look forward to watching the continued growth of the NBA 2K League, which
has the long-term potential to enhance engagement, and to be a meaningful driver of profits for
our Company.
(cid:81) Asia represents the largest online video game market in the world and an important long-term growth
opportunity for our organization. Building on the popularity of NBA 2K Online in China, 2K and Tencent are
teaming up again to co-develop and release the title’s highly-anticipated successor, NBA 2K Online 2. This
new game is based on the console edition of NBA 2K and features 2K’s legendary gameplay, 27 customizable
position types, new player trading systems, eSports-optimized features, localized commentary and more.
NBA 2K Online 2 is currently in closed Beta testing and is planned for commercial release this fall. In addition,
we are pleased to expand our successful partnership with Tencent through the planned release of Kerbal
Space Program on Tencent’s WeGame distribution platform as a premium PC game. We are excited about
Tencent’s WeGame platform and the opportunity to grow our business in China.
Innovative marketing and global distribution: Creating groundbreaking entertainment experiences is only part
of our formula for success. Our marketing teams execute well-coordinated global campaigns that leverage nearly
every form of media – from traditional to social – to turn our product launches into tent pole events. We also work in
lockstep with our key retail partners, both brick-and-mortar and online, to create promotions that drive consumers
to the point of sale. Our global distribution network ensures that our products are available to consumers throughout
the world, both physically and digitally – wherever and whenever they desire.
Sound financial foundation: With more than $1.4 billion in cash and short-term investments as of March 31, 2018,
Take-Two has ample capital to pursue a variety of investment opportunities. We are very excited about our growth
potential over the long-term, and our strong cash position and outlook give us the flexibility both to invest in organic
growth opportunities, as well as potential studio or IP acquisitions, and strategic partnerships. We also have the
ability to return capital to shareholders, including through opportunistic share repurchase.
EXCITING LINEUP OF NEW RELEASES
We expect fiscal 2019 to be another year of profitable growth for Take-Two, including both record Net Bookings and
record net cash provided by operating activities.
(cid:81) On September 11, the next annual installment of NBA 2K will return to the hardwood court with the series’
signature style and deep authenticity, and will feature Milwaukee Bucks standout and two-time NBA All-Star
Giannis Antetokounmpo on the cover. This year marks the 20th anniversary of our industry-leading basketball
simulation, and we are confident that 2K and Visual Concepts will once again take the series to exciting
new heights with the release of NBA 2K19. 2K will feature three-time NBA Champion, four-time NBA MVP
and avid NBA 2K gamer LeBron James on the cover of the NBA 2K19 20th Anniversary Edition. The iconic
cover features Akron’s favorite son alongside an artistic composition of words personally chosen by LeBron,
including “Strive for Greatness,” “Driven,” and “Equality.” In addition to the exclusive James themed content
and items, fans who purchase the NBA 2K19 20th Anniversary Edition will receive early access to the game.
3
TAKE-TWO INTERACTIVE SOFTWARE, INC. 2018 ANNUAL REPORT
(cid:81) On October 9, 2K’s WWE series will be back with WWE 2K19, bringing gamers into the virtual squared circle
with their favorite WWE Superstars, gameplay modes and variety of hard-hitting, in-ring action. A.J. Styles,
“The Phenomenal One”, will be the game’s cover Superstar. This year, for the first time, fans will have the
opportunity to compete in the WWE 2K19 Million Dollar Challenge, whereby the winner of the tournament will
face-off one-on-one against Styles in WWE 2K19 to vie for the $1 million grand prize.
(cid:81) On October 26, Rockstar Games will launch Red Dead Redemption 2, the eagerly awaited sequel to one
of the label’s most critically acclaimed and beloved titles. Created by the team behind Grand Theft Auto
V and Red Dead Redemption, Red Dead Redemption 2 is Rockstar Games’ first title developed from the
ground up for the current console generation. An epic tale of life in America’s unforgiving heartland, Red
Dead Redemption 2’s vast and atmospheric world will also provide the foundation for an entirely new online
multiplayer experience. We could not be more excited about the upcoming launch of Red Dead Redemption
2, which is poised to be another massive, entertainment event.
(cid:81) Throughout fiscal 2019, we will continue to deliver an array of digitally-delivered offerings designed to drive
engagement with, and recurrent consumer spending on, our recent releases and upcoming titles, including
updates for Grand Theft Auto Online, WWE SuperCard and more. In addition, Social Point and 2K will
continue to broaden our offerings for mobile devices.
Looking ahead, we have a robust long-term development pipeline across our labels, featuring offerings from our
renowned franchises along with new intellectual properties that promise to diversify further our industry-leading
portfolio. In fiscal 2020, we plan to launch a highly anticipated title from one of 2K’s biggest franchises that we
expect will enhance our results during that year.
OUR FUTURE
This year marks the 25th anniversary of Take-Two. Over that time, we have built our Company into a diversified and
profitable enterprise. In particular, we are extremely proud that Take-Two is home to our industry’s best talent, whose
passion and creative vision consistently captivate and engage audiences around the world. Take-Two is exceedingly
well-positioned to capitalize on the vast opportunities in our industry, including advances in hardware, the ability to
drive ongoing engagement through connected experiences and additional content, and the continued proliferation of
mobile platforms and emerging business models. As a result, Take-Two is poised to deliver growth and returns for our
shareholders over the long-term.
We would like to thank our colleagues for delivering another strong year for our Company. To our shareholders, we
want to express our appreciation for your support.
Sincerely,
4
Strauss Zelnick
Chairman and Chief Executive Officer
Karl Slatoff
K l Sl t ff
President
July 13, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 2018
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission file number 001-34003
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
110 West 44th Street
New York, New York
(Address of principal executive offices)
51-0350842
(I.R.S. Employer
Identification No.)
10036
(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 par value
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter was approximately
$11,405,142,125.
As of May 4, 2018 there were 114,379,624 shares of the Registrant's Common Stock outstanding, net of treasury stock.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement for the 2018 Annual Meeting of Stockholders
are incorporated by reference into Part III herein.
[THIS PAGE INTENTIONALLY LEFT BLANK]
INDEX
PART I
PART II
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Index to Financial Statements
Signatures
PAGE
1
7
20
20
21
21
22
24
25
39
40
40
40
41
42
42
42
42
42
43
50
51
89
[THIS PAGE INTENTIONALLY LEFT BLANK]
CAUTIONARY NOTE ABOUT 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," "should," "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, but not limited to,
those discussed under the heading "Risk Factors" included in Part I, Item 1A herein. All forward-looking statements are qualified
by these cautionary statements and speak 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.
PART I
Item 1. Business
General
We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. We develop and
publish products principally through our two wholly-owned labels Rockstar Games and 2K, as well as our new Private Division
label and Social Point, a leading developer of mobile games. Our products are currently designed for console gaming systems
such as the Sony Computer Entertainment, Inc. ("Sony") PlayStation®4 ("PS4") and PlayStation®3 ("PS3"), Microsoft
Corporation ("Microsoft") Xbox One® ("Xbox One") and Xbox 360® ("Xbox 360"), the Nintendo Switch, and personal computers
("PC"), including smartphones and tablets. We deliver our products through physical retail, digital download, online platforms
and cloud streaming services.
We were incorporated under the laws of the State of Delaware in 1993 and are headquartered in New York, New York with
approximately 4,492 employees globally. Our
is
telephone number
www.take2games.com. We make all of our filings with the Securities and Exchange Commission ("SEC") available free of charge
on our website under the caption "Corporate—SEC Filings." Included in these filings are our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, which are available as soon as
reasonably practicable after we electronically file or furnish such materials with the SEC pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934.
is (646) 536-2842 and our website address
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K. You may also obtain copies of our reports without charge by writing to:
Take-Two Interactive Software, Inc.
110 West 44th Street
New York, NY 10036
Attn: Investor Relations
You may read and copy any document we file with the SEC at the SEC's public reference room at 100 F Street, NE, Room 1580,
Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains
a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers
(including the Company) file electronically with the SEC. The SEC's website is www.sec.gov.
Strategy
Overview. We endeavor to be the most creative, innovative and efficient company in our industry. Our core strategy is to capitalize
on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range
of genres. We focus on building compelling entertainment franchises by publishing a select number of titles for which we can
create sequels and incremental revenue opportunities through add-on content, microtransactions and online play. Most of our
intellectual property is internally owned and developed, which we believe best positions us financially and competitively. We have
established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres, including action,
adventure, family/casual, racing, role-playing, shooter, sports and strategy, which we distribute worldwide. We believe that our
commitment to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace
by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for
consumers. We have created, acquired or licensed a group of highly recognizable brands to match the broad consumer demographics
we serve, ranging from adults to children and game enthusiasts to casual gamers. Another cornerstone of our strategy is to support
1
the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and
through channels that are relevant to our target audience.
Support Label Structure to Target Distinct Market Segments. Our business consists principally of our wholly-owned labels
Rockstar Games and 2K, as well as our new Private Division label and Social Point, a leading developer of mobile games. Rockstar
Games is the developer and publisher of the interactive entertainment industry's most iconic and critically acclaimed brand, Grand
Theft Auto, as well as other successful franchises, including L.A. Noire, Max Payne, Midnight Club, and Red Dead. We expect
Rockstar Games to continue to be a leader in the action / adventure product category and create groundbreaking entertainment by
leveraging our existing franchises, as well as developing new brands. 2K publishes high-quality, owned and licensed titles across
a range of genres including shooter, action, role-playing, strategy, sports and family/casual. 2K is the publisher of a number of
critically acclaimed, multi-million unit selling franchises including BioShock, Borderlands, Carnival Games, Evolve, Mafia, NBA
2K, Sid Meier's Civilization, WWE 2K and XCOM. We expect 2K to continue to be a leader by building on its existing brands, as
well as by developing new franchises in the future.
Focus on Core Strength of Producing Select, High Quality Titles. We focus on publishing a select number of high-quality titles
based on internally-owned and developed intellectual properties. We currently own the intellectual property rights to 25 proprietary
brands. In addition, we will selectively develop titles based on licensed properties, including sports, and also publish externally
developed titles.
We use a product investment review process to evaluate potential titles for investment, to review existing titles in development,
and to assess titles after release to measure their performance in the market and the return on our investment. We apply this process
to all of our products, whether internally or externally developed. The product investment review process includes reviews of each
project at various stages of development by our executive management team and the senior management of our publishing labels,
and includes coordination between our sales and marketing personnel before the launch of titles. This disciplined approach to
product investment is expected to enhance the competitiveness and profitability of our titles.
We develop our products using a combination of our internal development teams and external development resources acting under
contract with us. We typically select external developers based on their track record and expertise in developing products in the
same category or genre. One developer will generally produce the same game for multiple platforms and will also produce sequels
to the original game. We believe that selecting and using development resources in this manner allows us to leverage the particular
expertise of our internal and external development resources, which we believe increases the quality of our products.
Leverage Emerging Technologies, Platforms and Distribution Channels, Including Digitally Delivered Content. Interactive
entertainment played online and on mobile platforms, including tablets and smartphones, represents exciting opportunities to
enhance our growth and profitability. In addition, the interactive entertainment software industry is delivering a growing amount
of content for traditional platforms through digital download. We provide a variety of digitally delivered products and offerings,
which typically have a higher gross margin than physically delivered products. Virtually all of our titles that are available through
retailers as packaged goods products are also available through direct digital download (from websites we own and third-party
websites). We also aim to drive ongoing engagement and incremental revenues from recurrent consumer spending on our titles
through virtual currency, add-on content, and microtransactions. We also publish an expanding variety of titles for tablets and
smartphones, which are delivered to consumers through digital download. We will continue to invest in emerging opportunities
in mobile and online gameplay, particularly for our wholly-owned franchises, as well as downloadable content and
microtransactions that enable gamers to pay to download additional content to enhance their game playing experience.
Expand International Business. The global market for interactive entertainment continues to grow and we seek to increase our
presence internationally, particularly in Asia, Eastern Europe and Latin America. We are continuing to execute on our growth
initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence,
especially in China and South Korea. We are a direct publisher in Japan and South Korea. While we retain title to all intellectual
property, under license agreements local publishers are responsible for localization of software content, distribution and marketing
of the products in their respective local markets. We intend to continue to build upon our licensing relationships and also continue
to expand on finished goods distribution strategies to grow our international business.
Our Businesses
Our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties.
Operating margins are dependent in part upon our ability to release new, commercially successful software products and to manage
effectively their development and marketing costs. We have internal development studios located in Australia, Canada, China,
Czech Republic, India, Hungary, Spain, the United Kingdom and the United States. As of March 31, 2018, we had a research and
development staff of 3,533 employees with the technical capabilities to develop software titles for all major consoles, handheld
hardware platforms and PCs in multiple languages and territories.
2
Agreements with third-party developers generally give us exclusive publishing and marketing rights and require us to make
development payments, pay royalties based on product sales and to satisfy other conditions. Development payments for software
titles are typically recoupable against royalties otherwise due to developers based on software sales. Our agreements with third-
party developers generally provide us with the right to monitor development efforts and to cease making development payments
if specified development milestones are not satisfied. We also regularly monitor the level of development payments in light of the
expected sales for the related titles.
We continue to engage in evolving business models such as online gaming, virtual currencies, add-on content, and microtransactions,
and we expect to continue to generate incremental revenue opportunities from these opportunities.
Rockstar Games. Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar
Games, our wholly-owned publisher of the Grand Theft Auto, Max Payne, Midnight Club, Red Dead Redemption, and other popular
franchises, to continue to be a leader in the action / adventure product category and to create groundbreaking entertainment by
leveraging our existing titles as well as by developing new brands. We believe that Rockstar has established a uniquely original,
popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and
critically acclaimed brand and has sold-in over 280 million units. The latest installment, Grand Theft Auto V, was released on
Sony's PS3 and Microsoft's Xbox 360 in September 2013, on Sony's PS4 and Microsoft's Xbox One in November 2014, and on
PC in April 2015. Grand Theft Auto V includes access to Grand Theft Auto Online, which initially launched in October 2013.
Rockstar Games is also well known for developing brands in other genres, including the LA Noire, Bully and Manhunt franchises.
Rockstar Games continues to expand on our established franchises by developing sequels, offering downloadable episodes, content
and virtual currency, and releasing titles for smartphones and tablets.
2K. Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of
genres including shooter, action, role-playing, strategy, sports and family/casual entertainment. We expect 2K to continue to
develop new, successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed,
multi-million unit selling BioShock, Mafia, Sid Meier's Civilization and XCOM series. 2K also publishes externally developed
franchises such as Borderlands and Evolve. 2K's realistic sports simulation titles include our flagship NBA 2K series, which
continues to be the top-ranked NBA basketball video game, and the WWE 2K professional wrestling series.
Private Division. On December 14, 2017, we announced the formation of Private Division, our new label that is dedicated to
bringing titles from top independent developers to market. Private Division will publish several upcoming titles based on new IP
from renowned industry creative talent, including the previously announced Ancestors: The Humankind Odyssey from Panache
Digital Games, a studio led by the creator of the Assassin's Creed franchise Patrice Désilets; an unannounced role-playing game
("RPG") currently code-named Project Wight from The Outsiders, a studio formed by ex-DICE developers David Goldfarb and
Ben Cousins; an unannounced RPG from Obsidian Entertainment led by Tim Cain and Leonard Boyarsky, co-creators of Fallout;
and an unannounced sci-fi first-person shooter from V1 Interactive, a studio founded by Halo co-creator Marcus Lehto. Additionally,
Private Division is the publisher of Kerbal Space Program, which we acquired in May 2017.
Social Point. Social Point develops and publishes popular free-to-play mobile games that deliver high quality, deeply-engaging
entertainment experiences, including its two most successful games, Dragon City and Monster Legends. In addition, Social Point
has a robust development pipeline with a number of exciting games planned for launch over the next two years.
We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing
products and establish an online gaming presence, especially in China and South Korea. 2K has secured a multi-year license from
the NBA to develop an online version of our NBA simulation game in China, Taiwan, South Korea and Southeast Asia. In October
2012, NBA 2K Online, our free-to-play NBA simulation game, which was co-developed by 2K and Tencent, launched commercially
on the Tencent Games portal in China.
In February, 2017, we expanded our relationship with the NBA through the creation of the NBA 2K League, a new, professional
competitive gaming league. Launched in May 2018, this groundbreaking competitive gaming league is jointly owned by Take-
Two and the NBA and consists of teams operated by actual NBA franchises. The NBA 2K League follows a professional sports
league format: competing head-to-head throughout a regular season, participating in a bracketed playoff system, and concluding
with a championship match-up.
Intellectual Property
Our business is highly dependent on the creation, acquisition, licensing and protection of intellectual property. The intellectual
property rights we have created or acquired for our internally-owned portfolio of brands include: BioShock, Bully, Carnival Games,
Dragon City, Evolve, Grand Theft Auto, Kerbal Space Program, L.A. Noire, Mafia, Manhunt, Max Payne, Midnight Club, Monster
Legends, Red Dead, Sid Meier's Civilization, Spec Ops and XCOM. We believe that content ownership facilitates our internal
product development efforts and maximizes profit potential. We attempt to protect our software and production techniques under
copyright, patent, trademark and trade secret laws as well as through contractual restrictions on disclosure, copying and distribution.
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We also enter into content license agreements, such as those with sports leagues, players associations, music labels and musicians.
These licenses are typically limited to use of the licensed rights in products for specific time periods. In addition, we license and
include console manufacturer technology in our products on a non-exclusive basis, which allows our games to be played on their
respective hardware systems.
Manufacturing
Sony and Microsoft either manufacture or control the selection of approved manufacturers of software products sold for use on
their respective hardware platforms. We place a purchase order for the manufacture of our products with Sony or Microsoft's
approved replicator and then send software code and a prototype of the product to the manufacturer, together with related artwork,
user instructions, warranty information, brochures and packaging designs for approval, defect testing and manufacture. Games
are generally shipped within two to three weeks of receipt of our purchase order and all materials.
Production of PC software is performed by third-party vendors in accordance with our specifications and includes DVD-ROM
pressing, assembly of components, printing of packaging and user manuals and shipping of finished goods. We send software
code and a prototype of a title, together with related artwork, user instructions, warranty information, brochures and packaging
designs to the manufacturers. Games are generally shipped within two weeks of receipt of our manufacturing order. Our software
titles typically carry a 90-day limited warranty.
Arrangements with Platform Manufacturers
We have entered into license agreements with Sony and Microsoft to develop and publish software in Asia, Australia, Europe and
North America. We are not required to obtain any licenses from hardware manufacturers to develop titles for the PC.
Sony. Effective March 23, 2017, we entered into a PlayStation Global Developer and Publisher Agreement with Sony Computer
Entertainment, Inc. and certain of its affiliates, pursuant to which Sony granted us the right and license to develop, publish, have
manufactured, market, advertise, distribute and sell PlayStation compatible products for all PlayStation systems, including the
PS4, PS3 and PSP. The agreement requires us to submit products to Sony for approval and for us to make royalty payments to
Sony based on the number of units manufactured or revenue from downloaded content. In addition, products for the PS4, PS3 and
PSP are required to be manufactured by Sony approved manufacturers.
The term of the agreement expires on March 31, 2019, with automatic one-year renewal terms thereafter. After the initial term,
Sony may terminate the agreement for any or no reason upon thirty days’ notice. The agreement may also be terminated by Sony
immediately in the event of a breach by us or our bankruptcy or insolvency. Upon expiration or termination of the agreement, we
have certain rights to sell off existing inventories.
Microsoft. Under the terms of the license agreements that we have entered into with Microsoft Corporation and its affiliates,
Microsoft granted us the right and license to develop, publish, have manufactured, market, advertise, distribute and sell Xbox
compatible products for the Xbox One and Xbox 360. The agreements require us to submit products to Microsoft for approval
and for us to make royalty payments to Microsoft based on the number of units manufactured or revenue from downloaded content.
In addition, products for the Xbox One and Xbox 360 are required to be manufactured by Microsoft approved manufacturers.
The term of the Xbox One license agreement expires on March 31, 2019 and the term of the Xbox 360 license agreement expires
on March 31, 2019, each agreement with automatic one-year renewal terms thereafter. The Xbox One and Xbox 360 license
agreements may be terminated by Microsoft immediately in the event of a breach by us, and the Xbox One licensee agreement
may also be terminated by Microsoft immediately in the event of our bankruptcy or insolvency. Upon expiration or termination
of the Xbox One and Xbox 360 license agreements, we have certain rights to sell off existing inventories.
Sales
We sell software titles both physically and digitally in the United States, EMEA, Canada, Latin America and Asia Pacific through
direct relationships with large retail customers and third-party distributors. Our top customers include, among others, GameStop
Corporation, Microsoft, Sony, Steam, and Wal-Mart. We have sales operations in Australia, Canada, France, Germany, Japan, the
Netherlands, New Zealand, Singapore, South Korea, Spain, Taiwan, the United Kingdom and the United States.
We are dependent on a limited number of customers that account for a significant portion of our sales. Sales to our five largest
customers during the fiscal year ended March 31, 2018 accounted for 70.7% of our net revenue, with Sony and Microsoft each
accounting for more than 10.0% of our net revenue during the fiscal year ended March 31, 2018.
We also distribute our titles, add-on content and microtransactions through direct digital download via the Internet to consoles
and PCs, including smartphones and tablets. We view digital distribution as an important growth opportunity for our industry and
Company; however, we expect that packaged goods and traditional retailers will continue to be a significant channel for the sale
of our products for the foreseeable future.
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Marketing
Our marketing and promotional efforts are intended to maximize consumer interest in our titles, promote brand name recognition
of our franchises, assist retailers and properly position, package and merchandise our titles. From time to time, we also receive
marketing support from hardware manufacturers in connection with their own promotional efforts.
We market titles by:
•
•
•
Implementing public relations campaigns, using print and online advertising, television, radio spots and outdoor
advertising. We believe that we label and market our products in accordance with the applicable principles and
guidelines of the Entertainment Software Rating Board, or the ESRB, an independent self-regulatory body that assigns
ratings and enforces advertising guidelines for the interactive software industry.
Satisfying certain shelf life and sales requirements under our agreements with hardware manufacturers in order to
qualify for Sony's Greatest Hits Programs and Microsoft's Platinum Hits Program. In connection with these programs,
we receive manufacturing discounts from Sony and Microsoft.
Stimulating continued sales by reducing the wholesale prices of our products to retailers at various times during the
life of a product. Price protection may occur at any time in a product's life cycle, but typically occurs three to nine
months after a product's initial launch. In certain international markets, we also provide volume rebates to stimulate
continued product sales. Price protection, sales returns and other allowances amounted to $59.7 million, $127.7
million and $64.5 million during the fiscal years ended March 31, 2018, 2017 and 2016, respectively.
• Employing various other marketing methods designed to promote consumer awareness, including social media, in-
store promotions and point-of-purchase displays, direct mail, co-operative advertising, attendance at trade shows as
well as product sampling through demonstration software distributed via the Internet or the digital online services.
As of March 31, 2018, we had a sales and marketing staff of 434 people.
Product Procurement
We procure products from suppliers principally using standard purchase orders based on our assessment of market demand. We
carry inventory quantities that we believe are necessary to provide rapid response to retailer orders. We utilize electronic data
interchange with many of our customers to enhance the efficiency of placing and shipping orders and receiving payments.
Competition
In our business, we compete with:
• Companies that range in size and cost structure from very small with limited resources to very large with greater
financial, marketing and technical personnel and other resources than ours, including Activision Blizzard, Inc.,
Electronic Arts Inc., and Ubisoft Entertainment S.A.
•
Sony and Microsoft for the sale of interactive entertainment software. Each of these competitors is a large developer
and marketer of software for their own platforms, and has the financial resources to withstand significant price
competition and to implement extensive advertising campaigns.
• Other software, hardware, entertainment and media for limited retail shelf space and promotional resources. The
competition is intense among an increasing number of newly introduced entertainment software titles and hardware
for adequate levels of shelf space and promotional support.
• Other forms of entertainment such as motion pictures, television and audio, social networking, online computer
programs, mobile games and other forms of entertainment, which may be less expensive or provide other advantages
to consumers.
Competition in the entertainment software industry is based on innovation, features, playability, and product quality; brand name
recognition; compatibility with popular 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 products to our titles and may result in loss of
shelf space or a reduction in sell-through of our titles at retail stores.
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Trends and Factors Affecting our Business
Product Release Schedule. Our financial results are affected by the timing of our product releases and the commercial success
of those titles. Our Grand Theft Auto products in particular have historically accounted for a substantial portion of our revenue.
Sales of our Grand Theft Auto products generated 39.7% of our net revenue for the fiscal year ended March 31, 2018. The timing
of our Grand Theft Auto releases may affect our financial performance on a quarterly and annual basis.
Economic Environment and Retailer Performance. We continue to monitor economic conditions that may unfavorably affect
our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and
foreign currency exchange rates. Our business is dependent upon a limited number of customers who account for a significant
portion of our revenue. Our five largest customers accounted for 70.7%, 65.5% and 58.9% of net revenue during the fiscal years
ended March 31, 2018, 2017 and 2016, respectively. As of March 31, 2018 and 2017, five customers comprised 65.4% and 69.9%
of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10%
of our gross accounts receivable balance) accounting for 53.2% and 57.6% of such balance at March 31, 2018 and 2017, respectively.
We had two customers who accounted for 37.7% and 15.5% of our gross accounts receivable as of March 31, 2018 and two
customers who accounted for 40.2% and 17.4% of our gross accounts receivable as of March 31, 2017. We did not have any
additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2018 and 2017. The economic environment
has affected our customers in the past, and may do so in the future. Bankruptcies or consolidations of our large retail customers
could seriously hurt our business, due to uncollectible accounts receivables and the concentration of purchasing power among the
remaining large retailers. Certain of our large customers sell used copies of our games, which may negatively affect our business
by reducing demand for new copies of our games. While the downloadable content that we now offer for certain of our titles may
serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.
Hardware Platforms. We derive most of our revenue from the sale of products made for video game consoles manufactured by
third-parties, such as Sony's PS4 and PS3, Microsoft's Xbox One and Xbox 360, and the Nintendo Switch, which comprised 81.6%
of our net revenue by product platform for the fiscal year ended March 31, 2018. The success of our business is dependent upon
the consumer acceptance of these platforms and the continued growth in the installed base of these platforms. When new hardware
platforms are introduced, demand for software based on older platforms typically declines, which may negatively affect our
business during the market transition to the new consoles. Accordingly, our strategy is to focus our development efforts on a select
number of the highest quality titles for these platforms, while also expanding our offerings for emerging platforms such as tablets,
smartphones and online games.
Online Content and Digital Distribution. The interactive entertainment software industry is delivering a growing amount of
content through digital online delivery methods. We provide a variety of online delivered products and offerings. Virtually all of
our titles that are available through retailers as packaged goods products are also available through direct digital download via the
Internet (from websites we own and others owned by third-parties). In addition, we aim to drive ongoing engagement and recurrent
consumer spending on our titles after their initial purchase by generating incremental revenues through downloadable offerings,
including virtual currency, add-on content, and microtransactions. We also publish an expanding variety of titles for tablets and
smartphones, which are delivered to consumers through digital download via the Internet. Note 17 to the Consolidated Financial
Statements, "Segment and Geographic Information," discloses that net revenue from digital online channels comprised 63.1% of
our net revenue by distribution channel for the fiscal year ended March 31, 2018. We expect online delivery of games and game
offerings to become an increasing part of our business over the long-term.
International Operations
International sales are a significant part of our business. For the fiscal years ended March 31, 2018, 2017 and 2016, 41.3%, 43.9%
and 47.4%, respectively, of our net revenue was earned outside the United States. We are continuing to execute on our growth
initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence,
especially in China and South Korea. We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and
duties, fluctuations in foreign currency exchange rates, shipping delays and international political, regulatory and economic
developments, all of which can have a significant effect on our operating results. See Notes 1 and 17 to the Consolidated Financial
Statements.
Segment and Geographic Information
See Note 17 to the Consolidated Financial Statements.
Employees
As of March 31, 2018, we had 4,492 full-time employees, of which 2,448 were employed outside of the United States. None of
our regular employees is subject to collective bargaining agreements. We consider our relations with employees to be satisfactory.
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Item 1A. Risk Factors
Our business is subject to many risks and uncertainties, which may affect our future financial performance. Because of the risks
and uncertainties described below, as well as other factors affecting our operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future performance and our business and financial performance
could be harmed and the market value of our securities could decline.
Risks relating to our business
We are dependent on the future success of our Grand Theft Auto products and we must continue to publish "hit" titles or
sequels to such "hit" titles in order to compete successfully in our industry.
Grand Theft Auto and certain of our other titles are "hit" products and have historically accounted for a substantial portion of our
revenue. Grand Theft Auto products contributed 39.7% of the Company's net revenue for the fiscal year ended March 31, 2018
and the five best-selling franchises (including Grand Theft Auto), which may change year over year, in the aggregate accounted
for 90.6% of the Company's net revenue for the fiscal year ended March 31, 2018. If we fail to continue to develop and sell new
commercially successful "hit" titles or sequels to such "hit" titles or experience any delays in product releases or disruptions
following the commercial release of our "hit" titles or their sequels, our revenue and profits may decrease substantially and we
may incur losses. In addition, competition in our industry is intense and a relatively small number of hit titles account for a large
portion of total revenue in our industry. Hit products offered by our competitors may take a larger share of consumer spending
than we anticipate, which could cause revenue generated from our products to fall below our expectations. If our competitors
develop more successful products or services at lower price points or based on payment models perceived as offering better value,
or if we do not continue to develop consistently high quality and well-received products and services, our revenue and profitability
may decline. In addition, both the online and mobile games marketplaces are characterized by frequent product introductions,
relatively low barriers to entry, and new and evolving business methods, technologies and platforms for development. Widespread
consumer adoption of these new platforms for games and other technological advances in online or mobile game offerings could
negatively affect our sales of console and traditional PC products before we have an opportunity to develop profitable businesses
in such markets.
We are subject to product development risks which could result in delays and additional costs, and we must adapt to changes
in software technologies.
We depend on our internal development studios and third-party software developers to develop new interactive entertainment
software within anticipated release schedules and cost projections. The development cycle for new titles generally ranges from
12 months for annual sports releases, to multiple years for certain of our top-selling titles. Therefore our development costs can
be substantial. If we or our third party developers experience unanticipated development delays, financial difficulties or additional
costs, we may not be able to release titles according to our schedule and at budgeted costs. There can be no assurance that our
products will be sufficiently successful so that we can recoup these costs or make a profit on these products.
Additionally, in order to stay competitive, our internal development studios must anticipate and adapt to rapid technological
changes affecting software development. Any inability to respond to technological advances and implement new technologies
could render our products obsolete or less marketable. Further, the failure to pursue the development of new technology, platforms,
or business models that obtain meaningful commercial success in a timely manner may negatively affect our business, resulting
in increased production costs and more strenuous competition.
The inability of our products to achieve significant market acceptance, delays in product releases or disruptions following the
commercial release of our products may have a material adverse effect on our business, financial condition and operating
results.
New products may not achieve significant market acceptance, generate sufficient sales or be introduced in a timely manner to
permit us to recover development, manufacturing and marketing costs associated with these products. The life cycle of a title
generally involves a relatively high level of sales during the first few months after introduction followed by a rapid decline in
sales. Because sales associated with an initial product launch generally constitute a high percentage of the total sales associated
with the life of a product, delays in product releases or disruptions following the commercial release of one or more new products
could have a material adverse effect on our business, financial condition and operating results and cause our operating results to
be materially different from our expectations.
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Our business is subject to our ability to develop commercially successful products for the current video game platforms.
We derive most of our revenue from the sale of products made for video game platforms manufactured by third parties, such as
Sony's PS4 and PS3, Microsoft's Xbox One and Xbox 360, and the Nintendo Switch, which comprised 81.6% of the Company's
net revenue by product platform for the fiscal year ended March 31, 2018. The success of our business is subject to the continued
popularity of these platforms and our ability to develop commercially successful products for these platforms.
We may experience declines or fluctuations in the recurring portion of our business.
Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized titles and associated
services, and ongoing mobile businesses. While we have been able to forecast the revenue from these areas of our business with
greater certainty than for new offerings, we cannot provide assurances that consumers will purchase these games and services on
a consistent basis. Furthermore, we may cease to offer games and services that we previously had deemed to be recurring in nature.
Consumer purchases of our games and services may decline or fluctuate as a result of a number of factors, including their level
of satisfaction with our games and services, our ability to improve and innovate our annualized titles, our ability to adapt our
games and services to new platforms, outages and disruptions of online services, the games and services offered by our competitors,
our marketing and advertising efforts or declines in consumer activity generally as a result of economic downturns, among others.
Any decline or fluctuation in the recurring portion of our business may have a negative impact on our financial and operating
results.
Connectivity issues could affect our ability to sell and provide online services for our products and could affect our profitability.
