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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
−Removed: 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 our future business and financial performance.
+Added: The statements contained herein, which are not historical facts including statements relating to our proposed acquisition of Zynga Inc.
+Added: (the "Acquisition"), 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 our 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.
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volatility in foreign currency exchange rates;
+Added: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement for the acquisition;
+Added: the inability to obtain our or Zynga's respective stockholder approval or the failure to satisfy other conditions to completion of the proposed acquisition, including receipt of regulatory approvals, on a timely basis or at all;
+Added: risks that the proposed acquisition disrupts each company’s current plans and operations;
+Added: the diversion of the attention of the respective management teams of Take-Two and Zynga from their respective ongoing business operations;
+Added: the ability of either Take-Two, Zynga or the combined company to retain key personnel;
+Added: the ability to realize the benefits of the proposed acquisition, including Net Bookings opportunities and cost synergies;
+Added: the ability to successfully integrate Zynga’s business with Take-Two’s business or to integrate the businesses within the anticipated timeframe;
+Added: the outcome of any legal proceedings that may be instituted against Take-Two, Zynga or others related to the proposed acquisition;
+Added: the amount of the costs, fees, expenses and charges related to the proposed acquisition;
other risks included herein;
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Software titles published by our Rockstar Games label are primarily internally developed.
−Removed: We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto , Max Payne , Midnight Club , Red Dead Redemption , and other popular
−Removed: franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment.
+Added: 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.
We believe that Rockstar Games 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 365 million units.
−Removed: Our most recent installment, Grand Theft Auto V , which was released in 2013, has sold in over 155 million units worldwide and includes access to Grand Theft Auto Online .
+Added: Our most recent installment, Grand Theft Auto V , which was released in 2013, has sold-in nearly 160 million units worldwide and includes access to Grand Theft Auto Online .
Red Dead Redemption 2, which has been a critical and commercial success that set numerous entertainment industry records, has sold-in more than 40 million units worldwide.
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2K also publishes mobile titles, such as WWE SuperCard .
−Removed: Our Private Division label is dedicated to bringing titles from the industry's leading creative talent to market and is the publisher and owner of Kerbal Space Program .
+Added: Our Private Division label is dedicated to bringing titles from the industry's leading creative talent to market and is the publisher and owner of Kerbal Space Program and OlliOlli World .
Kerbal Space Program 2 is planned for release in fiscal year 2023.
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We are continuing our strategy in Asia to broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea.
−Removed: 2K has secured 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.
+Added: 2K has a multi-year license from the NBA to offer an online version of the NBA simulation game in China, Taiwan, South Korea, and Southeast Asia.
NBA 2K Online , our free-to-play NBA simulation game that is based on the console edition of NBA 2K, which was co-developed by 2K and Tencent, is the top online PC sports game in China with more than 55 million registered users.
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The NBA 2K League follows a professional sports league format:
−Removed: head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up that was held in August of each of the NBA 2K League's first three seasons.
+Added: head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up.
The NBA 2K League's fourth season concluded in September 2021.
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Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue.
−Removed: Sales of Grand Theft Auto products generated 31.2% of our net revenue for the six months ended September 30, 2021.
−Removed: The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.
+Added: Sales of Grand Theft Auto products generated 32.3% of our net revenue for the nine months ended December 31, 2021.
+Added: The timing of key releases, such as our Grand Theft Auto product releases, may affect our financial performance on a quarterly and annual basis.
Economic Environment and Retailer Performance.
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The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, customers, partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time.
−Removed: During fiscal year 2021, as in the final quarter of fiscal year 2020, we noted a positive impact to our results that we believe was partly due to increased consumer engagement with our products because of the COVID-19 pandemic related business closures and
−Removed: movement restrictions, such as "shelter in place" and "lockdown" orders, implemented around the world, as well as the online accessibility and social nature of our products.
+Added: During fiscal year 2021, as in the final quarter of fiscal year 2020, we noted a positive impact to our results that we believe was partly due to increased consumer engagement with our products because of the COVID-19 pandemic related business closures and movement restrictions, such as "shelter in place" and "lockdown" orders, implemented around the world, as well as the online accessibility and social nature of our products.
However, we cannot be certain as to the duration of these effects, the impact of vaccination efforts or of the lifting of certain restrictions, and the potential offsetting impacts of deteriorating economic conditions and decreased consumer spending generally.
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Additionally, our business is dependent upon a limited number of customers that account for a significant portion of our revenue.
−Removed: Our five largest customers accounted for 79.8% and 77.7% of net revenue during the six months ended September 30, 2021 and 2020, respectively.
−Removed: As of September 30, 2021 and March 31, 2021, our five largest custome rs comprised 76.9% and 77.6% 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 64.3% and 69.2% of such balance at September 30, 2021 and March 31, 2021, respectively.
−Removed: We had two customers who accounted for 45.4% and 18.9%, respectively, of our gross accounts receivable as of September 30, 2021 and two customers who accounted for 50.4% and 18.8%, respectively, of our gross accounts receivable as of March 31, 2021.
+Added: Our five largest customers accounted for 79.2% and 77.4% of net revenue during the nine months ended December 31, 2021 and 2020, respectively.
+Added: As of December 31, 2021 and March 31, 2021, our five largest customers comprised 74.7% and 77.6% 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 59.1% and 69.2% of such balance at December 31, 2021 and March 31, 2021, respectively.
+Added: We had two customers who accounted for 41.9% and 17.2%, respectively, of our gross accounts receivable as of December 31, 2021 and two customers who accounted for 50.4% and 18.8%, respectively, of our gross accounts receivable as of March 31, 2021.
The economic environment has affected our customers in the past and may do so in the future, including as a result of the COVID-19 pandemic.
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Hardware Platforms.
−Removed: We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 69.5% of our net revenue by product platform for the six months ended September 30, 2021.
+Added: We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 72.4% of our net revenue by product platform for the nine months ended December 31, 2021.
The success of our business is dependent on consumer acceptance of these platforms and the continued growth in their installed base.
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We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download.
−Removed: As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 90.8% of our net revenue for the six months ended September 30, 2021.
−Removed: expect online delivery of games and game offerings to continue to grow and to continue to be the primary part of our business over the long term.
+Added: As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 89.9% of our net revenue for the nine months ended December 31, 2021.
+Added: We expect online delivery of games and game offerings to continue to grow and to continue to be the primary part of our business over the long term.
+Added: Recent Developments.
+Added: Potential Acquisition.
+Added: On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga, a leading developer of mobile games.
+Added: Under the terms and subject to the terms of the merger agreement, Zynga stockholders will receive $3.50 in cash and a number of shares of our common stock for each share of Zynga at the closing.
+Added: The transaction is valued at $9.86 per share of Zynga common stock equal to the exchange ration (ranging from 0.0350 to 0.0406, as further described below)based on the market closing as of January 7, 2022, implying an enterprise value of $12.7 billion.
