NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 principally through Rockstar Games, 2K, Private Division, Social Point and Playdots. Our products are designed for console gaming systems and personal computers, including smart phones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services.
Principles of Consolidation
The Consolidated Financial Statements include the financial statements of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain immaterial amounts in the financial statements of the prior years have been reclassified to conform to the current year presentation for comparative purposes.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expense, as well as the disclosure of contingent assets and liabilities at the dates of the financial statements during the reporting periods. Our most significant estimates relate to revenue recognition (see Note 2 - Revenue from Contracts with Customers); the recoverability and amortization of software development costs, licenses, and intangible assets; assets acquired and liabilities assumed in business combinations; the realization of deferred income taxes; the valuation of stock-based compensation; and assumptions used in our goodwill impairment tests. These estimates generally involve complex issues and require us to make judgments, involve analysis of historical and the prediction of future trends, and are subject to change from period to period. Actual amounts could differ significantly from these estimates, including as a result of the COVID-19 pandemic, which may affect economic conditions in a number of different ways and result in uncertainty and risk. We consider transactions or events that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
Segments
We have one operating and reportable segment. Our operations involve similar products and customers worldwide. Revenue earned is primarily derived from the sale of software titles, which are internally developed and developed by third parties. Our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), manages our operations on a consolidated basis--supplemented by sales information by product category, major product title, and platform--for the purpose of evaluating performance and allocating resources. Financial information about our one segment and geographic areas is included in Note 2 - Revenue from Contracts with Customers and Note 9 - Fixed Assets, Net.
Concentration of Credit Risk and Accounts Receivable
We maintain cash balances at several major financial institutions. While we attempt to limit credit exposure with any single institution, balances often exceed insurable amounts.
Accounts receivable are recorded at the original invoiced amount less an allowance for credit losses. In evaluating our ability to collect outstanding receivable balances and related allowance for credit losses, we consider many factors, including the age of the balance, the customer’s payment history and current creditworthiness, as well as current and forecasted economic conditions that may affect our customers’ ability to pay. Bad debts are written off after all collection efforts have been exhausted. We do not require collateral from our customers.
If the financial condition and operations of our customers deteriorate, our risk of collection could increase substantially. A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors. Our five largest customers accounted for 78.4%, 71.5% and 70.1% of net revenue during the fiscal years ended March 31, 2021, 2020 and 2019, respectively. One customer accounted for 38.9%, 31.9% and 31.3% of net revenue during the fiscal years ended March 31, 2021, 2020, and 2019, respectively. A second customer accounted for 22.2%,
20.0%, and 18.1% of net revenue during the fiscal years ended March 31, 2021, 2020, and 2019 respectively. A third customer accounted for 10.5% of net revenue during the fiscal year ended March 31, 2019. As of March 31, 2021 and 2020, five customers accounted for 77.6% and 58.1% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 69.2% and 48.8% of such balances at March 31, 2021 and 2020, respectively. We had two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as of March 31, 2021 and two customers who accounted for 29.4% and 19.4% of our gross accounts receivable as of March 31, 2020. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of March 31, 2021 and 2020. 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.
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Our restricted cash and cash equivalents balances are primarily related to a dedicated account limited to the payment of certain internal royalty obligations. Balances that are restricted from use for more than one year are classified as non-current.
Short-term Investments
Short-term investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified within Short-term investments on our Consolidated Balance Sheets. In addition, investments with maturities beyond one year at the time of purchase that are highly liquid in nature and represent the investment of cash that is available for current operations are classified as short-term investments.
Unrealized gains and losses of available-for-sale securities are excluded from earnings and are reported as a component of Other comprehensive income (loss), net of tax, until the security is sold, the security has matured, or we determine that the fair value of the security has declined below its adjusted cost basis and the decline is not due to a credit loss. Realized gains and losses on short-term investments are calculated based on the specific identification method and would be reclassified from accumulated other comprehensive loss to Interest and other, net.
Short-term investments are evaluated for impairment quarterly. We consider various factors in determining whether we should recognize an impairment charge, including the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost basis, the severity of the impairment, the reason for the decline in value, and our intent to sell and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If we conclude that an investment is impaired or a portion of the unrealized loss is a result of a credit loss, we recognize the charge at that time in our Consolidated Statements of Operations. Determining whether the decline in fair value is due to a credit loss requires management judgment based on the specific facts and circumstances of each security. The ultimate value realized on these securities is subject to market price volatility until they are sold.
Inventory
Inventory consists of materials, including manufacturing royalties paid to console manufacturers, and is stated at the lower of weighted average cost or net realizable value. Estimated product returns are included in the inventory balance at their cost. We regularly review inventory quantities on-hand and in the retail channels and record an inventory provision for excess or obsolete inventory based on the future expected demand for our products. Significant changes in demand for our products would affect management's estimates in establishing our inventory provision. We write down inventory based on excess or obsolete inventories determined primarily by anticipated future demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and market value, based upon assumptions about future demand that are inherently difficult to assess.
Software Development Costs and Licenses
Capitalized software development costs include direct costs incurred for internally developed titles and payments made to third-party software developers under development agreements.
We capitalize internal software development costs (including specifically identifiable payroll expense, employee stock-based compensation, and incentive compensation costs related to the completion and release of titles, as well as third-party production and other content costs), subsequent to establishing technological feasibility of a software title. Technological feasibility of a product includes the completion of both technical design documentation and game design documentation.
Significant management judgments are made in the assessment of when technological feasibility is established. For products where proven technology exists, this may occur early in the development cycle. Technological feasibility is evaluated on a product-by-product basis. Prior to establishing technological feasibility of a product, we record any costs incurred by third-party developers as research and development expenses.
We enter into agreements with third-party developers that require us to make payments for game development and production services. In exchange for our payments, we receive the exclusive publishing and distribution rights to the finished game title as well as, in some cases, the underlying intellectual property rights. Such agreements typically allow us to fully recover these payments to the developers at an agreed upon royalty rate earned on the subsequent sales of such software, net of any agreed upon costs. Subsequent to establishing technological feasibility of a product, we capitalize all development and production service payments to third-party developers as software development costs and licenses. We typically enter into agreements with third-party developers after completing the technical design documentation for our products and therefore record the design costs leading up to a signed development contract as research and development expense. When we contract with third-party developers, we generally select those that have proven technology and experience in the genre of the software being developed, which often allows for the establishment of technological feasibility early in the development cycle. In instances where the documentation of the design and technology are not in place prior to an executed contract, we monitor the software development process and require our third-party developers to adhere to the same technological feasibility standards that apply to our internally developed products.
Licenses consist of payments and guarantees made to holders of intellectual property rights for use of their trademarks, copyrights or other intellectual property rights in the development of our products. Agreements with license holders generally provide for guaranteed minimum payments for use of their intellectual property. Certain licenses, especially those related to our sports products, extend over multi-year periods and encompass multiple game titles. In addition to guaranteed minimum payments, these licenses frequently contain provisions that could require us to pay royalties to the license holder based on pre-agreed unit sales thresholds.
Amortization of capitalized software development costs and licenses commences when a product is available for general release and is recorded on a title-by-title basis in cost of goods sold. For capitalized software development costs, annual amortization is calculated using (1) the proportion of current year revenue to the total revenue expected to be recorded over the life of the title or (2) the straight-line method over the remaining estimated life of the title, whichever is greater. For capitalized licenses, amortization is calculated as a ratio of (1) current year revenue to the total revenue expected to be recorded over the remaining estimated life of the title or (2) the contractual royalty rate based on actual net product sales as defined in the licensing agreement, whichever is greater. Amortization periods for our software products generally range from twelve to 30 months.
We evaluate the future recoverability of capitalized software development costs and licenses on a quarterly basis. Recoverability is primarily assessed based on the title's actual performance. For products that are scheduled to be released in the future, recoverability is evaluated based on the expected performance of the specific products to which the cost or license relates. We use a number of criteria in evaluating expected product performance, including historical performance of comparable products developed with comparable technology, market performance of comparable titles, orders for the product prior to its release, general market conditions, and past performance of the franchise. When we determine that capitalized cost of the title is unlikely to be recovered by product sales, an impairment of software development and license costs capitalized is charged to cost of goods sold in the period in which such determination is made.
We have profit and unit sales based internal royalty programs that allow selected employees to participate in the success of software titles that they assist in developing. Royalties earned under these programs are recorded as a component of Cost of goods sold in the period earned. Amounts earned and not yet paid are reflected within the software development royalties component of Accrued expenses and other current liabilities on our Consolidated Balance Sheets.
Fixed Assets, net
Office equipment, furniture and fixtures are depreciated using the straight-line method over their estimated useful life of five years. Computer equipment and software are generally depreciated using the straight-line method over three to five years. Leasehold improvements are amortized over the lesser of the term of the related lease or the useful life of the underlying asset, typically seven years. The cost of additions and improvements are capitalized, and repairs and maintenance costs are charged to operations, in the periods incurred. When depreciable assets are retired or sold, the cost and related allowances for depreciation are removed from the accounts and the gain or loss, if any, is recognized. The carrying amounts of these assets are recorded at historical cost.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases codified under Topic 842, Leases, which we adopted on April 1, 2019.
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 right-of-use (“ROU”) asset also includes any lease payments made prior to commencement, initial direct costs incurred, and lease incentives received.
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 twelve 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. We do not separate non-lease components from the related lease components.
Goodwill and Intangible Assets
Goodwill is the excess of purchase price paid over identified intangible and tangible net assets of acquired companies. Intangible assets consist of intellectual property, developed game technology, analytics technology, user base, trade names, and in-process research and development. Certain intangible assets acquired in a business combination are recognized as assets apart from goodwill.
