false--03-31Q120200000946581995000445000P2YP2Y0.010.01200000000200000000134602000135527000112181000113106000P5YP1YP1Y0.010.01500000050000000000P1Y2242100022421000 0000946581 2019-04-01 2019-06-30 0000946581 2019-07-24 0000946581 2019-03-31 0000946581 2019-06-30 0000946581 2018-04-01 2018-06-30 0000946581 2018-06-30 0000946581 2018-03-31 0000946581 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0000946581 us-gaap:RetainedEarningsMember 2018-03-31 0000946581 2019-04-01 0000946581 us-gaap:TreasuryStockMember 2018-06-30 0000946581 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0000946581 us-gaap:CommonStockMember 2018-03-31 0000946581 us-gaap:RetainedEarningsMember 2019-04-01 0000946581 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0000946581 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0000946581 us-gaap:TreasuryStockMember 2018-04-01 2018-06-30 0000946581 us-gaap:CommonStockMember 2018-06-30 0000946581 us-gaap:TreasuryStockMember 2018-03-31 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 0000946581 us-gaap:RetainedEarningsMember 2018-06-30 0000946581 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0000946581 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000946581 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0000946581 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0000946581 us-gaap:CommonStockMember 2019-06-30 0000946581 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000946581 us-gaap:TreasuryStockMember 2019-03-31 0000946581 us-gaap:CommonStockMember 2019-03-31 0000946581 us-gaap:TreasuryStockMember 2019-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000946581 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000946581 us-gaap:RetainedEarningsMember 2019-06-30 0000946581 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000946581 us-gaap:RetainedEarningsMember 2019-03-31 0000946581 srt:ScenarioPreviouslyReportedMember 2019-03-31 0000946581 srt:RestatementAdjustmentMember 2019-03-31 0000946581 ttwo:DigitalOnlineMember 2018-04-01 2018-06-30 0000946581 ttwo:DigitalOnlineMember 2019-04-01 2019-06-30 0000946581 ttwo:PhysicalRetailAndOtherMember 2019-04-01 2019-06-30 0000946581 ttwo:PhysicalRetailAndOtherMember 2018-04-01 2018-06-30 0000946581 ttwo:ConsoleMember 2019-04-01 2019-06-30 0000946581 ttwo:PCAndOtherProductsMember 2019-04-01 2019-06-30 0000946581 ttwo:PCAndOtherProductsMember 2018-04-01 2018-06-30 0000946581 ttwo:ConsoleMember 2018-04-01 2018-06-30 0000946581 us-gaap:NonUsMember 2018-04-01 2018-06-30 0000946581 country:US 2019-04-01 2019-06-30 0000946581 country:US 2018-04-01 2018-06-30 0000946581 us-gaap:NonUsMember 2019-04-01 2019-06-30 0000946581 ttwo:RecurrentCustomerSpendingMember 2018-04-01 2018-06-30 0000946581 ttwo:RecurrentCustomerSpendingMember 2019-04-01 2019-06-30 0000946581 ttwo:FullGameAndOtherMember 2019-04-01 2019-06-30 0000946581 ttwo:FullGameAndOtherMember 2018-04-01 2018-06-30 0000946581 2019-01-01 2019-06-30 0000946581 2019-06-30 0000946581 us-gaap:ProductMember 2019-04-01 2019-06-30 0000946581 us-gaap:ServiceOtherMember 2018-04-01 2018-06-30 0000946581 us-gaap:ProductMember 2018-04-01 2018-06-30 0000946581 us-gaap:ServiceOtherMember 2019-04-01 2019-06-30 0000946581 2019-07-01 2019-06-30 0000946581 ttwo:PerformanceBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 ttwo:MarketBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 ttwo:RCSMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 ttwo:IPMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 ttwo:IPMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 ttwo:TimeBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 ttwo:PerformanceBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 ttwo:RCSMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2018-04-01 2018-06-30 0000946581 ttwo:MarketBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 ttwo:TimeBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreementMarch2014Member 2019-04-01 2019-06-30 0000946581 ttwo:RestrictedStockAwardsMember ttwo:ManagementAgreement2017Member 2019-04-01 2019-06-30 0000946581 srt:MaximumMember us-gaap:RestrictedStockUnitsRSUMember ttwo:ManagementAgreement2017Member 2019-04-01 2019-06-30 0000946581 ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2017-11-01 2017-11-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2019-06-30 0000946581 ttwo:PerformanceBasedRestrictedUnitsMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2019-04-01 2019-06-30 0000946581 srt:MaximumMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2017-11-01 2017-11-30 0000946581 ttwo:ZelnickMediaCorporationMember 2018-04-01 2018-06-30 0000946581 ttwo:ZelnickMediaCorporationMember 2019-04-01 2019-06-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember 2019-04-01 2019-06-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember 2018-04-01 2018-06-30 0000946581 ttwo:MarketBasedRestrictedStockMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2019-04-01 2019-06-30 0000946581 us-gaap:RestrictedStockUnitsRSUMember ttwo:ZelnickMediaCorporationMember ttwo:ManagementAgreement2017Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2019-06-30 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:CorporateBondSecuritiesMember 2019-06-30 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateBondSecuritiesMember 2019-06-30 0000946581 us-gaap:ForeignExchangeForwardMember 2019-06-30 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:CurrencySwapMember 2019-06-30 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:CorporateBondSecuritiesMember 2019-06-30 0000946581 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:MoneyMarketFundsMember 2019-06-30 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel1Member 2019-06-30 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2019-06-30 0000946581 us-gaap:OtherAssetsMember 2019-06-30 0000946581 us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2019-06-30 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:CorporateBondSecuritiesMember 2019-06-30 0000946581 us-gaap:MoneyMarketFundsMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateBondSecuritiesMember 2019-03-31 0000946581 us-gaap:CurrencySwapMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:BankTimeDepositsMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:ForeignExchangeForwardMember 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:CorporateBondSecuritiesMember 2019-03-31 0000946581 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:BankTimeDepositsMember 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:BankTimeDepositsMember 2019-03-31 0000946581 us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel3Member us-gaap:CorporateBondSecuritiesMember 2019-03-31 0000946581 us-gaap:CurrencySwapMember us-gaap:FairValueInputsLevel1Member 2019-03-31 0000946581 us-gaap:OtherAssetsMember 2019-03-31 0000946581 us-gaap:FairValueInputsLevel2Member us-gaap:BankTimeDepositsMember 2019-03-31 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel3Member 2019-03-31 0000946581 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-03-31 0000946581 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:CommercialPaperMember 2019-06-30 0000946581 us-gaap:USTreasurySecuritiesMember 2019-06-30 0000946581 us-gaap:BankTimeDepositsMember 2019-06-30 0000946581 us-gaap:CorporateDebtSecuritiesMember 2019-06-30 0000946581 us-gaap:CommercialPaperMember 2019-03-31 0000946581 us-gaap:USTreasurySecuritiesMember 2019-03-31 0000946581 us-gaap:BankTimeDepositsMember 2019-03-31 0000946581 us-gaap:CorporateDebtSecuritiesMember 2019-03-31 0000946581 us-gaap:CurrencySwapMember us-gaap:CashFlowHedgingMember 2019-06-30 0000946581 ttwo:SoftwareInternalDevelopmentMember 2019-03-31 0000946581 ttwo:SoftwareInternalDevelopmentMember 2019-06-30 0000946581 ttwo:SoftwareExternalDevelopmentMember 2019-06-30 0000946581 ttwo:SoftwareExternalDevelopmentMember 2019-03-31 0000946581 ttwo:SoftwareLicensesMember 2019-06-30 0000946581 ttwo:SoftwareLicensesMember 2019-03-31 0000946581 us-gaap:LineOfCreditMember 2019-02-08 0000946581 ttwo:NewCreditAgreementMember us-gaap:BaseRateMember 2019-06-30 0000946581 us-gaap:LineOfCreditMember 2019-04-01 2019-06-30 0000946581 us-gaap:LineOfCreditMember 2018-04-01 2018-06-30 0000946581 srt:MaximumMember ttwo:NewCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-02-01 2019-02-08 0000946581 srt:MinimumMember ttwo:NewCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-02-01 2019-02-08 0000946581 ttwo:NewCreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-06-30 0000946581 srt:MaximumMember ttwo:NewCreditAgreementMember us-gaap:BaseRateMember 2019-02-01 2019-02-08 0000946581 us-gaap:LineOfCreditMember 2019-02-01 2019-02-08 0000946581 us-gaap:LetterOfCreditMember 2019-02-08 0000946581 srt:MinimumMember ttwo:NewCreditAgreementMember us-gaap:BaseRateMember 2019-02-01 2019-02-08 0000946581 us-gaap:LineOfCreditMember 2019-06-30 0000946581 us-gaap:LineOfCreditMember 2019-03-31 0000946581 us-gaap:RestrictedStockMember 2019-04-01 2019-06-30 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-06-30 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-04-01 2018-06-30 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2018-04-01 2018-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2018-06-30 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2018-04-01 2018-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2018-04-01 2018-06-30 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2018-03-31 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-03-31 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2018-03-31 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2018-06-30 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2018-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2018-03-31 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-06-30 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2019-04-01 2019-06-30 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-04-01 2019-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2019-04-01 2019-06-30 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2019-03-31 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2019-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2019-03-31 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2019-04-01 2019-06-30 0000946581 ttwo:AccumulatedNetGainLossfromCrossCurrencySwapMember 2019-06-30 0000946581 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-30 0000946581 us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember 2019-03-31 0000946581 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-03-31 0000946581 ttwo:Fiscal2018PlanMember 2019-04-01 2019-06-30 0000946581 us-gaap:OtherNoncurrentLiabilitiesMember ttwo:Fiscal2018PlanMember 2019-06-30 0000946581 ttwo:AccruedExpensesandOtherCurrentLiabilitiesMember ttwo:Fiscal2018PlanMember 2019-06-30 0000946581 srt:MaximumMember 2019-06-30 0000946581 srt:MinimumMember 2019-06-30 iso4217:USD xbrli:shares xbrli:pure iso4217:USD xbrli:shares

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to                              .

