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Item 7. Management’s Discussion and Analysis

2022-05-17 compared with 2021-05-19 · 131 added, 78 removed, 230 unchanged (48% of the section changed)

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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.

We develop and publish products principally through Rockstar Games, 2K, Private Division, and T2 Mobile Games.

Our products are currently designed for console gaming systems and PC, including smartphones and tablets.

We deliver our products through physical retail, digital download, online platforms and cloud streaming services.

Recent Developments

Pending Acquisition.

On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga Inc.

("Zynga"), a leading developer of mobile games.

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 for each share of Zynga common stock outstanding at the closing.

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.

The transaction includes a collar mechanism on the equity consideration, so that if the volume weighted average price ("VWAP") of Take-Two common stock on the Nasdaq Global Select Market for the consecutive period beginning at 9:30 a.m.

New York time on the twenty-third trading day immediately preceding the closing date of the transaction and concluding at 4:00 p.m.

New York time on the third trading day preceding such closing date 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.

If the VWAP of our common stock for the period noted in the prior sentence exceeds the higher end of that range the exchange ratio would be 0.0350 per share, and, if the VWAP is below the lower end of that range, the exchange ratio would be 0.0406 per share.

The transaction, which is currently anticipated to close on Monday May 23, 2022, is subject to approval by Take-Two and Zynga stockholders and the satisfaction of the other customary closing conditions.

In connection with the transaction, on April 14, 2022, we completed our offering and sale of $2.7 billion aggregate principal amount of our senior notes, consisting of $1.0 billion principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600 million principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600 million principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”) and $500 million principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Notes”).The Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%.

The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%.

The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%.

The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%.

We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022.

We will pay interest on each of the 2025 Notes, 2027 Notes and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022.

Trends and Factors Affecting our Business

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Economic Environment and Retailer Performance.

We continue to monitor economic conditions, including the impact of the COVID-19 pandemic, that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates.

We continue to monitor economic conditions, including the impact of the COVID-19 pandemic, that may affect our businesses, such as consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates.

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.

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 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 on them, and the potential offsetting impacts of deteriorating economic conditions and decreased consumer spending generally.

We expect that engagement trends will continue to be notably higher than they were pre-pandemic;

however, as the return to normalcy continues, we expect a moderation of the trends that benefited our industry over the past year.

We have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, such as our transition, based on our concern for the health and safety of our teams, to working from home for the vast majority of our teams over the last year, which to date has resulted in minimal disruption.

expected, during fiscal year 2022, we experienced a moderation in engagement from the all-time highs experienced in fiscal year 2021, but overall engagement continued to be notably higher than it was pre-pandemic.

Based on our concern for the health and safety of our teams, we have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, including transitioning the vast majority of our teams to working from home.

The majority of our offices either have reopened or are scheduled to reopen in the coming months.

Given the evolving dynamics of the COVID-19 pandemic, we continue to adhere to safety standards in the planning and implementation of our return to office.

To date, our plans have resulted in minimal disruption.

However, despite largely positive outcomes to date, these efforts may ultimately not be effective, and a protracted economic downturn may limit the effectiveness of our mitigation efforts.

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Hardware Platforms.

We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 74.6% of our net revenue by product platform for the fiscal year ended

March 31, 2021.

We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 72.2% of our net revenue by product platform for the fiscal year ended March 31, 2022.

The success of our business is dependent upon the consumer acceptance of these platforms and the continued growth in the installed base of these platforms.

When new hardware platforms are introduced, such as those released in November 2020 by Sony and Microsoft, demand for interactive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles.

The new Sony and Microsoft consoles provide "backwards compatibility" (i.e.

the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline.

The new Sony and Microsoft consoles provide "backwards compatibility" (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline.

However, we cannot be certain how backwards compatibility will affect demand for our products.

Further, COVID-19 or other events, may impact the availability of these new consoles, which may also affect demand.

Further, events beyond our control may impact the availability of these new consoles, which may also affect demand.

We manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development.

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In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through virtual currency, add-on content, and in-game purchases.

We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download.

We also publish an expanding variety of titles for Mobile, which are delivered to consumers through digital download.

As disclosed in our "Results of Operations," below, net revenue from digital online channels comprised 89.8% of our net revenue for the fiscal year ended March 31, 2022.

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Content Release Highlights

During fiscal year 2021, we released new content for a number of our biggest franchises, including, but not limited to Grand Theft Auto Online, Red Dead Online, Borderlands, and Sid Meier’s Civilization .

Our 2K label also released NBA 2K21 and PGA TOUR 2K21 .

To date we have announced that, during fiscal year 2022, Rockstar Games will release Grand Theft Auto V for the PS5 and Xbox Series X|S, Private Division will release OlliOlli World digitally, and 2K will release NBA 2K22 and WWE 2K22 .

During fiscal year 2022, 2K released NBA 2K22 , WWE 2K22 , and Tiny Tina's Wonderlands, Private Division released Hades physically on consoles and OlliOlli World, and Rockstar released Grand Theft Auto:

The Trilogy - The Definitive Edition and Grand Theft Auto V and a standalone version of Grand Theft Auto Online for the PS5 and Xbox Series X|S .

To date we have announced that, during fiscal year 2023, 2K will release The Quarry, Marvel's Midnight Suns, NBA 2K23 , WWE 2K23 , and PGA TOUR 2K23 , and Private Division will release Kerbal Space Program 2 .

In addition, throughout the year, we expect our labels to deliver new content for our franchises.

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Fiscal 2022 Financial Summary

Our Net revenue for fiscal year ended March 31, 2021 was led by titles from a variety of our top franchises, primarily NBA 2K;

Grand Theft Auto Online and Grand Theft Auto V;

Red Dead Redemption 2 and Red Dead Online ;

Borderlands 3 , and our WWE 2K franchise .

We acquired Nordeus Limited ("Nordeus") on June 1, 2021, for initial consideration having an acquisition date fair value of $289.8 million, consisting of $132.9 million in cash, the issuance of 0.5 million shares of our common stock, and a contingent earn-out consideration arrangement that requires us to pay up to an aggregate of $153.0 million in cash if Nordeus achieves certain performance measures over the 12- and 24-month periods following the closing (refer to Note 22 - Acquisitions ).

Founded in 2010, Nordeus is a free-to-play mobile game company based in Belgrade, Serbia, best known for Top Eleven .

Our Net revenue for fiscal year ended March 31, 2022 was led by a variety of our top franchises, primarily NBA 2K, Grand Theft Auto, Red Dead Redemption , Borderlands , and WWE 2K.

Our Net revenue increased to $3,504.8 million, an increase of $132.0 million or 3.9% compared to the fiscal year ended March 31, 2021.

For the fiscal year ended March 31, 2021, our Net income was $588.9 million, as compared to Net income of $404.5 million in the prior year, and includes the reversal of share-based compensation expense of $69.8 million due to forfeitures and a gain of $40.6 million due to primarily the sale of one of our investments.

For the fiscal year ended March 31, 2022, our Net income was $418.0 million, as compared to $588.9 million in the prior year.

Diluted earnings per share for the fiscal year ended March 31, 2022 was $3.58, as compared to Diluted income per share of $5.09 for the fiscal year ended March 31, 2021.

Our operating income for the fiscal year ended March 31, 2021 increased compared to the operating income for fiscal year ended March 31, 2020, due primarily to higher Gross profit, which was due primarily to higher revenue from the titles described above, lower capitalized software amortization as a percentage of net revenue, and lower internal royalties as a percentage of net revenue, partially offset by higher Operating expenses primarily due to higher headcount.

Our operating income for the fiscal year ended March 31, 2022 decreased compared to the operating income for fiscal year ended March 31, 2021, due to (i) higher operating expenses for personnel and marketing and (ii) increases in the fair value of the contingent earn-out liability related to our June 2021 acquisition of Nordeus.

At March 31, 2022, we had $2,195.3 million of Cash and cash equivalents and Restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The increase in Cash and cash equivalents and Restricted cash and cash equivalents from March 31, 2020 was due primarily to Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments.

This net increase was partially offset by (i) Net cash used in investing activities primarily related to changes in bank time deposits and net purchases of available for sale securities, our acquisition of Playdots, and purchases of fixed assets and (ii) Net cash used in financing activities, which was primarily related to tax payments related to net share settlements of our restricted stock.

The increase in Cash and cash equivalents and Restricted cash and cash equivalents from March 31, 2021 was due primarily to (i) Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments and (ii) Net cash provided by investing activities primarily related to net proceeds from available for sale securities changes in bank time deposits, partially offset primarily by our acquisition of Nordeus, and purchases of fixed assets including our acquisition of two office buildings in the U.K.

(refer to Note 22 - Acquisitions ).

This net increase was partially offset by Net cash used in financing activities, which was primarily related to repurchase of our common stock and tax payments related to net share settlements of our restricted stock.

Critical Accounting Policies and Estimates

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Net Bookings $ 3,408,184 $ 3,552,598 $ (144,414) (4.1) %

For the fiscal year ended March 31, 2021, Net Bookings increased by $562.2 million as compared to the prior year due primarily to increases in Net Bookings from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, our Mafia franchise, PGA TOUR 2K21, which released in August 2020, Two Dots, which was part of our Playdots acquisition completed in September 2020 , and Dragon City, partially offset by a decrease in Net Bookings from Borderlands 3 , which released in September 2019, and The Outer Worlds, which released in October 2019 .

For the fiscal year ended March 31, 2022, Net Bookings decreased by $144.4 million as compared to the prior year due primarily to a decrease in Net Bookings from our NBA 2K franchise;

our PGA TOUR 2K franchise, which benefited from the release of PGA TOUR 2K21 in the prior year;

and our Mafia franchise, which benefited from the releases of Mafia:

Definitive Editions and Mafia:

Trilogy in the prior year;

and The Outer Worlds , which released in October 2020.

decreases were partially offset by an increase in Net Bookings from Top Eleven , which was part of our Nordeus acquisition in June 2021;

Tiny Tina’s Wonderlands , which released in March 2022;

Two Dots , which was part of our Playdots acquisition in September 2020;

and our WWE 2K franchise, including WWE 2K22 , which released in March 2022.

Results of Operations

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Income before income taxes 465,398 13.3 % 677,816 20.1 % 458,439 14.8 %

Provision for (benefit from) income taxes 88,930 2.6 % 53,980 1.7 % (101,052) (3.8) %

Provision for income taxes 47,376 1.4 % 88,930 2.6 % 53,980 1.7 %

Net income $ 418,022 11.9 % $ 588,886 17.5 % $ 404,459 13.1 %

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PC and other 572,506 16.3 % 581,702 17.2 % 594,619 19.2 %

Mobile 403,437 11.5 % 274,077 8.1 % 185,749 6.0 %

Net revenue by distribution channel:

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Gross profit $ 1,969,399 56.2 % $ 1,837,687 54.5 % $ 131,712 7.2 %

(1) Includes $8,707 and $154,031 of stock-based compensation expense in 2021 and 2020, respectively.

(1) Includes $48,381 and $8,707 of stock-based compensation expense in fiscal year 2022 and 2021, respectively.

For the fiscal year ended March 31, 2022, net revenue increased by $132.0 million, as compared to the prior year.

The increase was due primarily to an increase in net revenue of (i) $378.6 million from our NBA 2K franchise , (ii) $267.4 million from Grand Theft Auto Online and Grand Theft Auto V, (iii) $75.5 million from our Mafia franchise, (iv) $65.0 million from PGA TOUR 2K21, which released in August 2020, (vi) $24.1 million from Dragon City, and (vii) $20.5 million from Two Dots, which was part of our Playdots.

acquisition completed in September 2020 .

These increases were offset by a decrease in net revenue of (i) $226.4 million from Borderlands 3, which released in September 2019, (ii) $217.8 million from Red Dead Redemption 2, which released on PC in November 2019, and (iii) $124.7 million from The Outer Worlds, which released in October 2019.

The increase was due primarily to an increase in net revenue of (i) $96.3 million from our Grand Theft Auto franchise, (ii) $83.9 million from Tiny Tina's Wonderlands , which released in March 2022, (iii) $75.0 million from Two Dots , which was part of our Playdots acquisition completed in September 2020, (iv) $51.3 million from Top Eleven , which was part of our Nordeus acquisition completed in June 2021, and (v) $36.6 million from our WWE 2K franchise, including WWE 2K22 , which released in March 2022.

These increases were offset by a decrease in net revenue of (i) $46.7 million from our Mafia franchise, (ii) 41.4 million from our Borderlands franchise, (iii) $39.3 million from our PGA TOUR 2K franchise, (iv) $29.0 million from our Civilization franchise, and (v) $25.2 million from our Red Dead Redemption franchise.

Net revenue from console games increased by $11.9 million and accounted for 72.2% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 74.6% in the prior year.

The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online, PGA TOUR 2K21, and our Mafia franchise, partially offset by a decrease in net revenue from Red Dead Redemption 2, Borderlands 3, and The Outer Worlds .

Net revenue from PC and other increased by $75.4 million and accounted for 25.4% of our total net revenue in the fiscal year ended March 31, 2021, as compared to 25.3% in the prior year.

The increase was due to an increase in net revenue from Grand Theft Auto V and Grand Theft Auto Online, our NBA 2K franchise, Dragon City, Two Dots , and our Mafia franchise, partially offset by a decrease in net revenue from Borderlands 3 and The Outer Worlds.

The increase was due to an increase in net revenue from our Grand Theft Auto franchise, Tiny Tina's Wonderlands , and our WWE 2K franchise, partially offset by a decrease in net revenue from our Mafia , Borderlands , PGA TOUR 2K , Red Dead Redemption , and BioShock franchises, The Outer Worlds , and our Civilization and NBA 2K franchises.

Net revenue from PC and other decreased by $9.2 million and accounted for 16.3% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 17.2% in the prior year.

The decrease was due to a decrease in net revenue from our Grand Theft Auto , Civilization , and XCOM franchises, The Outer Worlds , our Mafia franchise, L.A.

Noire , and our Borderlands franchise, partially offset by an increase in net revenue from Tiny Tina's Wonderlands and our NBA 2K franchise.

Net revenue from mobile increased by $129.4 million and accounted for 11.5% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 8.1% in the prior year.

The increase was due to an increase in net revenue from Top Eleven and Two Dots .

Net revenue from digital online channels increased by $176.6 million and accounted for 89.8% of our total net revenue for the fiscal year ended March 31, 2022, as compared to 88.1% in the prior year.

The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, our Mafia franchise, and PGA TOUR 2K21 , partially offset by a decrease in net revenue from Borderlands 3, The Outer Worlds, and Red Dead Redemption 2.

The increase was due to an increase in net revenue from Two Dots , our Grand Theft Auto franchise, Tiny Tina's Wonderlands , Top Eleven , our NBA 2K and WWE 2K franchises, partially offset by a decrease in net revenue from our Mafia , Civilization , PGA TOUR 2K, and Borderlands franchises and The Outer Worlds.

Net revenue from physical retail and other channels decreased by $44.5 million and accounted for 10.2% of our total net revenue for the fiscal year ended March 31, 2022, as compared to 11.9% for the prior year.

The decrease was due to a decrease in net revenue from Red Dead Redemption 2, Borderlands 3, and The Outer Worlds, partially offset by an increase in net revenue from our Mafia franchise and PGA TOUR 2K21 .

The decrease was due to a decrease in net revenue from our Borderlands , Mafia , PGA TOUR 2K , NBA 2K , and Red Dead Redemption franchises , partially offset by an increase in net revenue from our Grand Theft Auto franchise and Tiny Tina's Wonderlands .

Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Net revenue from recurrent consumer spending increased by $119.2 million and accounted for 64.8% of net revenue for the fiscal year ended March 31, 2022, as compared to 63.8% for the prior year.

The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V ,

Civilization VI, Dragon City and Two Dots .

Net revenue from full game and other decreased by $405.9 million and accounted for 38.5% of net revenue for the fiscal year ended March 31, 2021, as compared to 55.2% for the prior year.

The decrease was due to a decrease in net revenue from Borderlands 3, Red Dead Redemption 2, and The Outer Worlds, partially offset by an increase in net revenue from our Mafia franchise, and PGA TOUR 2K21 .

The increase was due to an increase in net revenue from Two Dots , Top Eleven , and our Grand Theft Auto and NBA 2K franchises, partially offset by a decrease in net revenue from our Borderlands franchise.

Net revenue from full game and other increased by $12.8 million and accounted for 35.2% of net revenue for the fiscal year ended March 31, 2022, as compared to 36.2% for the prior year.

The increase was due to an increase in net revenue from Tiny Tina's Wonderlands , our Grand Theft Auto , and WWE 2K franchises , partially offset by a decrease in net revenue from our Mafia and PGA TOUR 2K franchises, The Outer Worlds , and our NBA 2K , Red Dead Redemption , Civilization , BioShock and XCOM franchises and L.A.

Gross profit as a percentage of net revenue for the fiscal year ended March 31, 2022 was 56.2%, as compared to 54.5% in the prior year.

The percentage increase was due primarily to lower capitalized software amortization as a percentage of net revenue based on the timing of releases and a reversal of stock-based compensation expense as a result of forfeited awards (see N ote 17 - Stock -B ased Compensation ), partially offset by higher internal royalties as a percentage of net revenue due to the timing of when royalties are earned, and product mix.

The percentage increase was due primarily to lower development royalties due primarily to the timing of releases, partially offset by impairments recognized against some of our capitalized software balances (refer to Note 8 - Software Development Costs and Licenses ).

Net revenue earned outside of the United States increased by $47.7 million and accounted for 40.1% of our total net revenue in the fiscal year ended March 31, 2022, as compared to 40.2% in the prior year.

The increase in net revenue outside of the United States was due to an increase in net revenue from Grand Theft Auto Online and Grand Theft Auto V, our NBA 2K franchise, and our Mafia franchise , partially offset by a decrease in net revenue from Red Dead Redemption 2 and Borderlands 3 .

Changes in foreign currency exchange rates increased net revenue and gross profit by $11.2 million and $7.5 million, respectively, in the fiscal year ended March 31, 2021 as compared to the prior year.

The increase in net revenue outside of the United States was due to an increase in net revenue from Top Eleven , Two Dots , Tiny Tina's Wonderlands , and our Grand Theft Auto , and WWE 2K franchises, partially offset by a decrease in net revenue from our Mafia , Borderlands , Civilization , PGA TOUR 2K , Red Dead Redemption franchises and The Outer Worlds .

Changes in foreign currency exchange rates decreased net revenue and gross profit by $1.7 million and $4.2 million, respectively, in the fiscal year ended March 31, 2022 as compared to the prior year.

Operating Expenses

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Selling and marketing

Selling and marketing expenses decreased by $13.4 million in the fiscal year ended March 31, 2021 as compared to the prior year, due primarily to $49.1 million in lower overall marketing expenses due primarily to less spend on Borderlands 3 and Red Dead Redemption 2 , partially offset by marketing expenses for Two Dots with no comparable costs in the prior year period.

The net decrease was partially offset by an increase in personnel expenses, primarily due to increased headcount.

Selling and marketing expenses increased by $71.4 million in the fiscal year ended March 31, 2022 as compared to the prior year, due primarily to (i) $62.2 million in higher overall marketing expenses due primarily to Top Eleven, with no corresponding expense in the prior fiscal year and higher spend on Two Dots , Grand Theft Auto Online , and our WWE 2K franchise and (ii) an increase in personnel expenses, primarily due to increased headcount.

General and administrative

General and administrative expenses increased by $72.4 million for the fiscal year ended March 31, 2021, as compared to the prior year, due primarily to increases in (i) personnel expenses for additional headcount and higher incentive compensation, (ii) charitable contributions made in connection with our COVID-19 pandemic response and relief efforts, (iii) professional fees related to consulting, including for our acquisition of Playdots and our offer to acquire Codemasters Group Holdings PLC, and (iv) IT expenses, primarily for cloud-based services.

General and administrative expenses increased by $120.2 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to increases in (i) personnel expenses for additional headcount and higher incentive compensation, (ii) the fair value of the contingent earn-out liability related to our acquisition of Nordeus (refer to Note 22 - Acquisitions ), (iii) professional fees related to acquisitions, including our pending acquisition of Zynga, (iv) IT expenses, primarily for cloud-based services, and (v) rent expenses for additional locations and lease renewals.

These increases were partially offset by a decrease in charitable contributions, primarily related to our COVID-19 response and relief efforts in the prior fiscal year.

General and administrative expenses for the fiscal years ended March 31, 2022 and 2021 include occupancy expense (primarily rent, utilities and office expenses) of $37.2 million and $27.5 million, respectively, related to our development studios.

Research and development

Research and development expenses increased by $20.9 million for the fiscal year ended March 31, 2021, as compared to the prior year, due primarily to increased personnel expense due to increased headcount.

Research and development expenses increased by $89.3 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to increased personnel expense due to increased headcount including related to our recent acquisitions.

Depreciation and amortization

Depreciation and amortization expenses increased by $7.5 million for the fiscal year ended March 31, 2021, as compared to the prior year, due primarily to an increase in IT infrastructure and leasehold improvements for new office locations.

Depreciation and amortization expenses increased by $5.5 million for the fiscal year ended March 31, 2022, as compared to the prior year, due primarily to an increase in costs related to IT infrastructure.

Business Reorganization

During the fiscal year ended March 31, 2021, business reorganization expense decreased by $0.4 million as compared to the prior year period and was not material.

During the fiscal year ended March 31, 2022, business reorganization expense increased by $1.1 million as compared to the prior year period and was not material.

Interest and other, net

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Interest and other, net $ (14,212) (0.4) % $ 8,796 0.3 % $ (23,008) (261.6) %

Interest and other, net was income of $8.8 million for the fiscal year ended March 31, 2021, as compared to income of $38.5 million for the fiscal year ended March 31, 2020.

The decrease was due primarily to a $28.6 million decrease in interest income due to lower interest rates.

Interest and other, net was expense of $14.2 million for the fiscal year ended March 31, 2022, as compared to income of $8.8 million for the fiscal year ended March 31, 2021.

The change was due primarily to (i) an increase in interest expense primarily related to an unsecured bridge loan facility related to our pending acquisition of Zynga with no corresponding expense in the prior year period (refer to Note 12 - Debt ), (ii) lower interest income on our available-for-sale securities due to lower interest rates, and (iii) foreign currency losses in the current year period as compared to gains in the prior year period.

Gain/(loss) on long-term investments, net

Gain/(loss) on long-term investments, net for the fiscal year ended March 31, 2021 was a gain of $39.6 million compared to a loss of $5.3 million in the prior year period and was due primarily to the sale of one of our investments (see Note 4 - Fair Value Measurements ).

Gain/(loss) on long-term investments, net for the fiscal year ended March 31, 2022 was a gain of $6.0 million compared to a gain of $39.6 million in the prior year period.

The decrease was due primarily to the sale of one of our investments in the prior year period (see Note 4 - Fair Value Measurements ).

Provision for income taxes

Our income tax expense was $47.4 million for the fiscal year ended March 31, 2022 as compared to $88.9 million for the fiscal year ended March 31, 2021.

When compared to the statutory rate of 21%, the effective tax rate of 13.1% for the fiscal year ended March 31, 2021 was due primarily to a $29.1 million tax benefit from tax credits anticipated to be utilized, a $21.4 million tax benefit from our geographic mix of earnings and $13.7 million in excess tax benefits from employee stock compensation.

When compared to the statutory rate of 21%, the effective tax rate of 11.8% for the fiscal year ended March 31, 2020 was primarily due to a $37.9 million tax benefit from tax credits anticipated to be utilized, $12.7 million from our geographic mix of earnings, $11.9 million due to a net deferred tax asset arising from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance) Financing ("TRAF") enacted in Switzerland during the fiscal year, discussed below, $9.2 million in changes in unrecognized tax benefits primarily due to audit settlements, and $8.4 million in excess tax benefits from employee stock compensation.

These benefits were partially offset by tax expense of $19.8 million from the reversal of net deferred tax benefits relating to the Altera case.

The effective tax rate in the current year was higher compared to the prior year primarily due to decreased tax benefits related to the one time creation of the net deferred tax asset related to TRAF offset by decreased expense associated with the reversal of net deferred tax benefits relating to the Altera case.

When compared to the statutory rate of 21%, the effective tax rate of 10.2% for the fiscal year ended March 31, 2022 was due primarily to a $30.9 million benefit from tax credits anticipated to be utilized, $14.6 million in excess tax benefits from employee stock compensation, an $11.6 million benefit due to an increase to the net deferred tax asset that arose from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance) Financing ("TRAF") enacted in Switzerland, discussed below, and an $8.0 million benefit from our geographic mix of earnings, partially offset by a $10.1 million nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

When compared to the statutory rate of 21%, the effective tax rate of 13.1% for the fiscal year ended March 31, 2021 was primarily due to a $29.1 million tax benefit from tax credits anticipated to be utilized, a $21.4 million tax benefit from our geographic mix of earnings and $13.7 million in excess tax benefits from employee stock compensation.

The effective tax rate in the current year was lower compared to the prior year primarily due an increased benefit to the net deferred tax asset related to TRAF, increased benefits from tax credits and excess tax benefits from employee stock compensation partially offset by a nondeductible expense due to an increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus.

The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting.

Since we recognize excess tax benefits on a discrete basis, we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price in each period.

We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future.

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It is possible that settlement of audits or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA”) was signed into law.

ARPA includes several revenue-raising and business provisions.

One such provision that impacts the Company is the expansion of the limitation of compensation deductions for certain covered employees of publicly held corporations.

Effective April 1, 2027, ARPA expanded the limitation to cover the next five most highly compensated employees.

As of March 31, 2021, ARPA did not have a material impact on our Consolidated Financial Statements.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174.

Although Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance that the requirement will be repealed or

otherwise modified.

The requirement is effective for the Company for fiscal year 2023, beginning April 1, 2022.

It is possible that this change could have a significant adverse impact on our effective tax rate, tax payments, and financial condition in future periods.

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted.

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.

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.

The ARPA did not have a material impact on our Consolidated Financial Statements for the fiscal year ended March 31, 2022.

We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.

On March 27, 2020, the U.S.

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The TRAF allows the cantons to establish transition rules, the implementation of which may be subject to a ruling from the canton.

For the fiscal year ended March 31, 2020, we recorded a deferred tax asset of $45.3 million offset by a valuation allowance of $33.4 million arising from the Swiss cantonal tax basis step-up.

On March 31, 2020, we recorded a deferred tax asset of $45.3 million offset by a valuation allowance of $33.4 million arising from the Swiss cantonal tax basis step-up.

For the fiscal year ended March 31, 2022, we recorded a net tax benefits of $11.6 million due to an increase in the deferred tax asset of $13.2 million offset by an increase in the valuation allowance of $1.6 million, as it is more-likely-than-not that such deferred tax assets would be realized.

As of March 31, 2022, we had gross unrecognized tax benefits, including interest and penalties, of $176.0 million, of which $65.8 million would affect our effective tax rate if realized.

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From time to time, we may purchase additional short-term investments depending on future market conditions and liquidity needs.

As of March 31, 2021, based on the composition of our investment portfolio and actions by central banks around the world to cut interest rates, including the U.S.

As of March 31, 2022, based on the composition of our investment portfolio and actions taken in recent years by central banks around the world to cut interest rates, including the U.S.

Federal Reserve, in response to the COVID-19 pandemic and related adverse economic conditions, we anticipate investment yields to remain low, which would lower our future interest income.

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Credit Agreement

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

The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $200 million, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25 million and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros and Canadian Dollars in an aggregate principal amount of up to $25 million.

On February 8, 2019, we entered into an unsecured Credit Agreement (the “Credit Agreement”), and on June 28, 2021, we amended our unsecured Credit Agreement solely to increase the commitments under the facility by $50 million (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 million, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25 million and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $25 million.

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.

Loans under the Credit Agreement will bear interest at a margin of (a) 0.125% to 0.750% above a certain base rate (3.25% at March 31, 2021), or (b) 1.125% to 1.750% above LIBOR (approximately 1.10% at March 31, 2021), which margins are determined by reference to our consolidated total net leverage ratio.

Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (3.50% at March 31, 2022) or (b) 1.125% to 1.750% above LIBOR (approximately 0.45% at March 31, 2022), 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.

As of March 31, 2022, there was $247.5 million available to borrow under the Credit Agreement and we had $2.5 million of letters of credit outstanding.

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We do not hold any collateral to secure payment from customers.

We have trade credit insurance on the majority of our customers to mitigate accounts receivable risk.

We have trade credit insurance on the majority of customers who sell our physical products to mitigate accounts receivable risk.

A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors.

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We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2022 and 2021.

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 creditworthiness and economic conditions that may affect our customers' business and access to capital.

Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers who sell our physical products 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 creditworthiness and economic conditions that may affect our customers' business and access to capital.

We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable, including as a result of the COVID-19 pandemic.

We believe our current cash and cash equivalents, short-term investments and projected cash flow from operations, along with availability under our Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis.

Our liquidity and capital resources were not materially affected by the COVID-19 pandemic and related volatility and slowdown in the global financial markets to date.

We believe that our current cash and cash equivalents, short-term investments, and projected cash flow from operations, along with availability under our Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis.

Our liquidity and capital resources have not been materially affected by the COVID-19 pandemic and related volatility and slowdown in the global financial markets to date.

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 .

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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.

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.

Our current intention is to reinvest indefinitely the earnings of our foreign subsidiaries, and, therefore, we have not recorded any material tax liabilities associated with the repatriation of foreign earnings.

On January 9, 2022, we entered into a definitive merger agreement to acquire Zynga Inc.

("Zynga"), a leading developer of mobile games.

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.

New York time on the twenty-third trading day immediately preceding the closing date of the transaction and concluding at 4:00 p.m.

New York time on the third trading day preceding such closing date 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.

The transaction, which is currently anticipated to close on Monday, May 23, 2022, is subject to approval by Take-Two and Zynga stockholders and the satisfaction of the other customary closing conditions.

In connection with the transaction, on April 14, 2022, we terminated our Bridge Loan and completed our offering and sale of $2.7 billion aggregate principal amount of our senior notes, consisting of $1.0 billion principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600 million principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600 million principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”) and $500 million principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Notes”).The Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).

The Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations.

The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%.

The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%.

The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%.

The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%.

We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022.

We will pay interest on each of the 2025 Notes, 2027 Notes and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022.

Our Board of Directors has authorized the repurchase of up to 21.7 million shares of our common stock.

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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.

During the fiscal years ended March 31, 2021, 2020, and 2019, we repurchased zero, zero, and 3.7 million shares of our common stock, respectively, in the open market for $0.0 million, $0.0 million, and $362.4 million, respectively, including

commissions as part of the program.

During the fiscal years ended March 31, 2022, 2021, and 2020, we repurchased 1.3 million, zero, and zero shares of our common stock, respectively, in the open market for $200 million, $0.0 million, and $0.0 million, respectively, including commissions as part of the program.

As of March 31, 2022, we had repurchased a total of 11.7 million shares of our common stock under the program, and 10.0 million shares of our common stock remained available for repurchase under the share repurchase program.

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Net cash provided by operating activities $ 257,984 $ 912,318 $ 685,678

Net cash (used in) provided by investing activities (806,724) 4,049 (223,576)

Net cash provided by (used in) investing activities 139,216 (806,724) 4,049

Net cash used in financing activities (256,813) (57,338) (77,453)

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At March 31, 2022, we had $2,195.3 million of Cash, cash equivalents, and restricted cash and cash equivalents, compared to $2,060.2 million at March 31, 2021.

The increase in Cash, cash equivalents, and Restricted cash and cash equivalents from March 31, 2020 was due primarily to Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments.

Refer to Note 15 - Commit ments and Contingencies to our Consolidated Financial Statements for disclosures regarding our commitments.

The increase in Cash, cash equivalents, and restricted cash and cash equivalents from March 31, 2021 was due primarily to (i) Net cash provided by operating activities from sales primarily from the previously mentioned titles , partially offset by investments in software development and licenses as well as royalty payments and (ii) Net cash provided by investing activities primarily related to net proceeds from available for sale securities

changes in bank time deposits, partially offset primarily by our acquisition of Nordeus (refer to Note 22 - Acquisitions ), and purchases of fixed assets including our acquisition of two office buildings in the U.K.

(refer to Note 22 - Acquisitions ).

Refer to Note 15 - Commitments and Contingencies to our Consolidated Financial Statements for disclosures regarding our commitments.

Capital Expenditures

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We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles, variations in sales of titles developed for particular platforms, market acceptance of our titles, development and promotional expenses relating to the introduction of new titles, sequels or enhancements of existing titles, projected and actual changes in platforms, the timing and success of title introductions by our competitors, product returns, changes in pricing policies by us and our competitors, the accuracy of retailers' forecasts of consumer demand, the size and timing of acquisitions, the timing of orders from major customers, and order cancellations and delays in product shipment.

Sales of our products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season.

Sales of our full game products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season.

For certain of our software products with multiple performance obligations, we defer the recognition of our net revenue over an estimated service period which generally ranges from six to fifteen months.

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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.

What changed 10-K

Item 7. Management’s Discussion and Analysis