We rely upon third-party digital delivery platforms, such as Microsoft's Xbox Live, PlayStation Network, Steam and other third-
party service providers, to provide connectivity from the consumer to our digital products and our online services. Connectivity
issues could prevent customers from accessing this content and our ability to successfully market and sell our products could be
adversely affected. In addition, we could experience similar issues related to services we host on our internal servers. Such issues
also could affect our ability to provide online services and could have a material adverse effect on our business, financial condition
and operating results.
Our business could be adversely affected if our consumer data protection measures are not seen as adequate or there are
breaches of our security measures or unintended disclosures of our consumer data.
We are collecting and storing consumer information, including personal information. We take measures to protect our consumer
data from unauthorized access or disclosure. It is possible that our security controls over consumer data may not prevent the
improper access or disclosure of personally identifiable information. In addition, due to the high profile nature of our products,
we may draw a disproportionately higher amount of attention and attempts to breach our security controls than companies with
lower profile products. A security breach that leads to disclosure of consumer account information (including personally identifiable
information) could harm our reputation, compel us to comply with disparate breach notification laws in various jurisdictions and
otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. A resulting
perception that our products or services do not adequately protect the privacy of personal information could result in a loss of
current or potential consumers and business partners. In addition, if any of our business partners experience a security breach that
leads to disclosure of consumer account information, our reputation could be harmed, resulting in loss of revenue.
In addition, certain of our products are online enabled. The ability of our products to offer online functionality, and our ability to
offer content through a video game platform's digital distribution channel, is dependent upon the continued operation and security
of such platform's online network. These third party networks, as well as our own internal systems and websites, and the security
measures related thereto may be breached as a result of third-party action, including intentional misconduct by computer hackers,
employee error, malfeasance or otherwise, and result in someone obtaining unauthorized access to our customers' data or our data,
including our intellectual property and other confidential business information, or our information technology systems. Because
the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized
until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
If an actual or perceived breach of our security occurs, we may lose business, suffer irreparable damage to our reputation, and/or
incur significant costs and expenses relating to the investigation and possible litigation of claims relating to such event.
The laws and regulations concerning data privacy and certain other aspects of our business are continually evolving. Failure
to comply with these laws and regulations could harm our business.
We are subject to certain privacy and data protection laws, including those in the United States. Certain activities related to E.U.
customers are registered with our U.K. data controller. The U.S. Children's Online Privacy Protection Act also regulates the
collection, use, and disclosure of personal information from children under 13 years of age. Failure to comply with privacy laws,
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data protection laws, or age restrictions may increase our costs, subject us to expensive and distracting government investigations,
and result in substantial fines.
Privacy and data protection laws are rapidly changing and likely will continue to do so for the foreseeable future, which could
have an impact on our approach to operating and marketing our games. For example, the Court of Justice of the European Union's
decision to invalidate the E.U.-U.S. Safe Harbor regime that legitimized the transfer of certain personal data from the E.U. to the
U.S. was a material change to laws on data privacy applicable to our business. In addition, after four years of preparation and
debate, the E.U. Parliament approved the general Data Protection Regulation ("GDPR") on April 14, 2016. GDPR will become
effective on May 25, 2018, and will replace the existing Data Protection Directive 95/46/EC. The U.S. government, including the
Federal Trade Commission and the Department of Commerce, also continue to review the need for greater or different regulation
over the collection of personal information and information about consumer behavior on the Internet and on mobile devices.
Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices.
Player use of our games is subject to our privacy policy, end user license agreements, and terms of service. If we fail to comply
with our posted privacy policy, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection
laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could
result in fines or judgments against us, damage our reputation, affect our financial condition and harm our business. If regulators,
the media, or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if
unfounded, this could also result in fines or judgments against us, damage our reputation, negatively affect our financial condition,
and damage our business.
It is possible that a number of laws and regulations may be adopted or construed to apply to us in the United States and elsewhere
that could restrict the interactive entertainment industry, including player privacy, advertising, taxation, content suitability,
copyright, distribution and antitrust. Furthermore, the growth and development of electronic commerce and virtual goods may
prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting
business through digital sales. Any such changes would require us to devote legal and other resources to address such regulation.
For example, existing laws or new laws regarding the regulation of currency, banking institutions and unclaimed property may be
interpreted to cover virtual currency or virtual goods. If that were to occur we may be required to seek licenses, authorizations or
approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements
and we may be subject to additional regulation and oversight, all of which could significantly increase our operating costs. Changes
in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding these
activities may lessen the growth of the interactive entertainment industry and impair our business, financial condition, and operating
results.
Although we have structured and operate our skill tournaments with applicable laws in mind, including any applicable laws relating
to gambling, and believe that playing these games does not constitute gambling, our skill tournaments could in the future become
subject to gambling-related rules and regulations and expose us to civil and criminal penalties. We also sometimes offer consumers
of our online and casual games various types of contests and promotional opportunities. We are subject to laws in a number of
jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving and could be
interpreted in ways that could harm our business. Further, some of our online games and other services include random digital
item mechanics, which may become subject to regulations in various jurisdictions. If these were to occur, we might be required
to seek licenses, authorizations, or approvals from relevant regulators, the granting of which may be dependent on us meeting
certain capital and other requirements, and we may be subject to additional regulation and oversight, such as reporting to regulators,
all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws
and regulations in the United States, Europe, or elsewhere regarding these activities may lessen the growth of casual game services
and impair our business.
Security breaches involving the source code for our products or other sensitive and proprietary information could adversely
affect our business.
We securely store the source code for our interactive entertainment software products as it is created. A breach, whether physical,
electronic or otherwise, of the systems on which such source code and other sensitive data are stored could lead to damage or
piracy of our software. In addition, certain parties with whom we do business are given access to our sensitive and proprietary
information in order to provide services and support our team. These third parties may misappropriate our information and engage
in unauthorized use of it. If we are subject to data security breaches, we may have a loss in sales or increased costs arising from
the restoration or implementation of additional security measures which could materially and adversely affect our business, financial
condition and operating results. Any theft and/or unauthorized use or publication of our trade secrets and other confidential business
information as a result of such an event could adversely affect our competitive position, reputation, brand, and future sales of our
products. Our business could be subject to significant disruption, and we could suffer monetary and other losses and reputational
harm, in the event of such incidents and claims.
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We rely on complex information technology systems and networks to operate our business. Any significant system or network
disruption could have a negative impact on our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks, some of which
are within Take-Two and some of which are managed and/or hosted by third-party providers. All information technology systems
and networks are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to cyber-
attacks, malicious software, security breach, energy blackouts, natural disasters, terrorism, war and telecommunication failures.
We may also face sophisticated attacks, referred to as advanced persistent threats, which are cyber-attacks aimed at compromising
our intellectual property and other commercially-sensitive information, such as the source code and game assets for our software
or confidential customer or employee information, which remain undetected for prolonged periods of time. Information technology
system or network failure or security breach could negatively affect our business continuity, operations and financial results. These
risks extend to the networks and e-commerce sites of console platform providers and other partners who sell and host our content
online. We may incur additional costs to remedy the damages caused by these disruptions or security breaches.
Successful exploitation of our systems can have other negative effects upon the products, services and user experience we offer.
In particular, the virtual economies that we have established in many of our games are subject to abuse, exploitation and other
forms of fraudulent activity that can negatively affect our business. Virtual economies involve the use of virtual currency and/or
virtual assets that can be used or redeemed by a player within a particular game or service. The abuse or exploitation of our virtual
economies include the illegitimate generation and sale of virtual items in black markets. These kinds of activities and the steps
that we take to address these issues may result in a loss of anticipated revenue, interfere with players’ enjoyment of a balanced
game environment and cause reputational harm.
Our efforts to expand into new products and services may subject us to additional risks.
In recent years, we have invested in emerging opportunities in interactive entertainment played on mobile platforms, including
tablets and smartphones, and online platforms, including social networks. We have also grown our product offerings that are
available through digital download, including virtual currency, through our existing franchises such as Grant Theft Auto and NBA
2K as well as through product offerings by newly acquired Social Point and other mobile product offerings. We are actively
investing to capitalize on these trends in order to diversify our product mix, reduce our operating risks, and increase our revenue.
There are risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.
There is no assurance that we will be able to attract a sufficiently large number of customers or recover costs incurred for developing
and marketing any of these new products or services. For example, we may offer games that do not attract sufficient purchases of
virtual currency, which may cause our investments into this product space, such as through our acquisition of Social Point, to fail
to realize the expected benefits. External factors, such as competitive alternatives and shifting market preferences, may also have
an impact on the successful implementation of any new products or services. Failure to successfully manage these risks in the
development and implementation of new products or services could have a material adverse effect on our business, financial
condition and operating results.
We depend on our key management and product development personnel.
Our continued success will depend to a significant extent on our senior management team and our relationship with ZelnickMedia
Corporation ("ZelnickMedia"). Our Executive Chairman/Chief Executive Officer and President are partners of ZelnickMedia. We
are also highly dependent on the expertise, skills and knowledge of certain of our Rockstar employees and other key creative
personnel responsible for content creation and development of our Grand Theft Auto titles and titles based on other brands. We
may not be able to continue to retain these personnel at current compensation levels, or at all.
The loss of the services of our executive officers, ZelnickMedia, our key Rockstar employees or other key creative personnel
could significantly harm our business. In addition, if one or more key employees were to join a competitor or form a competing
company, we may lose additional personnel, experience material interruptions in product development, delays in bringing products
to market and difficulties in our relationships with licensors, suppliers and customers, which would significantly harm our business.
Failure to continue to attract and retain other qualified management and creative personnel could adversely affect our business
and prospects.
Declines in consumer spending and other adverse changes in the economy could have a material adverse effect on our business,
financial condition and operating results.
Most of our products involve discretionary spending on the part of consumers. We believe that consumer spending is influenced
by general economic conditions and the availability of discretionary income. This makes our products particularly sensitive to
general economic conditions and economic cycles as consumers are generally more willing to make discretionary purchases,
including purchases of products like ours, during periods in which favorable economic conditions prevail. Adverse economic
conditions such as a prolonged U.S. or international general economic downturn, including periods of increased inflation,
unemployment levels, tax rates, interest rates, energy prices or declining consumer confidence could also reduce consumer spending.
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Reduced consumer spending has and may in the future continue to result in reduced demand for our products and may also require
increased selling and promotional expenses, which has had and may continue to have an adverse effect on our business, financial
condition and operating results. In addition, during periods of relative economic weakness, our consolidated credit risk, reflecting
our counterparty dealings with distributors, customers, capital providers and others may increase, perhaps materially so.
Furthermore, uncertainty and adverse changes in the economy could also increase the risk of material losses on our investments,
increase costs associated with developing and publishing our products, increase the cost and availability of sources of financing,
and increase our exposure to material losses from bad debts, any of which could have a material adverse effect on our business,
financial condition and operating results. If economic conditions worsen, our business, financial condition and operating results
could be adversely affected.
Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition.
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (herein
referred to as the "Act”). The Act makes broad and complex changes to the U.S. tax code that could materially affect us. The Act
reduces the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018 and requires companies to pay a
one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act makes other changes
that may affect us, beginning April 1, 2018. These changes include but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT),
which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a
new provision that taxes global intangible low-taxed income (GILTI), (4) the repeal of the domestic production activity deduction,
and (5) other base broadening provisions.
We are currently evaluating the potential impact of the Act on our tax provision. It is possible that these changes could have an
adverse impact on our effective tax rate, tax payments, financial condition, or results of operations. The new tax law is complex
and additional interpretative guidance may be issued that could affect interpretations and assumptions we have made, as well as
actions we may take as a result of the Act. In addition, numerous countries are evaluating their existing tax laws due in part to
recommendations made by the Organization for Economic Co-operation and Development’s (“OECD’s”) Base Erosion and Profit
Shifting (“BEPS”) project. Although we cannot predict whether, or in what form, any legislation based on such proposals may be
adopted by the countries in which we do business, future tax reform based on such proposals may increase the amount of taxes
we pay and adversely affect our operating results and cash flows.
We are a multinational corporation with operations in the U.S. and various other jurisdictions around the world. Accordingly, we
are subject to tax in the U.S. and in various other jurisdictions. Significant judgment is required in determining our worldwide
provision for income taxes, and, in the ordinary course of business, there are many transactions and calculations where the ultimate
tax determination is uncertain. We are required to estimate future taxes. Although we currently believe our tax estimates are
reasonable, the estimation process is inherently uncertain, and such estimates are not binding on tax authorities. Further, our
effective tax rate could be adversely affected by a variety of factors, including changes in the business, including the mix of
earnings in countries with differing statutory tax rates, changes in tax elections, and changes in applicable tax laws. Additionally,
tax determinations are regularly subject to audit by tax authorities, and developments in those audits could adversely affect our
income tax provision. Should the ultimate tax liability exceed estimates, our income tax provision and net income or loss could
be materially affected.
Historically, we recorded a valuation allowance against most of our U.S. deferred tax assets. We expect to provide a valuation
allowance on future U.S. tax benefits until we can sustain a level of profitability or until other significant positive evidence arises
that suggests that these benefits are more likely than not to be realized.
We earn a significant amount of our operating income and continue to hold a significant portion of our cash outside the U.S. We
are reviewing whether the Act will affect our existing intention to reinvest indefinitely earnings of our foreign subsidiaries. The
Act imposes a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries and other significant
changes that affect how U.S. companies are taxed on foreign earnings. These changes may result in higher effective tax rates for
us.
We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property and goods
and services taxes, in both the U.S. and foreign jurisdictions. We are regularly under examination by tax authorities with respect
to these non-income taxes. There can be no assurance that the outcomes from these examinations, changes in our business or
changes in applicable tax law or interpretations will not have an adverse effect on our net income or loss and financial condition.
Unclaimed property audits by governmental authorities could adversely affect our operating results.
We are subject to unclaimed property (escheat) laws which require us to turn over to certain government authorities the property
of others held by us that has been unclaimed for a specified period of time. We are subject to audit by individual U.S. states with
regard to our escheatment practices. The legislation and regulations related to unclaimed property matters tend to be complex and
subject to varying interpretations by both government authorities and taxpayers. Although management believes that the positions
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we have taken are reasonable, various taxing authorities may challenge certain of the positions we have taken, which may also
potentially result in additional liabilities for unclaimed property and interest in excess of accrued liabilities. Our positions are
reviewed as events occur such as the availability of new information, the lapsing of applicable statutes of limitations, the
measurement of additional estimated liability based on current calculations or the rendering of relevant court decisions. An
unfavorable resolution of assessments by a governmental authority could have a material adverse effect on our financial condition,
results of operations and cash flows in future periods.
Our quarterly operating results are dependent on the release of "hit" titles and are highly seasonal which may cause our
quarterly operating results to fluctuate significantly.
We have experienced and may continue to experience wide fluctuations in quarterly operating results. The release of a "hit" title
typically leads to a high level of sales during the first few months after introduction followed by a rapid decline in sales. In addition,
the interactive entertainment industry is highly seasonal, with sales typically higher during the fourth calendar quarter, due primarily
to increased demand for games during the holiday season. Demand for and sales of titles in our NBA 2K series are also seasonal
in that they are typically released just prior to the start of the NBA season. If a key event or sports season to which our product
release schedule is tied were to be delayed or cancelled, our sales might also suffer disproportionately. Our failure or inability to
produce "hit" titles or introduce products on a timely basis to meet seasonal fluctuations in demand could adversely affect our
business, financial condition and operating results. The uncertainties associated with software development, manufacturing lead
times, production delays and the approval process for products by hardware manufacturers and other licensors make it difficult
to predict the quarter in which our products will ship and therefore may cause us to fail to meet financial expectations.
Price protection granted to our customers and returns of our published titles by our customers may adversely affect our operating
results.
We are exposed to the risk of price protection and product returns with respect to our customers. Our distribution arrangements
with customers generally do not give them the right to return titles to us or to cancel firm orders. However, we sometimes accept
product returns from our distribution customers for stock balancing and negotiate accommodations for customers, which include
credits and returns, when demand for specific products falls below expectations. We grant price protection and accept returns in
connection with our publishing arrangements and revenue is recognized after deducting estimated price protection and reserves
for returns. While we believe that we can reliably estimate future price protection and returns, if price protection and return rates
for our products exceed our reserves, our revenue could decline, which could have a material adverse effect on our business,
financial condition and operating results.
Increased sales of used video game products could lower our sales.
Certain of our larger customers sell used video games, which are generally priced lower than new video games. If our customers
increase their sales of used video games, it could negatively affect our sales of new video games and have an adverse influence
on our business, financial condition and operating results.
A limited number of customers account for a significant portion of our sales. The loss of a principal customer or other significant
business relationship could seriously hurt our business.
A substantial portion of our product sales are made to a limited number of customers. Sales to our five largest customers during
the fiscal year ended March 31, 2018 accounted for 70.7% of our net revenue, with Sony and Microsoft each accounting for more
than 10.0% of our net revenue during the fiscal year ended March 31, 2018. Our sales are made primarily pursuant to purchase
orders without long-term agreements or other commitments, and our customers may terminate their relationship with us at any
time. Certain of our customers may decline to carry products containing mature content. The loss of our relationships with principal
customers or a decline in sales to principal customers, including as a result of a product being rated "AO" (age 18 and over) could
materially adversely affect our business, financial condition and operating results. In addition, if our customers are subject to
pricing pressures due to deteriorating demand for our products, competitive pressure, or otherwise, such customers may pass those
pricing pressures through to us, which could materially adversely affect our business, financial condition and operating results.
Furthermore, our customers may also be placed into bankruptcy, become insolvent or be liquidated due to economic downturns,
global contractions of credit or for other factors. Bankruptcies or consolidations of certain large retail customers could seriously
hurt our business, including as a result of uncollectible accounts receivable from such customers and the concentration of purchasing
power among remaining large retailers. In addition, our results of operations may be adversely affected if certain of our customers
who purchase on credit terms are no longer eligible to purchase on such terms due to their financial distress, which may reduce
the quantity of products they demand from us.
If our marketing and advertising efforts fail to resonate with consumers, our business, financial condition and operating results
could be adversely affected.
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Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs such as television and
online advertising, social media advertising, print advertising, retail merchandising, website development and event sponsorship.
Our ability to sell our products and services is dependent in part on the success of these programs. If the marketing for our products
and services fails to resonate with consumers, particularly during the holiday season or other key selling periods, or if advertising
rates or other media placement costs increase, these factors could have a material adverse influence on our business, financial
condition and operating results.
The interactive entertainment software industry is highly competitive.
We compete for both licenses to properties and the sale of interactive entertainment software with Sony and Microsoft, each of
which is a large developer and marketer of software for its own platforms. We also compete with game publishers, such as Activision
Blizzard, Inc. and Electronic Arts Inc. and Ubisoft Entertainment S.A. As our business is dependent upon our ability to develop
hit titles, which require increasing budgets for development and marketing, the availability of significant financial resources has
become a major competitive factor in developing and marketing software games. Some of our competitors have greater financial,
technical, personnel and other resources than we do and are able to finance larger budgets for development and marketing and
make higher offers to licensors and developers for commercially desirable properties. Our titles also compete with other forms of
entertainment, such as social media and casual games, in addition to motion pictures, television and audio and video products
featuring similar themes, online computer programs and other entertainment, which may be less expensive or provide other
advantages to consumers.
A number of software publishers who compete with us have developed and commercialized or are currently developing online
games for use by consumers over the Internet. If technological advances significantly increase the availability of online games
and if consumer acceptance of online gaming grows substantially, it could result in a decline in our platform-based software sales
and negatively affect sales of such products.
Increased competition for limited shelf space and promotional support from retailers could affect the success of our business
and require us to incur greater expenses to market our titles.
While digital sales are increasingly important to our business, for physical sales, retailers have limited shelf space and promotional
resources and competition is intense among newly introduced interactive entertainment software titles for adequate levels of shelf
space and promotional support. Competition for retail shelf space is expected to continue to increase, which may require us to
increase our marketing expenditures to maintain desirable sales levels of our titles. Competitors with more extensive lines and
more popular titles may have greater bargaining power with retailers. Accordingly, we may not be able, or we may have to pay
more than our competitors, to achieve similar levels of promotional support and shelf space.
The increasing importance of digital sales to our business exposes us to the risks of that business model, including greater
competition.
The proportion of our revenues derived from digital content delivery, as compared to traditional retail sales, may continue to
increase. The increased importance of digital content delivery in our industry increases our potential competition, as the minimum
capital needed to produce and publish a digitally delivered game is significantly less than that needed to produce and publish one
that is purchased through retail distribution and is played on a game console. This will also require us to dedicate capital to
developing and implementing alternative marketing strategies, which we may not do successfully. If either occurs, we may be
unable to effectively market and distribute our products, which could materially adversely affect our business, financial condition
and operating results. In addition, a continuing shift to digital delivery could result in a deprioritization of our products by traditional
retailers. The increasing importance of digital sales to our business could also result in increasing issues with our digital distribution
process, including difficulties our distributors have with collecting from consumers and any associated rebates we would owe.
Our business is partly dependent on our ability to enter into successful software development arrangements with third-parties.
Our success depends on our ability to continually identify and develop new titles on a timely basis. We rely on third-party software
developers for the development of some of our titles. Quality third-party developers are continually in high demand. Software
developers who have developed titles for us in the past may not be available to develop software for us in the future. Due to the
limited number of third-party software developers and the limited control that we exercise over them, these developers may not
be able to complete titles for us on a timely basis or within acceptable quality standards, if at all. We have entered into agreements
with third-parties to acquire the rights to publish and distribute interactive entertainment software as well as to use licensed
intellectual properties in our titles. These agreements typically require us to make development payments, pay royalties and satisfy
other conditions. Our development payments may not be sufficient to permit developers to develop new software successfully,
which could result in material delays and significantly increase our costs to bring particular products to market. Software
development costs, promotion and marketing expenses and royalties payable to software developers and third-party licensors have
increased significantly in recent years and reduce potential profits derived from sales of our software. Future sales of our titles
may not be sufficient to recover development payments and advances to software developers and licensors, and we may not have
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adequate financial and other resources to satisfy our contractual commitments to such developers. If we fail to satisfy our obligations
under agreements with third-party developers and licensors, the agreements may be terminated or modified in ways that are
burdensome to us, and have a material adverse effect on our business, financial condition and operating results.
We cannot publish our titles without the approval of hardware licensors that are also our competitors.
We are required to obtain licenses from certain of our competitors, including Sony and Microsoft, to develop and publish titles
for their respective hardware platforms. Our existing platform 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 for these hardware platforms, may be
limited. If a licensor chooses not to renew or extend our license agreement at the end of its current term, or if a licensor were to
terminate our license for any reason or does not approve one or more of our titles, we may be unable to publish that title as well
as additional titles for that licensor's platform. Termination of any such agreements or disapproval of titles could seriously hurt
our business and prospects. We may be unable to continue to enter into license agreements for certain current generation platforms
on satisfactory terms or at all. Failure to enter into any such agreement could also seriously hurt our business.
We rely on a limited number of channel partners some of whom influence the fee structures for online distribution of our
games on their platforms.
We rely on a limited number of channel partners, some of whom have retained the right to change the fee structures for online
distribution of both paid content and free content (including patches and corrections) that we license to them for distribution on
their platforms. Such channel partners' ability to set or influence royalty rates may increase costs, which could negatively affect
our operating margins. We may be unable to distribute our content in a cost-effective or profitable manner through such distribution
channel, which could adversely affect our business, financial condition and operating results.
Outside of fee arrangements, our agreements with our channel partners sometimes give them significant control over other aspects
of the distribution of our products and services that we develop for their platform. If our channel partners establish terms that
restrict our offerings through their channels, or significantly affect the financial terms on which these products or services are
offered to our customers, we may be unable to distribute our product offerings through them or be forced to do so on a materially
worse financial or business terms.
We may not be able to adequately adjust our cost structure in a timely fashion in response to a sudden decrease in demand.
In the event of a significant decline in revenue, we may not be able to dispose of facilities, reduce personnel or make other changes
to our cost structure without disruption to our operations or without significant termination and exit costs. Management may not
be able to implement such actions in a timely manner, if at all, to offset an immediate shortfall in revenue and profit. Moreover,
reducing costs may impair our ability to produce and develop software titles at sufficient levels in the future.
We use open source software in connection with certain of our games and services, which may pose particular risks to our
proprietary software, products, and services in a manner that could have a negative impact on our business.
We use open source software in connection with certain of our games and the services we offer. Some open source software licenses
require users who distribute open source software as part of their software to publicly disclose all or part of the source code to
such software or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of
various open source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a
manner that imposes unanticipated conditions or restrictions on our use of the open source software. Were it determined that our
use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for
breach of contract, re-engineer our games, discontinue distribution in the event re-engineering cannot be accomplished on a timely
basis or take other remedial action that may divert resources away from our game development efforts, any of which could harm
our business.
We depend on servers and Internet bandwidth to operate our games and digital services with online features. If we were to lose
server capacity or lack sufficient Internet bandwidth for any reason, our business could suffer.
We rely on data servers, including those owned or controlled by third parties, to enable our customers to download our games and
other downloadable content, and to operate our online games and other products with online functionality. Events such as limited
hardware failure, any broad-based catastrophic server malfunction, a significant intrusion by hackers that circumvents security
measures, or a failure of disaster recovery services would likely interrupt the functionality of our games with online services and
could result in a loss of sales for games and related services. An extended interruption of service could materially adversely affect
our business, financial condition and operating results.
We expect a significant portion of our games to be on-line enabled in the future, and therefore we must project our future server
needs and make advance purchases of servers or server capacity to accommodate expected business demands. If we underestimate
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the amount of server capacity our business requires or if our business were to grow more quickly than expected, our consumers
may experience service problems, such as slow or interrupted gaming access. Insufficient server capacity may result in decreased
sales, a loss of our consumer base and adverse consequences to our reputation. Conversely, if we overestimate the amount of server
capacity required by our business, we may incur additional operating costs.
Because of the potential importance of our online business to our revenues and results of operations, our ability to access adequate
Internet bandwidth and online computational resources to support our business is critical. If the price of either such resource
increases, we may not be able to increase our prices or subscriber levels to compensate for such costs, which could materially
adversely affect our business, financial condition and operating results.
We submit our products for rating by the Entertainment Software Rating Board ("ESRB") in the United States and other
voluntary or government ratings organizations in foreign countries. Failure to obtain a target rating for certain of our products
could negatively affect our ability to distribute and sell those games, as could the re-rating of a game for any reason.
We voluntarily submit our game products to the ESRB, a U.S.-based non-profit and independent ratings organization. The ESRB
system provides consumers with information about game content using a rating symbol that generally suggests the appropriate
player age group and specific content descriptors, such as graphic violence, profanity or sexually explicit material. The ESRB
may impose significant penalties on game publishers for violations of its rules related to rating or marketing games, including
revocation of a rating or monetary fines. Other countries require voluntary or government backed ratings as prerequisites for
product sales. In some instances, we may have to modify our products in order to market them under the target rating, which could
delay or disrupt the release of our products. In addition, some of our titles may not be sold at all or without extensive edits in
certain countries, such as Germany.
In the United States, if the ESRB rates a game as "AO" (age 18 and older), platform licensors may not certify the game and retailers
may refuse to sell it. In addition, some consumers have reacted to re-ratings or controversial game content by refusing to purchase
such games, demanding refunds for games that they had already purchased, and refraining from buying other games published by
us. Many of our Rockstar titles and certain of our 2K titles have been rated "M" (age 17 and older) by the ESRB. If we are unable
to obtain "M" ratings and instead receive "AO" ratings on future versions of those or similar titles as a result of changes in the
ESRB's ratings standards or for other reasons, including the adoption of legislation in this area, our business and prospects could
be negatively affected. If any of our games are re-rated by the ESRB or other foreign based ratings organizations, we could be
exposed to litigation, administrative fines and penalties and other potential liabilities, and our operating results and financial
condition could be significantly affected.
We have implemented processes to comply with the requirements of the ESRB and other ratings organizations and properly display
the designated rating symbols and content descriptions. Nonetheless, these processes are subject to human error, circumvention,
overriding and reasonable resource constraints. If a video game we published were found to contain undisclosed pertinent content,
the ESRB could re-rate a game, retailers could refuse to sell it and demand that we accept the return of any unsold copies or returns
from customers, and consumers could refuse to buy it or demand that we refund their money. This could have a material negative
affect on our operating results and financial condition. In addition, we may be exposed to litigation, administrative fines and
penalties and our reputation could be harmed, which could affect sales of other video games we sell. If any of these consequences
were to occur, our business and financial performance could be significantly harmed.
Content policies adopted by retailers, consumer opposition and litigation could negatively affect sales of our products.
Retailers may decline to sell interactive entertainment software containing what they judge to be graphic violence or sexually
explicit material or other content that they deem inappropriate for their businesses. If retailers decline to sell our products based
upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material or other generally
objectionable content, or if any of our previously "M" rated series products are rated "AO," we might be required to significantly
change or discontinue particular titles or series, which in the case of our best-selling Grand Theft Auto titles could seriously affect
our business. Consumer advocacy groups have opposed sales of interactive entertainment software containing objectionable
themes, violence or sexual material or other objectionable content by pressing for legislation in these areas and by engaging in
public demonstrations and media campaigns. Additionally, although lawsuits seeking damages for injuries allegedly suffered by
third-parties as a result of video games have generally been unsuccessful in the courts, claims of this kind have been asserted
against us from time to time and may be asserted and be successful in the future. An increase in the number of lawsuits filed by
the families of victims of violence may trigger supplemental governmental scrutiny, damage our reputation, and negatively affect
the sale of our products.
Our results of operations or reputation may be harmed as a result of offensive consumer-created content.
We are subject to risks associated with the collaborative online features in our games which allow consumers to post narrative
comments, in real time, that are visible to other consumers. From time to time, objectionable and offensive consumer content may
be posted to a gaming or other site with online chat features or game forums which allow consumers to post comments. We may
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be subject to lawsuits, governmental regulation or restrictions, and consumer backlash (including decreased sales and harmed
reputation), as a result of consumers posting offensive content. We may also be subject to consumer backlash from comments
made in response to postings we make on social media sites such as Facebook, YouTube and Twitter.
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 a significant portion of our net revenue. For the fiscal year
ended March 31, 2018, 41.3% of our net revenue was earned outside the United States. We are continuing to execute on our growth
initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence,
especially in China and South Korea. We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and
duties, fluctuations in foreign currency exchange rates, shipping delays, and international political, regulatory and economic
developments, all of which can have a significant influence on our operating results. Many of our international sales are made in
local currencies, which could fluctuate against the dollar. While we may use forward exchange contracts to a limited extent to
seek to mitigate foreign currency risk, our operating results could be adversely affected by unfavorable foreign currency fluctuations.
We face risks from our international operations.
We are subject to certain risks because of our international operations, particularly as we continue to grow our business and presence
in Asia, Latin America and other parts of the world. Changes to and compliance with a variety of foreign laws and regulations
may increase our cost of doing business and our inability or failure to obtain required approvals could harm our international and
domestic sales. Trade legislation in either the United States or other countries, such as a change in the current tariff structures,
import/export compliance laws or other trade laws or policies, could adversely affect our ability to sell or to distribute in international
markets. We incur additional legal compliance costs associated with our international operations and could become subject to legal
penalties in foreign countries if we do not comply with local laws and regulations which may be substantially different from those
in the United States. In many foreign countries, particularly in those with developing economies, it may be common to engage in
business practices that are prohibited by United States laws and regulations, such as the Foreign Corrupt Practices Act, and by
local laws, such as laws prohibiting corrupt payments to government officials. Although we implement policies and procedures
designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, as
well as those companies to which we outsource certain of our business operations, including those based in or from countries
where practices which violate such laws may be customary, will not take actions in violation of our policies. Any such violation,
even if prohibited by our policies, could have a material adverse effect on our business.
On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit.”
On March 29, 2017, the U.K. notified the European Council, in accordance with Article 50 of the Treaty on European Union, of
the U.K.’s intention to withdraw from the European Union. As a result, the British government has begun negotiating the terms
of the U.K.’s future relationship with the E.U. The effects of Brexit will depend on any agreements the U.K. makes to retain access
to the E.U. markets either during a transitional period or more permanently. The measures could potentially disrupt the markets
we serve and may cause us to lose customers, distributors and employees. If the U.K. loses access to the single E.U. market and
the global trade deals negotiated by the E.U., it could have a detrimental impact on our U.K. growth. Such a decline could also
make our doing business in Europe more difficult, which could negatively affect sales to consumers of our products. Without
access to the single E.U. market, it may be more challenging and costly to distribute our products in Europe. In addition, Brexit
could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to
replace and replicate. If there are changes to U.K. immigration policy as a result of Brexit, this could affect our employees and
their ability to move freely between the E.U. member states for work related matters.
If we are unable to protect the intellectual property relating to our software, the commercial value of our products will be
adversely affected and our competitive position could be harmed.