Commission file number 001-34003
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
51-0350842
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
110 West 44th Street
 
10036
New York
New York
 
(Zip Code)
 (Address of principal executive offices)
 
 
Registrant's Telephone Number, Including Area Code: (646536-2842
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $.01 par value
TTWO
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of July 24, 2019, there were 113,178,103 shares of the Registrant's Common Stock outstanding, net of treasury stock.

 




Table of Contents

INDEX

2
2
 
2
 
3
 
4
 
5
 
6
 
7
19
29
30
32
32
32
32
33
 
34


(All other items in this report are inapplicable)


1


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 
June 30, 2019
 
March 31, 2019
 
(Unaudited)
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
984,625

 
$
826,525

Short-term investments
557,653

 
744,485

Restricted cash
627,370

 
565,461

Accounts receivable, net of allowances of $445 and $995 at June 30, 2019 and March 31, 2019, respectively
352,625

 
395,729

Inventory
23,847

 
28,200

Software development costs and licenses
18,070

 
28,880

Deferred cost of goods sold
36,565

 
51,867

Prepaid expenses and other
220,324

 
186,688

Total current assets
2,821,079

 
2,827,835

Fixed assets, net
126,393

 
127,882

Right-of-use assets
124,859

 

Software development costs and licenses, net of current portion
633,597

 
603,436

Deferred cost of goods sold, net of current portion
525

 
1,028

Goodwill
391,404

 
381,717

Other intangibles, net
68,008

 
73,115

Deferred tax assets
108,979

 
134,732

Other assets
91,378

 
93,320

Total assets
$
4,366,222

 
$
4,243,065

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
55,379

 
$
72,797

Accrued expenses and other current liabilities
1,038,748

 
1,035,695

Deferred revenue
826,085

 
843,302

Lease liabilities
21,794

 

Total current liabilities
1,942,006

 
1,951,794

Non-current deferred revenue
22,097

 
21,058

Non-current lease liabilities
125,128

 

Other long-term liabilities
190,664

 
229,633

Total liabilities
$
2,279,895

 
$
2,202,485

Commitments and contingencies (See Note 13)


 


Stockholders' equity:
 

 
 

Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued and outstanding at June 30, 2019 and March 31, 2019

 

Common stock, $.01 par value, 200,000 shares authorized; 135,527 and 134,602 shares issued and 113,106 and 112,181 outstanding at June 30, 2019 and March 31, 2019, respectively
1,355

 
1,346

Additional paid-in capital
2,025,626

 
2,019,369

Treasury stock, at cost; 22,421 common shares at June 30, 2019 and March 31, 2019
(820,572
)
 
(820,572
)
Retained earnings
923,906

 
877,626

Accumulated other comprehensive loss
(43,988
)
 
(37,189
)
Total stockholders' equity
2,086,327

 
2,040,580

Total liabilities and stockholders' equity
$
4,366,222

 
$
4,243,065

   See accompanying Notes.

2


Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
 
Three Months Ended June 30,
 
2019
 
2018
Net revenue
$
540,459

 
$
387,982

Cost of goods sold
241,469

 
131,365

Gross profit
298,990

 
256,617

Selling and marketing
91,821

 
58,306

General and administrative
74,833

 
67,735

Research and development
68,963

 
50,712

Depreciation and amortization
11,257

 
9,260

Business reorganization
386

 
(242
)
Total operating expenses
247,260

 
185,771

Income from operations
51,730

 
70,846

Interest and other, net
10,425

 
6,601

Income before income taxes
62,155

 
77,447

Provision for income taxes
15,875

 
5,754

Net income
$
46,280

 
$
71,693

Earnings per share:
 

 
 

Basic earnings per share
$
0.41

 
$
0.63

Diluted earnings per share
$
0.41

 
$
0.62

 See accompanying Notes.

3


Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
 
Three Months Ended
June 30,
 
2019
 
2018
Net income
$
46,280

 
$
71,693

Other comprehensive income (loss):
 

 
 

Foreign currency translation adjustment
(8,797
)
 
(26,817
)
Cash flow hedges:
 
 
 
Change in unrealized gains (losses)
202

 
991

Reclassification to earnings
1,083

 

Tax effect on effective cash flow hedges
(9
)
 
133

Change in fair value of effective cash flow hedge
1,276

 
1,124

Available-for-sale securities:
 

 
 

Unrealized loss, net on available-for-sale securities, net of taxes
722

 
409

Change in fair value of available for sale securities
722

 
409

Other comprehensive loss
(6,799
)
 
(25,284
)
Comprehensive income
$
39,481

 
$
46,409

   
See accompanying Notes.

4



TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
 
Three Months Ended June 30,
 
2019
 
2018
Operating activities:
 

 
 

Net income
$
46,280

 
$
71,693

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

 
 

Amortization and impairment of software development costs and licenses
30,498

 
6,858

Depreciation
11,134

 
9,130

Amortization and impairment of intellectual property
5,560

 
6,861

Stock-based compensation
57,432

 
24,598

Other, net
1,321

 
(2,980
)
Changes in assets and liabilities:


 
 

Accounts receivable
44,041

 
61,355

Inventory
4,029

 
3,692

Software development costs and licenses
(56,968
)
 
(54,663
)
Prepaid expenses and other assets
(131,121
)
 
(21,464
)
Deferred revenue
(15,871
)
 
(95,075
)
Deferred cost of goods sold
15,619

 
8,409

Accounts payable, accrued expenses and other liabilities
96,581

 
(29,597
)
Net cash provided by (used in) operating activities
108,535

 
(11,183
)
Investing activities:
 

 
 

Change in bank time deposits
133,303

 
(29,840
)
Proceeds from available-for-sale securities
82,424

 
51,388

Purchases of available-for-sale securities
(28,248
)
 
(44,108
)
Purchases of fixed assets
(9,971
)
 
(14,289
)
Purchase of long-term investment
(2,000
)
 

Business acquisitions
(8,715
)
 
(3,149
)
Net cash provided by (used in) investing activities
166,793

 
(39,998
)
Financing activities:
 

 
 

Tax payment related to net share settlements on restricted stock awards
(52,118
)
 
(58,403
)
Repurchase of common stock

 
(153,500
)
Net cash used in financing activities
(52,118
)
 
(211,903
)
Effects of foreign currency exchange rates on cash and cash equivalents
(3,201
)
 
(9,103
)
Net change in cash, cash equivalents, and restricted cash
220,009

 
(272,187
)
Cash, cash equivalents, and restricted cash, beginning of year
1,391,986

 
1,246,371

Cash, cash equivalents, and restricted cash, end of period
$
1,611,995

 
$
974,184




See accompanying Notes.

5



TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
(in thousands)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders'
Equity
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
 
134,602

 
1,346

 
2,019,369

 
(22,421
)
 
(820,572
)
 
877,626

 
(37,189
)
 
2,040,580

Net income
 

 

 

 

 

 
46,280

 

 
46,280

Change in cumulative foreign currency translation adjustment
 

 

 

 

 

 

 
(8,797
)
 
(8,797
)
Change in unrealized gains on cash flow hedge, net
 

 

 

 

 

 

 
1,276

 
1,276

Net unrealized gain on available-for-sale securities, net of taxes
 

 

 

 

 

 

 
722

 
722

Stock-based compensation
 

 

 
53,251

 

 

 

 

 
53,251

Repurchased common stock
 

 

 

 

 

 

 

 

Issuance of restricted stock, net of forfeitures and cancellations
 
1,339

 
13

 
(13
)
 

 

 

 

 

Net share settlement of restricted stock awards
 
(476
)
 
(5
)
 
(52,113
)
 

 

 

 

 
(52,118
)
Employee share purchase plan settlement
 
62

 
1

 
5,132

 

 

 

 

 
5,133

Balance, June 30, 2019
 
135,527

 
$
1,355

 
$
2,025,626

 
(22,421
)
 
$
(820,572
)
 
$
923,906

 
$
(43,988
)
 
$
2,086,327



 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders'
Equity
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
 
132,743

 
1,327

 
1,888,039

 
(18,705
)
 
(458,180
)
 
73,516

 
(15,732
)
 
1,488,970

Net income
 

 

 

 

 

 
71,693

 

 
71,693

Change in cumulative foreign currency translation adjustment
 

 

 

 

 

 

 
(31,470
)
 
(31,470
)
Change in unrealized gains on cash flow hedge, net
 

 

 

 

 

 

 
1,125

 
1,125

Net unrealized gain on available-for-sale securities, net of taxes
 

 

 

 

 

 

 
409

 
409

Stock-based compensation
 

 

 
55,523

 

 

 

 

 
55,523

Repurchased common stock
 

 

 

 
(1,597
)
 
(153,500
)
 

 

 
(153,500
)
Issuance of restricted stock, net of forfeitures and cancellations
 
1,438

 
14

 
(14
)
 

 

 

 

 

Conversion of 1.00% Convertible Notes Due 2018
 
137

 
2

 
2,929

 

 

 

 

 
2,931

Net share settlement of restricted stock awards
 
(507
)
 
(5
)
 
(58,397
)
 

 

 

 

 
(58,402
)
Impact from adoption of New Revenue Accounting Standard
 

 

 

 

 

 
470,273

 
4,653

 
474,926

Balance, June 30, 2018
 
133,811

 
$
1,338

 
$
1,888,080

 
(20,302
)
 
$
(611,680
)
 
$
615,482

 
$
(41,015
)
 
$
1,852,205



See accompanying Notes.