We use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach, or combination of approaches, ultimately selected is based on the characteristics of the asset and the availability of information.
We test our goodwill for impairment annually, or more frequently if events and circumstances indicate the fair value of a reporting unit may be below its carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment. We have determined that we operate in two reporting units, which are components of our operating segment. In the evaluation of goodwill for impairment, we have the option to first perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50%) less than the carrying value before performing a quantitative impairment test.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative impairment analysis for goodwill is performed at the reporting unit level. The quantitative goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value exceeds the fair value, an impairment charge is recognized equal to the difference between the carrying value of the reporting unit and its fair value, considering the related income tax effect of any goodwill deductible for tax purposes.
In performing the quantitative assessment, we measure the fair value of the reporting unit using a combination of the income and market approaches. The assessment requires us to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates based on our weighted average cost of capital, future economic and market conditions and the determination of appropriate, comparable market data. Our estimates for market growth are based on historical data, various internal estimates and observable external sources when available, and are based on assumptions that are consistent with the plans and estimates we use to manage the underlying business.
Based on our annual impairment assessment process for goodwill, no impairments were recorded during the fiscal years ended March 31, 2021, 2020, or 2019. As of March 31, 2021, the goodwill balance of one of our reporting units is $345,725, and a moderate reduction in its fair value may result in an impairment charge, which would be equal to the excess of the carrying value over the fair value of such assets.
Long-lived Assets
We review all long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amount of an asset or asset group may not be recoverable. We compare the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, we record an impairment charge for the difference between the carrying amount of the asset and its fair value. The estimated fair value is generally measured by discounting expected future cash flows using our incremental borrowing rate or discount rate, if available. As of March 31, 2021, no indicators of impairment existed.
Derivatives and Hedging
We transact business in various foreign currencies and have significant sales and purchase transactions denominated in foreign currencies, subjecting us to foreign currency exchange rate risk. From time to time, we carry out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge our exposure in currency exchange rate movements. We recognize derivative instruments as either assets or liabilities on our Consolidated Balance Sheets and we measure those instruments at fair value. The changes in fair value of derivatives that are not designated as hedges are recognized currently in earnings as Interest and other, net in our Consolidated Statements of Operations. If a derivative meets the definition of a cash flow hedge and is so designated, the effective portion of changes in the fair value of the derivative are recognized, as a component of Other comprehensive income (loss) while the ineffective portion of the changes in fair value is recorded currently in earnings as Interest and other, net in our Consolidated Statements of Operations. Amounts included in Accumulated other comprehensive income (loss) for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in Cost of goods sold, Research and development expenses, or Interest and other, net, as appropriate.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. Our provision for income taxes is computed using the asset and liability method, under which deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment.
Valuation allowances are established when we determine that it is more likely than not that such deferred tax assets will not be realized. We do not record income tax expense related to foreign withholding taxes or United States income taxes that may become payable upon the repatriation of undistributed earnings of foreign subsidiaries, as such earnings are expected to be reinvested indefinitely outside of the United States.
We use estimates and assumptions to compute the provision for income taxes including allocations of certain transactions to different tax jurisdictions, amounts of permanent and temporary differences, the likelihood of deferred tax assets being recovered and the outcome of contingent tax risks. These estimates and assumptions are revised as new events occur, more experience is acquired and additional information is obtained. The effect of these revisions is recorded in income tax expense or benefit in the period in which they become known.
Revenue Recognition
We derive revenue primarily from the sale of our interactive entertainment content, principally for console gaming systems and personal computers, including smartphones and tablets. Our interactive entertainment content consists of full game software products that may contain offline gameplay, online gameplay, or a combination of offline and online gameplay. We may also sell separate downloadable add-on content to supplement our full game software products. Certain of our software products provide customers with the option to acquire virtual currency or make in-game purchases.
We determine revenue recognition by:
•identifying the contract, or contracts, with the customer;
•identifying the performance obligations in the contract;
•determining the transaction price;
•allocating the transaction price to performance obligations in the contract; and
•recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the sales of software products and game related services when control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenue is recorded net of transaction taxes assessed by governmental authorities such as sales, value-added and other similar taxes.
Our software products are sold as full games, which typically provide access to the main game content, primarily for console and PC. Generally, our full game software products deliver a license of our intellectual property that provides a functional offline gaming experience (i.e., one that does not require an Internet connection to access the main game content or other significant game related services). We recognize revenue related to the license of our intellectual property that provides offline functionality at the time control of the products has been transferred to our customers (i.e. upon delivery of the software product).
In addition, some of our full game software products that provide a functional offline gaming experience may also include significant game related services delivered over time, such as online functionality that is dependent upon online support services and/or additional free content updates. For full game sales that offer offline functionality and significant game related services we evaluate whether the license of our intellectual property and the game related services are distinct and separable. This evaluation is performed for each software product sold. If we determine that our software products contain a license of intellectual property separate from the game related services (i.e. multiple performance obligations), we estimate a standalone selling price for each identified performance obligation. We allocate the transaction price to each performance obligation using a relative standalone selling price method (the transaction price is allocated to a performance obligation based on the proportion of the standalone selling price of each performance obligation to the sum of the standalone selling prices for all performance obligations in the contract). For the portion of the transaction price allocable to the license, revenue is recognized when the customer takes control of the product. For the portion of the transaction price allocated to game related services, revenue is recognized ratably over an estimated service period for the related software product. We also defer related product costs and recognize the costs as the revenues are recognized.
Certain of our full game software products are delivered primarily as an online gaming experience with substantially all gameplay requiring online access to our game related services. We recognize revenue for full game software products that are dependent on our game related services over an estimated service period. For our full game online software products, we also defer related product costs and recognize the costs as the revenue is recognized.
In addition to sales of our full game software products, certain of our software products provide customers with the option to acquire virtual currency or make in-game purchases. Revenue from the sale of virtual currency and in-game purchases is deferred and recognized ratably over an estimated service period.
We also sell separate downloadable add-on content to supplement our full game software products. Revenue from the sale of separate downloadable add-on content is evaluated for revenue recognition on the same basis as our full game software products.
Certain software products are sold to customers with a “street date” (the earliest date these products may be sold by these retailers). For the transaction price related to the license for these products that also provide a functional offline gaming experience, we recognize revenue on the later of the street date or the sale date as this is generally when we have transferred control of this performance obligation. For the sale of physical software products, recognition of revenue allocated to game related services does not begin until the product is sold-through by our customer to the end user. We currently estimate sell-through to the end user for all our titles to be approximately two months after we have sold-in the software products to retailers. Determining the estimated sell-through period requires management judgment and estimates.
In addition, some of our software products are sold as digital downloads. Revenue from digital downloads generally commences when the download is made available to the end user by a third-party digital storefront.
Our payment terms and conditions vary by customer and typically provide net 30- to 60-day terms. In instances where the timing of revenue recognition differs from the timing of invoicing, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to our customer and payment for that product or service will be one year or less.
In certain countries, we use third-party licensees to distribute and host our games in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and sales-based royalties. These arrangements typically include multiple performance obligations, such as an upfront license of intellectual property and rights to future
updates. Based on the allocated transaction price, we recognize revenue associated with the minimum guarantee when we transfer control of the upfront license of intellectual property (generally upon commercial launch) and the remaining portion ratably over the contractual term in which we provide the licensee with future update rights. Royalty payments in excess of the minimum guarantee are generally recognized when the licensed product is sold by the licensee.
Contract Balances
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue when cash payments are received or due in advance of satisfying our performance obligations, even if amounts are refundable. Contract assets generally consist of arrangements for which we have recognized revenue to the extent it is probable that significant reversal will not occur but do not have a right to invoice as of the reporting date. Contract assets are recorded within Prepaid expenses and other on our Consolidated Balance Sheet.
Our allowances for doubtful accounts are typically immaterial and, if required, are based on our best estimate of expected credit losses inherent in our accounts receivable balance.
Deferred revenue is comprised primarily of unsatisfied revenue related to the portion of the transaction price allocable to game related services of our full game software products and sales of virtual currency. These sales are typically invoiced at the beginning of the contract period, and revenue is recognized ratably over the estimated service period. Deferred revenue may also include amounts related to software products with future street dates.
Principal Agent Considerations
We offer certain software products via third-party digital storefronts, such as Microsoft’s Xbox Live, Sony’s PlayStation Network, Valve's Steam, Epic Games Store, Apple's App Store, and the Google Play Store. For sales of our software products via third-party digital storefronts, we determine whether or not we are acting as the principal in the sale to the end user, which we consider in determining if revenue should be reported based on the gross transaction price to the end user or based on the transaction price net of fees retained by the third-party digital storefront. An entity is the principal if it controls a good or service before it is transferred to the customer. Key indicators that we use in evaluating these sales transactions include, but are not limited to, the following:
•the underlying contract terms and conditions between the various parties to the transaction;
•which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
•which party has discretion in establishing the price for the specified good or service.
Based on our evaluation of the above indicators, for sales arrangements via Microsoft’s Xbox Live, Sony’s PlayStation Network, Valve's Steam, and Epic Games Store we have determined we are not the principal in the sales transaction to the end user and therefore we report revenue based on the consideration received from the digital storefront. For sales arrangements via Apple's App Store and the Google Play Store, we have determined that we are the principal to the end user and thus report revenue on a gross basis and mobile platform fees charged by these digital storefronts are expensed as incurred and reported within Cost of goods sold.
