What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-02-09 · 125 added, 188 removed, 412 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Current assets:

2 unchanged sentences

Restricted cash and cash equivalents 653,069 538,822

Accounts receivable, net of allowances of $ 350 and $ 443 at December 31, 2020 and March 31, 2020, respectively

Accounts receivable, net of allowances of $ 350 and $ 350 at June 30, 2021 and March 31, 2021, respectively

487,171 552,762

13 unchanged sentences

Total assets $ 6,314,255 $ 6,028,218

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND EQUITY

Current liabilities:

10 unchanged sentences

Commitments and contingencies (See Note 13 )

Take-Two Interactive Software, Inc.

stockholders' equity

Preferred stock, $ .01 par value, 5,000 shares authorized;

no shares issued and outstanding at December 31, 2020 and March 31, 2020

no shares issued and outstanding at June 30, 2021 and March 31, 2021

Common stock, $ .01 par value, 200,000 shares authorized;

137,504 and 135,927 shares issued and 115,083 and 113,506 outstanding at December 31, 2020 and March 31, 2020, respectively

138,846 and 137,584 shares issued and 116,425 and 115,163 outstanding at June 30, 2021 and March 31, 2021, respectively

Additional paid-in capital 2,417,658 2,288,781

Treasury stock, at cost;

22,421 common shares at December 31, 2020 and March 31, 2020

22,421 common shares at June 30, 2021 and March 31, 2021

( 820,572 ) ( 820,572 )

1 unchanged sentence

Accumulated other comprehensive loss ( 2,770 ) ( 8,664 )

Total stockholders' equity 3,155,291 2,539,244

Total liabilities and stockholders' equity $ 5,966,099 $ 4,948,832

Total Take-Two Interactive Software, Inc.

stockholders' equity 3,618,932 3,331,892

Non-controlling interest (See Note 15 )

Total equity $ 3,631,307 $ 3,331,892

Total liabilities and equity $ 6,314,255 $ 6,028,218

See accompanying Notes.

2 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended December 31, Nine Months Ended

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue $ 813,346 $ 831,310

1 unchanged sentence

Gross profit 483,631 354,621

Selling and marketing 139,906 137,068 338,376 378,455

General and administrative 104,447 102,173

Selling and marketing 103,854 84,779

Research and development 92,294 73,108

16 unchanged sentences

Three Months Ended

December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Net income $ 152,256 $ 88,505

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustment 6,132 4,701

5 unchanged sentences

Change in fair value of available for sale securities ( 238 ) 5,849

Other comprehensive income (loss) 29,240 15,975 52,792 ( 1,298 )

Other comprehensive income 5,894 6,245

Comprehensive income $ 158,150 $ 94,750

3 unchanged sentences

(in thousands)

Nine Months Ended December 31,

Three Months Ended June 30,

Operating activities:

5 unchanged sentences

Stock-based compensation 49,050 53,411

Gain on long-term investments ( 40,588 ) —

Other, net 13,802 ( 2,924 )

13 unchanged sentences

Purchases of fixed assets ( 86,433 ) ( 8,905 )

Proceeds from sale of long-term investment 22,472 —

Purchases of long-term investments ( 96 ) ( 6,900 )

9 unchanged sentences

Cash, cash equivalents, and restricted cash and cash equivalents, end of period (1) $ 2,157,378 $ 2,161,272

(1) Cash, cash equivalents and restricted cash and cash equivalents shown on our Condensed Consolidated Statements of Cash Flow includes amounts in the Cash and cash equivalents, Restricted cash and cash equivalents, and Long-term restricted cash and cash equivalents on our Condensed Consolidated Balance Sheet.

