Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except share and per share amounts)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware in 1993. We are a leading developer, publisher and
marketer of interactive entertainment for consumers around the globe. We develop and publish products through our two wholly-owned labels Rockstar Games and 2K. Our products are designed for console
systems and personal computers, including smart phones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements are unaudited and include the accounts of the Company and its wholly-owned
subsidiaries and, in the opinion of management, reflect all normal and recurring adjustments necessary for the fair presentation of our financial position, results of operations and cash flows.
Interim results may not be indicative of the results that may be expected for the full fiscal year. All inter-company accounts and transactions have been eliminated in consolidation. The preparation
of these Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect
the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. As permitted under generally accepted accounting principles in the United States, interim accounting
for certain expenses, including income taxes, are based on full year assumptions when appropriate. Actual results could differ materially from those estimates.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been
omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although we believe that the disclosures are adequate to make the information presented not misleading. These
Condensed
Consolidated Financial Statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto, included in our Annual Report on
Form 10-K for the year ended March 31, 2016.
Certain
immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.
Recently Issued Accounting Pronouncements
Accounting for Stock Compensation
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09,
CompensationStock Compensation. This new guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax
consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain
classifications on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016 (April 1, 2017 for the Company) and interim periods within
those annual periods. Early adoption is permitted in any interim or annual period. We are currently evaluating the impact of adopting this update on our Consolidated Financial Statements.
6
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, "Leases." This new guidance requires lessees to recognize a right-of-use asset and a
lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based
on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or
finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital
leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. This update is effective for annual periods, and interim periods within those
years, beginning after December 15, 2018 (April 1, 2019 for the Company). This new guidance must be adopted using a modified retrospective approach whereby lessees and lessors are
required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact
of adopting this update on our Consolidated Financial Statements.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), as a new Topic, Accounting
Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a
company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In March 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross
versus Net), which clarifies the implementation guidance on principal versus agent considerations included in ASU 2014-09. The guidance includes indicators to assist an entity in determining whether
it controls a specified good or service before it is transferred to customers. In April 2016, the FASB amended ASU 2014-09 by issuing ASU 2016-10, Revenue from Contracts with Customers: Identifying
Performance Obligations and Licensing, which clarifies the implementation guidance on licensing and identifying performance obligations. In May 2016, the FASB further amended ASU 2014-09 by issuing
ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which does not change the core principles of the standard, but clarifies the guidance on
assessing collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. ASU 2014-09 and its amendments can be adopted retrospectively to each period
presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to defer the effective date by one year to annual and interim years beginning after
December 15, 2017 (April 1, 2018 for the Company). Early adoption is permitted, but no earlier than the original effective date of annual and interim periods beginning after
December 15, 2016 (April 1, 2017 for the Company). While we continue to evaluate the impact and available implementation approaches, we believe adoption of ASU 2014-09, as
amended, may have a material impact on the allocation and timing of revenue recognition and associated cost of goods sold.
7
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
2. MANAGEMENT AGREEMENT
In May 2011, we entered into an amended management services agreement, (the "2011 Management Agreement") with ZelnickMedia Corporation ("ZelnickMedia") pursuant to which ZelnickMedia
provided us with certain management, consulting and executive level services. In March 2014, we entered into a new management agreement, (the "2014 Management Agreement"), with ZelnickMedia pursuant
to which ZelnickMedia continues to provide financial and management consulting services to the Company through March 31, 2019. The 2014 Management Agreement became effective April 1,
2014 and supersedes and replaces the 2011 Management Agreement, except as otherwise contemplated by the 2014 Management Agreement. As part of the 2014 Management Agreement, Strauss Zelnick, the
President of ZelnickMedia, continues to serve as Executive Chairman and Chief Executive Officer and Karl Slatoff, a partner of ZelnickMedia, continues to serve as President of the Company. The 2014
Management Agreement provides for an annual management fee of $2,970 over the term of the agreement and a maximum annual bonus opportunity of $4,752 over the term of the agreement, based on the
Company achieving certain performance thresholds. In consideration for ZelnickMedia's services, we recorded consulting expense (a component of general and administrative expenses) of $1,337 during
each of the three months ended June 30, 2016 and 2015. During the three months ended June 30, 2016 and 2015, we recorded $3,889 and $7,323, respectively, of stock-based compensation
expense for non-employee restricted stock units granted to ZelnickMedia, which is included in general and administrative expenses.