Shipping and Handling
Shipping and handling costs are incurred to move physical software products to customers. We recognize all shipping and handling costs as an expense in Cost of goods sold because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Estimated Service Period
For certain performance obligations satisfied over time, we have determined that the estimated service period is the time period in which an average user plays our software products (“user life”) which most faithfully depicts the timing of satisfying our performance obligation. We consider a variety of data points when determining and subsequently reassessing the estimated service period for players of our software products. Primarily, we review the weighted average number of days between players’ first and last days played online. When a new game is launched and therefore no history of online player data is available, we consider other factors to determine the user life, such as the estimated service period of other games actively being sold with similar characteristics. We also consider known online trends, the service periods of our previously released software products, and, to the extent publicly available, the service periods of our competitors’ software products that are
similar in nature to ours. We believe this provides a reasonable depiction of the transfer of our game related services to our customers, as it is the best representation of the period during which our customers play our software products. Determining the estimated service period is subjective and requires significant management judgment and estimates. Future usage patterns may differ from historical usage patterns, and therefore the estimated service period may change in the future. The estimated service periods for players of our current software products are generally between six and fifteen months depending on the software product.
Revenue Arrangements with Multiple Performance Obligations
Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together requires significant judgment. For software products in which the software license has offline functionality and benefits from meaningful game related services, which may include online functionality that is dependent on our online support services and/or additional free content updates, we believe we have separate performance obligations for the license of the intellectual property and the game related services. Additionally, because each of our product offerings has unique features and because we do not sell our game related services separately, we typically do not have observable standalone selling prices for each performance obligation. Significant judgment and estimates are also required to determine the standalone selling price for each distinct performance obligation and whether a discount needs to be allocated based on the relative standalone selling price of our products and services.
To estimate the standalone selling price for each performance obligation, we consider, to the extent available, a variety of data points such as past selling prices of the product or other similar products, competitor pricing, and market data. If observable pricing is not available, we use an expected cost-plus margin approach taking into account relevant costs including product development, post-release support, marketing and licensing costs. This evaluation is performed on a product by product basis.
Price Protection, Allowances for Returns, and Sales Incentives
We grant price protection and accept returns in connection with our distribution arrangements. Following reductions in the price of our physical software products, we grant price protection to permit customers to take credits against amounts they owe us with respect to merchandise unsold by them. Our customers must satisfy certain conditions to entitle them to receive price protection or return products, including compliance with applicable payment terms and confirmation of field inventory levels.
At contract inception and at each subsequent reporting period, we make estimates of price protection and product returns related to current period software product revenue. We estimate the amount of price protection and returns for software products based upon, among other factors, historical experience and performance of the titles in similar genres, historical performance of the hardware platform, customer inventory levels, analysis of sell-through rates, sales force and retail customer feedback, industry pricing, market conditions, and changes in demand and acceptance of our products by consumers.
We enter into various sales incentive arrangements with our customers, such as rebates, discounts, and cooperative marketing. These incentives are considered adjustments to the transaction price of our software products and are reflected as reductions to revenue. Sales incentives incurred by us for distinct goods or services received, such as the appearance of our products in a customer’s national circular ad, are included in Selling and marketing expense if there is a separate identifiable benefit and the benefit’s fair value can be established. Otherwise, such sales incentives are reflected as a reduction to revenue.
Revenue is recognized after deducting the estimated price protection, allowances for returns, and sales incentives, which are accounted for as variable consideration. Price protection, allowances for returns, and sales incentives are considered refund liabilities and are reported within Accrued expenses and other current liabilities on our Consolidated Balance Sheet.
Significant Estimates
Significant management judgment and estimates must be used in connection with many of the determinations described above, such as estimating the fair value allocation to distinct and separable performance obligations, the service period over which to defer recognition of revenue, the time it takes our physical products to sell-through to end users, and the amounts of price protection. We believe we can make reliable estimates. However, actual results may differ from initial estimates due to changes in circumstances, market conditions, and assumptions. Adjustments to estimates are recorded in the period in which they become known.
Advertising
We expense marketing costs as incurred, except for production costs associated with media advertising, which are deferred and charged to expense when the related advertisement is run for the first time. Advertising, marketing, and other
promotional expenses for the fiscal years ended March 31, 2021, 2020 and 2019 amounted to $241,068, $285,607 and $249,315, respectively, and are included in Selling and marketing expense in our Consolidated Statements of Operations.
Stock-based Compensation
We have stock-based compensation plans that are broad-based long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests, which allows for awards of restricted stock, restricted stock units and other stock-based awards of our common stock to employees and non-employees. Our plans include time-based, market-based, and performance-based awards of our common stock to employees and non-employees.
We account for stock-based awards under the fair value method of accounting. The fair value of all stock-based compensation is either capitalized and amortized in accordance with our software development cost accounting policy or recognized as expense on a straight-line basis over the full vesting period of the awards for time-based stock awards and on an accelerated attribution method for market-based and performance-based stock awards.
We estimate the fair value of time-based awards using our closing stock price on the date of grant. We estimate the fair value of market-based awards using a Monte Carlo Simulation method, which takes into account assumptions such as the expected volatility of our common stock, the risk-free interest rate based on the contractual term of the award, expected dividend yield, vesting schedule and the probability that the market conditions of the awards will be achieved. For performance-based shares, we do not record expense until the performance criteria are considered probable.
Stock-based compensation expense is recorded net of forfeitures as they occur.
Earnings (loss) per Share ("EPS")
Basic EPS is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the same period. Diluted EPS is computed by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents are measured using the treasury stock method and represent unvested stock-based awards.
Foreign Currency
The functional currency for our foreign operations is primarily the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using exchange rates for assets and liabilities at the balance sheet date and average prevailing exchange rates for the period for revenue and expense accounts. Adjustments resulting from translation are included in accumulated other comprehensive income (loss). Realized and unrealized transaction gains and losses are included in our Consolidated Statements of Operations in the period in which they occur.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive income (loss) includes foreign currency translation adjustments, which relate to investments that are permanent in nature and therefore do not require tax adjustments, and the amounts for unrealized gains (losses), net on derivative instruments designated as cash flow hedges, as well as any associated tax impact, and available for sale securities.
Recently Adopted Accounting Pronouncements
Accounting for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. We adopted this update effective April 1, 2020. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
Accounting for Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires the reflection of expected credit losses and also requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. For most financial instruments, the standard requires the use of a forward-looking expected loss model rather than
the incurred loss model for recognizing credit losses, which generally results in the earlier recognition of credit losses on financial instruments. We adopted this update effective April 1, 2020 under a modified retrospective basis. No adjustment to retained earnings was recorded as a result of the adoption of this standard, which did not have an impact on our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning December 15, 2020 (April 1, 2021 for the Company), with early adoption permitted. We do not expect that the impact of the adoption will be material to our Consolidated Financial Statements.
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of revenue
Service and other revenue
Service and other revenue is primarily comprised of revenue from our software products that include game related services, or separate virtual currency transactions, and in-game purchases, which are recognized over an estimated service period.
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).
Net revenue by service and other revenue and product was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Net revenue recognized:
|
|
|
|
|
|
|
Service and other
|
|
$
|
2,281,555
|
|
|
$
|
1,839,696
|
|
|
$
|
1,319,033
|
|
Product
|
|
1,091,217
|
|
|
1,249,274
|
|
|
1,349,361
|
|
Total net revenue
|
|
$
|
3,372,772
|
|
|
$
|
3,088,970
|
|
|
$
|
2,668,394
|
|
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.
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.
Net revenue by recurrent consumer spending revenue and full game and other was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Net revenue recognized:
|
|
|
|
|
|
|
Recurrent consumer spending
|
|
$
|
2,074,687
|
|
|
$
|
1,384,999
|
|
|
$
|
1,070,916
|
|
Full game and other
|
|
1,298,085
|
|
|
1,703,971
|
|
|
1,597,478
|
|
Total net revenue
|
|
$
|
3,372,772
|
|
|
$
|
3,088,970
|
|
|
$
|
2,668,394
|
|
Geography
We attribute net revenue to geographic regions based on software product destination. Net revenue by geographic region was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Net revenue recognized:
|
|
|
|
|
|
|
United States
|
|
$
|
2,015,885
|
|
|
$
|
1,775,682
|
|
|
$
|
1,426,906
|
|
International
|
|
1,356,887
|
|
|
1,313,288
|
|
|
1,241,488
|
|
Total net revenue
|
|
$
|
3,372,772
|
|
|
$
|
3,088,970
|
|
|
$
|
2,668,394
|
|
Platform
Net revenue by platform was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Net revenue recognized:
|
|
|
|
|
|
|
Console
|
|
$
|
2,516,993
|
|
|
$
|
2,308,602
|
|
|
$
|
2,233,861
|
|
PC and other
|
|
855,779
|
|
|
780,368
|
|
|
434,533
|
|
Total net revenue
|
|
$
|
3,372,772
|
|
|
$
|
3,088,970
|
|
|
$
|
2,668,394
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Net revenue recognized:
|
|
|
|
|
|
|
Digital online
|
|
$
|
2,919,292
|
|
|
$
|
2,378,563
|
|
|
$
|
1,681,609
|
|
Physical retail and other
|
|
453,480
|
|
|
710,407
|
|
|
986,785
|
|
Total net revenue
|
|
$
|
3,372,772
|
|
|
$
|
3,088,970
|
|
|
$
|
2,668,394
|
|
Deferred Revenue
We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. The balance of deferred revenue, including current and non-current balances, as of March 31, 2021 and March 31, 2020 were $965,331 and $806,123, respectively. For the fiscal year ended March 31, 2021, the additions to our deferred revenue balance were primarily due 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 fiscal year ended March 31, 2021, $774,279 of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of March 31, 2021, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $1,100,441, which includes our deferred revenue balances and amounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $969,739 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 March 31, 2021 and March 31, 2020, our contract asset balances were $105,554 and $81,625, respectively, which are included within Prepaid and other in our Consolidated Balance Sheet.