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(in thousands)

Three Months Ended December 31, 2020

Common Stock Additional

Capital Treasury Stock Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Stockholders'

Shares Amount Shares Amount

Balance, September 30, 2020 137,349 $ 1,373 $ 2,285,394 ( 22,421 ) $ ( 820,572 ) $ 1,469,911 $ ( 34,824 ) $ 2,901,282

Net income — — — — — 182,248 — 182,248

Change in cumulative foreign currency translation adjustment — — — — — — 30,135 30,135

Change in gains on cash flow hedge, net — — — — — — ( 600 ) ( 600 )

Net unrealized gain on available-for-sale securities, net of taxes — — — — — — ( 295 ) ( 295 )

Stock-based compensation — — 47,192 — — — — 47,192

Issuance of restricted stock, net of forfeitures and cancellations 141 2 ( 1 ) — — — — 1

Net share settlement of restricted stock awards ( 60 ) ( 1 ) ( 12,383 ) — — — — ( 12,384 )

Employee share purchase plan settlement 74 1 7,711 — — — — 7,712

Balance, December 31, 2020 137,504 $ 1,375 $ 2,327,913 ( 22,421 ) $ ( 820,572 ) $ 1,652,159 $ ( 5,584 ) $ 3,155,291

Three Months Ended December 31, 2019

Common Stock Additional

Capital Treasury Stock Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Stockholders'

Shares Amount Shares Amount

Balance, September 30, 2019 135,616 $ 1,356 $ 2,059,720 ( 22,421 ) $ ( 820,572 ) $ 995,721 $ ( 54,462 ) $ 2,181,763

Net income — — — — — 163,642 — 163,642

Change in cumulative foreign currency translation adjustment — — — — — — 18,172 18,172

Change in gains on cash flow hedge, net — — — — — — ( 1,930 ) ( 1,930 )

Net unrealized gain on available-for-sale securities, net of taxes — — — — — — ( 267 ) ( 267 )

Stock-based compensation — — 45,055 — — — — 45,055

Issuance of restricted stock, net of forfeitures and cancellations 171 2 ( 2 ) — — — — —

Net share settlement of restricted stock awards ( 80 ) ( 1 ) ( 9,781 ) — — — — ( 9,782 )

Employee share purchase plan settlement 64 1 5,381 — — — — 5,382

Balance, December 31, 2019 135,771 $ 1,358 $ 2,100,373 ( 22,421 ) $ ( 820,572 ) $ 1,159,363 $ ( 38,487 ) $ 2,402,035

Nine Months Ended December 31, 2020

Three Months Ended June 30, 2021

Take-Two Interactive Software, Inc.

Common Stock Additional

2 unchanged sentences

Comprehensive

Income (Loss) Total

Stockholders'

Income (Loss) Non-controlling interest

Shares Amount Shares Amount

2 unchanged sentences

Change in cumulative foreign currency translation adjustment — — — — — — 6,132 — 6,132

Change in gains on cash flow hedge, net — — — — — — ( 4,905 ) ( 4,905 )

Net unrealized gain on available-for-sale securities, net of taxes — — — — — — ( 238 ) — ( 238 )

3 unchanged sentences

Employee share purchase plan settlement 70 1 9,229 — — — — — 9,230

Issuance of shares related to Playdots, Inc.

acquisition 604 6 97,641 — — — — 97,647

Balance, December 31, 2020 137,504 $ 1,375 $ 2,327,913 ( 22,421 ) $ ( 820,572 ) $ 1,652,159 $ ( 5,584 ) $ 3,155,291

Nine Months Ended December 31, 2019

Issuance of shares related to Nordeus acquisition 515 5 94,149 — — — — — 94,154

Call option related to Nordeus Acquisition — — — — — — — 12,375 12,375

Balance, June 30, 2021 138,846 $ 1,389 $ 2,417,658 ( 22,421 ) $ ( 820,572 ) $ 2,023,227 $ ( 2,770 ) $ 12,375 $ 3,631,307

Three Months Ended June 30, 2020

Common Stock Additional

11 unchanged sentences

Stock-based compensation — — 49,037 — — — — 49,037

Repurchased common stock — — — — — — — —

Issuance of restricted stock, net of forfeitures and cancellations 979 10 ( 10 ) — — — — —

1 unchanged sentence

Employee share purchase plan settlement 65 1 6,502 — — — — 6,503

Balance, December 31, 2019 135,771 $ 1,358 $ 2,100,373 ( 22,421 ) $ ( 820,572 ) $ 1,159,363 $ ( 38,487 ) $ 2,402,035

Balance, June 30, 2020 136,689 $ 1,367 $ 2,151,774 ( 22,421 ) $ ( 820,572 ) $ 1,370,590 $ ( 52,131 ) $ 2,651,028

See accompanying Notes.

6 unchanged sentences

We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe.