+Added: The transaction includes a collar mechanism on the equity consideration, so that if our 20-day volume weighted average price ("VWAP") ending on the third trading day prior to closing is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration of $9.86 per Zynga share.
+Added: If the VWAP exceeds the higher end of that range the exchange ratio would be 0.0350 per share and if the VWAP falls below the lower end of that range, the exchange ratio would be 0.0406 per share.
+Added: As part of the transaction, we have received aggregate committed financing of $2.7 billion from J.P.
+Added: Morgan and certain other lenders, and we intend to fund the cash component of the transaction through a combination of cash from our balance sheet as well as proceeds of new debt issuance.
+Added: The transaction, which is expected to close during our first quarter of fiscal year 2023 ended June 30, 2022, is subject to approval by Take-Two and Zynga stockholders, the receipt of required regulatory approvals, and other customary closing conditions, including antitrust clearances.
Content Release Highlights
−Removed: During fiscal year 2022, 2K released NBA 2K22 , and Private Division released Hades physically on consoles.
−Removed: To date we have announced that, during fiscal year 2022, Rockstar Games will release Grand Theft Auto V and a standalone version of Grand Theft Auto Online for the PS5 and Xbox Series X|S, and Grand Theft Auto:
−Removed: The Trilogy , Private Division will release OlliOlli World , and 2K will release WWE 2K22 and Tiny Tina's Wonderlands .
+Added: During fiscal year 2022, 2K released NBA 2K22 , Private Division released Hades physically on consoles and OlliOlli World, and Rockstar released Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition.
+Added: To date we have announced that, during the remainder of fiscal year 2022, Rockstar Games will release Grand Theft Auto V and a standalone version of Grand Theft Auto Online for the PS5 and Xbox Series X|S, and 2K will release WWE 2K22 and Tiny Tina's Wonderlands .
In addition, throughout the year, we expect to continue to deliver new content for our franchises.
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Net Bookings were as follows:
−Removed: Three Months Ended September 30, Six Months Ended September 30,
+Added: Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 Increase/
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Net Bookings $ 866,123 $ 814,282 $ 51,841 6.4 % $ 2,562,405 $ 2,768,066 $ (205,661) (7.4) %
−Removed: For the three months ended September 30, 2021, Net Bookings increased by $27.3 million as compared to the prior year period due primarily to an increase in Net Bookings from Grand Theft Auto Online and Grand Theft Auto V;
−Removed: Top Eleven , which was part of the Nordeus acquisition in June 2021;
−Removed: our NBA 2K franchise;
−Removed: Two Dots , which was part of the Playdots acquisition in September 2020;
−Removed: and Borderlands 3.
−Removed: These increases were partially offset by a decrease in Net Bookings from PGA TOUR 2K21, which released in August 2020;
−Removed: our Mafia franchise;
−Removed: The Outer Worlds;
−Removed: and our WWE 2K franchise.
−Removed: For the six months ended September 30, 2021, Net Bookings decreased by $257.5 million as compared to the prior year period due primarily to a decrease in Net Bookings from Grand Theft Auto V and Grand Theft Auto Online , our NBA 2K franchise, Red Dead Redemption 2 , PGA TOUR 2K21 , our Mafia franchise, The Outer Worlds , our WWE 2K franchise, and Borderlands 3 , partially offset by an increase in Net Bookings from Top Eleven and Two Dots .
+Added: For the three months ended December 31, 2021, Net Bookings increased by $51.8 million as compared to the prior year period due primarily to an increase in Net Bookings from our Grand Theft Auto franchise, including Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition, which released in November 2021, and Top Eleven , which was part of the Nordeus acquisition in June 2021 .
+Added: These increases were partially offset by a decrease in Net Bookings from our Mafia and PGA TOUR 2K franchises , The Outer Worlds , and our WWE 2K franchise.
+Added: For the nine months ended December 31, 2021, Net Bookings decreased by $205.7 million as compared to the prior year period due primarily to a decrease in Net Bookings from our NBA 2K , PGA TOUR 2K , and Mafia franchises, The Outer Worlds , and our WWE 2K , our Red Dead , Borderlands franchises.
+Added: These decreases were partially offset by an increase in Net Bookings from Top Eleven and Two Dots.
Results of Operations
The following tables set forth, for the periods indicated, our Condensed Consolidated Statements of Operations, net revenue by geographic region, net revenue by platform, net revenue by distribution channel, and net revenue by content type:
−Removed: Three Months Ended September 30, Six Months Ended September 30,
+Added: Three Months Ended December 31, Nine Months Ended December 31,
(thousands of dollars) 2021 2020 2021 2020
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Interest and other, net (5,629) (0.6) % 1,098 0.1 % (7,228) (0.3) % 12,022 0.5 %
−Removed: Gain (loss) on long-term investments, net 395 — % (655) (0.1) % 2,392 0.1 % (655) — %
+Added: Gain on long-term investments, net 3,662 0.4 % 39,291 4.6 % 6,054 0.2 % 38,636 1.5 %
Income before income taxes 152,139 16.8 % 216,446 25.1 % 343,557 13.3 % 424,225 16.7 %
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Net income $ 144,497 16.0 % $ 182,248 21.2 % $ 307,050 11.9 % $ 370,074 14.6 %
−Removed: Three Months Ended September 30, Six Months Ended September 30,
+Added: Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 2021 2020
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Full game and other 355,464 39.4 % 308,569 35.8 % 891,093 34.6 % 964,271 38.1 %
−Removed: Three Months Ended September 30, 2021 Compared to September 30, 2020
+Added: Three Months Ended December 31, 2021 Compared to December 31, 2020
(thousands of dollars) 2021 % 2020 % Increase/
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(1) Includes $9,445 and $13,100 of stock-based compensation expense in 2021 and 2020, respectively, in software development costs and royalties.
−Removed: For the three months ended September 30, 2021, net revenue increased by $17.1 million as compared to the prior year period.
−Removed: The increase was due to an increase in net revenue of (i) $37.8 million from Two Dots, (ii) $12.3 million from Grand Theft Auto Online , (iii) $10.2 million from Top Eleven , (iv) $10.1 million from Red Dead Online , and (v) $8.6 million from our NBA 2K franchise .
−Removed: These increases were partially offset by a decrease in net revenue of (i) $27.5 million from PGA TOUR 2K21 , (ii) $27.3 million from our Mafia franchise, and (iii) $9.6 million from Red Dead Redemption 2.
−Removed: Net revenue from console games decreased by $45.2 million and accounted for 69.5% of our total net revenue for the three months ended September 30, 2021, as compared to 76.2% for the prior year period.
−Removed: The decrease was due to a decrease in net revenue from PGA TOUR 2K21 , and our Mafia franchise.
−Removed: Net revenue from PC and other increased by $8.3 million and accounted for 17.1% of our total net revenue for the three months ended September 30, 2021, as compared to 16.5% for the prior year period.
−Removed: The increase was due to an increase in net revenue from Borderlands 3 , partially offset by a decrease in net revenue from our Mafia franchise, and our NBA 2K franchise.