We develop proprietary software and have obtained the rights to publish and distribute software developed by third-parties. We
attempt to protect our software and production techniques under patent, copyright, trademark and trade secret laws as well as
through contractual restrictions on disclosure, copying and distribution. Nonetheless, our software is susceptible to piracy and
unauthorized copying, and third-parties may potentially exploit or misappropriate our intellectual property and proprietary
information, causing significant reputational damage. Unauthorized third-parties, for example, may be able to copy or to reverse
engineer our software to obtain and use programming or production techniques that we regard as proprietary. Well organized piracy
operations have also proliferated in recent years, resulting in the ability to download pirated copies of our software over the Internet.
Although we attempt to incorporate protective measures into our software, piracy of our products could negatively affect our future
profitability. In addition, "cheating" programs or other unauthorized software tools and modifications that enable consumers to
cheat in games harm the experience of players who play fairly and could negatively impact the volume of microtransactions or
purchases of downloadable content. Also, vulnerabilities in the design of our applications and of the platforms upon which they
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run could be discovered after their release. This may lead to lost revenues from paying consumers or increased cost of developing
technological measures to respond to these, either of which could negatively affect our business.
If we infringe on or are alleged to infringe on the intellectual property rights of third-parties, our business could be adversely
affected.
As our industry grows, we may be subject to an increasing amount of litigation that is common in the software industry based on
allegations of infringement or other alleged violations of patent, copyright and/or trademarks. In addition, we believe that interactive
entertainment software will increasingly become the subject of claims that such software infringes on the intellectual property
rights of others with both the growth of online functionality and advances in technology, game content and software graphics as
games become more realistic. From time to time, we receive notices from third-parties or are named in lawsuits by third-parties
alleging infringement of their proprietary rights. Although we believe that our software and technologies and the software and
technologies of third-party developers and publishers with whom we have contractual relations do not and will not infringe or
violate proprietary rights of others, it is possible that infringement of proprietary rights of others may occur. Any claims of
infringement, with or without merit, could be time consuming, costly and difficult to defend. Moreover, intellectual property
litigation or claims could require us to discontinue the distribution of products, obtain a license or redesign our products, which
could result in additional substantial costs and material delays.
Our software is susceptible to errors, which can harm our financial results and reputation.
The technological advancements of new hardware platforms result in the development of more complex software products. As
software products become more complex, the risk of undetected errors in new products increases. We may need to produce and
distribute patches in order to repair such errors, which could be 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 may have to consider
suspending distribution of defective products or offering refunds, and we could experience a loss of or delay in timely market
acceptance, product returns, loss of revenue, increases in costs relating to the repair of such errors and damage to our reputation.
If we acquire or invest in other businesses, intellectual properties or other assets, we may be unable to integrate them with our
business, our financial performance may be impaired and/or we may not realize the anticipated financial and strategic goals
for such transactions.
If appropriate opportunities present themselves, we may acquire or make investments in businesses, intellectual properties and
other assets that we believe are strategic. We may not be able to identify, negotiate or finance any future acquisition or investment
successfully. Even if we do succeed in acquiring or investing in a business, intellectual property or other asset, such acquisitions
and investments involve a number of risks, including:
•
•
•
•
•
•
•
•
retaining key employees and maintaining the key business and customer relationships of the businesses we acquire;
cultural challenges associated with integrating employees from an acquired company or business into our
organization;
the possibility that the combined company would not achieve the expected benefits, including any anticipated
operating and product synergies, of the acquisition as quickly as anticipated or that the costs of, or operational
difficulties arising from, an acquisition would be greater than anticipated;
significant acquisition-related accounting adjustments, particularly relating to an acquired company's deferred
revenue, that may cause reported revenue and profits of the combined company to be lower than the sum of their
stand-alone revenue and profits;
significant accounting charges resulting from the completion and integration of a sizeable acquisition and increased
capital expenditures, including potential impairment charges incurred to write down the carrying amount of intangible
assets generated as a result of an acquisition;
the possibility that significant acquisitions, when not managed cautiously, may result in the over-extension of our
existing operating infrastructures, internal controls and information technology systems;
the possibility that we will not discover important facts during due diligence that could have a material adverse effect
on the value of the businesses we acquire, including the possibility that a change of control of a company we acquire
triggers a termination of contractual or intellectual property rights important to the operation of its business;
the need to integrate an acquired company's accounting, management information, human resource and other
administrative systems to permit effective management and timely reporting, and the need to implement or remediate
controls, procedures and policies appropriate for a public company in an acquired company that, prior to the
acquisition, lacked these controls, procedures and policies;
17
•
•
litigation or other claims in connection with, or inheritance of claims or litigation risks as a result of, an acquisition,
including claims from terminated employees, customers or other third-parties; and
to the extent that we engage in strategic transactions outside of the United States, we face additional risks, including
risks related to integration of operations across different cultures and languages, currency risks and the particular
economic, political and regulatory risks associated with specific countries.
Future acquisitions and investments could also involve the issuance of our equity and equity-linked securities (potentially diluting
our existing stockholders), the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles,
or acquired in-process technology, or other increased cash and non-cash expenses such as stock-based compensation. Any of the
foregoing factors could harm our financial condition or prevent us from achieving improvements in our financial condition and
operating performance that could have otherwise been achieved by us on a stand-alone basis. Our stockholders may not have the
opportunity to review, vote on or evaluate future acquisitions or investments.
Our ability to acquire and maintain licenses to intellectual property, especially for sports titles, affects our revenue and
profitability. Competition for these licenses may make them more expensive and increase our costs.
Certain of our products are based on or incorporate intellectual property owned by others. For example, certain of our 2K 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 we are unable to maintain and renew these licenses
or obtain additional licenses on reasonable economic terms or with significant commercial value, our revenue and profitability
could decline significantly. Competition for these licenses may also increase the advances, guarantees and royalties that we must
pay to the licensor, which could significantly increase our costs and adversely affect our profitability. In addition, on certain
intellectual property licenses, we are subject to guaranteed minimum payments, royalties or standards of performance and may
not be able to terminate these agreements prior to their stated expiration. If such licensed products do not generate revenues in
excess of such minimum guarantees, our profitability will be adversely affected.
We are subject to contractual covenants which place certain limitations on how we manage our business.
Our Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and the indentures governing our
1.00% Convertible Notes due 2018 issued in June 2013 (the "1.00% Convertible Notes") may limit our ability to take various
actions, including incurring additional debt, paying dividends, repurchasing shares and acquiring or disposing of assets or
businesses. In addition, we have granted a security interest in connection with certain compensatory arrangements which limits
our ability to incur senior debt in excess of certain amounts. Accordingly, we may be restricted from taking actions that management
believes would be desirable and in the best interests of us and our stockholders. Our Credit Agreement and the indentures also
require us to satisfy specified financial and non-financial covenants. A breach of any of the covenants contained in our Credit
Agreement could result in an event of default under the agreement and under the indentures governing our 1.00% Convertible
Notes and would allow our lenders and noteholders to pursue various remedies, including accelerating the repayment of any
outstanding indebtedness.
Our business and products are subject to potential legislation. The adoption of such proposed legislation could limit the retail
market for our products.
Several proposals have been made for federal legislation to regulate our industry. Such proposals seek to prohibit the sale of
products containing certain content included in some of our games. If any such proposals are enacted into law, it may limit the
potential market for some of our games in the United States, and adversely affect our business, financial condition and operating
results. Other countries, such as Germany, have adopted laws regulating content both in packaged games and those transmitted
over the Internet that are stricter than current United States laws. In the United States, proposals have also been made by numerous
state legislators to regulate and prohibit the sale of interactive entertainment software products containing certain types of violent
or sexual content to under 17 or 18 audiences, such as the State of California's "ultraviolent video games law" that sought to ban
the sale or rental of violent video games to minors. While such legislation to date has been enjoined by industry and retail groups
or been found unconstitutional, the adoption into law of such legislation in federal and/or in state jurisdictions in which we do
significant business could severely limit the retail market for some of our games.
Change in government regulations relating to the Internet could have a negative impact on our business.
We rely on our consumers' access to significant levels of Internet bandwidth for the sale and digital delivery of our content and
the functionality of our games with online features. Changes in laws or regulations that adversely affect the growth, popularity or
use of the Internet, including laws affecting "net neutrality," could decrease the demand for our products and services or increase
our cost of doing business. Although certain jurisdictions have implemented laws and regulations intended to prevent Internet
service providers from discriminating against particular types of legal traffic on their networks, other jurisdictions may lack such
laws and regulations or repeal existing laws or regulations. For example, on December 14, 2017, the Federal Communications
18
Commission voted to repeal net neutrality regulations in the U.S. Given uncertainty around these rules, including changing
interpretations, amendments, or repeal, coupled with the potentially significant political and economic power of local Internet
service providers and the relatively significant level of Internet bandwidth access our products and services require, we could
experience discriminatory or anti-competitive practices that could impede our growth, cause us to incur additional expenses, or
otherwise negatively affect our business.
We may be required to record a significant charge to earnings if our goodwill becomes impaired.
We are required under U.S. generally accepted accounting principles to review our goodwill for impairment at least annually or
more frequently when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may
be considered a change in circumstances, indicating a requirement to reevaluate whether our goodwill continues to be recoverable,
include a significant decline in stock price and market capitalization, slower growth rates in our industry or other materially adverse
events. We may be required to record a significant charge to earnings in our financial statements during the period in which any
impairment of our goodwill is determined. This may adversely affect our operating results.
Our reported financial results could be adversely affected by the application of existing or future accounting standards to our
business as it evolves.
Our reported financial results are affected by the accounting policies promulgated by the SEC and national accounting standards
bodies and the methods, estimates, and judgments that we use in applying our accounting policies. For example, standards regarding
revenue recognition have and could further significantly affect the way we account for revenue related to our products and services.
We expect that an increasing number of our games will be supported with material post-release activities, such as content updates
and online-enabled features, and we could therefore be required to recognize more of the related revenues for those games over
a period of time rather than at the time of sale. Further, as we increase our downloadable content and add new features to our
online services, user playing patterns can affect our estimate of the service period may change and we could be required to recognize
revenues, and defer related costs, over a shorter or longer period of time than we initially allocated. As we enhance, expand and
diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those
relating to the way we account for revenue, could have a significant adverse effect on our reported results although not necessarily
on our cash flows.
Risks relating to our common stock
For purposes of this section "Risks relating to our common stock," references to "the Company," "we," "our," and "us" refer only
to Take-Two Interactive Software, Inc. and not to its subsidiaries.
Additional issuances or sales of equity securities by us would dilute the ownership of our existing stockholders and could
adversely affect the market price of our common stock.
We may issue equity or equity-based securities (such as our 1.00% Convertible Notes) in the future in connection with acquisitions
or strategic transactions, to adjust our ratio of debt to equity, including through repayment of outstanding debt, to fund expansion
of our operations or for other purposes. To the extent we issue additional equity securities, including upon conversion of our
outstanding 1.00% Convertible Notes, the percentage ownership of our existing stockholders would be reduced. The sale of
substantial amounts of our common stock could adversely affect its price. The sale or the availability for sale of a large number
of shares of our common stock in the public market could cause the price of our common stock to decline. The issuance of shares
of our common stock upon conversion of our 1.00% Convertible Notes could also adversely affect the price of our common stock.
There is no guarantee that we will do additional share repurchases in the future.
The share repurchase program authorized by the Board of Directors, which authorized the repurchase of up to 14.2 million shares
of our common stock and had 5.9 million shares available for repurchase as of the date of this filing, does not obligate the Company
to make any purchases at any specific time or situation. Discontinuing repurchases could adversely affect the price of the Company's
common stock. The program may be suspended or discontinued at any time for any reason.
Our stock price has been volatile and may continue to fluctuate significantly.
The market price of our common stock historically has been, and we expect will continue to be, subject to significant fluctuations.
These fluctuations may be due to factors specific to us including those discussed in the risk factors in this section as well as others
not currently known to us or that we currently do not believe are material, to changes in securities analysts' earnings estimates or
ratings, to our results or future financial guidance falling below our expectations and analysts' and investors' expectations, to
factors affecting the computer, software, entertainment, media or electronics industries, or to national or international economic
conditions.
19
Stock markets, in general, have experienced over the years, and continue to experience significant price and volume fluctuations
that have affected market prices for companies such as ours and that may be unrelated or disproportionate to the operating
performance of the affected companies. These broad market and industry fluctuations may adversely affect the price of our stock,
regardless of our operating performance.
Delaware law, our charter documents and provisions of our debt agreements may impede or discourage a takeover, which
could cause the market price of our shares to decline.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a
third-party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our Board of
Directors has the power, without stockholder approval, to adopt a stockholder rights plan and/or to designate the terms of one or
more series of preferred stock and issue shares of preferred stock. The ability of our Board of Directors to create and issue a new
series of preferred stock and certain provisions of Delaware law, our certificate of incorporation and bylaws could impede a merger,
takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common
stock, which, under certain circumstances, could reduce the market price of our common stock and the value of any outstanding
notes.
Our ability to use net operating loss and tax credit carryforwards to reduce future years' taxes could be substantially limited
under Internal Revenue Code Sections 382 and 383 if we experience an ownership change as defined in the Internal Revenue
Code Section 382.
Section 382 of the Internal Revenue Code contains rules that limit the ability of a company to use its net operating loss and tax
credit carryforwards in years after an ownership change, which is generally defined as any change in ownership of more than 50%
of its stock over a three-year testing period. These rules generally operate by focusing on ownership changes among stockholders
owning directly or indirectly 5% or more of the stock of a company and/or any change in ownership arising from a new issuance
of stock by the company. If, as a result of future transactions involving our common stock, including purchases or sales of stock
by 5% stockholders, we undergo cumulative ownership changes which exceed 50% over the testing period, our ability to use our
net operating loss and tax credit carryforwards would be subject to additional limitations under Sections 382 and 383.
Generally, if an ownership change occurs, the annual taxable income limitation on the use of net operating loss and tax credit
carryforwards is equal to the product of the applicable long-term tax exempt rate and the value of the company's stock immediately
before the ownership change. Depending on the resulting limitation, a portion of our net operating loss and tax credit carryforwards
could expire before we would be able to use them.
Our inability to fully utilize any net operating losses or tax credit carryforwards to reduce tax liability in the future could have a
material and negative affect on our future financial position and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are located at 110 West 44th Street (also known as 1133 Avenue of the Americas), New York, New
York, in approximately 61,000 square feet of space under a lease expiring in December 2032.
We also lease approximately 64,000 square feet of space under a lease expiring in March 2023 at 622 Broadway, New York, New
York.
Take-Two Interactive Software Europe Ltd, our wholly-owned subsidiary, leases 12,500 square feet of office space in Windsor,
United Kingdom, which expires in January 2022. Rockstar North, our wholly-owned subsidiary, leases 72,000 square feet of office
space in Edinburgh, Scotland, which expires in June 2024.
2K corporate offices and two development studios occupy approximately 123,000 square feet of leased office space in Novato,
California. The lease expires in June 2023 with respect to approximately 59,000 square feet and July 2025 with respect to
approximately 64,000 square feet.
In addition, our other subsidiaries lease office space in Sydney, Australia; Oakville, Canada; Chengdu and Shanghai, China; Brno,
Czech Republic; Paris, France; Munich, Germany; Budapest, Hungary; Bangalore, India; Tokyo, Japan; Breda, Netherlands;
Auckland, New Zealand; Singapore; Seoul, South Korea; Madrid and Barcelona, Spain; Lucerne, Switzerland; Taipei, Taiwan;
Brighton, London, Lincoln, Leeds, and Oxford, United Kingdom; and, in the United States, Petaluma and Carlsbad, California;
20
Sparks, Maryland; Andover and Westwood, Massachusetts; Las Vegas, Nevada; Bethpage and New York, New York; and Kirkland,
Washington.
For information regarding our lease commitments, see Note 13 to the Consolidated Financial Statements.
Item 3. Legal Proceedings
We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation
in the ordinary course of business which we do not believe to be material to our business or financial statements. We have
appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible
that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless
otherwise disclosed, would not be material.
On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New
York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with
whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or
financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there
can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New
York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States
District Court for the Southern District of New York, but the case was subsequently remanded to state court. The complaint claims
damages of at least $150 million and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent
concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and
fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights;
constructive discharge; defamation and fraud. We have asserted counterclaims for breach of contract, theft of trade secrets, and
misappropriation.
As a result of amended pleadings, motion practice and appeals to date, twelve of Mr. Benzies’ claims have been dismissed, leaving
only six remaining claims: breach of various contracts, constructive discharge, breach of implied duty of good faith and fair dealing,
and tortious interference with contract. Our federal court action has been stayed pending the conclusion of the state court action.
We believe that we have meritorious defenses to the remaining claims, and we intend to vigorously defend against them and to
pursue our counterclaims.
Item 4. Mine Safety Disclosures
Not applicable.
21
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Our common stock trades on the NASDAQ Global Select Market under the symbol "TTWO." The following table sets forth, for
the periods indicated, the range of the high and low sale prices for our common stock as reported by NASDAQ.
Fiscal Year Ended March 31, 2018
First Quarter ended June 30, 2017
Second Quarter ended September 30, 2017
Third Quarter ended December 31, 2017
Fourth Quarter ended March 31, 2018
Fiscal Year Ended March 31, 2017
First Quarter ended June 30, 2016
Second Quarter ended September 30, 2016
Third Quarter ended December 31, 2016
Fourth Quarter ended March 31, 2017
High
Low
$ 79.77
$ 57.53
102.96
119.02
126.67
72.07
100.43
97.46
$ 40.17
$ 33.06
46.78
51.34
60.20
37.64
41.70
48.58
The number of record holders of our common stock was 58 as of May 8, 2018.
Dividend Policy
We have never declared or paid cash dividends. We currently anticipate that all future earnings will be retained to finance the
growth of our business and we do not 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 Credit Agreement restricts the payment of dividends on our stock. See "Liquidity and Capital
Resources" under Item 7 for additional information on our Credit Agreement.
Securities Authorized for Issuance under Equity Compensation Plans
The table setting forth this information is included in Part III—Item 12, Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Stock Performance Graph
The following line graph compares, from March 31, 2013 through March 31, 2018, the cumulative total stockholder return on our
common stock with the cumulative total return on the stocks comprising the NASDAQ Composite Index and the stocks comprising
a peer group index consisting of Activision Blizzard, Inc. and Electronic Arts Inc. The comparison assumes $100 was invested on
March 31, 2013 in our common stock and in each of the following indices and assumes reinvestment of all cash dividends, if any,
paid on such securities. We have not paid any cash dividends and, therefore, our cumulative total return calculation is based solely
upon stock price appreciation and not upon reinvestment of cash dividends. Historical stock price is not necessarily indicative of
future stock price performance.
22
Among Take-Two Interactive Software, Inc., the NASDAQ Composite Index and a Peer Group
Comparison of 5 Year Cumulative Total Return*
March 2018
Take-Two Interactive Software, Inc.
NASDAQ Composite Index
Peer Group
* $100 invested on March 31, 2013 in stock or index - including reinvestment of dividends.
Take-Two Interactive Software, Inc.
$ 100.00
$ 135.79
$ 157.65
$ 233.25
$ 367.00
$ 605.45
NASDAQ Composite Index
Peer Group
100.00
100.00
130.18
147.14
153.76
216.02
154.62
281.44
189.99
400.93
229.43
544.26
2013
2014
2015
2016
2017
2018
March 31,
Issuer Purchases of Equity Securities
Share Repurchase Program—Our Board of Directors has authorized the repurchase of up to 14,217,683 shares of our common
stock. Under this program we may purchase shares from time to time through a variety of methods, including in the open market
or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the
availability of stock, prevailing market conditions, the trading price of the stock, the Company's financial performance and other
conditions. The program does not require us to repurchase shares and may be suspended or discontinued at any time for any reason.
During the fiscal years ended March 31, 2018, 2017, and 2016 we repurchased 1,512,557, 0, and 953,647 shares of our common
stock in the open market, respectively, for $154.8 million, $0.0 million, and $26.6 million, respectively, including commissions
as part of the program. As of March 31, 2018, we had repurchased a total of 6,683,887 shares of our common stock under the
program, and 7,533,796 shares of our common stock remained available for repurchase under the share repurchase program.
Subsequent to March 31, 2018 and through the date of this filing, we repurchased an additional 1,597,216 shares of our common
stock in the open market for $153.5 million, including commissions. After these additional purchases, 5,936,580 shares of our
common stock remain available for repurchase under the share repurchase program.
During the fiscal year ended March 31, 2018, we also repurchased 151,108 shares of our common stock for $13.5 million, in
connection with our obligation to holders of restricted stock awards to withhold the number of shares required to satisfy the holders'
tax liabilities in connection with the vesting of such shares. These 151,108 shares were not part of the publicly announced share
repurchase program.
All of the repurchased shares are classified as Treasury stock in our Consolidated Balance Sheets.
23
Summary Table—The table below details the share repurchases that were made by us during the three months ended March 31,
2018:
Period
January 1 - 31, 2018
February 1 - 28, 2018
March 1 - 31, 2018
Shares
purchased*
—
63,195
498,942
Average price
per share
—
104.01
98.91
$
$
Total number of shares
purchased as part of publicly
announced plans or programs
—
63,195
385,612
Maximum number of shares that
may yet be purchased under the
repurchase program
7,982,603
7,919,408
7,533,796
*
113,330 of the shares repurchased during March 2018 were repurchased in connection with our obligation to holders of
restricted stock units to withhold the number of shares required to satisfy the holders' tax liabilities in connection with
the vesting of such shares and were not part of the publicly announced share repurchase program.
Item 6. Selected Financial Data
The following Selected Financial Data should be read in conjunction with our Consolidated Financial Statements and related
Notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this
Annual Report on Form 10-K. (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net revenue
Gross profit
Net income (loss)
Earnings (loss) per share:
Basic:
Earnings (loss) per share:
Diluted:
Earnings (loss) per share:
Fiscal Year Ended March 31,
2018
$ 1,792,892
2017
2016
2015
2014
$ 1,779,748
$ 1,413,698
$ 1,082,938
$ 2,350,568
894,581
756,789
599,825
$173,533
$
67,303
$
(8,302) $
288,071
(279,470) $
936,241
361,605
$
$
1.57
1.54
$
$
0.73
0.72
$
$
(0.10) $
(3.48) $
3.79
(0.10) $
(3.48) $
3.20
BALANCE SHEET DATA:
Total assets
Long-term debt
2018
$ 3,737,841
8,068
2017
$ 3,149,154
251,929
As of March 31,
2016
$ 2,590,277
497,935
2015(1)
$ 2,228,073
473,030
2014(1)
$ 1,795,083
449,484
(1) During fiscal 2016, we retrospectively adopted Accounting Standards Update 2015-03, "Simplifying the Presentation of Debt Issuance Costs," and as a result
previously reported Total assets and Long-term debt have both decreased from previously reported amounts by $3,027 and $4,547 as of March 31, 2015 and 2014,
respectively, to reflect the deduction of debt issuance costs from the carrying amount of the related debt liability.
24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Our Business
We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. Our products
are currently designed for console gaming systems such as Sony's PS4 and PS3, Microsoft's Xbox One and Xbox 360, the Nintendo
Switch, and PC, including smartphones and tablets. We deliver our products through physical retail, digital download, online
platforms and cloud streaming services.
We endeavor to be the most creative, innovative and efficient company in our industry. Our core strategy is to capitalize on the
popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of
genres. We focus on building compelling entertainment franchises by publishing a select number of titles for which we can create
sequels and incremental revenue opportunities through add-on content, microtransactions and online play. Most of our intellectual
property is internally owned and developed, which we believe best positions us financially and competitively. We have established
a portfolio of proprietary software content for the major hardware platforms in a wide range of genres, including action, adventure,
family/casual, racing, role-playing, shooter, sports and strategy, which we distribute worldwide. We believe that our commitment
to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace by combining
advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers. We
have created, acquired or licensed a group of highly recognizable brands to match the broad consumer demographics we serve,
ranging from adults to children and game enthusiasts to casual gamers. Another cornerstone of our strategy is to support the success
of our products in the marketplace through innovative marketing programs and global distribution on platforms and through
channels that are relevant to our target audience.
Our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties.
Operating margins are dependent in part upon our ability to release new, commercially successful software products and to manage
effectively their development costs. We have internal development studios located in Australia, Canada, China, Czech Republic,
Hungary, India, Spain, South Korea, the United Kingdom, and the United States.
Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar Games, our wholly-
owned publisher of the Grand Theft Auto, Max Payne, Midnight Club, Red Dead and other popular franchises, to continue to be
a leader in the action / adventure product category and to create groundbreaking entertainment by leveraging our existing titles as
well as by developing new brands. We believe that Rockstar has established a uniquely original, popular cultural phenomenon
with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and
has sold-in over 280 million units. The latest installment, Grand Theft Auto V, was released on Sony's PS3 and Microsoft's Xbox 360
in September 2013, on Sony's PS4 and Microsoft's Xbox One in November 2014, and on PC in April 2015. Grand Theft Auto V
includes access to Grand Theft Auto Online, which initially launched in October 2013. Rockstar Games is also well known for
developing brands in other genres, including the L.A. Noire, Bully and Manhunt franchises. Rockstar Games continues to expand
on our established franchises by developing sequels, offering downloadable episodes, content and virtual currency, and releasing
titles for smartphones and tablets.
Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres
including shooter, action, role-playing, strategy, sports and family/casual entertainment. We expect 2K to continue to develop new,
successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed, multi-million
unit selling BioShock, Mafia, Sid Meier's Civilization and XCOM series. 2K also publishes successful externally developed
franchises, such as Borderlands and Evolve. 2K's realistic sports simulation titles include our flagship NBA 2K series, which
continues to be the top-ranked NBA basketball video game, and the WWE 2K professional wrestling series.
We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing
products and expand our online gaming presence, especially in China and South Korea. 2K has a multi-year license from the NBA
to develop an online version of the NBA simulation game in China, Taiwan, South Korea and Southeast Asia. In October 2012,
NBA 2K Online, our free-to-play NBA simulation game, which was co-developed by 2K and Tencent, launched commercially on
the Tencent Games portal in China.
On December 14, 2017, we announced the formation of Private Division, our new label that is dedicated to bringing titles from
top independent developers to market. Private Division will publish several upcoming titles based on new IP from renowned
industry creative talent, including the previously announced Ancestors: The Humankind Odyssey from Panache Digital Game, a
studio led by the creator of the Assassin's Creed franchise Patrice Désilets; an unannounced role-playing game ("RPG") currently
code-named Project Wight from The Outsiders, a studio formed by ex-DICE developers David Goldfarb and Ben Cousins; an
unannounced RPG from Obsidian Entertainment led by Tim Cain and Leonard Boyarsky, co-creators of Fallout; and an
25
unannounced sci-fi first-person shooter from V1 Interactive, a studio founded by Halo co-creator Marcus Lehto. Additionally,
Private Division is the publisher of Kerbal Space Program, which we acquired in May 2017.
Social Point develops and publishes popular free-to-play mobile games that deliver high quality, deeply-engaging entertainment
experiences, including its two most successful games, Dragon City and Monster Legends. In addition, Social Point has a robust
development pipeline with a number of exciting games planned for launch over the next two years.
Trends and Factors Affecting our Business
Product Release Schedule. Our financial results are affected by the timing of our product releases and the commercial success
of those titles. Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue.
Sales of Grand Theft Auto products generated 39.7% of our net revenue for the fiscal year ended March 31, 2018. The timing of
our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.
Economic Environment and Retailer Performance. We continue to monitor economic conditions that may unfavorably affect
our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and
foreign currency exchange rates. Our business is dependent upon a limited number of customers that account for a significant
portion of our revenue. Our five largest customers accounted for 70.7%, 65.5% and 58.9% of net revenue during the fiscal years
ended March 31, 2018, 2017 and 2016, respectively. As of March 31, 2018 and 2017, five customers comprised 65.4% and 69.9%
of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10%
of our gross accounts receivable balance) accounting for 53.2% and 57.6% of such balance at March 31, 2018 and 2017, respectively.
We had two customers who accounted for 37.7% and 15.5% of our gross accounts receivable as of March 31, 2018 and two
customers who accounted for 40.2% and 17.4% of our gross accounts receivable as of March 31, 2017. We did not have any
additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2018 and 2017. The economic environment
has affected our customers in the past, and may do so in the future. Bankruptcies or consolidations of our large retail customers
could seriously hurt our business, due to uncollectible accounts receivables and the concentration of purchasing power among the
remaining large retailers. Certain of our large customers sell used copies of our games, which may negatively affect our business
by reducing demand for new copies of our games. While the downloadable content that we now offer for certain of our titles may
serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.
Hardware Platforms. We derive most of our revenue from the sale of products made for video game consoles manufactured by
third-parties, such as Sony's PS4 and PS3, Microsoft's Xbox One and Xbox 360, and the Nintendo Switch, which comprised 81.6%
of our net revenue by product platform for the fiscal year ended March 31, 2018. The success of our business is dependent upon
the consumer acceptance of these consoles and continued growth in their installed base. When new hardware platforms are
introduced, demand for software used on older platforms typically declines, which may negatively affect our business during the
market transition to the new consoles. We continually monitor console hardware sales. We manage our product delivery on each
current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the
desired return on our investments in product development. Accordingly, our strategy is to focus our development efforts on a select
number of the highest quality titles for these platforms, while also expanding our offerings for emerging platforms such as tablets,
smartphones and online games.
Online Content and Digital Distribution. The interactive entertainment software industry is delivering a growing amount of
content through digital online delivery methods. We provide a variety of online delivered products and offerings. Most of our titles
that are available through retailers as packaged goods products are also available through direct digital download (from websites
we own and others owned by third-parties). In addition, we aim to drive ongoing engagement and incremental revenue from
recurrent consumer spending on our titles after their initial purchase through downloadable offerings, including add-on content,
microtransactions and online play. We also publish an expanding variety of titles for tablets and smartphones, which are delivered
to consumers through digital download via the Internet. Our "Results of Operations," discloses that net revenue from digital online
channels comprised 63.1% of our net revenue for the fiscal year ended March 31, 2018. We expect online delivery of games and
game offerings to continue to grow and to become an increasing part of our business over the long-term.
26
Product Releases
We released the following key titles in fiscal year 2018:
Title
NBA 2K18
WWE 2K18
NBA 2K18
WWE 2K18
L.A. Noire
WWE 2K18
Publishing
Label
2K
2K
2K
2K
Internal or
External
Development
Internal
Platform(s)
Xbox 360, Xbox One, PS3, PS4, PC,
Switch (digital)
Internal/External
Xbox One, PS4
Internal
Switch (physical)
Internal/External
PC
Rockstar Games
Internal
Xbox One, PS4, Switch
2K
Internal/External
Switch
L.A. Noire: The VR Case Files
Rockstar Games
Kerbal Space Program: Enhanced Edition
Private Division
XCOM 2 Collection
Sid Meier's Civilization VI: Rise and Fall
(DLC)
XCOM 2 Collection
L.A. Noire: The VR Case Files
Grand Theft Auto V: Premium Online
Edition
2K
2K
2K
Rockstar Games
Rockstar Games
Internal
External
External
Internal
External
Internal
Internal
HTC Vive
Xbox One, PS4
PC
PC
PS4, Xbox One
Oculus Rift
PS4, Xbox One, PC
Date Released
September 19, 2017
October 13, 2017
October 17, 2017
October 17, 2017
November 14, 2017
December 6, 2017
December 15, 2017
January 16, 2018
February 1, 2018
February 8, 2018
February 21, 2018
March 29, 2018
April 20, 2018
Product Pipeline
We have announced the following key titles to date (this list does not represent all titles currently in development):
Title
Red Dead Redemption 2
NBA 2K19
WWE 2K19
Fiscal 2018 Financial Summary
Publishing
Label
Rockstar Games
2K
2K
Internal or
External
Development
Internal
Internal
Internal/External
Platform(s)
Xbox One, PS4
TBA
TBA
Expected Release
Date
October 26, 2018
Fall 2018
Fall 2018
Our net revenue for fiscal year ended March 31, 2018 was led by titles from a variety of our top franchises, primarily Grand Theft
Auto, NBA 2K, and WWE 2K. Our net revenue increased to $1,792.9 million, an increase of $13.1 million or 0.7% compared to
the fiscal year ended March 31, 2017.
For the fiscal year ended March 31, 2018, our net income was $173.5 million, as compared to a net income of $67.3 million in
the prior year. Diluted earnings per share for the fiscal year ended March 31, 2018 was $1.54, as compared to diluted income per
share of $0.72 for the fiscal year ended March 31, 2017. Our operating income for the fiscal year ended March 31, 2018 increased
compared to the operating income for fiscal year ended March 31, 2017, due primarily to higher gross profit due primarily to
lower Software development costs and royalties and Product costs due to having released more titles in the prior year period,
partially offset by higher Research and development costs related to titles that have not reached technological feasibility.
At March 31, 2018 we had $809.0 million of cash and cash equivalents, compared to $943.4 million at March 31, 2017. The
decrease in cash and cash equivalents from March 31, 2017 was due primarily to cash used in financing and investing activities,
partially offset by cash provided by operating activities. Net cash used in financing activities was primarily related to repurchases
of common stock under our share repurchase program and tax payments related to net share settlements of our restricted stock
awards. Net cash used in investing activities was primarily related to net purchases of available for sale securities, purchases of
fixed assets, and our asset acquisition of Kerbal Space Program. Net cash provided by operating activities was due primarily to
cash generated from sales of virtual currency, NBA 2K18, Grand Theft Auto V, and WWE 2K18, partially offset by investments in
software development and licenses as well as the funding of internal royalty payments.