In
connection with the 2014 Management Agreement, we granted restricted stock units as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2016
|
|
2015
|
|
Time-based
|
|
|
107,551
|
|
|
151,575
|
|
Market-based(1)
|
|
|
199,038
|
|
|
280,512
|
|
Performance-based(1)
|
|
|
|
|
|
|
|
New IP
|
|
|
33,174
|
|
|
46,752
|
|
Major IP
|
|
|
33,172
|
|
|
46,752
|
|
|
|
|
|
|
|
|
|
Total- Performance-based
|
|
|
66,346
|
|
|
93,504
|
|
|
|
|
|
|
|
|
|
Total Restricted Stock Units
|
|
|
372,935
|
|
|
525,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the maximum number of shares eligible to vest.
Time-based
restricted stock units granted in 2016 will vest on April 1, 2018 and those granted in 2015 will vest on April 1, 2017, in each case provided that the 2014
Management Agreement has not been terminated prior to such vesting date.
Market-based
restricted stock units granted in 2016 are eligible to vest on April 1, 2018 and those granted in 2015 are eligible to vest on April 1, 2017, in each case
provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Market-based restricted stock units are eligible to vest based on the Company's Total Shareholder Return
(as defined in the relevant grant agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute the NASDAQ Composite Index as of the
grant date measured over a
8
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
2. MANAGEMENT AGREEMENT (Continued)
two-year
period. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the
Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile. Each reporting period,
we re-measure the fair value of the unvested shares of market-based restricted stock units granted to ZelnickMedia.
Performance-based
restricted stock units granted in 2016 are eligible to vest on April 1, 2018 and those granted in 2015 are eligible to vest on April 1, 2017, in each case
provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Performance-based restricted stock units, of which 50% are tied to "New IP" and 50% to "Major IP" (as
defined in the relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in the relevant grant agreement) of individual product
releases of "New IP" or "Major IP" measured over a two-year period. The target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the
grant amounts set forth in the above table (the numbers in the table represent the maximum number of performance-based restricted stock units that may be earned). Each reporting period, we assess the
performance metric and upon achievement of certain thresholds record an expense for the unvested portion of the shares of performance-based restricted stock units. Certain performance metrics, based
on unit sales, have been achieved as of June 30, 2016 and March 31, 2016 for the "Major IP" performance-based restricted stock units granted in 2015.
The
unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were 898,526 and 1,145,081 as of June 30, 2016 and
March 31, 2016, respectively. In addition to the restricted stock units granted to ZelnickMedia, 591,912 restricted stock units vested and 27,578 restricted stock units were forfeited during
the three months ended June 30, 2016.
3. FAIR VALUE MEASUREMENTS
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, approximate fair
value because of their short maturities.
We
follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and
minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:
-
-
Level 1Quoted prices in active markets for identical assets or liabilities.
-
-
Level 2Observable 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 3Unobservable 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.
9
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
3. FAIR VALUE MEASUREMENTS (Continued)
The
table below segregates all assets that are measured at fair value on a recurring basis (which is measured at least annually) into the most appropriate level within the fair value
hierarchy based on the inputs used to determine the fair value at the measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
Quoted prices
in active
markets for
identical
assets (level 1)
|
|
Significant other
observable inputs
(level 2)
|
|
Significant
unobservable
inputs
(level 3)
|
|
Balance Sheet Classification
|
Money market funds
|
|
$
|
518,581
|
|
$
|
518,581
|
|
$
|
|
|
$
|
|
|
Cash and cash equivalents
|
Bank-time deposits
|
|
|
83,294
|
|
|
83,294
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
Corporate bonds
|
|
|
206,011
|
|
|
|
|
|
206,011
|
|
|
|
|
Short-term investments
|
Bank-time deposits
|
|
|
186,478
|
|
|
186,478
|
|
|
|
|
|
|
|
Short-term investments
|
Foreign currency forward contracts
|
|
|
(88
|
)
|
|
|
|
|
(88
|
)
|
|
|
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring fair value measurements, net
|
|
$
|
994,276
|
|
$
|
788,353
|
|
$
|
205,923
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
Quoted prices
in active
markets for
identical
assets (level 1)
|
|
Significant other
observable inputs
(level 2)
|
|
Significant
unobservable
inputs
(level 3)
|
|
Balance Sheet Classification
|
Money market funds
|
|
$
|
562,726
|
|
$
|
562,726
|
|
$
|
|
|
$
|
|
|
Cash and cash equivalents
|
Corporate bonds
|
|
|
205,250
|
|
|
|
|
|
205,250
|
|
|
|
|
Short-term investments
|
Bank-time deposits
|
|
|
265,570
|
|
|
265,570
|
|
|
|
|
|
|
|
Short-term investments
|
Foreign currency forward contracts
|
|
|
(137
|
)
|
|
|
|
|
(137
|
)
|
|
|
|
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring fair value measurements, net
|
|
$
|
1,033,409
|
|
$
|
828,296
|
|
$
|
205,113
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
did not have any transfers between Level 1 and Level 2 fair value measurements during the three months ended June 30, 2016.