−Removed: Net revenue from mobile increased by $53.9 million and accounted for 13.4% of our total net revenue for three months ended September 30, 2021, as compared to 7.3% for the prior year period.
−Removed: The increase was due primarily to an increase in net revenue from Two Dots and Top Eleven .
−Removed: Net revenue from digital online channels increased by $53.4 million and accounted for 90.8% of our total net revenue for the three months ended September 30, 2021, as compared to 86.3% for the prior year period.
−Removed: The increase was due to an increase in net revenue from Two Dots , Grand Theft Auto Online, Top Eleven , Red Dead Online , and Borderlands 3 , partially offset by a decrease in net revenue from our Mafia franchise and PGA TOUR 2K21.
−Removed: Net revenue from physical retail and other channels decreased by $36.4 million and accounted for 9.2% of our total net revenue for the three months ended September 30, 2021, as compared to 13.7% for the same period in the prior year period.
−Removed: The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from our Mafia franchise, PGA TOUR 2K21 , our WWE 2K franchise, Borderlands 3 , and Red Dead Redemption 2 , partially offset by an increase in net revenue from Hades .
+Added: For the three months ended December 31, 2021, net revenue increased by $42.4 million as compared to the prior year period.
+Added: The increase was due to an increase in net revenue of (i) $71.6 million from our Grand Theft Auto franchise, including Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition , which released in November 2021, (ii) $16.7 million from Top Eleven , which was part of the Nordeus acquisition in June 2021, and (iii) $12.0 million from Two Dots .
+Added: These increases were partially offset by a decrease in net revenue of (i) $18.0 million from our Mafia franchise, (ii) $13.2 million from our NBA 2K franchise, (iii) $10.7 million from our PGA TOUR 2K franchise, and (iv) $10.2 million from The Outer Worlds .
+Added: Net revenue from console games increased by $9.5 million and accounted for 73.7% of our total net revenue for the three months ended December 31, 2021, as compared to 76.2% for the prior year period.
+Added: The increase was due to an increase in net revenue from our Grand Theft Auto franchise, partially offset by a decrease in net revenue from our NBA 2K , Mafia , PGA TOUR 2K , WWE 2K , Borderlands , and Red Dead franchises, The Outer Worlds, and our BioShock franchise.
+Added: Net revenue from PC and other decreased by $1.7 million and accounted for 14.8% of our total net revenue for the three months ended December 31, 2021, as compared to 15.7% for the prior year period.
+Added: The decrease was due to a decrease in net revenue from The Outer Worlds and our Civilization and Mafia franchises, partially offset by an increase in net revenue from our Red Dead and NBA 2K franchises.
+Added: Net revenue from mobile increased by $34.6 million and accounted for 11.5% of our total net revenue for three months ended December 31, 2021, as compared to 8.0% for the prior year period.
+Added: The increase was due primarily to an increase in net revenue from Top Eleven, Two Dots , and our NBA 2K franchise.
+Added: Net revenue from digital online channels increased by $52.6 million and accounted for 88.1% of our total net revenue for the three months ended December 31, 2021, as compared to 86.3% for the prior year period.
+Added: The increase was due to an increase in net revenue from our Grand Theft Auto franchise, Top Eleven , Two Dots , and our Red Dead franchise, partially offset by a decrease in net revenue from our Mafia franchise, The Outer Worlds , and our PGA TOUR 2K franchise .
+Added: Net revenue from physical retail and other channels decreased by $10.2 million and accounted for 11.9% of our total net revenue for the three months ended December 31, 2021, as compared to 13.7% for the same period in the prior year period.
+Added: The decrease in net revenue from physical retail and other channels was due primarily to a decrease in net revenue from our NBA 2K , Mafia , PGA TOUR 2K , WWE 2K , and Red Dead franchises, partially offset by an increase in net revenue from our Grand Theft Auto franchise.
Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.
−Removed: Net revenue from recurrent consumer spending increased by $43.8 million and accounted for 65.7% of net revenue for the three months ended September 30, 2021, as compared to 61.8% of net revenue for the prior year period.
−Removed: The increase in net revenue from recurrent consumer spending is due primarily to an increase in net revenue from Two Dots , Grand Theft Auto Online, and Top Eleven , partially offset by a decrease in net revenue from Borderlands 3.
−Removed: Net revenue from full game and other decreased by $26.7 million and accounted for 34.3% of net revenue for the three months ended September 30, 2021 as compared to 38.2% of net revenue for the prior year period.
−Removed: The decrease in net revenue from full game and other was due primarily to a decrease in net revenue from PGA TOUR 2K21 , our Mafia franchise, and our WWE 2K franchise, partially offset by an increase in net revenue from Borderlands 3 and our NBA 2K franchise.
−Removed: Gross profit as a percentage of net revenue for the three months ended September 30, 2021 was 46.8% as compared to 48.6% for the prior year period.
−Removed: The decrease in gross profit as a percentage of net revenue was due to higher internal royalties due to the timing of when royalties are earned, partially offset by lower development royalties due primarily to the timing of releases.
−Removed: The decrease in gross profit as a percentage of net revenue was also impacted by impairments recognized against some of our capitalized software balances for three months ended September 30, 2021.
−Removed: (See Note 8 - Software Development Costs and Licenses of our Condensed Consolidated Financial Statements).
−Removed: Net revenue earned outside of the United States increased by $5.7 million and accounted for 40.0% of our total net revenue for the three months ended September 30, 2021, as compared to 40.1% in the prior year period.
−Removed: The increase in net revenue outside of the United States was due to an increase in net revenue from Two Dots and Top Eleven , partially offset by a decrease in net revenue from our Mafia franchis e.
−Removed: Changes in foreign currency exchange rates increased net revenue by $3.5 million and increased gross profit by $1.5 million for the three months ended September 30, 2021 as compared to the prior year period.
+Added: Net revenue from recurrent consumer spending decreased by $4.5 million and accounted for 60.6% of net revenue for the three months ended December 31, 2021, as compared to 64.2% of net revenue for the prior year period.
+Added: The decrease in net revenue from recurrent consumer spending is due primarily to a decrease in net revenue from our NBA 2K , Grand Theft Auto , and Borderlands franchises, Monster Legends , and our Civilization franchise, partially offset by an increase in net revenue from Top Eleven and Two Dots.
+Added: Net revenue from full game and other increased by $46.9 million and accounted for 39.4% of net revenue for the three months ended December 31, 2021 as compared to 35.8% of net revenue for the prior year period.
+Added: The increase in net revenue from full game and other was due primarily to an increase in net revenue from our Grand Theft Auto franchise, partially offset by a decrease in net revenue from our Mafia and PGA TOUR 2K franchises, and The Outer Worlds .
+Added: Gross profit as a percentage of net revenue for the three months ended December 31, 2021 was 61.2% as compared to 59.8% for the prior year period.