We develop and publish products principally through Rockstar Games, 2K, Private Division, Social Point, and Playdots.

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.

We develop and publish products principally through Rockstar Games, 2K, Private Division, and T2 Mobile Games, which includes Socialpoint, Playdots, and Nordeus.

Our products are designed for console systems, including but not limited to, Sony's PlayStation®4 ("PS4") and PlayStation 5 ("PS5"), Microsoft's Xbox One® ("Xbox One") and Xbox Series X|S ("Xbox Series X|S"), and Nintendo's Switch™ ("Switch"), personal computers ("PC"), and mobile including smart phones and tablets ("Mobile"), and are delivered through physical retail, digital download, online platforms, and cloud streaming services.

Basis of Presentation

12 unchanged sentences

Recently Adopted Accounting Pronouncements

Accounting for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures.

We adopted this update effective April 1, 2020.

The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements.

Accounting for Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses , which replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that will require the reflection of expected credit losses and will also require consideration of a broader range of reasonable and supportable information to determine credit loss estimates.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

For most financial instruments, the standard will require the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which will generally result in the earlier recognition of credit losses on financial instruments.

We adopted this update effective April 1, 2020 under a modified retrospective basis.

No adjustment to retained earnings was recorded as a result of the adoption of this standard, which did not have a material impact on our Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

Accounting for Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional guidance to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR.

The guidance includes practical expedients for contract modifications due to reference rate reform.

Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.

This guidance is effective immediately and is only available through December 31, 2022.

We are currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements.

Accounting for Income Taxes

1 unchanged sentence

Simplifying the Accounting for Income Taxes , which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning December 15, 2020 (April 1, 2021 for the Company), with early adoption permitted.

We are currently evaluating the potential impact of adopting this guidance, and we do not expect that the impact of adopting this guidance will be material to our Consolidated Financial Statements.

We adopted this update effective April 1, 2021.

The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements.

REVENUE FROM CONTRACTS WITH CUSTOMERS

5 unchanged sentences

Net revenue by product revenue and service and other was as follows:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue recognized:

7 unchanged sentences

Net revenue by full game and other revenue and recurrent consumer spending was as follows:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue recognized:

4 unchanged sentences

Net revenue by geographic region was as follows:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue recognized:

3 unchanged sentences

Net revenue by platform was as follows:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue recognized:

1 unchanged sentence

PC and other 128,645 165,260

Mobile 82,258 54,365

Total net revenue $ 813,346 $ 831,310

2 unchanged sentences

Net revenue by distribution channel was as follows:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Net revenue recognized:

4 unchanged sentences

We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations.

Deferred revenue, including current and non-current balances as of December 31, 2020 and March 31, 2020 were $ 1,023,289 and $ 806,123 , respectively.

For the three months ended December 31, 2020, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the three months ended December 31, 2020 and 2019, $ 109,713 and $ 193,468 , respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period.

During the nine months ended December 31, 2020 and 2019, $ 722,658 and $ 758,301 , respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period.

As of December 31, 2020, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $ 1,134,398 , which includes our deferred revenue balances and amounts to be invoiced and recognized in future periods.

Deferred revenue, including current and non-current balances as of June 30, 2021 and March 31, 2021 were $ 875,838 and $ 965,331 , respectively.

For the three months ended June 30, 2021, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the three months ended June 30, 2021 and 2020, $ 463,241 and $ 371,213 , respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the respective period.

As of June 30, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $ 998,074 , which includes our deferred revenue balances and amounts to be invoiced and recognized in future periods.

We expect to recognize approximately $ 878,756 of this balance as revenue over the next 12 months, and the remainder thereafter.

This balance does not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.

As of December 31, 2020 and March 31, 2020, our contract asset balances were $ 105,460 and $ 81,625 , respectively, which are recorded within Prepaid expenses and other in our Condensed Consolidated Balance Sheets.

As of June 30, 2021 and March 31, 2021, our contract asset balances were $ 103,772 and $ 105,554 , respectively, which are recorded within Prepaid expenses and other in our Condensed Consolidated Balance Sheets.

MANAGEMENT AGREEMENT

In November 2017, we entered into a new management agreement (the "2017 Management Agreement"), with ZelnickMedia Corporation ("ZelnickMedia") that replaces our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia provides financial and management consulting services through March 31, 2024.