27
Critical Accounting Policies and Estimates
Our most critical accounting policies, which are those that require significant judgment, include revenue recognition; price
protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates
including valuation of goodwill, intangible assets, and long-lived assets; valuation and recognition of stock-based compensation;
and income taxes. See Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Consolidated Financial
Statements in this Annual Report on Form 10-K.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 1 - Basis of Presentation and Significant Accounting Policies.
Results of Operations
The following table sets forth, for the periods indicated, our statements of operations, net revenue by geographic region, net revenue
by platform and net revenue by distribution channel:
Net revenue
Cost of goods sold
Gross profit
Selling and marketing
General and administrative
Research and development
Business reorganization
Depreciation and amortization
Total operating expenses
Income (loss) from operations
Interest and other, net
Gain on long-term investments, net
Income (loss) before income taxes
(Benefit from) provision for income taxes
Net income (loss)
Net revenue by geographic region:
United States
International
Net revenue by platform:
Console
PC and other
Net revenue by distribution channel:
Digital online
Physical retail and other
Fiscal Year Ended March 31,
2018
2017
2016
$ 1,792,892
898,311
894,581
256,092
247,828
196,373
14,742
43,969
759,004
135,577
1,048
—
136,625
(36,908)
173,533
$
100.0 % $1,779,748
50.1 % 1,022,959
49.9 %
756,789
14.3 %
285,453
13.8 %
211,409
11.0 %
137,915
0.8 %
—
2.5 %
30,707
42.3 %
665,484
7.6 %
91,305
0.1 %
(15,690)
— %
1,350
7.6 %
76,965
(2.1)%
9,662
9.7 % $
67,303
100.0 % $1,413,698
813,873
57.5 %
599,825
42.5 %
198,309
16.0 %
192,452
11.9 %
119,807
7.8 %
71,285
— %
28,800
1.7 %
610,653
37.4 %
(10,828)
5.1 %
(30,205)
(0.9)%
2,683
0.1 %
(38,350)
4.3 %
(30,048)
0.5 %
(8,302)
3.8 % $
100.0 %
57.6 %
42.4 %
14.0 %
13.6 %
8.5 %
5.1 %
2.0 %
43.2 %
(0.8)%
(2.1)%
0.2 %
(2.7)%
(2.1)%
(0.6)%
Fiscal Year Ended March 31,
2018
2017
2016
$ 1,052,313
740,579
58.7% $ 999,128
41.3%
780,620
56.1% $ 742,963
670,735
43.9%
1,463,306
329,586
81.6% 1,440,724
18.4%
339,024
81.0% 1,167,623
246,075
19.0%
1,130,946
661,946
63.1%
36.9%
921,734
858,014
51.8%
48.2%
697,658
716,040
52.6%
47.4%
82.6%
17.4%
49.3%
50.7%
28
Fiscal Years ended March 31, 2018 and 2017
(thousands of dollars)
Net revenue
Internal royalties
Product costs
Software development costs and royalties(1)
Licenses
Cost of goods sold
Gross profit
2018
$ 1,792,892
383,020
203,301
191,400
120,590
898,311
894,581
$
2017
% of net
revenue
100.0% $1,779,748
21.4%
330,782
11.3%
255,914
10.7%
335,675
6.7%
100,588
50.1% 1,022,959
49.9% $ 756,789
% of net
revenue
100.0% $
18.6%
14.4%
18.9%
5.6%
57.5%
42.5% $
Increase/
(decrease)
% Increase/
(decrease)
13,144
52,238
(52,613)
(144,275)
20,002
(124,648)
137,792
0.7 %
15.8 %
(20.6)%
(43.0)%
19.9 %
(12.2)%
18.2 %
(1) Includes $24,610 and $21,056 of stock-based compensation expense in 2018 and 2017, respectively.
For the fiscal year ended March 31, 2018, net revenue increased by $13.1 million, as compared to the prior year. This increase
was due primarily to an increase of $159.4 million in revenues from our NBA 2K franchise, partially offset by a decrease of
$134.9 million in net revenue from Mafia III, which released in October 2016. Net revenue from our Grand Theft Auto franchise
increased $32.0 million as compared to the prior year. This increase was due primarily to an increase of $114.9 million in net
revenue from Grand Theft Auto Online, partially offset by a decrease of $78.0 million from Grand Theft Auto V.
Net revenue from console games increased by $22.6 million and accounted for 81.6% of our total net revenue in the fiscal year
ended March 31, 2018, as compared to 81.0% in the prior year. The increase in net revenue from console games was due primarily
to higher net revenue from our NBA 2K franchise, partially offset by lower net revenues from Mafia III, which released in October
2016. Net revenue from PC and other decreased by $9.4 million as compared to the prior year and decreased as a percentage of
net revenue to 18.4% compared to 19.0% in the prior year. The decrease in net revenue from PC and other was due primarily to
lower net revenue from Civilization VI, which released on the PC in the prior year, partially offset by higher net revenue from
Social Point titles for which we had only two months of net revenue in the prior year as it was acquired in January 2017.
Net revenue from digital online channels increased by $209.2 million and accounted for 63.1% of our total net revenue for the
fiscal year ended March 31, 2018, as compared to 51.8% in the prior year. The increase in net revenue from digital online channels
was due primarily to higher revenue related to our NBA 2K franchise and Grand Theft Auto Online, partially offset by lower net
revenue from Civilization VI and Grand Theft Auto V. Net revenue from physical retail and other channels decreased by $196.1
million and accounted for 36.9% of our total net revenue for the fiscal year ended March 31, 2018, as compared to 48.2% for the
prior year. The decrease in net revenue from physical retail and other channels was due primarily to lower net revenue from Mafia
III, Grand Theft Auto V, and BioShock: The Collection, which released in September 2016, partially offset by higher net revenue
from L.A. Noire due to releases on PS4, Xbox One, Switch, and HTC Vive.
Net revenue from recurrent consumer spending on our titles through virtual currency, add-on content, and microtransactions
increased by $287.9 million and accounted for 41.6% of net revenue for the fiscal year ended March 31, 2018, as compared to
25.8% for the prior year. The increase in recurrent consumer spending was due primarily to higher virtual currency net revenue
from Grand Theft Auto Online, our NBA 2K franchise, and Social Point titles with only two months of net revenue in the prior
year as it was acquired in January 2017.
Gross profit as a percentage of net revenue for the fiscal year ended March 31, 2018 was 49.9%, as compared to 42.5% in the
prior year. The percentage increase was due primarily to lower software development costs as a percentage of net revenue due to
Mafia III and Civilization VI releasing in the prior year, as well as lower product costs as a percentage of net revenue due to the
decrease in net revenue from physical retail sales. The increase was offset by higher internal royalties as a percentage of net revenue
due to the timing of when royalties are earned and to a lesser extent higher stock-based compensation costs as a percentage of net
revenue.
Net revenue earned outside of the United States decreased by $40.0 million and accounted for 41.3% of our total net revenue in
the fiscal year ended March 31, 2018, as compared to 43.9%. The decrease in net revenue was due primarily to a decrease in net
revenue from Mafia III, partially offset by higher net revenues from our NBA 2K franchise. Changes in foreign currency exchange
rates increased net revenue and gross profit by $9.8 million and $6.7 million, respectively, in the fiscal year ended March 31, 2018
as compared to the prior year.
29
Operating Expenses
(thousands of dollars)
Selling and marketing
General and administrative
Research and development
Depreciation and amortization
Business reorganization
Total operating expenses
2018
$ 256,092
247,828
196,373
43,969
14,742
$ 759,004
% of net
revenue
2017
% of net
revenue
Increase/
(decrease)
% Increase/
(decrease)
14.3% $ 285,453
13.8%
211,409
11.0%
137,915
2.5%
30,707
0.8%
—
42.3% $ 665,484
16.0% $
11.9%
7.8%
1.7%
—%
37.4% $
(29,361)
36,419
58,458
13,262
14,742
93,520
(10.3)%
17.2 %
42.4 %
43.2 %
100.0 %
14.1 %
Includes stock-based compensation expense, which was allocated as follows (in thousands):
Selling and marketing
General and administrative
Research and development
Business reorganization
$
$
$
2018
2017
$
$
$
13,258
58,037
18,020
2,424
9,963
42,908
7,952
—
Foreign currency exchange rates increased total operating expenses by $8.4 million in the fiscal year ended March 31, 2018 as
compared to the prior year.
Selling and marketing
Selling and marketing expenses decreased by $29.4 million in the fiscal year ended March 31, 2018 as compared to the prior year,
due primarily to $44.2 million in lower advertising expenses. Advertising expenses were lower in the current year due primarily
to the releases of Mafia III and Civilization VI in October 2016 and Battleborn in May 2016, partially offset by higher marketing
in the current year period for Grand Theft Auto Online and Red Dead Redemption 2. The decrease was partially offset by higher
personnel expenses, primarily due to higher incentive compensation expense.
General and administrative
General and administrative expenses increased by $36.4 million for the fiscal year ended March 31, 2018, as compared to the
prior year, due primarily to (i) increases in personnel expenses, including stock and incentive compensation expense, due to
additional headcount, including our acquisition of Social Point, (ii) increases in professional fees, related primarily to our
management agreement with ZelnickMedia as a result of the increase in our share price, (iii) increases in IT related expenses from
the purchase of computer hardware and software, and (iv) increases in rent expense due to new locations, including our new
corporate headquarters in New York and for Social Point, as well as increased rent in other locations. This overall increase was
partially offset primarily by a $6.5 million reduction of expense related to reversing a contingent consideration liability recognized
in connection with the Social Point acquisition as we determined that the fair value of this contingent consideration was $0 based
on the lower probability of Social Point achieving certain performance measures in the 24-month period following the acquisition.
General and administrative expenses for the fiscal years ended March 31, 2018 and 2017 include occupancy expense (primarily
rent, utilities and office expenses) of $18.2 million and $15.8 million, respectively, related to our development studios.
Research and development
Research and development expenses increased by $58.5 million for the fiscal year ended March 31, 2018, as compared to the prior
year, due primarily to increased personnel expense due to (i) increased headcount, including our acquisition of Social Point, and
(ii) higher stock-based compensation. These increases were partially offset by lower production expenses for titles that have not
reached technological feasibility.
Depreciation and amortization
Depreciation and amortization expenses increased by $13.3 million for the fiscal year ended March 31, 2018, as compared to the
prior year, due primarily to the recognition of a $11.3 million impairment charge as a result of our decision not to proceed with
further development of a certain in-process research and development ("IPR&D") intangible asset from our acquisition of Social
Point.
30
Business Reorganization
During the fiscal year ended March 31, 2018, we announced and initiated actions to implement a strategic reorganization at one
of our labels. In connection with this initiative we incurred business reorganization expenses of $14.7 million for the fiscal year
ended March 31, 2018, due primarily to employee separation costs with no corresponding costs in the prior year. Although we
may record additional expense or benefit in future periods to true-up estimates, we do not expect to incur additional reorganization
costs in connection with this reorganization. See Note 20 - Business Reorganization.
Interest and other, net
(thousands of dollars)
Interest expense, net
Foreign currency exchange (loss) gain
Other
Interest and other, net
2018
(1,005)
(3,038)
5,091
1,048
$
$
% of net
revenue
2017
% of net
revenue
Increase/
(decrease)
% Increase/
(decrease)
(0.1)% $ (21,700)
(0.2)%
4,990
0.3 %
1,020
0.1 % $ (15,690)
(1.2)% $
0.3 %
0.1 %
(0.9)% $
20,695
(8,028)
4,071
16,738
(95.4)%
(160.9)%
399.1 %
(106.7)%
Interest and other, net was income of $1.0 million for the fiscal year ended March 31, 2018, as compared to an expense of $15.7
million for the fiscal year ended March 31, 2017. The increase was due primarily to a $20.7 million decrease in interest expense
as a result of the settlement of our 1.75% Convertible Notes in December 2016 and higher gains on early conversions of our 1.00%
Convertible Notes as well as higher interest income due to the nature of our investments and the rise of interest rates, partially
offset by foreign exchange transaction losses for the fiscal year ended March 31, 2018 as compared to foreign exchange transaction
gains in the prior year.
Provision/Benefit from income taxes
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (herein
referred to as the "Act”). The Act makes broad and complex changes to the U.S. tax code that could materially affect us. The Act
reduces the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018 and requires companies to pay a
one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act makes other changes
that may affect us, beginning April 1, 2018. These changes include but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT),
which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a
new provision that taxes global intangible low-taxed income (GILTI), (4) the repeal of the domestic production activity deduction,
and (5) other base broadening provisions.
The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an
accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future
years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions,
the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy. As of March
31, 2018, the Company is still evaluating the GILTI provisions and analysis of future taxable income that is subject to GILTI and
therefore is unable to make a reasonable estimate and has not reflected any adjustments related to GILTI in the Consolidated
Financial Statements.
We recorded an estimated increase to income tax expense of $18.1 million related to the one-time transition tax on the previously
untaxed earnings of certain foreign subsidiaries as a result of the Act. The estimated increase was a result of a transition tax of
$26.6 million, offset by increased benefits from domestic production deductions and tax credits. In addition, as a result of the
decrease in the U.S. federal corporate income tax rate from 35% to 21%, we recorded a decrease to net deferred tax assets of $47.7
million and a corresponding decrease to the valuation allowance of $39.8 million after taking into account a portion of the deferred
tax liability from indefinite lived intangibles as a source of income against deferred tax assets, resulting in a tax benefit of $7.9
million. The re-measurement of the deferred tax liability relating to indefinite lived intangibles, due to the rate change, resulted
in a tax benefit of $6.2 million.
We are currently evaluating the potential impact of the Act, and the amounts recorded represent provisional estimates for certain
identified income tax effects for which the accounting is incomplete but a reasonable estimate can be determined, in accordance
with Staff Accounting Bulletin No. 118 (SAB 118). Further analysis is required to review historical practices used to calculate the
untaxed earnings of certain foreign subsidiaries and additional time to evaluate the complexities of the new tax law along with
additional interpretative guidance that may be issued. The impact of the Act may differ from these estimates, possibly materially,
due to changes in interpretations and assumptions we have made, guidance that may be issued, and actions we may take as a result
of the Act. We expect to continue to analyze the Act and its impact and expect to record any adjustments to provisional estimates
no later than the third quarter of fiscal 2019.
31
Our income tax benefit was $36.9 million for the fiscal year ended March 31, 2018 as compared to income tax expense of $9.7
million for the fiscal year ended March 31, 2017.
When compared to the statutory rate of 31.6%, the effective tax rate of (27.0)% for the fiscal year ended March 31, 2018 was
primarily due to $53.2 million from excess tax benefits from employee stock compensation as a component of the benefit from
income taxes (previously excess tax benefit and tax deficiencies were recognized in additional paid-in-capital), a benefit of $22.6
million for tax credits anticipated to be utilized, a benefit of $15.1 million from changes in unrecognized tax benefits primarily
due to expiration of statute of limitations, and a benefit of $7.9 million from our geographic mix of earnings, partially offset by
provisional amounts recorded as a result of the Act and $10.4 million for changes in our valuation allowance.
The effective tax rate in the current year was lower compared to the prior year primarily due to $53.2 million from excess tax
benefits related to employee stock compensation reflected as a component of the benefit from income taxes in the current year,
an increased benefit from changes in unrecognized tax benefits of $17.3 million primarily due to expiration of statute of limitations,
and $11.0 million of increased tax benefits due to mix of earnings, partially offset by a reduced benefit from tax credits of $12.7
million and provisional amounts recorded as a result of the Act.
We anticipate that additional excess tax benefits from employee stock compensation, tax credits, changes in valuation allowance,
and changes as a result of the Act may arise in future periods, which could have a significant impact on our effective tax rate.
The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between
our share-based compensation expense and the deductions taken on our tax return, which depends upon the stock price at the time
of employee award vesting. Since we recognize excess tax benefits on a discrete basis, we anticipate that our effective tax rate
will vary from quarter to quarter depending on our stock price in each period.
As of March 31, 2018, we had gross unrecognized tax benefits, including interest and penalties, of $128.5 million, of which $22.8
million would affect our effective tax rate if realized. For the fiscal year ended March 31, 2018, gross unrecognized tax benefits
increased by $8.3 million.
We are no longer subject to audit for U.S. federal income tax returns for periods prior to our fiscal year ended March 31, 2016
and state income tax returns for periods prior to the fiscal year ended March 31, 2013. With few exceptions, we are no longer
subject to income tax examinations in non-U.S. jurisdictions for years prior to fiscal year ended March 31, 2012. Certain U.S.
state and foreign taxing authorities are currently examining our income tax returns for the fiscal years ended March 31, 2012
through March 31, 2016.
We are regularly audited by domestic and foreign taxing authorities. We believe that our tax positions comply with applicable tax
law and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or
the expiration of the statute of limitations may impact our effective tax rate in future periods.
Net income and earnings per share
For the fiscal year ended March 31, 2018, our net income was $173.5 million, as compared to $67.3 million in the prior year.
Diluted earnings per share for the fiscal year ended March 31, 2018 was $1.54, as compared to $0.72 for the fiscal year ended
March 31, 2017. Basic weighted average shares outstanding of 110.1 million were 19.9 million higher compared to the prior fiscal
year due primarily to the settlement on conversion of our 1.75% Convertible Notes and our 1.00% Convertible Notes with shares
of our common stock using the stated conversion rate and, to a lesser extent the vesting of restricted stock awards. See Note 1 -
Basis of Presentation and Significant Accounting Policies and Note 12 - Earnings (Loss) Per Share for additional information.
Fiscal Years Ended March 31, 2017 and 2016
(thousands of dollars)
Net revenue
Software development costs and royalties(1)
Internal royalties
Product costs
Licenses
Cost of goods sold
Gross profit
2017
$ 1,779,748
335,675
330,782
255,914
100,588
1,022,959
$ 756,789
2016
% of net
revenue
100.0% $1,413,698
18.9%
223,512
18.6%
328,610
14.4%
200,206
5.6%
61,545
57.5%
813,873
42.5% $ 599,825
% of net
revenue
100.0% $
15.8%
23.2%
14.2%
4.4%
57.6%
42.4% $
Increase/
(decrease)
% Increase/
(decrease)
366,050
112,163
2,172
55,708
39,043
209,086
156,964
25.9%
50.2%
0.7%
27.8%
63.4%
25.7%
26.2%
(1) Includes $21,056 and $15,323 of stock-based compensation expense in 2017 and 2016, respectively.
32
For the fiscal year ended March 31, 2017, net revenue increased by $366.1 million, as compared to the prior year. This increase
was due primarily to (1) an increase of $265.8 million in revenues from our NBA 2K franchise; (2) an increase of $161.2 million
in net revenues from Mafia III, which released in October 2016; and (3) an increase of $63.8 million in net revenues from
Civilization VI, which released in October 2016. The increase was partially offset by a decrease of $91.2 million in net revenue
from our Grand Theft Auto franchise, due primarily to lower net revenues from Grand Theft Auto V, and a decrease of $80.3 million
in net revenues from Evolve, which released in fiscal 2016.
Net revenue from console games increased by $273.1 million, and accounted for 81.0% of our total net revenue in the fiscal year
ended March 31, 2017, as compared to 82.6% in the prior year. The increase in net revenues from console games was due primarily
to higher net revenue from our NBA 2K franchise and Mafia III. Net revenue from PC and other increased by $92.9 million, as
compared to the prior year, and increased as a percentage of revenue to 19.0% compared to 17.4% in the prior year. The increase
in net revenue from PC and other was due primarily to higher net revenues from Civilization VI, which released on the PC in the
current year and higher net revenues from Grand Theft Auto V and Grand Theft Auto Online.
Net revenue from digital online channels increased by $224.1 million and accounted for 51.8% of our total net revenue for the
fiscal year ended March 31, 2017, as compared to 49.3% in the prior year. The increase in net revenue from digital online channels
was due primarily to higher revenues related to our NBA 2K franchise, Civilization VI, Mafia III, and Grand Theft Auto Online,
partially offset by lower revenues from Evolve. Recurrent consumer spending (including virtual currency, add-on content, and
microtransactions) increased by $97.2 million and accounted for 49.8% of net revenue from digital online channels for the fiscal
year ended March 31, 2017, as compared to 51.8% for the prior year. The increase in recurrent consumer spending was due
primarily to higher virtual currency net revenues from our NBA 2K franchise. Net revenue from physical retail and other channels
increased by 142.0 million and accounted for 48.2% of our total net revenues for the fiscal year ended March 31, 2017, as compared
to 50.7% for the prior year. The increase in net revenue from physical retail and other channels was due primarily to higher net
revenues from the current year release of Mafia III and the performance of our NBA 2K franchise, which was partially offset by
lower net revenues from our Grand Theft Auto franchise.
Gross profit as a percentage of net revenue for the fiscal year ended March 31, 2017 was 42.5%, as compared to 42.4% in the
prior year.
Net revenue earned outside of the United States increased by $109.9 million and accounted for 43.9% of our total net revenue in
the fiscal year ended March 31, 2017, as compared to 47.4%. The increase in net revenue was due primarily to an increase in net
revenues from the current year release of Mafia III and our NBA 2K franchise outside of the United States, which was partially
offset by lower net revenues from our Grand Theft Auto franchise. Changes in foreign currency exchange rates decreased net
revenue and gross profit by $18.7 million and $8.1 million, respectively, in the fiscal year ended March 31, 2017 as compared to
the prior year.
Operating Expenses
(thousands of dollars)
Selling and marketing
General and administrative
Research and development
Business reorganization
Depreciation and amortization
Total operating expenses
2017
$ 285,453
211,409
137,915
—
30,707
$ 665,484
% of net
revenue
2016
% of net
revenue
Increase/
(decrease)
% Increase/
(decrease)
16.0% $ 198,309
11.9%
192,452
7.8%
119,807
—%
71,285
1.7%
28,800
37.4% $ 610,653
14.0% $
13.6%
8.5%
5.1%
2.0%
43.2% $
87,144
18,957
18,108
(71,285)
1,907
54,831
43.9 %
9.9 %
15.1 %
(100.0)%
6.6 %
9.0 %
Includes stock-based compensation expense, which was allocated as follows (in thousands):
Selling and marketing
General and administrative
Research and development
2017
2016
$
$
$
9,963
42,908
7,952
$
$
$
9,425
40,322
4,926
Foreign currency exchange rates decreased total operating expenses by $11.4 million in the fiscal year ended March 31, 2017 as
compared to the prior year.
Selling and marketing
Selling and marketing expenses increased by $87.1 million in the fiscal year ended March 31, 2017 as compared to the prior year,
due primarily to $81.4 million in higher advertising expenses. Advertising expenses were higher in the current year due primarily
33
to the fiscal 2017 releases of Mafia III, Battleborn, and Civilization VI, and BioShock: The Collection. These were slightly offset
by lower advertising expense for Grand Theft Auto V and Grand Theft Auto Online.
General and administrative
General and administrative expenses increased by $19.0 million for the fiscal year ended March 31, 2017, as compared to the
prior year, due to increases in professional fees for our acquisition of Social Point and litigation related charges, stock compensation
associated with our management agreement, expenses associated with unclaimed property, personnel expenses due to an increase
in headcount, and external software costs.
General and administrative expenses for the fiscal years ended March 31, 2017 and 2016 include occupancy expense (primarily
rent, utilities and office expenses) of $15.8 million and $17.2 million, respectively, related to our development studios.
Research and development
Research and development expenses increased by $18.1 million for the fiscal year ended March 31, 2017, as compared to the prior
year, due primarily to higher production expenses for new titles in development that have not reached technological feasibility as
well as higher personnel expenses related to employees in our development studios.
Business Reorganization
Business reorganization expense decreased by $71.3 million for the fiscal year ended March 31, 2017, as compared to the prior
year. During the fiscal year ended March 31, 2016, we incurred business reorganization expenses of $71.3 million due primarily
to employee separation costs in connection with reorganizing one development studio and closing two development studios.
Through March 31, 2017, we have paid $5.4 million related to these reorganization activities and $65.9 million remains accrued
for in Accrued expenses and other current liabilities. See Note 20 to the Consolidated Financial Statements.
Depreciation and amortization
Depreciation and amortization expenses increased by $1.9 million for the fiscal year ended March 31, 2017, as compared to the
prior year, due primarily to higher purchases of fixed assets for information technology infrastructure and studio build-outs as
well as the amortization of intangible assets related to our acquisition of Social Point.
Interest and other, net
(thousands of dollars)
Interest expense, net
Foreign currency exchange (loss) gain
Other
Interest and other, net
2017
(21,700)
$
4,990
1,020
$
(15,690)
% of net
revenue
2016
% of net
revenue
(Increase)/
decrease
% Increase/
(decrease)
(1.2)% $ (29,239)
(1,407)
0.3 %
0.1 %
441
(0.9)% $ (30,205)
(2.1)% $
(0.1)%
— %
7,539
6,397
579
(2.1)% $
14,515
(25.8)%
(454.7)%
131.3 %
(48.1)%
Interest and other, net was an expense of $15.7 million for the fiscal year ended March 31, 2017, as compared to an expense of
$30.2 million for the fiscal year ended March 31, 2016. The decrease was due primarily to a $7.5 million decrease in interest
expense, as our 1.75% Convertible Note due 2016 (the "1.75% Convertible Notes") settled in December 2016 and to foreign
exchange gains.
Provision for (benefit from) income taxes
Income tax expense was $9.7 million for the fiscal year ended March 31, 2017 as compared to income tax benefit of $30.0 million
for the fiscal year ended March 31, 2016. The increase in income tax expense was primarily attributable to a discrete tax benefit
of approximately $26.4 million recognized in the previous year relating to a tax deduction and due to an increase in net income
in the current year. Our effective rate differed from the federal statutory rate due primarily to changes in valuation allowances
related to tax loss and tax credit carryforwards and mix of earnings. Our valuation allowances increased by $13.5 million during
the fiscal year ended March 31, 2017 and increased by $37.1 million during the fiscal year ended March 31, 2016 due to changes
in net operating loss and tax credit carryforwards.
Net income (loss) and earnings (loss) per share
For the fiscal year ended March 31, 2017, our net income was $67.3 million, as compared to a net loss of $8.3 million in the prior
year. Diluted earnings per share for the fiscal year ended March 31, 2017 was $0.72, as compared basic and diluted loss per share
of $0.10 for the fiscal year ended March 31, 2016. Basic weighted average shares outstanding were higher compared to the prior
34
fiscal year due primarily to the issuance of 4.6 million shares for settlements of conversions our 1.00% Convertible Notes and our
1.75% Convertible Notes (together, the "Convertible Notes") and net stock-based compensation activity of 1.5 million shares. See
Notes 1 and 12 to the Consolidated Financial Statements for additional information regarding earnings (loss) earnings per share.
Liquidity and Capital Resources
Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products,
(ii) working capital, (iii) acquisitions and (iv) capital expenditures. We expect to rely on cash and cash equivalents as well as on
short-term investments, funds provided by our operating activities, and our Credit Agreement to satisfy our working capital needs.
Short-term Investments
As of March 31, 2018, we had $615.4 million of short-term investments, which are highly-liquid in nature and represent an
investment of cash that is available for current operations. From time to time, we may purchase additional short-term investments
depending on future market conditions and liquidity needs.
Credit Agreement
In December 2017, we entered into a Seventh Amendment to our Second Amended and Restated Credit Agreement (as amended,
the “Credit Agreement”). The Credit Agreement provides for borrowings of up to $100.0 million which may be increased by up
to $100.0 million pursuant to the terms of the Credit Agreement and which is secured by substantially all of our assets and the
equity of our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear
interest at our election of (a) 0.25% to 0.75% above a certain base rate (4.75% at March 31, 2018), or (b) 1.25% to 1.75% above
the LIBOR Rate (approximately 1.88% at March 31, 2018), with the margin rate subject to the achievement of certain average
liquidity levels. We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based
on availability. We had no outstanding borrowings at March 31, 2018 and 2017.
Availability under the Credit Agreement is unrestricted when liquidity, as defined in the Credit Agreement, is at least $300.0
million. When liquidity is below $300.0 million availability under the Credit Agreement is restricted by our United States and
United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters
of credit in an aggregate amount of up to $5.0 million.
As of March 31, 2018, there was $98.3 million available to borrow under the Credit Agreement and we had $1.7 million of letters
of credit outstanding. At March 31, 2018 and 2017, we had no outstanding borrowings under the Credit Agreement.
The Credit Agreement contains covenants that substantially limit our and our subsidiaries' ability to: create, incur, assume or be
liable for indebtedness; dispose of assets outside the ordinary course of business; acquire, merge or consolidate with or into another
person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make
distributions (each subject to certain limitations); or optionally prepay any indebtedness (subject to certain exceptions, including
an exception permitting the redemption of the Company's unsecured convertible senior notes upon the meeting of certain minimum
liquidity requirements). In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal
and interest, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on indebtedness
held by third parties and default on certain material contracts (subject to certain limitations and cure periods). The Credit Agreement
also contains a requirement that we maintain an interest coverage ratio of more than one to one for the trailing twelve month
period, if certain average liquidity levels fall below $30.0 million.
1.00% Convertible Notes Due 2018
On June 18, 2013, we issued $250.0 million aggregate principal amount of 1.00% Convertible Notes due 2018. The 1.00%
Convertible Notes were issued at 98.5% of par value for proceeds of $246.3 million. Interest on the 1.00% Convertible Notes is
payable semi-annually in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible
Notes mature on July 1, 2018, unless earlier repurchased by the Company or converted. We do not have the right to redeem the
1.00% Convertible Notes prior to maturity. We also granted the underwriters a 30-day option to purchase up to an additional $37.5
million principal amount of 1.00% Convertible Notes to cover overallotments, if any. On July 17, 2013, we closed our public
offering of $37.5 million principal amount of our 1.00% Convertible Notes as a result of the underwriters exercising their
overallotment option in full on July 12, 2013, bringing the total proceeds to $283.2 million.
The 1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1,000
principal amount of 1.00% Convertible Notes (representing an initial conversion price of approximately $21.52 per share of
common stock for a total of approximately 13.4 million underlying conversion shares) subject to adjustment in certain
circumstances.
35
During the fiscal year ended March 31, 2018, 1.00% Convertible Notes with an aggregate principal value of $260.0 million were
submitted for conversion. We elected to settle in shares of our common stock. As a result of early conversions of the 1.00%
Convertible Notes, we recorded a gain within Interest and other, net on our Consolidated Statement of Operations of $4.9 million
for the fiscal year ended March 31, 2018.
As of April 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert
their 1.00% Convertible Notes at any time. Prior to April 26, 2018, upon conversion, the 1.00% Convertible Notes were eligible
to be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.
Effective April 26, 2018, we elected to settle our remaining conversion obligations in connection with the 1.00% Convertible
Notes solely in shares of our common stock and accordingly notified the Trustee. As such, we have continued to classify these
1.00% Convertible Notes as long-term debt.
Financial Condition
We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated
in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity
and working capital position.
Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral
to secure payment from customers. We have trade credit insurance on the majority of our customers to mitigate accounts receivable
risk.
A majority of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted
for 70.7%, 65.5%, and 58.9% of net revenue during the fiscal years ended March 31, 2018, 2017, and 2016, respectively. As of
March 31, 2018 and 2017, five customers accounted for 65.4% and 69.9% of our gross accounts receivable, respectively. Customers
that individually accounted for more than 10% of our gross accounts receivable balance comprised 53.2% and 57.6% of such
balances at March 31, 2018 and 2017, respectively. We had two customers who accounted for 37.7% and 15.5% of our gross
accounts receivable as of March 31, 2018 and two customers who accounted for 40.2%, and 17.4% of our gross accounts receivable
as of March 31, 2017. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31,
2018 and 2017. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our
customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent
a significant credit risk, although we actively monitor each customer's credit worthiness and economic conditions that may affect
our customers' business and access to capital. We are monitoring the current global economic conditions, including credit markets
and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.
We believe our current cash, short term investments and projected cash flow from operations, along with availability under our
Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures
and commitments on both a short-term and long-term basis.
As of March 31, 2018, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $266.6
million. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business
and liquidity needs of our foreign affiliates. In addition, we expect to have the ability to generate sufficient cash domestically to
support ongoing operations for the foreseeable future.
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the "Tax Cuts and Jobs Act” (herein
referred to as the "Act”). The Act makes broad and complex changes to the U.S. tax code, which could materially affect us.
The Act includes a number of provisions, including international provisions, which generally establish a territorial-style system
for taxing foreign income of domestic multinational corporations. We are reviewing whether the Act will affect our current intention
to reinvest indefinitely earnings of our foreign subsidiaries and therefore have not recorded any tax liabilities associated with the
repatriation of foreign earnings.