+Added: The increase in gross profit as a percentage of net revenue was due to lower development royalties and lower amortization of capitalized software development cost, both due primarily to the timing of releases, partially offset by higher internal royalties due to the timing of when royalties are earned.
+Added: Net revenue earned outside of the United States increased by $35.8 million and accounted for 40.8% of our total net revenue for the three months ended December 31, 2021, as compared to 38.6% in the prior year period.
+Added: The increase in net revenue outside of the United States was due to an increase in net revenue from our Grand Theft Auto franchise and Top Eleven , partially offset by a decrease in net revenue from our Mafia franchise.
+Added: Changes in foreign currency exchange rates
+Added: increased net revenue by $4.1 million and increased gross profit by $3.0 million for the three months ended December 31, 2021 as compared to the prior year period.
Operating Expenses
12 unchanged sentences
Research and development 13,232 8,347
−Removed: Changes in foreign currency exchange rates increased total operating expenses by $2.7 million for the three months ended September 30, 2021, as compared to the prior year period.
+Added: Changes in foreign currency exchange rates increased total operating expen ses by $3.6 million for the three months ended December 31, 2021, as compared to the prior year period.
Selling and marketing
−Removed: Selling and marketing expenses increased by $22.3 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to higher overall marketing expense for Grand Theft Auto Online , Two Dots , Top Eleven , and our NBA 2K franchise, partially offset by lower overall marketing expenses for our WWE 2K franchise, our Mafia franchise, and PGA TOUR 2K21 .
+Added: Selling and marketing expenses decreased by $4.6 million for the three months ended December 31, 2021, as compared to the prior year period, due primarily to (i) lower overall marketing expense for our NBA 2K franchise, Red Dead Online , and Borderlands 3 , partially offset by higher overall marketing expenses for Top Eleven , Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition , and Grand Theft Auto Online , and (ii) lower customer service expenses.
+Added: These decreases were partially offset by an increase in personnel expenses for additional headcount.
General and administrative
−Removed: General and administrative expenses increased by $35.9 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to increases in (i) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15 - Acquisitions ), (ii) personnel expenses for additional headcount, (iii) IT expenses for cloud-based services, and (iv) transfer tax expense related to our acquisition of Nordeus.
−Removed: The increase was partially offset due primarily to a decrease in professional fees in the prior year period related to our acquisition of Playdots.
−Removed: General and administrative expenses for the three months ended September 30, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $8.4 million and $7.1 million, respectively, related to our development studios.
+Added: General and administrative expenses increased by $32.1 million for the three months ended December 31, 2021, as compared to the prior year period, due primarily to increases in (i) personnel expenses for additional headcount, (ii) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15- Acquisitions ), (iii) rent expenses for additional locations and lease renewals, and (iv) IT expenses for cloud-based services.
+Added: General and administrative expenses for the three months ended December 31, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $9.3 million and $6.8 million, respectively, related to our development studios.
Research and development
−Removed: Research and development expenses increased by $27.3 million for the three months ended September 30, 2021, as compared to the prior year period, due primarily to increases in (i) personnel expenses due to increased headcount and (ii) IT expenses for cloud-based services.
+Added: Research and development expenses increased by $30.2 million for the three months ended December 31, 2021, as compared to the prior year period, due primarily to increases in personnel expenses due to increased headcount, including related to our recent acquisitions.
Depreciation and Amortization
−Removed: Depreciation and amortization expenses increased by $2.5 million for the three months ended September 30, 2021 as compared to the prior year period, due primarily to IT infrastructure and leasehold improvements for new office locations.
+Added: Depreciation and amortization expenses increased by $2.0 million for the three months ended December 31, 2021 as compared to the prior year period, due primarily to IT infrastructure.
Business reorganization
−Removed: For the three months ended September 30, 2021, business reorganization expense increased by $0.1 million as compared to the prior year period and was not material.
+Added: For the three months ended December 31, 2021, business reorganization expense increased by $0.5 million as compared to the prior year period and was not material.
Interest and other, net
−Removed: Interest and other, net was expense of $0.6 million for the three months ended September 30, 2021, as compared to income of $2.7 million for the prior year period.
−Removed: The change was due primarily to (i) higher interest expense on our available-for-sale securities and (ii) lower foreign currency gains in the current year period as compared to the prior year period.
+Added: Interest and other, net was expense of $5.6 million for the three months ended December 31, 2021, as compared to income of $1.1 million for the prior year period.
+Added: The change was due primarily to (i) foreign currency losses in the current year period as compared to gains in the prior year period and (ii) lower interest income on our available-for-sale securities.
Gain on long-term investments, net
−Removed: Gain on long-term investments, net for the three months ended September 30, 2021 was $0.4 million and was due primarily to changes in value based on the observable price changes of our long-term investments.
+Added: Gain on long-term investments, net decreased by $35.6 million for the three months ended December 31, 2021 as compared to the prior year period.
+Added: The decrease was due primarily to the sale of a portion of one of our investments and the resulting change in value based on the observable price in the prior year period, partially offset by changes in value based on the observable price changes of our long-term investments in the current year period.
Provision for Income Taxes
−Removed: The provision for income taxes for the three months ended September 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.
−Removed: The provision for income taxes was $9.7 million for the three months ended September 30, 2021 as compared to $18.1 million for the prior year period.
−Removed: When compared to the statutory rate of 21.0%, the effective tax rate of 48.4% for the three months ended September 30, 2021 was due primarily to a tax expense of $2.4 million related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus, tax expense of $5.4 million from a shortfall on employee stock-based compensation offset by $2.6 million from the geographic mix of earnings.
−Removed: In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 15.4% for the three months ended September 30, 2020 was due primarily to a tax benefit of $5.7 million from tax credits, excess tax benefits of $2.3 million from employee stock-based compensation, and offset by the geographic mix of earnings.
−Removed: The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreases in tax benefits from tax credits and excess tax benefits from employee stock-based compensation the current period, partially offset by the geographic mix of earnings.
+Added: The provision for income taxes for the three months ended December 31, 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.
+Added: The provision for income taxes was $7.6 million for the three months ended December 31, 2021 as compared to $34.2 million for the prior year period.
+Added: When compared to the statutory rate of 21.0%, the effective tax rate of 5.0% for the three months ended December 31, 2021 was due primarily to excess tax benefits of $9.9 million on employee stock-based compensation, tax benefits of $9.7 million from tax credits, and a tax benefit of $7.2 million related to geographic mix of earnings.
+Added: In the prior year period, when compared to our 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 $7.1 million from tax credits and excess tax benefits of $3.4 million from employee stock-based compensation offset by the geographic mix of earnings.
+Added: The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increases in tax benefits from tax credits, excess tax benefits from employee stock-based compensation the current period, and by the geographic mix of earnings.
The accounting for share-based compensation will increase or decrease our effective tax rate based on the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.
5 unchanged sentences
It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
−Removed: On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA”) was signed into law.
−Removed: ARPA includes several revenue-raising and business provisions.