Debt
As of June 30, 2016, the estimated fair value of our 1.75% Convertible Notes due 2016 (the "1.75% Convertible Notes") and 1.00%
Convertible Notes due 2018 (the "1.00% Convertible Notes" and together with the 1.75% Convertible Notes, the "Convertible Notes") was $496,500 and $516,005, respectively. The fair value was determined
using Level 2 inputs, observable market data, for the Convertible Notes and its embedded option feature. See Note 9 for additional information regarding our Convertible Notes.
10
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
4. SHORT-TERM INVESTMENTS
Our short-term investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
Gross
Unrealized
|
|
|
|
|
|
Cost or
Amortized
Cost
|
|
Fair
Value
|
|
|
|
Gains
|
|
Losses
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
186,478
|
|
$
|
|
|
$
|
|
|
$
|
186,478
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
205,716
|
|
|
318
|
|
|
(23
|
)
|
|
206,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
392,194
|
|
$
|
318
|
|
$
|
(23
|
)
|
$
|
392,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
Gross
Unrealized
|
|
|
|
|
|
Cost or
Amortized
Cost
|
|
Fair
Value
|
|
|
|
Gains
|
|
Losses
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
265,570
|
|
$
|
|
|
$
|
|
|
$
|
265,570
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
205,166
|
|
|
131
|
|
|
(47
|
)
|
|
205,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
470,736
|
|
$
|
131
|
|
$
|
(47
|
)
|
$
|
470,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains and losses of our available-for-sale securities are reported as a component of other comprehensive income (loss), net of tax, until the security is sold, the security
has matured, or we determine that the fair value of the security has declined below its adjusted cost basis and the decline is other-than-temporary. We evaluate our investments for impairment
quarterly. We consider various factors in the review of investments with an unrealized loss, including the credit quality of the issuer, the duration that the fair value has been less than the
adjusted cost basis, the severity of the impairment, the reason for the decline in value and our intent to sell and ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery in market value. Based on our
review, we did not consider these investments to be other-than-temporarily impaired as of June 30, 2016 or March 31, 2016.
The
following table summarizes the contracted maturities of our short-term investments at June 30, 2016:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Short-term investments
|
|
|
|
|
|
|
|
Due in 1 year or less
|
|
$
|
337,191
|
|
$
|
337,301
|
|
Due in 1 - 2 years
|
|
|
55,003
|
|
|
55,188
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
392,194
|
|
$
|
392,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange
rates. We do not enter into derivative financial contracts for speculative or trading purposes. We classify cash flows from derivative transactions as cash flows from operating activities in our
Condensed Consolidated Statements of Cash Flows.
The
following table shows the gross notional amounts of foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Forward contracts to sell foreign currencies
|
|
$
|
31,340
|
|
$
|
54,529
|
|
Forward contracts to purchase foreign currencies
|
|
|
12,112
|
|
|
2,409
|
|
For
the three months ended June 30, 2016 and 2015, we recorded a gain of $798 and a loss of $662, respectively, related to foreign currency forward contracts in interest and
other, net in our Condensed Consolidated Statements of Operations. Our derivative contracts are foreign currency exchange forward contracts that are not designated as hedging instruments under hedge
accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense. These instruments are generally short term in nature, with typical
maturities of less than one year, and are subject to fluctuations in foreign exchange rates.
6. INVENTORY
Inventory balances by category are as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Finished products
|
|
$
|
11,272
|
|
$
|
14,321
|
|
Parts and supplies
|
|
|
1,462
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
12,734
|
|
$
|
15,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
product returns included in inventory at June 30, 2016 and March 31, 2016 were $832 and $527, respectively.