Our Board of Directors has authorized the repurchase of up to 14.2 million shares of our common stock. Under this program we
may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated
transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market
conditions, the trading price of the stock, the Company's financial performance and other conditions. The program does not require
us to repurchase shares and may be suspended or discontinued at any time for any reason. During the fiscal years ended March 31,
2018, 2017, and 2016, we repurchased 1.5 million, 0, and 1.0 million, respectively, shares of our common stock in the open market
for $154.8 million, $0.0 million, and $26.6 million, respectively, including commissions as part of the program. As of March 31,
2018, we had repurchased a total of 6.7 million shares of our common stock under the program, and 7.5 million shares of our
common stock remained available for repurchase under the share repurchase program.
36
Subsequent to March 31, 2018 and through the date of this filing, we repurchased an additional 1.6 million shares of our common
stock in the open market for $153.5 million, including commissions. After these additional purchases, 5.9 million shares of our
common stock remain available for repurchase under the share repurchase program.
Our changes in cash flows were as follows:
(thousands of dollars)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effects of foreign currency exchange rates on cash and cash equivalents
Net change in cash and cash equivalents
Fiscal Year Ended March 31,
2018
2017
2016
$
$
$
393,947
(271,827)
(281,467)
24,924
(134,423) $
331,429
(129,030)
(49,772)
(7,973)
144,654
$
$
261,305
(324,516)
(48,047)
(1,120)
(112,378)
At March 31, 2018 we had $809.0 million of cash and cash equivalents, compared to $943.4 million at March 31, 2017. The
decrease in cash and cash equivalents from March 31, 2017 was due primarily to cash used in financing and investing activities,
partially offset by cash provided by operating activities. Net cash used in financing activities was primarily related to repurchases
of common stock under our share repurchase program and tax payments related to net share settlements of our restricted stock
awards. Net cash used in investing activities was primarily related to net purchases of available for sale securities, purchases of
fixed assets, and other asset acquisitions. Net cash provided by operating activities was due primarily to cash generated from sales
of virtual currency. NBA 2K18, Grand Theft Auto V, and WWE 2K18, partially offset by investments in software development and
licenses and funding of internal royalty payments.
Contractual Obligations and Commitments
We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the
next several years. Generally, these include:
Software Development and Licensing: We make payments to third-party software developers that include contractual
•
payments to developers under several software development agreements that expire at various times through January 2022.
Our aggregate outstanding software development commitments assume satisfactory performance by third-party software
developers. We also have licensing commitments that primarily consist of obligations to holders of intellectual property rights
for use of their trademarks, copyrights, technology or other intellectual property rights in the development of our products.
• Marketing: We have certain minimum marketing support commitments where we commit to spend specified amounts
related to marketing our products. Marketing commitments expire at various times through December 2022.
• Operating Leases: Our offices are occupied under non-cancelable operating leases expiring at various times through
December 2032. We also lease certain furniture, equipment and automobiles under non-cancelable leases expiring through
March 2021. Some of the leases have fixed rent increases and also include inducements to enter into the lease. The effect of
such amounts are deferred and recognized on a straight-line basis over the related lease term.
•
Purchase obligations primarily related to agreements to purchase services that are enforceable and legally binding on the
Company that specifies all significant terms, including fixed, minimum or variable pricing provisions; and the approximate
timing of the transactions, expiring at various times through September 2021.
37
A summary of annual minimum contractual obligations and commitments as of March 31, 2018 is as follows (in thousands of
dollars):
Fiscal Year Ending
March 31,
Software
Development
and Licensing
Marketing
Operating
Leases
Purchase
Obligations
Convertible
Notes Interest
Convertible
Notes
Total
2018
2019
2020
2021
2022
Thereafter
Total
$
116,242
$
49,725
$
39,113
$
21,549
$
53,534
28,999
21,748
6,250
5,250
4,060
13,480
3,773
3,500
—
29,620
23,092
21,665
19,571
62,476
7,046
1,629
—
—
—
$
232,023
$
74,538
$ 195,537
$
30,224
$
20
—
—
—
—
—
20
$
8,160
$
234,809
—
—
—
—
—
94,260
67,200
47,186
29,321
67,726
$
8,160
$
540,502
Income Taxes: At March 31, 2018, we had recorded a liability for gross unrecognized tax benefits, including interest and penalties,
of $22.8 million, for which we are unable to make a reasonable and reliable estimate of the period in which these liabilities will
be settled with the respective tax authorities; therefore, these liabilities have not been included in the contractual obligations table.
Legal and Other Proceedings: We are, or may become, subject to demands and claims (including intellectual property claims)
and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or
financial statements. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings.
While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe
that such losses, unless otherwise disclosed, would not be material.
On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New
York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with
whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or
financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there
can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New
York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States
District Court for the Southern District of New York, but the case was subsequently remanded to state court. The complaint claims
damages of at least $150 million and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent
concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and
fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights;
constructive discharge; defamation and fraud. We have asserted counterclaims for breach of contract, theft of trade secrets, and
misappropriation.
As a result of amended pleadings, motion practice and appeals to date, twelve of Mr. Benzies’ claims have been dismissed, leaving
only six remaining claims: breach of various contracts, constructive discharge, breach of implied duty of good faith and fair dealing,
and tortious interference with contract. Our federal court action has been stayed pending the conclusion of the state court action.
We believe that we have meritorious defenses to the remaining claims, and we intend to vigorously defend against them and to
pursue our counterclaims.
Off-Balance Sheet Arrangements
As of March 31, 2018 and 2017, we did not have any material relationships with unconsolidated entities or financial parties, such
as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to
any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
International Operations
Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada and
Latin America. For the fiscal years ended March 31, 2018, 2017 and 2016, 41.3%, 43.9% and 47.4%, respectively, of our net
revenue was earned outside the United States. We are subject to risks inherent in foreign trade, including increased credit risks,
tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays and international political, regulatory and
economic developments, all of which can have a significant effect on our operating results.
38
Fluctuations in Quarterly Operating Results and Seasonality
We 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 of new titles; sequels or enhancements of existing titles; projected and actual changes in
platforms; the timing and success of title introductions by our competitors; product returns; changes in pricing policies by us and
our competitors; the accuracy of retailers' forecasts of consumer demand; the size and timing of acquisitions; the timing of orders
from major customers; and order cancellations and delays in product shipment. Sales of our products are also seasonal, with peak
shipments typically occurring in the fourth calendar quarter as a result of increased demand for products during the holiday season.
For certain of our software products with multiple element revenue arrangements where we do not have VSOE for each element
and the deliverables are deemed more-than-inconsequential, we defer the recognition of our net revenues over an estimated service
period which generally ranges from 12 to 62 months. As a result, the quarter in which we generate the highest net sales volume
may be different from the quarter in which we recognize the highest amount of net revenues. Quarterly comparisons of operating
results are not necessarily indicative of future operating results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include
fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
Our exposure to fluctuations in interest rates relates primarily to our short-term investment portfolio and variable rate debt under
the Credit Agreement.
We seek to manage our interest rate risk by maintaining a short-term investment portfolio that includes corporate bonds with high
credit quality and maturities less than two years. Since short-term investments mature relatively quickly and can be reinvested at
the then-current market rates, interest income on a portfolio consisting of short-term securities is more subject to market fluctuations
than a portfolio of longer term maturities. However, the fair value of a short-term portfolio is less sensitive to market fluctuations
than a portfolio of longer term securities. We do not currently use derivative financial instruments in our short-term investment
portfolio. Our investments are held for purposes other than trading.
As of March 31, 2018, we had $615.4 million of short-term investments, which included $398.7 million of available-for-sale
securities. The available-for-sale securities were recorded at fair market value with unrealized gains or losses resulting from
changes in fair value reported as a separate component of accumulated other comprehensive income (loss), net of tax, in
stockholders' equity. We also had $809.0 million of cash and cash equivalents that are comprised primarily of money market funds
and bank-time deposits. We determined that, based on the composition of our investment portfolio, there was no material interest
rate risk exposure to our Consolidated Financial Statements or liquidity as of March 31, 2018.
Historically, fluctuations in interest rates have not had a significant effect on our operating results. Under our Credit Agreement,
outstanding balances bear interest at our election of (a) 0.25% to 0.75% above a certain base rate (4.75% at March 31, 2018), or
(b) 1.25% to 1.75% above the LIBOR rate (approximately 1.88% at March 31, 2018), with the margin rate subject to the achievement
of certain average liquidity levels. Changes in market rates may affect our future interest expense if there is an outstanding balance
on our line of credit. At March 31, 2018, there were no outstanding borrowings under our Credit Agreement. The 1.00% Convertible
Notes pay interest semi-annually at a fixed rate of 1.00% per annum, and we expect that there will be no fluctuation related to the
1.00% Convertible Notes affecting our cash component of interest expense. For additional details on our Convertible Notes see
Note 11 to the Consolidated Financial Statements.
Foreign Currency Exchange Rate Risk
We transact business in foreign currencies and are exposed to risks resulting from fluctuations in foreign currency exchange rates.
Accounts relating to foreign operations are translated into United States dollars using prevailing exchange rates at the relevant
period end. Translation adjustments are included as a separate component of stockholders' equity on our Consolidated Balance
Sheets. For the fiscal years ended March 31, 2018 and 2017, our foreign currency translation adjustment was a gain of $43.4
million and a loss of $9.1 million, respectively. We recognized a foreign currency exchange transaction loss of $3.0 million, a gain
of $5.0 million, and a loss of $1.4 million million for the fiscal years ended March 31, 2018, 2017, and 2016, respectively, in
Interest and other, net in our Consolidated Statements of Operations.
Balance Sheet Hedging Activities
We use foreign currency forward contracts to mitigate foreign currency exchange rate risk associated with non-functional currency
denominated cash balances and inter-company funding loans, non-functional currency denominated accounts receivable and non-
39
functional currency denominated accounts payable. These transactions are not designated as hedging instruments and are accounted
for as derivatives whereby the fair value of the contracts is reported as either assets or liabilities on our Consolidated Balance
Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other, net, in our Consolidated
Statements of Operations. We do not enter into derivative financial contracts for speculative or trading purposes. At March 31,
2018, we had $4.4 million of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars and $67.6
million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars all of which have maturities of less
than one year. At March 31, 2017, we had $9.2 million of forward contracts outstanding to buy foreign currencies in exchange for
U.S. dollars and $177.5 million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars all of which
have maturities of less than one year. For the fiscal years ended March 31, 2018, 2017 and 2016, we recorded a loss of $19.5
million and gains of $7.2 million and $0.1 million, respectively, related to foreign currency forward contracts in Interest and other,
net on the Consolidated Statements of Operations. As of March 31, 2018 and 2017 the fair value of these outstanding forward
contracts was a loss of $0.0 million and $0.4 million, respectively, and is included in accrued and other current liabilities. The fair
value of these outstanding forward contracts is estimated based on the prevailing exchange rates of the various hedged currencies
as of the end of the period.
Our hedging programs are designed to reduce, but do not entirely eliminate, the effect of currency exchange rate movements. We
believe the counterparties to these foreign currency forward contracts are credit-worthy multinational commercial banks and that
the risk of counterparty nonperformance is not material. Notwithstanding our efforts to mitigate some foreign currency exchange
rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign
currency fluctuations. For the fiscal year ended March 31, 2018, 41.3% of our revenue was generated outside the United States.
Using sensitivity analysis, a hypothetical 10% increase in the value of the U.S. dollar against all currencies would decrease revenues
by 4.1%, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenues by 4.1%.
In the opinion of management, a substantial portion of this fluctuation would be offset by cost of goods sold and operating expenses
incurred in local currency.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data appear in a separate section of this report following Part IV. We provide details
of our valuation and qualifying accounts in "Note 21—Supplementary Financial Information" to the Consolidated Financial
Statements. All schedules have been omitted since the information required to be submitted has been included on the Consolidated
Financial Statements or notes thereto or has been omitted as not applicable or not required.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Definition and Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) are designed to reasonably ensure that information required to be disclosed in our reports filed
under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities
and Exchange Commission's rules and forms and (ii) accumulated and communicated to management, including our principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include
the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints.
In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable,
about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions.
Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their
objectives.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the
effectiveness of our disclosure controls and procedures at March 31, 2018, the end of the period covered by this report. Based on
this evaluation, the principal executive officer and principal financial officer concluded that, at March 31, 2018, our disclosure
controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported on a timely basis, and
40
(ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosures.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission 2013 framework ("COSO"). Based on this evaluation, management has concluded
that our internal control over financial reporting was effective as of March 31, 2018.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on our internal control over
financial reporting. The report on the audit of internal control over financial reporting is included in this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2018, which were
identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange
Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
41
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference to the sections entitled "Proposal 1—Election of Directors"
and "Executive Compensation—Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement
(the "Proxy Statement") for the Annual Meeting of Stockholders to be held in 2018. We intend to file the Proxy Statement within
120 days after the end of the fiscal year (i.e. on or before July 29, 2018). Our Code of Business Conduct and Ethics applicable to
our directors and all employees, including senior financial officers, is available on our website at www.take2games.com. If we
make any amendment to our Code of Business Conduct and Ethics that is required to be disclosed pursuant to the Exchange Act,
we will make such disclosures on our website.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the section entitled "Executive Compensation" in our
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections entitled "Voting Security Ownership of
Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section entitled "Certain Relationships and Related
Transactions" in our Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the section entitled "Independent Auditor Fee
Information" in our Proxy Statement.
42
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Report:
(i) Financial Statements. See Index to Financial Statements on page 51 of this Report.
(ii) Financial Statement Schedule. See Note 21 to the Consolidated Financial Statements.
(iii) Index to Exhibits:
Incorporated by Reference
Form
8-K
Filing Date
2/3/2017
Exhibit
2.1
Filed
Herewith
10-K
10-K
2/12/2004
2/12/2004
3.1
3.1.2
10-K
2/12/2004
3.1.3
8-K
4/23/2009
3.1
8-K
9/24/2012
3.1
10-K
2/12/2004
3.1.1
8-A12B
3/26/2008
8-K
9/18/2017
4.2
3.1
8-K
6/18/2013
4.1
Exhibit Number
2.1
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.2
3.3
3.4
4.1
Exhibit Description
Share Sale and Purchase Agreement, dated
January 31, 2017, by and among Take-Two
Interactive Software, Inc., Take-Two Invest
Espana, S.L., Andres Bou Ortiz, Horacio
Martos Borja, Marc Canaleta Caupena,
Voladuras Hinojo, S.L., Nauta Tech Invest III,
S.C.R., S.A., Bilbao Vizcaya Holding, S.A., La
Banque Postale Innovation 11 FCPI, Capital
Croissance 4, Objectif Innovation Patrimoine 4
FCPI, Strategie PME 2011 FCPI, Idinvest
Patrimoine FCPI, Allianz Eco Innovation 3
FCPI, Objectif Innovation 5 FCPI, Idinvest
Crossance FCPI, SG Innovation 2011 FCPI,
Allianz Eco Innovation 2 FCPI, Objectif
Innovation 4 FCPI, Idinvest Flexible 2016
FCPI, Capital Croissance 5 FCPI, Objectif
Innovation Patrimoine 5 FCPI, Idinvest
Patrimoine 2 FCPI, Objectif Innovation
Patrimoine 6 FCPI, Idinvest Patrimoine 3
FCPI, Greylock Israel Investment Vehicle in
Social Point, LTD, and HCPESP, S.a.r.l. †
Restated Certificate of Incorporation
Certificate of Amendment of Restated
Certificate of Incorporation, dated April 30,
1998
Certificate of Amendment of Restated
Certificate of Incorporation, dated
November 17, 2003
Certificate of Amendment of Restated
Certificate of Incorporation, dated April 23,
2009
Certificate of Amendment of Restated
Certificate of Incorporation, dated
September 21, 2012
Certificate of Designation of Series A Preferred
Stock, dated March 11, 1998
Certificate of Designation of Series B Preferred
Stock, dated March 26, 2008
Amended and Restated Bylaws of Take-Two
Interactive Software, Inc., effective as of
September 15, 2017
Indenture, dated as of June 18, 2013, by and
between the Company and The Bank of New
York Mellon, as Trustee, relating to 1.00%
Convertible Notes
43
Exhibit Number
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Exhibit Description
Supplemental Indenture, dated as of June 18,
2013, between the Company and The Bank of
New York Mellon, as Trustee, to Indenture,
dated as of June 18, 2013, between the
Company and The Bank of New York Mellon,
as Trustee
Form of 1.00% Convertible Note (included in
Exhibit 4.2)
Take-Two Interactive Software, Inc. Change in
Control Employee Severance Plan+
Amended and Restated Take-Two Interactive
Software, Inc. 2009 Stock Incentive Plan,
effective as of July 21, 2016+
Form of Employee Restricted Stock Agreement
+
Form of Non-Employee Director Restricted
Stock Agreement+
Form of Employee Restricted Unit Agreement
+
Form of Employee Restricted Unit Agreement+
Form of Employee Global Restricted Unit
Agreement+
Form of Employee Restricted Unit Agreement +
Form of Employee Global Restricted Unit
Agreement+
Form of Employee Global Restricted Unit
Agreement Pursuant to the Take-Two
Interactive Software, Inc. 2009 Stock Incentive
Plan+
Take-Two Interactive Software, Inc. 2017
Stock Incentive Plan, effective as of September
15, 2017+
Take-Two Interactive Software, Inc. 2017
Stock Incentive Plan Qualified RSU Sub-Plan
for France, effective as of September 15, 2017+
Take-Two Interactive Software, Inc. 2017
Global Employee Stock Purchase Plan,
effective as of September 15, 2017+
Form of Global Restricted Stock Unit
Agreement Pursuant to the Take-Two
Interactive Software, Inc. 2017 Stock Incentive
Plan+
Form of Global Restricted Stock Performance
Unit Agreement Pursuant to the Take-Two
Interactive Software, Inc. 2017 Stock Incentive
Plan+
Form of Non-Employee Director Restricted
Stock Agreement Pursuant to the Take-Two
Interactive Software Inc. 2017 Stock Incentive
Plan+
Form of Non-Employee Director Stock Grant
Agreement Pursuant to the Take-Two
Interactive Software Inc. 2017 Stock Incentive
Plan+
44
Incorporated by Reference
Form
8-K
Filing Date
6/18/2013
Exhibit
4.2
Filed
Herewith
8-K
6/18/2013
4.2
8-K
3/7/2008
10.1
14A
7/28/2016
Annex A
10-Q
6/5/2009
10-Q
6/5/2009
10-Q
8/1/2012
10-Q
10-Q
10/30/2013
10/30/2013
10-Q
10/30/2013
10-Q
10/30/2013
10.2
10.3
10.1
10.1
10.2
10.3
10.4
10-Q
10/30/2013
10.5
14A
7/27/2017
Annex B
14A
7/27/2017
Annex C
14A
7/27/2017
Annex D
10-Q
11/8/2017
10.4
10-Q
11/8/2017
10.5
10-Q
11/8/2017
10.6
10-Q
11/8/2017
10.7
Exhibit Number
10.18
Exhibit Description
Employment Agreement, dated May 12, 2010,
between the Company and Lainie Goldstein+
Form
8-K
Filing Date
5/14/2010
Exhibit
10.1
Filed
Herewith
Incorporated by Reference
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
First Amendment to Employment Agreement,
dated October 25, 2010, between the Company
and Lainie Goldstein+
Second Amendment to Employment
Agreement, dated August 27, 2012, between
the Company and Lainie Goldstein+
Employment Agreement, dated February 14,
2008, by and between the Company and Karl
Slatoff+
Employment Agreement dated January 28,
2015 between the Company and Daniel
Emerson+
Management Agreement, dated as of March 10,
2014, by and between the Company and
ZelnickMedia Corporation+
Restricted Unit Agreement, dated as of
May 20, 2015, by and between the Company
and ZelnickMedia Corporation+
Amended and Restated Restricted Unit
Agreement Pursuant to the Take-Two
Interactive Software, Inc. 2009 Incentive Stock
Plan, dated as of June 30, 2015+
Amendment to the Restricted Stock Unit
Agreement, dated as of March 31, 2016, by and
between Take-Two Interactive Software, Inc.
and ZelnickMedia Corporation+
Restricted Unit Agreement, dated as of May
20, 2016, by and between Take-Two Interactive
Software, Inc. and ZelnickMedia Corporation+
Amendment to Amended and Restated
Restricted Unit Agreement Pursuant to the
Take Two Interactive Software, Inc. 2009
Incentive Stock Plan, dated as of February 7,
2017+
Restricted Unit Agreement, dated as of May
25, 2017, by and between Take-Two Interactive
Software, Inc. and ZelnickMedia Corporation+
Amendment to Amended and Restated
Restricted Unit Agreement Pursuant to the
Take-Two Interactive Software, Inc. 2009
Incentive Stock Plan, dated as of December 15,
2017+
Management Agreement, dated as of
November 17, 2017, by and between the
Company and ZelnickMedia Corporation+
Restricted Unit Agreement, dated as of April
13, 2018, by and between Take-Two Interactive
Software, Inc. and ZelnickMedia Corporation+
8-K
10/25/2010
10.1
10-Q
10/31/2012
10.6
8-K
2/15/2008
10.3
10-Q
2/6/2015
10.1
8-K
3/10/2014
10.1
S-3
ASR
5/20/2015
10.2
10-Q
8/10/2015
10.1
10-K
5/19/2016
10.50
S-3
ASR
5/20/2016
10.2
10-Q
2/8/2017
10.3
S-3
ASR
5/25/2017
10.2
10-Q
2/8/2018
10.4
8-K
11/22/2017
10.1
S-3
ASR
4/13/2018
10.2
45
Exhibit Number
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
Exhibit Description
Security Agreement dated as of July 3, 2007,
made by each of the Grantors listed on the
signature pages thereof and Wells Fargo
Foothill, Inc. in its capacity as administrative
agent for the Lender Group and the Bank
Product Providers
Supplement to Security Agreement dated as of
November 16, 2007, made by each of the
grantors listed on the signature pages thereof
and Wells Fargo Foothill, Inc. in its capacity as
administrative agent for the Lender Group and
the Bank Product Providers
Second Amended and Restated Credit
Agreement, dated as of October 17, 2011, by
and among the Company, each of its
Subsidiaries identified on the signature pages
thereto as Borrowers, each of its Subsidiaries
identified on the signature pages thereto as
Guarantors, the lender parties thereto, and
Wells Fargo Capital Finance, Inc., as
administrative agent
First Amendment to Second Amended and
Restated Credit Agreement, dated June 12,
2013
Second Amendment to Second Amended and
Restated Credit Agreement, dated April 28,
2014
Third Amendment to Second Amended and
Restated Credit Agreement, dated August 18,
2014
Fourth Amendment to Second Amended and
Restated Credit Agreement, May 21, 2015
Fifth Amendment to Second Amended and
Restated Credit Agreement, dated February 11,
2016
Sixth Amendment to Second Amended and
Restated Credit Agreement, dated April 8, 2016
Seventh Amendment to Second Amended and
Restated Credit Agreement, dated December
22, 2017
Xbox 360 Publisher License Agreement dated
November 17, 2005, between Microsoft
Licensing, GP and the Company*
Amendment to Xbox 360 Publisher License
Agreement, dated December 4, 2008, between
Microsoft Licensing, GP and the Company*
Amendment to the Xbox 360 Publisher License
Agreement, dated November 22, 2011,
between the Company and Microsoft
Licensing, GP*
Amendment to the Xbox 360 Publisher License
Agreement, dated December 11, 2012, between
the Company and Microsoft Licensing, GP*
Amendment to the Xbox 360 Publisher License
Agreement, dated November 13, 2013,
between the Company and Microsoft
Licensing, GP*
46
Incorporated by Reference
Form
8-K
Filing Date
7/9/2007
Exhibit
10.2
Filed
Herewith
8-K
11/20/2007
99.2
8-K
10/17/2011
10.1
10-K
5/14/2014
10.27
10-K
5/14/2014
10.28
8-K
8/21/2014
10.1
10-K
5/19/2016
10.45
8-K
2/12/2016
10.1
10-Q
8/5/2016
10.1
10-Q
2/8/2018
10.3
10-Q
11/8/2011
10.3
10-Q
6/5/2009
10.1
10-Q
2/3/2012
10.1
10-Q
2/6/2013
10.2
10-Q
2/4/2014
10.2
Incorporated by Reference
Form
10-Q
Filing Date
10/30/2014
Exhibit
10.1
Filed
Herewith
10-Q
2/8/2018
10.2
10-Q
2/4/2014
10.1
10-Q
8/6/2014
10.1
10-K
5/19/2016
10.48
10-K
5/19/2016
10.49
10-Q/A
5/23/2017
10.2
X
10-K
5/24/2017
10.48
10-Q
9/16/2002
10.2
10-K
5/23/2012
10.45
10-K
5/14/2014
10.39
10-K
5/19/2016
10.47
10-Q
2/4/2016
10.1
Exhibit Number
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
Exhibit Description
Amendment to the Xbox 360 Publisher License
Agreement, dated September 30, 2014,
between Microsoft Corporation and the
Company*
Amendment to the Xbox 360 Publisher License
Agreement, signed on December 21, 2017,
between Microsoft Corporation and the
Company*
Xbox One Publisher License Agreement dated
October 31, 2013, between Microsoft
Licensing, GP and the Company*
Amendment to the Xbox One Publisher
License Agreement, dated May 7, 2014,
between Microsoft Licensing, GP and the
Company*
Amendment to the Xbox One Publisher
License Agreement, dated January 30, 2015,
between Microsoft Corporation and the
Company*
Amendment No. 3 to the Xbox One Publisher
License Agreement, dated August 13, 2015,
between Microsoft Corporation and the
Company*
Amendment No. 4 to the Xbox One Publisher
License Agreement, dated December 15, 2016,
between Microsoft Corporation and the
Company*
Amendment No. 5 to the Xbox One Publisher
License Agreement, signed on January 10,
2018, between Microsoft Corporation and the
Company**
PlayStation Global Developer and Publisher
Agreement, dated as of March 23, 2017,
between the Company and certain of its
affiliates and Sony Interactive Entertainment,
Inc., Sony Interactive Entertainment America
LLC, and Sony Interactive Entertainment
Europe Ltd.**
Lease Agreement between the Company and
Moklam Enterprises, Inc. dated July 1, 2002
Sixth Lease Modification Agreement, dated
January 18, 2012, between the Company and
Moklam Enterprises, Inc.
Seventh Lease Modification Agreement, dated
April 8, 2014, between the Company and
Moklam Enterprises, Inc.
Eighth Lease Modification Agreement, dated
as of January 6, 2015, by and between Take-
Two Interactive Software, Inc. and Moklam
Enterprises, Inc.
Ninth Lease Modification Agreement, dated as
of December 15, 2015, by and between Take-
Two Interactive Software, Inc. and Moklam
Enterprises, Inc.
47
Exhibit Number
10.62
Exhibit Description
Lease Agreement, dated as of December 12,
2016, by and between Take-Two Interactive
Software, Inc. and DOLP 1133 Properties II
LLC for a premises with entrances at 1133
Avenue of the Americas and 110 West 44th
Street, New York, New York 10036
Incorporated by Reference
Form
10-Q
Filing Date
2/8/2017
Exhibit
10.1
Filed
Herewith
10.63
8-K
2/3/2017
10.1
Registration Rights Agreement, dated January
31, 2017, by and among Take-Two Interactive
Software, Inc, Andres Bou Ortiz, Horacio
Martos Borja, Marc Canaleta Caupena,
Voladuras Hinojo, S.L., Nauta Tech Invest III,
S.C.R., S.A., Bilbao Vizcaya Holding, S.A., La
Banque Postale Innovation 11 FCPI, Capital
Croissance 4, Objectif Innovation Patrimoine 4
FCPI, Strategie PME 2011 FCPI, Idinvest
Patrimoine FCPI, Allianz Eco Innovation 3
FCPI, Objectif Innovation 5 FCPI, Idinvest
Crossance FCPI, SG Innovation 2011 FCPI,
Allianz Eco Innovation 2 FCPI, Objectif
Innovation 4 FCPI, Idinvest Flexible 2016
FCPI, Capital Croissance 5 FCPI, Objectif
Innovation Patrimoine 5 FCPI, Idinvest
Patrimoine 2 FCPI, Objectif Innovation
Patrimoine 6 FCPI, Idinvest Patrimoine 3
FCPI, Greylock Israel Investment Vehicle in
Social Point, LTD, and HCPESP, S.a.r.l.
48
Exhibit Number
21.1
23.1
31.1
31.2
32.1
32.2
Exhibit Description
Form
Filing Date
Exhibit
Importance by Reference
Subsidiaries of the Company
Consent of Ernst & Young LLP
Chief Executive Officer Certification Pursuant
to Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Chief Financial Officer Certification Pursuant
to Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Chief Executive Officer Certification pursuant
to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Chief Financial Officer Certification pursuant
to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS
XBRL Instance Document.
101.SCH
101.CAL
XBRL Taxonomy Extension Schema
Document.
XBRL Taxonomy Calculation Linkbase
Document.
101.LAB
XBRL Taxonomy Label Linkbase Document.
101.PRE
101.DEF
XBRL Taxonomy Presentation Linkbase
Document.
XBRL Taxonomy Extension Definition
Document.
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
_______________________________________________________________________________
†
+
*
Schedules omitted pursuant to item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the
SEC upon its request.
Represents a management contract or compensatory plan or arrangement.
Portions thereof were omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment that
was granted in accordance with Exchange Act Rule 24b-2.
**
Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in
accordance with Exchange Act Rule 24b-2.
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets at March 31, 2018 and 2017, (ii) Consolidated Statements of Operations for the fiscal years ended
March 31, 2018, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended
March 31, 2018, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2018, 2017 and
2016, (v) Consolidated Statements of Stockholders' Equity for the fiscal years ended March 31, 2018, 2017 and 2016; and (vi) Notes
to the Consolidated Financial Statements.
49
Item 16. Form 10-K Summary
Not applicable.
50
TAKE-TWO INTERACTIVE SOFTWARE, INC.
FISCAL YEAR ENDED MARCH 31, 2018
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—At March 31, 2018 and 2017
Consolidated Statements of Operations—For the fiscal years ended March 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss)—For the fiscal years ended March 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows—For the fiscal years ended March 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders' Equity—For the fiscal years ended March 31, 2018, 2017 and 2016
Notes to the Consolidated Financial Statements
Page
52
54
55
56
57
58
59
(All other items in this report are inapplicable)
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Take-Two Interactive Software, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Take-Two Interactive Software, Inc. (the Company) as of March
31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders’
equity for each of the three years in the period ended March 31, 2018, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at March 31, 2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of March 31, 2018, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated May 16, 2018 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based
compensation in 2018 due to the adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young, LLP
We have served as the Company’s auditor since 2006.
New York, NY
May 16, 2018
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Take-Two Interactive Software, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Take-Two Interactive Software, Inc.'s (the Company) internal control over financial reporting as of March 31,
2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of March 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of March 31, 2018 and 2017, the related consolidated statements
of operations, comprehensive income (loss), cash flows and stockholders’ equity for each of the three years in the period ended
March 31, 2018, and the related notes and our report dated May 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young, LLP
New York, NY
May 16, 2018
53
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
Current assets:
ASSETS
Cash and cash equivalents
Short-term investments
Restricted cash
Accounts receivable, net of allowances of $54,290 and $66,483 at March 31, 2018 and
2017, respectively
Inventory
Software development costs and licenses
Deferred cost of goods sold
Prepaid expenses and other
Total current assets
Fixed assets, net
Software development costs and licenses, net of current portion
Deferred cost of goods sold, net of current portion
Goodwill
Other intangibles, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Total current liabilities
Long-term debt
Non-current deferred revenue
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized: no shares issued and outstanding
at March 31, 2018 and 2017
Common stock, $.01 par value, 200,000 shares authorized; 132,743 and 119,813 shares
issued and 114,038 and 102,621 outstanding at March 31, 2018 and 2017, respectively
Additional paid-in capital
Treasury stock, at cost; 18,705 and 17,192 common shares at March 31, 2018 and 2017,
respectively
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying Notes.
March 31,
2018
2017
$
$
808,973
615,406
437,398
943,396
448,932
337,818
247,649
15,162
33,284
117,851
133,454
2,409,177
102,478
639,369
26,719
399,530
103,681
56,887
3,737,841
35,029
914,748
777,152
1,726,929
8,068
355,589
158,285
2,248,871
$
$
219,558
16,323
41,721
127,901
59,593
2,195,242
67,300
381,910
—
359,115
110,262
35,325
3,149,154
31,892
750,875
903,125
1,685,892
251,929
10,406
197,199
2,145,426
—
—
1,327
1,888,039
(458,180)
73,516
(15,732)
1,488,970
3,737,841
$
1,198
1,452,754
(303,388)
(99,694)
(47,142)
1,003,728
3,149,154
$
$
$
54
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Net revenue
Cost of goods sold
Gross profit
Selling and marketing
General and administrative
Research and development
Business reorganization
Depreciation and amortization
Total operating expenses
Income (loss) from operations
Interest and other, net
Gain on long-term investments, net
Income (loss) before income taxes
(Benefit from) provision for income taxes
Net income (loss)
Earnings (loss) per share:
Basic earnings (loss) per share
Diluted earnings (loss) per share
See accompanying Notes.