−Removed: One such provision that impacts the Company is the expansion of the limitation of compensation deductions for certain covered employees of publicly held corporations.
−Removed: Effective April 1, 2027, ARPA expanded the limitation to cover the next five most highly compensated employees.
−Removed: As September 30, 2021, ARPA did not have a material impact on our Condensed Consolidated Financial Statements.
+Added: On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted.
+Added: The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations.
+Added: Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees.
+Added: The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the three months ended December 31, 2021.
+Added: The Company continues to evaluate the potential impact the ARPA may have on its operations and consolidated financial statements in future periods.
On March 27, 2020, the U.S.
2 unchanged sentences
Net income and earnings per share
−Removed: For the three months ended September 30, 2021, net income was $10.3 million, as compared to $99.3 million in the prior year period.
−Removed: Diluted earnings per share for the three months ended September 30, 2021 was $0.09, as compared to diluted earnings per share of $0.86 in the prior year period.
−Removed: Diluted weighted average shares of 116.8 million were 1.4 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period, partially offset by shares repurchased.
+Added: For the three months ended December 31, 2021, net income was $144.5 million, as compared to $182.2 million in the prior year period.
+Added: Diluted earnings per share for the three months ended December 31, 2021 was $1.24, as compared to diluted earnings per share of $1.57 in the prior year period.
+Added: Diluted weighted average shares of 116.7 million were 0.6 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period, partially offset by shares repurchases.
See Note 11 - Earnings Per Share to our Condensed Consolidated Financial Statements for additional information.
−Removed: Six Months Ended September 30, 2021 Compared to September 30, 2020
+Added: Nine Months Ended December 31, 2021 Compared to December 31, 2020
(thousands of dollars) 2021 % 2020 % Increase/
9 unchanged sentences
(1) Includes $31,831 and $61,529 of stock-based compensation expense in 2021 and 2020, respectively, in software development costs and royalties.
−Removed: For the six months ended September 30, 2021, net revenue decreased by $0.9 million as compared to the prior year period.
−Removed: The decrease was due to a decrease in net revenue of (i) $56.7 million from Red Dead Redemption 2 , (ii) $23.0 million from Borderlands 3 , (iii) $15.4 million from PGA TOUR 2K21 , and (iv) $11.3 million from Civilization VI .
−Removed: These decreases were partially offset by an increase in net revenue of (i) $63.3 million from our NBA 2K franchise, (ii) $54.4 million from Two Dots , (iii) $31.9 million from Grand Theft Auto Online , (iv) $13.7 million from Red Dead Online , and (v) $12.2 million from Top Eleven .
−Removed: Net revenue from console games decreased by $54.4 million and accounted for 71.7% of our total net revenue for the six months ended September 30, 2021, as compared to 74.9% for the prior year period.
−Removed: The decrease was due to a decrease in net revenue from our Red Dead Redemption 2 , Borderlands 3 , our Mafia franchise, PGA TOUR 2K21 , and our WWE 2K franchise , partially offset by an increase in net revenue from our NBA 2K franchise, and Grand Theft Auto Online.
−Removed: Net revenue from PC and other decreased by $28.3 million and accounted for 16.5% of our total net revenue for the six months ended September 30, 2021, as compared to 18.2% for the prior year period.
−Removed: The decrease was due to a decrease in net revenue from Red Dead Redemption 2 , Grand Theft Auto V , and Civilization VI , partially offset by an increase in net revenue from our NBA 2K franchise.
−Removed: Net revenue from mobile increased by $81.8 million and accounted for 11.8% of our total net revenue for six months ended September 30, 2021, as compared to 6.9% for the prior year period.
−Removed: The increase was due primarily to an increase in net revenue from Two Dots and Top Eleven .
−Removed: Net revenue from digital online channels increased by $58.6 million and accounted for 90.9% of our total net revenue for the six months ended September 30, 2021, as compared to 87.4% for the prior year period.
−Removed: The increase was due to an increase in net revenue from our NBA 2K franchise, Two Dots , Grand Theft Auto Online, Red Dead Online , and Top Eleven , partially offset by a decrease in net revenue from Red Dead Redemption 2 , our Mafia franchise, Borderlands 3 , Civilization VI , PGA TOUR 2K21 , and our XCOM franchise.
−Removed: Net revenue from physical retail and other channels decreased by $59.6 million and accounted for 9.1% of our total net revenue for the six months ended September 30, 2021, as compared to 12.6% for the prior year period.
−Removed: The decrease was due to a decrease in net revenue from Red Dead Redemption 2, our Mafia franchise, Borderlands 3, PGA TOUR 2K21 , Grand Theft Auto V , and our WWE 2K franchise.
+Added: For the nine months ended December 31, 2021, net revenue increased by $41.5 million as compared to the prior year period.
+Added: The increase was due to an increase in net revenue of (i) $97.9 million from our Grand Theft Auto franchise, including Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition which released in November 2021, (ii) $66.5 million from Two Dots , (iii) $48.9 million from our NBA 2K franchise, and (iv) $28.8 million from Top Eleven , which was part of the Nordeus acquisition in June 2021.
+Added: These increases were partially offset by a decrease in net revenue of (i) $45.9 million from our Mafia franchise, (ii) $35.7 million from our Red Dead franchise, (iii) $34.8 million from our Borderlands franchise , (iv) $30.4 million from our PGA TOUR 2K franchise, (v) $17.1 million from our Civilization franchise, (vi) $14.1 million from our WWE 2K franchise, (vii) $11.6 million from The Outer Worlds , and (viii) $7.6 million from our BioShock franchise.
+Added: Net revenue from console games decreased by $45.0 million and accounted for 72.4% of our total net revenue for the nine months ended December 31, 2021, as compared to 75.4% for the prior year period.
+Added: The decrease was due to a decrease in net revenue from our Mafia , Borderlands , Red Dead , PGA TOUR 2K , WWE 2K , and BioShock franchises, and The Outer Worlds, partially offset by an increase in net revenue from our Grand Theft Auto and NBA 2K franchises .
+Added: Net revenue from PC and other decreased by $30.0 million and accounted for 15.9% of our total net revenue for the nine months ended December 31, 2021, as compared to 17.3% for the prior year period.
+Added: The decrease was due to a decrease in net revenue from our Grand Theft Auto, Civilization , Mafia , and XCOM franchises, and The Outer Worlds , partially offset by an increase in net revenue from our NBA 2K franchise.
+Added: Net revenue from mobile increased by $116.4 million and accounted for 11.7% of our total net revenue for nine months ended December 31, 2021, as compared to 7.3% for the prior year period.
+Added: The increase was due primarily to an increase in net revenue from Two Dots , Top Eleven, and our NBA 2K franchise.
+Added: Net revenue from digital online channels increased by $111.2 million and accounted for 89.9% of our total net revenue for the nine months ended December 31, 2021, as compared to 87.0% for the prior year period.