7. SOFTWARE DEVELOPMENT COSTS AND LICENSES
Details of our capitalized software development costs and licenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
March 31, 2016
|
|
|
|
Current
|
|
Non-current
|
|
Current
|
|
Non-current
|
|
Software development costs, internally developed
|
|
$
|
146,187
|
|
$
|
195,985
|
|
$
|
131,378
|
|
$
|
162,261
|
|
Software development costs, externally developed
|
|
|
20,301
|
|
|
45,134
|
|
|
46,888
|
|
|
45,703
|
|
Licenses
|
|
|
730
|
|
|
6,153
|
|
|
121
|
|
|
6,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs and licenses
|
|
$
|
167,218
|
|
$
|
247,272
|
|
$
|
178,387
|
|
$
|
214,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
7. SOFTWARE DEVELOPMENT COSTS AND LICENSES (Continued)
Software
development costs and licenses as of June 30, 2016 and March 31, 2016 included $369,273 and $343,450, respectively, related to titles that have not been released.
During the three months ended June 30, 2016 and 2015 we recorded $9,068 and $1,710, respectively of software development impairment charges (a component of cost of goods sold).
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Software development royalties
|
|
$
|
445,171
|
|
$
|
414,492
|
|
Business reorganization
|
|
|
65,935
|
|
|
66,323
|
|
Compensation and benefits
|
|
|
34,216
|
|
|
39,919
|
|
Licenses
|
|
|
27,899
|
|
|
31,825
|
|
Marketing and promotions
|
|
|
20,629
|
|
|
14,938
|
|
Other
|
|
|
25,585
|
|
|
39,982
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
619,435
|
|
$
|
607,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. DEBT
Credit Agreement
In April 2016, we entered into a Sixth Amendment to our Second Amended and Restated Credit Agreement (as amended, the "Credit
Agreement"). The Credit Agreement provides for borrowings of up to $100,000 which may be increased by up to $100,000 pursuant to the terms of the Credit Agreement, and is secured by substantially all
of our assets and the equity of our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear interest at our election of (a) 0.25%
to 0.75% above a certain base rate (3.75% at June 30, 2016), or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 1.71% at June 30, 2016), with the margin rate subject to the
achievement of certain average liquidity levels. We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based on availability. We had no outstanding
borrowings at June 30, 2016 and March 31, 2016.
Availability
under the Credit Agreement is unrestricted when liquidity, as defined in the Credit Agreement, is at least $300,000. When liquidity is below $300,000 availability under the
Credit Agreement is restricted by our United States and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows for the issuance of letters of credit in an
aggregate amount of up to $5,000.
Information
related to availability on our Credit Agreement is as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Available borrowings
|
|
$
|
98,266
|
|
$
|
98,335
|
|
Outstanding letters of credit
|
|
|
1,731
|
|
|
1,664
|
|
13
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
9. DEBT (Continued)
We
recorded interest expense and fees related to the Credit Agreement of $110 for each of the three months ended June 30, 2016 and 2015. The Credit Agreement contains covenants
that substantially limit us and our subsidiaries' ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course of business; acquire, merge or
consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make distributions (each subject to
certain limitations); or optionally prepay any indebtedness (subject to certain exceptions, including an exception permitting the redemption of our unsecured convertible senior notes upon the meeting
of certain minimum liquidity requirements). In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest, breaches of representations and
warranties, noncompliance with covenants, acts of insolvency, default on indebtedness held by third parties and default on certain material contracts (subject to certain limitations and cure periods).
The Credit Agreement also contains a requirement
that we maintain an interest coverage ratio of more than one to one for the trailing twelve month period, if certain average liquidity levels fall below $30,000.
1.75% Convertible Notes Due 2016
On November 16, 2011, we issued $250,000 aggregate principal amount of 1.75% Convertible Notes due 2016. The issuance of the
1.75% Convertible Notes included $30,000 related to the exercise of an over-allotment option by the underwriters. Interest on the 1.75% Convertible Notes is payable semi-annually in arrears on
June 1st and December 1st of each year, commencing on June 1, 2012. The 1.75% Convertible Notes mature on December 1, 2016, unless earlier repurchased by the
Company or converted. We do not have the right to redeem the 1.75% Convertible Notes prior to maturity.