Fiscal Year Ended March 31,
2018
1,792,892
898,311
894,581
256,092
247,828
196,373
14,742
43,969
759,004
135,577
1,048
—
136,625
(36,908)
173,533
1.57
1.54
$
$
$
$
2017
1,779,748
1,022,959
756,789
285,453
211,409
137,915
—
30,707
665,484
91,305
(15,690)
1,350
76,965
9,662
67,303
0.73
0.72
$
$
$
$
2016
1,413,698
813,873
599,825
198,309
192,452
119,807
71,285
28,800
610,653
(10,828)
(30,205)
2,683
(38,350)
(30,048)
(8,302)
(0.10)
(0.10)
$
$
$
$
55
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustment
Cash flow hedges:
Change in unrealized gains
Reclassification to earnings
Tax effect on effective cash flow hedges
Change in fair value of cash flow hedges
Available-for-sale securities:
Net unrealized gain (loss), net of taxes
Reclassification to earnings for realized net loss, net of taxes
Change in fair value of available-for-sale securities
Other comprehensive income (loss)
Comprehensive income (loss)
See accompanying Notes.
2018
173,533
$
March 31,
2017
2016
$
67,303
$
(8,302)
43,379
(9,086)
(7,364)
(8,153)
—
(2,038)
(10,191)
(1,778)
—
(1,778)
31,410
204,943
$
$
—
—
—
—
(169)
9
(160)
(9,246)
58,057
$
—
(17)
—
(17)
73
36
109
(7,272)
(15,574)
56
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses
Stock-based compensation
Amortization of intellectual property
Depreciation
Amortization of discount on Convertible Notes
Impairment of in-process research and development
Amortization of debt issuance costs
Deferred income taxes
Gain on long-term investments, net
Gain on redemption of Convertible Notes
Other, net
Changes in assets and liabilities:
Restricted cash
Accounts receivable
Inventory
Software development costs and licenses
Prepaid expenses, other current and other non-current assets
Deferred revenue
Deferred cost of goods sold
Accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
Investing activities:
Change in bank time deposits
Proceeds from available-for-sale securities
Purchases of available-for-sale securities
Purchases of fixed assets
Proceeds from sale of long-term investment
Purchase of long-term investments
Business acquisitions, net of cash acquired
Asset acquisition
Other
Net cash used in investing activities
Financing activities:
Tax payment related to net share settlements on restricted stock awards
Repurchase of common stock
Excess tax benefit from stock-based compensation
Other
Net cash used in financing activities
Effects of foreign currency exchange rates on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental data:
Interest paid
Income taxes paid (refunded)
See accompanying Notes.
57
Fiscal Year Ended March 31,
2018
2017
2016
$
173,533
$
67,303
$
(8,302)
77,887
116,349
34,830
32,202
15,662
11,257
578
(32,523)
—
(4,900)
6,375
(99,580)
(26,998)
3,917
(225,269)
(74,544)
198,397
(11,959)
198,733
393,947
(40,918)
241,012
(369,998)
(61,557)
—
(5,000)
(9,401)
(25,965)
—
221,911
81,879
6,738
30,707
21,222
—
1,227
3,020
(1,350)
—
(3,410)
(76,474)
(41,956)
(4,942)
(252,951)
(22,155)
126,285
(14,969)
189,344
331,429
89,076
155,936
(221,671)
(21,167)
1,350
(1,885)
(130,669)
—
—
(271,827)
(129,030)
(112,884)
(154,792)
—
(13,791)
(281,467)
24,924
(134,423)
943,396
808,973
4,121
8,790
$
$
$
$
$
$
(51,762)
—
1,990
—
(49,772)
(7,973)
144,654
798,742
943,396
7,628
6,648
$
$
$
134,472
69,996
160
28,800
23,457
—
1,567
(270)
(2,683)
—
2,588
(91,491)
49,348
3,809
(219,217)
(12,272)
152,325
(41,144)
170,162
261,305
(182,383)
43,314
(150,501)
(37,280)
2,683
—
—
—
(349)
(324,516)
(22,916)
(26,552)
1,421
—
(48,047)
(1,120)
(112,378)
911,120
798,742
7,626
(26,223)
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Treasury Stock
Shares
Amount
Retained
Earnings/
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Balance, March 31, 2015
104,594
$
1,046
$ 1,028,197
(16,238) $(276,836) $
(158,695) $
(30,624) $
563,088
Balance, March 31, 2016
103,765
1,038
1,088,628
(17,192)
(303,388)
(166,997)
(37,896)
Net loss
Change in cumulative foreign currency
translation adjustment
Change in unrealized gains on derivative
instruments, net
Net unrealized gain on available-for-sale
securities, net of taxes
Stock-based compensation
Tax benefit associated with stock awards
Issuance of restricted stock, net of forfeitures
and cancellations
Repurchased common stock
Net share settlement of restricted stock
awards
—
—
—
—
—
—
(84)
—
(745)
—
—
—
—
—
—
(1)
—
(7)
—
—
—
—
83,137
1,421
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(954)
(26,552)
(24,128)
—
—
Net income
Change in cumulative foreign currency
translation adjustment
Net unrealized gain on available-for-sale
securities, net of taxes
Stock-based compensation
Tax benefit associated with stock awards
—
—
—
—
—
Issuance of restricted stock, net of forfeitures
and cancellations
1,738
—
—
—
—
—
17
—
—
—
88,378
1,990
(17)
Settlement of 1.75% Convertible Notes Due
2016
Conversion of 1.00% Convertible Notes Due
2018
Issuance of shares related to Social Point
acquisition
Net share settlement of restricted stock
awards
13,094
131
249,866
899
1,480
9
15
18,332
57,327
(1,163)
(12)
(51,750)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance, March 31, 2017
119,813
1,198
1,452,754
(17,192)
(303,388)
Net income
Change in cumulative foreign currency
translation adjustment
Net unrealized gain on available-for-sale
securities, net of taxes
Change in unrealized gains on cash flow
hedge, net
Stock-based compensation
Issuance of restricted stock, net of forfeitures
and cancellations
Repurchased common stock
Conversion of 1.00% Convertible Notes Due
2018
Net share settlement of restricted stock
awards
Adoption of ASU 2016-09
Balance, March 31, 2018
See accompanying Notes.
—
—
—
—
—
2,151
—
—
—
—
—
—
21
—
—
—
—
—
293,214
(21)
—
12,082
121
254,963
(1,303)
—
(13)
—
(112,871)
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,513)
(154,792)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(8,302)
—
(8,302)
(7,364)
(7,364)
(17)
109
—
—
—
—
—
(17)
109
83,137
1,421
—
(26,552)
(24,135)
581,385
67,303
67,303
—
—
—
—
—
—
—
—
—
—
(9,086)
(9,086)
(160)
—
—
—
—
—
—
—
(160)
88,378
1,990
—
249,997
18,341
57,342
(51,762)
(99,694)
173,533
(47,142)
1,003,728
—
173,533
—
—
—
—
—
—
—
—
(323)
43,379
43,379
(1,778)
(1,778)
(10,191)
—
—
—
—
—
(10,191)
293,214
—
(154,792)
255,084
(112,884)
(323)
132,743
$
1,327
$ 1,888,039
(18,705) $(458,180) $
73,516
$
(15,732) $
1,488,970
58
TAKE-TWO INTERACTIVE SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware
in 1993. We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We
develop and publish products principally through our two wholly-owned labels Rockstar Games and 2K, as well as our new Private
Division label and Social Point, a leading developer of mobile games. Our products are designed for console systems and personal
computers, including smart phones and tablets, and are delivered through physical retail, digital download, online platforms and
cloud streaming services.
Principles of Consolidation
The Consolidated Financial Statements include the financial statements of the Company and its wholly-owned subsidiaries. All
inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain immaterial amounts in the financial statements of the prior years have been reclassified to conform to the current year
presentation for comparative purposes.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses
during the reporting periods. Our most significant estimates and assumptions relate to the recoverability of software development
costs and prepaid royalties, licenses and intangibles, valuation of inventories, realization of deferred income taxes, the adequacy
of price protection, allowances for sales returns and doubtful accounts, accrued liabilities, the service period for deferred net
revenue and related cost of goods sold, fair value estimates, the valuation of stock-based compensation, and assumptions used in
our goodwill impairment tests. These estimates generally involve complex issues and require us to make judgments, involve
analysis of historical and the prediction of future trends, and are subject to change from period to period. Actual amounts could
differ significantly from these estimates. The Company considers transactions or events that occur after the balance sheet date,
but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters
that require additional disclosures.
Concentration of Credit Risk and Accounts Receivable
We maintain cash balances at several major financial institutions. While we attempt to limit credit exposure with any single
institution, balances often exceed insurable amounts.
If the financial condition and operations of our customers deteriorate, our risk of collection could increase substantially. A majority
of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted for 70.7%
65.5% and 58.9% of net revenue during the fiscal years ended March 31, 2018, 2017 and 2016, respectively. One customer
accounted for 30.2%, 26.3% and 20.7% of net revenues during the fiscal years ended March 31, 2018, 2017, and 2016, respectively.
A second customer accounted for 17.6%, 14.2%, and 15.5% of net revenue during the fiscal years ended March 31, 2018, 2017,
and 2016 respectively. A third customer accounted for 10.9% of net revenue during the fiscal year ended March 31, 2017. As of
March 31, 2018 and 2017, five customers accounted for 65.4% and 69.9% of our gross accounts receivable, respectively. Customers
that individually accounted for more than 10% of our gross accounts receivable balance comprised 53.2% and 57.6% of such
balances at March 31, 2018 and 2017, respectively. We had two customers who accounted for 37.7% and 15.5% of our gross
accounts receivable as of March 31, 2018 and two customers who accounted for 40.2% and 17.4% of our gross accounts receivable
as of March 31, 2017. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31,
2018 and 2017. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our
customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent
a significant credit risk.
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Our
restricted cash balance is primarily related to a dedicated account limited to the payment of certain internal royalty obligations.
59
Short-term Investments
Short-term investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices
for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar
characteristics. Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally
classified within short-term investments. In addition, investments with maturities beyond one year at the time of purchase that are
highly liquid in nature and represent the investment of cash that is available for current operations are classified as short-term
investments.
Unrealized gains and losses of available-for-sale securities are excluded from earnings and are reported as a component of other
comprehensive (loss) income, net of tax, until the security is sold, the security has matured, or we determine that the fair value of
the security has declined below its adjusted cost basis and the decline is other-than-temporary. Realized gains and losses on short-
term investments are calculated based on the specific identification method and would be reclassified from accumulated other
comprehensive loss to interest and other, net.
Short-term investments are evaluated for impairment quarterly. We consider various factors in determining whether we should
recognize an impairment charge, including the credit quality of the issuer, the duration that the fair value has been less than the
adjusted cost basis, the severity of the impairment, the reason for the decline in value, and our intent to sell and ability to hold the
investment for a period of time sufficient to allow for any anticipated recovery in market value. If we conclude that an investment
is other-than-temporarily impaired, it recognizes an impairment charge at that time in the Consolidated Statements of Operations.
In determining whether the decline in fair value is other-than-temporary requires management judgment based on the specific
facts and circumstances of each security. The ultimate value realized on these securities is subject to market price volatility until
they are sold.
Inventory
Inventory consists of materials, including manufacturing royalties paid to console manufacturers, and is stated at the lower of
weighted average cost or net realizable value. Estimated product returns are included in the inventory balance at their cost. We
regularly review inventory quantities on-hand and in the retail channels and record an inventory provision for excess or obsolete
inventory based on the future expected demand for our products. Significant changes in demand for our products would affect
management's estimates in establishing our inventory provision. We write down inventory based on excess or obsolete inventories
determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference between
the cost of the inventory and market value, based upon assumptions about future demand that are inherently difficult to assess.
Software Development Costs and Licenses
Capitalized software development costs include direct costs incurred for internally developed titles and payments made to third-
party software developers under development agreements.
We capitalize internal software development costs (including specifically identifiable employee stock-based compensation, payroll
expense, and incentive compensation costs related to the completion and release of titles, as well as third-party production and
other content costs), subsequent to establishing technological feasibility of a software title. Technological feasibility of a product
includes the completion of both technical design documentation and game design documentation. Significant management
judgments are made in the assessment of when technological feasibility is established. For products where proven technology
exists, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis.
We enter into agreements with third-party developers that require us to make payments for game development and production
services. In exchange for our payments, we receive the exclusive publishing and distribution rights to the finished game title as
well as, in some cases, the underlying intellectual property rights. Such agreements typically allow us to fully recover these
payments to the developers at an agreed upon royalty rate earned on the subsequent sales of such software, net of any agreed upon
costs. Prior to establishing technological feasibility of a product, we record any costs incurred by third-party developers as research
and development expenses. Subsequent to establishing technological feasibility of a product, we capitalize all development and
production service payments to third-party developers as software development costs and licenses. We typically enter into
agreements with third-party developers after completing the technical design documentation for our products and therefore record
the design costs leading up to a signed development contract as research and development expense. When we contract with third-
party developers, we generally select those that have proven technology and experience in the genre of the software being developed,
which often allows for the establishment of technological feasibility early in the development cycle. In instances where the
documentation of the design and technology are not in place prior to an executed contract, we monitor the software development
process and require our third-party developers to adhere to the same technological feasibility standards that apply to our internally
developed products.
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Licenses consist of payments and guarantees made to holders of intellectual property rights for use of their trademarks, copyrights
or other intellectual property rights in the development of our products. Agreements with license holders generally provide for
guaranteed minimum payments for use of their intellectual property. Certain licenses, especially those related to our sports products,
extend over multi-year periods and encompass multiple game titles. In addition to guaranteed minimum payments, these licenses
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 available for general release
and is recorded on a title-by-title basis in cost of goods sold. For capitalized software development costs, amortization is calculated
using (1) the proportion of current year revenues to the total revenues expected to be recorded over the life of the title or (2) the
straight-line method over the remaining estimated life of the title, whichever is greater. For capitalized licenses, amortization is
calculated as a ratio of (1) current period revenues to the total revenues expected to be recorded over the remaining estimated life
of the title or (2) the contractual royalty rate based on actual net product sales as defined in the licensing agreement, whichever
is greater.
We evaluate the future recoverability of capitalized software development costs and licenses on a quarterly basis. Recoverability
is primarily assessed based on the actual title's performance. For products that are scheduled to be released in the future,
recoverability is evaluated based on the expected performance of the specific products to which the cost or license relates. We
utilize a number of criteria in evaluating expected product performance, including historical performance of comparable products
developed with comparable technology; market performance of comparable titles; orders for the product prior to its release; general
market conditions; and, past performance of the franchise. When we determine that capitalized cost of the title is unlikely to be
recovered by product sales, an impairment of software development and license capitalized costs is charged to cost of goods sold
in the period in which such determination is made.
We have profit and unit sales based internal royalty programs that allow selected employees to each participate in the success of
software titles that they assist in developing. Royalties earned under this program are recorded as a component of cost of goods
sold in the period earned.
Fixed Assets, net
Office equipment, furniture and fixtures are depreciated using the straight-line method over their estimated useful life of five years.
Computer equipment and software are generally depreciated using the straight-line method over three to five years. Leasehold
improvements are amortized over the lesser of the term of the related lease or the useful life of the underlying asset, typically
seven years. The cost of additions and betterments are capitalized, and repairs and maintenance costs are charged to operations,
in the periods incurred. When depreciable assets are retired or sold, the cost and related allowances for depreciation are removed
from the accounts and the gain or loss, if any, is recognized. The carrying amounts of these assets are recorded at historical cost.
Goodwill and Intangible Assets
Goodwill is the excess of purchase price paid over identified intangible and tangible net assets of acquired companies. Intangible
assets consist of intellectual property, developed game technology, analytics technology, user base, trade names, and in-process
research and development. Certain intangible assets acquired in a business combination are recognized as assets apart from goodwill.
We use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach
presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted
to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction
cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets.
Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the
characteristics of the asset and the availability of information.
We test our goodwill for impairment annually, at the beginning of August, or more frequently if events and circumstances indicate
the fair value of a reporting unit may be below its carrying amount. A reporting unit is defined as an operating segment or one
level below an operating segment. We have determined that we operate in two reporting units, which are components of our
operating segment. In the evaluation of goodwill for impairment, we have the option to first perform a qualitative assessment to
determine if the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50%) less than the carrying
value before performing the two-step impairment test.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive, the impairment analysis for goodwill
is performed at the reporting unit level using a two-step approach. The first step of the goodwill impairment test is used to identify
potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value
of the reporting unit exceeds its carrying value, step two does not need to be performed. If the carrying value exceeds the fair
value, there is a potential impairment, and step two must be performed. In performing the quantitative assessment in step one, we
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measure the fair value of the reporting unit using a combination of the income approach, which uses discounted cash flows, and
the market approach, which uses market capitalization and data for comparable companies.
Each step requires us to make judgments and involves the use of significant estimates and assumptions. These estimates and
assumptions include long-term growth rates and operating margins used to calculate projected future cash flows, risk-adjusted
discount rates based on our weighted average cost of capital, future economic and market conditions and the determination of
appropriate market comparables. Our estimates for market growth are based on historical data, various internal estimates and
observable external sources when available, and are based on assumptions that are consistent with the plans and estimates we use
to manage the underlying business.
Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less
the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is
less than the carrying amount of goodwill, an impairment is recognized. Based on our annual impairment assessment process for
goodwill, no impairments were recorded during the fiscal years ended March 31, 2018, 2017 or 2016.
Long-lived Assets
We review all long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying
amount of an asset or asset group may not be recoverable. We compare the carrying amount of the asset to the estimated undiscounted
future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, we record an impairment charge for the difference between the carrying amount of the asset and
its fair value. The estimated fair value is generally measured by discounting expected future cash flows using our incremental
borrowing rate or fair value, if available. As of March 31, 2018, no indicators of impairment existed.
Derivatives and Hedging
We transact business in various foreign currencies and have significant sales and purchase transactions denominated in foreign
currencies, subjecting us to foreign currency exchange rate risk. From time to time, we carry out transactions involving foreign
currency exchange derivative financial instruments. The transactions are designed to hedge our exposure in currency exchange
rate movements. We recognize derivative instruments as either assets or liabilities on our Consolidated Balance Sheets and we
measure those instruments at fair value. The changes in fair value of derivatives that are not designated as hedges are recognized
currently in earnings as interest and other, net in our Consolidated Statements of Operations. If a derivative meets the definition
of a cash flow hedge and is so designated, the effective portion of changes in the fair value of the derivative are recognized, as a
component of other comprehensive income (loss) while the ineffective portion of the changes in fair value is recorded currently
in earnings as interest and other, net in our Consolidated Statements of Operations. Amounts included in Accumulated other
comprehensive income (loss) for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized
in Cost of goods sold, Research and development expenses, or Interest and other, net, as appropriate.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. Our provision for income
taxes is computed using the asset and liability method, under which deferred income taxes are recognized for differences between
the financial statement and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the
differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that
includes the enactment.
Valuation allowances are established when we determine that it is more likely than not that such deferred tax assets will not be
realized. We do not record income tax expense related to foreign withholding taxes or United States income taxes that may become
payable upon the repatriation of undistributed earnings of foreign subsidiaries, as such earnings are expected to be reinvested
indefinitely outside of the United States.
We use estimates and assumptions to compute the provision for income taxes including allocations of certain transactions to
different tax jurisdictions, amounts of permanent and temporary differences, the likelihood of deferred tax assets being recovered
and the outcome of contingent tax risks. These estimates and assumptions are revised as new events occur, more experience is
acquired and additional information is obtained. The effect of these revisions is recorded in income tax expense or benefit in the
period in which they become known.
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (herein
referred to as the "Act”). The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned
by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income,
states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences
expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given
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the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet
determined its accounting policy. At March 31, 2018, because the Company is still evaluating the GILTI provisions and analysis
of future taxable income that is subject to GILTI, it is unable to make a reasonable estimate and has not reflected any adjustments
related to GILTI in its Consolidated Financial Statements.
Revenue Recognition
We recognize revenue on the sales of software products upon the transfer of title and risk of loss to our customers. Accordingly,
we recognize revenue for software titles when there is (1) persuasive evidence that an arrangement with the customer exists, (2)
the product is delivered, (3) the selling price is fixed or determinable and (4) collection of the customer receivable is deemed
probable. Certain products are sold to customers with a street date (i.e., the earliest date these products may be sold by retailers).
For these products, we recognize revenue on the later of the street date or the sale date. In addition, some of our software products
are sold as full game digital downloads and digital add-on content for which the consumer takes possession of the digital content
for a fee. Revenue from product downloads is generally recognized when the download is made available to the end user (assuming
all other recognition criteria are met).
In providing credit terms to our customers, our payment arrangements typically provide net 30 and 60 day terms. Advances received
for licensing and exclusivity arrangements are reported on our Consolidated Balance Sheets as deferred revenue until we meet
our performance obligations, at which point we recognize the revenue.
For some of our software products, we enter into multiple element revenue arrangements in which we may provide a combination
of full game software, online multi-player functionality, and related post-contract customer support ("PCS") which generally
includes additional free unspecified add-on content updates, maintenance, and online support services. For these arrangements,
we evaluate the significance of the PCS at the time each game is released based on the guidance in Accounting Standards Codification
985-605, "Software—Revenue Recognition" ("ASC 985-605") to determine if the PCS rises to the level of a separate deliverable.
We monitor our initial assessments on an ongoing basis and consider any changes that may arise. In conjunction with our evaluation,
we consider such factors as the significance of the development effort, the nature of online features, the extent of anticipated
marketing focus on online features, the significance of the online features to the consumers' anticipated overall gameplay experience,
and the significance and length of time of our post sale obligations to consumers. Determining whether PCS is significant for a
particular game is subjective and requires management's judgment.
When a software arrangement includes multiple elements, the arrangement consideration is allocated to each revenue element
based on the relative fair value of vendor specific objective evidence ("VSOE") for each element. When VSOE of fair value does
not exist for all of the elements in the arrangement, ASC 985-605 requires either the use of the residual method or the deferral of
revenue until the earlier point at which VSOE of fair value exists for any undelivered element or until only one undelivered element
remains. For arrangements that require the deferral of revenue, the related cost of goods sold is deferred and recognized as the
related net revenue is recognized. Deferred cost of goods sold includes product costs and licenses. We do not have VSOE for our
PCS obligations and in those arrangements where PCS obligations have been determined to be significant we recognize revenue
from the sale of software products and the related cost of goods sold ratably over the period we expect to offer the PCS to the
consumer ("estimated service period"), assuming all other recognition criteria are met. We also do not have VSOE for our online
multi-player functionality; however, it is generally delivered at the same time with the full game software. Determining the estimated
service period is subjective and requires management's judgment, therefore, the estimated service period may change in the future.
The estimated service periods of our current games with online functionality and related PCS are generally 12 months, with the
exception of GTA, which is 62 months (see below).
When our software products provide insignificant PCS at no additional cost to the consumer, we recognize revenue when the four
primary revenue recognition criteria described above have been met for all other deliverables in the arrangement and, in those
situations, we estimate and accrue the future costs of providing those services.
Certain of our games provide consumers with the option to purchase virtual currency to use in the game to acquire virtual goods.
We currently recognize revenue from the sale of virtual currency, using the game-based model, ratably over the estimated remaining
life of the game. Because the service period for our online-enabled games with significant PCS is not an explicitly defined period,
we must make an estimate of the service offering period for purposes of recognizing revenue. The estimated service period for
current deferred title offerings is based on our estimate of the economic game life of the respective title. Determining the estimated
service period (or economic game life) is inherently subjective and is subject to regular revision based on numerous factors and
considerations. The factors that we primarily consider as part of our process of initially determining and subsequently reassessing
estimated service periods for our titles include:
•
the period of time over which the substantial majority of a respective title’s estimated lifetime game sales and in-
game virtual currency sales are expected to occur;
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•
•
•
•
•
•
the period of time over which we plan to provide free unspecified add-on content updates, maintenance or other
remaining material online support services associated with our online-enabled games;
the time over which we plan to dedicate internal resources to support the online functionality of a title;
known and expected online gameplay trends;
the results from prior analyses;
the nature of the game (e.g., annual title, genre, period of time between franchise title releases, etc.); and
the disclosed service periods for competitors’ games.
To the extent we have recorded significant amounts of revenue deferred for specific titles, changes in the estimated service
periods could have a material impact on the revenue recognized in a particular period.
As part of our on-going assessment of estimated service periods during the fiscal year ended March 31, 2018, based on the factors
described above and new information obtained during the period, we changed Grand Theft Auto V's estimated service period to
extend the estimated game life through December 2019. The impact of the change is shown in the table below.
Change in net revenue
Change in income from operations
Change in net income
Change in earnings per share, basic
Change in earnings per share, diluted
Fiscal Year Ended
March 31, 2018
$
$
$
(271,741)
(250,589)
(212,925)
(1.93)
(1.81)
Revenue is recognized after deducting estimated price protection, reserves for returns and other allowances. In circumstances
when we do not have a reliable basis to estimate price protection, returns and other allowances or are unable to determine that
collection of a receivable is probable, we defer the revenue until we can reliably estimate any related returns and allowances and
determine that collection of the receivable is probable.
Price Protection and Allowances for Returns
We grant price protection and accept returns in connection with our distribution arrangements with customers. Following reductions
in the price of our products, we grant price protection to permit customers to take credits against amounts they owe us with respect
to merchandise unsold by them. Our customers must satisfy certain conditions to entitle them to receive price protection or return
products, including compliance with applicable payment terms and confirmation of field inventory levels.
Generally, our distribution arrangements with customers do not give them the right to return titles or to cancel firm orders. However,
we occasionally accept returns from our customers for stock balancing and make accommodations to customers, which include
credits and returns, when demand for specific titles falls below expectations.
We make estimates of future price protection and product returns related to current period product revenue. We estimate the amount
of future price protection and returns for published titles based upon, among other factors, historical experience and performance
of the titles in similar genres, historical performance of the hardware platform, customer inventory levels, analysis of sell-through
rates, sales force and retail customer feedback, industry pricing, market conditions and changes in demand and acceptance of our
products by consumers.
Significant management judgments and estimates must be made and used in connection with establishing price protection and the
allowance for returns in any accounting period. We believe we can make reliable estimates of price protection and returns. However,
actual results may differ from initial estimates as a result of changes in circumstances, market conditions and assumptions.
Adjustments to estimates are recorded in the period in which they become known.
Consideration Given to Customers and Received from Vendors
We have various marketing arrangements with retailers and distributors of our products that provide for cooperative advertising
and market development funds, among others, which are generally based on single exchange transactions. Such amounts are
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accrued as a reduction to revenue at the later of: (1) the date at which the related revenue is recognized by us, or (2) the date at
which the sales incentive is offered, except for cooperative advertising which is included in selling and marketing expense if there
is a separate identifiable benefit and the benefit's fair value can be established.
We receive various incentives from our manufacturers, including up-front cash payments as well as rebates based on a cumulative
level of purchases. Such amounts are generally accounted for as a reduction in the price of the manufacturer's product and included
as a reduction of inventory or cost of goods sold, based on an agreed upon per unit rebate.
Advertising
We expense advertising costs as incurred. Advertising expense for the fiscal years ended March 31, 2018, 2017 and 2016 amounted
to $140,618, $173,947 and $94,743, respectively, and are included in "Selling and marketing expense" in our Consolidated
Statements of Operations.
Stock-based Compensation
We have stock-based compensation plans that are broad-based long-term retention programs intended to attract and retain talented
employees and align stockholder and employee interests, which allows for awards of restricted stock, restricted stock units and
other stock-based awards of our common stock to employees and non-employees. Our plans include time-based, market-based,
and performance-based awards of our common stock to employees and non-employees.
We account for stock-based awards under the fair value method of accounting. The fair value of all stock-based compensation is
either capitalized and amortized in accordance with our software development cost accounting policy or recognized as expense
on a straight-line basis over the full vesting period of the awards for time-based stock awards and on an accelerated attribution
method for market-based and performance-based stock awards.
We estimate the fair value of time-based awards to employees using our closing stock price on the date of grant. We estimate the
fair value of market-based awards using a Monte Carlo Simulation method, which takes into account assumptions such as the
expected volatility of our common stock, the risk-free interest rate based on the contractual term of the award, expected dividend
yield, vesting schedule and the probability that the market conditions of the awards will be achieved. For employee performance-
based shares, we do not record expense until the performance criteria are considered probable.
We apply variable accounting to our non-employee stock-based awards, whereby we remeasure such awards at each balance sheet
date and adjust the value of the awards based on its fair value at the end of the reporting period. For non-employee time-based
awards fair value is determined by the closing price of our common stock at the end of the reporting period. For non-employee
market-based awards fair value is determined using a Monte Carlo Simulation method, which also takes into account the probability
that the market conditions of the awards will be achieved. For non-employee performance-based awards we do not record an
expense until performance targets have been achieved and once achieved fair value is determined by the closing price of our
common stock at the end of the reporting period.
Stock-based compensation expense is recorded net of forfeitures as they occur.
Earnings (loss) per Share ("EPS")
Basic EPS is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average
number of shares of common stock outstanding during the same period. Diluted EPS is computed by dividing the net income (loss)
applicable to common stockholders for the period by the weighted average number of shares of common stock and common stock
equivalents outstanding.
Certain of our unvested stock-based awards are considered participating securities since these securities have non-forfeitable rights
to dividends or dividend equivalents during the contractual period of the award, and thus require the two-class method of computing
EPS. The calculation of EPS for common stock under the two-class method excludes the income attributable to the participating
securities from the numerator and excludes the dilutive effect of those awards from the denominator.
We define common stock equivalents as unvested stock-based awards and common stock underlying the Convertible Notes (see
Note 11) outstanding during the period. Common stock equivalents are measured using the treasury stock method, and common
stock equivalents underlying the Convertible Notes are assessed for their effect on diluted EPS using the more dilutive of the
treasury stock method or the if-converted method. Under the provisions of the if-converted method, the Convertible Notes are
assumed to be converted and included in the denominator of the EPS calculation and the interest expense, net of tax, recorded in
connection with the Convertible Notes is added back to the numerator. However, potential common shares are not included in the
denominator of the diluted earnings (loss) per share calculation when inclusion of such shares would be anti-dilutive, such as in
a period in which a net loss is recorded.
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Foreign Currency
The functional currency for our foreign operations is primarily the applicable local currency. Accounts of foreign operations are
translated into U.S. dollars using exchange rates for assets and liabilities at the balance sheet date and average prevailing exchange
rates for the period for revenue and expense accounts. Adjustments resulting from translation are included in accumulated other
comprehensive income (loss). Realized and unrealized transaction gains and losses are included in our Consolidated Statements
of Operations in the period in which they occur.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and
distributions to owners. Accumulated other comprehensive income (loss) includes foreign currency translation adjustments, which
relate to investments that are permanent in nature and therefore do not require tax adjustments, and the amounts for unrealized
gains (losses), net on derivative instruments designated as cash flow hedges, as well as any associated tax impact, and available
for sale securities.
Recently Adopted Accounting Pronouncements
Accounting for Stock Compensation
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09,
Compensation—Stock Compensation. This new guidance identifies areas for simplification involving several aspects of accounting
for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities,
an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain
classifications on the statement of cash flows.
We adopted this update effective April 1, 2017. Upon adoption, using the modified retrospective transition method, we recognized
previously unrecognized excess tax benefits as a deferred tax asset, which was fully offset by a valuation allowance, resulting in
no net impact to retained earnings. Without the valuation allowance, our deferred tax asset would have increased by $24,594. We
elected to apply the change in presentation of excess tax benefits as an operating activity in the Consolidated Statement of Cash
Flows prospectively and thus no prior periods were adjusted. We also elected to account for forfeitures as they occur using the
modified retrospective transition method, which resulted in a cumulative effect adjustment of $323 to retained earnings (an increase
in the accumulated deficit). During the fiscal year ended March 31, 2018, we recognized $53,169 of excess tax benefits on stock-
based compensation in our Consolidated Statement of Operations as a result of adopting this update. The other aspects of the new
guidance did not have a material effect on our Consolidated Financial Statements.
Accounting for Acquisitions or Disposals
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, with the objective of providing additional
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. The amendments in this update provide new guidance to determine when an integrated set of assets and activities
(collectively referred to as a “set”) is not a business. The new guidance requires that when substantially all of the fair value of the
gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set
is not a business. The new guidance is expected to reduce the number of transactions that need to be further evaluated. The new
standard, as amended, will be effective prospectively for interim and annual reporting periods beginning on January 1, 2018 (April
1, 2018 for the Company), with early adoption permitted. We adopted this update as of April 1, 2017.