+Added: The increase was due to an increase in net revenue from our Grand Theft Auto franchise, Two Dots , our NBA 2K franchise, and Top Eleven , partially offset by a decrease in net revenue from our Mafia , Red Dead , Borderlands , PGA TOUR 2K , and Civilization franchises.
+Added: Net revenue from physical retail and other channels decreased by $69.8 million and accounted for 10.1% of our total net revenue for the nine months ended December 31, 2021, as compared to 13.0% for the prior year period.
+Added: The decrease was due to a decrease in net revenue from our Mafia , Borderlands , Red Dead , PGA TOUR 2K , WWE 2K , and NBA 2K franchises, partially offset by an increase in net revenue from our Grand Theft Auto franchise.
Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.
−Removed: Net revenue from recurrent consumer spending increased by $119.2 million and accounted for 68.0% of net revenue for the six months ended September 30, 2021, as compared to 60.8% of net revenue for the prior year period.
−Removed: The increase was due to an increase in net revenue from Two Dots , our NBA 2K franchise, Grand Theft Auto Online , and Top Eleven , partially offset by a decrease in net revenue from Borderlands 3 .
−Removed: Net revenue from full game and other decreased by $120.1 million and accounted for 32.0% of net revenue for the six months ended September 30, 2021 as compared to 39.2% of net revenue for the prior year period.
−Removed: The decrease was due to a decrease in net revenue from Red Dead Redemption 2, our Mafia franchise, Grand Theft Auto V , and PGA TOUR 2K21.
−Removed: Gross profit as a percentage of net revenue for the six months ended September 30, 2021 was 53.0% as compared to 45.6% for the prior year period.
−Removed: The increase in gross profit as a percentage of net revenue was due to lower development royalties due primarily to the timing of releases and lower internal royalties due primarily to the timing of when royalties are earned.
−Removed: Offsetting the increase in gross profit as a percentage of net revenue were impairments recognized against some of our capitalized software balances for six months ended September 30, 2021.
+Added: Net revenue from recurrent consumer spending increased by $114.6 million and accounted for 65.4% of net revenue for the nine months ended December 31, 2021, as compared to 61.9% of net revenue for the prior year period.
+Added: The increase was due to an increase in net revenue from Two Dots, our NBA 2K franchise, our Grand Theft Auto franchise, and Top Eleven , partially offset by a decrease in net revenue from our Borderlands and Red Dead franchises.
+Added: Net revenue from full game and other decreased by $73.2 million and accounted for 34.6% of net revenue for the nine months ended December 31, 2021 as compared to 38.1% of net revenue for the prior year period.
+Added: The decrease was due to a decrease in net revenue from our Mafia , PGA TOUR 2K , Red Dead , and WWE 2K franchises, and The Outer Worlds , partially offset by an increase in net revenue from our Grand Theft Auto franchise .
+Added: Gross profit as a percentage of net revenue for the nine months ended December 31, 2021 was 55.8% as compared to 50.4% for the prior year period.
+Added: The increase in gross profit as a percentage of net revenue was due to lower development royalties and lower amortization of capitalized software development costs, both due primarily to the timing of releases.
+Added: Offsetting the increase in gross profit as a percentage of net revenue were impairments recognized against some of our capitalized software balances for nine months ended December 31, 2021.
(See Note 8 - Software Development Costs and Licenses of our Condensed Consolidated Financial Statements).
−Removed: Net revenue earned outside of the United States decreased by $34.9 million, and accounted for 39.7% of our total net revenue for the six months ended September 30, 2021, as compared to 41.8% in the prior year period.
−Removed: The decrease in net
−Removed: revenue outside of the United States was due to a decrease in net revenue from Red Dead Redemption 2 , our Mafia franchise, Grand Theft Auto V , and Borderlands 3 , partially offset by an increase in net revenue from Two Dots , Top Eleven , and our NBA 2K franchise.
−Removed: Changes in foreign currency exchange rates increased net revenue by $2.3 million and increased gross profit by $1.7 million for the six months ended September 30, 2021 as compared to the prior year period.
+Added: Net revenue earned outside of the United States increased by $0.9 million, and accounted for 40.1% of our total net revenue for the nine months ended December 31, 2021, as compared to 40.7% in the prior year period.
+Added: The increase in net revenue outside of the United States was due to an increase in net revenue from Top Eleven , our Grand Theft Auto franchise, Two Dots , and our NBA 2K franchise, partially offset by a decrease in net revenue from our Mafia , Red Dead , Borderlands , and PGA TOUR 2K franchises, and The Outer Worlds .
+Added: Changes in foreign currency exchange rates increased net revenue by $6.4 million and increased gross profit by $4.7 million for the nine months ended December 31, 2021 as compared to the prior year period.
Operating Expenses
12 unchanged sentences
Research and development 38,012 22,400
−Removed: Changes in foreign currency exchange rates increased total operating expens es by $0.7 million for the six months ended September 30, 2021, as compared to the prior year period.
+Added: Changes in foreign currency exchange rates increased total operating expenses by $4.3 million for the nine months ended December 31, 2021, as compared to the prior year period.
Selling and marketing
−Removed: Selling and marketing expenses increased by $41.4 million for the six months ended September 30, 2021, as compared to the prior year period, due primarily to higher overall marketing expenses for Two Dots , Grand Theft Auto Online , Top Eleven , and our NBA 2K franchise.
+Added: Selling and marketing expenses increased by $36.8 million for the nine months ended December 31, 2021, as compared to the prior year period, due primarily to (i) higher overall marketing expenses for Two Dots , Top Eleven, Grand Theft Auto Online , and Grand Theft Auto:
+Added: The Trilogy - The Definitive Edition , partially offset by lower overall marketing expenses for Borderlands 3 , our Mafia franchise, Red Dead Online , and our NBA 2K franchise and (ii) higher personnel expenses for additional headcount.
+Added: These increases were partially offset by a decrease in customer service expenses.
General and administrative
−Removed: General and administrative expenses increased by $38.2 million for the six months ended September 30, 2021, as compared to the prior year period, due to increases in (i) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15 - Acquisitions ), (ii) personnel expenses for additional headcount (iii) IT expenses for cloud-based services (iv) professional fees related to our acquisition of Nordeus, and (v) rent expense.
−Removed: The increase was partially offset by a decrease in charitable contributions as compared to the prior year period primarily due to our COVID-19 response and relief efforts in the prior year period.
−Removed: General and administrative expenses for the six months ended September 30, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $15.9 million and $13.7 million, respectively, related to our development studios.
+Added: General and administrative expenses increased by $70.3 million for the nine months ended December 31, 2021, as compared to the prior year period, due to increases in (i) personnel expenses for additional headcount, (ii) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 15 - Acquisitions ), (iii) IT expenses for cloud-based services, (iv) transfer tax expense related to our acquisition of Nordeus, and (iv) professional fees related to acquisitions.
+Added: These increases were partially offset by a decrease in charitable contributions in the prior year period related to our COVID-19 response and relief efforts.
+Added: General and administrative expenses for the nine months ended December 31, 2021 and 2020 included occupancy expense (primarily rent, utilities and office expenses) of $25.6 million and $20.5 million, respectively, related to our development studios.
Research and development
−Removed: Research and development expenses increased by $46.5 million for the six months ended September 30, 2021, as compared to the prior year period, due primarily to increases in personnel expenses for higher headcount.
+Added: Research and development expenses increased by $76.7 million for the nine months ended December 31, 2021, as compared to the prior year period, due primarily to increases in (i) personnel expenses for higher headcount, including related to our recent acquisitions, (ii) IT expenses for cloud-based services, and (iii) production and development expenses for titles that have not yet established technological feasibility.
Depreciation and Amortization
−Removed: Depreciation and amortization expenses for the six months ended September 30, 2021 increased by $2.5 million, as compared to the prior year period, due primarily to IT infrastructure.
+Added: Depreciation and amortization expenses for the nine months ended December 31, 2021 increased by $4.5 million, as compared to the prior year period, due primarily to IT infrastructure.
Business reorganization
−Removed: During the six months ended September 30, 2021, as compared to the prior year period, business reorganization expense increased $0.2 million and was not material.
+Added: During the nine months ended December 31, 2021, as compared to the prior year period, business reorganization expense increased $0.7 million and was not material.
Interest and other, net
−Removed: Interest and other, net was expense of $1.6 million for the six months ended September 30, 2021, as compared to income of $10.9 million f or the prior year period.
−Removed: The change was due primarily to (i) foreign currency losses in the current year period as compared to gains in the prior year period, (ii) higher interest expense on our available-for-sale investments, and (iii) lower interest income on our investments due to lower rates.
+Added: Interest and other, net was expense of $7.2 million for the nine months ended December 31, 2021, as compared to income of $12.0 million f or the prior year period.
+Added: The change was due primarily to (i) foreign currency losses in the current year period as compared to gains in the prior year period and (ii) lower interest income on our investments due to lower rates.
Gain on long-term investments, net
−Removed: Gain on long-term investments, net for the six months ended September 30, 2021 was $2.4 million and was due primarily to changes in value based on the observable price change of our long-term investment.
+Added: Gain on long-term investments, net decreased by $32.6 million for the nine months ended December 31, 2021 as compared to the prior year period, the decrease was due primarily to the sale of a portion of one of our investments and the resulting change in value based on the observable price in the prior year period, partially offset by changes in value based on the observable price changes of our long-term investments in the current year period.
Provision for Income Taxes
−Removed: The provision for income taxes for the six months ended September 30, 2021 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.
−Removed: The provision for income taxes was $28.9 million for the six months ended September 30, 2021 as compared to a provision for income taxes of $20.0 million for the prior year period.
−Removed: When compared to the statutory rate of 21.0%, the effective tax rate of 15.1% for the six months ended September 30, 2021 was due primarily to a tax benefit of $11.4 million as a result of tax credits anticipated to be utilized and excess tax benefits of $4.0 million from employee stock-based compensation offset by a tax expense of $2.4 million related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus and by the geographic mix of earnings.
−Removed: In the prior year period, when compared to our blended statutory rate of 21%, the effective tax rate of 9.6% for the six months ended September 30, 2020 was due primarily to a benefit of $10.7 million as a result of tax credits anticipated to be utilized and excess tax benefits of $10.2 million from employee stock-based compensation.
−Removed: The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased tax benefits from employee stock-based compensation in the current period, partially offset by the geographic mix of earnings.
+Added: The provision for income taxes for the nine months ended December 31, 2021 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.
+Added: The provision for income taxes was $36.5 million for the nine months ended December 31, 2021 as compared to a provision for income taxes of $54.2 million for the prior year period.
+Added: When compared to the statutory rate of 21.0%, the effective tax rate of 10.6% for the nine months ended December 31, 2021 was due primarily to a tax benefit of $21.1 million due to tax credits and excess tax benefits of $13.9 million from employee stock-based compensation, offset by tax expense of $5.0 million related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus and by the geographic mix of earnings.
+Added: In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 12.8% for the nine months ended December 31, 2020 was due primarily to a benefit of $17.8 million as a result of tax credits anticipated to be utilized and excess tax benefits of $13.6 million from employee stock-based compensation.
+Added: The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased tax benefits from tax credits in the current period and by the geographic mix of earnings.
The accounting for share-based compensation will increase or decrease our effective tax rate based on the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.
5 unchanged sentences
It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
−Removed: On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA”) was signed into law.
−Removed: ARPA includes several revenue-raising and business provisions.
−Removed: One such provision that impacts the Company is the expansion of the limitation of compensation deductions for certain covered employees of publicly held corporations.
−Removed: Effective April 1, 2027, ARPA expanded the limitation to cover the next five most highly compensated employees.
−Removed: As September 30, 2021, ARPA did not have a material impact on our Condensed Consolidated Financial Statements.
+Added: On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted.
+Added: The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations.
+Added: Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees.
+Added: The ARPA did not have a material impact on our Condensed Consolidated Financial Statements for the nine months ended December 31, 2021.
+Added: The Company continues to evaluate the potential impact the ARPA may have on its operations and consolidated financial statements in future periods.
On March 27, 2020, the U.S.
2 unchanged sentences
Net income and earnings per share
−Removed: For the six months ended September 30, 2021, net income was $162.6 million, as compared to $187.8 million in the prior year period.
−Removed: For the six months ended September 30, 2021, diluted earnings per share was $1.39 as compared to diluted earnings per share of $1.63 in the prior year period.
+Added: For the nine months ended December 31, 2021, net income was $307.1 million, as compared to $370.1 million in the prior year period.
+Added: For the nine months ended December 31, 2021, diluted earnings per share was $2.63 as compared to diluted earnings per share of $3.20 in the prior year period.
Diluted weighted average shares of 116.8 million were 1.2 million shares higher as compared to the prior year period, due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year period, partially offset by shares repurchased.
4 unchanged sentences
Short-term Investments
−Removed: As of September 30, 2021, we had $1,440.6 million of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations.
+Added: As of December 31, 2021, we had $1,479.0 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.
−Removed: As of September 30, 2021, based on the composition of our investment portfolio and relatively lower interest rates as a result of the actions by central banks around the world, including the interest rate cuts by the U.S.
+Added: As of December 31, 2021, based on the composition of our investment portfolio and relatively lower interest rates as a result of the actions by central banks around the world, including the interest rate cuts by the U.S.
Federal Reserve, in response to the COVID-19 pandemic and related adverse economic conditions, we anticipate investment yields may remain low, which would lower our future interest income.
4 unchanged sentences
In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $200 million in term loans or revolving credit facilities.
−Removed: 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 September 30, 2021) or (b) 1.125% to 1.750% above LIBOR (approximately 0.09% at September 30, 2021), which rates are determined by reference to our consolidated total net leverage ratio.
+Added: 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, 2021) or (b) 1.125% to 1.750% above LIBOR (approximately 0.10% at December 31, 2021), which rates are determined by reference to our consolidated total net leverage ratio.