3. MANAGEMENT AGREEMENT
In November 2017, we entered into a new management agreement (the "2017 Management Agreement") with ZelnickMedia Corporation ("ZelnickMedia") that replaced our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia provides financial and management consulting services to the Company 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 $10,540, $10,540, and $9,265 for the fiscal years ended March 31, 2021, 2020, and 2019, respectively.
Pursuant to the 2017 Management Agreement, we also issued stock-based awards to ZelnickMedia. During the fiscal years ended March 31, 2021, 2020, and 2019, we recorded $27,281, $23,413, and $21,257, respectively, of stock-based compensation expense for non-employee awards, which is included in General and administrative expenses. See Note 17 - Stock-Based Compensation for a discussion of such awards.
4. FAIR VALUE MEASUREMENTS
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their short maturities.
We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The table below segregates all assets that are measured at fair value on a recurring basis (which is measured at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
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
|
|
$
|
837,614
|
|
|
$
|
837,614
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Bank-time deposits
|
|
95,000
|
|
|
95,000
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
Commercial paper
|
|
100,105
|
|
|
—
|
|
|
100,105
|
|
|
—
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
528,659
|
|
|
528,659
|
|
|
—
|
|
|
—
|
|
|
Restricted cash and cash equivalents
|
Bank-time deposits
|
|
563
|
|
|
563
|
|
|
—
|
|
|
—
|
|
|
Restricted cash and cash equivalents
|
Corporate bonds
|
|
521,224
|
|
|
—
|
|
|
521,224
|
|
|
—
|
|
|
Short-term investments
|
Bank-time deposits
|
|
578,762
|
|
|
578,762
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
US Treasuries
|
|
60,086
|
|
|
60,086
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
Commercial paper
|
|
148,150
|
|
|
—
|
|
|
148,150
|
|
|
—
|
|
|
Short-term investments
|
Asset-backed securities
|
|
470
|
|
|
—
|
|
|
470
|
|
|
—
|
|
|
Short-term investments
|
Money market funds
|
|
98,541
|
|
|
98,541
|
|
|
—
|
|
|
—
|
|
|
Long-term restricted cash and cash equivalents
|
Private equity
|
|
7,578
|
|
|
—
|
|
|
—
|
|
|
7,578
|
|
|
Other assets
|
Foreign currency forward contracts
|
|
(125)
|
|
|
$
|
—
|
|
|
(125)
|
|
|
$
|
—
|
|
|
Accrued expenses and other current liabilities
|
Total recurring fair value measurements, net
|
|
$
|
2,976,627
|
|
|
$
|
2,199,225
|
|
|
$
|
769,824
|
|
|
$
|
7,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
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
|
|
$
|
497,861
|
|
|
$
|
497,861
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Bank-time deposits
|
|
313,757
|
|
|
313,757
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
Commercial paper
|
|
97,544
|
|
|
—
|
|
|
97,544
|
|
|
—
|
|
|
Cash and cash equivalents
|
Corporate bonds
|
|
9,888
|
|
|
—
|
|
|
9,888
|
|
|
—
|
|
|
Cash and cash equivalents
|
Money market funds
|
|
546,604
|
|
|
546,604
|
|
|
—
|
|
|
—
|
|
|
Restricted cash and cash equivalents
|
Corporate bonds
|
|
334,631
|
|
|
—
|
|
|
334,631
|
|
|
—
|
|
|
Short-term investments
|
Bank-time deposits
|
|
191,000
|
|
|
191,000
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
US Treasuries
|
|
30,819
|
|
|
30,819
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
Commercial paper
|
|
87,553
|
|
|
—
|
|
|
87,553
|
|
|
—
|
|
|
Short-term investments
|
Cross-currency swap
|
|
11,275
|
|
|
—
|
|
|
11,275
|
|
|
—
|
|
|
Prepaid expenses and other
|
Money market funds
|
|
89,124
|
|
|
89,124
|
|
|
—
|
|
|
—
|
|
|
Long-term restricted cash and cash equivalents
|
Private equity
|
|
2,759
|
|
|
—
|
|
|
—
|
|
|
2,759
|
|
|
Other assets
|
Foreign currency forward contracts
|
|
(11)
|
|
|
—
|
|
|
(11)
|
|
|
—
|
|
|
Accrued expenses and other current liabilities
|
Total recurring fair value measurements, net
|
|
$
|
2,212,804
|
|
|
$
|
1,669,165
|
|
|
$
|
540,880
|
|
|
$
|
2,759
|
|
|
|
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 fiscal year ended March 31, 2021.
Nonrecurring fair value measurements
We hold equity investments in certain unconsolidated entities without a readily determinable fair value. Our strategic investments represent less than a 20% ownership interest in each of the privately held entities, and we do not maintain power over or control of the entities. We have elected the practical expedient in Topic 321, Investments-Equity Securities, to measure these investments at cost less any impairment, adjusted for observable price changes, if any. Based on these considerations, we estimate that the carrying value of the acquired shares represents the fair value of the investment. At March 31, 2021, we held approximately $20,000 of such investments in Other assets within our Consolidated Balance Sheet.
During the fiscal year ended March 31, 2021, we recognized a gain on the sale of one of these investments of $40,588. The gain is reflected in Gain (loss) on long-term investments, net within our Consolidated Statements of Operations.
5. SHORT-TERM INVESTMENTS
Our short-term investments consisted of the following as of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
Cost or
Amortized Cost
|
|
Gross Unrealized
|
|
|
|
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Short-term investments
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
578,762
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
578,762
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
520,486
|
|
|
994
|
|
|
(256)
|
|
|
521,224
|
|
US Treasuries
|
|
60,029
|
|
|
57
|
|
|
—
|
|
|
60,086
|
|
Commercial paper
|
|
148,149
|
|
|
1
|
|
|
—
|
|
|
148,150
|
|
Asset-backed securities
|
|
469
|
|
|
1
|
|
|
—
|
|
|
470
|
|
Total short-term investments
|
|
$
|
1,307,895
|
|
|
$
|
1,053
|
|
|
$
|
(256)
|
|
|
$
|
1,308,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Cost or
Amortized Cost
|
|
Gross Unrealized
|
|
|
|
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Short-term investments
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
191,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
191,000
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
337,752
|
|
|
307
|
|
|
(3,428)
|
|
|
334,631
|
|
US Treasuries
|
|
30,481
|
|
|
338
|
|
|
—
|
|
|
30,819
|
|
Commercial paper
|
|
87,553
|
|
|
—
|
|
|
—
|
|
|
87,553
|
|
Total short-term investments
|
|
$
|
646,786
|
|
|
$
|
645
|
|
|
$
|
(3,428)
|
|
|
$
|
644,003
|
|
The following table summarizes the contracted maturities of our short-term investments at March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
Amortized Cost
|
|
Fair Value
|
Short-term investments
|
|
|
|
|
Due in 1 year or less
|
|
$
|
1,111,554
|
|
|
$
|
1,112,328
|
|
Due in 1-2 years
|
|
196,341
|
|
|
196,364
|
|
Total short-term investments
|
|
$
|
1,307,895
|
|
|
$
|
1,308,692
|
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Forward contracts to sell foreign currencies
|
|
$
|
140,510
|
|
|
$
|
122,024
|
|
Forward contracts to purchase foreign currencies
|
|
$
|
92,123
|
|
|
$
|
52,596
|
|
For the fiscal years ended March 31, 2021, 2020 and 2019, we recorded a loss of $3,584, a loss of $959, and a gain of $16,831, respectively, related to foreign currency forward contracts in Interest and other, net on our Consolidated Statements of Operations. Our derivative contracts are foreign currency exchange forward contracts that are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures
and certain revenue and expense. These instruments are generally short term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.
Cross-currency swaps
In August 2017, we entered into a cross-currency swap agreement related to an intercompany loan that was designated and accounted for as a cash flow hedge of foreign currency exchange risk. During the three months ended June 30, 2020, we settled the intercompany loan and cross-currency swap, thereby discontinuing the cash flow hedge. As a result, we reclassified $3,109 from Accumulated other comprehensive income (loss) to earnings as an increase to Interest and other, net on our Consolidated Statement of Operations. We also received $7,420 in cash to settle our corresponding derivative asset.
7. INVENTORY
Inventory balances by category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Finished products
|
|
$
|
16,941
|
|
|
$
|
17,984
|
|
Parts and supplies
|
|
801
|
|
|
1,124
|
|
Inventory
|
|
$
|
17,742
|
|
|
$
|
19,108
|
|
Estimated product returns included in inventory at March 31, 2021 and 2020 were $186 and $506, respectively.
8. SOFTWARE DEVELOPMENT COSTS AND LICENSES
Details of our capitalized software development costs and licenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
|
|
Current
|
|
Non-current
|
|
Current
|
|
Non-current
|
Software development costs, internally developed
|
|
$
|
22,225
|
|
|
$
|
412,919
|
|
|
$
|
17,367
|
|
|
$
|
305,970
|
|
Software development costs, externally developed
|
|
7,349
|
|
|
75,086
|
|
|
10,971
|
|
|
92,908
|
|
Licenses
|
|
13,869
|
|
|
2,887
|
|
|
11,978
|
|
|
2,900
|
|
Software development costs and licenses
|
|
$
|
43,443
|
|
|
$
|
490,892
|
|
|
$
|
40,316
|
|
|
$
|
401,778
|
|
Software development costs and licenses, net of current portion as of March 31, 2021 and 2020 included $483,110 and $333,063, respectively, related to titles that have not been released.