The 2017 Management Agreement became effective January 1, 2018.

1 unchanged sentence

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 $ 2,655 and $ 3,166 during the three months ended December 31, 2020 and 2019, respectively, and $ 7,925 and $ 6,541 during the nine months ended December 31, 2020 and 2019, respectively.

We recorded stock-based compensation expense for restricted stock units granted to ZelnickMedia, which is included in General and administrative expenses, of $ 6,887 and $ 5,956 during the three months ended December 31, 2020 and 2019, respectively, and $ 20,544 and $ 17,457 during the nine months ended December 31, 2020 and 2019, respectively.

In connection with the 2017 Management Agreement, we have granted restricted stock units as follows:

Nine Months Ended December 31,

In consideration for ZelnickMedia's services, we recorded consulting expense (a component of General and administrative expenses) of $ 1,705 and $ 2,665 during the three months ended June 30, 2021 and 2020, respectively.

We recorded stock-based compensation expense for restricted stock units granted to ZelnickMedia, which is included in General and administrative expenses, of $ 7,218 and $ 6,740 during the three months ended June 30, 2021 and 2020, respectively.

In connection with the 2017 Management Agreement, we have granted restricted stock units to ZelnickMedia as follows:

Three Months Ended June 30,

Time-based 51 79

14 unchanged sentences

At the end of each reporting period, we assess the probability of each performance metric and upon determination that certain thresholds are probable, we record expense for the unvested portion of the shares of performance-based restricted stock units.

The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 588 and 613 as of December 31, 2020 and March 31, 2020, respectively.

During the three and nine months ended December 31, 2020, 297 restricted stock units previously granted to ZelnickMedia vested, and no restricted stock units were forfeited by ZelnickMedia.

The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 449 and 588 as of June 30, 2021 and March 31, 2021, respectively.

During the three months ended June 30, 2021, 315 restricted stock units previously granted to ZelnickMedia vested, and no restricted stock units were forfeited by ZelnickMedia.

FAIR VALUE MEASUREMENTS

8 unchanged sentences

The table below segregates all assets and liabilities 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.

December 31, 2020 Quoted prices

June 30, 2021 Quoted prices

(level 1) Significant

4 unchanged sentences

Commercial paper 17,980 — 17,980 — Cash and cash equivalents

US Agencies 5,000 — 5,000 — Cash and cash equivalents

Corporate bonds 1,001 — 1,001 — Cash and cash equivalents

9 unchanged sentences

Foreign currency forward contracts ( 161 ) — ( 161 ) — Accrued expenses and other current liabilities

Contingent earn-out consideration ( 28,294 ) — — ( 28,294 ) Accrued expenses and other current liabilities

Contingent earn-out consideration ( 50,370 ) — — ( 50,370 ) Other long-term liabilities

Total recurring fair value measurements, net $ 2,852,030 $ 2,084,374 $ 836,650 $ ( 68,994 )

5 unchanged sentences

Money market funds 528,659 528,659 — — Restricted cash and cash equivalents

Bank-time deposits 563 563 — — Restricted cash and cash equivalents

Corporate bonds 521,224 — 521,224 — Short-term investments

2 unchanged sentences

Commercial paper 148,150 — 148,150 — Short-term investments

Cross-currency swap 11,275 — 11,275 — Prepaid expenses and other

Asset-backed securities 470 — 470 — Short-term investments

Money market funds 98,541 98,541 — — Long-term restricted cash and cash equivalents

Private equity 7,578 — — 7,578 Other assets

Foreign currency forward contracts ( 11 ) — ( 11 ) — Accrued and other current liabilities

Foreign currency forward contracts $ ( 125 ) $ — $ ( 125 ) $ — Accrued expenses and other current liabilities

Total recurring fair value measurements, net $ 2,976,627 $ 2,199,225 $ 769,824 $ 7,578

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 nine months ended December 31, 2020.

In connection with the Nordeus acquisition (see Note 1 5 - Ac quisiti ons ), we recorded $ 78,664 as the initial fair value of contingent earn-out consideration.