The LIBOR benchmark rate is expected to be phased out by the end of June 2023.
We do not expect that the discontinuation of the LIBOR rate will have a material impact on our liquidity or results of operations.
−Removed: As of September 30, 2021, there was $247.8 million available to borrow under the Credit Agreement, and we had $2.2 million of letters of credit outstanding.
−Removed: At September 30, 2021, we had no outstanding borrowings under the Credit Agreement.
+Added: As of December 31, 2021, there was $247.7 million available to borrow under the Credit Agreement, and we had $2.3 million of letters of credit outstanding.
+Added: At December 31, 2021, and March 31, 2021, we had no outstanding borrowings under the Credit Agreement.
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 the Company’s and each of its subsidiaries’ ability to:
13 unchanged sentences
A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors.
−Removed: Our five largest customers accounted for 79.8% and 77.7% of net revenue during the six months ended September 30, 2021 and 2020, respectively.
−Removed: As of September 30, 2021 and March 31, 2021, five customers accounted for 76.9% and 77.6% of our gross accounts receivable, respectively.
−Removed: Customers that individually accounted for more than 10% of
−Removed: our gross accounts receivable balance comprised 64.3% and 69.2% of such balances at September 30, 2021 and March 31, 2021, respectively.
−Removed: We had two customers who accounted for 45.4% and 18.9% of our gross accounts receivable as of September 30, 2021, respectively, and two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021, respectively.
+Added: Our five largest customers accounted for 79.2% and 77.4% of net revenue during the nine months ended December 31, 2021 and 2020, respectively.
+Added: As of December 31, 2021 and March 31, 2021, five customers accounted for 74.7% and 77.6% of our gross accounts receivable, respectively.
+Added: Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 59.1% and 69.2% of such balances at December 31, 2021 and March 31, 2021, respectively.
+Added: We had two customers who accounted for 41.9% and 17.2% of our gross accounts receivable as of December 31, 2021, respectively, and two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021, respectively.
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.
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For further discussion regarding the potential future impacts of the COVID-19 pandemic and related economic conditions on our business, refer to Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
−Removed: As of September 30, 2021, the amount of cash and cash equivalents held outside of the U.S.
+Added: As of December 31, 2021, the amount of cash and cash equivalents held outside of the U.S.
by our foreign subsidiaries was $306.9 million.
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In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future.
−Removed: The Tax Cuts and Jobs Act, as enacted in December 2017, includes a number of provisions, which generally establish a territorial-style system for taxing foreign income of domestic multinational corporations.
−Removed: Our current intention is to reinvest indefinitely earnings of our foreign subsidiaries, and therefore we have not recorded any tax liabilities associated with the repatriation of foreign earnings.
−Removed: Our Board of Directors has authorized the repurchase of up to 14.2 million shares of our common stock.
+Added: On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga, a leading developer of mobile games.
+Added: Under the terms and subject to the conditions of the merger agreement, Zynga stockholders will receive $3.50 in cash and a number of shares of our common stock equal to the exchange ratio (ranging from 0.0350 to 0.0406, as further described below) for each share of Zynga common stock outstanding at the closing.
+Added: The transaction is valued at $9.86 per share of Zynga common stock based on the market closing as of January 7, 2022, implying an enterprise value of $12.7 billion.
+Added: The transaction includes a collar mechanism on the equity consideration, so that if our 20-day volume weighted average price (“VWAP”) ending on the third trading day prior to closing is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration of $9.86 per Zynga share.
+Added: If the VWAP exceeds the higher end of that range the exchange ratio would be 0.0350 per share and if the VWAP falls below the lower end of that range, the exchange ratio would be 0.0406 per share.
+Added: As part of the transaction, we have received aggregate committed financing of $2.7 billion from J.P.
+Added: Morgan and certain other lenders, and we intend to fund the cash component of the transaction through a combination of cash from our balance sheet as well as proceeds of new debt issuance.
+Added: The transaction, which is expected to close during our first quarter of fiscal year 2023 ending June 30, 2022, is subject to approval by Take-Two and Zynga stockholders and the satisfaction of customary closing conditions, including applicable regulatory approvals.
+Added: Our Board of Directors has authorized the repurchase of up to 21.7 million shares of our common stock, including an increase of 7.4 million shares in November 2021.
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.
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The program does not require us to repurchase shares and may be suspended or discontinued at any time for any reason.
−Removed: During the three months ended September 30, 2021, we repurchased 1.3 million shares of our common stock in the open market for $200.0 million, including commissions, as part of the program.
−Removed: We have repurchased a total of 11.7 million shares of our common stock under the program, and as of September 30, 2021, 2.6 million shares of our common stock remained available for repurchase under the share repurchase program.
+Added: During the three months ended December 31, 2021, we did not repurchase shares of our common stock in the open market, as part of the program.
+Added: We have repurchased a total of 11.7 million shares of our common stock under the program, and as of December 31, 2021, 10.0 million shares of our common stock remained available for repurchase under the share repurchase program.
Our changes in cash flows were as follows:
−Removed: Six Months Ended
−Removed: September 30,
+Added: Nine Months Ended
(thousands of dollars) 2021 2020
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Net change in cash, cash equivalents, and restricted cash and cash equivalents $ (703,051) $ 519,397
−Removed: At September 30, 2021, we had $1,714.7 million of cash and cash equivalents and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.
+Added: At December 31, 2021, we had $1,357.2 million of cash and cash equivalents and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.
The decrease was due to (1) Net cash used in investing activities primarily related to (i) net purchases of available for sale securities, (ii) our acquisition of Nordeus (refer to Note 15 - Acquisitions ), and (iii) purchases of fixed assets, including our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ) and (2) Net cash used in financing activities, which was primarily for (i) repurchase of our common stock and (ii) tax payments related to net share settlements of our restricted stock awards.
−Removed: This net increase was partially offset by Net cash provided by operating activities from sales of our products, partially offset by the timing of payments.
+Added: This net decrease was partially offset by Net cash provided by operating activities from sales of our products, partially offset by the timing of payments.
Contractual Obligations and Commitments
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In fiscal year 2022, we anticipate capital expenditures to be $170 million.
−Removed: During the six months ended September 30, 2021, capital expenditures were $111.2 million, which includes our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ).
+Added: During the nine months ended December 31, 2021, capital expenditures were $133.4 million, which includes our acquisition of two office buildings in the UK (refer to Note 15 - Acquisitions ).
Off-Balance Sheet Arrangements
−Removed: As of September 30, 2021 and March 31, 2021, 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.
+Added: As of December 31, 2021 and March 31, 2021, 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.
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Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada, and Latin America.
−Removed: For the three months ended September 30, 2021 and 2020, 40.0% and 40.1%, respectively, of our net revenue was earned outside of the United States.
+Added: For the three months ended December 31, 2021 and 2020, 40.8% and 38.6%, respectively, of our net revenue was earned outside of 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.
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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.