Amortization and impairment of software development costs and licenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Amortization of software development costs and licenses
|
|
$
|
113,897
|
|
|
$
|
321,956
|
|
|
$
|
342,870
|
|
Impairment of software development costs and licenses
|
|
39,073
|
|
|
—
|
|
|
7,426
|
|
Less: Portion representing stock-based compensation
|
|
(8,707)
|
|
|
(154,031)
|
|
|
(149,075)
|
|
Amortization and impairment, net of stock-based compensation
|
|
$
|
144,263
|
|
|
$
|
167,925
|
|
|
$
|
201,221
|
|
The impairment charges related (i) to unamortized capitalized costs for the development of certain interactive entertainment software products, which are anticipated to exceed the net realizable value of the asset, and (ii) to decisions not to proceed with further development of certain interactive entertainment software products.
9. FIXED ASSETS, NET
Fixed asset balances by category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Computer equipment
|
|
$
|
155,580
|
|
|
$
|
127,897
|
|
Leasehold improvements
|
|
135,150
|
|
|
113,057
|
|
Computer software
|
|
63,947
|
|
|
60,507
|
|
Furniture and fixtures
|
|
17,693
|
|
|
16,520
|
|
Office equipment
|
|
13,282
|
|
|
12,109
|
|
Buildings
|
|
857
|
|
|
—
|
|
|
|
386,509
|
|
|
330,090
|
|
Less: accumulated depreciation
|
|
(237,145)
|
|
|
(198,202)
|
|
Fixed assets, net
|
|
$
|
149,364
|
|
|
$
|
131,888
|
|
Depreciation expense related to fixed assets for the fiscal years ended March 31, 2021, 2020 and 2019 was $54,835, $47,628 and $39,726, respectively.
The following represents our fixed assets, net by location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
United States
|
|
$
|
101,838
|
|
|
$
|
87,153
|
|
International
|
|
47,526
|
|
|
44,735
|
|
Fixed assets, net
|
|
$
|
149,364
|
|
|
$
|
131,888
|
|
10. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The change in our goodwill balance is as follows:
|
|
|
|
|
|
|
|
|
|
|
Total
|
Balance at March 31, 2019
|
|
$
|
381,717
|
|
Additions from immaterial acquisitions
|
|
13,205
|
|
Currency translation adjustment
|
|
(8,428)
|
|
Balance at March 31, 2020
|
|
$
|
386,494
|
|
Acquisition of Playdots, Inc. (see Note 22)
|
|
119,069
|
|
Additions from immaterial acquisitions
|
|
13,260
|
|
Currency translation adjustment
|
|
16,483
|
|
Balance at March 31, 2021
|
|
$
|
535,306
|
|
Intangibles
The following table sets forth the intangible assets that are subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Weighted average useful life
|
Developed game technology
|
$
|
143,628
|
|
|
$
|
(62,667)
|
|
|
$
|
80,961
|
|
|
$
|
64,336
|
|
|
$
|
(42,425)
|
|
|
$
|
21,911
|
|
|
6 years
|
Intellectual property
|
41,077
|
|
|
(14,542)
|
|
|
26,535
|
|
|
26,109
|
|
|
(10,836)
|
|
|
15,273
|
|
|
6 years
|
Analytics technology
|
32,768
|
|
|
(27,256)
|
|
|
5,512
|
|
|
30,711
|
|
|
(19,450)
|
|
|
11,261
|
|
|
5 years
|
Branding and trade names
|
8,245
|
|
|
(2,245)
|
|
|
6,000
|
|
|
4,343
|
|
|
(1,528)
|
|
|
2,815
|
|
|
6 years
|
User base
|
6,200
|
|
|
(3,617)
|
|
|
2,583
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1 year
|
Total intangible assets
|
$
|
231,918
|
|
|
$
|
(110,327)
|
|
|
$
|
121,591
|
|
|
$
|
125,499
|
|
|
$
|
(74,239)
|
|
|
$
|
51,260
|
|
|
5 years
|
Amortization of intangible assets is included in our Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Cost of goods sold
|
|
$
|
21,199
|
|
|
$
|
14,325
|
|
|
$
|
16,937
|
|
Selling and marketing
|
|
3,617
|
|
|
—
|
|
|
—
|
|
Research and development
|
|
6,663
|
|
|
6,180
|
|
|
6,436
|
|
Depreciation and amortization
|
|
762
|
|
|
485
|
|
|
506
|
|
Total amortization of intangible assets
|
|
$
|
32,241
|
|
|
$
|
20,990
|
|
|
$
|
23,879
|
|
Estimated future amortization of intangible assets that will be recorded in cost of goods sold and operating expenses for the years ending March 31, are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
Amortization
|
2022
|
|
$
|
42,182
|
|
2023
|
|
22,758
|
|
2024
|
|
19,307
|
|
2025
|
|
14,838
|
|
2026
|
|
13,998
|
|
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Software development royalties
|
|
$
|
814,998
|
|
|
$
|
822,416
|
|
Compensation and benefits
|
|
122,404
|
|
|
81,791
|
|
Licenses
|
|
84,330
|
|
|
57,651
|
|
Refund Liability
|
|
53,361
|
|
|
77,829
|
|
Marketing and promotions
|
|
32,591
|
|
|
40,797
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
96,406
|
|
|
89,400
|
|
Accrued expenses and other current liabilities
|
|
$
|
1,204,090
|
|
|
$
|
1,169,884
|
|
12. DEBT
Credit Agreement
On February 8, 2019, we entered into an unsecured credit agreement (the “Credit Agreement”) that runs through February 8, 2024. The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of $200,000, 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.
Loans under the Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (3.25% at March 31, 2021) or (b) 1.125% to 1.750% above LIBOR (approximately 1.10% at March 31, 2021), which rates are determined by reference to our consolidated total net leverage ratio. We had no outstanding borrowings at March 31, 2021 and March 31, 2020.
Information related to availability on our Credit Agreement is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Available borrowings
|
|
$
|
197,874
|
|
|
$
|
198,336
|
|
Outstanding letters of credit
|
|
$
|
2,126
|
|
|
$
|
1,664
|
|
We recorded interest expense and fees related to the Credit Agreement of $355, $275 and $372, for the fiscal years ended March 31, 2021, 2020 and 2019, respectively and, under a prior credit agreement that was terminated on the same day that we entered into the Credit Agreement, $472 for the fiscal year ended March 31, 2019. 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).
13. EARNINGS PER SHARE ("EPS")
The following table sets forth the computation of basic and diluted EPS (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Computation of Basic earnings per share:
|
|
|
|
|
|
|
Net income
|
|
$
|
588,886
|
|
|
$
|
404,459
|
|
|
$
|
333,837
|
|
Weighted average common shares outstanding—basic
|
|
114,602
|
|
|
113,096
|
|
|
113,176
|
|
Basic earnings per share
|
|
$
|
5.14
|
|
|
$
|
3.58
|
|
|
$
|
2.95
|
|
|
|
|
|
|
|
|
Computation of Diluted earnings per share:
|
|
|
|
|
|
|
Net income
|
|
$
|
588,886
|
|
|
$
|
404,459
|
|
|
$
|
333,837
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
114,602
|
|
|
113,096
|
|
|
113,176
|
|
Add: dilutive effect of common stock equivalents
|
|
1,142
|
|
|
1,040
|
|
|
2,022
|
|
Weighted average common shares outstanding—diluted
|
|
115,744
|
|
|
114,136
|
|
|
115,198
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
5.09
|
|
|
$
|
3.54
|
|
|
$
|
2.90
|
|
14. 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 thirteen 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
Lease costs
|
|
|
|
|
Operating lease costs
|
|
$
|
37,300
|
|
|
$
|
29,383
|
|
Short term lease costs
|
|
$
|
1,148
|
|
|
$
|
2,771
|
|
Rent expense prior to our adoption of Topic 842 amounted to $29,204 for the fiscal year ended March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
Supplemental operating cash flow information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
35,458
|
|
|
$
|
28,419
|
|
ROU assets obtained in exchange for lease obligations
|
|
$
|
34,638
|
|
|
$
|
58,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Weighted average information
|
|
|
|
|
Remaining lease term
|
|
8.61 years
|
|
8.90 years
|
Discount rate
|
|
4.91
|
%
|
|
4.98
|
%
|
Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at March 31, 2021, are as follows:
|
|
|
|
|
|
|
|
|
For the years ending March 31,
|
|
|
2022
|
|
$
|
36,582
|
|
2023
|
|
35,369
|
|
2024
|
|
27,352
|
|
2025
|
|
21,350
|
|
2026
|
|
16,520
|
|
Thereafter
|
|
79,217
|
|
Total future lease payments
|
|
$
|
216,390
|
|
Less imputed interest
|
|
(25,124)
|
|
Total lease liabilities
|
|
$
|
191,266
|
|
As of March 31, 2021, we have entered into facility leases that have not yet commenced with future lease payments of approximately $5,709. These leases are expected to commence within the next twelve months and will have lease terms ranging from three to nine years.
15. COMMITMENTS AND CONTINGENCIES
A summary of annual minimum contractual obligations and commitments as of March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
Software
Development
and Licensing
|
|
Marketing
|
|
Purchase
Obligations
|
|
Total
|
2022
|
|
$
|
217,275
|
|
|
$
|
40,494
|
|
|
$
|
51,115
|
|
|
$
|
308,884
|
|
2023
|
|
160,991
|
|
|
42,376
|
|
|
25,986
|
|
|
229,353
|
|
2024
|
|
152,458
|
|
|
84,729
|
|
|
8,617
|
|
|
245,804
|
|
2025
|
|
108,321
|
|
|
26,184
|
|
|
1,503
|
|
|
136,008
|
|
2026
|
|
56,155
|
|
|
25,063
|
|
|
—
|
|
|
81,218
|
|
Thereafter
|
|
21,375
|
|
|
—
|
|
|
—
|
|
|
21,375
|
|
Total
|
|
$
|
716,575
|
|
|
$
|
218,846
|
|
|
$
|
87,221
|
|
|
$
|
1,022,642
|
|
Software Development and Licensing Agreements: We make payments to third-party software developers that include contractual payments to developers under several software development agreements that expire at various times through July 2031. Our aggregate outstanding software development commitments assume satisfactory performance by third-party software developers. We also have licensing commitments that primarily consist of obligations to holders of intellectual property rights for use of their trademarks, copyrights, technology or other intellectual property rights in the development of our products.