6


Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except per share amounts)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware in 1993. We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. We develop and publish products through our labels Rockstar Games, 2K, and Private Division, as well as Social Point, a leading developer of mobile games. Our products are designed for console systems and personal computers, including smart phones and tablets, and are delivered through physical retail, digital download, online platforms, and cloud streaming services.
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 our opinion, 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 intercompany 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 ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. As permitted under U.S. GAAP, 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 U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), 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 fiscal year ended March 31, 2019.
Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.
Recently Adopted Accounting Pronouncements
Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases codified under Topic 842, Leases. The new lease accounting standard replaces all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease and to recognize a lease liability and a right-of-use (“ROU”) asset for its leases. On April 1, 2019, we adopted the new lease accounting standard using the alternative transition approach provided in ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which allows initial application of the new standard using the modified retrospective method.
As part of the adoption, the new lease accounting standard allows a number of practical expedients and exemptions. At transition, we elected the following:
The package of practical expedients, which allows us to carryforward our historical lease classification, assessment of whether a contract is or contains a lease and initial direct costs for any leases that exist prior to adoption of the new standard;
The practical expedient to not separate non-lease components from the related lease components; and
The exemption to not apply the balance sheet recognition requirements for leases with a lease term of 12 months or less and instead expense those costs on a straight-line basis over the lease term or in the period in which the obligation is incurred, if such costs are variable.
As a result of the adoption, we have updated our significant accounting policy disclosure as set forth below to include our accounting policy under Topic 842 for transactions from April 1, 2019 and thereafter: 

7



Leases
We determine if an arrangement is a lease at contract inception. If there is an identified asset in the contract (either explicitly or implicitly) and we have control over its use, the contract is (or contains) a lease. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement provides us with an asset that is physically distinct, or that represents substantially all of the capacity of the asset, and if we have the right to direct the use of the asset. Lease assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. Included in the lease liability are future lease payments that are fixed, in-substance fixed, or payments based on an index or rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as incurred. The operating lease ROU asset also includes any lease payments made prior to commencement, initial direct costs incurred, and lease incentives received. All ROU assets are reviewed for impairment.
As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of future lease payments. The incremental borrowing rate represents the rate required to borrow funds over a similar term to purchase the leased asset and is based on an unsecured borrowing rate and risk-adjusted to approximate a collateralized rate at the commencement date of the lease.
In determining our lease liability, the lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise such option. For operating leases, the lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease modifications result in remeasurement of the lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.
Impact of adoption
As a result of adopting Topic 842, the following adjustments, including reclassifying prepaid and deferred rent to ROU, were made to our Condensed Consolidated Balance Sheet at April 1, 2019:
 
 
March 31, 2019
 
Adjustments
 
April 1, 2019
ASSETS
 
 
 
 
 
 
Prepaid expenses and other
 
$
186,688

 
$
(792
)
 
$
185,896

Right-of-use assets
 
$

 
$
118,799

 
$
118,799

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Accrued expenses and other current liabilities
 
$
1,035,695

 
$
(2,976
)
 
$
1,032,719

Lease liabilities
 
$

 
$
18,937

 
$
18,937

Non-current lease liabilities
 
$

 
$
122,041

 
$
122,041

Other long-term liabilities
 
$
229,633

 
$
(19,995
)
 
$
209,638


The adoption of Topic 842 did not have an impact on our Condensed Consolidated Statements of Operation or Condensed Consolidated Statements of Cash Flows.
Recently Issued Accounting Pronouncements
Accounting for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning December 15, 2019 (April 1, 2020 for the Company), with early adoption permitted. Certain disclosures in ASU 2018-13 are required to be applied on a retrospective basis and others on a prospective basis. We are currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements.

8



2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of revenue
Product revenue
Product revenue is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e. upon delivery of the software product).
Service and other revenue
Service and other revenue is primarily comprised of revenue from game related services, virtual currency transactions, and in-game purchases which are recognized over an estimated service period.
Net revenue by product revenue and service and other was as follows:
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2019
 
2018
Net revenue recognized:
 
 
 
 
Service and other
 
424,385

 
309,187

Product
 
116,074

 
78,795

Total net revenue
 
$
540,459

 
$
387,982


Full game and other revenue
Full game and other revenue primarily includes the initial sale of full game software products, which may include offline and/or significant game related services.
Recurrent consumer spending revenue
Recurrent consumer spending revenue is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Net revenue by full game and other revenue and recurrent consumer spending was as follows:
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2019
 
2018
Net revenue recognized:
 
 
 
 
Recurrent consumer spending
 
314,858

 
241,030

Full game and other
 
225,601

 
146,952

Total net revenue
 
$
540,459

 
$
387,982




9



Geography
We attribute net revenue to geographic regions based on software product destination. Net revenue by geographic region was as follows:
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2019
 
2018
Net revenue recognized:
 
 
 
 
United States
 
$
330,479

 
$
221,411

International
 
209,980

 
166,571

Total net revenue
 
$
540,459

 
$
387,982


Platform
Net revenue by platform was as follows:
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2019
 
2018
Net revenue recognized:
 
 
 
 
Console
 
$
434,814

 
$
294,730

PC and other
 
105,645

 
93,252

Total net revenue
 
$
540,459

 
$
387,982


Distribution channel

Our products are delivered through digital online services (digital download, online platforms, and cloud streaming) and physical retail and other. Net revenue by distribution channel was as follows:
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2019
 
2018
Net revenue recognized:
 
 
 
 
Digital online
 
$
427,781

 
$
315,047

Physical retail and other
 
112,678

 
72,935

Total net revenue
 
$
540,459

 
$
387,982


Deferred Revenue
We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. Deferred revenue, including current and non-current balances as of June 30, 2019 and March 31, 2019 were $848,182 and $864,360, respectively. For the three months ended June 30, 2019, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.
During the three months ended June 30, 2019, $330,421 of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of June 30, 2019, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $1,042,083, which includes our deferred revenue balances and amounts to be invoiced and recognized in future periods. We expect to recognize approximately $958,985 of this balance as revenue over the next 12 months, and the remainder thereafter. This balance does not include an estimate for variable consideration arising from sales-based royalty license revenue in excess of the contractual minimum guarantee.
As of June 30, 2019 and March 31, 2019, our contract asset balances were $62,145 and $57,643, respectively, which are recorded within Prepaid expenses and other in our Condensed Consolidated Balance Sheets.

10



3. MANAGEMENT AGREEMENT
In November 2017, we entered into a new management agreement, (the "2017 Management Agreement"), with ZelnickMedia Corporation ("ZelnickMedia") that replaces our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia provides financial and management consulting services through March 31, 2024. The 2017 Management Agreement became effective January 1, 2018. As part of the 2017 Management Agreement, Strauss Zelnick, the President of ZelnickMedia, continues to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff, a partner of ZelnickMedia, continues to serve as President of the Company. The 2017 Management Agreement provides for an annual management fee of $3,100 over the term of the agreement and a maximum annual bonus opportunity of $7,440 over the term of the agreement, based on the Company achieving certain performance thresholds.
In consideration for ZelnickMedia's services, we recorded consulting expense (a component of General and administrative expenses) of $1,670 and $1,705 during the three months ended June 30, 2019 and 2018, respectively. We recorded stock-based compensation expense for restricted stock units granted to ZelnickMedia, which is included in General and administrative expenses of $5,545 and $4,517 during the three months ended June 30, 2019 and 2018, respectively.
In connection with the 2017 Management Agreement, we have granted restricted stock units as follows:
 
Three Months Ended June 30,
 
2019
 
2018
Time-based
92

 
86

Market-based(1)
168

 
158

Performance-based(1)
 

 
 

IP
28

 
27

Recurrent Consumer Spending ("RCS")
28

 
26

Total—Performance-based
56

 
53

Total Restricted Stock Units
316

 
297

_______________________________________________________________________________

(1)
Represents the maximum number of shares eligible to vest.
Time-based restricted stock units granted in fiscal 2020 will vest on April 13, 2021, and those granted in fiscal 2019 will vest on April 13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date.
Market-based restricted stock units granted in fiscal 2020 are eligible to vest on April 13, 2021, and those granted in fiscal 2019 are eligible to vest on April 13, 2020, in each case provided that the 2017 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 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.
Performance-based restricted stock units granted in fiscal 2020 are eligible to vest on April 13, 2021, and those granted in fiscal 2019 are eligible to vest on April 13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date. The performance-based restricted stock units, of which 50% are tied to "IP" and 50% to "RCS" (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 either individual product releases of "IP" or "RCS" 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). At the end of each reporting period, we assess the probability of each performance metric and upon determination that certain thresholds are probable, we record expense for the unvested portion of the shares of performance-based restricted stock units.
The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 613 and 526 as of June 30, 2019 and March 31, 2019, respectively. 209 restricted stock units previously granted to ZelnickMedia vested and 20 restricted stock units were forfeited by ZelnickMedia during the three months ended June 30, 2019.

11



4. FAIR VALUE MEASUREMENTS
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities, approximate fair value because of their short maturities.
We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.

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

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The table below segregates all assets and liabilities that are measured at fair value on a recurring basis (which is measured at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
 
June 30, 2019
 
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
$
284,236

 
$
284,236

 
$

 
$

 
Cash and cash equivalents
Bank-time deposits
150,000

 
150,000

 

 

 
Cash and cash equivalents
Commercial paper
180,196

 

 
180,196

 

 
Cash and cash equivalents
US Treasuries
24,987

 
24,987

 

 

 
Cash and cash equivalents
Corporate bonds
18,598

 

 
18,598

 

 
Cash and cash equivalents
Corporate bonds
260,752

 

 
260,752

 

 
Short-term investments
Bank-time deposits
254,417

 
254,417

 

 

 
Short-term investments
US Treasuries
35,448

 
35,448

 

 

 
Short-term investments
Commercial paper
7,036

 

 
7,036

 

 
Short-term investments
Money market funds
620,397

 
620,397

 

 

 
Restricted cash
Cross-currency swap
950

 

 
950

 

 
Prepaid expenses and other
Private equity
1,823

 

 

 
1,823

 
Other assets
Foreign currency forward contracts
(112
)
 

 
(112
)
 

 
Accrued expenses and other current liabilities
Total recurring fair value measurements, net
$
1,838,728

 
$
1,369,485

 
$
467,420

 
$
1,823

 
 

12



 
 
March 31, 2019
 
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
$
389,936

 
$
389,936

 
$

 
$

 
Cash and cash equivalents
Commercial paper
39,246

 

 
39,246

 

 
Cash and cash equivalents
US Treasuries
25,449

 
25,449

 

 

 
Cash and cash equivalents
Money market funds
565,461

 
565,461

 

 

 
Restricted cash
Bank-time deposits
387,720

 
387,720

 

 

 
Short-term investments
Corporate bonds
296,141

 

 
296,141

 

 
Short-term investments
US Treasuries
55,634

 
55,634

 

 

 
Short-term investments
Commercial paper
4,990

 

 
4,990

 

 
Short-term investments
 
 
 
 
 
 
 
 
 
 
Cross-currency swap
791

 

 
791

 

 
Prepaid expenses and other
Private equity
1,823

 

 

 
1,823

 
Other assets
Foreign currency forward contracts
(423
)
 

 
(423
)
 

 
Accrued and other current liabilities
Total recurring fair value measurements, net
$
1,766,768

 
$
1,424,200

 
$
340,745

 
$
1,823

 
 

We did not have any transfers between Level 1 and Level 2 fair value measurements, nor did we have any transfers into or out of Level 3 during the three months ended June 30, 2019.
5. SHORT-TERM INVESTMENTS
Our Short-term investments consisted of the following:
 
June 30, 2019
 
 
 
Gross
Unrealized
 
 
 
Cost or
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Short-term investments
 

 
 

 
 

 
 

Bank time deposits
$
254,417

 
$

 
$

 
$
254,417

Available-for-sale securities:
 

 
 

 
 

 
 

Corporate bonds
259,496

 
1,280

 
(25
)
 
260,751

US Treasuries
35,388

 
64

 
(3
)
 
35,449

Commercial paper
7,036

 

 

 
7,036

Total Short-term investments
$
556,337

 
$
1,344

 
$
(28
)
 
$
557,653

 

13



 
March 31, 2019
 
 
 
Gross
Unrealized
 
 
 
Cost or
Amortized Cost
 
Gains
 
Losses
 
Fair Value
Short-term investments
 

 
 

 
 

 
 

Bank time deposits
$
387,720

 
$

 
$

 
$
387,720

Available-for-sale securities:
 

 
 

 
 

 
 

Corporate bonds
295,526

 
742

 
(127
)
 
296,141

US Treasuries
55,656

 
27

 
(49
)
 
55,634

Commercial paper
4,990

 


 


 
4,990

Total short-term investments
$
743,892

 
$
769

 
$
(176
)
 
$
744,485


Based on our review of investments with unrealized losses, we did not consider these investments to be other-than-temporarily impaired as of June 30, 2019 or March 31, 2019. We do not intend to sell any of our investments with unrealized losses, nor is it more likely than not that we will be required to sell those investments.
The following table summarizes the contracted maturities of our short-term investments at June 30, 2019:
 
June 30, 2019
 
Amortized
Cost
 
Fair
Value
Short-term investments
 

 
 

Due in 1 year or less
$
468,915

 
$
469,523

Due in 1 - 2 years
87,422

 
88,130

Total short-term investments
$
556,337

 
$
557,653


6. 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 recognize derivative instruments as either assets or liabilities on our Consolidated Balance Sheets, and we measure those instruments at fair value. We classify cash flows from derivative transactions as cash flows from operating activities in our Consolidated Statements of Cash Flows.
Foreign currency forward contracts
The following table shows the gross notional amounts of foreign currency forward contracts:
 
June 30, 2019
 
March 31, 2019
Forward contracts to sell foreign currencies
$
72,538

 
$
116,590

Forward contracts to purchase foreign currencies
42,544

 
87,793


For the three months ended June 30, 2019 and 2018, we recorded a loss of $3,298 and a gain of $2,404, respectively, related to foreign currency forward contracts in Interest and other, net in our Condensed Consolidated Statements of Operations. Our foreign currency exchange forward contracts are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense. These instruments are generally short-term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.
Cross-currency swaps
We entered into a cross-currency swap agreement in August 2017 related to an intercompany loan that has been designated and accounted for as a cash flow hedge of foreign currency exchange risk. The intercompany loan is related to the acquisition of Social Point. As of June 30, 2019, the notional amount of the cross-currency swap is $115,641. This cross-currency swap mitigates the exposure to fluctuations in the U.S. dollar-euro exchange rate related to the intercompany loan. The critical terms of the cross-

14



currency swap agreement correspond to the intercompany loan and both mature at the same time in 2027; as such, there was no ineffectiveness during the period.
Changes in the fair value of this cross-currency swap are recorded in Accumulated other comprehensive income (loss) and offset the change in value of interest and principal payment as a result of changes in foreign exchange rates. Resulting gains or losses from the cross-currency swap are reclassified from Accumulated other comprehensive income (loss) to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan. We recognize the difference between the U.S. dollar interest payments received from the swap counterparty and the U.S. dollar equivalent of the euro interest payments made to the swap counterparty in Interest and other, net on our Consolidated Statement of Operations. There are no credit-risk related contingent features associated with these swaps.
7. INVENTORY
Inventory balances by category were as follows:
 
June 30, 2019
 
March 31, 2019
Finished products
$
21,267

 
$
24,847

Parts and supplies
2,580

 
3,353

Inventory
$
23,847

 
$
28,200


Estimated product returns included in inventory at June 30, 2019 and March 31, 2019 were $439 and $491, respectively.
8. SOFTWARE DEVELOPMENT COSTS AND LICENSES
Details of our capitalized software development costs and licenses were as follows:
 
June 30, 2019
 
March 31, 2019
 
Current
 
Non-current
 
Current
 
Non-current
Software development costs, internally developed
$
6,543

 
$
453,874

 
$
14,809

 
$
434,712

Software development costs, externally developed
3,574

 
175,537

 
3,655

 
168,381

Licenses
7,953

 
4,186

 
10,416

 
343

Software development costs and licenses
$
18,070

 
$
633,597

 
$
28,880

 
$
603,436


9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
 
June 30, 2019
 
March 31, 2019
 
 
 
 
Software development royalties
$
760,928

 
$
713,201

Compensation and benefits
65,324

 
73,695

Refund liability
53,724

 
65,853

Licenses
47,679

 
56,221

Marketing and promotions
31,235

 
42,390

Other
79,858

 
84,335

Accrued expenses and other current liabilities
$
1,038,748

 
$
1,035,695


10. DEBT
Credit Agreement
On February 8, 2019, we entered into an unsecured Credit Agreement (the “Credit Agreement”). The Credit Agreement runs through February 8, 2024. The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $200,000, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25,000 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros and Canadian Dollars in an aggregate principal amount of up to $25,000. In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $250,000 in term loans or revolving credit facilities.

15



Loans under the New Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (5.50% at June 30, 2019) or (b) 1.125% to 1.750% above LIBOR (approximately 2.40% at June 30, 2019), which rates are determined by reference to our consolidated total net leverage ratio. We had no outstanding borrowings at June 30, 2019.
Information related to availability on our Credit Agreement was as follows:
 
June 30, 2019
 
March 31, 2019
Available borrowings
$
198,336

 
$
198,336

Outstanding letters of credit
1,664

 
1,664


We recorded interest expense and fees related to the Credit Agreement of $82 for the three months ended June 30, 2019 and $110 for the three months ended June 30, 2018 under a prior credit arrangement, which was terminated on the same day that we entered into the Credit Agreement. The Credit Agreement also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, as well as limitations on us and each of our subsidiaries’ ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of its property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods).
11. EARNINGS PER SHARE ("EPS")
The following table sets forth the computation of basic and diluted earnings per share:
 
Three Months Ended June 30,
 
2019
 
2018
Computation of Basic earnings per share:
 

 
 

Net income
$
46,280

 
$
71,693

Weighted average shares outstanding—basic
112,621

 
112,941

Basic earnings per share
$
0.41

 
$
0.63

 
 
 
 
Computation of Diluted earnings per share:
 
 
 
Net income
$
46,280

 
$
71,693

Add: interest expense, net of tax, on Convertible Notes

 
95

Net income for diluted earnings per share calculation          
$
46,280

 
$
71,788

 
 
 
 
Weighted average shares outstanding—basic
112,621

 
112,941

Add: dilutive effect of common stock equivalents
1,107

 
3,044

Weighted average common shares outstanding—diluted
113,728

 
115,985

 
 
 
 
Diluted earnings per share
$
0.41

 
$
0.62


Certain of our unvested stock-based awards (including restricted stock units and restricted stock awards) are considered participating securities since these securities have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award and thus requires the two-class method of computing EPS. As of June 30, 2019, we have no material participating securities outstanding.
During the three months ended June 30, 2019, 1,338 restricted stock awards vested, we granted 700 unvested restricted stock awards, and 41 unvested restricted stock awards were forfeited.

16



12. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides the components of accumulated other comprehensive loss:
 
Three Months Ended June 30, 2019
 
Foreign
currency
translation
adjustments
 
Unrealized
gain (loss) on
forward contracts
 
Unrealized
gain (loss) on
cross-currency swap
 
Unrealized
gain (loss) on
available-for-
sales
securities
 
Total
Balance at March 31, 2019
$
(33,090
)
 
$
600

 
$
(5,285
)
 
$
586

 
$
(37,189
)
Other comprehensive income (loss) before reclassifications
(8,797
)
 


 
193

 
722

 
(7,882
)
Amounts reclassified from accumulated other comprehensive loss


 


 
1,083

 


 
1,083

Balance at June 30, 2019
$
(41,887
)
 
$
600

 
$
(4,009
)
 
$
1,308

 
$
(43,988
)

 
Three Months Ended June 30, 2018
 
Foreign
currency
translation
adjustments
 
Unrealized
gain (loss) on
derivative
instruments
 
Unrealized
gain (loss) on
cross-currency swap
 
Unrealized
gain (loss) on
available-for-
sales
securities
 
Total
Balance at March 31, 2018
$
(4,287
)
 
$
600

 
$
(10,191
)
 
$
(1,854
)
 
$
(15,732
)
Other comprehensive income (loss) before reclassifications
(26,817
)
 

 
9,585

 
409

 
(16,823
)
Amounts reclassified from accumulated other comprehensive loss

 

 
(8,460
)
 

 
(8,460
)
Balance at June 30, 2018
$
(31,104
)
 
$
600

 
$
(9,066
)
 
$
(1,445
)
 
$
(41,015
)


13. COMMITMENTS AND CONTINGENCIES
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, 2019, we did not have any significant changes to our commitments since March 31, 2019.
Legal and Other Proceedings
We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial condition or results of operations. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may be incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.
14. BUSINESS REORGANIZATION
In the first quarter of fiscal 2018, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2018 Plan"). In connection with this initiative, we recorded business reorganization expense of $386 during the three months ended June 30, 2019 due to updating estimates for employee separation costs and did not make any payments related to these reorganization activities. As of June 30, 2019, $3,698 remained accrued for in Accrued expenses and other current liabilities and $2,961 in Other non-current liabilities. Although we may record additional expense or benefit in future periods to true-up estimates, we do not expect to incur additional reorganization costs in connection with the 2018 Plan.
15. INCOME TAXES
The provision for income taxes for the three months ended June 30, 2019 is based on our projected annual effective tax rate for fiscal year 2020, adjusted for specific items that are required to be recognized in the period in which they are incurred. The provision for income taxes was $15,875 for the three months ended June 30, 2019 as compared to $5,754 for the prior year period.

17



When compared to the statutory rate of 21%, the effective tax rate of 25.5% for the three months ended June 30, 2019 was primarily due to a tax expense of $19,826 from the reversal of net deferred tax benefits relating to the Altera case discussed below, partially offset by a tax benefit of $11,601 from changes in unrecognized tax benefits due to audit settlements.
On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, which concluded that related parties in an intercompany cost-sharing arrangement are not required to share costs related to stock-based compensation. In February 2016, the U.S. Internal Revenue Service appealed the decision to the U.S Court of Appeals for the Ninth Circuit. On June 7, 2019, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court. As a result of this decision, we are no longer reflecting a net tax benefit within our financial statements related to the removal of stock-based compensation from our intercompany cost-sharing arrangement. During the three months ended June 30, 2019, we removed the deferred tax asset and a deferred tax liability associated with this matter from its financial statements, resulting in a cumulative net discrete income tax expense of $19,826. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit and may subsequently appeal from the Ninth Circuit to the Supreme Court. As a result, the final outcome of the case is uncertain. We will continue to monitor ongoing developments of this matter and potential impacts to our financial statements.
In addition, on June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, which overturned previous case law that precluded states from requiring retailers to collect and remit sales and use tax collection on sales made to in-state customers unless the retailer had physical presence in the state. Although this case is limited to sales tax collection obligations, we continue to monitor the potential impact of this decision on our state income tax footprint.
We are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or the expiration of the statute of limitations may have an impact on our effective tax rate in future periods.
16. LEASES
Our lease arrangements are primarily for (1) corporate, administrative, and development studio offices and (2) data centers and server equipment. Our existing leases have remaining lease terms ranging from one to fourteen years. In certain instances, such leases include one or more options to renew, with renewal terms that generally extend the lease term by one to five years for each option. The exercise of lease renewal options is generally at our sole discretion. Additionally, the majority of our leases are classified as operating leases.
Information related to our operating leases are as follows:
 
 
Three Months Ended
June 30, 2019
Lease costs
 
 
Operating lease costs
 
7,008

Short term lease costs
 
673

Supplemental Operating Cash Flows Information
 
 
Cash paid for amounts included in the measurement of lease liabilities
 
6,551

ROU assets obtained in exchange for lease obligations
 
11,625

Weighted Average Lease terms and discount rates
 
 
Remaining lease term
 
8.1

Discount rate
 
5.0
%


18



Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at June 30, 2019, are as follows:
For the years ending March 31,
 
 
Remaining 2020
 
$
20,938

2021
 
30,305

2022
 
28,724

2023
 
24,507

2024
 
17,260

Thereafter
 
58,815

Total future lease payments
 
180,549

Less imputed interest
 
(33,627
)
Total lease liabilities
 
$
146,922




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," "should" "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including those contained herein, in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2019, 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, 2019.
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 labels Rockstar Games, 2K, and Private Division, as well as Social Point, a leading developer of mobile games. Our products are currently designed for console gaming systems such as Sony's PlayStation®4 ("PS4") or Microsoft's 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 virtual currency, add-on content, and in-game purchases. 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

19


Table of Contents

that we serve, ranging from adults to children and game enthusiasts to casual gamers. Another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on platforms and through channels that are relevant to our target audience.
Our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third parties. Operating margins are dependent in part upon our ability to release new, commercially successful software products and to manage effectively their development and marketing costs. We have internal development studios located in Australia, Canada, China, Czech Republic, Hungary, India, Spain, 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 Redemption, and other popular franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands. We believe that Rockstar Games has established a uniquely original, popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over 300 million units. The latest installment, Grand Theft Auto V, has sold in over 110 million units worldwide and includes access to Grand Theft Auto Online. On October 26, 2018, Rockstar Games launched Red Dead Redemption 2, which has been a critical and commercial success that set numerous entertainment industry records. To date, Red Dead Redemption 2 has sold-in more than 24 million units worldwide. Rockstar Games is also well known for developing brands in other genres, including the L.A. Noire, Bully, and Manhunt franchises. Rockstar Games continues to expand on our established franchises by developing sequels, offering downloadable episodes, content, and virtual currency, and releasing titles for smartphones and tablets.
Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports and family/casual entertainment. We expect 2K to continue to develop new, successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock, Mafia, Sid Meier's Civilization and XCOM series. 2K also publishes externally developed brands, such as Borderlands. 2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, the WWE 2K professional wrestling series, and the Golf Club.
Our Private Division label is dedicated to bringing titles from top independent developers to market. Private Division will publish three upcoming titles based on new IP from renowned industry creative talent, including The Outer Worlds and Ancestors: The Humankind Odyssey, which are planned for release in fiscal year 2020, and Disintegration, which is planned for release in fiscal year 2021. Additionally, Private Division is the publisher of Kerbal Space Program.
Social Point develops and publishes popular free-to-play mobile games that deliver high-quality, deeply-engaging entertainment experiences, including its two most successful games, Dragon City and Monster Legends. In addition, Social Point has a robust development pipeline with a number of exciting games planned for launch in the coming years.
We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing products and 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. NBA 2K Online, our free-to-play NBA simulation game, which was co-developed by 2K and Tencent, is the top online PC sports game in China with over 46 million registered users. On August 2, 2018, 2K and Tencent commercially launched NBA 2K Online 2 in China. The title is based on the console edition of NBA 2K and includes an array of new features.
In February 2017, we expanded our relationship with the NBA through the creation of the NBA 2K League. Launched in May 2018, this groundbreaking competitive gaming league is jointly owned by us and the NBA and consists of teams operated by actual NBA franchises. The NBA 2K League follows a professional sports league format: the inaugural season included head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up that was held in August 2018. The NBA 2K League began its second season on April 2, 2019.
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 28% of our net revenue for the three months ended June 30, 2019. In October 2018, we released Red Dead Redemption 2. Sales of Red Dead Redemption products generated 16% of our net revenue for the three months ended June 30, 2019. The timing of our Grand Theft Auto or Red Dead Redemption 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,

20


Table of Contents

and foreign currency exchange rates. Our business is dependent upon a limited number of customers that account for a significant portion of our revenue. Our five largest customers accounted for 79.8% and 78.7% of net revenue during the three months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and March 31, 2019, our five largest customers comprised 71.6% and 66.6% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 61.1% and 55.8% of such balance at June 30, 2019 and March 31, 2019, respectively. We had two customers who accounted for 41.8% and 19.3%, respectively, of our gross accounts receivable as of June 30, 2019 and two customers who accounted for 40.1% and 15.7%, respectively, of our gross accounts receivable as of March 31, 2019. 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 online and 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 software products made for video game consoles manufactured by third parties, such as Sony's PS4 and Microsoft's Xbox One, which comprised 76.0% of our net revenue by product platform for the three months ended June 30, 2019. The success of our business is dependent upon the consumer acceptance of these platforms 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. Accordingly, our strategy is to focus our development efforts on a select number of the highest quality titles for these platforms, while also expanding our offerings for emerging platforms such as tablets, smartphones and online games.
Online Content and Digital Distribution.    The interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods. We provide a variety of online delivered products and offerings. Virtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from websites we own and others owned by third parties) as well as a larger selection of our catalog titles. In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending, which is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases. We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download. Our "Results of Operations" discloses that net revenue from digital online channels comprised 81.2% of our net revenue by distribution channel for the three months ended June 30, 2019. 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, 2019:
Title
Publishing
Label
 
Internal or External
Development
 
Platform(s)
 
Date Released
Borderlands: Game of the Year Edition
2K
 
External
 
PS4, Xbox One, PC
 
April 3, 2019
NBA 2K Mobile
2K
 
Internal
 
Android
 
April 17, 2019

21


Table of Contents

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
Ancestors: The Humankind Odyssey
Private Division
 
External
 
PC (digital only)
 
August 27, 2019
NBA 2K20
2K
 
Internal
 
PS4, Xbox One, PC
 
September 6, 2019
Borderlands 3
2K
 
Internal / External
 
PS4, Xbox One, PC
 
September 13, 2019
WWE 2K20
2K
 
Internal
 
PS4, Xbox One, PC
 
October 22, 2019
The Outer Worlds
Private Division
 
External
 
PS4, Xbox One, PC
 
October 25, 2019
Borderlands 3
2K
 
Internal / External
 
Google Stadia
 
November 2019
NBA 2K20
2K
 
Internal
 
Google Stadia
 
November 2019
Ancestors: The Humankind Odyssey
Private Division
 
External
 
PS4, Xbox One
 
December 2019
Disintegration
Private Division
 
External
 
TBA
 
Fiscal 2021


22



Critical Accounting Policies and Estimates
Our most critical accounting policies, which are those that require significant judgment, include revenue recognition; price protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates including valuation of goodwill, intangible assets, and long-lived assets; valuation and recognition of stock-based compensation; and income taxes. In-depth descriptions of these can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.
During the three months ended June 30, 2019, there were no significant changes to the above critical accounting policies and estimates, with the exception of our adoption of Topic 842, Leases. Refer to Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements for disclosures regarding our updated lease accounting policies.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 1 - Basis of Presentation and Significant Accounting Policies for further discussion.

Operating Metric

Net Bookings

We monitor Net Bookings as a key operating metric in evaluating the performance of our business. Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period and includes licensing fees, merchandise, in-game advertising, strategy guides, and publisher incentives. Net Bookings were as follows:

 
 
Three Months Ended June 30,
 
 
2019
 
2018
 
Increase/
(decrease)
 
% Increase/
(decrease)
Net Bookings
 
$
422,240

 
$
288,325

 
$
133,915

 
46.4
%
For the three months ended June 30, 2019, Net Bookings increased by $133.9 million as compared to the prior year period due primarily to our NBA 2K franchise, our Borderlands franchise, and Red Dead Redemption 2 and Red Dead Online.
Results of Operations
The following tables set forth, for the periods indicated, our Condensed Consolidated Statements of Operations, net revenue by geographic region, net revenue by platform, net revenue by distribution channel, and net revenue by content type:
 
Three Months Ended June 30,
(thousands of dollars)
2019
 
2018
Net revenue
$
540,459

 
100.0
%
 
$
387,982

 
100.0
 %
Cost of goods sold
241,469

 
44.7
%
 
131,365

 
33.9
 %
Gross profit
298,990

 
55.3
%
 
256,617

 
66.1
 %
Selling and marketing
91,821

 
17.0
%
 
58,306

 
15.0
 %
General and administrative
74,833

 
13.8
%
 
67,735

 
17.5
 %
Research and development
68,963

 
12.8
%
 
50,712

 
13.1
 %
Depreciation and amortization
11,257

 
2.1
%
 
9,260

 
2.4
 %
Business reorganization
386

 
0.1
%
 
(242
)
 
(0.1
)%
Total operating expenses
247,260

 
45.8
%
 
185,771

 
47.9
 %
Income from operations
51,730

 
9.6
%
 
70,846

 
18.3
 %
Interest and other, net
10,425

 
1.9
%
 
6,601

 
1.7
 %
Income before income taxes
62,155

 
11.5
%
 
77,447

 
20.0
 %
Provision for income taxes
15,875

 
2.9
%
 
5,754

 
1.5
 %
Net income
$
46,280

 
8.6
%
 
$
71,693

 
18.5
 %

23



 
Three Months Ended June 30,
 
2019
 
2018
Net revenue by geographic region:
 
 
 
 
 
 
 
United States
$
330,479

 
61.1
%
 
$
221,411

 
57.1
%
International
209,980

 
38.9
%
 
166,571

 
42.9
%
Net revenue by platform:
 
 
 
 
 
 
 
Console
$
434,814

 
80.5
%
 
$
294,730

 
76.0
%
PC and other
105,645

 
19.5
%
 
93,252

 
24.0
%
Net revenue by distribution channel:
 
 
 
 
 
 
 
Digital online
$
427,781

 
79.2
%
 
$
315,047

 
81.2
%
Physical retail and other
112,678

 
20.8
%
 
72,935

 
18.8
%
Net revenue by content:
 
 
 
 
 
 
 
Full game and other
$
225,601

 
41.7
%
 
$
146,952

 
37.9
%
Recurrent consumer spending
314,858

 
58.3
%
 
241,030

 
62.1
%
Three Months Ended June 30, 2019 Compared to June 30, 2018
(thousands of dollars)
2019
 
%
 
2018
 
%
 
Increase/
(decrease)
 
% Increase/
(decrease)
Net revenue
$
540,459

 
100.0
%
 
$
387,982

 
100.0
%
 
$
152,477

 
39.3
%
Internal royalties
62,889

 
11.6
%
 
53,167

 
13.7
%
 
9,722

 
18.3
%
Software development costs and royalties(1)
108,441

 
20.1
%
 
29,788

 
7.7
%
 
78,653

 
264.0
%
Product costs
47,635

 
8.8
%
 
38,141

 
9.8
%
 
9,494

 
24.9
%
Licenses
22,504

 
4.2
%
 
10,269

 
2.6
%
 
12,235

 
119.1
%
Cost of goods sold
241,469

 
44.7
%
 
131,365

 
33.9
%
 
110,104

 
83.8
%
Gross profit
$
298,990

 
55.3
%
 
$
256,617

 
66.1
%
 
$
42,373

 
16.5
%
_______________________________________________________________________________
(1)
Includes $30,798 and $3,969 of stock-based compensation expense in 2019 and 2018, respectively, in software development costs and royalties.
For the three months ended June 30, 2019, net revenue increased by $152.5 million as compared to the prior year period. The increase was due to (i) an increase of $84.5 million in net revenue from Red Dead Redemption 2 and Red Dead Online, which released in October 2018, (ii) an increase of $63.3 million in net revenue from our NBA 2K franchise, and (iii) an increase of $32.8 million in net revenue from our Borderlands franchise, partially offset by a decrease in net revenue of $32.4 million from Grand Theft Auto V and Grand Theft Auto Online.
Net revenue from console games increased by $140.1 million and accounted for 80.5% of our total net revenue for the three months ended June 30, 2019, as compared to 76.0% for the prior year period. The increase was due to an increase in net revenue from Red Dead Redemption 2 and Red Dead Online, our NBA 2K franchise, and our Borderlands franchise. These increases were partially offset by a decrease in net revenue from Grand Theft Auto V and Grand Theft Auto Online. Net revenue from PC and other increased by $12.4 million and accounted for 19.5% of our total net revenue for the three months ended June 30, 2019, as compared to 24.0% for the prior year period. The increase was due to an increase in net revenue from our Borderlands, Civilization, and WWE 2K franchises, partially offset by a decrease in net revenue from Grand Theft Auto V and Grand Theft Auto Online.
Net revenue from digital online channels increased by $112.7 million and accounted for 79.2% of our total net revenue for the three months ended June 30, 2019, as compared to 81.2% for the prior year period. The increase was due to an increase in net revenue from our NBA 2K franchise, Red Dead Redemption 2 and Red Dead Online, and our Borderlands franchise, partially offset by a decrease in net revenue from Grand Theft Auto Online. Net revenue from physical retail and other channels increased by $39.7 million and accounted for 20.8% of our total net revenue for the three months ended June 30, 2019, as compared to 18.8% for the same period in the prior year period. The increase in net revenue from physical retail and other channels was due to an increase in net revenue from Red Dead Redemption 2, net revenue from Grand Theft Auto Online, and net revenue from our Borderlands franchise, partially offset by a decrease in net revenue from Grand Theft Auto V.
Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases. Net revenue from recurrent consumer spending increased by $73.8 million and accounted for 58.3% of net revenue for the three months ended June 30, 2019, as compared to 62.1% of net revenue for the prior

24



year period. The increase in net revenue from recurrent consumer spending is due to an increase in net revenue from our NBA 2K franchise, our Borderlands franchise, Red Dead Redemption 2 and Red Dead Online, our Civilization franchise, Grand Theft Auto V, and our WWE 2K franchise, partially offset by a decrease in net revenue from Grand Theft Auto Online. Net revenue from full game and other increased by $78.6 million and accounted for 41.7% of net revenue for the three months ended June 30, 2019 as compared to 37.9% of net revenue for the prior year period. The increase in net revenue from full game and other was due to an increase in net revenue from Red Dead Redemption 2, our Borderlands franchise, other net revenue from Grand Theft Auto Online, and our NBA 2K franchise, partially offset by a decrease in net revenue from Grand Theft Auto V.
Gross profit as a percentage of net revenue for the three months ended June 30, 2019 was 55.3% as compared to 66.1% for the prior year period. The decrease in gross profit as a percentage of net revenue was due to higher amortization of capitalized software costs as a percentage of net revenue, partially offset by lower royalties as a percentage of net revenue due to the timing of when royalties are earned.
Net revenue earned outside of the United States increased by $43.4 million and accounted for 38.9% of our total net revenue for the three months ended June 30, 2019, as compared to 42.9% in the prior year period. The increase in net revenue outside of the United States was due to an increase in net revenue from Red Dead Redemption 2 and Red Dead Online, our Borderlands franchise, and our NBA 2K franchise, partially offset by a decrease in net revenue from Grand Theft Auto V and Grand Theft Auto Online. Changes in foreign currency exchange rates decreased net revenue by $3.4 million and decreased gross profit by $0.9 million for the three months ended June 30, 2019 as compared to the prior year period.
Operating Expenses
(thousands of dollars)
2019
 
% of net
revenue
 
2018
 
% of net revenue
 
Increase/
(decrease)
 
% Increase/
(decrease)
Selling and marketing
$
91,821

 
17.0
%
 
$
58,306

 
15.0
 %
 
$
33,515

 
57.5
 %
General and administrative
74,833

 
13.8
%
 
67,735

 
17.5
 %
 
7,098

 
10.5
 %
Research and development
68,963

 
12.8
%
 
50,712

 
13.1
 %
 
18,251

 
36.0
 %
Depreciation and amortization
11,257

 
2.1
%
 
9,260

 
2.4
 %
 
1,997

 
21.6
 %
Business reorganization
386

 
0.1
%
 
(242
)
 
(0.1
)%
 
628

 
(259.5
)%
Total operating expenses(1)
$
247,260

 
45.8
%
 
$
185,771

 
47.9
 %
 
$
61,489

 
33.1
 %
_______________________________________________________________________________

(1)
Includes stock-based compensation expense, which was allocated as follows (in thousands):
 
2019
 
2018
Selling and marketing
6,476

 
4,774

General and administrative
$
13,567

 
$
11,518

Research and development
6,591

 
4,337

Changes in foreign currency exchange rates decreased total operating expenses by $3.3 million for the three months ended June 30, 2019, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses increased by $33.5 million for the three months ended June 30, 2019, as compared to the prior year period, due primarily to higher advertising expenses for Red Dead Online and our Borderlands franchise. The increase was also due to higher personnel expenses due to increased headcount.
General and administrative
General and administrative expenses increased by $7.1 million for the three months ended June 30, 2019, as compared to the prior year period, due to increases in (i) IT-related expenses for cloud-based services and (ii) personnel expenses for additional headcount.
General and administrative expenses for the three months ended June 30, 2019 and 2018 included occupancy expense (primarily rent, utilities and office expenses) of $6.1 million and $5.3 million, respectively, related to our development studios.
Research and development
Research and development expenses increased by $18.3 million for the three months ended June 30, 2019, as compared to the prior year period, due primarily to an increase in production and development expenses for titles for which technological feasibility has not been established.

25



Depreciation and Amortization
Depreciation and amortization expenses increased by $2.0 million for the three months ended June 30, 2019 as compared to the prior year period, due primarily to IT infrastructure.
Business reorganization
During the three months ended June 30, 2019, business reorganization expense increased $0.6 million as a result of updating estimates for our 2018 Plan, which resulted in expense in the current period as compared to a benefit in the prior year period.
Interest and other, net
Interest and other, net was income of $10.4 million for the three months ended June 30, 2019, as compared to $6.6 million for the prior year period. The change was due primarily to higher interest income due to the nature of our investments, higher invested balances, and the rise in interest rates on those investments, partially offset by foreign currency losses.
Provision for Income Taxes
The provision for income taxes for the three months ended June 30, 2019 is based on our projected annual effective tax rate for fiscal year 2020, adjusted for specific items that are required to be recognized in the period in which they are incurred. The provision for income taxes was $15.9 million for the three months ended June 30, 2019 as compared to a provision for income taxes of $5.8 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of 25.5% for the three months ended June 30, 2019 was primarily due to a tax expense of $19.8 million from the reversal of deferred tax benefits relating to the Altera case, discussed below, partially offset by a tax benefit of $11.6 million from changes in unrecognized tax benefits due to audit settlements.
In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 7.4% for the three months ended June 30, 2018 was primarily due to a tax benefit of $6.6 million as a result of tax credits anticipated to be utilized, a net tax benefit of $5.5 million for excess tax benefits from employee stock compensation, a tax benefit of $5.5 million as a result of changes in our valuation allowance relating to temporary items and tax carryforwards anticipated to be utilized, and offset by a tax provision of $3.4 million due to the geographic mix of earnings. To a lesser extent, our rate was also affected by the Tax Cuts and Jobs Act, enacted on December 22, 2017, due to a net tax provision of $2.4 million.
The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to decreased benefits from excess tax benefits from employee stock-based compensation, tax credits, and changes in our valuation allowance as well as a discrete tax benefit recorded from changes in unrecognized tax benefits due to settlement of audits, and increased tax expense relating to the Altera case, discussed below. To a lesser extent, the effective tax rate was impacted period to period due to geographic mix of earnings.
We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
The accounting for share-based compensation will increase or decrease our effective tax rate based on the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting. Since we recognize excess tax benefits on a discrete basis, we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price in each period.
On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, which concluded that related parties in an intercompany cost-sharing arrangement are not required to share costs related to stock-based compensation. In February 2016, the U.S. Internal Revenue Service appealed the decision to the U.S Court of Appeals for the Ninth Circuit. On June 7, 2019, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court. As a result of this decision, we are no longer reflecting a tax benefit within our financial statements related to the removal of stock-based compensation from our intercompany cost-sharing arrangement. During the three months ended June 30, 2019, we removed the deferred tax asset and a deferred tax liability associated with this matter from its financial statements, resulting in a cumulative net discrete income tax expense of $19,826. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit and may subsequently appeal from the Ninth Circuit to the Supreme Court. As a result, the final outcome of the case is uncertain. We will continue to monitor ongoing developments of this matter and potential impacts to our financial statements.

26




In addition, on June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, which overturned previous case law that precluded states from requiring retailers to collect sales tax on sales made to in-state customers unless the retailer had physical presence in the state. Although this case is limited to sales tax collection obligations, we continue to monitor the potential impact of this decision on our state income tax footprint.
Net income and earnings per share
For the three months ended June 30, 2019, net income was $46.3 million, as compared to $71.7 million in the prior year period. Diluted earnings per share for the three months ended June 30, 2019, was $0.41, as compared to diluted earnings per share of $0.62 in the prior year period. Diluted weighted average shares of 113.7 million were 2.3 million shares lower as compared to the prior year period, due primarily to repurchases in the last three quarters of fiscal 2019. See Note 11 to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.
Liquidity and Capital Resources
Our primary cash requirements have been to fund (i) the development, manufacturing, and marketing of our published products, (ii) working capital, (iii) acquisitions, and (iv) capital expenditures. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our Credit Agreement to satisfy our working capital needs.
Short-term Investments
As of June 30, 2019, we had $557.7 million of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations. From time to time, we may purchase additional short-term investments depending on future market conditions and liquidity needs.
Credit Agreement
On February 8, 2019, we entered into an unsecured Credit Agreement (the “Credit Agreement”). The Credit Agreement runs through February 8, 2024. The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $200 million, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $25 million and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros and Canadian Dollars in an aggregate principal amount of up to $25 million. In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional $250 million in term loans or revolving credit facilities.
Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (5.50% at June 30, 2019) or (b) 1.125% to 1.750% above LIBOR (approximately 2.40% at June 30, 2019), which rates are determined by reference to our consolidated total net leverage ratio.
As of June 30, 2019, there was $198.3 million available to borrow under the Credit Agreement and we had $1.7 million of letters of credit outstanding. At June 30, 2019, we had no outstanding borrowings under the Credit Agreement.
The Credit Agreement also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, as well as limitations on the Company’s and each of its subsidiaries’ ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of its property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods).
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.

27



A majority of our trade receivables are derived from sales to major retailers and distributors. Our five largest customers accounted for 79.8% and 78.7% of net revenue during the three months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and March 31, 2019, five customers accounted for 71.6% and 66.6% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 61.1% and 55.8% of such balances at June 30, 2019 and March 31, 2019, respectively. We had two customers who accounted for 41.8% and 19.3% of our gross accounts receivable as of June 30, 2019, respectively, and two customers who accounted for 40.1% and 15.7% of our gross accounts receivable as of March 31, 2019, respectively. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's credit worthiness and economic conditions that may affect our customers' business and access to capital. 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 and cash equivalents, short-term investments and projected cash flows 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, 2019, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $408.8 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 for the foreseeable future to have the ability to generate sufficient cash domestically to support ongoing operations.
Our Board of Directors has authorized the repurchase of up to 14,218 shares of our common stock. Under this program, we may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program may be suspended or discontinued at any time for any reason.
During the three months ended June 30, 2019, we did not make any repurchases of our common stock in the open market. We have repurchased a total of 10,400 shares of our common stock under the program, and as of June 30, 2019, 3,818 shares of our common stock remain available for repurchase under the share repurchase program.
Our changes in cash flows were as follows:
 
Three Months Ended
June 30,
(thousands of dollars)
2019
 
2018
Net cash provided by (used in) operating activities
$
108,535

 
$
(11,183
)
Net cash provided by (used in) investing activities
166,793

 
(39,998
)
Net cash used in financing activities
(52,118
)
 
(211,903
)
Effects of foreign currency exchange rates on cash and cash equivalents
(3,201
)
 
(9,103
)
Net change in cash, cash equivalents, and restricted cash
$
220,009

 
$
(272,187
)
At June 30, 2019, we had $1,612.0 million of cash and cash equivalents and restricted cash, compared to $1,392.0 million at March 31, 2019. The increase was due to (a) Net cash provided by investing activities, primarily related to changes in bank time deposits and net proceeds from available-for-sale securities, partially offset by purchases of fixed assets and business acquisitions, and (b) Net cash provided by operating activities from sales of our products, partially offset by investments in software development and licenses. These net increases were offset by Net cash used in financing activities, which was primarily for tax payments related to net share settlements of our restricted stock awards.
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, 2019, we did not have any significant changes to our commitments since March 31, 2019.
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

28



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.
Off-Balance Sheet Arrangements
As of June 30, 2019 and March 31, 2019, 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, 2019 and 2018, 38.9% and 42.9%, 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, we allocate a portion of the amount to be recognized as revenue over an estimated service period, which generally ranges from 9 to 15 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.
As of June 30, 2019, we had $557.7 million of short-term investments, which included $303.2 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 $984.6 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 Condensed Consolidated Financial Statements or liquidity as of June 30, 2019.
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 0.750% above a certain base rate (5.50% at June 30, 2019), or (b) 1.125% to 1.750% above the LIBOR rate (approximately 2.40% at June 30, 2019), 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.

29



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, 2019 and 2018, our foreign currency translation adjustment was a loss of $8.8 million and $26.8 million, respectively. For the three months ended June 30, 2019 and 2018, we recognized a foreign currency exchange transaction loss of $1.0 million and a gain of $1.5 million respectively, included 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 intercompany 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, 2019, we had $72.5 million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $42.5 million of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars, all of which have maturities of less than one year. At March 31, 2019, we had $116.6 million of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $87.8 million of forward contracts outstanding to buy 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, 2019 and 2018, we recorded a loss of $3.3 million and a gain of $2.4 million, respectively. As of June 30, 2019, the fair value of these outstanding forward contracts was an immaterial gain and was included in Prepaid expenses and other, and, as of March 31, 2019, the fair value of outstanding forward contracts was an immaterial loss and was included in Other assets. 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, 2019, 38.9% 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 3.9%, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenues by 3.9%. In our opinion, 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, 2019, 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. The adoption of Topic 842: Leases required the implementation of new controls and the modification of certain accounting processes related to lease accounting. The impact of these changes was not material to our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility

30



of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.

31



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.
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, 2019.
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 shares of our common stock. On May 13, 2015, our Board of Directors approved an increase of 6,718 shares to our share repurchase program, increasing the total number of shares that we are permitted to repurchase to 14,218 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. During the three months ended June 30, 2019, we did not make any repurchases of our common stock in the open market. As of June 30, 2019, we have repurchased a total of 10,400 shares of our common stock under this program and 3,818 shares of common stock remain available for repurchase under our share repurchase program. The table below details the share repurchases made by us during the three months ended June 30, 2019:
Period
 
Shares
purchased
 
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, 2019
 

 
$

 

 
3,818

May 1-31, 2019
 

 
$

 

 
3,818

June 1-30, 2019
 

 
$

 

 
3,818

_______________________________________________________________________________



32


Table of Contents

Item 6.    Exhibits
Exhibits:
 
3.1

10.1

31.1

31.2

32.1

32.2

101.INS

The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH

Inline XBRL Taxonomy Extension Schema Document
101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB

Inline XBRL Taxonomy Label Linkbase Document
101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document
101.DEF

Inline XBRL Taxonomy Extension Definition Document
* Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).
________________________________________________________________________________________________________________________________
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2019 and March 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018, (v) Condensed Consolidated Statements of Stockholders' Equity for the three months ended June 30, 2019 and 2018; and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

33



________________________________________________________________________________________________________________________________
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 5, 2019
By:
/s/ STRAUSS ZELNICK
 
 
 
Strauss Zelnick
Chairman and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
Date:
August 5, 2019
By:
/s/ LAINIE GOLDSTEIN
 
 
 
Lainie Goldstein
Chief Financial Officer
(Principal Financial Officer)


34
Exhibit 10.1

Certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the company, if publicly disclosed. [***] indicates material that was omitted.

AMENDMENT NO. 6 TO THE
XBOX ONE PUBLISHER LICENSE AGREEMENT
(SAMPLES, TOKENS, MOQ, AND MICROSOFT PORTAL ACCESS)
This Amendment to the Xbox One Publisher License Agreement (this “Amendment”) is effective as of
April 9, 2019 (the “Amendment Effective Date”), by and between Microsoft Corporation, a Washington corporation (“Microsoft”), and Take-Two Interactive Software, Inc. (“Publisher”), and supplements that certain Xbox One Publisher License Agreement between the parties dated as of October 1, 2013, as amended (the “Xbox One PLA”) and, where expressly stated below, the Xbox 360 Publisher License agreement between the parties dated as of November 17, 2005, as amended (the “Xbox 360 PLA”).
RECITALS
A.
Microsoft or its affiliates provide a family of computer game and entertainment systems, including the Xbox 360 game system (“Xbox 360”); Xbox One, Xbox One S, Xbox One X and their successors and variants (collectively, “Xbox One”); and an associated proprietary online service (“Xbox Live”).
B.
Publisher is a game developer and publisher of software for computer game and entertainment systems. Publisher intends to develop and/or publish software products for Xbox One on the terms in the Xbox One PLA.
C.
The parties now wish to amend certain terms of the Xbox 360 PLA and the Xbox One PLA as set forth below.

Accordingly, for and in consideration of the mutual covenants and conditions contained herein, and for other good and valuable consideration, receipt of which each party hereby acknowledges, Microsoft and Publisher agree as follows:

1.Samples. Section 7.4 (Samples) of the Xbox One PLA shall be deleted in its entirety and replaced with the following:

7.4    Samples. For each Software Title published under this Agreement, Publisher will provide to Microsoft a reasonable number of samples (as per the Publisher Guide, but not to exceed [***] copies and [***] copies per Software Title per Sales Territory in which the Software Title will be Commercially Released). Additionally, Microsoft may, free of charge, use up to [***] Microsoft-generated codes per Software Title that are redeemable by Xbox Live Users for Digital Content downloads from Xbox Live (“Tokens”). All such samples and Tokens may be used by Microsoft for non-revenue generating purposes, such as for marketing in accordance with Section 10.5, as product samples, and for customer support, product and charitable giveaways (provided that Microsoft obtains Publisher’s prior written consent), testing, and archival purposes. Publisher will not be required to pay the platform royalty set forth in Section 1 of Exhibit 1 of the Xbox One PLA for such [***] samples if the samples are shipped directly from an Authorized Replicator to Microsoft. Publisher will not be entitled to any Royalty Fee or other compensation with respect to Digital Content samples or Tokens as authorized under this Section 7.4, provided that Publisher shall at all times remain entitled to the Royalty Fee in respect of all Digital Content and PDLC for the corresponding Software Title for which Microsoft receives payment.

2.Minimum Order Quantities. Section 7.10 (Minimum order quantities) of the Xbox One PLA is no longer applicable and shall be deleted in its entirety.


Microsoft Confidential    
Page 1 of 3
Amendment No. 6 to the Xbox One PLA - AOC v1 February 2019


3.Token Promotions. Section 10.6 (Token Promotions) of the Xbox One PLA shall be deleted in its entirety and replaced with the following:

10.6 Token Promotions. Publisher may, [***], place a [***] order for a limited quantity of Tokens, subject to the terms and quantity limits stated in the Publisher Guide. If Publisher desires additional Tokens for promotional activities related to a Software Title via the Xbox Games Store (each, a “Token Promotion”), Publisher will comply with the Publisher Guide’s policies with respect to ordering additional Tokens. Upon approval by Microsoft, Publisher will pre-pay all applicable fees for such additional Tokens as set forth in the Publisher Guide. As soon as commercially feasible after payment by Publisher for a Token order, Microsoft will create Tokens and deliver them to Publisher.

4.Usage Data. Section 12 (Usage data) of the Xbox One PLA and Section 11 (Usage Data) of the Xbox 360 PLA shall be deleted in their entirety and replaced with the following:

Xbox Live Usage data and Personal Data. The operation of Xbox Live requires Microsoft to collect and store Xbox Live User usage data, including statistics, scores, ratings, and rankings (collectively, “Xbox Live User Data”), as well as information relating to an identified or identifiable person (e.g., name, email address, etc.) (“Personal Data”). Microsoft may, in its discretion, use such Xbox Live User Data for any purpose, including posting the Xbox Live User Data on Xbox.com or other Microsoft websites. Microsoft will use commercially reasonable efforts to periodically make certain Xbox Live User Data and Personal Data available to Publisher in accordance with Microsoft’s Privacy Statement. Publisher’s use of such Personal Data must be in accordance with Publisher’s then-current Privacy Policy and such other reasonable restrictions as Microsoft may require that are made available to publishers via written notice (email is sufficient) and memorialized in the Publisher Guide. If Publisher collects Personal Data, then Publisher must provide Xbox Live Users with access to Publisher’s privacy statement that governs Publisher’s use of the Personal Data (“Privacy Policy”). For avoidance of doubt, the parties will each operate as independent controllers of Personal Data shared between them pursuant to this Agreement. Microsoft will notify Publisher of data subject requests received from users as set forth in the Publisher Guide.

5.Microsoft Portal Terms and Conditions. A new Section 21.9 shall be added to the Xbox One PLA as follows:

21.9    Microsoft Portal Terms and Conditions. Publisher may be required to accept terms and conditions for the use of Microsoft web portals, including the App Developer Agreement (or its successor) governing the Microsoft Store and/or Partner Center (the “ADA”). In the event of any conflict between the terms of this Agreement and the ADA, the terms of this Agreement will control regarding the obligations of the parties governed by this Agreement (including the Certification, sale, and support of Publisher’s Xbox One Software Titles).

6.Exhibit 6. The XBOX LIVE INCENTIVE PROGRAM expires on March 31, 2019. Exhibit 6 to the Xbox One PLA is hereby deleted in its entirety with effect from March 31, 2019.

Except and to the extent expressly modified by this Amendment, the Xbox One PLA and Xbox 360 PLA shall remain in full force and effect and are hereby ratified and confirmed. In the event of any conflict between this Amendment and the Xbox One PLA and/or Xbox 360 PLA, the terms of this Amendment shall control.

Microsoft Confidential    
Page 2 of 3
Amendment No. 6 to the Xbox One PLA - AOC v1 February 2019


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the Amendment Effective Date.
Microsoft Corporation
Take-Two Interactive Software, Inc.
Signature: /s/ Annie Neudorfer
Signature: /s/ Dan Emerson
Name: Annie Neudorfer
Name: Dan Emerson
Title: Xbox Program Manager
Title: EVP&GC
Date: 4/16/2019
Date: 4/15/2019


Microsoft Confidential    
Page 3 of 3
Amendment No. 6 to the Xbox One PLA - AOC v1 February 2019


Exhibit 31.1
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification
I, Strauss Zelnick, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Take-Two Interactive Software, Inc. (the “registrant”);
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
August 5, 2019
/s/ STRAUSS ZELNICK
 
Strauss Zelnick
Chairman and Chief Executive Officer




Exhibit 31.2
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Section 302 Certification
I, Lainie Goldstein, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Take-Two Interactive Software, Inc. (the “registrant”);
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
August 5, 2019
/s/ LAINIE GOLDSTEIN
 
Lainie Goldstein
Chief Financial Officer




EXHIBIT 32.1
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Take-Two Interactive Software, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Strauss Zelnick, as Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 5, 2019
/s/ STRAUSS ZELNICK
 
Strauss Zelnick
Chairman and Chief Executive Officer





EXHIBIT 32.2
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Take-Two Interactive Software, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lainie Goldstein, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 5, 2019
/s/ LAINIE GOLDSTEIN
 
Lainie Goldstein
Chief Financial Officer