Recently Issued Accounting Pronouncements
Accounting for Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU eliminates Step 2 from
the goodwill impairment test. Under the new guidance, an entity should perform its annual or interim goodwill impairment test
by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. Additionally, this ASU eliminates the requirements for any
reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to
perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for fiscal years beginning after December
15, 2019 (April 1, 2020 for the Company), including interim periods within those fiscal years, and is applied on a prospective
basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,
2017. While we are currently evaluating the impact of the adoption of this ASU, we do not believe that the adoption of this guidance
will have a material impact on our Consolidated Financial Statements.
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Accounting for Restricted Cash
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU amends
the presentation of restricted cash within the statement of cash flows. The new guidance requires that changes in restricted cash
and cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2017 (April
1, 2018 for the Company), including interim periods within those fiscal years. We are currently evaluating the impact of the
adoption of this ASU, which will result in a change to our presentation of net cash provided by (used in) operating activities in
our Consolidated Statements of Cash Flows for the impact of changes in restricted cash balances.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Leases. This new guidance requires lessees to recognize a right-of-use asset
and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). The liability will be
equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct
costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or
finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result
in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar
to those applied in current lease accounting. This update is effective for annual periods, and interim periods within those years,
beginning after December 15, 2018 (April 1, 2019 for the Company). This new guidance must be adopted using a modified
retrospective approach whereby, lessees and lessors are required to recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact of
adopting this update on our Consolidated Financial Statements, which will consist primarily of a balance sheet gross up of our
operating leases, mostly for office space.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard,
revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects
the consideration, which the entity expects to receive in exchange for those goods or services. In addition, the standard requires
disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The new standard is effective for us beginning with the first quarter of fiscal 2019 (April 1, 2018). We are adopting the new
standard using the modified retrospective method, which requires the recognition of the cumulative effect upon adoption as an
adjustment to retained earnings at the adoption date. We will report our adoption in our Form 10-Q for the first quarter of fiscal
2019.
This standard will have a material impact on our Consolidated Financial Statements. We expect that the most significant impact
relates to our accounting for online enabled games that benefit from meaningful online support services and post-release content
updates for which we do not have VSOE. Under the current accounting standards, for such titles, we recognize the entire associated
revenue ratably over the estimated service period based on the economic game life. Under the new standard, the VSOE requirement
will be eliminated, and we will recognize as revenue a portion of the sales price allocated to the software upon delivery of the
game. Additionally, we have determined that for purposes of recognizing revenue deferred for both our virtual currency sales and
material post-release performance obligations for our online-enabled games, the estimated period during which an average user
plays our games (“user life”) most faithfully depicts the timing of our performance. The user life will be calculated on a title-by-
title basis and is estimated to be between 9 and 15 months depending on the game. All outstanding deferred revenues and costs
as of the date of adoption, April 1, 2018, will be amortized ratably prospectively over the estimated user life for each title.
We expect these differences to affect primarily revenues from our Grand Theft Auto franchise and NBA 2K franchise, where we
expect that a majority of the sales price will be allocated to the software and recognized as product revenue upon delivery of the
games to our customers, and the remaining amounts allocated to the post-release performance obligation for each title as well as
related virtual currency sales will be recognized as service revenue over the user life.
We estimate that the cumulative effect of adopting the new revenue standard will result in an adjustment to retained earnings at
the adoption date of approximately $360 million to $440 million, inclusive of the associated tax impacts. Additionally, the new
disclosure requirements will require us to design and implement additional internal controls over financial reporting, as well as
update certain of our existing processes and internal controls in adopting the new standard.
67
Also, upon adoption of the new standard, a substantial majority of our allowances, including estimated price protection, reserves
for returns and other allowances will be classified as refund liabilities, whereas currently, these allowances are classified as contra-
assets within accounts receivable on our Consolidated Balance Sheets.
2. MANAGEMENT AGREEMENT
In March 2014, we entered into an amended management services agreement, (the "2014 Management Agreement") with
ZelnickMedia Corporation ("ZelnickMedia") pursuant to which ZelnickMedia provided us with certain management, consulting
and executive level services. In November 2017, we entered into a new management agreement, (the "2017 Management
Agreement"), with ZelnickMedia pursuant to which ZelnickMedia continues to provide financial and management consulting
services to the Company through March 31, 2024. The 2017 Management Agreement became effective January 1, 2018 and
supersedes and replaces the 2014 Management Agreement, except as otherwise contemplated by the 2017 Management Agreement.
As part of the 2017 Management Agreement, Strauss Zelnick, the President of ZelnickMedia, continues to serve as Executive
Chairman and Chief Executive Officer and Karl Slatoff, a partner of ZelnickMedia, continues to serve as President of the Company.
The 2014 Management Agreement provided for an annual management fee of $2,970 over the term of the agreement and a maximum
annual bonus opportunity of $4,752 over the term of the agreement, based on the Company achieving certain performance
thresholds. The 2017 Management Agreement provides for an annual management fee of $3,100 over the term of the agreement
and a maximum annual bonus opportunity of $7,440 over the term of the agreement, based on the Company achieving certain
performance thresholds.
In consideration for ZelnickMedia's services, we recorded consulting expense (a component of general and administrative expenses)
of $8,426, $7,722 and $7,722 for the fiscal years ended March 31, 2018, 2017 and 2016, respectively.
Pursuant to the 2014 Management Agreement, we also issued stock-based awards to ZelnickMedia. During the fiscal years ended
March 31, 2018, 2017 and 2016, we recorded $32,801, $29,573 and $26,652, respectively, of stock-based compensation expense
for non-employee awards, which is included in general and administrative expenses. See Note 15 for a discussion of such awards.
3. FAIR VALUE MEASUREMENTS
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable,
accounts payable and accrued liabilities, approximate fair value because of their short maturities.
We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities
to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to
measure fair value are as follows:
• Level 1—Quoted prices in active markets for identical assets or liabilities.
• Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are
not active or other inputs that are observable or can be corroborated by observable market data.
• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
The table below segregates all assets that are measured at fair value on a recurring basis (which is measured at least annually) into
the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement
date.
68
Money market funds
Bank-time deposits
Commercial paper
Corporate bonds
US Treasuries
Commercial paper
Mutual funds
Bank-time deposits
Foreign currency forward contracts
Foreign currency forward contracts
Cross-currency swap
Private equity
Total recurring fair value measurements,
net
Money market funds
Bank-time deposits
Commercial paper
Corporate bonds
Bank-time deposits
Commercial paper
Mutual funds
Foreign currency forward contracts
Foreign currency forward contracts
Private equity
Contingent consideration
Total recurring fair value measurements,
net
Quoted prices
in active markets
for identical
assets (level 1)
Significant other
observable inputs
(level 2)
Significant
unobservable
inputs
(level 3)
March 31,
2018
Balance Sheet Classification
$ 516,626
$
516,626
$
21
10,796
308,716
59,725
25,422
4,880
216,663
12
(43)
(15,659)
1,205
21
—
—
59,725
—
—
216,663
—
—
—
—
— $
—
10,796
308,716
—
25,422
4,880
—
12
(43)
(15,659)
—
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
— Short-term investments
— Short-term investments
— Short-term investments
— Short-term investments
— Short-term investments
— Prepaid expenses and other
— Accrued and other current liabilities
— Accrued and other current liabilities
1,205 Other assets
$1,128,364
$
793,035
$
334,124
$
1,205
Quoted prices
in active markets
for identical
assets (level 1)
Significant other
observable inputs
(level 2)
Significant
unobservable
inputs
(level 3)
March 31,
2017
Balance Sheet Classification
$ 646,386
$
646,386
$
46,605
38,268
243,019
175,745
25,936
4,232
2
(352)
570
(6,465)
46,605
—
—
175,745
—
—
—
—
—
—
— $
—
38,268
243,019
—
25,936
4,232
2
(352)
—
—
— Cash and cash equivalents
— Cash and cash equivalents
— Cash and cash equivalents
— Short-term investments
— Short-term investments
— Short-term investments
— Short-term investments
— Prepaid expenses and other
— Accrued and other current liabilities
570 Other assets
(6,465) Other long-term liabilities
$1,173,946
$
868,736
$
311,105
$
(5,895)
In connection with the Social Point acquisition (see Note 23), we recorded $6,409 as the initial fair value of earn-out contingent
consideration. The fair value was estimated using a Monte-Carlo simulation model, which included significant unobservable Level
3 inputs, such as projected financial performance over the earn-out period along with estimates for market volatility and the
discount rate applicable to potential cash payouts.
During the fiscal year ended March 31, 2018, we recognized a reduction to general and administrative expense of $6,465, after
the impact of foreign exchange, for the decrease in fair value of the contingent consideration liability associated with the Social
Point acquisition, which reduced the fair value of the contingent consideration liability to $0. The reduction resulted from the
lower probability of Social Point achieving certain performance measures in the 24-month period following the acquisition.
We did not have any transfers between Level 1 and Level 2 fair value measurements nor did we have any transfers into or out of
Level 3 during the fiscal year ended March 31, 2018.
Debt
As of March 31, 2018, the estimated fair value of our 1.00% Convertible Notes due 2018 (the "1.00% Convertible Notes") was
$36,799. The fair value was determined using Level 2 inputs, observable market data for the 1.00% Convertible Notes and its
embedded option feature. See Note 11 for additional information regarding our Convertible Notes.
69
4. SHORT-TERM INVESTMENTS
Our short-term investments consisted of the following as of March 31, 2018:
Short-term investments
Bank time deposits
Available-for-sale securities:
Corporate bonds
US Treasuries
Commercial paper
Mutual funds
Total short-term investments
Short-term investments
Bank time deposits
Available-for-sale securities:
Corporate bonds
Commercial paper
Mutual funds
Total short-term investments
Cost or
Amortized Cost
March 31, 2018
Gross Unrealized
Gains
Losses
Fair Value
$
216,663
$ — $ — $
216,663
310,387
59,970
25,422
4,876
617,318
$
16
—
—
16
32
(1,687)
(245)
—
(12)
$ (1,944) $
308,716
59,725
25,422
4,880
615,406
$
Cost or
Amortized Cost
March 31, 2017
Gross Unrealized
Gains
Losses
Fair Value
$
175,745
$ — $ — $
175,745
243,140
25,938
4,118
448,941
$
98
5
123
226
(219)
(7)
(9)
(235) $
$
243,019
25,936
4,232
448,932
$
Based on our evaluation of impairment for these investments, we did not consider any of these investments to be other-than-
temporarily impaired as of March 31, 2018 or 2017. We do not intend to sell any of our investments with unrealized losses, nor
is it more likely than not that we will be required to sell those investments.
The following table summarizes the contracted maturities of our short-term investments at March 31, 2018:
Short-term investments
Due in 1 year or less
Due in 1-2 years
Total short-term investments
March 31, 2018
Amortized Cost
Fair Value
$
$
509,981
107,337
617,318
$
$
508,853
106,553
615,406
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash
flows associated with changes in foreign currency exchange rates. We do not enter into derivative financial contracts for speculative
or trading purposes. We classify cash flows from its derivative transactions as cash flows from operating activities in our
Consolidated Statements of Cash Flows.
Foreign currency forward contracts
The following table shows the gross notional amounts of foreign currency forward contracts:
Forward contracts to sell foreign currencies
Forward contracts to purchase foreign currencies
70
March 31,
2018
$
$
67,580
4,359
$
$
2017
177,549
9,170
For the fiscal years ended March 31, 2018, 2017 and 2016, we recorded a loss of $19,473 and gains of $7,197, and $144, respectively,
related to foreign currency forward contracts in Interest and other, net on the Consolidated Statements of Operations. Our derivative
contracts are foreign currency exchange forward contracts that are not designated as hedging instruments under hedge accounting
and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense. These
instruments are generally short term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign
exchange rates.
Cross-currency swaps
We entered into a cross-currency swap agreement in August 2017 related to an intercompany loan that has been designated and
accounted for as a cash flow hedge of foreign currency exchange risk. The intercompany loan is related to the acquisition of Social
Point. As of March 31, 2018, the notional amount of the cross-currency swap is $129,000. This cross-currency swap mitigates the
exposure to fluctuations in the U.S. dollar-euro exchange rate related to the intercompany loan. The critical terms of the cross-
currency swap agreement correspond to the intercompany loan and both mature at the same time in 2027; as such, there was no
ineffectiveness during the period.
Changes in the fair value of this cross-currency swap are recorded in Accumulated other comprehensive income (loss) and offset
the change in value of interest and principal payment as a result of changes in foreign exchange rates. Resulting gains or losses
from the cross-currency swap are reclassified from Accumulated other comprehensive income (loss) to earnings to offset foreign
currency transaction gains and losses recognized on the intercompany loan. We recognize the difference between the U.S. dollar
interest payments received from the swap counterparty and the U.S. dollar equivalent of the euro interest payments made to the
swap counterparty in Interest and other, net on our Consolidated Statement of Operations. There are no credit-risk related contingent
features associated with these swaps.
6. INVENTORY
Inventory balances by category are as follows:
Finished products
Parts and supplies
Inventory
March 31,
2018
2017
$
$
13,940
1,222
15,162
$
$
15,530
793
16,323
Estimated product returns included in inventory at March 31, 2018 and 2017 were $373 and $529, respectively.
7. SOFTWARE DEVELOPMENT COSTS AND LICENSES
Details of our capitalized software development costs and licenses are as follows:
Software development costs, internally developed
Software development costs, externally developed
Licenses
Software development costs and licenses
March 31,
2018
2017
Current
Non-current
Current
Non-current
$
$
19,338
4,275
9,671
33,284
$
$
515,761
122,270
1,338
639,369
$
$
28,959
5,455
7,307
41,721
$
$
310,229
71,407
274
381,910
Software development costs and licenses as of March 31, 2018 and 2017 included $638,055 and $381,910, respectively, related
to titles that have not been released.
71
Amortization and impairment of software development costs and licenses are as follows:
Fiscal Year Ended March 31,
Amortization of software development costs and licenses
Impairment of software development costs and licenses
Less: Portion representing stock-based compensation
Amortization and impairment, net of stock-based compensation
2018
101,437
1,060
(24,610)
77,887
$
$
8. FIXED ASSETS, NET
Fixed asset balances by category are as follows:
Computer equipment
Computer software
Leasehold improvements
Office equipment
Furniture and fixtures
Less: accumulated depreciation
Fixed assets, net
2017
222,801
20,166
(21,056)
221,911
$
$
2016
117,506
22,671
(5,705)
134,472
March 31,
2018
2017
87,926
47,702
88,762
8,139
13,933
246,462
(143,984)
102,478
$
$
75,281
41,527
56,758
5,843
9,108
188,517
(121,217)
67,300
$
$
$
$
Depreciation expense related to fixed assets for the fiscal years ended March 31, 2018, 2017 and 2016 was $32,202, $30,629 and
$28,800, respectively.
9. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The change in our goodwill balance is as follows:
Balance at March 31, 2016
Additions and adjustments (see Note 23)
Currency translation adjustment
Balance at March 31, 2017
Additions from immaterial acquisition
Adjustments (see Note 23)
Currency translation adjustment
Balance at March 31, 2018
Indefinite-lived intangibles
Total
217,080
143,952
(1,917)
359,115
6,236
4,245
29,934
399,530
$
$
$
$
Intangibles, net as of March 31, 2017 includes in-process research and development assets of $14,827 acquired as part of the
Social Point acquisition, which are indefinite-lived intangibles and therefore not subject to amortization until the related games
are released. During the fiscal year ended March 31, 2018, as a result of our decision not to proceed with further development of
a certain game related to in-process research and development ("IPR&D"), we recognized an impairment charge of $11,257 in
Depreciation and amortization expense in our Consolidated Statements of Operations. As of March 31, 2018, there are $5,226 of
in-process research and development assets included in Intangibles, net.
72
Definite-lived intangibles
The following table sets forth the intangible assets that are subject to amortization:
March 31,
2018
2017
Intellectual property
Developed game technology
Analytics technology
User base
Branding and trade names
Total definite-lived intangible assets
Gross
Carrying
Amount
$ 37,431
67,133
34,499
10,454
4,879
$ 154,396
Accumulated
Amortization
$
Net Book
Value
(13,616) $ 23,815
(23,189)
43,944
(8,050)
26,449
(10,454)
—
(632)
4,247
(55,941) $ 98,455
$
Gross
Carrying
Amount
$ 15,931
54,421
29,959
9,079
4,237
$113,627
Accumulated
Amortization
$
Net Book
Value
(12,943) $ 2,988
(2,659)
51,762
(999)
28,960
(1,513)
7,566
(78)
4,159
(18,192) $ 95,435
$
During the fiscal year ended March 31, 2018, we acquired intellectual property related to Kerbal Space Program, which was
treated as a an asset acquisition in accordance with the adoption of ASU 2017-01 (Refer to Note 1), resulting in a $21,500 increase
in Intellectual property and a $4,465 increase in Developed game technology.
Amortization of intangible assets is included in our Consolidated Statements of Operations as follows:
Cost of goods sold
Selling and marketing
Research and development
Depreciation and amortization
Total amortization of intangible assets
Fiscal Year Ended March 31,
2018
2017
2016
$
$
19,719
8,107
6,494
510
34,830
$
$
4,252
1,497
989
78
6,816
$
$
160
—
—
—
160
Estimated future amortization of intangible assets that will be recorded in cost of goods sold and operating expenses for the years
ending March 31, are as follows:
Fiscal Year Ended
March 31,
2019
2020
2021
2022
2023
Amortization
31,683
$
28,223
18,445
10,774
4,295
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of:
Software development royalties
Business reorganization (see Note 20)
Compensation and benefits
Licenses
Deferred acquisition payments
Marketing and promotions
Other
Accrued expenses and other current liabilities
73
March 31,
2018
600,512
72,074
57,499
43,261
25,000
19,731
96,671
914,748
$
$
2017
492,133
65,935
44,843
37,019
25,000
21,030
64,915
750,875
$
$
11. DEBT
Credit Agreement
In December 2017, we entered into a Seventh Amendment to our Second Amended and Restated Credit Agreement (as amended,
the “Credit Agreement”). The Credit Agreement provides for borrowings of up to $100,000 which may be increased by up to
$100,000 pursuant to the terms of the Credit Agreement and which is secured by substantially all of our assets and the equity of
our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear interest at
our election of (a) 0.25% to 0.75% above a certain base rate (4.75% at March 31, 2018), or (b) 1.25% to 1.75% above the LIBOR
Rate (approximately 1.88% at March 31, 2018), with the margin rate subject to the achievement of certain average liquidity levels.
We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based on availability.
We had no outstanding borrowings at March 31, 2018 and 2017.
Availability under the Credit Agreement is unrestricted when liquidity, as defined in the Credit Agreement, is at least $300,000.
When liquidity is below $300,000 availability under the Credit Agreement is restricted by our United States and United Kingdom
based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an
aggregate amount of up to $5,000.
Information related to availability on our Credit Agreement is as follows:
Available borrowings
Outstanding letters of credit
March 31,
2018
2017
$
$
98,335
1,664
$
$
98,320
1,664
We recorded interest expense and fees related to the Credit Agreement of $441, $441 and $438, for the fiscal years ended March 31,
2018, 2017 and 2016, respectively. The Credit Agreement contains covenants that substantially limit our and our subsidiaries'
ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course of business; acquire,
merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties;
make investments; or pay dividends or make distributions (each subject to certain limitations); or optionally prepay any indebtedness
(subject to certain exceptions, including an exception permitting the redemption of the Company's unsecured convertible senior
notes upon the meeting of certain minimum liquidity requirements). In addition, the Credit Agreement provides for certain events
of default such as nonpayment of principal and interest, breaches of representations and warranties, noncompliance with covenants,
acts of insolvency, default on indebtedness held by third parties and default on certain material contracts (subject to certain
limitations and cure periods). The Credit Agreement also contains a requirement that we maintain an interest coverage ratio of
more than one to one for the trailing twelve-month period, if certain average liquidity levels fall below $30,000.
1.00% Convertible Notes Due 2018
On June 18, 2013, we issued $250,000 aggregate principal amount of 1.00% Convertible Notes due 2018. The 1.00% Convertible
Notes were issued at 98.5% of par value for proceeds of $246,250. Interest on the 1.00% Convertible Notes is payable semi-
annually in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible Notes mature
on July 1, 2018, unless earlier repurchased by the Company or converted. The Company does not have the right to redeem the
1.00% Convertible Notes prior to maturity. The Company also granted the underwriters a 30-day option to purchase up to an
additional $37,500 principal amount of 1.00% Convertible Notes to cover overallotments, if any. On July 17, 2013, the Company
closed its public offering of $37,500 principal amount of the Company's 1.00% Convertible Notes as a result of the underwriters
exercising their overallotment option in full on July 12, 2013, bringing the total proceeds to $283,188.
The 1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1 principal
amount of 1.00% Convertible Notes (representing an initial conversion price of approximately $21.52 per share of common stock
for a total of approximately 13,361 underlying conversion shares) subject to adjustment in certain circumstances.
During the fiscal year ended March 31, 2018, 1.00% Convertible Notes with an aggregate principal value of $259,989 were
submitted for conversion. We elected to settle the conversion in shares of our common stock. As a result of early conversions of
the 1.00% Convertible Notes, we recorded a gain within Interest and other, net on our Consolidated Statement of Operations of
$4,900 for the fiscal year ended March 31, 2018.
74
The following table provides additional information related to our 1.00% Convertible Notes:
Additional paid-in capital
Principal amount of 1.00% Convertible Notes
Unamortized discount of the liability component
Carrying amount of debt issuance costs
Net carrying amount of 1.00% Convertible Notes
March 31,
2018
2017
35,784
8,160
89
3
8,068
$
$
$
35,784
268,149
15,751
469
251,929
$
$
$
As of March 31, 2018 and 2017, the if-converted value of our 1.00% Convertible Notes exceeded the principal amount of $8,160
and $268,149, respectively, by $28,639 and $470,456, respectively.
As of April 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert
their 1.00% Convertible Notes at any time. Prior to April 26, 2018, upon conversion, the 1.00% Convertible Notes were eligible
to be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.
Effective April 26, 2018, we elected to settle our remaining conversion obligations in connection with the 1.00% Convertible
Notes solely in shares of our common stock and accordingly notified the Trustee. As such, we have continued to classify these
1.00% Convertible Notes as long-term debt.
The following table provides the components of interest expense related to our 1.00% Convertible Notes:
Cash interest expense (coupon interest expense)
Non-cash amortization of discount on 1.00% Convertible Notes
Amortization of debt issuance costs
Total interest expense related to 1.00% Convertible Notes
Fiscal Year Ended March 31,
2018
2017
2016
$
$
539
15,662
466
16,667
$
$
2,784
14,221
453
17,458
$
$
2,875
12,085
443
15,403
75
12. EARNINGS (LOSS) PER SHARE ("EPS")
The following table sets forth the computation of basic and diluted EPS (in thousands except per share amounts):
Fiscal Year Ended March 31,
2018
2017
2016
Computation of Basic earnings (loss) per share:
Net income (loss)
Less: net income allocated to participating securities
Net income (loss) for basic earnings (loss) per share calculation
Total weighted average shares outstanding—basic
Less: weighted average participating shares outstanding
Weighted average common shares outstanding—basic
Basic earnings (loss) per share
Computation of Diluted earnings (loss) per share:
Net income (loss)
Less: net income allocated to participating securities
$
$
$
$
Net income (loss) for diluted earnings (loss) per share calculation $
Weighted average common shares outstanding—basic
Add: dilutive effect of common stock equivalents
Weighted average common shares outstanding—diluted
Less: weighted average participating shares outstanding
Weighted average common shares outstanding- diluted
$
$
$
$
$
173,533
(159)
173,374
110,210
(101)
110,109
1.57
173,533
(155)
173,378
110,109
2,755
112,864
(101)
112,763
$
$
$
$
$
67,303
(1,275)
66,028
91,921
(1,741)
90,180
0.73
67,303
(1,246)
66,057
91,921
2,152
94,073
(1,741)
92,332
Diluted earnings (loss) per share
$
1.54
$
0.72
$
(8,302)
—
(8,302)
83,417
—
83,417
(0.10)
(8,302)
—
(8,302)
83,417
—
83,417
—
83,417
(0.10)
The calculation of EPS for common stock under the two-class method shown above for the fiscal years ended March 31, 2018
and 2017 excludes income attributable to the participating securities from the numerator and excludes the dilutive effect of those
awards from the denominator.
We incurred a net loss for the fiscal year ended March 31, 2016; therefore, the basic and diluted weighted average shares outstanding
excluded the effect of unvested share-based awards that are considered participating securities and all common stock equivalents
because their effect would be antidilutive. For the fiscal year ended March 31, 2016 we had 6,405 of unvested share-based awards
which were excluded due to the net loss for the period.
13. COMMITMENTS AND CONTINGENCIES
A summary of annual minimum contractual obligations and commitments as of March 31, 2018 is as follows:
Fiscal Year Ending
March 31,
2019
2020
2021
2022
2023
Thereafter
Total
Software
Development
and Licensing
116,242
$
53,534
28,999
21,748
6,250
5,250
232,023
$
$
$
Marketing
49,725
4,060
13,480
3,773
3,500
—
74,538
Operating
Leases
$
39,113
29,620
23,092
21,665
19,571
62,476
$ 195,537
Purchase
Obligations
21,549
$
7,046
1,629
—
—
—
30,224
$
Convertible
Notes Interest
20
$
—
—
—
—
—
20
$
Convertible
Notes
$
$
8,160
—
—
—
—
—
8,160
$
$
Total
234,809
94,260
67,200
47,186
29,321
67,726
540,502
Software Development and Licensing Agreements: We make payments to third-party software developers that include contractual
payments to developers under several software development agreements that expire at various times through January 2022. Our
aggregate outstanding software development commitments assume satisfactory performance by third-party software developers.
We also have licensing commitments that primarily consist of obligations to holders of intellectual property rights for use of their
trademarks, copyrights, technology or other intellectual property rights in the development of our products.
76
Marketing Agreements: We have certain minimum marketing support commitments where we commit to spend specified amounts
related to marketing our products. Marketing commitments expire at various times through December 2022 and primarily reflect
our agreements with major sports leagues and players' associations.
Operating Leases: Our offices are occupied under non-cancelable operating leases expiring at various times through December
2032. We also lease certain furniture, equipment and automobiles under non-cancelable leases expiring through March 2021. Some
of the leases have fixed rent increases and also include inducements to enter into the lease. The effect of such amounts are deferred
and recognized on a straight-line basis over the related lease term. Rent expense amounted to $25,301, $19,545 and $18,032 for
the fiscal years ended March 31, 2018, 2017 and 2016, respectively.
Purchase obligations: These obligations are primarily related to agreements to purchase services that are enforceable and legally
binding on the Company that specifies all significant terms, including fixed, minimum or variable pricing provisions; and the
approximate timing of the transactions, expiring at various times through September 2021.
Employee Savings Plans: For our United States employees we maintain a 401(k) retirement savings plan and trust. Our 401(k)
plan is offered to all eligible employees and participants may make voluntary contributions. We also have various pension plans
for our non-U.S. employees, some of which are required by local laws, and allow or require Company contributions. Employer
contributions under all defined contribution and pension plans during the fiscal years ended March 31, 2018, 2017 and 2016 were
$9,592, $8,018 and $8,348, respectively.
Legal and Other Proceedings: We are, or may become, subject to demands and claims (including intellectual property claims)
and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or
financial condition or results of operations. We have appropriately accrued amounts related to certain of these claims and legal
and other proceedings. While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial
statements, we believe that such losses, unless otherwise disclosed, would not be material.
On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New
York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with
whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or
financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there
can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New
York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States
District Court for the Southern District of New York, but the case was subsequently remanded to state court. The complaint claims
damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent
concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and
fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights;
constructive discharge; defamation and fraud. We have asserted counterclaims for breach of contract, theft of trade secrets, and
misappropriation.
As a result of amended pleadings, motion practice and appeals to date, twelve of Mr. Benzies’ claims have been dismissed, leaving
only six remaining claims: breach of various contracts, constructive discharge, breach of implied duty of good faith and fair dealing,
and tortious interference with contract. Our federal court action has been stayed pending the conclusion of the state court action.
We believe that we have meritorious defenses to the remaining claims, and we intend to vigorously defend against them and to
pursue our counterclaims.
We have accrued what we believe to be an adequate amount for this matter, which amounts are classified as Business reorganization
within Accrued expenses and other current liabilities in our Consolidated Balance Sheets (see Note 20 - Business Reorganization).
We do not believe that the ultimate outcome of such litigation, even if in excess of our current accrual, will have a material adverse
effect on our business, financial condition or results of operations.
14. INCOME TAXES
On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (herein
referred to as the "Act”). The Act makes broad and complex changes to the U.S. tax code that could materially affect us. The Act
reduces the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018 and requires companies to pay a
one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act makes other changes
that may affect us, beginning April 1, 2018. These changes include but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT),
which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a
new provision that taxes global intangible low-taxed income (GILTI), (4) the repeal of the domestic production activity deduction,
and (5) other base broadening provisions.
77
We recorded an estimated increase to income tax expense of $18,078 related to the one-time transition tax on the previously
untaxed earnings of certain foreign subsidiaries as a result of the Act. The estimated increase was a result of a transition tax of
$26,649, offset by an increased benefit from domestic production deductions and tax credits. In addition, as a result of the decrease
in the U.S. federal corporate income tax rate from 35% to 21%, we recorded a decrease to net deferred tax assets of $47,677, and
corresponding decrease to valuation allowance of $39,769 after taking into account a portion of the deferred tax liability from
indefinite lived intangibles as a source of income against deferred tax assets, resulting in a tax benefit of $7,908. The re-measurement
of the deferred tax liability relating to indefinite lived intangibles, due to the rate change, resulted in a tax benefit of $6,202.
We are currently evaluating the potential impact of the Act, and the amounts recorded represent provisional estimates for certain
identified income tax effects for which the accounting is incomplete but a reasonable estimate can be determined, in accordance
with Staff Accounting Bulletin No. 118 (SAB 118). Further analysis is required to review historical practices used to calculate the
untaxed earnings of certain foreign subsidiaries and additional time to evaluate the complexities of the new tax law along with
additional interpretative guidance that may be issued. The impact of the Act may differ from these estimates, possibly materially,
due to changes in interpretations and assumptions we have made, guidance that may be issued, and actions we may take as a result
of the Act. We expect to continue to analyze the Act and its impact and expect to record any adjustments to provisional estimates
no later than the third quarter of fiscal 2019.
Components of income (loss) before income taxes are as follows:
Domestic
Foreign
Income (loss) before income taxes
Fiscal Year Ended March 31,
2018
136,239
386
136,625
$
$
$
$
2017
86,050
(9,085)
76,965
$
$
2016
(94,174)
55,824
(38,350)
Provision (benefit from) for current and deferred income taxes consists of the following:
Current:
U.S. federal
U.S. state and local
Foreign
Total current income taxes
Deferred:
U.S. federal
U.S. state and local
Foreign
Total deferred income taxes
Provision (benefit from) for income taxes
Fiscal Year Ended March 31,
2018
2017
2016
$
$
(7,327) $
(1,266)
4,208
(4,385)
(13,530)
195
(19,188)
(32,523)
(36,908) $
19,271
2,521
(13,012)
8,780
969
2,395
(2,482)
882
9,662
$
$
792
938
(31,508)
(29,778)
1,211
(231)
(1,250)
(270)
(30,048)
78
A reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
U.S. federal statutory rate
State and local taxes, net of U.S. federal benefit
Foreign tax rate differential(1)
Foreign earnings
Tax credits(2)
Excess tax benefits from stock-based compensation(3)
One-time transition tax(4)
Domestic production deduction
Valuation allowance—domestic(5)
Valuation allowance—foreign
Change in reserves
Other
Effective tax rate
Fiscal Year Ended
March 31,
2018
2017
2016
31.6 %
0.5 %
(6.9)%
1.2 %
(16.5)%
(38.9)%
19.5 %
(2.8)%
(0.5)%
(2.5)%
(11.0)%
(0.7)%
(27.0)%
35.0 %
4.9 %
(1.4)%
5.5 %
(45.8)%
—
—
(2.5)%
10.1 %
0.1 %
2.9 %
3.7 %
12.5 %
35.0 %
1.6 %
25.8 %
(3.7)%
98.7 %
—
—
—
(77.8)%
10.4 %
(7.0)%
(4.6)%
78.4 %
(1) The foreign rate differential in relation to foreign earnings, for all periods presented, are primarily driven by changes in the mix of our foreign earnings and
the difference in the foreign versus U.S. income tax rate.
(2) Tax benefits were recorded for fiscal years ended March 31, 2018, 2017, and 2016 attributable to certain tax credits related to software development activities.
(3) The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between our share-based compensation
expense and the deductions taken on our tax return, which depends upon the stock price at the time of employee award vesting
(4) Represents provisional estimate in accordance with SAB 118, relating to one-time transition tax on previously untaxed earnings of certain foreign subsidiaries
per the Act.
(5) The change in domestic valuation allowance includes tax benefits recognized as a result of the Act from indefinite lived intangibles.
The effects of temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
Deferred tax assets:
Accrued compensation expense
Equity-based compensation
Deferred revenue
Net operating loss carryforward
Tax credit carryforward
Business reorganization
Sales returns and allowances (including bad debt)
Deferred rent
Other
Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Capitalized software and depreciation
Convertible debt
Intangible amortization
Other
Total deferred tax liabilities
Net deferred tax liability(1)
(1) As of March 31, 2018 and 2017, $3,948 and $36,032, respectively, is included in Other long-term liabilities.
79
March 31,
2018
2017
$
$
94,919
78,293
42,426
35,378
64,175
16,369
575
5,729
1,145
339,009
(195,640)
143,369
(118,119)
(13)
(24,651)
(4,534)
(147,317)
(3,948)
131,305
25,048
41,977
20,131
52,639
24,103
3,942
8,865
4,045
312,055
(184,085)
127,970
(120,715)
(5,219)
(38,068)
—
(164,002)
(36,032)
The valuation allowance is primarily attributable to deferred tax assets for which no benefit is provided due to uncertainty with
respect to their realization. The net deferred tax liability is primarily the result of deferred tax liabilities related to indefinite lived
intangibles, which cannot be used to offset deferred tax assets, as well as deferred tax liabilities related to intangibles as a result
of the acquisition of Social Point.
At March 31, 2018, we had domestic net operating loss carryforwards totaling $50,136 of which $1,676 will expire in 2022,
$21,700 will expire from 2023 to 2027, $22,400 will expire from 2028 to 2037, and $4,321 will expire in 2038. In addition, we
had foreign net operating loss carryforwards of $209,238, of which $192,485 will expire from 2020 to 2022, $118 will expire in
2025 to 2026, and the remainder may be carried forward indefinitely.
At March 31, 2018, we had domestic credit carryforwards totaling $183,982, of which $104,474 expire in 2029 to 2038, and the
remainder may be carried forward indefinitely.
The total amount of undistributed earnings of foreign subsidiaries was approximately $314,800 at March 31, 2018 and $162,800
at March 31, 2017. We recorded provisional amounts relating to the one-time transition tax on previously untaxed earnings of
certain foreign subsidiaries as per the Act. We are reviewing whether the Act will affect our existing intention to reinvest indefinitely
undistributed earnings of our foreign subsidiaries. Accordingly, no provision has been made for foreign withholding taxes or U.S.
income taxes which may become payable if undistributed earnings of foreign subsidiaries are repatriated. It is not practicable to
estimate the tax liability that would arise if these earnings were remitted.
We are regularly audited by domestic and foreign taxing authorities. Audits may result in tax assessments in excess of amounts
claimed and the payment of additional taxes. We believe that our tax return positions comply with applicable tax law and that we
have adequately provided for reasonably foreseeable assessments of additional taxes. Additionally, we believe that any assessments
in excess of the amounts provided for will not have a material adverse effect on the Consolidated Financial Statements. It is possible
that settlement of audits or the expiration of the statute of limitations may have an impact on our effective tax rate in future periods.
We recognize interest and penalties related to uncertain tax positions in the provision for income taxes in our Consolidated
Statements of Operations. For the fiscal years ended March 31, 2018, 2017 and 2016, we recognized an increase in interest and
penalties of $2,363, $877 and $1,098, respectively. The gross amount of interest and penalties accrued as of March 31, 2018 and
2017 was $6,453 and $4,090, respectively.
As of March 31, 2018 and 2017, we had gross unrecognized tax benefits, including interest and penalties, of $128,510 and $120,198,
respectively, of which $22,805 and $36,940, respectively, would affect our effective tax rate if realized.
We are no longer subject to audit for U.S. federal income tax returns for periods prior to our fiscal year ended March 31, 2016
and state income tax returns for periods prior to the fiscal year ended March 31, 2013. With few exceptions, we are no longer
subject to income tax examinations in non-U.S. jurisdictions for years prior to our fiscal year ended March 31, 2012. U.S. federal
taxing authorities have completed examinations of our income tax returns through the fiscal year ended March 31, 2015.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution
of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential
resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that a reduction of
$8,400 of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement
or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective
tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.
The aggregate changes to the liability for gross uncertain tax positions, excluding interest and penalties, were as follows:
Balance, beginning of period
Additions:
Current year tax positions
Prior year tax positions
Reduction of prior year tax positions
Lapse of statute of limitations
Balance, end of period
Fiscal Year Ended March 31,
2018
116,085
2017
2016
$
52,799
$
40,591
23,007
7,406
(436)
(24,006)
122,056
$
65,669
5,086
—
(7,469)
116,085
$
12,208
—
—
—
52,799
$
$
We believe that we have provided for any reasonably foreseeable outcomes related to our tax audits and that any settlement will
not have a material adverse effect on our consolidated financial statements. However, there can be no assurances as to the possible
outcomes.
80
15. STOCK-BASED COMPENSATION
Stock Incentive Plan
In September 2017, our stockholders approved our 2017 Stock Incentive Plan (the "2017 Plan"). The aggregate number of shares
issuable under the 2017 Plan is 7,596, subject to adjustment as set forth in the 2017 Plan, and, as of March 31, 2018, there were
approximately 6,329 shares available for issuance. The 2017 Plan is administered by the Compensation Committee of the Board
of Directors and allows for awards of restricted stock and other stock-based awards of our common stock to employees and non-
employees, including to ZelnickMedia in connection with their contract to provide executive management service to us. Subject
to the provisions of the plans, the Board of Directors or any Committee appointed by the Board of Directors, has the authority to
determine the individuals to whom the equity awards are to be granted, the number of shares to be covered by each equity award,
the vesting period, restrictions, if any, on the equity award and the terms and conditions of the equity award. Upon the vesting of
certain stock-based awards, employees have the option to have the Company withhold shares to satisfy the employee's federal
and state tax withholding requirements.
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense included in our Consolidated Statements of Operations:
Cost of goods sold
Selling and marketing
General and administrative
Research and development
Business reorganization
Stock-based compensation expense
Capitalized stock-based compensation expense
Restricted Stock Units
Employee Awards
Fiscal Year Ended March 31,
2018
24,610
13,258
58,037
18,020
2,424
116,349
90,914
$
$
$
$
2017
21,056
9,963
42,908
7,952
—
81,879
74,717
$
$
2016
15,323
9,425
40,322
4,926
—
69,996
30,367
$
$
$
Time-based restricted stock units granted to employees under our stock-based compensation plans generally vest either annually
or quarterly over 3 years from the date of grant. Certain restricted stock units granted to key officers, senior-level employees, or
key employees vest based on market conditions, primarily related to the performance of the price of our common stock. Certain
restricted stock units granted to key officers, senior-level employees, or key employees vest based on performance conditions,
primarily related to performance metrics around certain of our titles.
ZelnickMedia Non-Employee Awards
In connection with the 2014 Management Agreement, we granted restricted stock units to ZelnickMedia (see Note 2 - Management
Agreement) as follows:
Time-based
Market-based(1)
Performance-based(1)
New IP
Major IP
Total-Performance-based
Total Restricted Stock Units
Fiscal Year Ended
March 31,
2018
2017
66
122
21
20
41
229
108
199
33
33
66
373
(1) Represents the maximum number of shares eligible to vest.
Time-based restricted stock units granted in fiscal 2018 are eligible to vest on April 4, 2019, provided that the 2017 Management
Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2017 vested on April 2, 2018.
81
Market-based restricted stock units granted in fiscal 2018 are eligible to vest on April 4, 2019, provided that the 2017 Management
Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2017 vested on April 2, 2018. Market-
based restricted stock units are eligible to vest based on the Company's Total Shareholder Return (as defined in the relevant grant
agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute
the NASDAQ Composite Index as of the grant date measured over a two-year period. To earn the target number of market-based
restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above),
the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the
Company performs at the 75th percentile. Each reporting period, we re-measure the fair value of the unvested shares of market-
based restricted stock units granted to ZelnickMedia.
Performance-based restricted stock units granted in fiscal 2018 are eligible to vest on April 4, 2019, provided that the 2017
Management Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2017 vested on April 2,
2018. Performance-based restricted stock units, of which 50% are tied to "New IP" and 50% to "Major IP" (as defined in the
relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in
the relevant grant agreement) of individual product releases of "New IP" or "Major IP" measured over a two-year period. The
target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the grant
amounts set forth in the above table (which represents the maximum number of performance-based restricted stock units that may
be earned). Each reporting period, we assess the performance metric and upon achievement of certain thresholds record an expense
for the unvested portion of the shares of performance-based restricted stock units. Certain performance metrics, based on unit
sales, have been achieved as of March 31, 2018 for the "New IP" and "Major IP" performance-based restricted stock units granted
in 2017 and 2016.
The unvested portion of time-based, market-based and performance-based restricted stock units granted pursuant to the 2014
Management Agreement as of March 31, 2018 and 2017 was 602 and 899, respectively. During the fiscal year ended March 31,
2018, 479 restricted stock units previously granted to ZelnickMedia vested and 47 restricted stock units were forfeited by
ZelnickMedia.
Fair Value of Stock-Based Awards
Time-Based Awards
The estimated value, based on the closing price of our stock on the grant date, of time-based restricted stock units granted to
employees during the fiscal years ended March 31, 2018, 2017 and 2016 was $106.28, $49.43 and $33.74 per share, respectively.
For the fiscal years ended March 31, 2018, 2017 and 2016, the estimated value, based on the closing price of our stock on the
grant date, of time-based restricted stock awards granted to ZelnickMedia was $78.53, $36.37 and $27.65 per share, respectively.
Market-Based Awards
The following table summarizes the weighted-average assumptions used in the Monte Carlo Simulation to estimate the fair value
of market-based awards:
Risk-free interest rate
Expected stock price volatility
Expected service period (years)
Dividends
Fiscal Year Ended March 31,
2018
2017
2016
Employee
Market-Based
1.4%
28.4%
1.5
Non-Employee
Market-Based
2.1%
35.5%
1.0
Employee
Market-Based
0.9%
31.2%
1.5
Non-Employee
Market-Based
0.7%
30.1%
1.0
Employee
Market-Based
0.6%
33.9%
1.9
Non-Employee
Market-Based
0.4%
32.2%
1.1
None
None
None
None
None
None
The estimated value of market-based restricted stock awards granted to employees during the fiscal years ended March 31, 2018,
2017 and 2016 was $141.78, $63.60 and $43.66 per share, respectively. For the fiscal years ended March 31, 2018, 2017 and 2016,
the estimated value of the market-based restricted stock awards granted to ZelnickMedia was $185.66, $51.92 and $58.45 per
share, respectively.
Performance-Based Awards
The estimated value of performance-based restricted stock awards granted to employees during the fiscal year ended March 31,
2018 was $102.57. None were granted during the fiscal years ended March 31, 2017 and 2016. For the fiscal years ended March 31,
2018, 2017 and 2016, the estimated value of the performance-based restricted stock awards granted to ZelnickMedia was $97.78,
$59.27 and $37.67 per share, respectively.
82
Summary of Activity
The following table summarizes the activity in non-vested restricted stock units to employees and ZelnickMedia under our stock-
based compensation plans with performance and market based restricted stock awards presented at 100% of target number of
shares that may potentially vest:
Non-vested restricted stock at March 31, 2017
Granted
Vested
Forfeited
Non-vested restricted stock at March 31, 2018
Shares
(in thousands)
Weighted
Average Fair
Value on
Grant Date
4,259
8,039
(3,272)
(1,629)
7,397
$
$
32.93
101.72
28.67
107.05
90.70
During the fiscal year ended March 31, 2018, we reclassified 5,550 of time and performance based restricted stock units as equity
award grants. These awards were granted in prior periods and historically accounted for as liability awards as they previously
could be settled only in cash and based on a contractually stipulated cash settlement value. However, in September 2017, we
received stockholder approval to increase the number of shares of Common Stock for which awards may be granted and therefore
now have the ability and intent to settle these awards in stock. As a result, we reclassified $74,707 from Other long-term liabilities
to Additional paid-in capital within Stockholders' equity. Additionally, we recognized incremental cost of $112,789 to reflect the
difference between the share price at the time of the share authorization and the contractually stipulated cash settlement value. Of
these incremental costs, $84,176 was capitalized within Software development costs and licenses, net of current portion; $23,251
was recorded within Software development costs and royalties (a component of cost of goods sold); and $5,361 was recorded
within Research and development costs.
The maximum number of restricted stock awards that could vest is 512 for performance-based and market-based restricted stock
awards granted during the current year. As of March 31, 2018, the maximum number of shares that could vest is 1,399 for
performance-based and market-based restricted stock units outstanding. For the fiscal years ended March 31, 2018, 2017 and
2016, the fair values of restricted stock units that vested were $268,570, $137,130 and $123,854, respectively.
During the fiscal year ended March 31, 2018, the forfeiture of awards resulted in the reversal of expense of $17,069 and amounts
capitalized as software development costs of $53,779.
As of March 31, 2018, the total future unrecognized compensation cost related to outstanding unvested restricted stock was
$640,672 and will be either recognized as compensation expense over a weighted-average period of approximately 3.0 years or
capitalized as software development costs.
16. SHARE REPURCHASE PROGRAM
Our Board of Directors has authorized the repurchase of up to 14,218 shares of our common stock. Under this program we may
purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated
transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market
conditions, the trading price of the stock, the Company's financial performance and other conditions. The program does not require
us to repurchase shares and may be suspended or discontinued at any time for any reason.
During the fiscal years ended March 31, 2018, 2017, and 2016 we repurchased 1,513, 0, and 954 shares of our common stock in
the open market, respectively, for $154,808, $0, and $26,552, respectively, including commissions of $16, $0 and $10, respectively
as part of the program. As of March 31, 2018, we had repurchased a total of 6,684 shares of our common stock under the program,
and, 7,534 shares of our common stock remained available for repurchase under the share repurchase program.
Subsequent to March 31, 2018, we repurchased an additional 1,597 shares of our common stock in the open market for $153,515,
including commissions of $16. After these additional purchases 5,937 shares of our common stock remain available for repurchase
under the share repurchase program.
All of the repurchased shares are classified as Treasury stock in our Consolidated Balance Sheets.
83
17. SEGMENT AND GEOGRAPHIC INFORMATION
We are a publisher of interactive software games designed for console systems and personal computers, including smart phones
and tablets, which are delivered through physical retail, digital download, online platforms and cloud streaming services. Our
business consists principally of our Rockstar Games and 2K labels, which represent a single operating segment, the "publishing
segment." Our operations involve similar products and customers worldwide. Revenue earned from our publishing segment is
primarily derived from the sale of internally developed software titles and software titles developed by third parties. Our publishing
segment is based upon our internal organizational structure, the manner in which our operations are managed and the criteria used
by our Chief Executive Officer, our Chief Operating Decision Maker ("CODM"), to evaluate performance and allocate resources.
We are centrally managed and the CODM primarily uses consolidated financial information supplemented by sales information
by product category, major product title and platform to make operational decisions and assess financial performance.
We attribute net revenue to geographic regions based on product destination. Net revenue by geographic region was as follows:
Net revenue by geographic region:
United States
Europe
Asia Pacific
Canada and Latin America
Total net revenue
Net revenue by product platform was as follows:
Net revenue by product platform:
Console
PC and other
Total net revenue
Fiscal Year Ended March 31,
2018
1,052,313
531,514
111,223
97,842
1,792,892
$
$
2017
999,128
515,696
157,183
107,741
1,779,748
$
$
2016
742,963
449,577
120,629
100,529
1,413,698
Fiscal Year Ended March 31,
2018
1,463,306
329,586
1,792,892
$
$
2017
1,440,724
339,024
1,779,748
$
$
2016
1,167,623
246,075
1,413,698
$
$
$
$
Our products are delivered through digital online services (digital download, online platforms and cloud streaming) and physical
retail. Net revenue by distribution channel was as follows:
Net revenue by distribution channel:
Digital online
Physical retail and other
Total net revenue
18. INTEREST AND OTHER, NET
Interest expense, net
Foreign currency exchange (loss) gain
Other
Interest and other, net
Fiscal Year Ended March 31,
2018
1,130,946
661,946
1,792,892
$
$
2017
921,734
858,014
1,779,748
$
$
2016
697,658
716,040
1,413,698
$
$
Fiscal Year Ended March 31,
2018
(1,005) $
(3,038)
5,091
1,048
$
2017
(21,700) $
4,990
1,020
(15,690) $
2016
(29,239)
(1,407)
441
(30,205)
$
$
84
19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table provides the components of accumulated other comprehensive income (loss):
Foreign
currency
translation
adjustments
$ (38,580) $
Unrealized
gain
(loss) on
derivative
instrument
s
Unrealized
gain (loss)
on cross-
currency
swap
Unrealized
gain
(loss) on
available-
for-sales
securities
84
— $
Total
$ (37,896)
600
$
—
—
Balance at March 31, 2016
Other comprehensive (loss) income before reclassifications
(9,086)
Amounts reclassified from accumulated other comprehensive
income (loss)
—
—
—
(169)
(9,255)
9
9
Balance at March 31, 2017
$ (47,666) $
600
$
— $
(76) $ (47,142)
Other comprehensive income (loss) before reclassifications
43,379
— (15,659)
(1,778)
25,942
Amounts reclassified from accumulated other comprehensive
income (loss)
Tax effect on cross-currency swap
Balance at March 31, 2018
20. BUSINESS REORGANIZATION
—
—
(4,287) $
$
—
—
600
7,506
—
7,506
(2,038)
(2,038)
$ (10,191) $ (1,854) $ (15,732)
—
In the first quarter of fiscal 2018, we announced and initiated actions to implement a strategic reorganization at one of our labels
(the "2018 Plan"). In the fourth quarter of fiscal 2018, we announced and initiated a second phase of the 2018 plan. In connection
with both phases of this initiative, we incurred business reorganization expenses of $14,742 during the fiscal year ended March 31,
2018 due primarily to employee separation costs. Through March 31, 2018, we had paid $3,895 related to these reorganization
activities. As of March 31, 2018, $6,139 remained accrued for in Accrued expenses and other current liabilities and $4,708 in
Other non-current liabilities. Although we may record additional expense or benefit in future periods to true-up estimates, we do
not expect to incur additional reorganization in connection with the 2018 Plan.
In fiscal 2016, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2016 Plan"),
including reorganizing one development studio and closing two development studios. During fiscal 2016, we incurred business
reorganization expenses of $71,285 due primarily to employee separation costs in connection with this initiative and have not
incurred expenses in fiscal 2017 or 2018. Through March 31, 2018 and 2017, we had paid $5,350 related to these reorganization
activities. As of March 31, 2018, and 2017, $65,935 remained accrued for in Accrued expenses and other current liabilities. See
Note 13 for additional information.
85
21. SUPPLEMENTARY FINANCIAL INFORMATION
The following table provides details of our valuation and qualifying accounts:
Fiscal Year Ended March 31, 2018
Valuation allowance for deferred income taxes
Price protection, sales returns and other allowances
Beginning
Balance
Additions(1)
Deductions
Other
Ending
Balance
$ 184,085
$ 65,114
11,555
59,674
—
— $ 195,640
(74,936)
3,191
$
53,043
Allowance for doubtful accounts
1,369
—
(122)
—
1,247
Total accounts receivable allowances
$ 66,483
$
59,674
$ (75,058) $ 3,191
$
54,290
Fiscal Year Ended March 31, 2017
Valuation allowance for deferred income taxes
$ 170,574
13,511
—
— $ 184,085
Price protection, sales returns and other allowances
$ 45,153
127,744
399
974
(100,934)
(4)
(6,849) $
—
65,114
1,369
$ 45,552
$ 128,718
$(100,938) $(6,849) $
66,483
Allowance for doubtful accounts
Total accounts receivable allowances
Fiscal Year Ended March 31, 2016
Valuation allowance for deferred income taxes
Price protection, sales returns and other allowances
Allowance for doubtful accounts
$ 133,468
$ 69,305
1,166
37,106
64,498
—
—
— $ 170,574
(86,622)
(767)
(2,028) $
—
45,153
399
Total accounts receivable allowances
$ 70,471
$
64,498
$ (87,389) $(2,028) $
45,552
(1) Includes price protection of $27,088, $65,336 and $36,546; other allowances including rebates, discounts and cooperative advertising of $31,428, $45,850
and $23,073; and sales returns of $1,158, $16,558 and $4,879 for the fiscal years ended March 31, 2018, 2017 and 2016, respectively.
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth quarterly supplementary data for each of the years in the two-year period ended March 31, 2018:
Fiscal Year Ended March 31, 2018
Net revenue
Gross profit
Income (loss) from operations
Net income (loss)
Earnings per share:
Basic earnings (loss) per share
Diluted earnings (loss) per share
Fiscal Year Ended March 31, 2017
Net revenue
Gross profit
(Loss) income from operations
Net (loss) income
(Loss) earnings per share:
Basic (loss) earnings per share
Diluted (loss) earnings per share
$
$
$
$
$
$
$
$
First
418,216
223,647
50,219
60,276
0.57
0.56
$
$
$
$
$
First
311,552
120,171
(38,983)
(38,567) $
Quarter
Second
Third
Fourth
$
443,562
197,014
(11,319)
(2,736) $
480,840
212,857
8,852
25,140
(0.03) $
(0.03) $
0.22
0.21
$
$
$
$
450,274
261,063
87,825
90,853
0.80
0.77
Quarter
Second
Third
Fourth
420,167
214,562
47,194
36,432
$
$
$
$
$
476,474
165,399
(28,409)
(29,842) $
571,555
256,657
111,503
99,280
(0.33) $
(0.33) $
0.97
0.89
(0.46) $
(0.46) $
0.42
0.39
Basic and diluted earnings (loss) per share are computed independently for each of the quarters presented. Therefore, the sum of
quarterly basic and diluted earnings (loss) per share information may not equal annual basic and diluted earnings per share.
86
23. ACQUISITIONS
On January 31, 2017, we completed the acquisition of privately-held Social Point, S.L. (“Social Point”), a Spanish free-to-play
mobile game developer, for consideration of $175,000 in cash and the issuance of 1,480 shares of our common stock, plus contingent
earn-out consideration of up to an aggregate of $25,900 in cash and shares of our common stock. The cash portion was funded
from our cash on hand. Certain of the shares that were issued to continuing employees are subject to transferability restrictions
and forfeiture provisions requiring their continued employment subject to certain exceptions over the three-year period following
the closing and are therefore considered share-based compensation over the service period.
We acquired Social Point to leverage its strong portfolio of technology, assembled workforce, and existing free-to-play mobile
games in order to expand and enhance our game offerings, particularly on mobile platforms.
The acquisition-date fair value of the consideration transferred totaled $238,736, which consisted of the following:
Fair value of
purchase
consideration
Cash
Common stock (1,071,739 shares)
Contingent earn-out
Total
$
$
175,000
57,327
6,409
238,736
Of the $175,000 cash consideration, $25,000 was contractually deferred and accrued for within Accrued expenses and other current
liabilities within our Consolidated Balance Sheets. Subsequent to March 31, 2018 but prior to the issuance of this report on Form
10-K, we finalized the remaining $25,000 payment.
The fair value of the of the purchase consideration attributed to the common shares issued was calculated by using the Take-Two's
closing share price on January 30, 2017, as the shares were transferred prior to the opening of the market on January 31, 2017.
The contingent earn-out consideration arrangement requires us to pay up to an aggregate of $25,900 in cash and shares of the
Take-Two common stock, if Social Point achieves certain performance measures over the 12 and 24-month periods following the
closing. The fair value of the contingent consideration arrangement at the acquisition date was $6,409. We estimated the fair value
of the contingent consideration using a Monte Carlo simulation model. This fair value measurement is based on significant inputs
not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. (Refer to Note 3.) As of March 31,
2018, the fair value had decreased to $0 as a result of the lower probability of Social Point achieving certain performance measures
in the 24-month period following the acquisition.
The following table summarizes the acquisition date fair value of net tangible and intangible assets acquired, net of liabilities
assumed from Social Point.
Tangible net assets (liabilities assumed)
$
(20,625)
N/A
Fair value
Weighted
average
useful life
Intangible Assets
Developed game technology
In-process R&D
Analytics technology
User base
Branding and trade names
Goodwill
Total
53,950
14,700
29,700
9,000
4,200
147,811
238,736
4 years
N/A
5 years
1 year
9 years
N/A
$
87
Goodwill, which is not deductible for U.S. income tax purposes, represents the excess of the purchase price over the fair value of
the net tangible and intangible assets acquired, and is primarily attributable to the assembled workforce of the acquired business
and expected synergies at the time of the acquisition. During the fiscal year ended March 31, 2018, we recorded adjustments to
finalize the purchase accounting for the Social Point acquisition, which resulted in a net increase in Goodwill of $4,245 and a
corresponding decrease in Tangible net liabilities assumed.
We recognized $1,915 of acquisition related costs that were expensed in the fiscal year ended March 31, 2017. These costs were
included in our Consolidated Statement of Operations within General and administrative expenses.
88
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By:
/s/ STRAUSS ZELNICK
Strauss Zelnick
Chairman and Chief Executive Officer
May 16, 2018
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints Strauss Zelnick and Lainie Goldstein and each of them,
his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done or by virtue hereof.
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/ STRAUSS ZELNICK
Strauss Zelnick
/s/ LAINIE GOLDSTEIN
Lainie Goldstein
/s/ MICHAEL DORNEMANN
Michael Dornemann
/s/ J MOSES
J Moses
/s/ MICHAEL SHERESKY
Michael Sheresky
/s/ LAVERNE SRINIVASAN
LaVerne Srinivasan
/s/ SUSAN TOLSON
Susan Tolson
Chairman and Chief Executive Officer
(Principal Executive Officer)
May 16, 2018
Chief Financial Officer (Principal Financial
and Accounting Officer)
May 16, 2018
Lead Independent Director
May 16, 2018
May 16, 2018
May 16, 2018
May 16, 2018
May 16, 2018
Director
Director
Director
Director
89
Subsidiaries of Take-Two Interactive Software, Inc.
Exhibit 21.1
Name
2K Czech, s.r.o.
2K Games (Chengdu) Co., Ltd.
2K Games (Shanghai) Co., Ltd.
2K Games, Inc.
2K, Inc.
2K Marin, Inc.
2K Play, Inc.
2K Games Songs LLC
2K Games Sounds LLC
2K Games Tunes LLC
2K Vegas, Inc.
2KSports, Inc.
A.C.N. 617 406 550 Pty Ltd.
Cat Daddy Games, L.L.C.
Digital Productions S.A.
DMA Design Holdings Limited
Double Take LLC
Firaxis Games, Inc.
Frog City Software, Inc.
Gathering of Developers, Inc.
Gearhead Entertainment, Inc.
Glennco Games, LLC
Hangar 13 UK Limited
Indie Built, Inc.
Inventory Management Systems, Inc.
Ghost Story Games, LLC
Jack of All Games Norge A.S.
Jack of All Games Scandinavia A.S.
Joytech Europe Limited
Joytech Ltd.
Kush Games, Inc.
Maxcorp Ltd.
Parrot Games, S.L.U.
Rockstar Events Inc.
Rockstar Games, Inc.
Rockstar Games Songs LLC
Rockstar Games Sounds LLC
Rockstar Games Toronto ULC
Rockstar Games Tunes LLC
Rockstar Games Vancouver ULC
Rockstar Interactive India LLP
Rockstar International Limited
Jurisdiction of Incorporation
Czech Republic
China
China
Delaware
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Australia
Washington
g
Luxembour
United Kingdom
Delaware
Delaware
Delaware
Texas
Pennsylvania
Delaware
United Kingdom
Delaware
Delaware
Delaware
Norway
Norway
United Kingdom
Hong Kong
California
Bermuda
Spain
New York
Delaware
Delaware
Delaware
British Columbia
Delaware
British Columbia
India
United Kingdom
Name
Rockstar Leeds Limited
Rockstar Lincoln Limited
Rockstar London Limited
Rockstar New England, Inc.
Rockstar North Limited
Rockstar San Diego, Inc.
Social Point, K.K.
Social Point, S.L.
T2 Developer, Inc.
Take 2 Interactive Software Pty. Ltd.
Take 2 Productions, Inc.
Take-Two Asia Pte. Ltd.
Take-Two Chile SpA
Take-Two Esports Holdings, LLC
Take-Two Europe (Holdings) Limited
Take-Two GB Limited.
Take-Two Holdings III LLC
Take-Two Holdings II LLC
Take Two Holdings LLC
Take-Two Interactive Austria GmbH
Take-Two Interactive Benelux B.V.
Take-Two Interactive Canada Holdings, Inc.
Take-Two Interactive Canada, Inc.
Take-Two Interactive Espana S.L.
Take-Two Interactive France SAS
Take-Two Interactive GmbH
Take-Two Interactive Japan G.K.
Take-Two Interactive Korea Ltd.
Take-Two Interactive Software Europe Limited
Take-Two Interactive Software UK Limited
Take-Two International B.V.
Take-Two International Holdings L.P.
Take-Two Invest Espana, S.L.
Take-Two Talent, LLC
Take-Two UK Holdings Limited
Take-Two Vegas, LLC
Take Two International GmbH
Talonsoft, Inc.
Techcorp Ltd.
Venom Games Limited
Visual Concepts China Co., Ltd.
Visual Concepts Entertainment
Visual Concepts Hungary Kft
VLM Entertainment Group, Inc.
WC Holdco, Inc.
Jurisdiction of Incorporation
United Kingdom
United Kingdom
United Kingdom
Delaware
United Kingdom
Virginia
Japan
Spain
Delaware
Australia
Delaware
Singapore
Chile
Delaware
United Kingdom
United Kingdom
Delaware
Delaware
Delaware
Austria
Netherlands
Ontario
Ontario
Spain
France
Germany
Japan
South Korea
United Kingdom
United Kingdom
Netherlands
Cayman Islands
Spain
Delaware
United Kingdom
Delaware
Switzerland
Delaware
Hong Kong
United Kingdom
China
California
Hungary
Delaware
New York
TAKE TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification
Exhibit 31.1
I, Strauss Zelnick, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Take-Two Interactive Software, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors 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 registrant’s ability to record, process, summarize and report
financial information; and
b)
in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a significant role
May 16, 2018
/s/ STRAUSS ZELNICK
Strauss Zelnick
Chairman and Chief Executive Officer
TAKE TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Section 302 Certification
Exhibit 31.2
I, Lainie Goldstein, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Take-Two Interactive Software, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors 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 registrant’s ability to record, process, summarize and report
financial information; and
b)
in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a significant role
May 16, 2018
/s/ LAINIE GOLDSTEIN
Lainie Goldstein
Chief Financial Officer
TAKE TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Take-Two Interactive Software, Inc. (the “Company”) on Form 10-K for the period
ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Strauss
Zelnick, as Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
May 16, 2018
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ STRAUSS ZELNICK
Strauss Zelnick
Chairman and Chief Executive Officer
TAKE TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Take-Two Interactive Software, Inc. (the “Company”) on Form 10-K for the period
ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lainie
Goldstein, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
May 16, 2018
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ LAINIE GOLDSTEIN
Lainie Goldstein
Chief Financial Officer
[THIS PAGE INTENTIONALLY LEFT BLANK]
OFFICERS
CORPORATE OFFICES
CORPORATE INFORMATION
STRAUSS ZELNICK
Chairman and
Chief Executive Officer
KARL SLATOFF
President
LAINIE GOLDSTEIN
Chief Financial Officer
DANIEL P. EMERSON
Executive Vice President and
General Counsel
BOARD OF DIRECTORS
STRAUSS ZELNICK
Chairman
MICHAEL DORNEMANN
Lead Independent Director
J MOSES
MICHAEL SHERESKY
LaVERNE SRINIVASAN
SUSAN TOLSON
PAUL VIERA
CORPORATE HEADQUARTERS
Take-Two Interactive Software, Inc.
110 West 44th Street
New York, NY 10036
(646) 536-2842
Take-Two Interactive
Software Europe, Ltd.
Saxon House
2-4 Victoria Street
Windsor, Berkshire SL4 1EN
Take-Two Asia Pte. Ltd.
47 Scotts Road
#11-01 Goldbell Towers
Singapore 228233
PRINCIPAL OPERATING OFFICES
Rockstar Games, Inc.
622 Broadway
New York, NY 10012
2K Games, Inc.
2K Sports, Inc.
10 Hamilton Landing
Novato, CA 94949
STOCKHOLDER INFORMATION
A copy of the Company’s Annual
Report on Form 10-K, as filed with the
Securities and Exchange
Commission, will be furnished
without charge upon written
request to Investor Relations at
the Corporate Headquarters.
INVESTOR RELATIONS
IR@take2games.com
INDEPENDENT AUDITORS
Ernst & Young LLP
5 Times Square
New York, NY 10036
TRANSFER AGENT
American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
COMMON STOCK INFORMATION
The Company’s common
stock is listed on the NASDAQ
Global Select Market under
the symbol TTWO.
www.take2games.com
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TAKE-TWO INTERACTIVE SOFTWARE, INC.
110 West 44th Street
New York, NY 10036
(646) 536-2842
www.take2games.com