Marketing Agreements: We have certain minimum marketing support commitments where we commit to spend specified amounts related to marketing our products. Marketing commitments expire at various times through September 2025 and primarily reflect our agreements with major sports leagues and players' associations.
Purchase obligations: These obligations are primarily related to agreements to purchase services that are enforceable and legally binding on us that specifies all significant terms, including fixed, minimum or variable pricing provisions; and the approximate timing of the transactions, expiring at various times through March 2024.
Employee Savings Plans: For our United States employees we maintain a 401(k) retirement savings plan and trust. Our 401(k) plan is offered to all eligible employees and participants may make voluntary contributions. We also have various pension plans for our non-U.S. employees, some of which are required by local laws, and allow or require employer contributions. Employer contributions under all defined contribution and pension plans during the fiscal years ended March 31, 2021, 2020, and 2019 were $17,701, $14,071, and $10,881, respectively.
Legal and Other Proceedings: We are, or may become, subject to demands and claims (including intellectual property and employment related 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.
16. INCOME TAXES
Components of income before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Domestic
|
|
$
|
467,962
|
|
|
$
|
322,297
|
|
|
$
|
134,265
|
|
Foreign
|
|
209,854
|
|
|
136,142
|
|
|
98,520
|
|
Income before income taxes
|
|
$
|
677,816
|
|
|
$
|
458,439
|
|
|
$
|
232,785
|
|
Provision for (benefit from) current and deferred income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Current:
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
18,417
|
|
|
$
|
26,561
|
|
|
$
|
8,240
|
|
U.S. state and local
|
|
6,030
|
|
|
3,575
|
|
|
2,857
|
|
Foreign
|
|
27,333
|
|
|
10,061
|
|
|
22,274
|
|
Total current income taxes
|
|
51,780
|
|
|
40,197
|
|
|
33,371
|
|
Deferred:
|
|
|
|
|
|
|
U.S. federal
|
|
43,642
|
|
|
45,079
|
|
|
(128,317)
|
|
U.S. state and local
|
|
1,070
|
|
|
1,317
|
|
|
(9,157)
|
|
Foreign
|
|
(7,562)
|
|
|
(32,613)
|
|
|
3,051
|
|
Total deferred income taxes
|
|
37,150
|
|
|
13,783
|
|
|
(134,423)
|
|
Provision for (benefit from) income taxes
|
|
$
|
88,930
|
|
|
$
|
53,980
|
|
|
$
|
(101,052)
|
|
A reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
U.S. federal statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State and local taxes, net of U.S. federal benefit
|
|
1.1
|
%
|
|
2.1
|
%
|
|
2.9
|
%
|
Foreign tax rate differential(1)
|
|
(2.9)
|
%
|
|
1.0
|
%
|
|
(9.0)
|
%
|
Foreign earnings(2)
|
|
(0.3)
|
%
|
|
(9.3)
|
%
|
|
5.1
|
%
|
Tax credits(3)
|
|
(4.3)
|
%
|
|
(8.3)
|
%
|
|
(15.0)
|
%
|
Excess tax benefits from stock-based compensation
|
|
(2.0)
|
%
|
|
(1.8)
|
%
|
|
(5.7)
|
%
|
One-time transition tax
|
|
—
|
%
|
|
—
|
%
|
|
(2.0)
|
%
|
Valuation allowance—domestic
|
|
0.1
|
%
|
|
0.2
|
%
|
|
(46.0)
|
%
|
Valuation allowance—foreign(2)
|
|
—
|
%
|
|
7.3
|
%
|
|
—
|
%
|
Change in reserves
|
|
(0.4)
|
%
|
|
(2.0)
|
%
|
|
1.3
|
%
|
Other
|
|
0.8
|
%
|
|
1.6
|
%
|
|
4.0
|
%
|
Effective tax rate
|
|
13.1
|
%
|
|
11.8
|
%
|
|
(43.4)
|
%
|
(1) The foreign rate differentials in relation to foreign earnings, for all periods presented, are primarily driven by changes in the mix of our foreign earnings and the difference between the foreign and U.S. income tax rates. Fiscal year ended March 31, 2020 includes the impact of the reversal of a net deferred tax asset of $19,826 related to the effects of stock-based compensation from our intercompany cost-sharing arrangements due to an appeals court decision issued in Altera Corp. v. Commissioner.
(2) Fiscal year ended March 31, 2020 includes effects of a deferred tax asset and valuation allowance associated with a tax basis step up received in Switzerland related to the Federal Act on Tax Reform and AVH Financing ("TRAF") enacted on January 1, 2020.
(3) Tax benefits were recorded for fiscal years ended March 31, 2021, 2020, and 2019 attributable to certain tax credits related to software development activities.
The effects of temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Deferred tax assets:
|
|
|
|
|
Accrued compensation expense
|
|
$
|
132,794
|
|
|
$
|
124,276
|
|
Equity-based compensation
|
|
60,012
|
|
|
66,253
|
|
Tax credit carryforward
|
|
54,576
|
|
|
45,746
|
|
Tax basis step up related to TRAF
|
|
45,266
|
|
|
45,266
|
|
Operating lease liabilities
|
|
42,846
|
|
|
39,512
|
|
Net operating loss carryforward
|
|
5,576
|
|
|
5,555
|
|
Deferred revenue
|
|
3,323
|
|
|
—
|
|
Business reorganization
|
|
401
|
|
|
1,874
|
|
|
|
|
|
|
Other
|
|
10,236
|
|
|
7,785
|
|
Total deferred tax assets
|
|
355,030
|
|
|
336,267
|
|
Less: Valuation allowance
|
|
(95,761)
|
|
|
(86,937)
|
|
Net deferred tax assets
|
|
259,269
|
|
|
249,330
|
|
Deferred tax liabilities:
|
|
|
|
|
Capitalized software and depreciation
|
|
(99,673)
|
|
|
(74,006)
|
|
Right of use assets
|
|
(40,391)
|
|
|
(36,947)
|
|
Intangible amortization
|
|
(29,683)
|
|
|
(18,206)
|
|
Deferred revenue
|
|
—
|
|
|
(5,038)
|
|
Other
|
|
(2,773)
|
|
|
(3,587)
|
|
Total deferred tax liabilities
|
|
(172,520)
|
|
|
(137,784)
|
|
Net deferred tax asset (1)
|
|
86,749
|
|
|
111,546
|
|
(1) As of March 31, 2021, $90,206 is included in Deferred tax assets and $3,457 is included in Other long-term liabilities. As of March 31, 2020, $116,676 is included in Deferred tax assets and $5,130 is included in Other long-term liabilities.
The valuation allowance is primarily attributable to deferred tax assets for which no benefit is provided due to uncertainty with respect to their realization.
At March 31, 2021, we had domestic net operating loss carryforwards totaling $44,481 of which $19,329 will expire in 2022 to 2028, $18,296 will expire from 2029 to 2032, and $6,856 will expire in 2036 to 2041. In addition, we had foreign net operating loss carryforwards of $10,236, of which $1,170 will expire in 2028 and the remainder may be carried forward indefinitely.
At March 31, 2021, we had domestic tax credit carryforwards totaling $173,559, of which $46,875 expire in 2038 to 2041, and the remainder may be carried forward indefinitely.
The total amount of undistributed earnings of foreign subsidiaries was approximately $419,887 at March 31, 2021 and $562,269 at March 31, 2020. As of March 31, 2021, it is our intention to reinvest indefinitely undistributed earnings of our foreign subsidiaries. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes which may become payable if undistributed earnings of foreign subsidiaries are repatriated. It is not practicable to estimate the tax liability that would arise if these earnings were remitted.
We are regularly audited by domestic and foreign taxing authorities. Audits may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe that our tax return positions comply with applicable tax law and that we have adequately provided for reasonably foreseeable assessments of additional taxes. Additionally, we believe that any assessments in excess of the amounts provided for will not have a material adverse effect on our Consolidated Financial Statements. 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.
We recognize interest and penalties related to uncertain tax positions in the provision for income taxes in our Consolidated Statements of Operations. For the fiscal years ended March 31, 2021, 2020 and 2019, we recognized an increase of interest and penalties of $2,594, $71 and $232, respectively. The gross amount of interest and penalties accrued as of March 31, 2021 and 2020 was $9,351 and $6,757, respectively.
As of March 31, 2021, we had gross unrecognized tax benefits, including interest and penalties, of $167,559, of which $62,569 would affect our effective tax rate if realized. For the fiscal year ended March 31, 2021, gross unrecognized tax benefits increased by $33,290.
We are no longer subject to audit for U.S. federal income tax returns for periods prior to our fiscal year ended March 31, 2018 and state income tax returns for periods prior to the fiscal year ended March 31, 2017. With few exceptions, we are no longer subject to income tax examinations in non-U.S. jurisdictions for years prior to fiscal year ended March 31, 2016. Certain U.S. state and foreign taxing authorities are currently examining our income tax returns for the fiscal years ended March 31, 2015 through March 31, 2019.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that a reduction of $8,950 of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect our income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.