The
1.75% Convertible Notes are convertible at an initial conversion rate of 52.3745 shares of our common stock per $1 principal amount of 1.75% Convertible Notes (representing an
initial conversion price of approximately $19.093 per share of common stock for a total of approximately 13,094,000 underlying conversion shares) subject to adjustment in certain circumstances. As of
June 1, 2016 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.75% Convertible Notes at any time. Upon conversion, the 1.75%
Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and ability, given our option, would
be to settle the 1.75% Convertible Notes conversion in shares of our common stock. As such, we have continued to classify these 1.75% Convertible Notes as long-term debt.
Upon
the occurrence of certain fundamental changes involving the Company, holders of the 1.75% Convertible Notes may require us to purchase all or a portion of their 1.75% Convertible
Notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the
fundamental change purchase date.
The
indenture governing the 1.75% Convertible Notes contains customary terms and covenants and events of default. If an event of default (as defined therein) occurs and is continuing,
the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the 1.75% Convertible Notes then outstanding by notice to the Company and the Trustee, may, and
the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest
14
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
9. DEBT (Continued)
(including
additional interest, if any) on all the 1.75% Convertible Notes to be due and payable. In the case of an event of default arising out of certain bankruptcy events, 100% of the principal of
and accrued and unpaid interest (including additional interest, if any), on the 1.75% Convertible Notes will automatically become due and payable immediately.
The
1.75% Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of
payment to the 1.75% Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured
indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness incurred by our subsidiaries.
We
separately account for the liability and equity components of the 1.75% Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate when interest expense is
recognized in subsequent periods. We estimated the fair value of the 1.75% Convertible Notes to be $197,373, as of the date of issuance of our 1.75% Convertible Notes, assuming a 6.9% non-convertible
borrowing rate. The carrying amount of the equity component was determined to be $52,627 by deducting the fair value of the liability component from the par value of the 1.75% Convertible Notes. The
excess of the principal amount of the liability component over its carrying amount is amortized to interest and other, net over the term of the 1.75% Convertible Notes using the effective interest
method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the $6,875 of banking, legal and accounting fees related to
the issuance of the 1.75% Convertible Notes, we allocated $5,428 to the liability component and $1,447 to the equity component. Debt issuance costs attributable to the liability component are being
amortized to interest and other, net over the term of the 1.75% Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in
capital.
As
of June 30, 2016 and March 31, 2016, the if-converted value of our 1.75% Convertible Notes exceeded the principal amount of $250,000 by $246,524 and $243,251,
respectively.
The
following table provides additional information related to our 1.75% Convertible Notes:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Additional paid-in capital
|
|
$
|
51,180
|
|
$
|
51,180
|
|
|
|
|
|
|
|
|
|
Principal amount of 1.75% Convertible Notes
|
|
$
|
250,000
|
|
$
|
250,000
|
|
Unamortized discount of the liability component
|
|
|
5,051
|
|
|
8,014
|
|
Carrying amount of debt issuance costs
|
|
|
412
|
|
|
657
|
|
|
|
|
|
|
|
|
|
Net carrying amount of 1.75% Convertible Notes
|
|
$
|
244,537
|
|
$
|
241,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
9. DEBT (Continued)
The
following table provides the components of interest expense related to our 1.75% Convertible Notes:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Cash interest expense (coupon interest expense)
|
|
$
|
1,094
|
|
$
|
1,094
|
|
Non-cash amortization of discount on 1.75% Convertible Notes
|
|
|
2,963
|
|
|
2,773
|
|
Amortization of debt issuance costs
|
|
|
245
|
|
|
256
|
|
|
|
|
|
|
|
|
|
Total interest expense related to 1.75% Convertible Notes
|
|
$
|
4,302
|
|
$
|
4,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00% Convertible Notes Due 2018
On June 18, 2013, we issued $250,000 aggregate principal amount of 1.00% Convertible Notes due 2018. The 1.00% Convertible Notes
were issued at 98.5% of par value for proceeds of $246,250. Interest on the 1.00% Convertible Notes is payable semi-annually in arrears on July 1st and January 1st of each
year, commencing on January 1, 2014. The 1.00% Convertible Notes mature on July 1, 2018, unless earlier repurchased by the Company or converted. We do not have the right to redeem the
1.00% Convertible Notes prior to maturity. We also granted the underwriters a 30-day option to purchase up to an additional $37,500 principal amount of 1.00% Convertible Notes to cover overallotments,
if any. On July 17, 2013, we closed our public offering of $37,500 principal amount of our 1.00% Convertible Notes as a result of the underwriters exercising their overallotment option in full
on July 12, 2013, bringing the total proceeds to $283,188.
The
1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1 principal amount of 1.00% Convertible Notes (representing an
initial conversion price of approximately $21.52 per share of common stock for a total of approximately 13,361,000 underlying conversion shares) subject to adjustment in certain circumstances. Holders
may convert the 1.00% Convertible Notes at their option prior to the close of business on the business day immediately preceding January 1, 2018 only under the following circumstances:
(1) during any fiscal quarter commencing after September 30, 2013, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;
(2) during the five business day period after any 10 consecutive trading day period (the "measurement period") in which the trading price per $1 principal amount of 1.00% Convertible Notes for
each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (3) upon the
occurrence of specified corporate events. On and after January 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.00%
Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 1.00% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a
combination of cash and shares of our common stock. Our common stock price exceeded 130% of the applicable conversion price per share for at least 20 trading days during the 30 consecutive trading
days ended June 30, 2016. Accordingly, as of July 1, 2016, the 1.00% Convertible Notes may be converted at
16
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
9. DEBT (Continued)
the
holder's option through September 30, 2016. Our current intent and ability, given our option, would be to settle the 1.00% Convertible Notes conversion in shares of our common stock. As
such, we have continued to classify these 1.00% Convertible Notes as long-term debt.
Upon
the occurrence of certain fundamental changes involving the Company, holders of the 1.00% Convertible Notes may require us to purchase all or a portion of their 1.00% Convertible
Notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the
fundamental change purchase date.
The
indenture governing the 1.00% Convertible Notes contains customary terms and covenants and events of default. If an event of default (as defined therein) occurs and is continuing,
the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the 1.00% Convertible Notes then outstanding by notice to the Company and the Trustee, may, and
the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest (including additional interest, if any) on all the 1.00% Convertible Notes to be due
and payable. In the case of an event of default arising out of certain bankruptcy events, 100% of the principal of and accrued and unpaid interest (including additional interest, if any), on the 1.00%
Convertible Notes will automatically become due and payable immediately.
The
1.00% Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of
payment to the 1.00% Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured
indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness incurred by our subsidiaries.
We
separately account for the liability and equity components of the 1.00% Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate. We estimated the fair value
of the 1.00% Convertible Notes to be $225,567 upon issuance of our 1.00% Convertible Notes, assuming a 6.15% non-convertible borrowing rate. The carrying amount of the equity component was determined
to be approximately $57,621 by deducting the fair value of the liability component from the net proceeds of the 1.00% Convertible Notes. The excess of the principal amount of the liability component
over its carrying amount is amortized to interest and other, net over the term of the 1.00% Convertible Notes using the effective interest method. The equity component is not remeasured as long as it
continues to meet the conditions for equity classification. In accounting for the $2,815 of banking, legal and accounting fees related to the issuance of the 1.00% Convertible Notes, we allocated
$2,209 to the liability component and $606 to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest and other, net over the term of the
1.00% Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.
As
of June 30, 2016 and March 31, 2016, the if-converted value of our 1.00% Convertible Notes exceeded the principal amount of $287,500 by $219,149 and $215,809,
respectively.
17
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
9. DEBT (Continued)
The following table provides additional information related to our 1.00% Convertible Notes:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Additional paid-in capital
|
|
$
|
35,784
|
|
$
|
35,784
|
|
|
|
|
|
|
|
|
|
Principal amount of 1.00% Convertible Notes
|
|
$
|
287,500
|
|
$
|
287,500
|
|
Unamortized discount of the liability component
|
|
|
26,837
|
|
|
29,972
|
|
Carrying amount of debt issuance costs
|
|
|
815
|
|
|
922
|
|
|
|
|
|
|
|
|
|
Net carrying amount of 1.00% Convertible Notes
|
|
$
|
259,848
|
|
$
|
256,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table provides the components of interest expense related to our 1.00% Convertible Notes:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Cash interest expense (coupon interest expense)
|
|
$
|
719
|
|
$
|
719
|
|
Non-cash amortization of discount on 1.00% Convertible Notes
|
|
|
3,135
|
|
|
2,954
|
|
Amortization of debt issuance costs
|
|
|
107
|
|
|
112
|
|
|
|
|
|
|
|
|
|
Total interest expense related to 1.00% Convertible Notes
|
|
$
|
3,961
|
|
$
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. LOSS PER SHARE ("EPS")
The following table sets forth the computation of basic and diluted loss per share (shares in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Computation of Basic and Diluted Loss per Share:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(38,567
|
)
|
$
|
(67,023
|
)
|
Weighted average common shares outstandingbasic and diluted and diluted
|
|
|
84,588
|
|
|
82,833
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.46
|
)
|
$
|
(0.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
incurred a net loss for the three months ended June 30, 2016 and 2015; therefore, the basic and diluted weighted average shares outstanding exclude the effect of the unvested
share-based awards that are considered participating securities and all common stock equivalents because their effect would be antidilutive. For the three months ended June 30, 2016 and 2015,
we had 5,428,000 and 3,739,000,
respectively, of unvested share-based awards which are excluded from the EPS calculation due to the net loss for those periods.
Certain
of our unvested restricted stock awards (including restricted stock units, and time-based and market-based restricted stock awards) are considered participating securities since
these securities
18
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
10. LOSS PER SHARE ("EPS") (Continued)
have
non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award, and thus require the two-class method of computing EPS.
We
define common stock equivalents as non-participating restricted stock awards and common stock equivalents underlying the Convertible Notes (see Note 9) outstanding during the
period. Common stock equivalents are measured using the treasury stock method, except for the Convertible Notes, which are assessed for their effect on diluted EPS using the more dilutive of the
treasury stock method or the if-converted method. Under the provisions of the if-converted method, the Convertible Notes are assumed to be converted and included in the denominator of the EPS
calculation and the interest expense, net of tax, recorded in connection with the Convertible Notes is added back to the numerator.
During
the three months ended June 30, 2016, 2,158,000 restricted stock awards vested, and we issued 908,000 of unvested restricted stock awards and canceled 39,000 of unvested
restricted stock awards.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table provides the components of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
|
Foreign
currency
translation
adjustments
|
|
Unrealized
gain (loss) on
derivative
instruments
|
|
Unrealized
gain (loss) on
available-for-sales
securities(1)
|
|
Total
|
|
Balance at March 31, 2016
|
|
$
|
(38,580
|
)
|
$
|
600
|
|
$
|
84
|
|
$
|
(37,896
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(3,633
|
)
|
|
|
|
|
206
|
|
|
(3,427
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
(42,213
|
)
|
$
|
600
|
|
$
|
294
|
|
$
|
(41,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amounts
reclassified from Accumulated other comprehensive income (loss) are included in Interest and other, net in our Condensed Consolidated Statement of
Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
|
|
Foreign
currency
translation
adjustments
|
|
Unrealized
gain (loss) on
derivative
instruments
|
|
Unrealized
gain (loss) on
available-for-sales
securities
|
|
Total
|
|
Balance at March 31, 2015
|
|
$
|
(31,216
|
)
|
$
|
617
|
|
$
|
(25
|
)
|
$
|
(30,624
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
9,102
|
|
|
|
|
|
(41
|
)
|
|
9,061
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015
|
|
$
|
(22,114
|
)
|
$
|
617
|
|
$
|
(66
|
)
|
$
|
(21,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
12. SEGMENT AND GEOGRAPHIC INFORMATION
We are a publisher of interactive software games designed for console systems and personal computers, including smart phones and tablets, which are delivered through physical retail,
digital download, online platforms and cloud streaming services. Our business consists of our Rockstar Games and 2K labels, which represent a single operating segment, the "publishing segment". Our
operations involve similar products and customers worldwide. Revenue earned from our publishing segment is primarily derived from the sale of internally developed software titles and software titles
developed by third-parties. Our operating segment is based upon our internal organizational structure, the manner in which our operations are managed and the criteria used by our Chief Executive
Officer, our Chief Operating Decision Maker ("CODM"), to evaluate performance and allocate resources. We are centrally managed and the CODM primarily uses segment operating income, supplemented by
sales information by product category, major product title and platform, to make operational decisions and assess financial performance. We add the change in deferred revenue to GAAP revenue to arrive
at segment revenue. Segment revenue is a key metric that we use to manage our business as it reflects the sales activity in a given period and provides a more timely indication of trends in our
business. Furthermore, segment revenue incorporates the change in deferred revenue that is reflected in the calculation of Segment operating income. Segment operating income differs from consolidated
operating income due to the exclusion of the deferral of net revenues and associated costs related to sales generated from certain titles for which we have or expect to provide PCS deemed to be
significant and virtual currency transactions, stock-based compensation expenses, and business reorganization and other expenses that may not be indicative of our core business, operating results or
future outlook. Our CODM reviews assets on a consolidated basis and not on a segment basis. The following table summarizes the financial performance of our operating segment revenue and operating
income (loss) and provides reconciliations to our consolidated net revenue and operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