Due to the timing of the acquisition, the preliminary initial fair value was estimated using a simplified approach that had a limited number of scenarios and inputs, including projected financial information and relevant discount rates, which are considered significant unobservable Level 3 inputs.

Subsequently, we will finalize our initial fair value using several scenarios and additional inputs, including market volatility.

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 three months ended June 30, 2021.

Nonrecurring fair value measurements

We hold equity investments in certain unconsolidated entities without a readily determinable fair value.

These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain power over or control of the entities.

These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain significant influence over or control of the entities.

We have elected the practical expedient in Topic 321, Investments-Equity Securities , to measure these investments at cost less any impairment, adjusted for observable price changes, if any.

Based on these considerations, we estimate that the carrying value of the acquired shares represents the fair value of the investment.

At December 31, 2020, we held $ 45,000 of such investments in Other assets within our Condensed Consolidated Balance Sheet.

During the three and nine months ended December 31, 2020, we recognized a gain on the sale of a portion of one of these investments of $ 19,791 and an unrealized gain based on our sale constituting an observable price change of $ 20,797 related to the same investment.

Both gains are reflected in Gain on long-term investments, net within our Condensed Consolidated Statements of Operations.

At June 30, 2021, we held $ 20,000 of such investments in Other assets within our Condensed Consolidated Balance Sheet.

SHORT-TERM INVESTMENTS

Our Short-term investments consisted of the following:

December 31, 2020

June 30, 2021

Amortized Cost Gains Losses Fair Value

14 unchanged sentences

US Treasuries 60,029 57 — 60,086

Asset-backed securities 469 1 — 470

Commercial paper 148,149 1 — 148,150

Total Short-term investments $ 1,307,895 $ 1,053 $ ( 256 ) $ 1,308,692

The following table summarizes the contracted maturities of our short-term investments at December 31, 2020:

December 31, 2020

The following table summarizes the contracted maturities of our short-term investments at June 30, 2021:

June 30, 2021

Short-term investments

1 unchanged sentence

Due in 1 - 2 years 242,499 242,407

Due in 2 - 3 years 696 699

Total Short-term investments $ 1,134,699 $ 1,135,188

6 unchanged sentences

The following table shows the gross notional amounts of foreign currency forward contracts:

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Forward contracts to sell foreign currencies $ 64,463 $ 140,510

Forward contracts to purchase foreign currencies 105,830 92,123

For the three months ended December 31, 2020 and 2019, we recorded a loss of $ 5,832 and a loss of $ 556 , respectively, and for the nine months ended December 31, 2020 and 2019 we recorded a loss of $ 9,518 and a loss of $ 1,643 , respectively, related to foreign currency forward contracts in Interest and other, net in our Condensed Consolidated Statements of Operations.

For the three months ended June 30, 2021 and 2020, we recorded a loss of $ 1,828 and a loss of $ 2,657 , respectively, related to foreign currency forward contracts in Interest and other, net in our Condensed Consolidated Statements of Operations.

Our foreign currency exchange forward contracts 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 swap

In August 2017, we entered into a cross-currency swap agreement related to an intercompany loan that has been designated and accounted for as a cash flow hedge of foreign currency exchange risk.

During the three months ended June 30, 2020, we settled the intercompany loan and cross-currency swap, thereby discontinuing the cash flow hedge.

As a result, we reclassified $ 3,109 from Accumulated other comprehensive income (loss) to earnings as an increase to Interest and other, net on our Condensed Consolidated Statement of Operations.

We also received $ 7,420 in cash to settle our corresponding derivative asset.

Inventory balances by category were as follows:

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Finished products $ 10,693 $ 16,941

1 unchanged sentence

Inventory $ 11,491 $ 17,742

Estimated product returns included in inventory at December 31, 2020 and March 31, 2020 were $ 367 and $ 506 , respectively.

Estimated product returns included in Inventory at June 30, 2021 and March 31, 2021 were $ 220 and $ 186 , respectively.

SOFTWARE DEVELOPMENT COSTS AND LICENSES

Details of our capitalized software development costs and licenses were as follows:

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Current Non-current Current Non-current

3 unchanged sentences

Software development costs and licenses $ 14,620 $ 607,207 $ 43,443 $ 490,892

During the three months ended December 31, 2020 and 2019, we recorded $ 5,532 and $ 0 , respectively, of software development impairment charges (a component of Cost of goods sold).

During the nine months ended December 31, 2020 and 2019, we recorded $ 25,227 and $ 0 , respectively, of software development impairment charges (a component of Cost of goods sold).

The impairment charge recorded during the three months ended December 31, 2020 related to a decision not to proceed with further development of certain interactive entertainment software.

The additional impairment charge recorded during the nine months ended December 31, 2020 related to unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

During the three months ended June 30, 2021 and 2020, we recorded $ 9,771 and $ 19,695 , respectively, of software development impairment charges (a component of Cost of goods sold).

The impairment charge recorded during the three months ended June 30, 2021, and 2020, respectively, related to unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Software development royalties $ 892,023 $ 814,998

1 unchanged sentence

Licenses 82,087 84,330

Deferred acquisition payments 40,382 13,343

Refund liability 33,856 53,361

3 unchanged sentences

Credit Agreement

On February 8, 2019, we entered into an unsecured Credit Agreement (the “Credit Agreement”) that runs through February 8, 2024.

On February 8, 2019, we entered into an unsecured Credit Agreement, and on June 28, 2021, we amended our unsecured Credit Agreement solely to increase the commitments under the facility by $ 50,000 (as amended, the “Credit Agreement”) that runs through February 8, 2024.

The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $ 250,000 , including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $ 25,000 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $ 25,000 .

In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $ 200,000 in term loans or revolving credit facilities.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250 % to 0.750 % above a certain base rate ( 3.25 % at December 31, 2020) or (b) 1.125 % to 1.750 % above LIBOR (approximately 1.44 % at December 31, 2020), which rates are determined by reference to our consolidated total net leverage ratio.

We had no outstanding borrowings at December 31, 2020.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250 % to 0.750 % above a certain base rate ( 3.25 % at June 30, 2021) or (b) 1.125 % to 1.750 % above LIBOR (approximately 0.10 % at June 30, 2021), which rates are determined by reference to our consolidated total net leverage ratio.

We had no outstanding borrowings at June 30, 2021.

Information related to availability on our Credit Agreement was as follows:

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Available borrowings $ 247,874 $ 197,874

Outstanding letters of credit 2,126 2,126

We recorded interest expense and fees related to the Credit Agreement of $ 141 and $ 82 for the three months ended December 31, 2020 and 2019, respectively, and $ 305 and $ 248 for the nine months ended December 31, 2020 and 2019, respectively.

The Credit Agreement also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, as well as limitations on us and each of our subsidiaries’ ability to:

create, incur, assume or be liable for indebtedness;

We recorded interest expense and fees related to the Credit Agreement of $ 145 and $ 82 for the three months ended June 30, 2021 and 2020, respectively.

dispose of assets outside the ordinary course;

6 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Computation of Basic earnings per share:

8 unchanged sentences

Diluted earnings per share $ 1.30 $ 0.77

During the nine months ended December 31, 2020, 1,235 restricted stock awards vested, we granted 872 unvested restricted stock awards, and 29 unvested restricted stock awards were forfeited.

During the three months ended June 30, 2021, 943 restricted stock awards vested, we granted 893 unvested restricted stock awards, and 17 unvested restricted stock awards were forfeited.

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table provides the components of accumulated other comprehensive loss:

Nine Months Ended December 31, 2020

Three Months Ended June 30, 2021

adjustments Unrealized

gain (loss) on

forward contracts Unrealized

gain (loss) on

cross-currency swap Unrealized

gain (loss) on

available-for-

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Amounts reclassified from accumulated other comprehensive loss — — —

Balance at December 31, 2020 $ ( 6,838 ) $ — $ — $ 1,254 $ ( 5,584 )

Nine Months Ended December 31, 2019

Balance at June 30, 2021 $ ( 3,150 ) $ 380 $ ( 2,770 )

Three Months Ended June 30, 2020

adjustments Unrealized

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Amounts reclassified from accumulated other comprehensive loss — — ( 1,333 ) — ( 1,333 )

Balance at December 31, 2019 $ ( 36,282 ) $ 600 $ ( 3,844 ) $ 1,039 $ ( 38,487 )

Balance at June 30, 2020 $ ( 55,834 ) $ 600 $ — $ 3,103 $ ( 52,131 )

COMMITMENTS AND CONTINGENCIES

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Other than agreements entered into in the ordinary course of business and in addition to the agreements requiring known cash commitments as reported in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, we did not have any significant changes to our commitments since March 31, 2021.

Included in our Restricted cash as of December 31, 2020, was the cash portion of our offer to acquire Codemasters Group Holdings PLC, a UK-based game publisher and developer.

As of January 13, 2021, the offer lapsed, and the cash was no longer restricted.

Legal and Other Proceedings

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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.

BUSINESS REORGANIZATION

In the first quarter of fiscal year 2018, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2018 Plan").

In connection with this initiative, we recorded a benefit of $ 377 and $ 246 for business reorganization during the three months ended December 31, 2020 and 2019, respectively, and a benefit of $ 138 and expense of $ 467 during the nine months ended December 31, 2020 and 2019, respectively, due to updating estimates for employee separation costs.

During the nine months ended December 31, 2020, we made payments of $ 3,500 related to these reorganization activities.

As of December 31, 2020, $ 1,166 remained accrued in Accrued expenses and other current liabilities and $ 1,550 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 costs in connection with the 2018 Plan.

The provision for income taxes for the three months ended December 31, 2020 is based on our projected annual effective tax rate for fiscal year 2021, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $ 34,198 for the three months ended December 31, 2020 as compared to $ 25,134 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 15.8 % for the three months ended December 31, 2020 was due primarily to a tax benefit of $ 7,116 due to tax credits, excess tax benefits of $ 3,392 from employee stock-based compensation and the geographic mix of earnings.

The provision for income taxes for the nine months ended December 31, 2020 is based on our projected annual effective tax rate for fiscal year 2021, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $ 54,151 for the nine months ended December 31, 2020 as compared to $ 52,068 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 12.8 % for the nine months ended December 31, 2020 was due primarily to a tax benefit of $ 17,778 due to tax credits and excess tax benefits of $ 13,580 from employee stock-based compensation and geographic mix of earnings.

The provision for income taxes for the three months ended June 30, 2021 is based on our projected annual effective tax rate for fiscal year 2022, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $ 19,188 for the three months ended June 30, 2021, as compared to $ 1,856 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 11.2 % for the three months ended June 30, 2021 was due primarily to a tax benefit of $ 12,082 due to tax credits and excess tax benefits of $ 9,448 from employee stock-based compensation and the geographic mix of earnings.

We are regularly examined by domestic and foreign taxing authorities.

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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.

On September 4, 2020, we completed the acquisition of privately-held Playdots, Inc.

("Playdots"), a New York City based free-to-play mobile game developer, for consideration of $ 97,846 in cash and 604 shares of our common stock.

Nordeus Acquisition

On June 1, 2021, we completed the acquisition of 94.5 % of Nordeus Limited ("Nordeus"), a privately-held Irish holding company of a Belgrade, Serbia based free-to-play mobile game developer, for consideration of $ 120,488 in cash, 515 shares of our common stock, and a contingent earn-out consideration arrangement that requires us to pay up to an aggregate of $ 153,000 in cash if Nordeus achieves certain performance measures over the 12 - and 24 -month periods following the closing.

The cash portion was funded from our cash on hand.

Of the cash consideration, $ 13,440 was contractually deferred and accrued for within Accrued expenses and other current liabilities within our Condensed Consolidated Balance Sheet at acquisition.

During the three months ended December 31, 2020, we paid out $ 3,840 .

As of December 31, 2020, $ 9,600 remained accrued within Accrued expenses and other current liabilities within our Condensed Consolidated Balance Sheet at acquisition.

We acquired Playdots as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings.

In addition to the shares we acquired, we have a call option to purchase the remaining 5.5 % of the outstanding equity of Nordeus for cash consideration of $ 12,375 in September 2021.

We are accounting for the call option as Non-controlling interest in our Condensed Statement of Stockholder's Equity.

Income attributable to our Non-controlling interest for the three months ended June 30, 2021 is immaterial.

We acquired Nordeus as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings.

The acquisition-date fair value of the consideration totaled $ 306,306 , which consisted of the following:

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Common stock ( 515 shares)

Call option 12,375

Contingent earn-out 78,664

Deferred payment 625

Total $ 306,306

We used the acquisition method of accounting and recognized assets at their fair value as of the date of acquisition, with the excess recorded to goodwill.

The fair value of the contingent earn-out consideration arrangement at the acquisition date was $ 78,664 .

We estimated the fair value of the contingent earn-out 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 4 - Fair Value Meas uremen ts .) As of June 30, 2021, there were no significant changes in the range of outcomes for the contingent earn-out consideration recognized as a result of the acquisition of Nordeus.

We reported $ 28,294 within Accrued expenses and $ 50,370 within Other long-term liabilities in our Condensed Consolidated Balance Sheet.

We used the acquisition method of accounting and recognized assets and liabilities at their fair value as of the date of acquisition, with the excess recorded to goodwill.

The preliminary fair values of net tangible and intangible assets are management’s estimates based on the information available at the acquisition date and may change over the measurement period, which will end no later than one year from the acquisition date, as additional information is received.

The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Playdots:

The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Nordeus:

Fair Value Weighted average useful life

Cash acquired $ 22,600 N/A

Other tangible net assets 8,206 N/A

Other tangible assets 18,858 N/A

Other liabilities assumed ( 38,690 ) N/A

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income tax purposes, is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

The amounts of revenue and earnings of Playdots included in our Consolidated Statement of Operations from the acquisition date to the period ending December 31, 2020 are as follows:

Three Months Ended December 31, 2020 Nine Months Ended December 31, 2020

The amounts of revenue and earnings of Nordeus included in our Condensed Consolidated Statement of Operations from the acquisition date are as follows:

Three Months Ended June 30, 2021

Net revenue 1,936

Net income (loss) ( 12,368 ) ( 18,417 )

The following table summarizes the pro-forma consolidated results of operations (unaudited) for the three and nine months ended December 31, 2020 and 2019, as though the acquisition had occurred on April 1, 2019, the beginning of Fiscal 2020, and Playdots had been included in our consolidated results for the entire periods subsequent to that date.

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Net loss 4,490

The following table summarizes the pro-forma consolidated results of operations (unaudited) for the three months ended June 30, 2021 and 2020, as though the acquisition had occurred on April 1, 2020, the beginning of fiscal year 2021, and Nordeus had been included in our consolidated results for the entire periods subsequent to that date.

Three Months Ended June 30,

Pro forma Net revenue $ 823,190 $ 841,265

Pro forma Net income $ 154,436 $ 83,571

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Playdots and not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2020 and are not indicative of the future operating results of the combined company.

The financial information for Playdots prior to the acquisition has been included in the pro-forma results of operations and includes certain adjustments to the historical consolidated financial statements of Playdots to align with our accounting policies.

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Nordeus and not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of fiscal year 2021 and are not indicative of the future operating results of the combined company.

The financial information for Nordeus prior to the acquisition has been included in the pro-forma results of operations and includes certain adjustments to the historical consolidated financial statements of Nordeus to align with our accounting policies.

The pro-forma consolidated results of operations also include the business combination accounting effects resulting from the acquisition, including amortization expense related to finite-lived intangible assets acquired and the related tax effects assuming that the business combination occurred on April 1, 2020.

Transaction costs of $ 41 and $ 2,553 for the three and nine months ended December 31, 2020, respectively, which have been recorded within General and administrative expense in our Condensed Consolidated Statements of Operations, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature.

Transaction costs of $ 2,003 for the three months ended June 30, 2021, which have been recorded within General and administrative expense in our Condensed Consolidated Statements of Operations, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature.

Asset Acquisition

In June 2021, we acquired two office buildings in the United Kingdom to use for office space for total cash consideration of $ 72,908 .

The transaction was treated as an asset acquisition, in which the cash consideration and direct transaction costs were allocated on a relative fair value basis to identified assets.

The following table summarizes the acquisition date fair value of tangible assets, which are included within Fixed asset on our Condensed Consolidated Balance Sheets, and intangible assets, which are included within Intangible assets, net on our Condensed Consolidated Balance Sheets, acquired:

Fair Value Weighted average useful life

Building $ 31,104 30

Land 38,243 N/A

Lease-in-place intangible asset 2,176 4

Total $ 71,523

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements