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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                              .

Commission file number 001-34003

TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  51-0350842
(I.R.S. Employer
Identification No.)

622 Broadway
New York, New York

(Address of principal executive offices)

 

10012
(Zip Code)

Registrant's Telephone Number, Including Area Code: (646) 536-2842

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ý   Accelerated filer  o   Non-accelerated filer  o
(Do not check if a
smaller reporting company)
  Smaller reporting company  o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  ý

        As of July 29, 2016, there were 86,015,312 shares of the Registrant's Common Stock outstanding, net of treasury stock.

   


Table of Contents


INDEX

PART I.

 

FINANCIAL INFORMATION

    2  

Item 1.

 

Financial Statements (Unaudited)

    2  

 

Condensed Consolidated Balance Sheets

    2  

 

Condensed Consolidated Statements of Operations

    3  

 

Condensed Consolidated Statements of Comprehensive Loss

    4  

 

Condensed Consolidated Statements of Cash Flows

    5  

 

Notes to Condensed Consolidated Financial Statements

    6  

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    23  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    35  

Item 4.

 

Controls and Procedures

    37  

PART II.

 

OTHER INFORMATION

    38  

Item 1.

 

Legal Proceedings

    38  

Item 1A.

 

Risk Factors

    38  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    38  

Item 6.

 

Exhibits

    39  

 

Signatures

    40  

(All other items in this report are inapplicable)


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)

        


TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
  June 30,
2016
  March 31,
2016
 
 
  (Unaudited)
   
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

    796,328     798,742  

Short-term investments

    392,489     470,820  

Restricted cash

    318,504     261,169  

Accounts receivable, net of allowances of $67,744 and $45,552 at

             

June 30, 2016 and March 31, 2016, respectively

    141,150     168,527  

Inventory

    12,734     15,888  

Software development costs and licenses

    167,218     178,387  

Deferred cost of goods sold

    92,515     98,474  

Prepaid expenses and other

    56,734     53,269  

Total current assets

    1,977,672     2,045,276  

Fixed assets, net

   
72,414
   
77,127
 

Software development costs and licenses, net of current portion

    247,272     214,831  

Deferred cost of goods sold, net of current portion

    5,301     17,915  

Goodwill

    215,622     217,080  

Other intangibles, net

    4,609     4,609  

Other assets

    15,837     13,439  

Total assets

    2,538,727     2,590,277  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

    37,781     30,448  

Accrued expenses and other current liabilities

    619,435     607,479  

Deferred revenue

    604,411     582,484  

Total current liabilities

    1,261,627     1,220,411  

Long-term debt

   
504,385
   
497,935
 

Non-current deferred revenue

    153,912     216,319  

Other long-term liabilities

    85,263     74,227  

Total liabilities

    2,005,187     2,008,892  

Commitments and Contingencies (See Note 13)

             

Stockholders' equity:

   
 
   
 
 

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

         

Common stock, $.01 par value, 200,000 shares authorized; 104,599 and 103,765 shares issued and 87,407 and 86,573 outstanding at June 30, 2016 and March 31, 2016, respectively

    1,046     1,038  

Additional paid-in capital

    1,082,765     1,088,628  

Treasury stock, at cost; 17,192 common shares at June 30, 2016 and March 31, 2016

    (303,388 )   (303,388 )

Accumulated deficit

    (205,564 )   (166,997 )

Accumulated other comprehensive loss

    (41,319 )   (37,896 )

Total stockholders' equity

    533,540     581,385  

Total liabilities and stockholders' equity

    2,538,727     2,590,277  

   

See accompanying Notes.

2


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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

 
  Three Months Ended
June 30,
 
 
  2016   2015  

Net revenue

    311,552     275,297  

Cost of goods sold

    191,380     202,615  

Gross profit

    120,172     72,682  

Selling and marketing

    71,134     45,567  

General and administrative

    46,743     49,035  

Research and development

    33,900     34,142  

Depreciation and amortization

    7,378     6,575  

Total operating expenses

    159,155     135,319  

Loss from operations

    (38,983 )   (62,637 )

Interest and other, net

    (4,506 )   (7,534 )

Gain on long-term investments, net

    1,350      

Loss before income taxes

    (42,139 )   (70,171 )

Benefit from income taxes

    (3,572 )   (3,148 )

Net loss

    (38,567 )   (67,023 )

Loss per share:

             

Basic and diluted loss per share

  $ (0.46 ) $ (0.81 )

   

See accompanying Notes.

3


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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)

 
  Three Months Ended
June 30,
 
 
  2016   2015  

Net loss

  $ (38,567 ) $ (67,023 )

Other comprehensive (loss) income:

   
 
   
 
 

Foreign currency translation adjustment

    (3,633 )   9,102  

Available-for-sale securities:

   
 
   
 
 

Unrealized gain (loss), net on available-for-sale securities, net of taxes

    206     (41 )

Reclassification to earnings for realized losses, net on available for sale securities          

    4      

Change in fair value of available for sale securities

    210     (41 )

Other comprehensive (loss) income

    (3,423 )   9,061  

Comprehensive loss

  $ (41,990 ) $ (57,962 )

   

See accompanying Notes.

4


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TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 
  Three Months
Ended June 30,
 
 
  2016   2015  

Operating activities:

             

Net loss

  $ (38,567 ) $ (67,023 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

             

Amortization and impairment of software development costs and licenses

    41,034     23,590  

Depreciation and amortization

    7,378     6,575  

Amortization and impairment of intellectual property

        32  

Stock-based compensation

    15,100     19,086  

Amortization of discount on Convertible Notes

    6,098     5,727  

Amortization of debt issuance costs

    381     398  

Other, net

    (3,171 )   183  

Changes in assets and liabilities:

             

Restricted cash

    (57,335 )   (60,315 )

Accounts receivable

    28,226     87,198  

Inventory

    2,696     8,341  

Software development costs and licenses

    (62,392 )   (43,131 )

Prepaid expenses, other current and other non-current assets

    (3,867 )   (20,693 )

Deferred revenue

    (36,446 )   91,903  

Deferred cost of goods sold

    17,223     1,243  

Accounts payable, accrued expenses and other liabilities

    36,394     52,368  

Net cash (used in) provided by operating activities

    (47,248 )   105,482  

Investing activities:

             

Change in bank time deposits

    78,691     (187,045 )

Proceeds from available-for-sale securities

    29,795      

Purchases of available-for-sale securities

    (30,836 )   (444 )

Purchases of fixed assets

    (4,230 )   (18,769 )

Proceeds from sale of long-term investment

    1,350      

Purchase of long-term investments

    (1,885 )    

Net cash povided by (used in) investing activities

    72,885     (206,258 )

Financing activities:

             

Excess tax benefit from stock-based compensation

    887     8,066  

Tax payment related to net share settlements on restricted stock awards

    (25,166 )   (6,541 )

Net cash (used in) provided by financing activities

    (24,279 )   1,525  

Effects of foreign currency exchange rates on cash and cash equivalents

    (3,772 )   3,915  

Net decrease in cash and cash equivalents

    (2,414 )   (95,336 )

Cash and cash equivalents, beginning of year

    798,742     911,120  

Cash and cash equivalents, end of period

  $ 796,328   $ 815,784  

   

See accompanying Notes.

5


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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share amounts)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

        Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware in 1993. We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. We develop and publish products through our two wholly-owned labels Rockstar Games and 2K. Our products are designed for console systems and personal computers, including smart phones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services.

Basis of Presentation

        The accompanying Condensed Consolidated Financial Statements are unaudited and include the accounts of the Company and its wholly-owned subsidiaries and, in the opinion of management, reflect all normal and recurring adjustments necessary for the fair presentation of our financial position, results of operations and cash flows. Interim results may not be indicative of the results that may be expected for the full fiscal year. All inter-company accounts and transactions have been eliminated in consolidation. The preparation of these Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. As permitted under generally accepted accounting principles in the United States, interim accounting for certain expenses, including income taxes, are based on full year assumptions when appropriate. Actual results could differ materially from those estimates.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended March 31, 2016.

        Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.

Recently Issued Accounting Pronouncements

Accounting for Stock Compensation

        In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation—Stock Compensation. This new guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016 (April 1, 2017 for the Company) and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. We are currently evaluating the impact of adopting this update on our Consolidated Financial Statements.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounting for Leases

        In February 2016, the FASB issued ASU 2016-02, "Leases." This new guidance requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. This update is effective for annual periods, and interim periods within those years, beginning after December 15, 2018 (April 1, 2019 for the Company). This new guidance must be adopted using a modified retrospective approach whereby lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact of adopting this update on our Consolidated Financial Statements.

Revenue from Contracts with Customers

        In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations included in ASU 2014-09. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to customers. In April 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on licensing and identifying performance obligations. In May 2016, the FASB further amended ASU 2014-09 by issuing ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which does not change the core principles of the standard, but clarifies the guidance on assessing collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. ASU 2014-09 and its amendments can be adopted retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to defer the effective date by one year to annual and interim years beginning after December 15, 2017 (April 1, 2018 for the Company). Early adoption is permitted, but no earlier than the original effective date of annual and interim periods beginning after December 15, 2016 (April 1, 2017 for the Company). While we continue to evaluate the impact and available implementation approaches, we believe adoption of ASU 2014-09, as amended, may have a material impact on the allocation and timing of revenue recognition and associated cost of goods sold.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

2. MANAGEMENT AGREEMENT

        In May 2011, we entered into an amended management services agreement, (the "2011 Management Agreement") with ZelnickMedia Corporation ("ZelnickMedia") pursuant to which ZelnickMedia provided us with certain management, consulting and executive level services. In March 2014, we entered into a new management agreement, (the "2014 Management Agreement"), with ZelnickMedia pursuant to which ZelnickMedia continues to provide financial and management consulting services to the Company through March 31, 2019. The 2014 Management Agreement became effective April 1, 2014 and supersedes and replaces the 2011 Management Agreement, except as otherwise contemplated by the 2014 Management Agreement. As part of the 2014 Management Agreement, Strauss Zelnick, the President of ZelnickMedia, continues to serve as Executive Chairman and Chief Executive Officer and Karl Slatoff, a partner of ZelnickMedia, continues to serve as President of the Company. The 2014 Management Agreement provides for an annual management fee of $2,970 over the term of the agreement and a maximum annual bonus opportunity of $4,752 over the term of the agreement, based on the Company achieving certain performance thresholds. In consideration for ZelnickMedia's services, we recorded consulting expense (a component of general and administrative expenses) of $1,337 during each of the three months ended June 30, 2016 and 2015. During the three months ended June 30, 2016 and 2015, we recorded $3,889 and $7,323, respectively, of stock-based compensation expense for non-employee restricted stock units granted to ZelnickMedia, which is included in general and administrative expenses.

        In connection with the 2014 Management Agreement, we granted restricted stock units as follows:

 
  Three Months Ended
June 30,
 
 
  2016   2015  

Time-based

    107,551     151,575  

Market-based(1)

    199,038     280,512  

Performance-based(1)

             

New IP

    33,174     46,752  

Major IP

    33,172     46,752  

Total- Performance-based

    66,346     93,504  

Total Restricted Stock Units

    372,935     525,591  

(1)
Represents the maximum number of shares eligible to vest.

        Time-based restricted stock units granted in 2016 will vest on April 1, 2018 and those granted in 2015 will vest on April 1, 2017, in each case provided that the 2014 Management Agreement has not been terminated prior to such vesting date.

        Market-based restricted stock units granted in 2016 are eligible to vest on April 1, 2018 and those granted in 2015 are eligible to vest on April 1, 2017, in each case provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Market-based restricted stock units are eligible to vest based on the Company's Total Shareholder Return (as defined in the relevant grant agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute the NASDAQ Composite Index as of the grant date measured over a

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

2. MANAGEMENT AGREEMENT (Continued)

two-year period. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile. Each reporting period, we re-measure the fair value of the unvested shares of market-based restricted stock units granted to ZelnickMedia.

        Performance-based restricted stock units granted in 2016 are eligible to vest on April 1, 2018 and those granted in 2015 are eligible to vest on April 1, 2017, in each case provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Performance-based restricted stock units, of which 50% are tied to "New IP" and 50% to "Major IP" (as defined in the relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in the relevant grant agreement) of individual product releases of "New IP" or "Major IP" measured over a two-year period. The target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the grant amounts set forth in the above table (the numbers in the table represent the maximum number of performance-based restricted stock units that may be earned). Each reporting period, we assess the performance metric and upon achievement of certain thresholds record an expense for the unvested portion of the shares of performance-based restricted stock units. Certain performance metrics, based on unit sales, have been achieved as of June 30, 2016 and March 31, 2016 for the "Major IP" performance-based restricted stock units granted in 2015.

        The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 898,526 and 1,145,081 as of June 30, 2016 and March 31, 2016, respectively. In addition to the restricted stock units granted to ZelnickMedia, 591,912 restricted stock units vested and 27,578 restricted stock units were forfeited during the three months ended June 30, 2016.

3. FAIR VALUE MEASUREMENTS

        The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their short maturities.

        We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:

    Level 1—Quoted prices in active markets for identical assets or liabilities.

    Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.

    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

3. FAIR VALUE MEASUREMENTS (Continued)

        The table below segregates all assets that are measured at fair value on a recurring basis (which is measured at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

 
  June 30,
2016
  Quoted prices
in active
markets for
identical
assets (level 1)
  Significant other
observable inputs
(level 2)
  Significant
unobservable
inputs
(level 3)
  Balance Sheet Classification

Money market funds

  $ 518,581   $ 518,581   $   $   Cash and cash equivalents

Bank-time deposits

    83,294     83,294           Cash and cash equivalents

Corporate bonds

    206,011         206,011       Short-term investments

Bank-time deposits

    186,478     186,478           Short-term investments

Foreign currency forward contracts

    (88 )       (88 )     Accrued and other current liabilities

Total recurring fair value measurements, net

  $ 994,276   $ 788,353   $ 205,923   $    

 

 
  March 31,
2016
  Quoted prices
in active
markets for
identical
assets (level 1)
  Significant other
observable inputs
(level 2)
  Significant
unobservable
inputs
(level 3)
  Balance Sheet Classification

Money market funds

  $ 562,726   $ 562,726   $   $   Cash and cash equivalents

Corporate bonds

    205,250         205,250       Short-term investments

Bank-time deposits

    265,570     265,570           Short-term investments

Foreign currency forward contracts

    (137 )       (137 )     Accrued and other current liabilities

Total recurring fair value measurements, net

  $ 1,033,409   $ 828,296   $ 205,113   $    

        We did not have any transfers between Level 1 and Level 2 fair value measurements during the three months ended June 30, 2016.

Debt

        As of June 30, 2016, the estimated fair value of our 1.75% Convertible Notes due 2016 (the "1.75% Convertible Notes") and 1.00% Convertible Notes due 2018 (the "1.00% Convertible Notes" and together with the 1.75% Convertible Notes, the "Convertible Notes") was $496,500 and $516,005, respectively. The fair value was determined using Level 2 inputs, observable market data, for the Convertible Notes and its embedded option feature. See Note 9 for additional information regarding our Convertible Notes.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

4. SHORT-TERM INVESTMENTS

        Our short-term investments consisted of the following:

 
  June 30, 2016  
 
   
  Gross
Unrealized
   
 
 
  Cost or
Amortized
Cost
  Fair
Value
 
 
  Gains   Losses  

Short-term investments

                         

Bank time deposits

  $ 186,478   $   $   $ 186,478  

Available-for-sale securities:

                         

Corporate bonds

    205,716     318     (23 )   206,011  

Total short-term investments

  $ 392,194   $ 318   $ (23 ) $ 392,489  

 

 
  March 31, 2016  
 
   
  Gross
Unrealized
   
 
 
  Cost or
Amortized
Cost
  Fair
Value
 
 
  Gains   Losses  

Short-term investments

                         

Bank time deposits

  $ 265,570   $   $   $ 265,570  

Available-for-sale securities:

                         

Corporate bonds

    205,166     131     (47 )   205,250  

Total short-term investments

  $ 470,736   $ 131   $ (47 ) $ 470,820  

        Unrealized gains and losses of our available-for-sale securities are reported as a component of other comprehensive income (loss), net of tax, until the security is sold, the security has matured, or we determine that the fair value of the security has declined below its adjusted cost basis and the decline is other-than-temporary. We evaluate our investments for impairment quarterly. We consider various factors in the review of investments with an unrealized loss, including the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost basis, the severity of the impairment, the reason for the decline in value and our intent to sell and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Based on our review, we did not consider these investments to be other-than-temporarily impaired as of June 30, 2016 or March 31, 2016.

        The following table summarizes the contracted maturities of our short-term investments at June 30, 2016:

 
  June 30, 2016  
 
  Amortized
Cost
  Fair
Value
 

Short-term investments

             

Due in 1 year or less

  $ 337,191   $ 337,301  

Due in 1 - 2 years

    55,003     55,188  

Total short-term investments

  $ 392,194   $ 392,489  

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

        Our risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not enter into derivative financial contracts for speculative or trading purposes. We classify cash flows from derivative transactions as cash flows from operating activities in our Condensed Consolidated Statements of Cash Flows.

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

 
  June 30,
2016
  March 31,
2016
 

Forward contracts to sell foreign currencies

  $ 31,340   $ 54,529  

Forward contracts to purchase foreign currencies

    12,112     2,409  

        For the three months ended June 30, 2016 and 2015, we recorded a gain of $798 and a loss of $662, respectively, related to foreign currency forward contracts in interest and other, net in our Condensed Consolidated Statements of Operations. Our derivative contracts are foreign currency exchange forward contracts that are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense. These instruments are generally short term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.

6. INVENTORY

        Inventory balances by category are as follows:

 
  June 30,
2016
  March 31,
2016
 

Finished products

  $ 11,272   $ 14,321  

Parts and supplies

    1,462     1,567  

Inventory

  $ 12,734   $ 15,888  

        Estimated product returns included in inventory at June 30, 2016 and March 31, 2016 were $832 and $527, respectively.

7. SOFTWARE DEVELOPMENT COSTS AND LICENSES

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

 
  June 30, 2016   March 31, 2016  
 
  Current   Non-current   Current   Non-current  

Software development costs, internally developed

  $ 146,187   $ 195,985   $ 131,378   $ 162,261  

Software development costs, externally developed

    20,301     45,134     46,888     45,703  

Licenses

    730     6,153     121     6,867  

Software development costs and licenses

  $ 167,218   $ 247,272   $ 178,387   $ 214,831  

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

7. SOFTWARE DEVELOPMENT COSTS AND LICENSES (Continued)

        Software development costs and licenses as of June 30, 2016 and March 31, 2016 included $369,273 and $343,450, respectively, related to titles that have not been released. During the three months ended June 30, 2016 and 2015 we recorded $9,068 and $1,710, respectively of software development impairment charges (a component of cost of goods sold).

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

        Accrued expenses and other current liabilities consist of the following:

 
  June 30,
2016
  March 31,
2016
 

Software development royalties

  $ 445,171   $ 414,492  

Business reorganization

    65,935     66,323  

Compensation and benefits

    34,216     39,919  

Licenses

    27,899     31,825  

Marketing and promotions

    20,629     14,938  

Other

    25,585     39,982  

Accrued expenses and other current liabilities

  $ 619,435   $ 607,479  

9. DEBT

Credit Agreement

        In April 2016, we entered into a Sixth Amendment to our Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement"). The Credit Agreement provides for borrowings of up to $100,000 which may be increased by up to $100,000 pursuant to the terms of the Credit Agreement, and is secured by substantially all of our assets and the equity of our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear interest at our election of (a) 0.25% to 0.75% above a certain base rate (3.75% at June 30, 2016), or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 1.71% at June 30, 2016), with the margin rate subject to the achievement of certain average liquidity levels. We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based on availability. We had no outstanding borrowings at June 30, 2016 and March 31, 2016.

        Availability under the Credit Agreement is unrestricted when liquidity, as defined in the Credit Agreement, is at least $300,000. When liquidity is below $300,000 availability under the Credit Agreement is restricted by our United States and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an aggregate amount of up to $5,000.

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

 
  June 30,
2016
  March 31,
2016
 

Available borrowings

  $ 98,266   $ 98,335  

Outstanding letters of credit

    1,731     1,664  

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

9. DEBT (Continued)

        We recorded interest expense and fees related to the Credit Agreement of $110 for each of the three months ended June 30, 2016 and 2015. The Credit Agreement contains covenants that substantially limit us and our subsidiaries' ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course of business; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make distributions (each subject to certain limitations); or optionally prepay any indebtedness (subject to certain exceptions, including an exception permitting the redemption of our unsecured convertible senior notes upon the meeting of certain minimum liquidity requirements). In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on indebtedness held by third parties and default on certain material contracts (subject to certain limitations and cure periods). The Credit Agreement also contains a requirement that we maintain an interest coverage ratio of more than one to one for the trailing twelve month period, if certain average liquidity levels fall below $30,000.

1.75% Convertible Notes Due 2016

        On November 16, 2011, we issued $250,000 aggregate principal amount of 1.75% Convertible Notes due 2016. The issuance of the 1.75% Convertible Notes included $30,000 related to the exercise of an over-allotment option by the underwriters. Interest on the 1.75% Convertible Notes is payable semi-annually in arrears on June 1st and December 1st of each year, commencing on June 1, 2012. The 1.75% Convertible Notes mature on December 1, 2016, unless earlier repurchased by the Company or converted. We do not have the right to redeem the 1.75% Convertible Notes prior to maturity.

        The 1.75% Convertible Notes are convertible at an initial conversion rate of 52.3745 shares of our common stock per $1 principal amount of 1.75% Convertible Notes (representing an initial conversion price of approximately $19.093 per share of common stock for a total of approximately 13,094,000 underlying conversion shares) subject to adjustment in certain circumstances. As of June 1, 2016 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.75% Convertible Notes at any time. Upon conversion, the 1.75% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and ability, given our option, would be to settle the 1.75% Convertible Notes conversion in shares of our common stock. As such, we have continued to classify these 1.75% Convertible Notes as long-term debt.

        Upon the occurrence of certain fundamental changes involving the Company, holders of the 1.75% Convertible Notes may require us to purchase all or a portion of their 1.75% Convertible Notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the fundamental change purchase date.

        The indenture governing the 1.75% Convertible Notes contains customary terms and covenants and events of default. If an event of default (as defined therein) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the 1.75% Convertible Notes then outstanding by notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

9. DEBT (Continued)

(including additional interest, if any) on all the 1.75% Convertible Notes to be due and payable. In the case of an event of default arising out of certain bankruptcy events, 100% of the principal of and accrued and unpaid interest (including additional interest, if any), on the 1.75% Convertible Notes will automatically become due and payable immediately.

        The 1.75% Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the 1.75% Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness incurred by our subsidiaries.

        We separately account for the liability and equity components of the 1.75% Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. We estimated the fair value of the 1.75% Convertible Notes to be $197,373, as of the date of issuance of our 1.75% Convertible Notes, assuming a 6.9% non-convertible borrowing rate. The carrying amount of the equity component was determined to be $52,627 by deducting the fair value of the liability component from the par value of the 1.75% Convertible Notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest and other, net over the term of the 1.75% Convertible Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the $6,875 of banking, legal and accounting fees related to the issuance of the 1.75% Convertible Notes, we allocated $5,428 to the liability component and $1,447 to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest and other, net over the term of the 1.75% Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.

        As of June 30, 2016 and March 31, 2016, the if-converted value of our 1.75% Convertible Notes exceeded the principal amount of $250,000 by $246,524 and $243,251, respectively.

        The following table provides additional information related to our 1.75% Convertible Notes:

 
  June 30,
2016
  March 31,
2016
 

Additional paid-in capital

  $ 51,180   $ 51,180  

Principal amount of 1.75% Convertible Notes

  $ 250,000   $ 250,000  

Unamortized discount of the liability component

    5,051     8,014  

Carrying amount of debt issuance costs

    412     657  

Net carrying amount of 1.75% Convertible Notes

  $ 244,537   $ 241,329  

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

9. DEBT (Continued)

        The following table provides the components of interest expense related to our 1.75% Convertible Notes:

 
  Three Months
Ended June 30,
 
 
  2016   2015  

Cash interest expense (coupon interest expense)

  $ 1,094   $ 1,094  

Non-cash amortization of discount on 1.75% Convertible Notes

    2,963     2,773  

Amortization of debt issuance costs

    245     256  

Total interest expense related to 1.75% Convertible Notes

  $ 4,302   $ 4,123  

1.00% Convertible Notes Due 2018

        On June 18, 2013, we issued $250,000 aggregate principal amount of 1.00% Convertible Notes due 2018. The 1.00% Convertible Notes were issued at 98.5% of par value for proceeds of $246,250. Interest on the 1.00% Convertible Notes is payable semi-annually in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible Notes mature on July 1, 2018, unless earlier repurchased by the Company or converted. We do not have the right to redeem the 1.00% Convertible Notes prior to maturity. We also granted the underwriters a 30-day option to purchase up to an additional $37,500 principal amount of 1.00% Convertible Notes to cover overallotments, if any. On July 17, 2013, we closed our public offering of $37,500 principal amount of our 1.00% Convertible Notes as a result of the underwriters exercising their overallotment option in full on July 12, 2013, bringing the total proceeds to $283,188.

        The 1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1 principal amount of 1.00% Convertible Notes (representing an initial conversion price of approximately $21.52 per share of common stock for a total of approximately 13,361,000 underlying conversion shares) subject to adjustment in certain circumstances. Holders may convert the 1.00% Convertible Notes at their option prior to the close of business on the business day immediately preceding January 1, 2018 only under the following circumstances: (1) during any fiscal quarter commencing after September 30, 2013, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the "measurement period") in which the trading price per $1 principal amount of 1.00% Convertible Notes for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (3) upon the occurrence of specified corporate events. On and after January 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.00% Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 1.00% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our common stock price exceeded 130% of the applicable conversion price per share for at least 20 trading days during the 30 consecutive trading days ended June 30, 2016. Accordingly, as of July 1, 2016, the 1.00% Convertible Notes may be converted at

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

9. DEBT (Continued)

the holder's option through September 30, 2016. Our current intent and ability, given our option, would be to settle the 1.00% Convertible Notes conversion in shares of our common stock. As such, we have continued to classify these 1.00% Convertible Notes as long-term debt.

        Upon the occurrence of certain fundamental changes involving the Company, holders of the 1.00% Convertible Notes may require us to purchase all or a portion of their 1.00% Convertible Notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the fundamental change purchase date.

        The indenture governing the 1.00% Convertible Notes contains customary terms and covenants and events of default. If an event of default (as defined therein) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the 1.00% Convertible Notes then outstanding by notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest (including additional interest, if any) on all the 1.00% Convertible Notes to be due and payable. In the case of an event of default arising out of certain bankruptcy events, 100% of the principal of and accrued and unpaid interest (including additional interest, if any), on the 1.00% Convertible Notes will automatically become due and payable immediately.

        The 1.00% Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the 1.00% Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness incurred by our subsidiaries.

        We separately account for the liability and equity components of the 1.00% Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate. We estimated the fair value of the 1.00% Convertible Notes to be $225,567 upon issuance of our 1.00% Convertible Notes, assuming a 6.15% non-convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $57,621 by deducting the fair value of the liability component from the net proceeds of the 1.00% Convertible Notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest and other, net over the term of the 1.00% Convertible Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the $2,815 of banking, legal and accounting fees related to the issuance of the 1.00% Convertible Notes, we allocated $2,209 to the liability component and $606 to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest and other, net over the term of the 1.00% Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.

        As of June 30, 2016 and March 31, 2016, the if-converted value of our 1.00% Convertible Notes exceeded the principal amount of $287,500 by $219,149 and $215,809, respectively.

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

9. DEBT (Continued)

        The following table provides additional information related to our 1.00% Convertible Notes:

 
  June 30,
2016
  March 31,
2016
 

Additional paid-in capital

  $ 35,784   $ 35,784  

Principal amount of 1.00% Convertible Notes

  $ 287,500   $ 287,500  

Unamortized discount of the liability component

    26,837     29,972  

Carrying amount of debt issuance costs

    815     922  

Net carrying amount of 1.00% Convertible Notes

  $ 259,848   $ 256,606  

        The following table provides the components of interest expense related to our 1.00% Convertible Notes:

 
  Three Months
Ended June 30,
 
 
  2016   2015  

Cash interest expense (coupon interest expense)

  $ 719   $ 719  

Non-cash amortization of discount on 1.00% Convertible Notes

    3,135     2,954  

Amortization of debt issuance costs

    107     112  

Total interest expense related to 1.00% Convertible Notes

  $ 3,961   $ 3,785  

10. LOSS PER SHARE ("EPS")

        The following table sets forth the computation of basic and diluted loss per share (shares in thousands):

 
  Three Months
Ended June 30,
 
 
  2016   2015  

Computation of Basic and Diluted Loss per Share:

             

Net loss

  $ (38,567 ) $ (67,023 )

Weighted average common shares outstanding—basic and diluted and diluted

    84,588     82,833  

Basic and diluted loss per share

  $ (0.46 ) $ (0.81 )

        We incurred a net loss for the three months ended June 30, 2016 and 2015; therefore, the basic and diluted weighted average shares outstanding exclude the effect of the unvested share-based awards that are considered participating securities and all common stock equivalents because their effect would be antidilutive. For the three months ended June 30, 2016 and 2015, we had 5,428,000 and 3,739,000, respectively, of unvested share-based awards which are excluded from the EPS calculation due to the net loss for those periods.

        Certain of our unvested restricted stock awards (including restricted stock units, and time-based and market-based restricted stock awards) are considered participating securities since these securities

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

10. LOSS PER SHARE ("EPS") (Continued)

have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award, and thus require the two-class method of computing EPS.

        We define common stock equivalents as non-participating restricted stock awards and common stock equivalents underlying the Convertible Notes (see Note 9) outstanding during the period. Common stock equivalents are measured using the treasury stock method, except for the Convertible Notes, which are assessed for their effect on diluted EPS using the more dilutive of the treasury stock method or the if-converted method. Under the provisions of the if-converted method, the Convertible Notes are assumed to be converted and included in the denominator of the EPS calculation and the interest expense, net of tax, recorded in connection with the Convertible Notes is added back to the numerator.

        During the three months ended June 30, 2016, 2,158,000 restricted stock awards vested, and we issued 908,000 of unvested restricted stock awards and canceled 39,000 of unvested restricted stock awards.

11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

 
  Three Months Ended June 30, 2016  
 
  Foreign
currency
translation
adjustments
  Unrealized
gain (loss) on
derivative
instruments
  Unrealized
gain (loss) on
available-for-sales
securities(1)
  Total  

Balance at March 31, 2016

  $ (38,580 ) $ 600   $ 84   $ (37,896 )

Other comprehensive income (loss) before reclassifications

    (3,633 )       206     (3,427 )

Amounts reclassified from accumulated other comprehensive income (loss)

            4     4  

Balance at June 30, 2016

  $ (42,213 ) $ 600   $ 294   $ (41,319 )

(1)
Amounts reclassified from Accumulated other comprehensive income (loss) are included in Interest and other, net in our Condensed Consolidated Statement of Operations.

 
  Three Months Ended June 30, 2015  
 
  Foreign
currency
translation
adjustments
  Unrealized
gain (loss) on
derivative
instruments
  Unrealized
gain (loss) on
available-for-sales
securities
  Total  

Balance at March 31, 2015

  $ (31,216 ) $ 617   $ (25 ) $ (30,624 )

Other comprehensive income (loss) before reclassifications

    9,102         (41 )   9,061  

Amounts reclassified from accumulated other comprehensive income (loss)

                 

Balance at June 30, 2015

  $ (22,114 ) $ 617   $ (66 ) $ (21,563 )

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

12. SEGMENT AND GEOGRAPHIC INFORMATION

        We are a publisher of interactive software games designed for console systems and personal computers, including smart phones and tablets, which are delivered through physical retail, digital download, online platforms and cloud streaming services. Our business consists of our Rockstar Games and 2K labels, which represent a single operating segment, the "publishing segment". Our operations involve similar products and customers worldwide. Revenue earned from our publishing segment is primarily derived from the sale of internally developed software titles and software titles developed by third-parties. Our operating segment is based upon our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Executive Officer, our Chief Operating Decision Maker ("CODM"), to evaluate performance and allocate resources. We are centrally managed and the CODM primarily uses segment operating income, supplemented by sales information by product category, major product title and platform, to make operational decisions and assess financial performance. We add the change in deferred revenue to GAAP revenue to arrive at segment revenue. Segment revenue is a key metric that we use to manage our business as it reflects the sales activity in a given period and provides a more timely indication of trends in our business. Furthermore, segment revenue incorporates the change in deferred revenue that is reflected in the calculation of Segment operating income. Segment operating income differs from consolidated operating income due to the exclusion of the deferral of net revenues and associated costs related to sales generated from certain titles for which we have or expect to provide PCS deemed to be significant and virtual currency transactions, stock-based compensation expenses, and business reorganization and other expenses that may not be indicative of our core business, operating results or future outlook. Our CODM reviews assets on a consolidated basis and not on a segment basis. The following table summarizes the financial performance of our operating segment revenue and operating income (loss) and provides reconciliations to our consolidated net revenue and operating (loss) income:

 
  Three Months Ended June 30,  
 
  2016   2015   2016   2015  
 
  Net Revenue   Operating (loss) income  

Operating Segment

  $ 272,556   $ 366,392   $ (38,256 ) $ 48,642  

Reconciliation to consolidated net revenue / operating loss:

                         

Net effect of deferral of net revenues and related cost of goods sold

    38,996     (91,095 )   14,373     (90,965 )

Stock based compensation expense

            (15,100 )   (19,086 )

Business reorganization and other expenses

                (1,228 )

Consolidated net revenue / operating loss

  $ 311,552   $ 275,297   $ (38,983 ) $ (62,637 )

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

12. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

        We attribute net revenue to geographic regions based on product destination. Net revenue by geographic region was as follows:

 
  Three Months
Ended June 30,
 
Net revenue by geographic region:
  2016   2015  

United States

  $ 193,101   $ 143,438  

Europe

    73,519     100,223  

Asia Pacific

    28,758     20,306  

Canada and Latin America

    16,174     11,330  

Total net revenue

  $ 311,552   $ 275,297  

        Net revenue by product platform was as follows:

 
  Three Months
Ended June 30,
 
Net revenue by product platform:
  2016   2015  

Console

  $ 254,026   $ 222,574  

PC and other

    57,526     52,723  

Total net revenue

  $ 311,552   $ 275,297  

        Our products are delivered through physical retail and digital online services (digital download, online platforms and cloud streaming). Net revenue by distribution channel was as follows:

 
  Three Months
Ended June 30,
 
Net revenue by distribution channel:
  2016   2015  

Digital online

  $ 172,078   $ 153,985  

Physical retail and other

    139,474     121,312  

Total net revenue

  $ 311,552   $ 275,297  

13. COMMITMENTS AND CONTINGENCIES

        At June 30, 2016, we did not have any significant changes to our commitments since March 31, 2016. See Note 13 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended March 31, 2016 for more information regarding our commitments.

Legal and Other Proceedings

        We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial statements. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may

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TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

(Dollars in thousands, except share and per share amounts)

13. COMMITMENTS AND CONTINGENCIES (Continued)

be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.

        On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States District Court for the Southern District of New York, where our declaratory judgment action is pending. Mr. Benzies' complaint claims damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights; constructive discharge; defamation and fraud. While we believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims, we have accrued what we believe to be an adequate reserve for this matter, which amounts are classified as Business reorganization within Accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheet (see Note 8). We do not believe that the ultimate outcome of such litigation, even if in excess of our current reserve, will have a material adverse effect on our business, financial condition or results of operations.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

         The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including those contained herein, in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2016, in the section entitled "Risk Factors," and the Company's other periodic filings with the Securities and Exchange Commission. All forward-looking statements are qualified by these cautionary statements and speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

        Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. The following discussion should be read in conjunction with the MD&A and our annual consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

Overview

Our Business

        We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. We develop and publish products through our two wholly-owned labels Rockstar Games and 2K. Our products are currently designed for console gaming systems such as Sony's PlayStation®3 ("PS3") and PlayStation®4 ("PS4") and Microsoft's Xbox 360® ("Xbox 360") and Xbox One® ("Xbox One"); and personal computers ("PC"), including smartphones and tablets. We deliver our products through physical retail, digital download, online platforms and cloud streaming services.

        We endeavor to be the most creative, innovative and efficient company in our industry. Our core strategy is to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres. We focus on building compelling entertainment franchises by publishing a select number of titles for which we can create sequels and incremental revenue opportunities through add-on content, microtransactions and online play. Most of our intellectual property is internally owned and developed, which we believe best positions us financially and competitively. We have established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres, including action, adventure, family/casual, racing, role-playing, shooter, sports and strategy, which we distribute worldwide. We believe that our commitment to creativity and innovation is a distinguishing strength, enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers. We have created, acquired or licensed a group of highly recognizable brands to match the broad consumer demographics we serve, ranging from adults to children and game enthusiasts to casual gamers. Another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience.

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        Our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties. Operating margins are dependent in part upon our ability to release new, commercially successful software products and to manage effectively their development costs. We have internal development studios located in Canada, China, Czech Republic, the United Kingdom and the United States.

        Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto , Max Payne , Midnight Club , Red Dead and other popular franchises, to continue to be a leader in the action / adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands. We believe that Rockstar has established a uniquely original, popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 245 million units. The latest installment, Grand Theft Auto V , was released on Sony's PS3 and Microsoft's Xbox 360 in September 2013, on Sony's PS4 and Microsoft's Xbox One in November 2014, and on PC in April 2015. Grand Theft Auto V includes access to Grand Theft Auto Online , which initially launched in October 2013. Rockstar Games is also well known for developing brands in other genres, including the L.A. Noire , Bully and Manhunt franchises. Rockstar Games continues to expand on our established franchises by developing sequels, offering downloadable episodes, content and virtual currency, and releasing titles for smartphones and tablets.

        Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports and family/casual entertainment. We expect 2K to continue to develop new, successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock , Mafia , Sid Meier's Civilization and XCOM series. In May 2016, 2K launched Battleborn , a new brand created by Gearbox Software, the makers of Borderlands . 2K also publishes externally developed franchises, such as Borderlands and Evolve . 2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, and the WWE 2K professional wrestling series.

        We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea. 2K has 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. In October 2012, NBA 2K Online , our free-to-play NBA simulation game, which was co-developed by 2K and Tencent, launched commercially on the Tencent Games portal in China. In addition, in December 2015, Civilization Online , our free-to-play massively multiplayer online game developed by South Korean-based studio XLGAMES, launched in South Korea.

Trends and Factors Affecting our Business

        Product Release Schedule.     Our financial results are affected by the timing of our product releases and the commercial success of those titles. Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue. Sales of Grand Theft Auto products generated 41.5% of our net revenue for the three months ended June 30, 2016. The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.

        Economic Environment and Retailer Performance.     We continue to monitor economic conditions that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates. Our business is dependent upon a limited number of customers that account for a significant portion of our revenue.

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Our five largest customers accounted for 68.6% and 60.1% of net revenue during the three months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and March 31, 2016, our five largest customers comprised 71.0% and 73.9% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 55.3% and 64.1% of such balance at June 30, 2016 and March 31, 2016, respectively. We had two customers who accounted for 36.0% and 19.3% of our gross accounts receivable as of June 30, 2016 and three customers who accounted for 35.2%, 16.8% and 12.1% of our gross accounts receivable as of March 31, 2016. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of June 30, 2016 or March 31, 2016. The economic environment has affected our customers in the past, and may do so in the future. Bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivables and the concentration of purchasing power among the remaining large retailers. Certain of our large customers sell used copies of our games, which may negatively affect our business by reducing demand for new copies of our games. While the downloadable content that we now offer for certain of our titles may serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.

        Hardware Platforms.     We derive most of our revenue from the sale of products made for video game consoles manufactured by third-parties, such as Sony's PS4 and PS3 and Microsoft's Xbox One and Xbox 360, which comprised 81.5% of our net revenue by product platform for the three months ended June 30, 2016. The success of our business is dependent upon the consumer acceptance of these consoles and continued growth in their installed base. When new hardware platforms are introduced, demand for software used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. We continually monitor console hardware sales. We manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development. Accordingly, our strategy is to focus our development efforts on a select number of the highest quality titles for these platforms, while also expanding our offerings for emerging platforms such as tablets, smartphones and online games.

        Online Content and Digital Distribution.     The interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods. We provide a variety of online delivered products and offerings. Most of our titles that are available through retailers as packaged goods products are also available through direct digital download (from websites we own and others owned by third-parties). In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles after their initial purchase through downloadable offerings, including add-on content, microtransactions and online play. We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download via the Internet. Note 12 to our Condensed Consolidated Financial Statements, "Segment and Geographic Information," discloses that net revenue from digital online channels comprised 55.2% of our net revenue by distribution channel for the three months ended June 30, 2016. We expect online delivery of games and game offerings to continue to grow and to become an increasing part of our business over the long-term.

Product Releases

        We released the following key titles during the three months ended June 30, 2016.

Title
  Publishing
Label
  Internal or External
Development
  Platform(s)   Date Released

Battleborn

  2K   External   Xbox One, PS4, PC   May 3, 2016

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Product Pipeline

        We have announced the following future key titles to date (this list does not represent all titles currently in development):

Title
  Publishing
Label
  Internal or External
Development
  Platform(s)   Expected
Release Date

XCOM 2

  2K   Internal   Xbox One, PS4   September 6, 2016

NBA 2K17

  2K   Internal   Xbox 360, Xbox One, PS3, PS4, PC   September 20, 2016

Mafia III

  2K   Internal   Xbox One, PS4, PC   October 7, 2016

WWE 2K17

  2K   Internal/External   Xbox 360, Xbox One, PS3, PS4   October 11, 2016

Sid Meier's Civilization VI

  2K   Internal   PC   October 21, 2016

Critical Accounting Policies and Estimates

        Our most critical accounting policies, which are those that require significant judgment, include: revenue recognition; price protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates including inventory obsolescence, and valuation of goodwill, intangible assets and long-lived assets; valuation and recognition of stock-based compensation; and income taxes. In-depth descriptions of these can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

Recently Issued Accounting Pronouncements

Accounting for Stock Compensation

        In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation—Stock Compensation. This new guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016 (April 1, 2017 for the Company) and interim periods within those annual periods. Early adoption is not permitted. We are currently evaluating the impact of adopting this update on our Consolidated Financial Statements.

Accounting for Leases

        In February 2016, the FASB issued ASU 2016-02, "Leases." This new guidance requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. This update is effective for annual periods, and interim periods within those years, beginning after December 15, 2018 (April 1, 2019 for the Company). This new guidance must be adopted using a modified retrospective approach whereby lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact of adopting this update on our Consolidated Financial Statements.

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Revenue from Contracts with Customers

        In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations included in ASU 2014-09. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to customers. In April 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on licensing and identifying performance obligations. In May 2016, the FASB further amended ASU 2014-09 by issuing ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which does not change the core principles of the standard, but clarifies the guidance on assessing collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. ASU 2014-09 and its amendments can be adopted retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to defer the effective date by one year to annual and interim years beginning after December 15, 2017 (April 1, 2018 for the Company). Early adoption is permitted, but no earlier than the original effective date of annual and interim periods beginning after December 15, 2016 (April 1, 2017 for the Company). While we continue to evaluate the impact and available implementation approaches, we believe adoption of ASU 2014-09, as amended, may have a material impact on the allocation and timing of revenue recognition and associated cost of goods sold.

Results of Operations

        The following table sets forth, for the periods indicated, our Condensed Consolidated Statements of Operations, net revenue by geographic region, net revenue by platform and net revenue by distribution channel:

 
  Three Months Ended June 30,  
 
  2016   2015  

Net revenue

  $ 311,552     100.0 % $ 275,297     100.0 %

Cost of goods sold

    191,380     61.4 %   202,615     73.6 %

Gross profit

    120,172     38.6 %   72,682     26.4 %

Selling and marketing

    71,134     22.8 %   45,567     16.6 %

General and administrative

    46,743     15.0 %   49,035     17.8 %

Research and development

    33,900     10.9 %   34,142     12.4 %

Depreciation and amortization

    7,378     2.4 %   6,575     2.4 %

Total operating expenses

    159,155     51.1 %   135,319     49.2 %

Loss from operations

    (38,983 )   (12.5 )%   (62,637 )   (22.8 )%

Interest and other, net

    (4,506 )   (1.4 )%   (7,534 )   (2.7 )%

Gain on long-term investments, net

    1,350     0.4 %        

Loss before income taxes

    (42,139 )   (13.5 )%   (70,171 )   (25.5 )%

Benefit from income taxes

    (3,572 )   (1.1 )%   (3,148 )   (1.2 )%

Net loss

  $ (38,567 )   (12.4 )% $ (67,023 )   (24.3 )%

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  Three Months Ended June 30,  
 
  2016   2015  

Net revenue by geographic region:

                         

United States

  $ 193,101     62.0 % $ 143,438     52.1 %

International

    118,451     38.0 %   131,859     47.9 %

Net revenue by platform:

   
 
   
 
   
 
   
 
 

Console

  $ 254,026     81.5 % $ 222,574     80.8 %

PC and other

    57,526     18.5 %   52,723     19.2 %

Net revenue by distribution channel:

   
 
   
 
   
 
   
 
 

Digital online

  $ 172,078     55.2 % $ 153,985     55.9 %

Physical retail and other

    139,474     44.8 %   121,312     44.1 %

Three Months Ended June 30, 2016 Compared to June 30, 2015

(thousands of dollars)
  2016   %   2015   %   Increase/
(decrease)
  % Increase/
(decrease)
 

Net revenue

  $ 311,552     100.0 % $ 275,297     100.0 % $ 36,255     13.2 %

Software development costs and royalties(1)

    63,659     20.4 %   50,493     18.3 %   13,166     26.1 %

Internal royalties

    59,673     19.2 %   105,829     38.5 %   (46,156 )   (43.6 )%

Product costs

    44,979     14.4 %   39,941     14.5 %   5,038     12.6 %

Licenses

    23,069     7.4 %   6,352     2.3 %   16,717     263.2 %

Cost of goods sold

    191,380     61.4 %   202,615     73.6 %   (11,235 )   (5.5 )%

Gross profit

  $ 120,172     38.6 % $ 72,682     26.4 % $ 47,490     65.3 %

(1)
Includes $4,386 and $4,694 of stock-based compensation expense in 2016 and 2015, respectively, included in software development costs and royalties.

        For the three months ended June 30, 2016, net revenue increased by $36.3 million as compared to the prior year. This increase was due primarily to an increase of $102.0 million in revenues from our NBA 2K franchise, due to the recognition of previously-deferred revenues from NBA 2K16, partially offset by (1) a decrease of $41.4 million in revenue from our Grand Theft Auto franchise, due primarily to lower net revenues from Grand Theft Auto V and Grand Theft Auto Online for Sony's PS3 and Microsoft's Xbox 360, and (2) a decrease of $21.5 million in revenues from Evolve .

        Net revenue from console games increased by $31.5 million, and accounted for 81.5% of our total net revenue for the three months ended June 30, 2016, as compared to 80.8% for the same period in the prior year. The increase in net revenue from console games was due primarily to higher net revenues from our NBA 2K franchise partially offset by lower net revenues from our Grand Theft Auto franchise and Evolve . Net revenue from PC and other increased by $4.8 million, and accounted for 18.5% of our total net revenue for the three months ended June 30, 2016, as compared to 19.2% for the prior year's period. The increase in net revenue from PC and other was due primarily to higher net revenues from XCOM:2 which released on the PC in February 2016.

        Net revenue from digital online channels increased by $18.1 million, and accounted for 55.2% of our total net revenue for the three months ended June 30, 2016, as compared to 55.9% for the same period in the prior year. The increase in net revenue from digital online channels was due to higher net revenue from NBA 2K16, partially offset by lower net revenues from Grand Theft Auto Online and Grand Theft Auto V . Recurrent consumer spending (including add-on content, microtransactions and online play) increased to 57.0% of net revenue from digital online channels for the three months ended June 30, 2016 as compared to 53.7% of net revenue from digital online channels for the three months

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ended June 30, 2015. Net revenue from physical retail and other channels increased by $18.2 million, and accounted for 44.8% of our total net revenues for the three months ended June 30, 2016, as compared to 44.1% for the same period in the prior year. The increase in net revenue from physical retail and other channels was due primarily to higher net revenues from NBA 2K16 , which was partially offset by lower net revenues from Grand Theft Auto V and Evolve .

        Gross profit as a percentage of net revenue for the three months ended June 30, 2016 was 38.6% as compared to 26.4% for the prior year period. The increase was due primarily to lower internal royalties as a percentage of net revenues due to the timing of when internal royalties are earned, resulting from the performance of our Grand Theft Auto franchise, which was partially offset by higher license expenses due to increased net revenues from NBA 2K16 in the current period.

        Net revenue earned outside of the United States decreased by $13.4 million, and accounted for 38.0% of our total net revenue for the three months ended June 30, 2016, as compared to 47.9% in the prior year, due primarily to a decrease in net revenues from our Grand Theft Auto V franchise and Evolve outside of the United States, which was partially offset by increased net revenues from NBA 2K16 . Changes in foreign currency exchange rates decreased net revenue by $0.6 million and increased gross profit by $1.0 million for the three months ended June 30, 2016 as compared to the prior year.

Operating Expenses

(thousands of dollars)
  2016   % of net
revenue
  2015   % of net
revenue
  Increase/
(decrease)
  % Increase/
(decrease)
 

Selling and marketing

  $ 71,134     22.8 % $ 45,567     16.6 % $ 25,567     56.1 %

General and administrative

    46,743     15.0 %   49,035     17.8 %   (2,292 )   (4.7 )%

Research and development

    33,900     10.9 %   34,142     12.4 %   (242 )   (0.7 )%

Depreciation and amortization

    7,378     2.4 %   6,575     2.4 %   803     12.2 %

Total operating expenses(1)

  $ 159,155     51.1 % $ 135,319     49.2 % $ 23,836     17.6 %

(1)
Includes stock-based compensation expense, which was allocated as follows (in thousands):

 
  2016   2015  

Selling and marketing

  $ 2,549   $ 2,383  

General and administrative

  $ 6,705   $ 10,493  

Research and development

  $ 1,460   $ 1,516  

        Changes in foreign currency exchange rates decreased total operating expenses by $1.4 million for the three months ended June 30, 2016 as compared to the prior year.

Selling and marketing

        Selling and marketing expenses increased by $25.6 million for the three months ended June 30, 2016, as compared to the prior year, due primarily to $26.7 million in higher advertising expenses. Advertising expenses were higher in the current year period due primarily to the release of Battleborn in May 2016 and the upcoming release of Mafia III .

General and administrative

        General and administrative expenses decreased by $2.3 million for the three months ended June 30, 2016, as compared to the prior year, due primarily to a decrease of $3.8 million in stock-based compensation expense, as the prior year period included ZelnickMedia's stock-based compensation for the awards granted under the 2011 Management Agreement, and lower restructuring costs due to a studio closure in the prior year. Partially offsetting the decrease to general and administrative expenses were higher expenses for allowances for bad debt, and higher personnel costs, due primarily to higher headcount.

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        General and administrative expenses for the three months ended June 30, 2016 and 2015 include occupancy expense (primarily rent, utilities and office expenses) of $3.7 million and $4.8 million, respectively, related to our development studios.

Research and development

        Research and development expenses decreased slightly for the three months ended June 30, 2016, as compared to the prior year. Higher production expenses for new titles in development that have not reached technological feasibility were offset by lower IT expenses and higher payroll capitalization at our development studios due to upcoming product releases.

Depreciation and Amortization

        Depreciation and amortization expenses increased by $0.8 million for the three months ended June 30, 2016, as compared to the prior year, due primarily to higher purchases of fixed assets for studio and information technology infrastructure build-outs.

Interest and other, net

        Interest and other, net was an expense of $4.5 million for the three months ended June 30, 2016, as compared to an expense of $7.5 million for the three months ended June 30, 2015. The decrease to expense was due primarily to $2.5 million of higher foreign exchange transaction gains, and higher interest income related to our short-term investments.

(Benefit from) Provision for Income Taxes

        The benefit from income taxes was $3.6 million for the three months ended June 30, 2016, as compared to $3.1 million for the three months ended June 30, 2015. The increase in tax benefit is primarily attributable to an increase in taxable income that is partially offset by changes in valuation allowances for tax loss and credit carryforwards and deferred tax assets anticipated to be utilized.

        Our effective tax rate differed from the federal statutory rate due primarily to changes in valuation allowances related to tax loss and tax credit carryforwards anticipated to be utilized.

        We are regularly audited by domestic and foreign taxing authorities. Audits may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe that our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments.

Net loss and loss per share

        For the three months ended June 30, our net loss was $38.6 million, as compared to $67.0 million in the prior year's period. For the three months ended June 30, 2016, basic and diluted loss per share was $0.46 as compared to $0.81 in the prior year's period. Basic and diluted weighted average shares of 84.6 million were 1.8 million shares higher as compared to the prior year, due primarily to the vesting of restricted stock awards. See Note 10 to our Condensed Consolidated Financial Statements for additional information regarding earnings (loss) per share.

Liquidity and Capital Resources

        Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) acquisitions and (iv) capital expenditures. In addition, we may have a U.S. tax payment which could impact our cash funding requirements. We expect to rely on funds provided by our operating activities, our Credit Agreement and our Convertible Notes to satisfy our working capital needs.

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Short-term Investments

        As of June 30, 2016, the Company has $392.5 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, the Company may purchase additional short-term investments depending on future market conditions and liquidity needs.

Credit Agreement

        In April 2016, we entered into a Sixth Amendment to our Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement"). The Credit Agreement provides for borrowings of up to $100.0 million which may be increased by up to $100.0 million pursuant to the terms of the Credit Agreement, and is secured by substantially all of our assets and the equity of our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear interest at our election of (a) 0.25% to 0.75% above a certain base rate (3.75% at June 30, 2016), or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 1.71% at June 30, 2016), with the margin rate subject to the achievement of certain average liquidity levels. We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based on availability.

        Availability under the Credit Agreement is unrestricted when liquidity is at least $300.0 million. When liquidity is below $300.0 million, availability under the Credit Agreement is restricted by our United States and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an aggregate amount of up to $5.0 million.

        As of June 30, 2016, there was $98.3 million available to borrow under the Credit Agreement and we had $1.7 million of letters of credit outstanding. At June 30, 2016, we had no outstanding borrowings under the Credit Agreement.

        The Credit Agreement contains covenants that substantially limit us and our subsidiaries' ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course of business; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make distributions (each subject to certain limitations); or optionally prepay any indebtedness (subject to certain exceptions, including an exception permitting the redemption of our unsecured convertible senior notes upon the meeting of certain minimum liquidity requirements). In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on indebtedness held by third parties and default on certain material contracts (subject to certain limitations and cure periods). The Credit Agreement also contains a requirement that we maintain an interest coverage ratio of more than one to one for the trailing twelve month period, if certain average liquidity levels fall below $30.0 million.

1.75% Convertible Notes Due 2016

        On November 16, 2011, we issued $250.0 million aggregate principal amount of 1.75% Convertible Notes due 2016 (the "1.75% Convertible Notes"). Interest on the 1.75% Convertible Notes is payable semi-annually in arrears on June 1st and December 1st of each year, commencing on June 1, 2012. The 1.75% Convertible Notes mature on December 1, 2016, unless earlier repurchased by us or converted. We do not have the right to redeem the 1.75% Convertible Notes prior to maturity.

        The 1.75% Convertible Notes are convertible at an initial conversion rate of 52.3745 shares of our common stock per $1,000 principal amount of 1.75% Convertible Notes (representing an initial conversion price of approximately $19.093 per share of common stock for a total of approximately

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13,094,000 underlying conversion shares) subject to adjustment in certain circumstances. As of June 1, 2016 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.75% Convertible Notes at any time. Upon conversion, the 1.75% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and ability, given our option, would be to settle the 1.75% Convertible Notes in shares of our common stock. As such, we have continued to classify these 1.75% Convertible Notes as long-term debt.

        The indenture governing the 1.75% Convertible Notes contains customary terms and covenants and events of default.

1.00% Convertible Notes Due 2018

        On June 18, 2013, we issued $250.0 million aggregate principal amount of 1.00% Convertible Notes due 2018 (the "1.00% Convertible Notes" and together with the 1.75% Convertible Notes, the "Convertible Notes"). The 1.00% Convertible Notes were issued at 98.5% of par value for proceeds of $246.3 million. Interest on the 1.00% Convertible Notes is payable semi-annually in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible Notes mature on July 1, 2018, unless earlier repurchased by us or converted. We do not have the right to redeem the 1.00% Convertible Notes prior to maturity. We also granted the underwriters a 30-day option to purchase up to an additional $37.5 million principal amount of 1.00% Convertible Notes to cover overallotments, if any. On July 17, 2013, we closed our public offering of $37.5 million principal amount of our 1.00% Convertible Notes as a result of the underwriters exercising their overallotment option in full on July 12, 2013, bringing the proceeds to $283.2 million.

        The 1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1,000 principal amount of 1.00% Convertible Notes (representing an initial conversion price of approximately $21.52 per share of common stock for a total of approximately 13,361,000 underlying conversion shares) subject to adjustment in certain circumstances. Holders may convert the 1.00% Convertible Notes at their option prior to the close of business on the business day immediately preceding January 1, 2018 only under the following circumstances: (1) during any fiscal quarter commencing after September 30, 2013, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of 1.00% Convertible Notes for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (3) upon the occurrence of specified corporate events. On and after January 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.00% Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 1.00% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our common stock price exceeded 130% of the applicable conversion price per share for at least 20 trading days during the 30 consecutive trading days ended June 30, 2016. Accordingly, as of July 1, 2016 the 1.00% Convertible Notes may be converted at the holder's option through September 30, 2016. Our current intent and ability, given our option, would be to settle the 1.00% Convertible Notes in shares of our common stock. As such, we have continued to classify these 1.00% Convertible Notes as long-term debt.

        The indenture governing the 1.00% Convertible Notes contains customary terms and covenants and events of default.

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Financial Condition

        We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position.

        Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. We have trade credit insurance on the majority of our customers to mitigate accounts receivable risk.

        A majority of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted for 68.6% and 60.1% of net revenue during the three months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and March 31, 2016, five customers accounted for 71.0% and 73.9% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 55.3% and 64.1% of such balances at June 30, 2016 and March 31, 2016, respectively. We had two customers who accounted for 36.0% and 19.3% of our gross accounts receivable as of June 30, 2016 and three customers who accounted for 35.2%, 16.8% and 12.1% of our gross accounts receivable as of March 31, 2016. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of June 30, 2016 or March 31, 2016. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's credit worthiness and economic conditions that may affect our customers' business and access to capital. We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.

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

        As of June 30, 2016, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $261.0 million. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect in the foreseeable future to have the ability to generate sufficient cash domestically to support ongoing operations. Consequently, it is the Company's intention to indefinitely reinvest undistributed earnings of its foreign subsidiaries. In the event we needed to repatriate funds outside of the U.S., such repatriation may be subject to local laws and tax consequences including foreign withholding taxes or U.S. income taxes. It is not practicable to estimate the tax liability and we would try to minimize the tax effect to the extent possible. However, any repatriation may not result in significant cash payments as the taxable event would likely be offset by the utilization of the then available tax credits.

        Our Board of Directors has authorized the repurchase of up to 14,217,683 shares of our common stock. We did not repurchase any shares under this program during the three months ended June 30, 2016. As of June 30, 2016, we have repurchased a total of 5,171,330 shares of our common stock and have 9,046,353 shares of our common stock that remain available for repurchase under our share repurchase authorization. We are authorized to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program may be suspended or discontinued at any time for any reason.

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        Our changes in cash flows were as follows:

 
  Three Months Ended
June 30,
 
(thousands of dollars)
  2016   2015  

Net cash (used in) provided by operating activities

  $ (47,248 ) $ 105,482  

Net cash povided by (used in) investing activities

    72,885     (206,258 )

Net cash (used in) provided by financing activities

    (24,279 )   1,525  

Effects of foreign currency exchange rates on cash and cash equivalents

    (3,772 )   3,915  

Net decrease in cash and cash equivalents

  $ (2,414 ) $ (95,336 )

        At June 30, 2016, we had $796.3 million of cash and cash equivalents, compared to $798.7 million at March 31, 2016. The decrease in cash and cash equivalents was due primarily to cash used in operating and financing activities offset by cash provided by investing activities. Net cash used in operating activities was primarily due to development spend for upcoming releases. Net used cash in financing activities was primarily related to net share settlements of our stock-based awards. These decreases to cash and cash equivalents were partially offset by net cash provided by investing activities due to the maturity of bank time deposits.

Contractual Obligations and Commitments

        We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. Other than agreements entered into in the ordinary course of business and in addition to the agreements requiring known cash commitments as reported in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, we did not have any significant changes to our commitments since March 31, 2016.

        Legal and Other Proceedings:     We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial statements. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.

        On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States District Court for the Southern District of New York, where our declaratory judgment action is pending. Mr. Benzies' complaint claims damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights; constructive discharge; defamation and fraud. We believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims.

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Off-Balance Sheet Arrangements

        As of June 30, 2016 and March 31, 2016, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

International Operations

        Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada and Latin America. For the three months ended June 30, 2016 and 2015, 38.0% and 47.9%, 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.

Fluctuations in Quarterly Operating Results and Seasonality

        We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles; variations in sales of titles developed for particular platforms; market acceptance of our titles; development and promotional expenses relating to the introduction of new titles; sequels or enhancements of existing titles; projected and actual changes in platforms; the timing and success of title introductions by our competitors; product returns; changes in pricing policies by us and our competitors; the accuracy of retailers' forecasts of consumer demand; the size and timing of acquisitions; the timing of orders from major customers; and order cancellations and delays in product shipment. Sales of our products are also seasonal, with peak shipments typically occurring in the fourth calendar quarter as a result of increased demand for products during the holiday season. For certain of our software products with multiple element revenue arrangements where we do not have VSOE for each element and the deliverables are deemed more-than-inconsequential, we defer the recognition of our net revenues over an estimated service period which generally ranges from 12 to 36 months. As a result, the quarter in which we generate the highest net sales volume may be different from the quarter in which we recognize the highest amount of net revenues. Quarterly comparisons of operating results are not necessarily indicative of future operating results.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Risk

        Our exposure to fluctuations in interest rates relates primarily to our short-term investment portfolio and variable rate debt under the Credit Agreement.

        We seek to manage our interest rate risk by maintaining a short-term investment portfolio that includes corporate bonds with high credit quality and maturities less than two years. Since short-term investments mature relatively quickly and can be reinvested at the then-current market rates, interest income on a portfolio consisting of short-term securities is more subject to market fluctuations than a portfolio of longer term maturities. However, the fair value of a short-term portfolio is less sensitive to market fluctuations than a portfolio of longer term securities. We do not currently use derivative financial instruments in our short-term investment portfolio. Our investments are held for purposes other than trading.

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        As of June 30, 2016, we had $392.5 million of short-term investments which included $206.0 million of available-for-sale securities. The available-for-sale securities were recorded at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of accumulated other comprehensive income (loss), net of tax, in stockholders' equity. We also had $796.3 million of cash and cash equivalents that are comprised primarily of money market funds and bank-time deposits. We determined that, based on the composition of our investment portfolio, there was no material interest rate risk exposure to our Consolidated Financial Statements or liquidity as of June 30, 2016.

        Historically, fluctuations in interest rates have not had a significant effect on our operating results. Under our Credit Agreement, outstanding balances bear interest at our election of (a) 0.25% to 0.75% above a certain base rate (3.75% at June 30, 2016), or (b) 1.25% to 1.75% above the LIBOR rate (approximately 1.71% at June 30, 2016), with the margin rate subject to the achievement of certain average liquidity levels. Changes in market rates may affect our future interest expense if there is an outstanding balance on our line of credit. At June 30, 2016, there were no outstanding borrowings under our Credit Agreement. The 1.75% Convertible Notes and the 1.00% Convertible Notes pay interest semi-annually at a fixed rate of 1.75% and 1.00%, respectively, per annum and we expect that there will be no fluctuation related to the Convertible Notes affecting our cash component of interest expense. For additional details on our Convertible Notes see Note 9 to our Condensed Consolidated Financial Statements.

Foreign Currency Exchange Rate Risk

        We transact business in foreign currencies and are exposed to risks resulting from fluctuations in foreign currency exchange rates. Accounts relating to foreign operations are translated into United States dollars using prevailing exchange rates at the relevant period end. Translation adjustments are included as a separate component of stockholders' equity. For the three months ended June 30, 2016 and 2015, our foreign currency translation adjustment loss was $3.6 million and a foreign currency translation adjustment gain of $9.1 million, respectively. For the three months ended June 30, 2016 and 2015, we recognized a foreign currency exchange transaction gain of $2.3 million and a foreign currency exchange transaction loss of $0.2 million respectively, in interest and other, net in our Condensed Consolidated Statements of Operations.

Balance Sheet Hedging Activities

        We use foreign currency forward contracts to mitigate foreign currency exchange rate risk associated with non-functional currency denominated cash balances and inter-company funding loans, non-functional currency denominated accounts receivable and non-functional currency denominated accounts payable. These transactions are not designated as hedging instruments and are accounted for as derivatives whereby the fair value of the contracts is reported as either assets or liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other, net, in our Condensed Consolidated Statements of Operations. We do not enter into derivative financial contracts for speculative or trading purposes. At June 30, 2016, we had $12.1 million of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars and $31.3 million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars all of which have maturities of less than one year. At March 31, 2016, we had $2.4 million of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars and $54.5 million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars all of which have maturities of less than one year. For the three months ended June 30, 2016 and 2015, we recorded a gain of $0.8 million and a loss of $0.7 million, respectively, related to foreign currency forward contracts in interest and other, net on our Condensed Consolidated Statements of Operations. As of June 30, 2016 and March 31, 2016 the fair value of these outstanding forward contracts was

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$0.1 million and is included in accrued and other current liabilities. The fair value of these outstanding forward contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.

        Our hedging programs are designed to reduce, but do not entirely eliminate, the effect of currency exchange rate movements. We believe the counterparties to these foreign currency forward contracts are creditworthy multinational commercial banks and that the risk of counterparty nonperformance is not material. Notwithstanding our efforts to mitigate some foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. For the three months ended June 30, 2016, 38.0% of our revenue was generated outside the United States. Using sensitivity analysis, a hypothetical 10% increase in the value of the U.S. dollar against all currencies would decrease revenues by 3.8%, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenues by 3.8%. In the opinion of management, a substantial portion of this fluctuation would be offset by cost of goods sold and operating expenses incurred in local currency.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        Based on an evaluation under the supervision and with the participation of management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

        There were no changes in our internal control over financial reporting during the quarter ended June 30, 2016, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial statements. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.

        On April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New York seeking, among other things, a judicial declaration that Leslie Benzies, the former president of one of our subsidiaries with whom we had been in ongoing discussions regarding his separation of employment, is not entitled to any minimum allocation or financial parity with any other person under the applicable royalty plan. We believe we will prevail in this matter, although there can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New York, New York County against us, and certain of our subsidiaries and employees. We removed this case to the United States District Court for the Southern District of New York, where our declaratory judgment action is pending. Mr. Benzies' complaint claims damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights; constructive discharge; defamation and fraud. We believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims.

Item 1A.    Risk Factors

        There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

        Share Repurchase Program —In January 2013, our Board of Directors authorized the repurchase of up to 7,500,000 shares of our common stock. On May 13, 2015, our Board of Directors approved an increase of 6,717,683 shares to our share repurchase program, increasing the total number of shares that we are permitted to repurchase to 14,217,683 shares of our common stock. The authorizations permit us to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program may be suspended or discontinued at any time for any reason. We have repurchased a total of 5,171,330 shares of our common stock under this program and as of June 30, 2016, 9,046,353 shares of common stock remain available for repurchase under the Company's share repurchase program. We did not repurchase any shares of our common stock under this program during the three months ended June 30, 2016. The

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table below details the share repurchases that were made by us during the three months ended June 30, 2016:

Period
  Shares
purchased(1)
  Average price
per share
  Total number of shares
purchased as part of publicly
announced plans or programs
  Maximum number of shares that
may yet be purchased under the
repurchase program
 

April 1 - 30, 2016

    4,486   $ 37.99         9,046,353  

May 1 - 31, 2016

    123,707   $ 36.37         9,046,353  

June 1 - 30, 2016

      $         9,046,353  

(1)
All of the shares purchased during this period were purchased in connection with our obligation to holders of restricted stock awards to withhold the number of shares required to satisfy the holders' tax liabilities in connection with the vesting of such shares. None of the shares repurchased during the three months ended June 30, 2016 were part of the publicly announced share repurchase program.

Item 6.    Exhibits

Exhibits:    
  10.1   Sixth Amendment, dated as of April 8, 2016, to Second Amended and Restated Credit Agreement, dated as of October 17, 2011, by and among the Company, each of its Subsidiaries identified on the signature pages thereto as Borrowers, each of its Subsidiaries identified on the signature pages thereto as Guarantors, the lender parties thereto, and Wells Fargo Capital Finance, Inc., as administrative agent.

 

31.1

 

Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

 

Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

 

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

 

Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

 

XBRL Instance Document.

 

101.SCH

 

XBRL Taxonomy Extension Schema Document.

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document.

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document.

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document.

 

101.DEF

 

XBRL Taxonomy Extension Definition Document.

    Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2016 and March 31, 2016, (ii) Condensed Consolidated Statements of Operations for the three months ended June 30, 2016 and 2015, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three months ended June 30, 2016 and 2015, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2016 and 2015; and (v) Notes to Condensed Consolidated Financial Statements (Unaudited).

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Registrant)

Date: August 4, 2016

 

By:

 

/s/ STRAUSS ZELNICK

Strauss Zelnick
Chairman and Chief Executive Officer
(Principal Executive Officer)

Date: August 4, 2016

 

By:

 

/s/ LAINIE GOLDSTEIN

Lainie Goldstein
Chief Financial Officer
(Principal Financial Officer)

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Exhibit 10.1

 

SIXTH AMENDMENT TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

SIXTH AMENDMENT, dated as of April 8, 2016 (this “ Amendment ”), to the Second Amended and Restated Credit Agreement, dated as of November 16, 2007, as amended and restated as of October 17, 2011 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among the lenders identified on the signature pages hereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each individually as a “Lender” and collectively as the “ Lenders ”), WELLS FARGO CAPITAL FINANCE, LLC , a Delaware limited liability company, as the arranger and administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “ Agent ”), TAKE-TWO INTERACTIVE SOFTWARE, INC. , a Delaware corporation (“ Parent ”), and each of Parent’s domestic Subsidiaries identified on the signature pages hereof as a Borrower (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a “ U.S. Borrower ”, and collectively, jointly and severally, as the “ U.S. Borrowers ”), TAKE TWO GB LTD. , a company incorporated under the laws of England and Wales (the “ U.K. Borrower ”, and together with the U.S. Borrowers, each a “ Borrower ” and collectively, the “ Borrowers ”), and each of Parent’s Subsidiaries identified on the signature pages hereof as a Guarantor (such Subsidiaries are referred to hereinafter each individually as a “ Guarantor ”, and individually and collectively, jointly and severally, as the “ Guarantors ”; and together with Borrowers, each a “ Loan Party ” and collectively, the “ Loan Parties ”).

 

WHEREAS, the Loan Parties, the Agent and the Lenders agree to modify the Credit Agreement on and subject to the terms set forth herein;

 

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:

 

1.              Definitions .  Any capitalized term used herein and not defined shall have the meaning assigned to it in the Credit Agreement.

 

2.              Amendments .

 

(a)            The following new definition of “Sixth Amendment” is added in alphabetical order to Schedule 1.1 of the Credit Agreement to read as follows:

 

“‘ Sixth Amendment ’ means the Sixth Amendment to Second Amended and Restated Credit Agreement, dated as of April 8, 2016 by and among the Agent, the Lenders and the Loan Parties.”

 

(b)            The following new definition of “Sixth Amendment Effective Date” is added in alphabetical order to Schedule 1.1 of the Credit Agreement to read as follows:

 

“‘ Sixth Amendment Effective Date ’ has the meaning specified therefor in Section 3 of the Sixth Amendment.”

 

(c)            Section 2.6(b) of the Credit Agreement is hereby amended and

 



 

restated in its entirety to read as follows:

 

“(b)          Letter of Credit Fee.  U.S. Borrowers shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any agreements between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e) ) which shall accrue at a rate equal to 1.50% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit issued on behalf of the U.S. Borrowers.  U.K. Borrower shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any agreements between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(m) ) which shall accrue at a rate equal to 1.50% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit issued on behalf of the U.K. Borrower.”

 

(d)            Section 2.12 of the Credit Agreement is hereby amended by adding the following new clauses to read as follows:

 

“(h)          Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue L/Cs or enter into a L/C Undertaking with respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of the U.K. Borrower.  Each request for the issuance of a Letter of Credit or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and delivered to the Issuing Lender and Agent via hand delivery, telefacsimile, or other electronic method of transmission reasonably in advance of the requested date of issuance, amendment, renewal, or extension.  Each such request shall be in form and substance satisfactory to the Issuing Lender in its Permitted Discretion and shall specify (i) the amount of such Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration date of such Letter of Credit, (iv) the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and (v) such other information (including, in the case of an amendment, renewal, or extension, identification of the outstanding Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit.  If requested by the Issuing Lender, the U.K. Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking.  The Issuing Lender shall have no obligation to issue a Letter of Credit on behalf of the U.K. Borrower if any of the following would result after giving effect to the issuance of such requested Letter of Credit:

 

(i)          the Letter of Credit Usage by the U.K. Borrower would exceed the U.K. Borrowing Base less the outstanding amount of U.K. Advances, or

 

(ii)         the Letter of Credit Usage by the U.K. Borrower would exceed $1,000,000, or

 

(iii)        the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Advances.

 

2



 

Each Letter of Credit shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars or Sterling.  If Issuing Lender is obligated to advance funds under a Letter of Credit, the U.K. Borrower shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Administrative Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Administrative Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on the Business Day that Administrative Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be a U.K. Advance hereunder and, initially, shall bear interest at the rate then applicable to U.K. Advances that are Base Rate Loans.  To the extent an L/C Disbursement is deemed to be a U.K. Advance hereunder, the U.K. Borrower’s obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting U.K. Advance.  Promptly following receipt by Agent of any payment from the U.K. Borrower pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(i)  to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.

 

(i)             Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(h) , each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any U.K. Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if the U.K. Borrower had requested such U.K. Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders.  By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit.  In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by the U.K. Borrower on the date due as provided in Section 2.12(h) , or of any reimbursement payment required to be refunded to the U.K. Borrower for any reason.  Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share of each L/C Disbursement made by the Issuing Lender pursuant to this Section 2.12(i)  shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 .  If any such Lender fails to make available to Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, such

 

3



 

Lender shall be deemed to be a Defaulting Lender and Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.

 

(j)             U.K. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided , however , that the U.K. Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group.  The U.K. Borrower agrees to be bound by the Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing Lender to or for the U.K. Borrower’s account, even though this interpretation may be different from the U.K. Borrower’s own, and the U.K. Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following the U.K. Borrower’s instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto.  The U.K. Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by the U.K. Borrower against such Underlying Issuer.  The U.K. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group’s indemnification of any Underlying Issuer; provided , however , that U.K. Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group.  The U.K.  Borrower hereby acknowledges and agrees that neither the Lender Group nor the Issuing Lender shall be responsible for delays, errors, or omissions resulting from the malfunction of equipment in connection with any Letter of Credit.

 

(l)             The U.K. Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

 

(m)           Any and all issuance customary and reasonable charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by the U.K. Borrower to Agent for the account of the Issuing Lender; it being acknowledged and agreed by the U.K. Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is .400% per annum times the undrawn amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals.

 

(n)            If by reason of (i) any change after the Closing Date in any Applicable Law, treaty, rule, or regulation or any change in the interpretation or application

 

4



 

thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of Law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto):

 

(i)             any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or

 

(ii)            there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto;

 

and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Administrative Borrower, and the U.K. Borrower shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder.  The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.”

 

3.              Conditions to Effectiveness .  The effectiveness of this Amendment is subject to the fulfillment, in a manner satisfactory to the Agent and the Lenders, of each of the following conditions precedent (the date such conditions are fulfilled or waived by the Agent and the Lenders is hereinafter referred to as the “ Sixth Amendment Effective Date ”):

 

(a)            Representations and Warranties; No Event of Default .  The representations and warranties herein, in Section 4 of the Credit Agreement and in each other Loan Document and certificate or other writing delivered to the Agent and the Lenders pursuant hereto on or prior to the Sixth Amendment Effective Date shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) after giving effect to this Amendment on and as of the Sixth Amendment Effective Date as though made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date), and no Default or Event of Default shall have occurred and be continuing on the Sixth Amendment Effective Date or would result from this Amendment becoming effective in accordance with its terms.

 

(b)            Execution of Amendment .  The Agent and the Lenders shall have executed this Amendment and shall have received a counterpart to this Amendment, duly executed by the Borrowers and each Guarantor.

 

4.              Representations and Warranties .  Each of the Borrowers and the Guarantors represents and warrants as follows:

 

5



 

(a)            The execution, delivery and performance by the Borrowers or such Guarantor of this Amendment (including, without limitation, Section 5) and the performance by the Borrowers or such Guarantor of the Credit Agreement, as amended hereby, have been duly authorized by all necessary action, and the Borrowers or such Guarantor has all requisite power, authority and legal right to execute, deliver and perform this Amendment (including, without limitation, Section 5) and to perform the Credit Agreement, as amended hereby.

 

(b)            This Amendment and the Credit Agreement, as amended hereby, is a legal, valid and binding obligation of the Borrowers or such Guarantor, enforceable against the Borrowers or such Guarantor in accordance with the terms thereof, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

 

(c)            The representations and warranties contained in Section 4 of the Credit Agreement are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) after giving effect to this Amendment on and as of the Sixth Amendment Effective Date as though made on and as of the Sixth Amendment Effective Date (except to the extent such representations and warranties expressly relate to an earlier date), and no Event of Default or Default has occurred and is continuing on and as of the Sixth Amendment Effective Date, or would result from this Amendment becoming effective in accordance with its terms.

 

5.              Release .  Each of the Borrowers and the Guarantors may have certain Claims against the Released Parties, as those terms are defined below, regarding or relating to the Credit Agreement or the other Loan Documents.  The Agent, the Lenders, the Borrowers and the Guarantors desire to resolve each and every one of such Claims in conjunction with the execution of this Amendment and thus each of the Borrowers and the Guarantors makes the releases contained in this Section 5.  In consideration of the Agent and the Lenders entering into this Amendment and agreeing to substantial concessions as set forth herein, each of the Borrowers and the Guarantors hereby fully and unconditionally releases and forever discharges each of the Agent and the Lenders, and their respective directors, officers, employees, subsidiaries, branches, affiliates, attorneys, agents, representatives, successors and assigns and all persons, firms, corporations and organizations acting on any of their behalves (collectively, the “ Released Parties ”), of and from any and all claims, allegations, causes of action, costs or demands and liabilities, of whatever kind or nature, from the beginning of the world to the date on which this Amendment is executed, whether known or unknown, liquidated or unliquidated, fixed or contingent, asserted or unasserted, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, anticipated or unanticipated, which the Borrowers or the Guarantors has, had, claims to have had or hereafter claims to have against the Released Parties by reason of any act or omission on the part of the Released Parties, or any of them, occurring prior to the date on which this Amendment is executed, including all such loss or damage of any kind heretofore sustained or that may arise as a consequence of the dealings among the parties up to and including the date on which this Amendment is executed, including the administration or enforcement of the Advances, the Obligations, the Credit Agreement or any of the Loan Documents (collectively, all of the foregoing, the “ Claims ”).  Each of the Borrowers and the

 

6



 

Guarantors represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts or acts of omissions of the Released Parties which on the date hereof would be the basis of a claim by the Borrowers or the Guarantors against the Released Parties which is not released hereby.  Each of the Borrowers and the Guarantors represents and warrants that the foregoing constitutes a full and complete release of all Claims.

 

6.              Miscellaneous .

 

(a)            Continued Effectiveness of the Credit Agreement .  Except as otherwise expressly provided herein, the Credit Agreement and the other Loan Documents are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects, except that on and after the Sixth Amendment Effective Date (i) all references in the Credit Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Credit Agreement shall mean the Credit Agreement as amended by this Amendment, and (ii) all references in the other Loan Documents to the “Credit Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Credit Agreement shall mean the Credit Agreement as amended by this Amendment.  To the extent that the Credit Agreement or any other Loan Document purports to pledge to Agent, or to grant to Agent, a security interest or lien, such pledge or grant is hereby ratified and confirmed in all respects.  Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as an amendment of any right, power or remedy of the Agent and the Lenders (including the Issuing Lender) under the Credit Agreement or any other Loan Document, nor constitute a waiver or an amendment of any provision of the Credit Agreement or any other Loan Document.

 

(b)            Counterparts .  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Amendment by telefacsimile or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment.

 

(c)            Headings .  Section headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

 

(d)            Costs and Expenses .  The U.S. Borrowers agree to pay on demand all Lender Group Expenses in connection with the preparation, execution and delivery of this Amendment.

 

(e)            Amendment as Loan Document .  The Borrowers and each Guarantor hereby acknowledge and agree that this Amendment constitutes a “Loan Document” under the Credit Agreement.  Accordingly, it shall be an Event of Default under the Credit Agreement if (i) any representation or warranty made by the Borrowers or any Guarantor under or in connection with this Amendment shall have been untrue, false or misleading in any material respect when made, or (ii) the Borrowers or any Guarantor shall fail to perform or observe any term, covenant or agreement contained in this Amendment.

 

7



 

(f)             Governing Law .  This Amendment shall be governed by the laws of the State of New York.

 

(g)            Waiver of Jury Trial .  THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.

 

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8


 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written.

 

 

 

U.S. BORROWERS:

 

 

 

TAKE-TWO INTERACTIVE SOFTWARE, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

EVP and GC

 

 

 

 

WC HOLDCO, INC.,
a New York corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

U.K. BORROWER:

 

 

 

 

TAKE-TWO GB LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

GUARANTORS:

 

 

 

2K GAMES, INC.,

 

a Delaware corporation

 

2KSPORTS, INC.,

 

a Delaware corporation

 

FIRAXIS GAMES, INC.,

 

a Delaware corporation

 

FROG CITY SOFTWARE, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Vice President

 

Sixth Amendment to Second Amended and Restated Credit Agreement

 



 

 

2K PLAY, INC.,

 

a Delaware corporation

 

INDIE BUILT, INC.,

 

a Delaware corporation

 

INVENTORY MANAGEMENT SYSTEMS, INC.,

 

a Delaware corporation

 

KUSH GAMES, INC.,

 

a California corporation

 

2K VEGAS, INC.,

 

a Delaware corporation

 

TALONSOFT, INC.,

 

a Delaware corporation

 

VISUAL CONCEPTS ENTERTAINMENT,

 

a California corporation

 

VLM ENTERTAINMENT GROUP, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Vice President

 

Sixth Amendment to Second Amended and Restated Credit Agreement

 



 

 

ROCKSTAR SAN DIEGO, INC.,

 

a Virginia corporation

 

IRRATIONAL GAMES, LLC,

 

a Delaware limited liability company

 

ROCKSTAR GAMES, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Vice President

 

 

 

 

CAT DADDY GAMES, L.L.C.,

 

a Washington limited liability company

 

 

 

 

By:  Take-Two Interactive Software, Inc., its sole member

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Vice President

 

 

 

 

JOYTECH EUROPE LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

TAKE TWO INTERACTIVE SOFTWARE EUROPE LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

Sixth Amendment to Second Amended and Restated Credit Agreement

 



 

 

DMA DESIGN HOLDINGS LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

ROCKSTAR LINCOLN LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

ROCKSTAR LEEDS LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

ROCKSTAR LONDON LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

ROCKSTAR NORTH LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

Sixth Amendment to Second Amended and Restated Credit Agreement

 



 

 

ROCKSTAR INTERNATIONAL LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

VENOM GAMES LIMITED

 

a company incorporated under the laws of England and Wales

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

TAKE TWO INTERNATIONAL GMBH,

 

a company incorporated under the laws of Switzerland

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

2K MARIN, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

ROCKSTAR NEW ENGLAND, INC.,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Vice President

 



 

 

WEAZEL STUDIOS INCORPORATED ,

 

a Delaware corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

2K, INC.,

 

a New York corporation

 

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 

 

 

 

2K GAMES SOUNDS LLC,

 

a Delaware limited liability company

 

2K GAMES SONGS LLC,

 

a Delaware limited liability company

 

2K GAMES TUNES LLC,

 

a Delaware limited liability company

 

ROCKSTAR GAMES SONGS LLC,

 

a Delaware limited liability company

 

ROCKSTAR GAMES SOUNDS LLC,

 

a Delaware limited liability company

 

ROCKSTAR GAMES TUNES LLC,

 

a Delaware limited liability company

 

DOUBLE TAKE LLC,

 

a Delaware limited liability company

 

TAKE-TWO HOLDINGS LLC,

 

a Delaware limited liability company

 

TAKE-TWO HOLDINGS II LLC,

 

a Delaware limited liability company

 

 

 

By: Take-Two Interactive Software, Inc., the sole managing member

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

EVP and GC

 



 

 

TAKE-TWO INTERACTIVE SOFTWARE UK LIMITED,

 

a company incorporated under the laws of England and Wales

 

 

 

By:

/s/ Daniel Emerson

 

Name:

Daniel Emerson

 

Title:

Director

 



 

 

WELLS FARGO CAPITAL FINANCE, LLC,

 

a Delaware limited liability company, as Agent and as a Lender

 

 

 

 

By:

/s/ Andrea E. Bernard

 

Name:

Andrea E. Bernard

 

Title:

Managing Director

 



 

 

JPMORGAN CHASE BANK, N.A., as a Lender

 

 

 

 

By:

/s/ Thomas G. Williams

 

Name:

Thomas G. Williams

 

Title:

Authorized Officer

 




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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification

I, Strauss Zelnick, certify that:

        1.     I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 of Take-Two Interactive Software, Inc.;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

August 4, 2016   /s/ STRAUSS ZELNICK

Strauss Zelnick
Chairman and Chief Executive Officer



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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Section 302 Certification

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Section 302 Certification

I, Lainie Goldstein, certify that:

        1.     I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 of Take-Two Interactive Software, Inc.;

        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

August 4, 2016   /s/ LAINIE GOLDSTEIN

Lainie Goldstein
Chief Financial Officer



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CERTIFICATION OF CHIEF FINANCIAL OFFICER Section 302 Certification

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of Take-Two Interactive Software, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Strauss Zelnick, as Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

August 4, 2016   /s/ STRAUSS ZELNICK

Strauss Zelnick
Chairman and Chief Executive Officer



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CERTIFICATION PURSUANT TO 18 U. S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of Take-Two Interactive Software, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lainie Goldstein, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

August 4, 2016   /s/ LAINIE GOLDSTEIN

Lainie Goldstein
Chief Financial Officer



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CERTIFICATION PURSUANT TO 18 U. S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002