The aggregate changes to the liability for gross uncertain tax positions, excluding interest and penalties, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Balance, beginning of period
|
|
$
|
127,512
|
|
|
$
|
132,320
|
|
|
$
|
122,056
|
|
Additions:
|
|
|
|
|
|
|
Current year tax positions
|
|
18,861
|
|
|
8,596
|
|
|
13,281
|
|
Prior year tax positions
|
|
20,953
|
|
|
1,404
|
|
|
288
|
|
Reduction of prior year tax positions
|
|
(981)
|
|
|
(14,270)
|
|
|
(1,700)
|
|
Lapse of statute of limitations
|
|
(8,136)
|
|
|
(538)
|
|
|
(1,605)
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
158,209
|
|
|
$
|
127,512
|
|
|
$
|
132,320
|
|
We believe that we have provided for any reasonably foreseeable outcomes related to our tax audits and that any settlement will not have a material adverse effect on our consolidated financial statements. However, there can be no assurances as to the possible outcomes.
17. STOCK-BASED COMPENSATION
Stock Incentive Plan
In September 2017, our stockholders approved our 2017 Stock Incentive Plan (the "2017 Plan"). The aggregate number of shares issuable under the 2017 Plan is 9,654, subject to adjustment as set forth in the 2017 Plan, and, as of March 31, 2021, there were approximately 4,305 shares available for issuance. The 2017 Plan is administered by the Compensation Committee of the Board of Directors and allows for awards of restricted stock units and other stock-based awards of our common stock to employees and non-employees, including to ZelnickMedia in connection with their contract to provide executive management service to us. Subject to the provisions of the plans, the Board of Directors, or any Committee appointed by the Board of Directors, has the authority to determine the individuals to whom the equity awards are to be granted, the number of shares to be covered by each equity award, the vesting period, restrictions, if any, on the equity award and the terms and conditions of the equity award. Upon the vesting of certain stock-based awards, employees have the option to have us withhold shares to satisfy the employee's federal and state tax withholding requirements.
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense included in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Cost of goods sold
|
|
$
|
8,707
|
|
|
$
|
154,031
|
|
|
$
|
149,075
|
|
Selling and marketing
|
|
18,348
|
|
|
18,680
|
|
|
23,685
|
|
General and administrative
|
|
56,830
|
|
|
53,607
|
|
|
51,903
|
|
Research and development
|
|
26,587
|
|
|
31,563
|
|
|
23,037
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
$
|
110,472
|
|
|
$
|
257,881
|
|
|
$
|
247,700
|
|
Income tax benefit
|
|
$
|
(21,746)
|
|
|
$
|
(48,687)
|
|
|
$
|
(48,383)
|
|
Stock-based compensation expense, net of income tax benefit
|
|
$
|
88,726
|
|
|
$
|
209,194
|
|
|
$
|
199,317
|
|
Capitalized stock-based compensation expense
|
|
$
|
30,124
|
|
|
$
|
24,451
|
|
|
$
|
75,725
|
|
During the fiscal year ended March 31, 2021, the forfeiture of awards resulted in the reversal of expense of $69,758 and amounts capitalized as software development costs of $10,837. During the fiscal year ended March 31, 2020, the forfeiture of awards resulted in the reversal of expense of $425 and amounts capitalized as software development costs of $2,607. During the fiscal year ended March 31, 2019, the forfeiture of awards resulted in the reversal of expense of $5,784 and amounts capitalized as software development costs of $17,504.
As of March 31, 2021, the total future unrecognized compensation cost related to outstanding unvested restricted stock was $410,665 and will be either recognized as compensation expense over a weighted-average period of approximately 2.07 years or capitalized as software development costs.
For the fiscal years ended March 31, 2021, 2020 and 2019, the total fair values of restricted stock units that vested were $205,867, $219,007 and $264,162, respectively.
Restricted Stock Units
Employee Awards
Time-based restricted stock units granted to employees under our stock-based compensation plans generally vest either annually or quarterly over three years from the date of grant. Certain restricted stock units granted to key officers, senior-level employees, or key employees vest based on market conditions, primarily related to the performance of the price of our common stock. Certain restricted stock units granted to key officers, senior-level employees, or key employees vest based on performance conditions, primarily related to performance metrics around certain of our titles.
ZelnickMedia Non-Employee Awards
In connection with the 2017 Management Agreement, we granted restricted stock units to ZelnickMedia (see Note 3 - Management Agreement) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
Time-based
|
|
79
|
|
|
92
|
|
Market-based(1)
|
|
145
|
|
|
168
|
|
Performance-based(1)
|
|
|
|
|
IP
|
|
24
|
|
|
28
|
|
Recurrent Consumer Spending ("RCS")
|
|
24
|
|
|
28
|
|
Total Performance-based
|
|
48
|
|
|
56
|
|
Total Restricted Stock Units
|
|
272
|
|
|
316
|
|
(1) Represents the maximum number of shares eligible to vest.
Time-based restricted stock units granted in fiscal year 2021 will vest on April 13, 2022, provided that the 2017 Management Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2020 vested on April 13, 2021.
Market-based restricted stock units granted in fiscal year 2021 are eligible to vest on April 13, 2022, provided that the 2017 Management Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2020 vested on April 13, 2021. Market-based restricted stock units are eligible to vest based on our 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 least at the 75th percentile.
Performance-based restricted stock units granted in fiscal year 2021 are eligible to vest on April 13, 2022, provided that the 2017 Management Agreement has not been terminated prior to such vesting date, and those granted in fiscal 2020 vested on April 13, 2021. 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. Certain performance metrics have been achieved as of March 31, 2021 for the "IP" and "RCS" performance-based restricted stock units granted in fiscal year 2020 and fiscal year 2021.
The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia as of March 31, 2021 and 2020 were 588 and 613, respectively. During the fiscal year ended March 31, 2021, 296 restricted stock units previously granted to ZelnickMedia vested and 0 restricted stock units were forfeited by ZelnickMedia.
Fair Value of Stock-Based Awards
Time-Based Awards
The estimated value, based on the closing price of our stock on the grant date, of time-based restricted stock units granted to employees during the fiscal years ended March 31, 2021, 2020 and 2019 was $171.58, $115.01 and $103.79 per share, respectively.
For the fiscal years ended March 31, 2021, 2020 and 2019, the estimated value, based on the closing price of our stock on the grant date, of time-based restricted stock awards granted to ZelnickMedia was $120.00, $92.65 and $97.19 per share, respectively.
The following table summarizes the activity in non-vested restricted stock units to employees and ZelnickMedia under our stock-based compensation plans with time-based restricted stock awards presented at 100% of target number of shares that may potentially vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted
Average Fair
Value on
Grant Date
|
Non-vested restricted stock units at March 31, 2020
|
|
1,960
|
|
|
$
|
99.54
|
|
Granted
|
|
1,191
|
|
|
$
|
167.52
|
|
Vested
|
|
(925)
|
|
|
$
|
106.41
|
|
Forfeited
|
|
(162)
|
|
|
$
|
167.03
|
|
Non-vested restricted stock units at March 31, 2021
|
|
2,064
|
|
|
$
|
139.94
|
|
Market-Based Awards
The following table summarizes the weighted-average assumptions used in the Monte Carlo Simulation to estimate the fair value of market-based awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
|
|
Employee
Market-Based
|
|
Non-Employee
Market-Based
|
|
Employee
Market-Based
|
|
Non-Employee
Market-Based
|
|
Employee
Market-Based
|
|
Non-Employee
Market-Based
|
Risk-free interest rate
|
|
0.2
|
%
|
|
0.2
|
%
|
|
1.8
|
%
|
|
2.4
|
%
|
|
2.6
|
%
|
|
2.4
|
%
|
Expected stock price volatility
|
|
40.7
|
%
|
|
40.8
|
%
|
|
39.4
|
%
|
|
39.9
|
%
|
|
34.9
|
%
|
|
31.4
|
%
|
Expected service period (years)
|
|
1.5
|
|
1.0
|
|
1.5
|
|
1.0
|
|
1.5
|
|
1.0
|
Dividends
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
The estimated value of market-based restricted stock awards granted to employees during the fiscal years ended March 31, 2021, 2020, and 2019 was $279.09, $201.07, and $150.91 per share, respectively. For the fiscal years ended March 31, 2021, 2020, and 2019, the estimated value of the market-based restricted stock awards granted to ZelnickMedia was $200.34, $132.50, and $119.21 per share, respectively.
The following table summarizes the activity in non-vested restricted stock units to employees and ZelnickMedia under our stock-based compensation plans with market-based restricted stock awards presented at 100% of target number of shares that may potentially vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted
Average Fair
Value on
Grant Date
|
Non-vested restricted stock units at March 31, 2020
|
|
358
|
|
|
$
|
157.05
|
|
Granted
|
|
367
|
|
|
$
|
185.05
|
|
Vested
|
|
(395)
|
|
|
$
|
144.65
|
|
Forfeited
|
|
(7)
|
|
|
$
|
228.34
|
|
Non-vested restricted stock units at March 31, 2021
|
|
323
|
|
|
$
|
187.21
|
|
Performance-Based Awards
The estimated value of performance-based restricted stock awards granted to employees during the fiscal year ended March 31, 2021, 2020, and 2019 was $176.42, $124.50, and $100.29, respectively. For the fiscal years ended March 31, 2021, 2020, and 2019, the estimated value of the performance-based restricted stock awards granted to ZelnickMedia was $120.00, $92.65, and $97.19 per share, respectively.
The following table summarizes the activity in non-vested restricted stock units to employees and ZelnickMedia under our stock-based compensation plans with performance restricted stock awards presented at 100% of target number of shares that may potentially vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted
Average Fair
Value on
Grant Date
|
Non-vested restricted stock units at March 31, 2020
|
|
3,239
|
|
|
$
|
119.97
|
|
Granted
|
|
1,768
|
|
|
$
|
174.47
|
|
Vested
|
|
(80)
|
|
|
$
|
100.36
|
|
Forfeited
|
|
(1,328)
|
|
|
$
|
176.61
|
|
Non-vested restricted stock units at March 31, 2021
|
|
3,599
|
|
|
$
|
150.06
|
|
Employee Stock Purchase Plans
In September 2017, our stockholders approved our 2017 Global Employee Stock Purchase Plan as amended and restated ("ESPP"). The maximum aggregate number of shares of common stock that may be issued under the plan is 9,000, and as of March 31, 2021, there were approximately 8,677 shares available for issuance. The ESPP is administered by the Compensation Committee of the Board of Directors and allows for eligible employees an option to purchase shares of our common stock, which the employee may or may not exercise during an offering period. Eligible employees may authorize payroll deductions of between 1% and 10% of their compensation to purchase shares of common stock at 85% of the lower of
the market price of our common stock on the date of commencement of the applicable offering period or on the last day of each six-month purchase period.
The fair value is determined using the Black-Scholes valuation model. Key assumptions of the Black-Scholes valuation model are the risk-free interest rate, expected volatility, expected term and expected dividends. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option. Expected volatility is based on a combination of historical stock price volatility and implied volatility of publicly-traded options on our common stock. Expected term is determined based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior. The following table summarizes the assumptions used in the Black-Scholes valuation model to value our purchase rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
Risk-free interest rate
|
|
0.1%
|
|
1.6% - 2.4%
|
Expected stock price volatility
|
|
33.8% - 46.8%
|
|
28.1% - 45.6%
|
Expected service period (years)
|
|
0.5
|
|
0.5
|
Dividends
|
|
None
|
|
None
|
For the fiscal year ended March 31, 2021, our employees purchased 139 shares for $14,214 with a weighted-average fair value of $101.81. For the fiscal year ended March 31, 2020, our employees purchased 126 shares for $10,515 with a weighted-average fair value of $83.25.
18. SHARE REPURCHASE PROGRAM
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 does not require us to repurchase shares and may be suspended or discontinued at any time for any reason.
During the fiscal years ended March 31, 2021, 2020, and 2019 we repurchased 0, 0, and 3,716 shares of our common stock in the open market, respectively, for $0, $0, and $362,429, respectively, including commissions of $0, $0 and $37, respectively, as part of the program. As of March 31, 2021, we had repurchased a total of 10,400 shares of our common stock under the program, and 3,818 shares of our common stock remained available for repurchase under the share repurchase program.
All of the repurchased shares are classified as Treasury stock in our Consolidated Balance Sheets.
19. INTEREST AND OTHER, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Interest income
|
|
$
|
18,701
|
|
|
$
|
47,341
|
|
|
$
|
38,019
|
|
Interest expense
|
|
(6,207)
|
|
|
(2,637)
|
|
|
(8,032)
|
|
Foreign currency exchange gain (loss)
|
|
727
|
|
|
(3,589)
|
|
|
(505)
|
|
Other
|
|
(4,425)
|
|
|
(2,610)
|
|
|
(3,369)
|
|
Interest and other, net
|
|
$
|
8,796
|
|
|
$
|
38,505
|
|
|
$
|
26,113
|
|
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table provides the components of accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
|
$
|
(33,090)
|
|
|
$
|
600
|
|
|
$
|
(5,285)
|
|
|
$
|
586
|
|
|
$
|
(37,189)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(27,445)
|
|
|
—
|
|
|
10,504
|
|
|
(3,332)
|
|
|
(20,273)
|
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
—
|
|
|
—
|
|
|
(1,689)
|
|
|
—
|
|
|
(1,689)
|
|
Tax effect on cross-currency swap
|
|
—
|
|
|
—
|
|
|
775
|
|
|
—
|
|
|
775
|
|
Balance at March 31, 2020
|
|
$
|
(60,535)
|
|
|
$
|
600
|
|
|
$
|
4,305
|
|
|
$
|
(2,746)
|
|
|
$
|
(58,376)
|
|
Other comprehensive income (loss) before reclassifications
|
|
51,253
|
|
|
—
|
|
|
(3,817)
|
|
|
3,364
|
|
|
50,800
|
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
—
|
|
|
(600)
|
|
|
(1,333)
|
|
|
—
|
|
|
(1,933)
|
|
Tax effect on cross-currency swap
|
|
—
|
|
|
—
|
|
|
845
|
|
|
—
|
|
|
845
|
|
Balance at March 31, 2021
|
|
$
|
(9,282)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
618
|
|
|
$
|
(8,664)
|
|
21. SUPPLEMENTARY FINANCIAL INFORMATION
The following table provides details of our valuation and qualifying accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Additions
|
|
Deductions
|
|
Other
|
|
Ending
Balance
|
Fiscal Year Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred income taxes
|
|
$
|
86,937
|
|
|
11,525
|
|
|
(2,701)
|
|
|
—
|
|
|
$
|
95,761
|
|
Allowance for doubtful accounts
|
|
443
|
|
|
—
|
|
|
—
|
|
|
(93)
|
|
|
350
|
|
Fiscal Year Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred income taxes
|
|
$
|
49,413
|
|
|
44,703
|
|
|
(7,179)
|
|
|
—
|
|
|
$
|
86,937
|
|
Allowance for doubtful accounts
|
|
995
|
|
|
—
|
|
|
(547)
|
|
|
(5)
|
|
|
443
|
|
Fiscal Year Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred income taxes(1)
|
|
$
|
195,640
|
|
|
11,850
|
|
|
(107,133)
|
|
|
(50,944)
|
|
|
$
|
49,413
|
|
Allowance for doubtful accounts
|
|
1,247
|
|
|
651
|
|
|
—
|
|
|
(903)
|
|
|
995
|
|
(1) Amount categorized as Other represents a reduction to the valuation allowance included in the cumulative effect of initially applying the New Revenue Accounting Standard as an adjustment to the opening balance of Retained earnings, due to revenues that were previously deferred being accelerated to Retained earnings, for which a timing difference exists for accounting and tax purposes.
22. ACQUISITIONS
On September 4, 2020, we completed the acquisition of privately-held Playdots, Inc. ("Playdots"), a New York, New York based free-to-play mobile game developer, for consideration of $97,846 in cash and 604 shares of our common stock. The cash portion was funded from our cash on hand. Of the cash consideration, $13,440 was contractually deferred and accrued for within Accrued expenses and other current liabilities within our Consolidated Balance Sheet at acquisition. During the fiscal year ended March 31, 2021, we paid out $3,840 of this amount. As of March 31, 2021, $9,600 remained accrued within Accrued expenses and other current liabilities within our Consolidated Balance Sheet at acquisition.
We acquired Playdots as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings.
The acquisition-date fair value of the consideration totaled $195,493, which consisted of the following:
|
|
|
|
|
|
|
Fair value of purchase consideration
|
Cash
|
$
|
97,846
|
|
Common stock (604 shares)
|
97,647
|
|
Total
|
$
|
195,493
|
|
We used the acquisition method of accounting and recognized assets at their fair value as of the date of acquisition, with the excess recorded to goodwill. The preliminary fair values of net tangible and intangible assets are management’s estimates based on the information available at the acquisition date and may change over the measurement period, which will end no later than one year from the acquisition date, to the extent additional information is received. The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Playdots:
|
|
|
|
|
|
|
|
|
|
Fair Value
|
Weighted average useful life
|
Cash acquired
|
$
|
12,098
|
|
N/A
|
Other tangible net assets
|
8,206
|
|
N/A
|
Other liabilities assumed
|
(24,680)
|
|
N/A
|
Intangible Assets
|
|
|
Developed game technology
|
69,000
|
|
6
|
User base
|
6,200
|
|
1
|
Branding and trade names
|
3,400
|
|
8
|
Game engine technology
|
2,200
|
|
4
|
Goodwill
|
119,069
|
|
N/A
|
Total
|
$
|
195,493
|
|
|
|
|
|
Goodwill, which is not deductible for U.S. income tax purposes, is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.
The amounts of revenue and earnings of Playdots included in our Consolidated Statement of Operations from the acquisition date to the period ending March 31, 2021 are as follows:
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2021
|
Net revenue
|
$
|
20,640
|
|
Net income (loss)
|
$
|
(27,407)
|
|
|
|
|
|
The following table summarizes the pro forma consolidated results of operations (unaudited) for the fiscal years ended March 31, 2021 and 2020, respectively, as though the acquisition had occurred on April 1, 2019, the beginning of Fiscal 2020, and Playdots had been included in our consolidated results for the entire periods subsequent to that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
Pro forma Net revenue
|
|
$
|
3,392,117
|
|
|
$
|
3,112,757
|
|
|
|
Pro forma Net income
|
|
$
|
580,393
|
|
|
$
|
370,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unaudited pro forma consolidated results above are based on the historical financial statements of the Company and Playdots and not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2020 and are not indicative of the future operating results of the combined company. The financial information for Playdots prior to the acquisition has been included in the pro forma results of operations and includes certain adjustments to the historical consolidated financial statements of Playdots to align with our accounting policies. The pro forma consolidated results of operations also include the business combination accounting effects resulting from the acquisition, including amortization expense related to finite-lived intangible assets acquired and the related tax effects assuming that the business combination occurred on April 1, 2019.
Transaction costs of $2,553 for the fiscal years ended March 31, 2021, which have been recorded within General and administrative expense in our Consolidated Statements of Operations, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature.