SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended September 30, 2019



Delaware		51-0350842
(State or Other Jurisdiction of Incorporation or Organization)		~~51-0350842~~ (I.R.S. Employer Identification No.)
110 West 44th Street		10036
New York	New York	(Zip Code)
(Address of principal executive offices)		~~10036~~ ~~(Zip Code)~~

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $.01 par value	TTWO	NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesý No o

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



Large accelerated filerý	ý	Accelerated filero	o	Non-accelerated filero	o	Smaller reporting companyo	☐	Emerging growth companyo	☐

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

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

As of ~~January 25,~~October 28, 2019, there were ~~113,161,938~~113,346,942 shares of the Registrant's Common Stock outstanding, net of treasury stock.

(All other items in this report are inapplicable)

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	December 31, 2018			March 31, 2018			September 30, 2019			March 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,054,911		$	808,973		$	762,032		$	826,525
Short-term investments	545,734			615,406			742,613			744,485
Restricted cash	240,584			437,398
Accounts receivable, net of allowances of $1,003 and $54,290 at December 31, 2018 and March 31, 2018, respectively	823,482			247,649
Restricted cash and cash equivalents							668,371			565,461
Accounts receivable, net of allowances of $442 and $995 at September 30, 2019 and March 31, 2019, respectively							858,597			395,729
Inventory	39,786			15,162			39,293			28,200
Software development costs and licenses	33,542			33,284			62,328			28,880
Deferred cost of goods sold	57,280			117,851			36,426			51,867
Prepaid expenses and other	179,454			133,454			218,673			186,688
Total current assets	2,974,773			2,409,177			3,388,333			2,827,835
Fixed assets, net	114,672			102,478			129,168			127,882
Right-of-use assets							119,313			—
Software development costs and licenses, net of current portion	597,497			639,369			527,622			603,436
Deferred cost of goods sold, net of current portion	7,819			26,719			479			1,028
Goodwill	383,110			399,530			383,778			381,717
Other intangibles, net	79,903			103,681			61,159			73,115
Deferred tax assets	146,216			4,930			110,167			134,732
Other assets	83,170			51,957			95,092			93,320
Total assets	$	4,387,160		$	3,737,841		$	4,815,111		$	4,243,065
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	74,615		$	35,029		$	114,946		$	72,797
Accrued expenses and other current liabilities	1,206,332			914,748			1,251,196			1,035,695
Deferred revenue	818,411			777,152			901,813			843,302
Lease liabilities							22,273			—
Total current liabilities	2,099,358			1,726,929			2,290,228			1,951,794
Long-term debt	—			8,068
Non-current deferred revenue	69,137			355,589			25,378			21,058
Non-current lease liabilities							118,789			—
Other long-term liabilities	191,198			158,285			198,953			229,633
Total liabilities	$	2,359,693		$	2,248,871		$	2,633,348		$	2,202,485
Commitments and contingencies (See Note 13)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued and outstanding at December 31, 2018 and March 31, 2018	—			—
Common stock, $.01 par value, 200,000 shares authorized; 134,396 and 132,743 shares issued and 113,094 and 114,038 outstanding at December 31, 2018 and March 31, 2018, respectively	1,344			1,327
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued and outstanding at September 30, 2019 and March 31, 2019							—			—
Common stock, $.01 par value, 200,000 shares authorized; 135,616 and 134,602 shares issued and 113,195 and 112,181 outstanding at September 30, 2019 and March 31, 2019, respectively							1,356			1,346
Additional paid-in capital	1,976,853			1,888,039			2,059,720			2,019,369
Treasury stock, at cost; 21,302 and 18,705 common shares at December 31, 2018 and March 31, 2018, respectively	(720,572		)	(458,180		)
Treasury stock, at cost; 22,421 common shares at September 30, 2019 and March 31, 2019							(820,572		)	(820,572		)
Retained earnings	820,796			73,516			995,721			877,626
Accumulated other comprehensive loss	(50,954		)	(15,732		)	(54,462		)	(37,189		)
Total stockholders' equity	2,027,467			1,488,970			2,181,763			2,040,580
Total liabilities and stockholders' equity	$	4,387,160		$	3,737,841		$	4,815,111		$	4,243,065

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)



	Six Months Ended September 30,
	2019			2018
Operating activities:
Net income	$	118,095		$	97,060
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization and impairment of software development costs and licenses	72,505			20,269
Depreciation	23,037			18,753
Amortization and impairment of intellectual property	10,627			12,272
Stock-based compensation	113,199			54,941
Other, net	4,325			(1,614		)
Changes in assets and liabilities:
Accounts receivable	(463,019		)	(233,236		)
Inventory	(12,064		)	(25,925		)
Software development costs and licenses	(51,932		)	(133,008		)
Prepaid expenses and other assets	(131,055		)	(6,681		)
Deferred revenue	66,148			12,601
Deferred cost of goods sold	15,287			6,867
Accounts payable, accrued expenses and other liabilities	379,005			(28,334		)
Net cash provided by (used in) operating activities	144,158			(206,035		)
Investing activities:
Change in bank time deposits	6,720			33,604
Proceeds from available-for-sale securities	137,071			114,266
Purchases of available-for-sale securities	(141,244		)	(95,888		)
Purchases of fixed assets	(25,532		)	(29,144		)
Purchase of long-term investment	(4,500		)	—
Business acquisitions	(8,715		)	(3,149		)
Net cash (used in) provided by investing activities	(36,200		)	19,689
Financing activities:
Tax payment related to net share settlements on restricted stock awards	(61,478		)	(63,967		)
Repurchase of common stock	—			(153,500		)
Net cash used in financing activities	(61,478		)	(217,467		)
Effects of foreign currency exchange rates on cash and cash equivalents	(8,063		)	(9,464		)
Net change in cash, cash equivalents, and restricted cash	38,417			(413,277		)
Cash, cash equivalents, and restricted cash, beginning of year	1,391,986			1,246,371
Cash, cash equivalents, and restricted cash, end of period	$	1,430,403		$	833,094

Nine Months Ended December 31,
2018 2017
(as Adjusted) (1)
Operating activities:

Net income $ 277,007
$ 82,680
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization and impairment of software development costs and licenses 160,167
62,235
Depreciation 28,769
23,233
Amortization and impairment of intellectual property 17,785
26,470
Impairment of in-process research and development —
11,257
Stock-based compensation 178,609
96,111
Amortization of discount on Convertible Notes 91
15,424
Gain on conversions of Convertible Notes —
(4,855 )
Amortization of debt issuance costs 88
554
Other, net (4,091 ) 3,432
Changes in assets and liabilities, net of impact of adoption of Topic 606:

Accounts receivable (525,981 ) (206,084 )
Inventory (26,352 ) (12,976 )
Software development costs and licenses (157,710 ) (186,373 )
Prepaid expenses and other assets (142,918 ) (39,133 )
Deferred revenue 328,325
238,590
Deferred cost of goods sold (37,281 ) (33,578 )
Accounts payable, accrued expenses and other liabilities 293,691
164,086
Net cash provided by operating activities 390,199
241,073
Investing activities:

Change in bank time deposits 64,101
10,000
Proceeds from available-for-sale securities 184,542
172,925
Purchases of available-for-sale securities (179,570 ) (282,596 )
Purchases of fixed assets (43,646 ) (47,478 )
Asset acquisition —
(25,965 )
Business acquisition (3,149 ) (9,401 )
Net cash provided by (used in) investing activities 22,278
(182,515 )
Financing activities:

Tax payment related to net share settlements on restricted stock awards (85,837 ) (94,930 )
Repurchase of common stock (262,392 ) (110,136 )
Net cash used in financing activities (348,229 ) (205,066 )
Effects of foreign currency exchange rates on cash and cash equivalents (15,124 ) 14,555
Net change in cash, cash equivalents, and restricted cash 49,124
(131,953 )
Cash, cash equivalents, and restricted cash, beginning of year 1,246,371
1,281,214
Cash, cash equivalents, and restricted cash, end of period $ 1,295,495
$ 1,149,261

~~(1) Prior period amounts have been adjusted retrospectively to reflect the adoption of ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash. Refer to Note 1 for further discussion.~~

See accompanying Notes.

TAKE-TWO INTERACTIVE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)

(in thousands)



	Three Months Ended September 30, 2019
	Common Stock					Additional Paid-in Capital			Treasury Stock					Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Shares		Amount						Shares		Amount
	Shares		Amount						Shares		Amount
Balance, June 30, 2019	135,527		$	1,355		$	2,025,626		(22,421	)	$	(820,572	)	$	923,906	$	(43,988	)	$	2,086,327
Net income	—		—			—			—		—			71,815		—			71,815
Change in cumulative foreign currency translation adjustment	—		—			—			—		—			—		(12,567		)	(12,567		)
Change in unrealized gains on cash flow hedge, net	—		—			—			—		—			—		2,095			2,095
Net unrealized gain on available-for-sale securities, net of taxes	—		—			—			—		—			—		(2		)	(2		)
Stock-based compensation	—		—			43,455			—		—			—		—			43,455
Issuance of restricted stock, net of forfeitures and cancellations	164		2			(2		)	—		—			—		—			—
Net share settlement of restricted stock awards	(75	)	(1		)	(9,359		)	—		—			—		—			(9,360		)
Balance, September 30, 2019	135,616		$	1,356		$	2,059,720		(22,421	)	$	(820,572	)	$	995,721	$	(54,462	)	$	2,181,763



	Three Months Ended September 30, 2018
	Common Stock				Additional Paid-in Capital			Treasury Stock					Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Shares		Amount					Shares		Amount
	Shares		Amount					Shares		Amount
Balance, June 30, 2018	133,811		$	1,338	$	1,888,080		(20,302	)	$	(611,680	)	$	615,482	$	(41,015	)	$	1,852,205
Net income	—		—		—			—		—			25,367		—			25,367
Change in cumulative foreign currency translation adjustment	—		—		—			—		—			—		2,481			2,481
Change in unrealized gains on cash flow hedge, net	—		—		—			—		—			—		854			854
Net unrealized gain on available-for-sale securities, net of taxes	—		—		—			—		—			—		481			481
Stock-based compensation	—		—		63,433			—		—			—		—			63,433
Issuance of restricted stock, net of forfeitures and cancellations	94		1		(1		)	—		—			—		—			—
Conversion of 1.00% Convertible Notes Due 2018	241		2		5,180			—		—			—		—			5,182
Net share settlement of restricted stock awards	(40	)	—		(5,564		)	—		—			—		—			(5,564		)
Balance, September 30, 2018	134,106		$	1,341	$	1,951,128		(20,302	)	$	(611,680	)	$	640,849	$	(37,199	)	$	1,944,439



	Six Months Ended September 30, 2019
	Common Stock					Additional Paid-in Capital			Treasury Stock					Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Shares		Amount						Shares		Amount
	Shares		Amount						Shares		Amount
Balance, March 31, 2019	134,602		$	1,346		$	2,019,369		(22,421	)	$	(820,572	)	$	877,626	$	(37,189	)	$	2,040,580
Net income	—		—			—			—		—			118,095		—			118,095
Change in cumulative foreign currency translation adjustment	—		—			—			—		—			—		(21,364		)	(21,364		)
Change in unrealized gains on cash flow hedge, net	—		—			—			—		—			—		3,371			3,371
Net unrealized gain on available-for-sale securities, net of taxes	—		—			—			—		—			—		720			720
Stock-based compensation	—		—			96,706			—		—			—		—			96,706
Issuance of restricted stock, net of forfeitures and cancellations	1,503		15			(15		)	—		—			—		—			—
Net share settlement of restricted stock awards	(551	)	(6		)	(61,472		)	—		—			—		—			(61,478		)
Employee share purchase plan settlement	62		1			5,132			—		—			—		—			5,133
Balance, September 30, 2019	135,616		$	1,356		$	2,059,720		(22,421	)	$	(820,572	)	$	995,721	$	(54,462	)	$	2,181,763



	Six Months Ended September 30, 2018
	Common Stock					Additional Paid-in Capital			Treasury Stock					Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Shares		Amount						Shares		Amount
	Shares		Amount						Shares		Amount
Balance, March 31, 2018	132,743		$	1,327		$	1,888,039		(18,705	)	$	(458,180	)	$	73,516	$	(15,732	)	$	1,488,970
Net income	—		—			—			—		—			97,060		—			97,060
Change in cumulative foreign currency translation adjustment	—		—			—			—		—			—		(28,989		)	(28,989		)
Change in unrealized gains on cash flow hedge, net	—		—			—			—		—			—		1,979			1,979
Net unrealized gain on available-for-sale securities, net of taxes	—		—			—			—		—			—		890			890
Stock-based compensation	—		—			118,956			—		—			—		—			118,956
Repurchased common stock	—		—			—			(1,597	)	(153,500		)	—		—			(153,500		)
Issuance of restricted stock, net of forfeitures and cancellations	1,532		15			(15		)	—		—			—		—			—
Conversion of 1.00% Convertible Notes Due 2018	378		4			8,109			—		—			—		—			8,113
Net share settlement of restricted stock awards	(547	)	(5		)	(63,961		)	—		—			—		—			(63,966		)
Impact from adoption of New Revenue Accounting Standard	—		—			—			—		—			470,273		4,653			474,926
Balance, September 30, 2018	134,106		$	1,341		$	1,951,128		(20,302	)	$	(611,680	)	$	640,849	$	(37,199	)	$	1,944,439

See accompanying Notes.

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands, except per share amounts)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), although we believe that the disclosures are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with our annual Consolidated Financial Statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018.~~2019.

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

Recently Adopted Accounting Pronouncements

Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement~~Leases

In ~~August 2018,~~February 2016, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ~~Accounting Standards Update ("ASU"~~new guidance related to the accounting for leases codified under Topic 842, Leases. The new lease accounting standard replaces all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease and to recognize a lease liability and a right-of-use (“ROU”) ~~2018-15:~~ ~~Intangibles~~asset for its leases. On April 1, 2019, we adopted the new lease accounting standard using the alternative transition approach provided in ASU 2018-11, “Leases (Topic 842) - ~~Goodwill~~Targeted Improvements,” which allows initial application of the new standard using the modified retrospective method.

As part of the adoption, the new lease accounting standard allows a number of practical expedients and ~~Other - Internal-Use Software - (Subtopic 350-40): Customer’s Accounting~~exemptions. At transition, we elected the following:

The package of practical expedients, which allows us to carryforward our historical lease classification, our assessment of whether a contract is or contains a lease and our initial direct costs for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ ~~This ASU aligns~~any leases that exist prior to adoption of the new standard;

The practical expedient to not separate non-lease components from the related lease components; and

The exemption to not apply the balance sheet recognition requirements for ~~capitalizing implementation~~leases with a lease term of 12 months or less and instead expense those costs on a straight-line basis over the lease term or in the period in which the obligation is incurred, if such costs are variable.

As a result of the adoption, we have updated our significant accounting policy disclosure as set forth below to include our accounting policy under Topic 842 for transactions from April 1, 2019 and thereafter:

Leases

We determine if an arrangement is a lease at contract inception. If there is an identified asset in the contract (either explicitly or implicitly) and we have control over its use, the contract is (or contains) a lease. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement provides us with an asset that is physically distinct, or that represents substantially all of the capacity of the asset, and if we have the right to direct the use of the asset. Lease assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. Included in the lease liability are future lease payments that are fixed, in-substance fixed, or payments based on an index or rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as incurred. The operating lease ROU asset also includes any lease payments made prior to commencement, initial direct costs incurred, and lease incentives received. All ROU assets are reviewed for impairment.

As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in ~~a hosting arrangement that is a service contract with~~determining the ~~requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.~~present value of future lease payments. The ~~standard is effective for fiscal years beginning December 15, 2019 (April 1, 2020 for~~incremental borrowing rate represents the ~~Company), with early adoption permitted. ASU 2018-15 is~~rate required to ~~be applied either retrospectively or prospectively~~borrow funds over a similar term to ~~all implementation costs after~~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 ~~adoption. We early adopted this update effective July~~the lease.

In determining our lease liability, the lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise such option. For operating leases, the lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease modifications result in remeasurement of the lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.

Impact of adoption

As a result of adopting Topic 842, the following adjustments, including reclassifying prepaid and deferred rent to ROU, were made to our Condensed Consolidated Balance Sheet at April 1, ~~2018 as the standard aligns with how we are currently accounting for implementation costs incurred in a cloud computing arrangement.~~ 2019:



	March 31, 2019		Adjustments			April 1, 2019
ASSETS
Prepaid expenses and other	$	186,688	$	(792	)	$	185,896
Right-of-use assets	$	—	$	118,799		$	118,799

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities	$	1,035,695	$	(2,976	)	$	1,032,719
Lease liabilities	$	—	$	18,937		$	18,937
Non-current lease liabilities	$	—	$	122,041		$	122,041
Other long-term liabilities	$	229,633	$	(19,995	)	$	209,638

The adoption of Topic 842 did not have an impact on our Condensed Consolidated ~~Financial Statements.~~

~~Accounting for Restricted Cash~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement~~Statements of ~~Cash Flows (Topic 230): Restricted Cash~~. This ASU amends the presentation of restricted cash within the statement of cash flows by requiring that restricted cash and restricted cash equivalents be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. This standard is effective for fiscal years beginning after December 15, 2017 (April 1, 2018 for the Company), including interim periods within those fiscal years.

We adopted the new standard during the first quarter of fiscal 2019 and applied the standard retrospectively for all periods presented. The application of this new standard resulted in a decrease of net cash from operating activities of $196,814 and an increase of net cash from operating activities of $36,988 on ourOperation or Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2018 and 2017, respectively. In our Annual Report on Form 10-K for the year ending March 31, 2018, the impact would have been an increase in net cash from operating activities of $99,580 and $76,649 for the fiscal years ended March 31, 2018 and 2017, respectively.

~~Accounting for Stock Compensation~~

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Accounting~~. This guidance aligns the accounting for share-based payment transactions with non-employees to accounting for share-based payment transactions with employees. Companies are required to record a cumulative-effect adjustment (net of tax) to retained earnings as of the beginning of the fiscal year of the adoption. Upon transition, non-employee awards are required to be measured at fair value as of the adoption date. This standard will be effective for fiscal years beginning December 15, 2018 (April 1, 2019 for the Company), including interim periods within those fiscal years. Early adoption is permitted.

We early adopted this update effective April 1, 2018 to simplify the accounting for non-employee stock-based awards so that it is better aligned with the current guidance for employee stock-based awards. The application of this new standard did not have a significant impact to our Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2018, as our last re-measurement date for non-employee awards was March 31, 2018. The adoption of this ASU results in a change to our accounting policy for non-employee stock-based awards.

~~Accounting for Goodwill~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350)~~. This ASU eliminates Step 2 from the goodwill impairment test. Under the new guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, this ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 (April 1, 2020 for the Company), including interim periods within those fiscal years, and are applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this update effective April 1, 2018. The adoption did not have an impact on our Condensed Consolidated Financial Statements.

~~Revenue from Contracts with Customers~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. On April 1, 2018, we adopted the new accounting standard and related amendments (the “New Revenue Accounting Standard”) using the modified retrospective method. As a result, we have updated our significant accounting policy disclosure for revenue recognition herein.

~~Impact of Adopting New Revenue Accounting Standard~~

We elected to apply the New Revenue Accounting Standard only to contracts not completed as of the adoption date. For contracts that were modified before the date of adoption, we elected to reflect the aggregate effect of all modifications when (i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price, and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations. We recognized the cumulative effect of initially applying the New Revenue Accounting Standard as an adjustment to the opening balance of retained earnings, net of tax. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect adjustment recorded to our retained earnings was $470,273, net of tax.

~~The most significant impacts of adopting the New Revenue Accounting Standard are:~~

The elimination of the requirement for vendor-specific objective evidence (“VSOE”) of fair value for software products that offer offline gameplay functionality and benefit from meaningful game related services which may include online functionality that is dependent on our online support services and/or additional free content updates. Under the prior revenue accounting guidance, for software products with multiple deliverables for which we did not have VSOE for our game related service deliverables, we recognized revenue ratably over the estimated service period. Under the New Revenue Accounting Standard, we allocate the sales price and recognize revenue for the offline software upon delivery and the remainder over the estimated service period. At adoption, this difference in accounting primarily affected revenue recognition from ~~Grand Theft Auto V~~ ~~and our~~ ~~NBA 2K~~ franchise, where the majority of the sales price will be allocated to the offline software and recognized upon transfer of control to our customers, and the remaining amounts allocated to the game related service performance obligation and recognized over the estimated service period.

For performance obligations that are 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 faithfully depicts the timing of satisfying our performance obligation. Previously, our estimated service period was based on the economic game life.

Under the New Revenue Accounting Standard, we are able to recognize revenue to the extent it is probable that a significant reversal will not occur even if we do not have a right to invoice as of the reporting date. Contract assets are classified within Prepaid expenses and other on the Consolidated Balance Sheet.

Under the New Revenue Accounting Standard, allowances for estimated price protection, reserves for returns and other allowances are classified as refund liabilities. Such allowances were previously recorded as contra-Accounts receivable and now are classified within Accrued expenses and other current liabilities on the Consolidated Balance Sheet.

As a result of adopting the New Revenue Accounting Standard the following adjustments were made to our Consolidated Balance Sheet at April 1, 2018, which also reflect the changes related to income tax accounts included in Prepaid expenses and other, Other assets, Accrued expenses and other current liabilities, and Other long-term liabilities:

March 31, 2018 Adjustments April 1, 2018
ASSETS
Accounts receivable, net $ 247,649
$ 53,940
$ 301,589
Software development costs and licenses 33,284
(11,096 ) 22,188
Deferred cost of goods sold 117,851
(89,867 ) 27,984
Prepaid expenses and other 133,454
33,620
167,074
Deferred cost of goods sold, net of current portion 26,719
(25,687 ) 1,032
Other assets 56,887
51,430
108,317

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities $ 914,748
$ 69,678
$ 984,426
Deferred revenue 777,152
(230,144 ) 547,008
Non-current deferred revenue 355,589
(336,456 ) 19,133
Other long-term liabilities 158,285
34,336
192,621
Retained earnings 73,516
470,273
543,789
Accumulated other comprehensive loss (15,732 ) 4,653
(11,079 )

Flows.

Recently Issued Accounting Pronouncements

Accounting for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning December 15, 2019 (April 1, 2020 for the Company), with early adoption permitted. Certain disclosures in ASU 2018-13 are required to be applied on a retrospective basis and others on a prospective basis. We are currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements.

~~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, which will consist primarily of a balance sheet gross up of our operating leases, mostly for office space.

~~Revenue Recognition~~

Refer to Note 1 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 for our revenue recognition accounting policy as it relates to revenue transactions prior to April 1, 2018. The revenue recognition accounting policy described below relates to revenue transactions from April 1, 2018 and thereafter, which are accounted for in accordance with ~~Topic 606~~.

We derive revenue primarily from the sale of our interactive entertainment content, principally for console gaming systems such as the Sony Computer Entertainment, Inc. ("Sony") PlayStation®4 ("PS4") and PlayStation®3 ("PS3"), Microsoft Corporation ("Microsoft") Xbox One® ("Xbox One") and Xbox 360® ("Xbox 360"), the Nintendo Switch, and personal computers ("PC"), 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 have been transferred to our customers.

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 the 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 the estimated service period, which is the user life.

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 retailers). For these products, we recognize revenue on the later of the street date or the sale date as this is generally when we have transferred control of our software products. In addition, some of our software products are sold as digital downloads.

Revenue from digital downloads is generally recognized when the download is made available to the end user by a third-party digital storefront. For the sale of physical software products, the 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 our retailers. Determining the estimated sell-through period is subjective and requires significant management judgment and estimates.

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 our performance, 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 Sheets.

~~Our allowance for doubtful accounts are typically immaterial and, if required, are based on our best estimate of probable 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 software products. 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.

~~Refer to Note 2 - Revenue from Contracts with Customers for further information, including changes in deferred revenue during the period.~~

~~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, 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, and Valve's Steam, 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 are 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 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 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. 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 9 and 15 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 as we typically do not have observable standalone selling prices for our game related service performance obligations. 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. 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 our 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 and Allowances for Returns~~

We grant price protection and accept returns in connection with our distribution arrangements for physical products. 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 future price protection and product returns related to current period software product revenue. We estimate the amount of future 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.

Revenue is recognized after deducting the estimated price protection and allowances for returns, which are accounted for as variable consideration. Price protection and allowances for returns are considered refund liabilities and are reported within Accrued expenses and other current liabilities on our Consolidated Balance Sheets.

~~Sales Incentives~~

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 and are considered refund liabilities, which are reported within Accrued expenses and other current liabilities in our Consolidated Balance Sheets.

~~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 future price protection and allowance for returns. 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.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

~~Impacts on financial statement line items~~

~~Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Statement of Operations for the three months ended December 31, 2018:~~

Amounts as reported Amounts without adoption of New Revenue Accounting Standard Increase (decrease) due to adoption of New Revenue Accounting Standard
Net revenue $ 1,248,738
$ 486,563
$ 762,175
Cost of goods sold 898,484
603,170
295,314
Gross profit (loss) 350,254
(116,607 ) 466,861
Selling and marketing 161,322
161,322
—
General and administrative 70,638
70,638
—
Research and development 62,305
62,305
—
Depreciation and amortization 10,140
10,140
—
Business reorganization (5,930 ) (5,930 ) —
Total operating expenses 298,475
298,475
—
Income (loss) from operations 51,779
(415,082 ) 466,861
Interest and other, net 8,071
7,808
263
Income (loss) before income taxes 59,850
(407,274 ) 467,124
Benefit from income taxes 120,098
176,570
(56,472 )
Net income (loss) $ 179,948
$ (230,704 ) $ 410,652
Earnings (loss) per share:
Basic earnings (loss) per share $ 1.59
$ (2.03 ) $ 3.62
Diluted earnings (loss) per share $ 1.57
$ (2.03 ) $ 3.60

~~Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Statement of Operations for the nine months ended December 31, 2018:~~

Amounts as reported Amounts without adoption of New Revenue Accounting Standard Increase (decrease) due to adoption of New Revenue Accounting Standard
Net revenue $ 2,129,387
$ 1,345,985
$ 783,402
Cost of goods sold 1,264,730
953,742
310,988
Gross profit 864,657
392,243
472,414
Selling and marketing 313,793
313,793
—
General and administrative 205,693
205,693
—
Research and development 173,582
173,582
—
Depreciation and amortization 29,151
29,151
—
Business reorganization (6,172 ) (6,172 ) —
Total operating expenses 716,047
716,047
—
Income (loss) from operations 148,610
(323,804 ) 472,414
Interest and other, net 19,647
18,757
890
Income (loss) before income taxes 168,257
(305,047 ) 473,304
Benefit from income taxes 108,750
208,210
(99,460 )
Net income (loss) $ 277,007
$ (96,837 ) $ 373,844
Earnings (loss) per share:
Basic earnings (loss) per share $ 2.44
$ (0.85 ) $ 3.29
Diluted earnings (loss) per share $ 2.41
$ (0.85 ) $ 3.26

~~Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Balance Sheet as of December 31, 2018:~~

Amounts as reported Amounts without adoption of New Revenue Accounting Standard Increase (decrease) due to adoption of New Revenue Accounting Standard
ASSETS
Accounts receivable, net $ 823,482
$ 746,971
$ 76,511
Software development costs and licenses 33,542
47,223
(13,681 )
Deferred cost of goods sold 57,280
198,202
(140,922 )
Prepaid expenses and other 179,454
218,016
(38,562 )
Software development costs and licenses, net of current portion
597,497
759,754
(162,257 )
Deferred cost of goods sold, net of current portion 7,819
88,941
(81,122 )
Deferred tax assets 146,216
168,414
(22,198 )

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities $ 1,206,332
$ 1,098,639
$ 107,693
Deferred revenue 818,411
1,457,069
(638,658 )
Non-current deferred revenue 69,137
734,057
(664,920 )
Other long-term liabilities 191,198
217,492
(26,294 )
Retained earnings (accumulated deficit) 820,796
(23,323 ) 844,119
Accumulated other comprehensive loss (50,954 ) (46,783 ) (4,171 )

Our adoption of the New Revenue Accounting Standard accelerated the revenue recognition of prior period game sales into retained earnings, which may result in increased cash taxes paid on our Consolidated Statement of Cash Flows for the fiscal year ending March 31, 2019.

Disaggregation of revenue

Product revenue

Product revenue is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e. upon delivery of the software product).

Service and other revenue

Service and other revenue is primarily comprised of revenue from game related services, virtual currency transactions, and in-game purchases which are recognized over an estimated service period.

Net revenue by product revenue and service and other was as follows:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net revenue recognized:
Service and other	421,747		313,194		846,132		622,381
Product	436,094		179,473		552,168		258,268
Total net revenue	$	857,841	$	492,667	$	1,398,300	$	880,649

Three Months Ended December 31, Nine Months Ended December 31,
2018 2018
Net revenue recognized:
Product $ 937,456
$ 1,195,724
Service and other 311,282
933,663
Total net revenue $ 1,248,738
$ 2,129,387

Full game and other revenue

Full game and other revenue primarily includes the initial sale of full game software products, which may include offline and/or significant game related services.

Recurrent consumer spending revenue

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

Net revenue by full game and other revenue and recurrent consumer spending was as follows:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net revenue recognized:
Full game and other	539,373		252,068		764,974		399,020
Recurrent consumer spending	318,468		240,599		633,326		481,629
Total net revenue	$	857,841	$	492,667	$	1,398,300	$	880,649

Three Months Ended December 31, Nine Months Ended December 31,
2018 2018
Net revenue recognized:
Full game and other $ 952,182
$ 1,351,202
Recurrent consumer spending 296,556
778,185
Total net revenue $ 1,248,738
$ 2,129,387

Geography

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net revenue recognized:
United States	$	494,661	$	279,306	$	825,140	$	500,717
International	363,180		213,361		573,160		379,932
Total net revenue	$	857,841	$	492,667	$	1,398,300	$	880,649

Three Months Ended December 31, Nine Months Ended December 31,
2018 2018
Net revenue recognized:
United States $ 651,568
$ 1,152,285
International 597,170
977,102
Total net revenue $ 1,248,738
$ 2,129,387

Platform

Net revenue by platform was as follows:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net revenue recognized:
Console	$	651,818	$	372,240	$	1,086,632	$	666,970
PC and other	206,023		120,427		311,668		213,679
Total net revenue	$	857,841	$	492,667	$	1,398,300	$	880,649

Three Months Ended December 31, Nine Months Ended December 31,
2018 2018
Net revenue recognized:
Console $ 1,144,459
$ 1,811,429
PC and other 104,279
317,958
Total net revenue $ 1,248,738
$ 2,129,387

Distribution channel

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net revenue recognized:
Digital online	$	615,774	$	358,371	$	1,043,555	$	673,418
Physical retail and other	242,067		134,296		354,745		207,231
Total net revenue	$	857,841	$	492,667	$	1,398,300	$	880,649

Three Months Ended December 31, Nine Months Ended December 31,
2018 2018
Net revenue recognized:
Digital online $ 594,722
$ 1,268,140
Physical retail and other 654,016
861,247
Total net revenue $ 1,248,738
$ 2,129,387

Deferred Revenue

We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. Deferred revenue, including current and non-current balances as of ~~December~~September 30, 2019 and March 31, ~~2018~~2019 were $927,191 and ~~April 1, 2018 were $887,548 and $566,141,~~$864,360, respectively. For the ~~nine~~three months ended ~~December 31, 2018,~~September 30, 2019, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the ~~nine~~three months ended ~~December 31,~~September 30, 2019 and 2018, ~~$504,600~~$234,411 and $183,644, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. During the six months ended September 30, 2019 and 2018, $564,833 and $424,129, respectively, of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of ~~December 31, 2018,~~September 30, 2019, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is ~~$887,548.~~$1,074,206, which includes our deferred revenue balances and amounts to be invoiced and recognized in future periods. We expect to recognize approximately ~~$818,411~~$991,328 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 ~~December~~September 30, 2019 and March 31, ~~2018 and April 1, 2018,~~2019, our contract asset balances were ~~$70,067~~$80,501 and ~~$69,522,~~$57,643, respectively, which are recorded within Prepaid expenses and other in our Condensed Consolidated Balance Sheets.

~~Table of Contents~~

3. MANAGEMENT AGREEMENT

In March 2014, we entered into an amended management services agreement, (the "2014 Management Agreement"), with ZelnickMedia Corporation ("ZelnickMedia") pursuant to which ZelnickMedia provided us with certain management, consulting and executive level services. The 2014 Management Agreement became effective April 1, 2014. The 2014 Management Agreement provided 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 November 2017, we entered into a new management agreement (the "2017 Management Agreement"), with ZelnickMedia Corporation ("ZelnickMedia") that replaces our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia ~~continues to provide~~provides financial and management consulting services ~~to the Company~~ through March 31, 2024. The 2017 Management Agreement became effective January 1, ~~2018 and supersedes and replaces the 2014 Management Agreement, except as otherwise contemplated by the 2017 Management Agreement.~~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 ~~$3,432~~$1,705 and ~~$2,435~~$1,705 during the three months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ respectively, and ~~$6,842~~$3,375 and ~~$6,296~~ $3,410

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during the ~~nine~~six months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ respectively. We recorded stock-based compensation expense for restricted stock units granted to ZelnickMedia, which is included in General and administrative expenses, of ~~$5,555~~$5,956 and ~~$10,351~~$5,682 during the three months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ respectively, and ~~$15,754~~$11,501 and ~~$30,228~~$10,199 during the ~~nine~~six months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ respectively.

In connection with the 2017 ~~Management Agreement and 2014~~ Management Agreement, we have granted restricted stock units as follows:


	Nine Months Ended December 31,		Six Months Ended September 30,
	2018	2017	2019		2018
Time-based	86	66	92		86
Market-based(1)	158	122	168		158
Performance-based(1)
New IP	—	21
Major IP	—	20
IP	27	—	28		27
Recurrent Consumer Spending ("RCS")	26	—	28		26
Total—Performance-based	53	41	56	��	53
Total Restricted Stock Units	297	229	316		297


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

Time-based restricted stock units granted in ~~2018~~fiscal year 2020 will vest on April 13, ~~2020,~~2021, and those granted in ~~2017~~fiscal year 2019 will vest on April ~~4, 2019,~~13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date.

Market-based restricted stock units granted in ~~2018~~fiscal year 2020 are eligible to vest on April 13, ~~2020,~~2021, and those granted in ~~2017~~fiscal year 2019 are eligible to vest on April ~~4, 2019,~~13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date. Market-based restricted stock units are eligible to vest based on the Company's Total Shareholder Return (as defined in the relevant grant agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute the NASDAQ Composite Index as of the grant date measured over a two-year period. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile.

Performance-based restricted stock units granted in ~~2018~~fiscal year 2020 are eligible to vest on April 13, ~~2020,~~2021, and those granted in ~~2017~~fiscal year 2019 are eligible to vest on April ~~4, 2019,~~13, 2020, in each case provided that the 2017 Management Agreement has not been terminated prior to such vesting date. The 2017 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," respectively, measured

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~~over a two-year period. The 2018~~ performance-based restricted stock units, of which 50% are tied to "IP" and 50% to "RCS" (as defined in the relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in the relevant grant agreement) of either individual product releases of "IP" or "RCS" measured over a two-year period. The target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the grant amounts set forth in the above table (the numbers in the table represent the maximum number of performance-based restricted stock units that may be earned). At the end of each reporting period, we assess the probability of each performance metric and upon determination that certain thresholds are probable, we record expense for the unvested portion of the shares of performance-based restricted stock units.

The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMedia were ~~526~~613 and ~~602~~526 as of ~~December 31, 2018~~September 30, 2019 and March 31, ~~2018,~~2019, respectively. ~~340~~209 restricted stock units previously granted to ZelnickMedia vested and 3320 restricted stock units were forfeited by ZelnickMedia during the ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019.

4. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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


	December 31, 2018			Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)			Significant unobservable inputs (level 3)		Balance Sheet Classification	September 30, 2019			Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)			Significant unobservable inputs (level 3)		Balance Sheet Classification
Money market funds	$	456,653		$	456,653	$	—		$	—	Cash and cash equivalents	$	320,146		$	320,146	$	—		$	—	Cash and cash equivalents
Bank-time deposits	148,152			148,152		—			—		Cash and cash equivalents	10,333			10,333		—			—		Cash and cash equivalents
Commercial paper	22,671			—		22,671			—		Cash and cash equivalents	104,612			—		104,612			—		Cash and cash equivalents
Money market funds	240,584			240,584		—			—		Restricted cash
Corporate bonds												2,565			—		2,565			—		Cash and cash equivalents
Corporate bonds	320,357			—		320,357			—		Short-term investments	274,027			—		274,027			—		Short-term investments
Bank-time deposits	152,562			152,562		—			—		Short-term investments	381,000			381,000		—			—		Short-term investments
US Treasuries	53,472			53,472		—			—		Short-term investments	28,941			28,941		—			—		Short-term investments
Commercial paper	19,343			—		19,343			—		Short-term investments	58,645			—		58,645			—		Short-term investments
Foreign currency forward contracts	204			—		204			—		Prepaid expenses and other
Money market funds												661,397			661,397		—			—		Restricted cash and cash equivalents
Cross-currency swap												6,683			—		6,683			—		Prepaid expenses and other
Private equity	1,823			—		—			1,823		Other assets	2,066			—		—			2,066		Other assets
Foreign currency forward contracts	(169		)	—		(169		)	—		Accrued expenses and other current liabilities	(168		)	—		(168		)	—		Accrued expenses and other current liabilities
Cross-currency swap	(787		)	—		(787		)	—		Accrued expenses and other current liabilities
Total recurring fair value measurements, net	$	1,414,865		$	1,051,423	$	361,619		$	1,823		$	1,850,247		$	1,401,817	$	446,364		$	2,066



	March 31, 2019			Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)			Significant unobservable inputs (level 3)		Balance Sheet Classification
Money market funds	$	389,936		$	389,936	$	—		$	—	Cash and cash equivalents
Commercial paper	39,246			—		39,246			—		Cash and cash equivalents
US Treasuries	25,449			25,449		—			—		Cash and cash equivalents
Money market funds	565,461			565,461		—			—		Restricted cash and cash equivalents
Bank-time deposits	387,720			387,720		—			—		Short-term investments
Corporate bonds	296,141			—		296,141			—		Short-term investments
US Treasuries	55,634			55,634		—			—		Short-term investments
Commercial paper	4,990			—		4,990			—		Short-term investments
Cross-currency swap	791			—		791			—		Prepaid expenses and other
Private equity	1,823			—		—			1,823		Other assets
Foreign currency forward contracts	(423		)	—		(423		)	—		Accrued and other current liabilities
Total recurring fair value measurements, net	$	1,766,768		$	1,424,200	$	340,745		$	1,823

March 31, 2018 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 $ 516,626
$ 516,626
$ —
$ —
Cash and cash equivalents
Bank-time deposits 21
21
—
—
Cash and cash equivalents
Commercial paper 10,796
—
10,796
—
Cash and cash equivalents
Corporate bonds 308,716
—
308,716
—
Short-term investments
US Treasuries 59,725
59,725
—
—
Short-term investments
Commercial paper 25,422
—
25,422
—
Short-term investments
Mutual funds 4,880
—
4,880
—
Short-term investments
Bank-time deposits 216,663
216,663
—
—
Short-term investments
Foreign currency forward contracts 12
—
12
—
Prepaid expenses and other
Private equity 1,205
—
—
1,205
Other assets
Foreign currency forward contracts (43 ) —
(43 ) —
Accrued expenses and other current liabilities
Cross-currency swap (15,659 ) —
(15,659 ) —
Accrued expenses and other current liabilities
Total recurring fair value measurements, net $ 1,128,364
$ 793,035
$ 334,124
$ 1,205

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 ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019.

5. SHORT-TERM INVESTMENTS

Our Short-term investments consisted of the following:


	December 31, 2018									September 30, 2019
			Gross Unrealized									Gross Unrealized
	Cost or Amortized Cost		Gains		Losses			Fair Value		Cost or Amortized Cost		Gains		Losses			Fair Value
Short-term investments
Bank time deposits	$	152,562	$	—	$	—		$	152,562	$	381,000	$	—	$	—		$	381,000
Available-for-sale securities:
Corporate bonds	321,034		106		(783		)	320,357		272,758		1,286		(17		)	274,027
US Treasuries	53,585		—		(113		)	53,472		28,898		43		—			28,941
Commercial paper	19,343		—		—			19,343		58,645		—		—			58,645
Total Short-term investments	$	546,524	$	106	$	(896	)	$	545,734	$	741,301	$	1,329	$	(17	)	$	742,613



	March 31, 2019
			Gross Unrealized
	Cost or Amortized Cost		Gains		Losses			Fair Value
Short-term investments
Bank time deposits	$	387,720	$	—	$	—		$	387,720
Available-for-sale securities:
Corporate bonds	295,526		742		(127		)	296,141
US Treasuries	55,656		27		(49		)	55,634
Commercial paper	4,990							4,990
Total short-term investments	$	743,892	$	769	$	(176	)	$	744,485

March 31, 2018
Gross
Unrealized
Cost or
Amortized Cost Gains Losses Fair Value
Short-term investments

Bank time deposits $ 216,663
$ —
$ —
$ 216,663
Available-for-sale securities:

Corporate bonds 310,387
16
(1,687 ) 308,716
US Treasuries 59,970
—
(245 ) 59,725
Commercial paper 25,422
—
—
25,422
Mutual funds 4,876
16
(12 ) 4,880
Total Short-term investments $ 617,318
$ 32
$ (1,944 ) $ 615,406

Based on our review of investments with unrealized losses, we did not consider these investments to be other-than-temporarily impaired as of ~~December 31, 2018~~September 30, 2019 or March 31, ~~2018.~~2019. We do not intend to sell any of our investments with unrealized losses, nor is it more likely than not that we will be required to sell those investments.

The following table summarizes the contracted maturities of our short-term investments at ~~December 31, 2018:~~September 30, 2019:



	September 30, 2019
	Amortized Cost		Fair Value
Short-term investments
Due in 1 year or less	$	637,405	$	638,236
Due in 1 - 2 years	103,896		104,377
Total short-term investments	$	741,301	$	742,613

December 31, 2018
Amortized
Cost Fair
Value
Short-term investments

Due in 1 year or less $ 429,993
$ 429,296
Due in 1 - 2 years 116,531
116,438
Total short-term investments $ 546,524
$ 545,734

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not enter into derivative financial contracts for speculative or trading purposes. We recognize derivative instruments as either assets or liabilities on our Consolidated Balance Sheets, and we measure those instruments at fair value. We classify cash flows from derivative transactions as cash flows from operating activities in our Consolidated Statements of Cash Flows.

Foreign currency forward contracts

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



	September 30, 2019		March 31, 2019
Forward contracts to sell foreign currencies	$	211,668	$	116,590
Forward contracts to purchase foreign currencies	40,512		87,793

December 31, 2018 March 31, 2018
Forward contracts to sell foreign currencies $ 273,470
$ 67,580
Forward contracts to purchase foreign currencies 41,347
4,359

For the three months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ we recorded a gain of ~~$10,811~~$2,210 and a loss of ~~$620,~~$247, respectively, and for the ~~nine~~six months ended ~~December 31,~~September 30, 2019 and 2018 ~~and 2017,~~ we recorded a ~~gain~~ of~~$12,968~~ ~~and a~~ loss of ~~$15,325,~~$1,087 and $2,157, respectively, related to foreign currency forward contracts in Interest and other, net in our Condensed Consolidated Statements of Operations. Our foreign currency exchange forward contracts are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense. These instruments are generally short-term in nature, with typical maturities of less than one year, and are subject to fluctuations in foreign exchange rates.

Cross-currency swaps

We entered into a cross-currency swap agreement in August 2017 related to an intercompany loan that has been designated and accounted for as a cash flow hedge of foreign currency exchange risk. The intercompany loan is related to the acquisition of Social Point. As of ~~December 31, 2018,~~September 30, 2019, the notional amount of the cross-currency swap is ~~$129,000.~~$115,641. This cross-currency swap

mitigates the exposure to fluctuations in the U.S. dollar-euro exchange rate related to the intercompany loan. The critical terms

of the cross-currency swap agreement correspond to the intercompany loan and both mature at the same time in 2027; as such, there was no ineffectiveness during the period.

Changes in the fair value of this cross-currency swap are recorded in Accumulated other comprehensive income (loss) and offset the change in value of interest and principal payment as a result of changes in foreign exchange rates. Resulting gains or losses from the cross-currency swap are reclassified from Accumulated other comprehensive income (loss) to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan. We recognize the difference between the U.S. dollar interest payments received from the swap counterparty and the U.S. dollar equivalent of the euro interest payments made to the swap counterparty in Interest and other, net on our Consolidated Statement of Operations. There are no credit-risk related contingent features associated with these swaps.

Inventory balances by category were as follows:



	September 30, 2019		March 31, 2019
Finished products	$	34,408	$	24,847
Parts and supplies	4,885		3,353
Inventory	$	39,293	$	28,200

December 31, 2018 March 31, 2018
Finished products $ 36,365
$ 13,940
Parts and supplies 3,421
1,222
Inventory $ 39,786
$ 15,162

Estimated product returns included in inventory at ~~December 31, 2018~~September 30, 2019 and March 31, ~~2018~~2019 were ~~$1,021~~$347 and ~~$373,~~$491, respectively.

8. SOFTWARE DEVELOPMENT COSTS AND LICENSES

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



	September 30, 2019				March 31, 2019
	Current		Non-current		Current		Non-current
Software development costs, internally developed	$	40,292	$	417,113	$	14,809	$	434,712
Software development costs, externally developed	10,690		108,077		3,655		168,381
Licenses	11,346		2,432		10,416		343
Software development costs and licenses	$	62,328	$	527,622	$	28,880	$	603,436

December 31, 2018 March 31, 2018
Current Non-current Current Non-current
Software development costs, internally developed $ 23,217
$ 440,876
$ 19,338
$ 515,761
Software development costs, externally developed 8,810
156,521
4,275
122,270
Licenses 1,515
100
9,671
1,338
Software development costs and licenses $ 33,542
$ 597,497
$ 33,284
$ 639,369

During the three months ended December 31, 2018 and 2017, we recorded $7,426 and $0, respectively, and during the nine months ended December 31, 2018 and 2017, we recorded $7,426 and $960, respectively, of software development impairment charges (a component of Cost of goods sold). For the three months ended December 31, 2018, the impairment charges relate to a decision not to proceed with further development of certain interactive entertainment software.

9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:



	September 30, 2019		March 31, 2019

Software development royalties	$	897,304	$	713,201
Licenses	82,354		56,221
Refund liability	73,278		65,853
Compensation and benefits	68,640		73,695
Marketing and promotions	45,365		42,390
Other	84,255		84,335
Accrued expenses and other current liabilities	$	1,251,196	$	1,035,695

December 31, 2018 March 31, 2018

Software development royalties $ 664,263
$ 600,512
Compensation and benefits 131,091
57,499
Refund liability 79,350
—
Licenses 74,803
43,261
Business reorganization (see Notes 13 and 14) 60,385
72,074
Marketing and promotions 62,660
19,731
Deferred acquisition payments —
25,000
Other 133,780
96,671
Accrued expenses and other current liabilities $ 1,206,332
$ 914,748

~~In December 2017,~~On February 8, 2019, we entered into ~~a Seventh Amendment to our Second Amended and Restated~~an unsecured Credit Agreement ~~(as amended, the "Credit Agreement"~~(the “Credit Agreement”). The Credit Agreement runs through February 8, 2024. The Credit Agreement provides for ~~borrowings~~an unsecured five-year revolving credit facility with commitments of up to $100,000 which may be increased by up to $100,000 pursuant to the terms of the Credit Agreement and which 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 (5.75% at December 31, 2018) or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 2.52% at December 31, 2018), 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 December 31, 2018 and March 31, 2018.

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$200,000, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to ~~$5,000.~~$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 New Credit Agreement will bear interest at a rate of (a) 0.250% to 0.750% above a certain base rate (5.50% at September 30, 2019) or (b) 1.125% to 1.750% above LIBOR (approximately 2.02% at September 30, 2019), which rates are determined by reference to our consolidated total net leverage ratio. We had no outstanding borrowings at September 30, 2019.

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



	September 30, 2019		March 31, 2019
Available borrowings	$	198,336	$	198,336
Outstanding letters of credit	1,664		1,664

December 31, 2018 March 31, 2018
Available borrowings $ 98,319
$ 98,335
Outstanding letters of credit 1,664
1,664

We recorded interest expense and fees related to the Credit Agreement of ~~$111~~$84 and ~~$111, respectively~~$166 for the three and six months ended ~~December 31, 2018~~September 30, 2019, respectively, and ~~2017~~$111 and ~~$332 and $332~~$221 for the ~~nine~~three and six months ended ~~December 31,~~September 30, 2018, ~~and 2017, respectively.~~respectively, under a prior credit arrangement, which was terminated on the same day that we entered into the Credit Agreement. The Credit Agreement ~~contains~~also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, ~~that substantially limit~~as well as limitations on us and each of our ~~and our subsidiaries',~~subsidiaries’ ability toto: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary ~~course of business;~~course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of ~~their respective properties;~~its property; make investments; or pay dividends or make distributions, ~~(each~~in each case 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).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 ~~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.

~~1.00% 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"). 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 was payable semi-annually in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible Notes matured on July 1, 2018, unless earlier repurchased by the Company or converted. 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 were 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 underlying conversion shares) subject to adjustment in certain circumstances.

~~None of the 1.00% Convertible Notes remain outstanding.~~

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

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Cash interest expense (coupon interest expense) $ —
$ (60 ) $ 1
$ 519
Non-cash amortization of discount on 1.00% Convertible Notes —
1,509
91
15,424
Amortization of debt issuance costs —
48
3
471
Total interest expense related to 1.00% Convertible Notes $ —
$ 1,497
$ 95
$ 16,414

11. EARNINGS PER SHARE ("EPS")

The following table sets forth the computation of basic and diluted earnings per share:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Computation of Basic earnings per share:
Net income	$	71,815	$	25,367	$	118,095	$	97,060
Weighted average shares outstanding—basic	113,117		113,735		112,869		113,339
Basic earnings per share	$	0.63	$	0.22	$	1.05	$	0.86

Computation of Diluted earnings per share:
Net income	$	71,815	$	25,367	$	118,095	$	97,060

Weighted average shares outstanding—basic	113,117		113,735		112,869		113,339
Add: dilutive effect of common stock equivalents	960		2,360		1,056		2,462
Weighted average common shares outstanding—diluted	114,077		116,095		113,925		115,801

Diluted earnings per share	$	0.63	$	0.22	$	1.04	$	0.84

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Computation of Basic earnings per share:

Net income $ 179,948
$ 25,140
$ 277,007
$ 82,680
Less: net income allocated to participating securities —
(62 ) —
(211 )
Net income for basic earnings per share calculation $ 179,948
$ 25,078
$ 277,007
$ 82,469

Total weighted average shares outstanding—basic 113,433
113,991
113,390
109,010
Less: weighted average participating shares outstanding —
(279 ) —
(278 )
Weighted average common shares outstanding—basic 113,433
113,712
113,390
108,732

Basic earnings per share $ 1.59
$ 0.22
$ 2.44
$ 0.76

Computation of Diluted earnings per share:
Net income $ 179,948
$ 25,140
$ 277,007
$ 82,680
Less: net income allocated to participating securities —
(59 ) —
(206 )
Net income for diluted earnings per share calculation $ 179,948
$ 25,081
$ 277,007
$ 82,474

Weighted average common shares outstanding—basic 113,433
113,712
113,390
108,732
Add: dilutive effect of common stock equivalents 1,304
4,206
1,528
2,708
Weighted average common shares outstanding—diluted 114,737
117,918
114,918
111,440
Less: weighted average participating shares outstanding —
(279 ) —
(278 )
Weighted average common shares outstanding- diluted 114,737
117,639
114,918
$ 111,162

Diluted earnings per share $ 1.57
$ 0.21
$ 2.41
$ 0.74

Certain of our unvested stock-based awards (including restricted stock units and restricted stock awards) are considered participating securities since these securities have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award and thus requires the two-class method of computing EPS. As of ~~December 31, 2018,~~September 30, 2019, we have no material participating ~~securities.~~

~~The calculation of EPS for common stock under the two-class method shown above excludes income attributable to the participating~~ securities ~~from the numerator and excludes the dilutive effect of those awards from the denominator.~~

We define common stock equivalents as stock-based awards and common stock related to the 1.00% Convertible Notes (see Note 10) outstanding during the period. Common stock equivalents are measured using the treasury stock method, except for the Convertible Notes, which were 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 1.00% 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.~~outstanding.

During the ~~nine~~six months ended ~~December 31, 2018, 2,068~~September 30, 2019, 1,501 restricted stock awards vested, we granted ~~1,715~~716 unvested restricted stock awards, and ~~444~~66 unvested restricted stock awards were forfeited. ~~The forfeiture of awards resulted in a reversal of expense of $5,498 and amounts capitalized as software development costs of $14,686.~~

Table of Contents

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

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


	Nine Months Ended December 31, 2018														Six Months Ended September 30, 2019
	Foreign currency translation adjustments			Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on cross-currency swap			Unrealized gain (loss) on available-for- sales securities			Total			Foreign currency translation adjustments			Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on cross-currency swap			Unrealized gain (loss) on available-for- sales securities		Total
Balance at March 31, 2018	$	(4,287	)	$	600	$	(10,191	)	$	(1,854	)	$	(15,732	)
Balance at March 31, 2019															$	(33,090	)	$	600	$	(5,285	)	$	586	$	(37,189	)
Other comprehensive income (loss) before reclassifications	(40,666		)	—		1,158			1,058			(38,450		)	(21,364		)	—		6,779			720		(13,865		)
Amounts reclassified from accumulated other comprehensive loss	—			—		3,228			—			3,228			—			—		(3,408		)	—		(3,408		)
Balance at December 31, 2018	$	(44,953	)	$	600	$	(5,805	)	$	(796	)	$	(50,954	)
Balance at September 30, 2019															$	(54,454	)	$	600	$	(1,914	)	$	1,306	$	(54,462	)



	Six Months Ended September 30, 2018
	Foreign currency translation adjustments			Unrealized gain (loss) on derivative instruments		Unrealized gain (loss) on cross-currency swap			Unrealized gain (loss) on available-for- sales securities			Total
Balance at March 31, 2018	$	(4,287	)	$	600	$	(10,191	)	$	(1,854	)	$	(15,732	)
Other comprehensive income (loss) before reclassifications	(24,335		)	—		9,054			890			(14,391		)
Amounts reclassified from accumulated other comprehensive loss	—			—		(7,076		)	—			(7,076		)
Balance at September 30, 2018	$	(28,622	)	$	600	$	(8,213	)	$	(964	)	$	(37,199	)

Nine Months Ended December 31, 2017
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, 2017 $ (47,666 ) $ 600
$ —
$ (76 ) $ (47,142 )
Other comprehensive income (loss) before reclassifications 23,391
—
(8,626 ) (705 ) 14,060
Amounts reclassified from accumulated other comprehensive loss —
—
1,987
—
1,987
Balance at December 31, 2017 $ (24,275 ) $ 600
$ (6,639 ) $ (781 ) $ (31,095 )

13. COMMITMENTS AND CONTINGENCIES

We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. Other than agreements entered into in the ordinary course of business and in addition to the agreements requiring known cash commitments as reported in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018,~~2019, we did not have any significant changes to our commitments since March 31, ~~2018.~~2019.

Legal and Other Proceedings

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

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, but the case was subsequently remanded to state court. The complaint claims damages of at least $150,000 and contains allegations of breach of fiduciary duty; fraudulent inducement and fraudulent concealment; aiding and abetting breach of fiduciary duty; breach of various contracts; breach of implied duty of good faith and fair dealing; tortious interference with contract; unjust enrichment; reformation; constructive trust; declaration of rights; constructive discharge; defamation and fraud. We have asserted counterclaims for breach of contract, theft of trade secrets, and misappropriation.

As a result of amended pleadings, motion practice and appeals to date, twelve of Mr. Benzies’ claims have been dismissed. His remaining claims include breach of various contracts, constructive discharge, breach of implied duty of good faith and fair

dealing, and tortious interference with contract. Our federal court action has been stayed pending the conclusion of the state court action. We believe that we have meritorious defenses to the remaining claims, and we intend to vigorously defend against them and to pursue our counterclaims.

~~We have accrued what we believe to be an adequate amount for this matter, which amounts are classified as Business~~

reorganization within Accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets (see Note 9). We do not believe that the ultimate outcome of such litigation, even if in excess of our current accrual, will have a material adverse effect on our business, financial condition or results of operations.

14. BUSINESS REORGANIZATION

In the first quarter of fiscal year 2018, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2018 Plan"). In connection with this initiative, we ~~decreased~~recorded business reorganization expense ~~by $242~~of $327 and $713 during the ~~nine~~three and six months ended ~~December 31, 2018~~September 30, 2019, respectively, due to updating estimates for employee separation ~~costs. Through December 31, 2018, we paid $5,517~~costs and did not make any payments related to these reorganization activities. As of ~~December 31, 2018, $380~~September 30, 2019, $3,869 remained accrued for in Accrued expenses and other current liabilities and ~~$4,708~~$3,116 in Other non-current liabilities. Although we may record additional expense or benefit in future periods to true-up estimates, we do not expect to incur additional reorganization costs in connection with the 2018 Plan.

In fiscal 2016, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2016 Plan"), including reorganizing one development studio and closing two development studios and incurred business reorganization expense of $71,285 due primarily to employee separation costs in connection with this initiative and have not incurred expenses in fiscal 2017 or 2018. During the three and nine months ended December 31, 2018, we recognized a benefit of $5,930 as a result of updating our estimate of costs to complete the 2016 Plan. As of December 31, 2018, $60,005 remained accrued for the 2016 Plan in Accrued expenses and other current liabilities.

During the three months ended December 31, 2018, we recognized a tax benefit of $108,679 from a reduction in our valuation allowance on certain United States ("U.S.") deferred tax assets as a result of a determination that it was more-likely-than-not that such deferred tax assets would be realized. Our determination took into account the successful launch of ~~Red Dead Redemption 2~~ ~~during the current fiscal quarter along with our recent positive trend of earnings.~~

~~On December 22, 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the "Tax Cuts and Jobs Act” (herein referred to as the "Act”).~~ The Act made broad and complex changes to the U.S. tax code, which could materially affect us. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018 and required companies to pay a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act made other changes that may affect us, including but not limited to (1) a Base Erosion Anti-abuse Tax, which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a new provision ~~that taxes global intangible low-taxed income ("GILTI"), (4) the repeal of the domestic production activity deduction, and (5) other base broadening provisions.~~

~~The SEC issued Staff Accounting Bulletin No. 118,~~ ~~Income Tax Accounting Implications of the Tax Cuts and Jobs Act~~ ("SAB 118"), which provides guidance on accounting for the Act’s impact. SAB 118 provides a measurement period, which should not extend beyond one year from the Act enactment date, during which a company acting in good faith may complete the accounting for the impact of the Act under ASC 740. In accordance with SAB 118, the income tax effects of the Act must be reflected in the reporting period in which the accounting under ASC Topic 740 is complete. During the three months ended December 31, 2018, we have completed the accounting for the income tax effects of the Act.

During the three months ended December 31, 2017, we recorded an estimated net increase to income tax expense of $18,078 related to the one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries as required by the Act. Additional information and further analysis was required to determine the untaxed earnings of certain foreign subsidiaries and to evaluate the complexities of the new tax law along with additional interpretative guidance that was issued. The impact of the Act differs from these estimates due to changes in interpretations and assumptions we have made, guidance that was issued, and actions taken as a result of the Act. We recorded a decrease to income tax expense of $4,553 to adjust provisional estimates in the three months ended December 31, 2018.

~~The Act subjects a U.S. shareholder to current tax on GILTI earned by foreign subsidiaries. The FASB Staff Q&A Topic No. 5,~~ ~~Accounting for Global Intangible Low-Taxed Income~~, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. We have elected to recognize the resulting tax

on GILTI as an expense in the period incurred. We have estimated the effect in our projected annual effective rate based on current tax guidance. The actual tax expense we record for GILTI may differ from this estimate.

~~The benefit~~ for income taxes for the three months ended ~~December 31, 2018~~September 30, 2019 is based on our projected annual effective tax rate for fiscal year ~~2018,~~2020, adjusted for specific items that are required to be recognized in the period in which they are incurred.

The provision for income taxes was $11,059 for the three months ended September 30, 2019 as compared to $5,594 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of 13.3% for the three months ended September 30, 2019 was primarily due to tax benefits of $3,209 as a result of tax credits anticipated to be utilized and $1,402 due to geographic mix of earnings.

The provision for income taxes for the six months ended September 30, 2019 is based on our projected annual effective tax rate for fiscal year 2020, adjusted for specific items that are required to be recognized in the period in which they are incurred. The ~~benefit~~provision for income taxes was ~~$120,098~~$26,934 for the ~~three~~six months ended ~~December 31, 2018~~September 30, 2019 as compared to ~~a benefit from income taxes of $12,914~~$11,348 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of ~~(200.7)%~~18.6% for the ~~three~~six months ended ~~December 31, 2018~~September 30, 2019 was primarily due ~~primarily~~ to a tax benefit of ~~$108,679 as a result of~~$11,749 from changes in ~~our valuation allowance on certain U.S. deferred~~unrecognized tax ~~assets that are more-likely-than-not~~benefits due to ~~be realized,~~audit settlements, a ~~tax~~ benefit of $15,354 due to the geographic mix of earnings, a net tax benefit of $12,006 for excess tax benefits from employee stock compensation and a tax benefit of $6,491 as a result of tax credits anticipated to be utilized. To a lesser extent, our rate was also affected by the Act.

The benefit for income taxes for the nine months ended December 31, 2018 is based on our projected annual effective tax rate for fiscal year 2019, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit for income taxes was $108,750 for the nine months ended December 31, 2018 as compared to a benefit from income taxes of $37,331 for the prior year period.

When compared to the statutory rate of 21%, the effective tax rate of (64.6)% for the nine months ended December 31, 2018 was due primarily to a tax benefit of $108,679 as a result of changes in our valuation allowance on certain U.S. deferred tax assets that are more-likely-than-not to be realized, a net tax benefit of $18,924 for excess tax benefits from employee stock compensation, a tax benefit of $15,339$6,026 as a result of tax credits anticipated to be utilized, and a ~~net tax~~ benefit of ~~$4,716 due to the~~$3,170 from our geographic mix of earnings. To a lesser extent ~~our~~the rate was also affected by excess tax benefits from employee stock-based compensation. These benefits were partially offset by a tax expense of $19,826 from the ~~Act.~~reversal of net deferred tax benefits relating to the Altera case, discussed below.

On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, which concluded that related parties in an intercompany cost-sharing arrangement are not required to share costs related to stock-based compensation. In February 2016, the U.S. Internal Revenue Service appealed the decision to the U.S Court of Appeals for the Ninth Circuit. On June 7, 2019, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court. As a result of this decision, we are no longer reflecting a net tax benefit within our financial statements related to the removal of stock-based compensation from our intercompany cost-sharing arrangement. During the six months ended September 30, 2019, we removed the deferred tax asset and a deferred tax liability associated with this matter from our financial statements, resulting in a cumulative net discrete income tax expense of $19,826. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit and may subsequently appeal from the Ninth Circuit to the U.S. Supreme Court. As a result, the final outcome of the case is uncertain. We will continue to monitor ongoing developments of this matter and potential impacts to our financial statements.

In addition, on June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, which overturned previous case law that precluded states from requiring retailers to collect and remit sales and use tax collection on sales made to in-state customers unless the retailer had physical presence in the state. Although this case is limited to sales tax collection obligations, we continue to monitor the potential impact of this decision on our state income tax footprint.

We are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits or the expiration of the statute of limitations may have an impact on our effective tax rate in future periods.

16. ~~SHARE REPURCHASE~~LEASES

Our ~~Board~~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 ~~Directors has authorized~~lease renewal options is generally at our sole discretion. Additionally, the ~~repurchase of up to 14,218 shares~~majority 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, the Company's 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 three months ended December 31, 2018, we repurchased 1,000 shares of our common stock in the open market for $108,903, including commissions of $10, as part of the program. During the nine months ended December 31, 2018, we repurchased 2,597 shares of our common stock in the open market for $262,418, including commissions of $26, as part of the program. We have repurchased a total of 9,281 shares of our common stock under the program, and, as of December 31, 2018, 4,937 shares of our common stock remain available for repurchase under the share repurchase program.

~~All of the repurchased shares~~leases are classified as ~~Treasury stock in~~operating leases.

Information related to our ~~Condensed Consolidated Balance Sheets.~~operating leases are as follows:



	Three Months Ended September 30, 2019		Six Months Ended September 30, 2019
Lease costs
Operating lease costs	$	6,555	$	13,563
Short term lease costs	$	682	$	1,355



	Six Months Ended September 30, 2019
Supplemental operating cash flow information
Cash paid for amounts included in the measurement of lease liabilities	$	13,216
ROU assets obtained in exchange for lease obligations	$	11,625



	At September 30, 2019
Weighted average information
Remaining lease term	8.0
Discount rate	5.0	%

Future undiscounted lease payments for our operating lease liabilities, and a reconciliation of these payments to our operating lease liabilities at September 30, 2019, are as follows:



For the years ending March 31,
Remaining 2020	$	13,251
2021	30,046
2022	28,497
2023	24,311
2024	17,073
Thereafter	58,581
Total future lease payments	171,759
Less imputed interest	(30,697		)
Total lease liabilities	$	141,062

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

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," "should" "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including those contained herein, in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018,~~2019, in the section entitled "Risk Factors," and the Company's other periodic filings with the Securities and Exchange Commission. All forward-looking statements are qualified by these cautionary statements and speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. The following discussion should be read in conjunction with the MD&A

and our annual consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018.~~2019.

We are a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. We develop and publish products ~~principally~~ through our ~~two wholly-owned~~ labels Rockstar Games, 2K, and ~~2K,~~Private Division, as well as ~~our Private Division label and~~ Social Point, a leading developer of mobile games. Our products are currently designed for console gaming systems, such as Sony's PlayStation®4 ("PS4") ~~and PlayStation®3 ("PS3")~~, Microsoft's Xbox One® ("Xbox One") ~~and Xbox 360®~~, or Nintendo's Switch™ ("~~Xbox 360"~~Switch"), ~~the Nintendo Switch,~~ and personal computers ("PC"), including

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

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

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

Software titles published by our Rockstar Games label are primarily internally developed. We expect Rockstar Games, our wholly-owned publisher of the Grand Theft Auto, Max Payne, Midnight Club, Red DeadRedemption, and other popular franchises, to continue to be a leader in the action/adventure product category and to create groundbreaking entertainment by leveraging our existing titles as well as by developing new brands. We believe that Rockstar Games has established a uniquely original, popular cultural phenomenon with its Grand Theft Auto series, which is the interactive entertainment industry's most iconic and critically acclaimed brand and has sold-in over ~~290~~305 million units. The latest installment, Grand Theft Auto V, has sold in over ~~100~~115 million units worldwide and includes access to Grand Theft Auto Online. On October 26, 2018, Rockstar Games launched Red Dead Redemption 2, which has been a critical and commercial success that set numerous entertainment industry records. To date, Red Dead Redemption 2 has sold-in more than 25 million units worldwide. Rockstar Games is also well known for developing brands in other genres, including the L.A. Noire, Bully, and Manhunt franchises. Rockstar Games continues to expand on our established franchises by developing sequels, offering downloadable episodes, content, and virtual currency, and releasing titles for smartphones and tablets.

Our 2K label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter, action, role-playing, strategy, sports and family/casual entertainment. We expect 2K to continue to develop new, successful franchises in the future. 2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock, Mafia, Sid Meier's Civilization and XCOM series. 2K also publishes externally developed brands, such as Borderlands ~~and~~ ~~Evolve~~. The latest installment, Borderlands 3, launched on September 13, 2019. 2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, the WWE 2K professional wrestling series, and the ~~WWE 2K~~ ~~professional wrestling series.~~Golf Club.

Our Private Division label is dedicated to bringing titles from top independent developers to ~~market.~~market and is the publisher of Kerbal Space Program. During fiscal year 2020, Private Division ~~will publish several upcoming titles~~has released The Outer Worlds and Ancestors: The Humankind Odyssey, based on new IP from renowned industry creative talent. ~~Additionally,~~ Private Division ~~is the publisher of~~ has announced that Kerbal Space Program. 2 and Disintegration are planned for release in fiscal year 2021.

Social Point develops and publishes popular free-to-play mobile games that deliver high-quality, deeply-engaging entertainment experiences, including its two most successful games, Dragon City and Monster Legends. In addition, Social Point has a robust development pipeline with a number of exciting games planned for launch in the coming years.

We are continuing to execute on our growth initiatives in Asia, where our strategy is to broaden the distribution of our existing products and expand our online gaming presence, especially in China and South Korea. 2K has secured a multi-year

license from the NBA to develop an online version of the NBA simulation game in China, Taiwan, South Korea, and Southeast Asia. NBA 2K Online, our free-to-play NBA simulation game, which was co-developed by 2K and Tencent, is the top online PC sports game in China with over 3747 million registered users. On August 2, 2018, 2K and Tencent commercially launched NBA 2K Online 2 in China. The title is based on the console edition of NBA 2K and includes an array of new features.

In February 2017, we expanded our relationship with the NBA through the creation of the NBA 2K ~~League, a new, professional competitive gaming league.~~League. Launched in May 2018, this groundbreaking competitive gaming league is jointly owned by us and the NBA and consists of teams operated

by ~~several~~actual NBA franchises. The NBA 2K League follows a professional sports league ~~format;~~format: the inaugural season included head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up that was held in August 2018. The NBA 2K ~~League has announced that four additional teams (owned by the NBA's Atlanta Hawks, Brooklyn Nets, Los Angeles Lakers, and Minnesota Timberwolves) will join next~~League's second season ~~bringing the NBA 2K League's total to 21 teams.~~finals were held in August 2019.

Product Release Schedule. Our financial results are affected by the timing of our product releases and the commercial success of those titles. Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue. Sales of Grand Theft Auto products generated ~~25.1%~~23% of our net revenue for the ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019. In October 2018, we released Red Dead Redemption 2. Sales of Red Dead Redemption products generated ~~35.0%~~13% of our net revenue for the ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019. The timing of our Grand Theft Auto or Red Dead Redemption product releases may affect our financial performance on a quarterly and annual basis.

Economic Environment and Retailer Performance. We continue to monitor economic conditions that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates. Our business is dependent upon a limited number of customers that account for a significant portion of our revenue. Our five largest customers accounted for ~~68.3%~~74.8% and ~~67.1%~~75.4% of net revenue during the ~~nine~~six months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017,~~ respectively. As of ~~December 31, 2018~~September 30, 2019 and March 31, ~~2018,~~2019, our five largest customers comprised ~~74.5%~~66.0% and ~~65.4%~~66.6% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for ~~58.8%~~50.0% and ~~53.2%~~55.8% of such balance at ~~December 31, 2018~~September 30, 2019 and March 31, ~~2018,~~2019, respectively. We had two customers who accounted for ~~44.4%~~31.4% and ~~14.4%~~18.7%, respectively, of our gross accounts receivable as of ~~December 31, 2018~~September 30, 2019 and two customers who accounted for ~~37.7%~~40.1% and ~~15.5%~~15.7%, respectively, of our gross accounts receivable as of March 31, ~~2018.~~2019. The economic environment has affected our customers in the past, and may do so in the future. Bankruptcies or consolidations of our large retail customers could seriously hurt our business, due to uncollectible accounts receivables and the concentration of purchasing power among the remaining large retailers. Certain of our large customers sell used copies of our games, which may negatively affect our business by reducing demand for new copies of our games. While the online and downloadable content that we now offer for certain of our titles may serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.

Hardware Platforms. We derive most of our revenue from the sale of software products made for video game consoles manufactured by third parties, such as Sony's PS4, ~~and PS3,~~ Microsoft's Xbox One, and ~~Xbox 360, and the Nintendo~~Nintendo's Switch, which comprised ~~85.1%~~77.7% of our net revenue by product platform for the ~~nine~~three months ended ~~December 31, 2018.~~September 30, 2019. The success of our business is dependent upon the consumer acceptance of these platforms and continued growth in ~~the~~their installed ~~base of these platforms.~~base. When new hardware platforms are introduced, demand for software used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. Accordingly, our strategy is to focus our development efforts on a select number of the highest quality titles for these platforms, while also expanding our offerings for emerging platforms such as tablets, smartphones and online games.

Online Content and Digital Distribution. The interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods. We provide a variety of online delivered products and offerings. Virtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from websites we own and others owned by third parties). as well as a larger selection of our catalog titles. In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending, ~~on our titles through~~which is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases. We also publish an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital ~~download via the Internet.~~download. Our "Results of Operations" discloses that net revenue from digital online channels comprised ~~59.6%~~74.6% of our net revenue by distribution channel for the ~~nine~~six months ended ~~December 31, 2018.~~September 30, 2019. We expect online delivery of games and game offerings to continue to grow and to become an increasing part of our business over the long-term.

We released the following key titles during the ~~nine~~six months ended ~~December 31, 2018:~~September 30, 2019:



Title	Publishing Label	Internal or External Development	Platform(s)	Date Released
~~Grand Theft Auto V Premium Online~~Borderlands: Game of the Year Edition	~~Rockstar Games~~	~~Internal~~	~~PS4, Xbox One, PC~~	~~April 20, 2018~~
~~NBA 2K Online 2~~	2K	~~External~~	~~Tencent (China only)~~	~~August 2, 2018~~
~~The Golf Club 2019 Featuring PGA TOUR~~ ~~(Digital)~~	2K	External	PS4, Xbox One, PC	~~August 27, 2018~~April 3, 2019
NBA ~~2K19 20th Anniversary Edition~~2K Mobile	2K	Internal	Android	April 17, 2019
Ancestors: The Humankind Odyssey	Private Division	External	PC (digital only)	August 27, 2019
NBA 2K20	2K	Internal	PS4, Xbox One, ~~Nintendo~~ Switch, PC, iOS, Android	September ~~7, 2018~~6, 2019
~~NBA 2K19 Standard Edition~~Borderlands 3	2K	Internal	~~PS4, Xbox One, Nintendo Switch, PC~~	~~September 11, 2018~~
~~WWE 2K19 Woooo! Deluxe Edition~~	2K	~~Internal/~~ / External	PS4, Xbox One, PC	~~October 5, 2018~~
~~WWE 2K19~~	2K	~~Internal/External~~	~~PS4, Xbox One, PC~~	~~October 9, 2018~~
~~NBA 2K Playgrounds 2~~	2K	~~External~~	~~PS4, Xbox One, Nintendo Switch, PC~~	~~October 16, 2018~~
~~Red Dead Redemption 2~~	~~Rockstar Games~~	~~Internal~~	~~PS4, Xbox One~~	~~October 26, 2018~~
~~Carnival Games~~	2K	~~Internal~~	~~PS4, Xbox One,~~ ~~Nintendo Switch~~	~~November 6, 2018~~
~~The Golf Club~~September 13, 2019 ~~Featuring PGA TOUR~~ ~~(Physical)~~	2K	~~External~~	~~PS4, Xbox One, PC~~	~~November 13, 2018 (North America)~~ ~~November 16, 2018 (International)~~
~~Sid Meier's Civilization VI~~	2K	~~External~~	~~Nintendo Switch~~	~~November 16, 2018~~
~~Red Dead Online Beta~~	~~Rockstar Games~~	~~Internal~~	~~PS4, Xbox One~~	~~November 27, 2018~~

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



Title	Publishing Label	Internal or External Development	Platform(s)	Expected Release Date
~~Sid Meier's Civilization VI: Gathering Storm~~WWE 2K20	2K	Internal	PS4, Xbox One, PC	October 22, 2019 (released)
The Outer Worlds	Private Division	External	PS4, Xbox One, PC	October 25, 2019 (released)
Red Dead Redemption 2	Rockstar Games	Internal	PC	~~February 14,~~November 5,2019 (released)
Sid Meier's Civilization VI	2K	Internal	PS4, Xbox One	November 22, 2019
Red Dead Redemption 2	Rockstar Games	Internal / External	Google Stadia	November 2019
Borderlands 3	2K	Internal / External	Google Stadia	November 2019
NBA 2K20	2K	Internal	Google Stadia	November 2019
Ancestors: The Humankind Odyssey	Private Division	External	PS4, Xbox One ~~PC (digital only)~~	December 2019 ~~(fiscal 2020)~~
~~The Outer Worlds~~Kerbal Space Program 2	Private Division	External	PC (digital only), PS4, Xbox One PC	~~2019 (fiscal 2020)~~Fiscal 2021
Disintegration	Private Division	External	TBA	Fiscal 2021

Table of Contents

Critical Accounting Policies and Estimates

Our most critical accounting policies, which are those that require significant judgment, include revenue recognition; price protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates including valuation of goodwill, intangible assets, and long-lived assets; valuation and recognition of stock-based compensation; and income taxes. In-depth descriptions of these can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018.~~2019.

During the ~~nine~~six months ended ~~December 31, 2018,~~September 30, 2019, there were no significant changes to the above critical accounting policies and estimates, with the exception of our adoption of Topic ~~606,~~ ~~Revenue from Contracts with Customers~~842, Leases. Refer to Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements for disclosures regarding our updated ~~revenue recognition~~lease accounting policies.

Recently Adopted and Recently Issued Accounting Pronouncements

See Note 1 - Basis of Presentation and Significant Accounting Policies for further discussion.

Operating Metric

Net Bookings

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

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 Increase/
(decrease) % Increase/
(decrease) 2018 2017 Increase/
(decrease) % Increase/
(decrease)
Net Bookings $ 1,568,568
$ 653,939
$ 914,629
139.9 % $ 2,440,314
$ 1,579,234
$ 861,080
54.5 %



	Three Months Ended September 30,								Six Months Ended September 30,
	2019		2018		Increase/ (decrease)		% Increase/ (decrease)		2019		2018		Increase/ (decrease)		% Increase/ (decrease)
Net Bookings	$	950,516	$	583,421	$	367,095	62.9	%	$	1,372,756	$	871,746	$	501,010	57.5	%

For the three months ended ~~December 31, 2018,~~September 30, 2019, Net Bookings increased by ~~$914.6~~$367.1 million as compared to the prior year period due primarily to Borderlands 3, which released in September 2019, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 ~~which released in October 2018, partially offset by a decrease from~~ ~~Grand Theft Auto V~~ and ~~Grand Theft Auto~~Red Dead Online,and our NBA 2K franchise. For the ~~nine~~six months ended ~~December 31, 2018,~~September 30, 2019, Net Bookings increased by ~~$861.1~~$501.0 million as compared to the prior year period primarily due ~~primarily~~ to Borderlands 3, our NBA 2K franchise, Red Dead Redemption 2 ~~which released in October 2018, partially offset by a decrease from~~ ~~Grand Theft Auto V~~ and Red Dead Online, and Grand Theft Auto Online.

Table of Contents

Results of Operations

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


	Three Months Ended December 31,									Nine Months Ended December 31,										Three Months Ended September 30,								Six Months Ended September 30,
(thousands of dollars)	2018					2017				2018					2017					2019				2018				2019				2018
Net revenue	$	1,248,738		100.0	%	$	480,840	100.0	%	$	2,129,387		100.0	%	$	1,342,618		100.0	%	$	857,841	100.0	%	$	492,667	100.0	%	$	1,398,300	100.0	%	$	880,649		100.0	%
Cost of goods sold	898,484			72.0	%	267,983		55.7	%	1,264,730			59.4	%	709,100			52.8	%	468,248		54.6	%	234,880		47.7	%	709,717		50.8	%	366,245			41.6	%
Gross profit	350,254			28.0	%	212,857		44.3	%	864,657			40.6	%	633,518			47.2	%	389,593		45.4	%	257,787		52.3	%	688,583		49.2	%	514,404			58.4	%
Selling and marketing	161,322			12.9	%	79,513		16.5	%	313,793			14.7	%	208,641			15.5	%	149,566		17.4	%	94,165		19.1	%	241,387		17.3	%	152,471			17.3	%
General and administrative	70,638			5.7	%	65,951		13.7	%	205,693			9.7	%	187,378			14.0	%	76,659		8.9	%	67,320		13.7	%	151,492		10.8	%	135,055			15.3	%
Research and development	62,305			5.0	%	49,977		10.4	%	173,582			8.2	%	142,245			10.6	%	76,197		8.9	%	60,565		12.3	%	145,160		10.4	%	111,277			12.6	%
Depreciation and amortization	10,140			0.8	%	7,864		1.6	%	29,151			1.4	%	34,490			2.6	%	12,024		1.4	%	9,751		2.0	%	23,281		1.7	%	19,011			2.2	%
Business reorganization	(5,930		)	(0.5	)%	700		0.1	%	(6,172		)	(0.3	)%	13,012			1.0	%	327		—	%	—		—	%	713		0.1	%	(242		)	—	%
Total operating expenses	298,475			23.9	%	204,005		42.4	%	716,047			33.6	%	585,766			43.6	%	314,773		36.7	%	231,801		47.1	%	562,033		40.2	%	417,572			47.4	%
Income from operations	51,779			4.1	%	8,852		1.8	%	148,610			7.0	%	47,752			3.6	%	74,820		8.7	%	25,986		5.3	%	126,550		9.1	%	96,832			11.0	%
Interest and other, net	8,071			0.6	%	3,374		0.7	%	19,647			0.9	%	(2,403		)	(0.2	)%	8,054		0.9	%	4,975		1.0	%	18,479		1.3	%	11,576			1.3	%
Income before income taxes	59,850			4.8	%	12,226		2.5	%	168,257			7.9	%	45,349			3.4	%	82,874		9.7	%	30,961		6.3	%	145,029		10.4	%	108,408			12.3	%
Benefit from income taxes	120,098			9.6	%	12,914		2.7	%	108,750			5.1	%	37,331			2.8	%
Provision for income taxes																				11,059		1.3	%	5,594		1.1	%	26,934		1.9	%	11,348			1.3	%
Net income	$	179,948		14.4	%	$	25,140	5.2	%	$	277,007		13.0	%	$	82,680		6.2	%	$	71,815	8.4	%	$	25,367	5.1	%	$	118,095	8.4	%	$	97,060		11.0	%


	Three Months Ended December 31,								Nine Months Ended December 31,								Three Months Ended September 30,								Six Months Ended September 30,
	2018				2017				2018				2017				2019				2018				2019				2018
Net revenue by geographic region:
United States	$	651,568	52.2	%	$	262,338	54.6	%	$	1,152,285	54.1	%	$	796,603	59.3	%	$	494,661	57.7	%	$	279,306	56.7	%	$	825,140	59.0	%	$	500,717	56.9	%
International	597,170		47.8	%	218,502		45.4	%	977,102		45.9	%	546,015		40.7	%	363,180		42.3	%	213,361		43.3	%	573,160		41.0	%	379,932		43.1	%
Net revenue by platform:
Console	$	1,144,459	91.6	%	$	394,461	82.0	%	$	1,811,429	85.1	%	$	1,099,843	81.9	%	$	651,818	76.0	%	$	372,240	75.6	%	$	1,086,632	77.7	%	$	666,970	75.7	%
PC and other	104,279		8.4	%	86,379		18.0	%	317,958		14.9	%	242,775		18.1	%	206,023		24.0	%	120,427		24.4	%	311,668		22.3	%	213,679		24.3	%
Net revenue by distribution channel:
Digital online	$	594,722	47.6	%	$	258,442	53.7	%	$	1,268,140	59.6	%	$	829,564	61.8	%	$	615,774	71.8	%	$	358,371	72.7	%	$	1,043,555	74.6	%	$	673,418	76.5	%
Physical retail and other	654,016		52.4	%	222,398		46.3	%	861,247		40.4	%	513,054		38.2	%	242,067		28.2	%	134,296		27.3	%	354,745		25.4	%	207,231		23.5	%
Net revenue by content:
Full game and other	$	952,182	76.3	%	$	326,894	68.0	%	$	1,351,202	63.5	%	$	801,626	59.7	%	$	539,373	62.9	%	$	252,068	51.2	%	$	764,974	54.7	%	$	399,020	45.3	%
Recurrent consumer spending	296,556		23.7	%	153,946		32.0	%	778,185		36.5	%	540,992		40.3	%	318,468		37.1	%	240,599		48.8	%	633,326		45.3	%	481,629		54.7	%

Three Months Ended ~~December 31, 2018~~September 30, 2019 Compared to ~~December 31, 2017~~September 30, 2018

In general, the adoption of Topic 606 results in a more accelerated revenue pattern, due primarily to (i) the elimination of the requirement for vendor-specific objective evidence (“VSOE”) of fair value when allocating between multiple performance obligations and (ii) the change of our estimated service period to a user life. However, the impact on a given period may differ from this general trend. In October 2018, we released ~~Red Dead Redemption 2.~~ The acceleration of revenue for this title was material and is the primary component of the significant increases as a result of the adoption of Topic 606 throughout the discussion below. See Note 1 and Note 2 to our Condensed Consolidated Financial Statements for further information.

For the three months ended ~~December 31, 2018,~~September 30, 2019, net revenue increased by ~~$767.9~~$365.2 million as compared to the prior year period. ~~This increase included a $762.2 million increase in net revenue as a result of the adoption of Topic 606, as described above.~~ The ~~remaining~~ increase was due to (i) ~~an increase of $38.1~~$255.4 million in net revenue from Borderlands 3, which released in September 2019, (ii) $80.3 million in net revenue from Red Dead Redemption 2,which released in October 2018, and~~(ii)~~ (iii) an increase of ~~$10.4~~$22.9 million in net revenue from our ~~Civilization~~ ~~franchise, partially offset by (i) a $22.1 million decrease in net revenue from our~~ ~~WWE~~ NBA 2K ~~franchiseand (ii) a decrease of $20.4 million in net revenue from~~ ~~L.A. Noire~~.franchise.

Net revenue from console games increased by ~~$750.0~~$279.6 million and accounted for ~~91.6%~~76.0% of our total net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~82.0%~~75.6% for the prior year period. The ~~increase in net revenue from console games included a $744.1 million increase in net revenue as a result of the adoption of Topic 606, as described above. The remaining~~ increase was due to an increase in net revenue from Borderlands 3, Red Dead Redemption 2,,and our ~~Civilization~~ NBA 2K franchise~~and~~ ~~Carnival Games~~. ~~These increases were partially offset by lower net revenue from our~~ ~~WWE 2K~~ ~~franchise and~~ ~~L.A. Noire.~~ Net revenue from PC and other increased by ~~$17.9~~$85.6 million and accounted for ~~8.4%~~24.0% of our total net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~18.0%~~24.4% for the prior year period. The increase inwas due to net revenue from ~~PC and other was due to an $18.0 million increase in net revenue as a result of the adoption of Topic 606. Offsetting this increase was a net decrease due to~~Borderlands 3, partially offset by a decrease in net revenue from our NBA 2K ~~franchise, partially offset by an increase in net revenue from~~ ~~Red Dead Redemption 2~~ ~~merchandise~~.franchise.

Net revenue from digital online channels increased by ~~$336.3~~$257.4 million and accounted for ~~47.6%~~71.8% of our total net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~53.7%~~72.7% for the prior year period. The ~~increase in net revenue from digital online channels included a $293.0 million increase in net revenue as a result of the adoption of Topic 606, as described above. The remaining~~ increase was due to an increase in net revenue from Borderlands 3, our NBA 2K franchise, and Red Dead Redemption ~~2, Grand Theft Auto Online,~~ ~~and our~~ ~~Civilization~~ ~~franchise.~~ 2. Net revenue from physical retail and other channels increased by ~~$431.6~~$107.8 million and accounted for ~~52.4%~~28.2% of our total net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~46.3%~~27.3% for the same period in the prior year period. The increase in net revenue from physical retail and other channels was due to ~~a $469.2 million increase as a result of the adoption of Topic 606, as described above. Offsetting this increase was a~~ net ~~decrease due to~~revenue from Borderlands 3 and Red Dead Redemption 2, partially offset by a decrease in net revenue from our ~~WWE 2K~~ ~~franchise,~~ ~~L.A. Noire,~~ ~~our~~ NBA 2K franchise.

Recurrent consumer spending is generated from ongoing consumer engagement and ~~Grand Theft Auto V,~~ ~~partially offset by an increase in net~~includes revenue from ~~Red Dead Redemption 2.~~

virtual currency, add-on content, and in-game purchases. Net revenue from recurrent consumer spending ~~on our titles through virtual currency, add-on content, and in-game purchases~~ increased by ~~$142.6~~$77.9 million and accounted for ~~23.7%~~37.1% of net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~32.0%~~48.8% of net revenue for the prior year period. The increase in net revenue from recurrent consumer spending ~~included a $104.1 million~~is due to an increase in net revenue asfrom our NBA 2K franchise, Borderlands 3, Red Dead Redemption 2 and Red Dead Online, partially offset by a ~~result of the adoption of Topic 606. The increase is also due to higher~~decrease in net revenue from ~~our~~ ~~NBA 2K~~ ~~franchise,~~ Grand Theft Auto ~~Online, and~~ ~~Red Dead Redemption 2.~~ Online. Net revenue from full game and other increased by ~~$625.3~~$287.3 million and accounted for ~~76.3%~~62.9% of net revenue for the three months ended ~~December 31, 2018~~September 30, 2019 as compared to ~~68.0%~~51.2% of net revenue for the prior year period. The increase in net revenue from full game and other was due to net revenue from Borderlands 3 and Red Dead Redemption 2, partially offset by a ~~$658.1 million increase as a result of the adoption of Topic 606, as described above. Offsetting this increase was a net~~ decrease ~~due to lower~~in net revenue from our ~~WWE 2K~~ ~~franchise,~~ ~~L.A. Noire, Grand Theft Auto V,~~ ~~and our~~ NBA 2K ~~franchise, partially offset by an increase in net revenue from~~ ~~Red Dead Redemption 2.~~franchise.

Gross profit as a percentage of net revenue for the three months ended ~~December 31, 2018~~September 30, 2019 was ~~28.0%~~45.4% as compared to ~~44.3%~~52.3% for the prior year period. The ~~adoption of Topic 606 resulted in 52.0% increase~~decrease in gross profit ~~percentage, which significantly offset the overall decrease. The remaining decrease, which would have resulted in a negative gross margin, was due to higher royalties~~ as a percentage of net revenue was due to ~~the timing of when~~higher royalties ~~are earned~~ and ~~higher~~ amortization of capitalized software costs as a percentage of net ~~revenue.~~revenue due primarily to the timing of releases.

Net revenue earned outside of the United States increased by ~~$378.7~~$149.8 million and accounted for ~~47.8%~~42.3% of our total net revenue for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~45.4%~~43.3% in the prior year period. The increase in net revenue outside of the United States was due ~~primarily~~ to ~~a $386.1 million increase as a result of the adoption of Topic 606, as described above. Offsetting this increase was a net decrease due to lower~~ net revenue from ~~L.A. Noire,~~ ~~our~~ ~~WWE 2K~~ ~~franchise,~~Borderlands 3 and ~~Grand Theft Auto V~~, Red Dead Redemption 2, partially offset by ~~an increase~~a decrease in net revenue from ~~Red Dead Redemption 2, Grand Theft Auto Online,~~ ~~and~~our ~~Civilization~~ ~~franchise~~. NBA 2K franchise. Changes in foreign currency exchange rates decreased net revenue by ~~$7.6~~$4.4 million and decreased gross profit by ~~$4.6~~$1.8 million for the three months ended ~~December 31, 2018~~September 30, 2019 as compared to the prior year period.

Changes in foreign currency exchange rates decreased total operating expenses by ~~$3.3~~$3.6 million for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to the prior year period.

Selling and marketing expenses increased by ~~$81.8~~$55.4 million for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to the prior year period, due primarily to higher advertising expenses for ~~Red Dead Redemption 2~~Borderlands 3, which released in September 2019, and ~~our~~ ~~NBA 2K~~ ~~franchise.~~ Grand Theft Auto Online. The increase was also due to higher personnel expenses due to increased headcount.

General and administrative expenses increased by ~~$4.7~~$9.3 million for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to the prior year period, due to ~~(i)~~ increases in (i) personnel expenses for additional headcount and (ii) ~~an increase in~~ IT-related expenses for cloud-based services, and (iii) increases in rent expense. These increases were partially offset by a decrease in stock compensation expense related primarily to our management agreement with ZelnickMedia as a result of our early adoption of ASU 2018-07 as of April 1, 2018, which eliminated the need for remeasurement of non-employee awards at the end of each reporting period, and insurance recoveries.services.

General and administrative expenses for the three months ended ~~December 31,~~September 30, 2019 and 2018 ~~and 2017~~ included occupancy expense (primarily rent, utilities and office expenses) of ~~$5.5~~$6.1 million and ~~$4.5~~$5.4 million, respectively, related to our development studios.

Research and development expenses increased by ~~$12.3~~$15.6 million for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to the prior year period, due primarily to ~~an increase~~increases in (i) personnel expenses for additional headcount and ~~an increase in~~(ii) production and development expenses for titles for which technological feasibility has not been established.

Depreciation and amortization expenses increased by $2.3 million for the three months ended ~~December 31, 2018~~September 30, 2019 as compared to the prior year period, due primarily to IT ~~infrastructure costs and an increase in depreciation expense due to the move to our new corporate headquarters in December 2017.~~infrastructure.

During the three months ended ~~December 31, 2018,~~September 30, 2019, business reorganization expense ~~decreased $6.6~~increased $0.3 million as a result of ~~a benefit due to~~ updating estimates for our ~~2016~~2018 Plan ~~and costs related to our 2018 Plan~~with no corresponding expense in the prior ~~year period with no corresponding costs in the current~~ year period.

Interest and other, net was income of $8.1 million for the three months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~$3.4~~$5.0 million for the prior year period. The change was due primarily to higher interest income due to the nature of our investments, higher invested balances, and

the rise in interest rates on those ~~investments, and lower interest expense related to our 1.00% Convertible Notes, which matured on July 1, 2018.~~investments.

The ~~benefit~~provision for income taxes for the three months ended ~~December 31, 2018~~September 30, 2019 is based on our projected annual effective tax rate for fiscal year ~~2019,~~2020, adjusted for specific items that are required to be recognized in the period in which they are incurred. The ~~benefit~~provision for income taxes was ~~$120.1~~$11.1 million for the three months ended ~~December 31, 2018~~September 30, 2019 as compared to a ~~benefit from~~provision for income taxes of ~~$12.9~~$5.6 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of ~~(200.7)%~~13.3% for the three months ended ~~December 31, 2018~~September 30, 2019 was ~~due~~ primarily ~~to a tax benefit of $108.7 million resulting from changes in our valuation allowance on certain U.S. deferred tax assets that are more-likely-than-not to be realized, a tax benefit of $15.4 million~~ due to ~~the geographic mix of earnings, a tax benefit of $12.0 million for excess~~ tax benefits ~~from employee stock compensation, and a tax benefit~~ of ~~$6.5~~$3.2 million as a result of tax credits anticipated to be ~~utilized.~~utilized and $1.4 million due to a geographic mix of earnings.

In the prior year period, when compared to our statutory rate of 21%, the effective tax rate of 18.1% for the three months ended September 30, 2018 was primarily due to a tax benefit of $5.1 million as a result of changes in our valuation allowance relating to temporary items and tax carryforwards anticipated to be utilized, a tax benefit of $2.2 million as a result of tax credits anticipated to be utilized, and a net tax benefit of $1.4 million for excess tax benefits from employee stock compensation, offset by a tax provision of $6.1 million due to the geographic mix of earnings. To a lesser extent, our rate was also affected by the ~~Act.~~

In the prior year period, when compared to our blended statutory rate of 31.6%, the effective tax rate of (105.6)% for the three months ended December 31, 2017 was due primarily to provisional amounts recorded as a result of theTax Cuts and Jobs Act (as described in Note 15 of our Condensed Consolidated Financial Statements), discrete tax benefits recorded of $12.6 million from changes in unrecognized tax benefits due primarily to expiration in statute of limitations, recorded tax benefit of $9.8 million due to ~~changes in our valuation allowance relating to temporary items and~~a net tax ~~credits anticipated to be utilized, and $4.1 million for excess tax benefits from employee stock-based compensation as a component~~provision of the benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in Additional paid-in-capital). In addition, our rate was impacted by tax credits and geographic mix of earnings.$1.0 million.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to ~~the release of~~increased benefits from our ~~valuation allowance on certain U.S. deferred tax assets that are more-likely-than-not to be realized during the three months ended December 31, 2018,~~geographic mix in earnings offset by decreased benefits from changes in our projected annual effective tax rate resulting from the Act, discrete tax benefits recorded from changes in unrecognized tax benefits due primarily to expiration in statute of limitations, increased excess tax benefits from employee stock-based compensation, and decreased tax expense from the one-time transition tax. To a lesser extent, the effective tax rate was impacted period to period due to geographic mix of earnings.valuation allowance.

We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed

and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

The accounting for share-based compensation will increase or decrease our effective tax rate based on the difference between our share-based compensation expense and the deductions taken on our tax return, which depends on the stock price at the time of the employee award vesting. Since we recognize excess tax benefits on a discrete basis, we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price in each period.

OnIn addition, on June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, which overturned previous case law that precluded states from requiring retailers to collect sales tax on sales made to in-state customers unless the retailer had physical presence in the state. Although this case is limited to sales tax collection obligations, we continue to monitor the potential impact of this decision on our state income tax footprint.

Net income and earnings per share

For the three months ended ~~December 31, 2018,~~September 30, 2019, net income was ~~$179.9~~$71.8 million, as compared to ~~$25.1~~$25.4 million in the prior year period. Diluted earnings per share for the three months ended ~~December 31, 2018,~~September 30, 2019, was ~~$1.57,~~$0.63, as compared to diluted earnings per share of ~~$0.21~~$0.22 in the prior year period. Diluted weighted average shares of ~~114.7~~114.1 million were ~~2.9~~2.0 million shares

lower as compared to the prior year period, due primarily to share repurchases in the ~~repurchase~~last three quarters of ~~common stock.~~fiscal year 2019. See Note 11 to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.

~~Nine~~Six Months Ended ~~December 31, 2018~~September 30, 2019 Compared to ~~December 31, 2017~~September 30, 2018

virtual currency, add-on content, and in-game purchases. Net revenue from recurrent consumer spending ~~on our titles through virtual currency, add-on content, and in-game purchases~~ increased by ~~$237.2~~$151.7 million and accounted for ~~36.5%~~45.3% of net revenue for the ~~nine~~six months ended ~~December 31, 2018,~~September 30, 2019, as compared to ~~40.3%~~54.7% of net revenue for the prior year period. The increase was due to an increase in net revenue from ~~recurrent consumer spending included a $147.8 million increase as a result of the adoption of Topic 606. The remaining increase was due to higher net revenues from~~ our NBA 2Kfranchise, ~~Grand Theft Auto~~our Borderlands franchise, and Red Dead Redemption 2 and Red Dead Online, ~~and our~~ ~~Civilization~~ ~~franchise,~~ partially offset by a decrease in net revenue from ~~Mafia III.~~Grand Theft Auto Online. Net revenue from full game and other increased by ~~$549.6~~$366.0 million and accounted for ~~63.5%~~54.7% of net revenue for the ~~nine~~six months ended ~~December 31, 2018~~September 30, 2019 as compared to ~~59.7%~~45.3% of net revenue for the prior year period. The increase was due to net revenue from Borderlands 3 and Red Dead Redemption 2, partially offset by a decrease in net revenue from full game and other included a $635.6 million increase in net revenue as the result of the adoption of Topic 606, as described above. Offsetting this increase was a net decrease due to lower net revenue from Grand Theft Auto V~~our~~ ~~WWE 2K~~ ~~franchise,~~ ~~L.A. Noire,~~ and our NBA 2K franchise ~~partially offset by an increase in net revenue from~~ ~~Red Dead Redemption 2~~.

The ~~benefit~~provision for income taxes for the ~~nine~~six months ended ~~December 31, 2018~~September 30, 2019 is based on our projected annual effective tax rate for fiscal year ~~2019,~~2020, adjusted for specific items that are required to be recognized in the period in which they are incurred. The ~~benefit~~provision for income taxes was ~~$108.8~~$26.9 million for the ~~nine~~six months ended ~~December 31, 2018~~September 30, 2019 as compared to a ~~benefit~~provision from income taxes of ~~$37.3~~$11.3 million for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of ~~(64.6)%~~18.6% for the ~~nine~~six months ended ~~December 31, 2018~~September 30, 2019 was due primarily to a tax benefit of ~~$108.7~~$11.7 million ~~as a result~~ from changes in ~~our valuation allowance on certain U.S. deferred~~unrecognized tax ~~assets that are more-likely-than-not~~benefits due to ~~be realized,~~audit settlements, a ~~tax~~ benefit of ~~$18.9 million for excess tax benefits from employee stock compensation, a tax benefit of $15.3~~$6.0 million as a result of tax credits anticipated to be utilized, and a ~~net tax~~ benefit of ~~$4.7~~$3.2 million ~~due to the~~from our geographic mix of earnings. To a lesser extent ~~our~~the rate was also affected by excess tax benefits from employee stock-based compensation. These benefits were partially offset by a tax expense of $19.8 million from the ~~Act.~~reversal of net deferred tax benefits relating to the Altera case, discussed below.

In the prior year period, when compared to our blended statutory rate of ~~31.6%~~21%, the effective tax rate of ~~(82.3)%~~10.5% for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2018 was primarily due ~~primarily~~ to ~~provisional amounts recorded as~~ a result of the Act (as described in Note 15), $28.6 million of excess tax benefits from employee stock-based compensation as a component of the benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in Additional paid-in-capital), recorded tax benefit of ~~$14.4~~$10.6 million as a result of changes in our valuation allowance relating to temporary items and tax carryforwards anticipated to be utilized, ~~discrete tax benefits recorded of $11.2 million from changes in unrecognized tax benefits due primarily to expiration of statute of limitations, and~~ a tax benefit of ~~$8.9~~$8.8 million ~~resulting from~~as a result of tax credits anticipated to be ~~utilized.~~utilized, and a net tax benefit of $6.9 million for excess tax benefits from employee stock compensation, offset by a tax provision of $10.6 million due to the geographic mix of earnings. To a lesser extent, our rate was also ~~impacted~~affected by the Tax Cuts and Jobs Act due to a net tax ~~credits and geographic mix~~provision of ~~earnings.~~$3.4 million.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased tax expense relating to the ~~release of~~Altera case, discussed below, decreased benefits from changes in our valuation allowance ~~on certain U.S. deferred~~relating to temporary items and tax ~~assets that are more-likely-than-not~~carryforwards anticipated to be ~~realized during the nine months ended December 31, 2018, changes in our projected annual effective~~utilized, decreased excess tax ~~rate resulting~~benefits from ~~the Act,~~employee stock-based compensation partially offset by increased geographic mix of earnings and increased discrete tax benefits recorded from changes in unrecognized tax benefits primarily due to expiration in statute of limitations, increased excess tax benefits from employee stock-based compensation, and decreased tax expense relating to the reduction in one-time transition tax. To a lesser extent, the effective tax rate was impacted period to period due to geographic mix of earnings and tax credits.

We anticipate that additional excess tax benefits from employee stock compensation, tax credits, and changes in our geographic mix of earnings could have a significant impact on our effective tax rate in the future. In addition, we are regularly examined by domestic and foreign taxing authorities. Examinations may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe our tax positions comply with applicable tax law, and that we have adequately provided for reasonably foreseeable tax assessments. It is possible that settlement of audits and/or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.

~~For the quarterly period ended December 31, 2018~~

OR
o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .



PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Stockholder's Equity	6
	~~Item 2.~~Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2620
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4133
Item 4.	Controls and Procedures	4234
PART II.	OTHER INFORMATION	4436
Item 1.	Legal Proceedings	4436
Item 1A.	Risk Factors	4436
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4436
Item 6.	Exhibits	4537
	Signatures	4638



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


	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended September 30,						Six Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	179,948		$	25,140		$	277,007		$	82,680		$	71,815		$	25,367		$	118,095		$	97,060
Other comprehensive income (loss):
Foreign currency translation adjustment	(16,331		)	(385		)	(40,666		)	23,391			(12,567		)	2,482			(21,364		)	(24,335		)
Cash flow hedges:
Change in unrealized gains (losses)	2,350			(1,423		)	4,219			(6,639		)
Change in unrealized gains													5,889			878			6,092			1,869
Reclassification to earnings													(4,490		)	—			(3,408		)	—
Tax effect on effective cash flow hedges	58			—			167			—			696			(24		)	687			109
Change in fair value of effective cash flow hedge	2,408			(1,423		)	4,386			(6,639		)	2,095			854			3,371			1,978
Available-for-sale securities:
Unrealized loss, net on available-for-sale securities, net of taxes	168			(816		)	1,058			(705		)
Change in fair value of available for sale securities	168			(816		)	1,058			(705		)	(2		)	481			720			890
Other comprehensive (loss) income	(13,755		)	(2,624		)	(35,222		)	16,047			(10,474		)	3,817			(17,273		)	(21,467		)
Comprehensive income	$	166,193		$	22,516		$	241,785		$	98,727		$	61,341		$	29,184		$	100,822		$	75,593



	Nine Months Ended December 31,
	2018			2017 (as Adjusted) (1)
Operating activities:
Net income	$	277,007		$	82,680
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses	160,167			62,235
Depreciation	28,769			23,233
Amortization and impairment of intellectual property	17,785			26,470
Impairment of in-process research and development	—			11,257
Stock-based compensation	178,609			96,111
Amortization of discount on Convertible Notes	91			15,424
Gain on conversions of Convertible Notes	—			(4,855		)
Amortization of debt issuance costs	88			554
Other, net	(4,091		)	3,432
Changes in assets and liabilities, net of impact of adoption of Topic 606:
Accounts receivable	(525,981		)	(206,084		)
Inventory	(26,352		)	(12,976		)
Software development costs and licenses	(157,710		)	(186,373		)
Prepaid expenses and other assets	(142,918		)	(39,133		)
Deferred revenue	328,325			238,590
Deferred cost of goods sold	(37,281		)	(33,578		)
Accounts payable, accrued expenses and other liabilities	293,691			164,086
Net cash provided by operating activities	390,199			241,073
Investing activities:
Change in bank time deposits	64,101			10,000
Proceeds from available-for-sale securities	184,542			172,925
Purchases of available-for-sale securities	(179,570		)	(282,596		)
Purchases of fixed assets	(43,646		)	(47,478		)
Asset acquisition	—			(25,965		)
Business acquisition	(3,149		)	(9,401		)
Net cash provided by (used in) investing activities	22,278			(182,515		)
Financing activities:
Tax payment related to net share settlements on restricted stock awards	(85,837		)	(94,930		)
Repurchase of common stock	(262,392		)	(110,136		)
Net cash used in financing activities	(348,229		)	(205,066		)
Effects of foreign currency exchange rates on cash and cash equivalents	(15,124		)	14,555
Net change in cash, cash equivalents, and restricted cash	49,124			(131,953		)
Cash, cash equivalents, and restricted cash, beginning of year	1,246,371			1,281,214
Cash, cash equivalents, and restricted cash, end of period	$	1,295,495		$	1,149,261



	March 31, 2018			Adjustments			April 1, 2018
ASSETS
Accounts receivable, net	$	247,649		$	53,940		$	301,589
Software development costs and licenses	33,284			(11,096		)	22,188
Deferred cost of goods sold	117,851			(89,867		)	27,984
Prepaid expenses and other	133,454			33,620			167,074
Deferred cost of goods sold, net of current portion	26,719			(25,687		)	1,032
Other assets	56,887			51,430			108,317

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities	$	914,748		$	69,678		$	984,426
Deferred revenue	777,152			(230,144		)	547,008
Non-current deferred revenue	355,589			(336,456		)	19,133
Other long-term liabilities	158,285			34,336			192,621
Retained earnings	73,516			470,273			543,789
Accumulated other comprehensive loss	(15,732		)	4,653			(11,079		)



	Amounts as reported			Amounts without adoption of New Revenue Accounting Standard			Increase (decrease) due to adoption of New Revenue Accounting Standard
Net revenue	$	1,248,738		$	486,563		$	762,175
Cost of goods sold	898,484			603,170			295,314
Gross profit (loss)	350,254			(116,607		)	466,861
Selling and marketing	161,322			161,322			—
General and administrative	70,638			70,638			—
Research and development	62,305			62,305			—
Depreciation and amortization	10,140			10,140			—
Business reorganization	(5,930		)	(5,930		)	—
Total operating expenses	298,475			298,475			—
Income (loss) from operations	51,779			(415,082		)	466,861
Interest and other, net	8,071			7,808			263
Income (loss) before income taxes	59,850			(407,274		)	467,124
Benefit from income taxes	120,098			176,570			(56,472		)
Net income (loss)	$	179,948		$	(230,704	)	$	410,652
Earnings (loss) per share:
Basic earnings (loss) per share	$	1.59		$	(2.03	)	$	3.62
Diluted earnings (loss) per share	$	1.57		$	(2.03	)	$	3.60



	Nine Months Ended December 31, 2017
	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, 2017	$	(47,666	)	$	600	$	—		$	(76	)	$	(47,142	)
Other comprehensive income (loss) before reclassifications	23,391			—		(8,626		)	(705		)	14,060
Amounts reclassified from accumulated other comprehensive loss	—			—		1,987			—			1,987
Balance at December 31, 2017	$	(24,275	)	$	600	$	(6,639	)	$	(781	)	$	(31,095	)


(1)	Includes ~~$96,082~~$27,832 and ~~$(8,262)~~$7,688 of stock-based compensation expense in ~~2018~~2019 and ~~2017,~~2018, respectively, in software development costs and royalties.


(thousands of dollars)	2018			% of net revenue		2017		% of net revenue		Increase/ (decrease)			% Increase/ (decrease)		2019		% of net revenue		2018		% of net revenue		Increase/ (decrease)		% Increase/ (decrease)
Selling and marketing	$	161,322		12.9	%	$	79,513	16.5	%	$	81,809		102.9	%	$	149,566	17.4	%	$	94,165	19.1	%	$	55,401	58.8	%
General and administrative	70,638			5.7	%	65,951		13.7	%	4,687			7.1	%	76,659		8.9	%	67,320		13.7	%	9,339		13.9	%
Research and development	62,305			5.0	%	49,977		10.4	%	12,328			24.7	%	76,197		8.9	%	60,565		12.3	%	15,632		25.8	%
Depreciation and amortization	10,140			0.8	%	7,864		1.6	%	2,276			28.9	%	12,024		1.4	%	9,751		2.0	%	2,273		23.3	%
Business reorganization	(5,930		)	(0.5	)%	700		0.1	%	(6,630		)	(947.1	)%	327		—	%	—		—	%	327		100.0	%
Total operating expenses(1)	$	298,475		23.9	%	$	204,005	42.4	%	$	94,470		46.3	%	$	314,773	36.7	%	$	231,801	47.1	%	$	82,972	35.8	%


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


(1)	Includes ~~$107,740~~$58,630 and ~~$23,284~~$11,658 of stock-based compensation expense in ~~2018~~2019 and ~~2017,~~2018, respectively, in software development costs and royalties.


	Nine Months Ended December 31,						Six Months Ended September 30,
(thousands of dollars)	2018			2017			2019			2018
Net cash provided by operating activities	$	390,199		$	241,073
Net cash provided by (used in) investing activities	22,278			(182,515		)
Net cash provided by (used in) operating activities							$	144,158		$	(206,035	)
Net cash (used in) provided by investing activities							(36,200		)	19,689
Net cash used in financing activities	(348,229		)	(205,066		)	(61,478		)	(217,467		)
Effects of foreign currency exchange rates on cash and cash equivalents	(15,124		)	14,555			(8,063		)	(9,464		)
Net change in cash, cash equivalents, and restricted cash	$	49,124		$	(131,953	)	$	38,417		$	(413,277	)



Period	Shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the repurchase program
October 1-31, 2018	—	$	—	—	5,937
November 1-30, 2018	1,000	$	108.75	1,000	4,937
December 1-31, 2018	—	$	—	—	4,937



Exhibits:
31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		~~XBRL~~The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Document



		TAKE-TWO INTERACTIVE SOFTWARE, INC. (Registrant)
Date:	~~February 6,~~November 7, 2019	By:	/s/ STRAUSS ZELNICK
			Strauss Zelnick Chairman and Chief Executive Officer (Principal Executive Officer)

Date:	~~February 6,~~November 7, 2019	By:	/s/ LAINIE GOLDSTEIN
			Lainie Goldstein Chief Financial Officer (Principal Financial Officer)