Net Revenue
|
|
Operating (loss) income
|
|
Operating Segment
|
|
$
|
272,556
|
|
$
|
366,392
|
|
$
|
(38,256
|
)
|
$
|
48,642
|
|
Reconciliation to consolidated net revenue / operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of deferral of net revenues and related cost of goods sold
|
|
|
38,996
|
|
|
(91,095
|
)
|
|
14,373
|
|
|
(90,965
|
)
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
(15,100
|
)
|
|
(19,086
|
)
|
Business reorganization and other expenses
|
|
|
|
|
|
|
|
|
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenue / operating loss
|
|
$
|
311,552
|
|
$
|
275,297
|
|
$
|
(38,983
|
)
|
$
|
(62,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
12. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
We
attribute net revenue to geographic regions based on product destination. Net revenue by geographic region was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Net revenue by geographic region:
|
|
2016
|
|
2015
|
|
United States
|
|
$
|
193,101
|
|
$
|
143,438
|
|
Europe
|
|
|
73,519
|
|
|
100,223
|
|
Asia Pacific
|
|
|
28,758
|
|
|
20,306
|
|
Canada and Latin America
|
|
|
16,174
|
|
|
11,330
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
311,552
|
|
$
|
275,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue by product platform was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Net revenue by product platform:
|
|
2016
|
|
2015
|
|
Console
|
|
$
|
254,026
|
|
$
|
222,574
|
|
PC and other
|
|
|
57,526
|
|
|
52,723
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
311,552
|
|
$
|
275,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
products are delivered through physical retail and digital online services (digital download, online platforms and cloud streaming). Net revenue by distribution channel was as
follows:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Net revenue by distribution channel:
|
|
2016
|
|
2015
|
|
Digital online
|
|
$
|
172,078
|
|
$
|
153,985
|
|
Physical retail and other
|
|
|
139,474
|
|
|
121,312
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
311,552
|
|
$
|
275,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. COMMITMENTS AND CONTINGENCIES
At June 30, 2016, we did not have any significant changes to our commitments since March 31, 2016. See Note 13 of the Notes to the Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended March 31, 2016 for more information regarding our commitments.
Legal and Other Proceedings
We are, or may become, subject to demands and claims (including intellectual property claims) and are involved in routine litigation in
the ordinary course of business which we do not believe to be material to our business or financial statements. We have appropriately accrued amounts related to certain of these claims and legal and
other proceedings. While it is reasonably possible that a loss may
21
Table of Contents
TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollars in thousands, except share and per share amounts)
13. COMMITMENTS AND CONTINGENCIES (Continued)
be
incurred in excess of the amounts accrued in our financial statements, we believe that such losses, unless otherwise disclosed, would not be material.
On
April 11, 2016, we filed a declaratory judgment action in the United States District Court for the Southern District of New York seeking, among other things, a judicial
declaration that Leslie Benzies, the former president of one of our subsidiaries with whom we had been in ongoing discussions
regarding his separation of employment, is not entitled to any minimum allocation or financial parity with any other person under the applicable royalty plan. We believe we will prevail in this
matter, although there can be no assurance of the outcome. On April 12, 2016, Mr. Benzies filed a complaint in the Supreme Court of the State of New York, New York County against us, and
certain of our subsidiaries and employees. We removed this case to the United States District Court for the Southern District of New York, where our declaratory judgment action is pending.
Mr. Benzies' complaint claims damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent concealment; aiding and abetting breach of
fiduciary duty; breach of various contracts; breach of implied duty of good faith and fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration
of rights; constructive discharge; defamation and fraud. While we believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any
counterclaims, we have accrued what we believe to be an adequate reserve for this matter, which amounts are classified as Business reorganization within Accrued expenses and other current liabilities
in our Condensed Consolidated Balance Sheet (see Note 8). We do not believe that the ultimate outcome of such litigation, even if in excess of our current reserve, will have a material adverse
effect on our business, financial condition or results of operations.
22
Table of Contents