Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
For the quarterly period ended December 31, 2017OR
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to                              .

Commission file number 001-34003
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
51-0350842
(State or Other Jurisdiction of

Incorporation or Organization)
51-0350842
(I.R.S. Employer

Identification No.)
110 West 44th Street
10036
New YorkNew York
(Zip Code)
 (Address of principal executive offices)
10036
(Zip Code)
Registrant's Telephone Number, Including Area Code: (646) 536-2842

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Stock, $0.01 par valueTTWONASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o


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


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerý
ý
Accelerated filero
o
Non-accelerated filero
 (Do not check if a
smaller reporting company)
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 31, 2018,October 27, 2022, there were 114,398,287167,819,126 shares of the Registrant's Common Stock outstanding, net of treasury stock.




Table of Contents

INDEX




Table of Contents
INDEX
2
2
2
3
4
5
6
68
1933
3248
3449
3551
3551
3551
3652
3753
3854




(All other items in this report are inapplicable)



1

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)
TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except per share amounts)
 December 31, 2017 March 31, 2017
 (Unaudited)  
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$774,455
 $943,396
Short-term investments547,329
 448,932
Restricted cash374,806
 337,818
Accounts receivable, net of allowances of $67,685 and $66,483 at December 31, 2017 and March 31, 2017, respectively425,931
 219,558
Inventory30,857
 16,323
Software development costs and licenses39,369
 41,721
Deferred cost of goods sold164,112
 127,901
Prepaid expenses and other90,865
 59,593
Total current assets2,447,724
 2,195,242
Fixed assets, net96,570
 67,300
Software development costs and licenses, net of current portion586,866
 381,910
Goodwill389,728
 359,115
Other intangibles, net108,112
 110,262
Other assets53,610
 35,325
Total assets$3,682,610
 $3,149,154
LIABILITIES AND STOCKHOLDERS' EQUITY 
  
Current liabilities: 
  
Accounts payable$45,998
 $31,892
Accrued expenses and other current liabilities907,345
 750,875
Deferred revenue1,118,774
 903,125
Total current liabilities2,072,117
 1,685,892
Long-term debt13,838
 251,929
Non-current deferred revenue44,501
 10,406
Other long-term liabilities151,334
 197,199
Total liabilities$2,281,790
 $2,145,426
Commitments and Contingencies (See Note 12)

 

Stockholders' equity: 
  
Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued and outstanding at December 31, 2017 and March 31, 2017—
 —
Common stock, $.01 par value, 200,000 shares authorized; 132,581 and 119,813 shares issued and 114,325 and 102,621 outstanding at December 31, 2017 and March 31, 2017, respectively1,326
 1,198
Additional paid-in capital1,861,424
 1,452,754
Treasury stock, at cost; 18,256 common shares at December 31, 2017 and 17,192 at March 31, 2017(413,524) (303,388)
Accumulated deficit(17,311) (99,694)
Accumulated other comprehensive loss(31,095) (47,142)
Total stockholders' equity1,400,820
 1,003,728
Total liabilities and stockholders' equity$3,682,610
 $3,149,154
 September 30, 2022March 31, 2022
(Unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$956.4 $1,732.1 
Short-term investments348.0 820.1 
Restricted cash and cash equivalents591.7 359.8 
Accounts receivable, net of allowances of $1.3 and $0.4 at September 30, 2022 and March 31, 2022, respectively831.4 579.4 
Software development costs and licenses89.0 81.4 
Contract assets87.6 104.9 
Prepaid expenses and other347.0 193.4 
Total current assets3,251.1 3,871.1 
Fixed assets, net333.8 242.0 
Right-of-use assets298.3 217.2 
Software development costs and licenses, net of current portion907.8 755.9 
Goodwill6,871.5 674.6 
Other intangibles, net5,362.9 266.5 
Deferred tax assets115.9 73.8 
Long-term restricted cash and cash equivalents109.3 103.5 
Other assets242.3 341.7 
Total assets$17,492.9 $6,546.3 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$162.8 $125.9 
Accrued expenses and other current liabilities1,733.9 1,074.9 
Deferred revenue1,164.7 865.3 
Lease liabilities55.6 38.9 
Short-term debt350.0 — 
Total current liabilities3,467.0 2,105.0 
Long-term debt, net2,935.5 — 
Non-current deferred revenue29.1 70.9 
Non-current lease liabilities329.9 211.3 
Non-current software development royalties119.3 115.5 
Deferred tax liabilities, net871.5 21.8 
Other long-term liabilities307.1 212.1 
Total liabilities$8,059.4 $2,736.6 
Commitments and contingencies (See Note 12)
Stockholders' equity:  
Preferred stock, $0.01 par value, 5.0 shares authorized; no shares issued and outstanding at September 30, 2022 and March 31, 2022— — 
Common stock, $0.01 par value, 300.0 and 200.0 shares authorized; 191.2 and 139.0 shares issued and 167.5 and 115.4 outstanding at September 30, 2022 and March 31, 2022, respectively1.9 1.4 
Additional paid-in capital8,760.5 2,597.2 
Treasury stock, at cost; 23.7 and 23.7 common shares at September 30, 2022 and March 31, 2022, respectively(1,020.6)(1,020.6)
Retained earnings1,928.0 2,289.0 
Accumulated other comprehensive loss(236.3)(57.3)
Total stockholders' equity$9,433.5 $3,809.7 
Total liabilities and stockholders' equity$17,492.9 $6,546.3 
See accompanying Notes.

2

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TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands,millions, except per share amounts)
 Three Months Ended September 30,Six Months Ended September 30,
 2022202120222021
Net revenue:
Game$1,218.8 $832.7 $2,238.0 $1,629.0 
Advertising174.7 25.5 257.9 42.5 
Total net revenue1,393.5 858.2 2,495.9 1,671.5 
Cost of revenue713.9 456.7 1,149.7 786.4 
Gross profit679.6 401.5 1,346.2 885.1 
Selling and marketing444.4 136.0 716.4 239.9 
General and administrative214.6 127.8 451.7 232.2 
Research and development243.2 101.5 417.0 193.8 
Depreciation and amortization29.9 16.1 51.0 28.6 
Total operating expenses932.1 381.4 1,636.1 694.5 
(Loss) income from operations(252.5)20.1 (289.9)190.6 
Interest and other, net(50.5)(0.6)(79.8)(1.6)
Gain (loss) on fair value adjustments, net1.9 0.4 (37.7)2.4 
(Loss) income before income taxes(301.1)19.9 (407.4)191.4 
(Benefit from) provision for income taxes(44.1)9.7 (46.4)28.9 
Net (loss) income$(257.0)$10.2 $(361.0)$162.5 
Earnings (loss) per share:    
Basic (loss) earnings per share$(1.54)$0.09 $(2.38)$1.40 
Diluted (loss) earnings per share$(1.54)$0.09 $(2.38)$1.39 
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Net revenue$480,840
 $476,473
 $1,342,618
 $1,208,192
Cost of goods sold267,983
 311,074
 709,100
 708,059
Gross profit212,857
 165,399
 633,518
 500,133
Selling and marketing79,513
 95,820
 208,641
 247,141
General and administrative65,951
 52,939
 187,378
 149,367
Research and development49,977
 37,589
 142,245
 101,494
Depreciation and amortization7,864
 7,460
 34,490
 22,329
Business reorganization700
 —
 13,012
 —
Total operating expenses204,005
 193,808
 585,766
 520,331
Income (loss) from operations8,852
 (28,409) 47,752
 (20,198)
Interest and other, net3,374
 (3,715) (2,403) (15,298)
Gain on long-term investments, net—
 —
 —
 1,350
Income (loss) before income taxes12,226
 (32,124) 45,349
 (34,146)
Benefit from income taxes(12,914) (2,282) (37,331) (2,169)
Net income (loss)$25,140
 $(29,842) $82,680
 $(31,977)
Earnings (loss) per share: 
  
  
  
Basic earnings (loss) per share$0.22
 $(0.33) $0.76
 $(0.37)
Diluted earnings (loss) per share$0.21
 $(0.33) $0.74
 $(0.37)
See accompanying Notes.

3

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS) (Unaudited)
(in thousands)millions)
 Three Months Ended
December 31,		 Nine Months Ended December 31,
 2017 2016 2017 2016
Net income (loss)$25,140
 $(29,842) $82,680
 $(31,977)
Other comprehensive (loss) income: 
  
  
  
Foreign currency translation adjustment(385) (5,040) 23,391
 (10,067)
Cash flow hedges:       
Change in fair value of effective cash flow hedge(1,423) —
 (6,639) —
Available-for-sale securities: 
  
  
  
Unrealized loss, net on available-for-sale securities, net of taxes(816) (264) (705) (221)
Reclassification to earnings for realized losses, net on available for sale securities, net of taxes—
 —
 —
 9
Change in fair value of available for sale securities(816) (264) (705) (212)
Other comprehensive (loss) income(2,624) (5,304) 16,047
 (10,279)
Comprehensive income (loss)$22,516
 $(35,146) $98,727
 $(42,256)
 Three Months Ended
September 30,		Six Months Ended September 30,
 2022202120222021
Net (loss) income$(257.0)$10.2 $(361.0)$162.5 
Other comprehensive (loss) income:    
Foreign currency translation adjustment(116.3)(16.7)$(179.1)(10.6)
Change in fair value of available for sale securities0.5 (0.2)$0.1 (0.4)
Other comprehensive (loss) income(115.8)(16.9)$(179.0)(11.0)
Comprehensive (loss) income$(372.8)$(6.7)$(540.0)$151.5 
   
See accompanying Notes.

4


TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
millions)
 Six Months Ended September 30,
 20222021
Operating activities:  
Net (loss) income$(361.0)$162.5 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization and impairment of software development costs and licenses81.7 95.3 
Stock-based compensation151.8 96.2 
Noncash lease expense23.3 19.6 
Amortization of intellectual property438.2 33.7 
Depreciation38.9 28.4 
Impairment of software development costs and licenses23.3 65.0 
Amortization of debt issuance costs10.5 — 
Interest expense49.5 — 
Fair value adjustments38.2 — 
Other, net(37.4)2.1 
Changes in assets and liabilities, net of effect from purchases of businesses:
Accounts receivable15.2 (242.8)
Software development costs and licenses(252.2)(263.2)
Prepaid expenses and other current and other non-current assets(44.7)(47.2)
Deferred revenue(57.4)32.7 
Accounts payable, accrued expenses and other liabilities37.5 301.4 
Net cash provided by operating activities155.4 283.7 
Investing activities:  
Change in bank time deposits124.4 1.0 
Sale and maturities of available-for-sale securities354.3 353.4 
Purchases of available-for-sale securities— (492.6)
Purchases of fixed assets(99.4)(111.2)
Proceeds from sale of long-term investment20.6 — 
Purchases of long-term investments(7.6)(3.1)
Business acquisitions(3,156.9)(131.6)
Acquisition related earn-outs(26.0)— 
Net cash used in investing activities(2,790.6)(384.1)
Financing activities:  
Tax payment related to net share settlements on restricted stock awards(77.7)(53.4)
Issuance of common stock11.4 9.2 
Payment for settlement of convertible notes(1,166.8)— 
Proceeds from issuance of debt3,248.9 — 
Cost of debt(22.4)— 
Settlement of capped calls140.1 — 
Loan repayment— (0.2)
Repurchase of common stock— (200.0)
Net cash provided by (used in) financing activities2,133.5 (244.4)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents(36.2)(0.7)
Net change in cash, cash equivalents, and restricted cash and cash equivalents(537.9)(345.5)
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of year (1)
2,195.3 2,060.2 
Cash, cash equivalents, and restricted cash and cash equivalents, end of period (1)
$1,657.4 $1,714.7 
 Nine Months Ended December 31,
 2017 2016
Operating activities: 
  
Net income (loss)$82,680
 $(31,977)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
  
Amortization and impairment of software development costs and licenses62,235
 130,019
Depreciation23,233
 22,329
Amortization and impairment of intellectual property26,470
 1,398
Impairment of in-process research and development11,257
 —
Stock-based compensation96,111
 55,421
Amortization of discount on Convertible Notes15,424
 17,870
Gain on conversions of Convertible Notes(4,855) —
Amortization of debt issuance costs554
 1,078
Other, net3,432
 (3,604)
Changes in assets and liabilities:

  
Restricted cash(36,988) (17,372)
Accounts receivable(206,084) (160,095)
Inventory(12,976) (15,876)
Software development costs and licenses(186,373) (194,422)
Prepaid expenses and other assets(39,133) (31,460)
Deferred revenue238,590
 302,728
Deferred cost of goods sold(33,578) (66,502)
Accounts payable, accrued expenses and other liabilities164,086
 230,067
Net cash provided by operating activities204,085
 239,602
Investing activities: 
  
Change in bank time deposits10,000
 66,841
Proceeds from available-for-sale securities172,925
 101,357
Purchases of available-for-sale securities(282,596) (104,357)
Purchases of fixed assets(47,478) (14,369)
Asset acquisition(25,965) —
Proceeds from sale of long-term investment—
 1,350
Purchase of long-term investments—
 (1,885)
Business acquisition(9,401) (750)
Net cash (used in) provided by investing activities(182,515) 48,187
Financing activities: 
  
Excess tax benefit from stock-based compensation—
 1,499
Tax payment related to net share settlements on restricted stock awards(94,930) (36,734)
Repurchase of Common Stock(110,136) —
Net cash used in financing activities(205,066) (35,235)
Effects of foreign currency exchange rates on cash and cash equivalents14,555
 (11,866)
Net change in cash and cash equivalents(168,941) 240,688
Cash and cash equivalents, beginning of year943,396
 798,742
Cash and cash equivalents, end of period$774,455
 $1,039,430
(1) Cash, cash equivalents and restricted cash and cash equivalents shown on our Condensed Consolidated Statements of Cash Flow includes amounts in the Cash and cash equivalents, Restricted cash and cash equivalents, and Long-term restricted cash and cash equivalents on our Condensed Consolidated Balance Sheet.
See accompanying Notes.

5

TAKE-TWO INTERACTIVE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(in millions)

Three Months Ended September 30, 2022
 Common StockAdditional
Paid-in
Capital		Treasury StockRetained
Earnings		Accumulated
Other
Comprehensive(Loss) Income		Total Stockholder's Equity
 SharesAmountSharesAmount
Balance, June 30, 2022189.9 $1.9 $8,616.5 (23.7)$(1,020.6)$2,185.0 $(120.5)$9,662.3 
Net loss— — — — — (257.0)— (257.0)
Change in cumulative foreign currency translation adjustment— — — — — — (116.3)(116.3)
Net unrealized gain on available-for-sale securities, net of taxes— — — — — — 0.5 0.5 
Stock-based compensation— — 125.0 — — — — 125.0 
Repurchased common stock— — — — — — — — 
Issuance of restricted stock, net of forfeitures and cancellations0.6 — — — — — — — 
Exercise of stock options0.9 — 42.8 — — — — 42.8 
Net share settlement of restricted stock awards(0.2)— (23.8)— — — — (23.8)
Balance, September 30, 2022191.2 $1.9 $8,760.5 (23.7)$(1,020.6)$1,928.0 $(236.3)$9,433.5 

Three Months Ended September 30, 2021
Take-Two Interactive Software, Inc. stockholders
 Common StockAdditional
Paid-in
Capital		Treasury StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Non-controlling interestTotal Equity
 SharesAmountSharesAmount
Balance, June 30, 2021138.8 $1.4 $2,417.7 (22.4)$(820.6)$2,023.3 $(2.8)$12.4 $3,631.4 
Net income— — — — — 10.2 — — 10.2 
Change in cumulative foreign currency translation adjustment— — — — — — (16.7)— (16.7)
Net unrealized gain on available-for-sale securities, net of taxes— — — — — — (0.2)— (0.2)
Stock-based compensation— — 62.5 — — — — — 62.5 
Repurchased common stock— — — (1.3)(200.0)— — — (200.0)
Issuance of restricted stock, net of forfeitures and cancellations0.1 — — — — — — — — 
Net share settlement of restricted stock awards— — (5.1)— — — — — (5.1)
Call option related to Nordeus Acquisition— — — — — — — (12.4)(12.4)
Balance, September 30, 2021138.9 $1.4 $2,475.1 (23.7)$(1,020.6)$2,033.5 $(19.7)$— $3,469.7 

See accompanying Notes.
6

Six Months Ended September 30, 2022
 Common StockAdditional
Paid-in
Capital		Treasury StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance, March 31, 2022139.0 $1.4 $2,597.2 (23.7)$(1,020.6)$2,289.0 $(57.3)$3,809.7 
Net loss— — — — — (361.0)— (361.0)
Change in cumulative foreign currency translation adjustment— — — — — — (179.1)(179.1)
Net unrealized gain on available-for-sale securities, net of taxes— — — — — — 0.1 0.1 
Stock-based compensation— — 186.3 — — — — 186.3 
Issuance of restricted stock, net of forfeitures and cancellations1.8 — — — — — — — 
Exercise of stock options0.9 — 42.8 — — — — 42.8 
Net share settlement of restricted stock awards(0.6)— (77.7)— — — — (77.7)
Employee share purchase plan settlement0.1 — 11.4 — — — — 11.4 
Issuance of shares related to Zynga Acquisition46.3 0.5 5,377.2 — — — — 5,377.7 
Stock-based compensation assumed in Zynga Acquisition— — 143.6 — — — — 143.6 
Issuance of shares related to Zynga convertible notes3.7 — 479.7 — — — — 479.7 
Balance, September 30, 2022191.2 $1.9 $8,760.5 (23.7)$(1,020.6)$1,928.0 $(236.3)$9,433.5 
Six Months Ended September 30, 2021
 Common StockAdditional
Paid-in
Capital		Treasury StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance, March 31, 2021137.6 $1.4 $2,288.8 (22.4)$(820.6)$1,871.0 $(8.7)$3,331.9 
Net income— — — — — 162.5 — 162.5 
Change in cumulative foreign currency translation adjustment— — — — — — (10.6)(10.6)
Net unrealized gain on available-for-sale securities, net of taxes— — — — — — (0.4)(0.4)
Stock-based compensation— — 136.3 — — — — 136.3 
Repurchased common stock— — — (1.3)(200.0)— — (200.0)
Issuance of restricted stock, net of forfeitures and cancellations1.0 — — — — — — — 
Net share settlement of restricted stock awards(0.3)— (53.3)— — — — (53.3)
Employee share purchase plan settlement0.1 — 9.2 — — — — 9.2 
Issuance of shares related to Nordeus acquisition0.5 — 94.1 — — — — 94.1 
Balance, September 30, 2021138.9 $1.4 $2,475.1 (23.7)$(1,020.6)$2,033.5 $(19.7)$3,469.7 


See accompanying Notes.
7

Table of Contents

TAKE-TWO INTERACTIVE SOFTWARE, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands,millions, except share and per share amounts)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Take-Two Interactive Software, Inc. (the "Company," "we," "us," or similar pronouns) was incorporated in the state of Delaware in 1993. We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We develop and publish products principally through our two wholly-owned labels Rockstar Games, and 2K, as well as our new Private Division, label and Social Point, a leading developer of mobile games.Zynga. Our products are designed for console gaming systems, and personal computers ("PC"), and mobile including smart phones and tablets ("Mobile"), and are delivered through physical retail, digital download, online platforms, and cloud streaming services.
Acquisition of Zynga
On May 23, 2022, we completed our acquisition of Zynga Inc. ("Zynga"), a leading developer of mobile games. Refer to Note 14 - Acquisitions for additional information.
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 theour opinion, of management, reflect all normal and recurring adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows. Interim results may not be indicative of the results that may be expected for the full fiscal year. All inter-companyintercompany 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 generally accepted accounting principles in the United States,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.estimates, including as a result of the COVID-19 pandemic, which may affect economic conditions in a number of different ways and result in uncertainty and risk.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United StatesU.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 statementsConsolidated Financial Statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2022.
Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.
We are reiterating our significant accounting policy on revenue recognition included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, including certain revenue policies applied upon the close of the Zynga acquisition.
Revenue Recognition
As partWe derive revenue primarily from the sale of our on-going assessmentinteractive entertainment content, principally for console gaming systems, personal computers, and Mobile. We also generate revenue from advertising within our software products.
Game. 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.
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We recognize revenue in the amount that reflects the consideration we expect to receive in exchange for the sales of software products and game related services when control of the promised products and services is transferred to our customers and our performance obligations under the contract have been satisfied. Revenue is recorded net of transaction taxes assessed by governmental authorities such as sales, value-added and other similar taxes.
Our software products are sold as full games, which typically provide access to the main game content, primarily for console and PC. Generally, our full game software products deliver a license of our intellectual property that provides a functional offline gaming experience (i.e., one that does not require an Internet connection to access the main game content or other significant game related services). We recognize revenue related to the license of our intellectual property that provides offline functionality at the time control of the products has been transferred to our customers (i.e. upon delivery of the software product).
In addition, some of our full game software products that provide a functional offline gaming experience may also include significant game related services delivered over time, such as online functionality that is dependent upon online support services and/or additional free content updates. For full game sales that offer offline functionality and significant game related services we evaluate whether the license of our intellectual property and the game related services are distinct and separable. This evaluation is performed for each software product sold. If we determine that our software products contain a license of intellectual property separate from the game related services (i.e. multiple performance obligations), we estimate a standalone selling price for each identified performance obligation. We allocate the transaction price to each performance obligation using a relative standalone selling price method (the transaction price is allocated to a performance obligation based on the proportion of the standalone selling price of each performance obligation to the sum of the standalone selling prices for all performance obligations in the contract). For the portion of the transaction price allocable to the license, revenue is recognized when the customer takes control of the product. For the portion of the transaction price allocated to game related services, revenue is recognized ratably over an estimated service period for the related software product. We also defer related product costs and recognize the costs as the revenues are recognized.
Certain of our full game software products are delivered primarily as an online gaming experience with substantially all gameplay requiring online access to our game related services. We recognize revenue for full game software products that are dependent on our game related services over an estimated service period. For our full game online software products, we also defer related product costs and recognize the costs as the revenue is recognized.
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.
In addition to sales of our full game software products, we also offer free-to-play software products, both of which may provide customers with the option to acquire virtual currency or make in-game purchases. For virtual currency and in-game purchases the satisfaction of our performance obligation is dependent on the nature of the virtual item purchased and as a result, we categorize our virtual items as follows:
•Consumable: Consumable virtual items represent items that can be consumed by a specific player action. Consumable virtual items do not result in a direct benefit that the player keeps or provide the player any continuing benefit following consumption, and they often enable a player to perform an in-game action immediately. For the sale of consumable virtual items, we recognize revenue as the items are consumed (i.e., over time), which approximates less than one month.
•Durable: Durable virtual items represent items that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual items ratably over the estimated service period for the applicable game (i.e., over time), which represents our best estimate of the average life of the durable virtual item.
Certain software products are sold to customers with a “street date” (the earliest date these products may be sold by these retailers). For the transaction price related to the license for these products that also provide a functional offline gaming experience, we recognize revenue on the later of the street date or the sale date as this is generally when we have transferred control of this performance obligation. For the sale of physical software products, recognition of revenue allocated to game related services does not begin until the product is sold-through by our customer to the end user. We currently estimate sell-through to the end user for all our titles to be approximately two months after we have sold-in the software products to retailers. Determining the estimated sell-through period requires management judgment and estimates.
In addition, some of our software products are sold as digital downloads. Revenue from digital downloads generally commences when the download is made available to the end user by a third-party digital storefront.

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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.
Advertising. We have contractual relationships with advertising networks, agencies, advertising brokers, and directly with advertisers to display advertisements in our games. For our in-game advertising arrangements, our performance obligation is to provide the inventory for advertisements to be displayed in our games. For contracts made directly with advertisers, we are also obligated to serve the advertisements in our games. However, for those direct advertising arrangements, providing the advertising inventory and serving the advertisement is considered a single performance obligation, as the advertiser cannot benefit from the advertising space without its advertisements being displayed.
For in-game display advertisements, in-game offers, engagement advertisements, and other advertisements, our performance obligation is satisfied over the life of the contract, with revenue being recognized as advertising units are delivered.
Contract Balances
We generally record a receivable related to revenue when we have an unconditional right to invoice and receive payment, and we record deferred revenue when cash payments are received or due in advance of satisfying our performance obligations, even if amounts are refundable. Contract assets generally consist of arrangements for which we have recognized revenue to the extent it is probable that significant reversal will not occur but do not have a right to invoice as of the reporting date.
Our allowances for doubtful accounts are typically immaterial and, if required, are based on our best estimate of expected credit losses inherent in our accounts receivable balance.
Deferred revenue is comprised primarily of unsatisfied revenue related to the portion of the transaction price allocable to game related services of our full game software products and sales of virtual currency. These sales are typically invoiced at the beginning of the contract period, and revenue is recognized ratably over the estimated service period. Deferred revenue may also include amounts related to software products with future street dates.
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, Epic Games Store, Apple's App Store, and the Google Play Store. For sales of our software products via third-party digital storefronts, we determine whether or not we are acting as the principal in the sale to the end user, which we consider in determining if revenue should be reported based on the gross transaction price to the end user or based on the transaction price net of fees retained by the third-party digital storefront. An entity is the principal if it controls a good or service before it is transferred to the customer. Key indicators that we use in evaluating these sales transactions include, but are not limited to, the following:
•the underlying contract terms and conditions between the various parties to the transaction;
•which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
•which party has discretion in establishing the price for the specified good or service.
Based on our evaluation of the above indicators, for sales arrangements via Microsoft’s Xbox Live, Sony’s PlayStation Network, Valve's Steam, and Epic Games Store we have determined we are not the principal in the sales transaction to the end user and therefore we report revenue based on the consideration received from the digital storefront. For sales arrangements via Apple's App Store and the Google Play Store, we have determined that we are the principal to the end user and thus report revenue on a gross basis and mobile platform fees charged by these digital storefronts are expensed as incurred and reported within Cost of revenue.
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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 revenue because we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Estimated Service Period
For certain performance obligations satisfied over time, we have determined that the estimated service period is the time period in which an average user plays our software products (“user life”) which most faithfully depicts the timing of satisfying our performance obligation. We consider a variety of data points when determining and subsequently reassessing the estimated service period for players of our software products. Primarily, we review the weighted average number of days between players’ first and last days played online. When a new game is launched and therefore no history of online player data is available, we consider other factors to determine the user life, such as the estimated service period of other games actively being sold with similar characteristics. We also consider known online trends, the service periods of our previously released software products, and, to the extent publicly available, the service periods of our competitors’ software products that are similar in nature to ours. We believe this provides a reasonable depiction of the transfer of our game related services to our customers, as it is the best representation of the period during which our customers play our software products. Determining the estimated service period is subjective and requires significant management judgment and estimates. Future usage patterns may differ from historical usage patterns, and therefore the estimated service period may change in the future. The estimated service periods for players of our current software products are generally between six and fifteen months depending on the software product.
Revenue Arrangements with Multiple Performance Obligations
Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together requires significant judgment. For software products in June 2017,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 extended Grand Theft Auto V's believe we have separate performance obligations for the license of the intellectual property and the game related services. Additionally, because each of our product offerings has unique features and because we do not sell our game related services separately, we typically do not have observable standalone selling prices for each performance obligation. Significant judgment and estimates are also required to determine the standalone selling price for each distinct performance obligation and whether a discount needs to be allocated based on the relative standalone selling price of our products and services.
To estimate the standalone selling price for each performance obligation, we consider, to the extent available, a variety of data points such as past selling prices of the product or other similar products, competitor pricing, and market data. If observable pricing is not available, we use an expected cost-plus margin approach taking into account relevant costs including product development, post-release support, marketing and licensing costs. This evaluation is performed on a product by product basis.
Price Protection, Allowances for Returns, and Sales Incentives
We grant price protection and accept returns in connection with our distribution arrangements. Following reductions in the price of our physical software products, we grant price protection to permit customers to take credits against amounts they owe us with respect to merchandise unsold by them. Our customers must satisfy certain conditions to entitle them to receive price protection or return products, including compliance with applicable payment terms and confirmation of field inventory levels.
At contract inception and at each subsequent reporting period, we make estimates of price protection and product returns related to current period software product revenue. We estimate the amount of price protection and returns for software products based upon, among other factors, historical experience and performance of the titles in similar genres, historical performance of the hardware platform, customer inventory levels, analysis of sell-through rates, sales force and retail customer feedback, industry pricing, market conditions, and changes in demand and acceptance of our products by consumers.
We enter into various sales incentive arrangements with our customers, such as rebates, discounts, and cooperative marketing. These incentives are considered adjustments to the transaction price of our software products and are reflected as reductions to revenue. Sales incentives incurred by us for distinct goods or services received, such as the appearance of our products in a customer’s national circular ad, are included in Selling and marketing expense if there is a separate identifiable benefit and the benefit’s fair value can be established. Otherwise, such sales incentives are reflected as a reduction to revenue.
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Revenue is recognized after deducting the estimated service period from 41 through 50 months, or through December 2018. We expect this change in estimated service period to have a material impactprice protection, allowances for returns, and sales incentives, which are accounted for as variable consideration. Price protection, allowances for returns, and sales incentives are considered refund liabilities and are reported within Accrued expenses and other current liabilities on our Consolidated Financial Statements for fiscal 2018. The impactBalance Sheet.
Significant Estimates
Significant management judgment and estimates must be used in connection with many of this change is shownthe 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, and the amounts of price protection. We believe we can make reliable estimates. However, actual results may differ from initial estimates due to changes in circumstances, market conditions, and assumptions. Adjustments to estimates are recorded in the table below.period in which they become known.

Payment Terms
 Three Months Ended December 31,Nine Months Ended December 31,
 2017 2017
Change in net revenue$(78,761) $(183,206)
Change in income from operations(72,633) (168,997)
Change in net income(57,150) (145,303)
Change in earnings per share, basic$(0.50) $(1.33)
Change in earnings per share, diluted$(0.49) $(1.30)

ImpairmentOur payment terms and conditions vary by customer and typically provide net 30- to 60-day terms. In instances where the timing of In-process Research & Development ("IPR&D")

During our second fiscal quarter, as a result of our decision not to proceed with further development of certain IPR&Drevenue recognition differs from the Social Point, S.L. ("Social Point") acquisition,timing of invoicing, we recognized an impairment chargedo not adjust the promised amount of $11,257 in Depreciationconsideration 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 amortization expense in our Condensed Consolidated Statements of Operations.


payment for that product or service will be one year or less.
Recently Adopted Accounting Pronouncements
Accounting for Stock CompensationGovernment Assistance
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation—Stock Compensation. This new guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows.
We adopted this update effective April 1, 2017. Upon adoption, using the modified retrospective transition method, we recognized previously unrecognized excess tax benefits as a deferred tax asset, which was fully offset by a valuation allowance, resulting in no net impact to retained earnings. Without the valuation allowance, our deferred tax asset would have increased by $24,594. We elected to apply the change in presentation of excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows prospectively and thus no prior periods were adjusted. We also elected to account for forfeitures as they occur using the modified retrospective transition method, which resulted in a cumulative effect adjustment of $323 to retained earnings (an increase in the accumulated deficit). The other aspects of the new guidance did not have a material effect on our Consolidated Financial Statements.
Accounting for Acquisitions or Disposals
In January 2017,November 2021, the FASB issued ASU 2017-01, Clarifying2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures that increase the Definitiontransparency of a Business, withtransactions involving government grants, including (1) the objectivetypes of providing additional guidance to assist entities with evaluating whether transactions, should be accounted(2) the accounting for as acquisitions (or disposals)those transactions, and (3) the effect of assets or businesses. The amendments in this update provide new guidance to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business.those transactions on any entity's financial statements. The new guidance requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new guidance is expected to reduce the number of transactions that need to be further evaluated. The new standard, as amended, will be effective prospectively for interim and annual reporting periods beginning on January 1, 2018 (April 1, 2018 for the Company), with early adoption permitted. We adopted this update as of April 1, 2017.
Recently Issued Accounting Pronouncements
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 (April2021 with the new disclosures required on an annual basis, and can be applied either prospectively or retrospectively. The Company adopted the new guidance on April 1, 2020 for2022 and will include the Company), including interim periods within those fiscal years, and is applied on a prospective basis. Early adoption is permitted for interimdisclosures as required in its annual reporting with respect to any government assistance or annual goodwill impairment tests performed on testing dates after January 1, 2017. While we are currently evaluatinggrants subject to the impactscope of the adoption of this ASU, we do not believe thatguidance to the adoption of this guidance will have a material impact on our Consolidated Financial Statements.extent material.
Accounting for Restricted CashContract Assets and Contract Liabilities
In November 2016,October 2021, the FASB issued ASU 2016-18, Statement of Cash Flows2021-08, Business Combinations (Topic 230)805): Restricted CashAccounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amendsUnder this new standard, deferred revenue acquired in a business combination is measured pursuant to ASC 606, Revenue from Contracts with Customers, rather than its assumed acquisition date fair value under the presentation of restricted cash within the statement of cash flows.current guidance. We adopted this effective April 1, 2022. The new guidance requires that changes in restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2017 (April 1, 2018 for the Company), including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU.update did not have an impact on our Condensed Consolidated Financial Statements and was applied to our acquisition of Zynga. Refer to Note 14 - Acquisitions.
Accounting for LeasesConvertible Debt
In February 2016,August 2020, the FASB issued ASU 2016-02, Leases. This new guidance requires lessees to recognize2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments by reducing the number of accounting models and generally requiring that a right-of-use asset andconvertible instrument be accounted for as a leasesingle liability for virtually all leases (other than leases that meet the definitionmeasured at amortized cost, with no conversion feature separately recorded in equity. Similarly, no portion of a short-term lease). The liabilityissuance costs will be equalallocated to equity under the ASU. Further, the ASU amends the earnings per share guidance by requiring the diluted earnings per share calculation for convertible instruments to follow the if-converted method, with use of the treasury stock method no longer permitted. We adopted this effective April 1, 2022. The adoption of this update did not have an impact on our Condensed Consolidated Financial Statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue
Timing of recognition
Net revenue recognized at a point in time is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e. upon delivery of the software product).
Net revenue recognized over time is primarily comprised of revenue from our software products that include game related services, separate virtual currency transactions, and in-game purchases, which are recognized over an estimated service period. Over time net revenue includes in-game advertising.
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Net revenue by timing of recognition was as follows:
Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net revenue recognized:
Over time$1,116.4 $537.5 $1,923.9 $1,109.8 
Point in time277.1 320.7 572.0 561.7 
Total net revenue$1,393.5 $858.2 $2,495.9 $1,671.5 

Content
Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, in-game purchases, and in-game advertising.
Full game and other revenue primarily includes the initial sale of full game software products, which may include offline and/or significant game related services.
Net revenue by content was as follows:
Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net revenue recognized:
Recurrent consumer spending$1,101.8 $563.6 $1,927.4 $1,135.9 
Full game and other291.7 294.6 568.5 535.6 
Total net revenue$1,393.5 $858.2 $2,495.9 $1,671.5 

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,
2022202120222021
Net revenue recognized:
United States$842.9 $514.9 $1,525.8 $1,008.1 
International550.6 343.3 970.1 663.4 
Total net revenue$1,393.5 $858.2 $2,495.9 $1,671.5 

Platform
Net revenue by platform was as follows:
Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net revenue recognized:
Console$551.9 $596.1 $1,159.1 $1,198.5 
Mobile730.1 115.1 1,099.7 197.4 
PC and other111.5 147.0 237.1 275.6 
Total net revenue$1,393.5 $858.2 $2,495.9 $1,671.5 

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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,
2022202120222021
Net revenue recognized:
Digital online$1,319.2 $779.1 $2,357.0 $1,519.9 
Physical retail and other74.3 79.1 138.9 151.6 
Total net revenue$1,393.5 $858.2 $2,495.9 $1,671.5 

Deferred Revenue
We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. The balance of deferred revenue, including current and non-current balances as of September 30, 2022 and March 31, 2022 were $1,193.8 and $936.2, respectively. For the six months ended September 30, 2022, the additions to our deferred revenue balance were primarily due to the present valueacquisition of lease payments. The asset will be based onZynga (Note 14 - Acquisitions), which added $333.1 to our deferred revenue balance and cash payments received or due in advance of satisfying our performance obligations, while the liability, subjectreductions to adjustment, such as for initial direct costs. For income statement purposes,our deferred revenue balance were due primarily to the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will resultrecognition of revenue upon fulfillment of our performance obligations, both of which were in straight-line expense (similar to current operating leases) while finance leases will resultthe ordinary course of business.
During the three months ended September 30, 2022 and 2021, $259.3 and $278.3, respectively, of revenue was recognized that was included 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 leasesdeferred revenue balance at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. We are currently evaluatingrespective period. During the impactsix months ended September 30, 2022 and 2021, $698.9 and $741.5, respectively, of adopting this update on our Consolidated Financial Statements, which will consist primarily of arevenue was recognized that was included in the deferred revenue balance sheet gross up of our operating leases, mostly for office space.
Revenue from Contracts with Customers
In May 2014,at 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. In addition, the standard requires disclosurebeginning of the nature, amount, timing,respective period. During the three and uncertaintysix months ended September 30, 2022, $150.2 and $230.5, respectively, of revenue was recognized from the deferred revenue balance acquired from the Zynga acquisition. As of September 30, 2022, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $1,327.1, which includes our deferred revenue balances and cash flowsamounts to be invoiced and recognized as revenue in future periods. We expect to recognize approximately $1,251.9 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 contracts with customers. The FASB recently issued several amendments to the standard, including clarifications on disclosure of prior-period performance obligations and remaining performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method).

The new standard is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017 (April 1, 2018 for the Company), with early adoption permitted for annual reporting periods beginning after December 15, 2016 (April 1, 2017 for the Company). We will adopt the new standard effective April 1, 2018 using the cumulative catch-up transition method.

We anticipate this standard will have a material impact on our Consolidated Financial Statements. While we are continuing to assess all potential impactssales-based royalty license revenue in excess of the standard, we currently believe the most significant impact relates tocontractual minimum guarantee.
As of September 30, 2022 and March 31, 2022, our accounting for on-line enabled games that benefit from meaningful post-contract customer support ("PCS") such as unspecified content updates for which we do not have vendor-specific objective evidence of fair value ("VSOE").contract asset balances were $87.6 and $104.9, respectively.

Under the current accounting standards, for titles that do not have VSOE, we recognize the entire sales price ratably over the title's estimated service period. The VSOE requirement will be eliminated under the new standard. Accordingly, we may be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated offering period.

It is possible that our evaluation of the expected impact of the new standard on certain transactions could change if there are additional interpretations of the new revenue guidance that are different from our preliminary conclusions.
2.3. 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 replaced our previous agreement with ZelnickMedia and pursuant to which ZelnickMedia continueswas to provide 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, continuescontinued to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff, a partner of ZelnickMedia, continuescontinued to serve as President of the Company. The 2017 Management Agreement providesprovided for an annual management fee of $3,100$3.1 over the term of the agreement and a maximum annual bonus opportunity of $7,440$7.4 over the term of the agreement, based on the Company achieving certain performance thresholds.
In May 2022, we entered into a new management agreement (the "2022 Management Agreement") with ZelnickMedia that replaced the 2017 Management Agreement and pursuant to which ZelnickMedia will continue to provide financial and management consulting services to the Company through March 31, 2029. The 2022 Management Agreement became effective on May 23, 2022, when our acquisition of Zynga closed (refer to Note 14 - Acquisitions). On May 21, 2022, ZelnickMedia assigned substantially all of its rights and obligations and other liabilities under the 2022 Management Agreement to ZMC Advisors, L.P. ("ZMC Advisors"). References to "ZMC" herein shall mean either ZelnickMedia or ZMC Advisors, as appropriate. As part of the 2022 Management Agreement, Strauss Zelnick continues to serve as Executive Chairman and Chief Executive Officer of the Company, and Karl Slatoff continues to serve as President of the Company. The 2022 Management Agreement provides for an annual management fee of $3.3 over the term of the agreement and a maximum annual bonus opportunity of $13.2 over the term of the agreement, based on the Company achieving certain performance thresholds. In connection with the 2022 Management Agreement, we have and expect to grant time-based and performance-based restricted units to ZMC.
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Table of Contents
In consideration for ZelnickMedia'sZMC's services, we recorded consulting expense (a component of generalGeneral and administrative expenses) of $2,435$1.2 and $2,440$1.7 during the three months ended December 31, 2017September 30, 2022 and 2016,2021, respectively, and $6,296$3.9 and $5,113$3.4 during the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021, respectively. We recorded stock-based compensation expense for non-employee restricted stock units granted to ZelnickMedia,ZMC, which is included in generalGeneral and administrative expenses, of $10,351$13.0 and $7,066$7.4 during the three months ended December 31, 2017September 30, 2022 and 2016,2021, respectively, and $30,228$21.5 and $17,862$14.6 during the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021, respectively.

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In connection with the 20142022 Management Agreement and 2017 Management Agreement, we have granted restricted stock units (in thousands) to ZMC as follows:
 Six Months Ended September 30,
 20222021
Time-based192 51 
Market-based(1)
510 93 
Performance-based(1)
  
IP18 16 
Recurrent Consumer Spending ("RCS")153 16 
Total Performance-based171 32 
Total Restricted Stock Units873 176 
 Nine Months Ended December 31,
 2017 2016
Time-based66,122
 107,551
Market-based(1)122,370
 199,038
Performance-based(1) 
  
New IP20,396
 33,174
Major IP20,394
 33,172
Total—Performance-based40,790
 66,346
Total Restricted Stock Units229,282
 372,935
(1) Represents the maximum of shares eligible to vest


(1)Represents the maximum number of shares eligible to vest.
Time-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement will vest on April 4, 2019,13, 2024, and those granted in 2016fiscal year 2022 will vest on April 2, 2018,13, 2023. Time-based restricted stock units granted in each case provided thatfiscal year 2023 pursuant to the 20172022 Management Agreement has not been terminated prior to such vesting date.will vest on June 1, 2023, June 1, 2024, and June 1, 2025.
Market-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement are eligible to vest on April 4, 2019,13, 2024, and those granted in 2016fiscal year 2022 are eligible to vest on April 2, 2018,13, 2023. Market-based restricted stock units granted in each case provided thatfiscal year 2023 pursuant to the 20172022 Management Agreement has not been terminated priorare eligible to such vesting date.vest on June 1, 2024 and June 1, 2025. 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 either the NASDAQ Composite Index under the 2017 Management Agreement or the NASDAQ 100 index under the 2022 Management Agreement (as defined in the relevant grant agreement) as of the grant date measured over a two-year period.period or three-year period, as applicable. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile. Each reporting period we re-measure the fair value of the unvested shares of market-based restricted stock units granted to ZelnickMedia.
Performance-based restricted stock units granted in fiscal year 2023 pursuant to the 2017 Management Agreement are eligible to vest on April 4, 2019,13, 2024, and those granted in 2016fiscal year 2022 are eligible to vest on April 2, 2018,13, 2023. Performance-based restricted stock units granted in each case provided thatfiscal year 2023 pursuant to the 20172022 Management Agreement has not been terminated priorare eligible to such vesting date. Performance-basedvest on June 1, 2024 and June 1, 2025. The performance-based restricted stock units, of which 50%certain are tied to "New IP""IP" and 50% to "Major IP""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 "New IP" or "Major IP""IP" measured over a two-year period or "RCS" measured over a three-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). EachAt the end of each reporting period, we assess the probability of each performance metric and upon achievement ofdetermination that certain thresholds are probable, we record an expense for the unvested portion of the shares of performance-based restricted stock units. Certain performance metrics, based on unit sales, have been achieved as of December 31, 2017 for the "Major IP" performance-based restricted stock units granted in 2017 and 2016.
The unvested portion of time-based, market-based and performance-based restricted stock units held by ZelnickMediaZMC were 602,2171.1 and 898,5260.4 as of December 31, 2017September 30, 2022 and March 31, 2017,2022, respectively. 478,839During the six months ended September 30, 2022, 0.2 restricted stock units previously granted to ZelnickMedia,ZMC vested, and 46,7520.1 restricted stock units were forfeited by ZelnickMedia during the nine months ended December 31, 2017.ZMC.
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4. FAIR VALUE MEASUREMENTS
Recurring fair value measurements
The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, prepaid expenses and other, accounts payable, and accrued expenses and other current liabilities, approximate fair value because of their short maturities.
We follow a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of "observable inputs" and minimize the use of "unobservable inputs." The three levels of inputs used to measure fair value are as follows:
•Level 1—Quoted prices in active markets for identical assets or liabilities.


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


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•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, 2017 
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$419,642
 $419,642
 

 $—
 Cash and cash equivalents
Bank-time deposits53,598
 53,598
 

 —
 Cash and cash equivalents
Commercial paper17,294
 

 17,294
 —
 Cash and cash equivalents
Corporate bonds10,246
 

 10,246
 —
 Cash and cash equivalents
Bank-time deposits166,321
 166,321
 

 —
 Short-term investments
Corporate bonds362,416
 

 362,416
 —
 Short-term investments
Commercial paper13,921
 

 13,921
 —
 Short-term investments
Mutual funds4,671
 

 4,671
 —
 Short-term investments
Foreign currency forward contracts134
 —
 134
 —
 Prepaid expenses and other
Foreign currency forward contracts(18) —
 (18) —
 Accrued expense and other current liabilities
Cross-currency swap(8,626) —
 (8,626) —
 Accrued expense and other current liabilities
Private equity917
 —
 —
 917
 Other assets
Contingent consideration(136) —
 —
 (136) Other long-term liabilities
Total recurring fair value measurements, net$1,040,380
 $639,561
 $400,038
 $781
  
 March 31, 2017 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$646,386
 $646,386
 $—
 $—
 Cash and cash equivalents
Bank-time deposits46,605
 46,605
 —
 —
 Cash and cash equivalents
Commercial paper38,268
 —
 38,268
 —
 Cash and cash equivalents
Corporate bonds243,019
 —
 243,019
 —
 Short-term investments
Bank-time deposits175,745
 175,745
 —
 —
 Short-term investments
Commercial paper25,936
 —
 25,936
 —
 Short-term investments
Mutual funds4,232
 —
 4,232
 —
 Short-term investments
Foreign currency forward contracts2
 —
 2
 —
 Prepaid expenses and other
Foreign currency forward contracts(352) —
 (352) —
 Accrued and other current liabilities
Private equity570
 —
 —
 570
 Other assets
Contingent consideration(6,465) —
 —
 (6,465) Other long-term liabilities
Total recurring fair value measurements, net$1,173,946
 $868,736
 $311,105
 $(5,895)  
In September 2017, we recognized a reduction to general and administrative expense of $7,012 for the decrease in fair value of the contingent consideration liability associated with the Social Point acquisition, which reduced the fair value of the

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September 30, 2022
 Quoted prices
in active
markets for
identical
assets
(level 1)		Significant
other
observable
inputs
(level 2)		Significant
unobservable
inputs
(level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds$16.4 $— $— $16.4 
Bank-time deposits206.1 — — 206.1 
Short-term investments:
Corporate bonds— 311.0 — 311.0 
Bank-time deposits17.3 — — 17.3 
US Treasuries5.0 — — 5.0 
Commercial paper— 14.7 — 14.7 
Restricted cash and cash equivalents:
Money market funds523.7 — — 523.7 
Bank-time deposits0.5 — — 0.5 
Restricted cash and cash equivalents, long term:
Money market funds109.1 — — 109.1 
Other assets:
Private equity— — 26.1 26.1 
Total financial assets$878.1 $325.7 $26.1 $1,229.9 
Liabilities:
Accrued expenses and other current liabilities:
Foreign currency forward contracts$— $(1.8)$— $(1.8)
Contingent earn-out consideration— — (52.7)(52.7)
Other-long term liabilities:
Contingent earn-out consideration— — (4.3)(4.3)
Long-term debt, net:
Convertible notes— (52.9)— (52.9)
Total financial liabilities$— $(54.7)$(57.0)$(111.7)
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March 31, 2022
 Quoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)Total
Assets
Cash and cash equivalents:
Bank-time deposits$636.0 $— $— $636.0 
Money market funds501.9 — — 501.9 
Commercial paper— 119.4 — 119.4 
US Treasuries52.0 — — 52.0 
Certificates of Deposit— 10.0 — 10.0 
Corporate bonds— 2.8 — 2.8 
Restricted cash and cash equivalents:
Money market funds356.8 — — 356.8 
Bank-time deposits0.5 — — 0.5 
Short-term investments:
Corporate bonds— 538.5 — 538.5 
Bank-time deposits131.8 — — 131.8 
Commercial paper— 125.4 — 125.4 
US Treasuries23.4 — — 23.4 
Certificates of Deposit— 1.0 — 1.0 
Other assets:
Private equity— — 16.1 16.1 
Restricted cash and cash equivalents, long term:
Money market funds103.5 — — 103.5 
Total financial assets$1,805.9 $797.1 $16.1 $2,619.1 
Liabilities
Accrued expenses and other current liabilities:
Foreign currency forward contracts— (0.2)— (0.2)
Contingent earn-out consideration— — (66.0)(66.0)
Other long-term liabilities:
Contingent earn-out consideration— — (43.0)(43.0)
Total financial liabilities$— $(0.2)$(109.0)$(109.2)
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 six months ended September 30, 2022.
In connection with the Nordeus acquisition we completed on June 1, 2021, our consideration included a contingent earn-out consideration liabilityarrangement that requires us to $136 after the impactpay an aggregate of foreign exchange. The reduction resulted from the lower probability of Social Point achieving$153.0 in cash if Nordeus achieves certain performance measures inover the 1212- and 24-month periods following the acquisition.
Theclosing. We recorded $61.1 as the initial fair value of contingent considerationearn-out consideration. The fair value was estimated using a Monte-Carlo simulation model, which included significant unobservable Level 3 inputs, such as projected financial performance over the earn-out period along with estimates for market volatility and the discount rate applicable to potential cash payouts.
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 During the ninethree months ended December 31, 2017.September 30, 2022, we paid $70.1 related to these earn-out consideration arrangements.
Debt
AsDuring the six months ended September 30, 2022, we recognized General and administrative expense of December 31, 2017,$13.0 within our Condensed Consolidated Statements of Operations for the estimatedincrease in fair value of our 1.00% Convertible Notes due 2018 (the "1.00% Convertible Notes") was $72,227. Thethe contingent earn-out consideration liability associated with the Nordeus acquisition, which increased the fair value was determinedof the contingent consideration liability related to the second earn-out period to $51.9 and is recorded within Accrued expenses and other current liabilities in our Condensed
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Consolidated Balance Sheet as of September 30, 2022. The increase resulted from a higher probability of Nordeus achieving certain performance measures in the second 12-month period.

The remaining contingent earn-out consideration liability of $5.1 relates to immaterial earn-out arrangements from Zynga's historical acquisitions. For these acquisitions, we estimated the acquisition date fair value of the contingent consideration obligations using Level 2 inputs,a discounted cash flow model.
Nonrecurring fair value measurements
We hold equity investments in certain unconsolidated entities without a readily determinable fair value. These strategic investments represent less than a 20% ownership interest in each of the privately-held affiliates, and we do not maintain significant influence over or control of the entities. We have elected the practical expedient in Topic 321, Investments-Equity Securities, to measure these investments at cost less any impairment, adjusted for observable market data, forprice changes, if any. Based on these considerations, we estimate that the 1.00% Convertible Notes and their embedded option feature. See Note 9 for additional information regardingcarrying value of the acquired shares represents the fair value of the investment. At September 30, 2022, we held $7.0 of such investments in Other assets within our 1.00% Convertible Notes.Condensed Consolidated Balance Sheet.

4.
5. SHORT-TERM INVESTMENTS
Our short-termShort-term investments consisted of the following:
 September 30, 2022
  Gross
Unrealized		 
 Cost or
Amortized Cost		GainsLossesFair Value
Short-term investments    
Bank time deposits$17.3 $— $— $17.3 
Available-for-sale securities:    
Corporate bonds316.7 — (5.7)311.0 
US Treasuries5.0 — — 5.0 
Commercial paper14.7 — — 14.7 
Total Short-term investments$353.7 $— $(5.7)$348.0 
 December 31, 2017
   Gross
Unrealized		  
 Cost or
Amortized Cost		 Gains Losses Fair Value
Short-term investments 
  
  
  
Bank time deposits$166,321
 $—
 $—
 $166,321
Available-for-sale securities: 
  
  
  
Corporate bonds363,127
 18
 (729) 362,416
Commercial paper13,921
 —
 —
 13,921
Mutual funds4,665
 15
 (9) 4,671
Total short-term investments$548,034
 $33
 $(738) $547,329
 March 31, 2022
  Gross
Unrealized
 Cost or
Amortized Cost		GainsLossesFair Value
Short-term investments    
Bank time deposits$131.8 $— $— $131.8 
Available-for-sale securities:    
Corporate bonds544.3 — (5.8)538.5 
US Treasuries23.4 — — 23.4 
Commercial Paper125.4 — — 125.4 
Certificates of Deposit1.0 — — 1.0 
Total Short-term investments$825.9 $— $(5.8)$820.1 
 March 31, 2017
   Gross
Unrealized		  
 Cost or
Amortized Cost		 Gains Losses Fair Value
Short-term investments 
  
  
  
Bank time deposits$175,745
 $—
 $—
 $175,745
Available-for-sale securities: 
  
  
  
Corporate bonds243,140
 98
 (219) 243,019
Commercial paper25,938
 5
 (7) 25,936
Mutual funds4,118
 123
 (9) 4,232
Total short-term investments$448,941
 $226
 $(235) $448,932
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, 2017 or March 31, 2017.


The following table summarizes the contracted maturities of our short-term investments at December 31, 2017:September 30, 2022:
 September 30, 2022
 Amortized
Cost		Fair
Value
Short-term investments  
Due in 1 year or less$334.2 $329.2 
Due in 1 - 2 years19.5 18.8 
Total Short-term investments$353.7 $348.0 

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 December 31, 2017
 Amortized
Cost		 Fair
Value
Short-term investments 
  
Due in 1 year or less$371,567
 $371,489
Due in 1 - 2 years176,467
 175,840
Total short-term investments$548,034
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5.6. 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.rates on earnings, cash flows, and certain balance sheet amounts. We do not enter into derivative financial contracts for speculative or trading purposes. We recognize derivative instruments as either assets or liabilities on our Condensed 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 Condensed Consolidated Statements of Cash Flows.
Foreign currency forward contracts
The following table shows the gross notional amounts of foreign currency forward contracts:
 December 31, 2017 March 31, 2017
Forward contracts to sell foreign currencies$130,763
 $177,549
Forward contracts to purchase foreign currencies3,883
 9,170
September 30, 2022March 31, 2022
Forward contracts to sell foreign currencies$197.0 $132.8 
Forward contracts to purchase foreign currencies57.3 75.8 
For the three months ended December 31, 2017September 30, 2022 and 2016,2021, we recorded a loss of $620$4.6 and a gain of $11,158,$0.6, respectively, and for the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021 we recorded a loss of $15,325$2.6 and a gainloss of $11,731,$1.2, 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.accounting. These instruments are generally short termshort-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, 2017, the notional amount of the cross-currency swap is $129,000. 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 Condensed Consolidated Statement of Operations. There are no credit-risk related contingent features associated with these swaps.


6. INVENTORY
Inventory balances by category are as follows:
 December 31, 2017 March 31, 2017
Finished products$27,717
 $15,530
Parts and supplies3,140
 793
Inventory$30,857
 $16,323
Estimated product returns included in inventory at December 31, 2017 and March 31, 2017 were $423 and $529, respectively.
7. SOFTWARE DEVELOPMENT COSTS AND LICENSES
Details of our capitalized software development costs and licenses arewere as follows:
 December 31, 2017 March 31, 2017
 Current Non-current Current Non-current
Software development costs, internally developed$30,420
 $477,883
 $28,959
 $310,229
Software development costs, externally developed6,611
 108,858
 5,455
 71,407
Licenses2,338
 125
 7,307
 274
Software development costs and licenses$39,369
 $586,866
 $41,721
 $381,910
 September 30, 2022March 31, 2022
 CurrentNon-currentCurrentNon-current
Software development costs, internally developed$68.3 $718.3 $59.2 $599.3 
Software development costs, externally developed7.5 166.0 19.3 145.2 
Licenses13.2 23.5 2.9 11.4 
Software development costs and licenses$89.0 $907.8 $81.4 $755.9 
During the three months ended December 31, 2017September 30, 2022 and 2016,2021, we recorded $0$6.4 and $7,731, respectively, and during the nine months ended December 31, 2017 and 2016, we recorded $960 and $19,325,$55.3, respectively, of software development impairment charges (a component of costCost of goods sold)revenue).
Liability Awards
In The impairment charges recorded during the three months ended September 2017, we reclassified 5,550,000time and performance based restricted stock units as equity awards. These awards30, 2022 related to recognizing unamortized capitalized costs for the development of a title, which were granted in prior periods and historically accounted for as liability awards as they previously could be settled only in cash and based on a contractually stipulated cash settlement value. However, in September 2017, at our Annual Meetinganticipated to exceed the net realizable value of Stockholders, we received stockholder approval to increase the number of shares of Common Stock for which awards may be granted and therefore now have the ability and intent to settle these awards in stock. As a result, we reclassified$74,707 from Other long-term liabilities to Additional paid-in capital within Stockholders' equity. Additionally, we recognized incremental cost of $112,789 to reflect the difference between the share priceasset at the time they were impaired. The impairment charges recorded during the three months ended September 30, 2021 related to (i) a decision not to proceed with further development of certain interactive entertainment software and (ii) recognizing unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the modificationasset at the time they were impaired.
During the six months ended September 30, 2022 and the contractually stipulated cash settlement value. Of these incremental costs, $84,176 was capitalized within Software2021, we recorded $23.3 and $65.0, respectively, of software development costs and licenses, net of current portion; $23,251 was recorded within Software development costs and royaltiesimpairment charges (a component of costCost of goods sold);revenue). The impairment charges recorded during the six months ended September 30, 2022 to (i) a decision not to proceed with further development of certain interactive entertainment software and $5,361 was (ii) recognizing unamortized capitalized costs for the development of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired. The impairment charges recorded within Researchduring the six months ended September 30, 2021 related to (i) a decision not to proceed with further development of certain interactive entertainment software and (ii) recognizing unamortized capitalized costs for the development costs.of a title, which were anticipated to exceed the net realizable value of the asset at the time they were impaired.

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8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consistconsisted of the following:
 September 30, 2022March 31, 2022
Software development royalties$772.2 $615.7 
Compensation and benefits167.1 134.0 
Tax payable158.2 14.1 
Deferred acquisition payments133.7 78.6 
Licenses112.0 81.1 
Marketing and promotions105.3 30.6 
Refund liability52.0 51.7 
Interest payable32.8 — 
Professional fees17.8 17.0 
Sales tax liability16.9 17.2 
Other165.9 $34.9 
Accrued expenses and other current liabilities$1,733.9 $1,074.9 

9. DEBT
 December 31, 2017 March 31, 2017
    
Software development royalties$532,665
 $492,133
Compensation and benefits82,703
 44,843
Business reorganization71,105
 65,935
Licenses66,113
 37,019
Marketing and promotions56,189
 21,030
Deferred acquisition payments25,000
 25,000
Other73,570
 64,915
Accrued expenses and other current liabilities$907,345
 $750,875
The components of Long-term debt, net on our Condensed Consolidated Balance Sheet were as follows:
 Annual Interest RateMaturity DateSeptember 30, 2022Fair Value (Level 2)
2024 Notes3.30%March 28, 2024$1,000.0 $974.2 
2025 Notes3.55%April 14, 2025600.0 574.8 
2027 Notes3.70%April 14, 2027600.0 557.2 
2032 Notes4.00%April 14, 2032500.0 434.2 
2022 Credit Agreement4.84%May 23, 2027200.0 200.0 
2024 Convertible Notes0.25%June 1, 202423.5 23.5 
2026 Convertible Notes—%December 15, 202629.4 29.4 
Total$2,952.9 $2,793.3 
Unamortized discount and issuance costs(17.4)
Long-term debt, net$2,935.5 
The components of Short-term debt on our Condensed Consolidated Balance Sheet were as follows:
 Annual Interest RateMaturity DateSeptember 30, 2022Fair Value (Level 2)
Term Loan3.60%June 21, 2023$350.0 $350.0 
Short-term debt$350.0 

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The interest expense as it relates to our debt is recorded within Interest and other, net in our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2022 and was as follows:
9. DEBT
Three Months Ended September 30,Six Months Ended September 30,
20222022
2024 Notes$8.3 $15.0 
2025 Notes5.3 9.8 
2027 Notes5.6 10.2 
2032 Notes5.0 9.2 
2022 Credit Agreement3.2 3.5 
Term Loan1.5 1.7 
Total$28.9 $49.4 
The following table outlines the aggregate amount of maturities of our long-term borrowings, as of September 30, 2022:
Fiscal Year Ended March 31,Maturities
2023 (remaining)$— 
20241,000.0 
202521.4 
2026600.0 
202729.4 
Thereafter1,300.0 
Total2,950.8 
Fair Value Adjustments2.1 
Total Face Value$2,952.9 
Bridge Loan
During the fiscal year ended March 31, 2022, in connection with our acquisition of Zynga (refer to Note 14 - Acquisitions), we received a bridge loan commitment of $2,700.0. The bridge loan commitment was terminated in April 2022 as a result of our Senior Notes debt offering discussed below. During the six months ended September 30, 2022, we recognized expense related to interest and fees of $6.1 related to the bridge loan commitment within Interest and other, net in our Condensed Consolidated Statements of Operations. At April 30, 2022, all deferred financing costs related to the bridge loan commitment were fully amortized.
Senior Notes
On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Senior Notes”).
The Senior Notes were issued under an indenture, dated as of April 14, 2022 (the “Base Indenture”), between the Company and The Bank of New York Mellon, as trustee (the “Trustee”) and (i) a first supplemental indenture, with respect to the 2024 Notes, (ii) a second supplemental indenture, with respect to the 2025 Notes, (iii) a third supplemental indenture, with respect to the 2027 Notes and (iv) a fourth supplemental indenture, with respect to the 2032 Notes (collectively, the “Supplemental Indentures” and together with the Base Indenture, the “Indenture”), each dated as of April 14, 2022, between the Company and the Trustee.
The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations. We will pay interest on the 2024 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022. During the three months ended September 30, 2022, we made interest payments of $15.0. We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022. The proceeds were used to finance a portion of our acquisition of Zynga.
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The Senior Notes are not entitled to any sinking fund payments. We may redeem each series of the Senior Notes at any time in whole or from time to time in part at the applicable redemption prices set forth in each Supplemental Indenture. Upon the occurrence of a Change of Control Repurchase Event (as defined in each of the Supplemental Indentures) with respect to a series of the Senior Notes, each holder of the Senior Notes of such series will have the right to require the Company to purchase that holder’s Notes of such series at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase, unless the Company has exercised its option to redeem all the Senior Notes.
In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Senior Notes will become due and payable immediately. If any other event of default specified in the Indenture occurs and is continuing with respect to any series of the Senior Notes, the Trustee or the holders of at least 25% in aggregate principal amount of that series of the outstanding Notes may declare the principal of such series of Senior Notes immediately due and payable.
The Indenture contains certain limitations on the ability of the Company and its subsidiaries to grant liens without equally securing the Senior Notes, or to enter into certain sale and lease-back transactions. These covenants are subject to a number of important exceptions and limitations, as further provided in the Indenture.
Debt issuance costs of $19.1 and original issuance discount of $1.3 were incurred in connection with the Senior Notes. These debt issuance costs and original issuance discount are included as a reduction of the debt within Long-term debt, net on our Condensed Consolidated Balance Sheet and will be amortized into Interest and other, net in our Consolidated Statements of Operations over the contractual term of the Senior Notes. During the three months ended September 30, 2022, we recognized $1.4 of amortization of debt issuance costs and $0.1 of amortization of the original issuance discount. During the six months ended September 30, 2022, we recognized $2.6 of amortization of debt issuance costs and $0.2 of amortization of the original issuance discount.
Credit Agreement
In December 2017,On May 23, 2022, we entered into a Seventh Amendment to our Second Amended and Restatednew unsecured Credit Agreement (as amended,(the "2022 Credit Agreement"), which replaced in its entirety the "Credit Agreement").Company's prior Credit Agreement, dated as of February 8, 2019, which was paid off in full and terminated. The 2022 Credit Agreement provides for borrowingsan 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 (4.50% at December 31, 2017) or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 1.57% at December 31, 2017), 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, 2017 and March 31, 2017.
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$500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $5,000.
Information related$100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to availability on our Credit Agreement is as follows:
 December 31, 2017 March 31, 2017
Available borrowings$98,325
 $98,320
Outstanding letters of credit1,664
 1,664
We recorded interest expense and fees related to$100.0. In addition, the Credit Agreement of $111 and $111, respectively for the three months ended December 31, 2017 and 2016 and $332 and $332 for the nine months ended December 31, 2017 and 2016, respectively. The2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).
Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (6.25% at September 30, 2022) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 3.04% at September 30, 2022, which rates are determined by the Company's credit rating.
The 2022 Credit Agreement also includes, among other terms and conditions, a maximum leverage ratio covenant, as well as customary affirmative and negative covenants, including covenants that substantially limit usor restrict the Company and our subsidiaries'its subsidiaries’ ability to, create,among other things, incur assume or be liable for indebtedness;subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, outside the ordinary course of business; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make distributions (eachin 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).and baskets. In addition, the 2022 Credit Agreement provides for certain events of default such as nonpaymentcustomary for a credit facility of this size and type, including, among others, non-payment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default oncross-defaults to material indebtedness, held by third parties and default on certain material contractsjudgment defaults (subject to certain limitations and cure periods). The
Upon execution of the 2022 Credit Agreement, also containswe incurred $3.5 of debt issuance costs that were capitalized within Other assets on our Condensed Consolidated Balance Sheet and will be amortized on a requirement thatstraight-line basis over the five-year term of the 2022 Credit Agreement, with the expense recorded within Interest and other, net in our Condensed Consolidated Statements of Operations. During the three and six months ended September 30, 2022, we maintain an interest coverage ratioamortized $0.2 and $0.3, respectively, 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 2018these debt issuance costs.
On June 18, 2013,22, 2022, we issued $250,000drew down $200.0 at approximately 3.28% from our facility under the 2022 Credit Agreement, which constitutes senior unsecured indebtedness of the Company, ranking equally with all of our other existing and future senior unsecured unsubordinated obligations, and will record interest within Interest and other, net in our Condensed Consolidated Statement of Operations. This borrowing has a maturity date of May 23, 2027. On September 22, 2022, we repriced our outstanding borrowing at approximately 4.84%. The proceeds were used to finance a portion of the repurchase of the Convertible Notes (see below). We had approximately $299.5 available for additional borrowings as of September 30, 2022. During the three months ended September 30, 2022, we made interest payments of $1.7.
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Information related to availability on our respective credit agreements for each period was as follows:
September 30, 2022March 31, 2022
Available borrowings$299.5 $247.5 
Outstanding letters of credit2.9 2.5 
Term Loan
On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of 1.00%$350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which margins are determined by reference to our credit rating. The Term Loan constitutes senior unsecured indebtedness of the Company, ranking equally with all of our other existing and future senior unsecured unsubordinated obligations.
The Term Loan also includes, among other terms and conditions, a maximum leverage ratio covenant, as well as customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, in each case subject to certain exceptions and baskets. In addition, the Term Loan provides for events of default customary for a credit facility of this size and type, including, among others, non-payment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, cross-defaults to material indebtedness, and material judgment defaults (subject to certain limitations and cure periods).
We fully drew down on the Term Loan on June 22, 2022 at approximately 3.60%. The proceeds were used to finance a portion of the repurchase of the Convertible Notes (see below).
Convertibles Notes
In conjunction with the acquisition of Zynga on May 23, 2022 (refer to Note 14 - Acquisitions), we entered into (a) the First Supplemental Indenture (the “2024 Supplemental Indenture”) to the Indenture, dated as of June 14, 2019 (the “2024 Indenture”), between Zynga and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association) (the “Trustee”), relating to Zynga’s 0.25% Convertible Senior Notes due 2018. The 1.00%2024 (the “2024 Convertible Notes”), and (b) the First Supplemental Indenture (the “2026 Supplemental Indenture” and, together with the 2024 Supplemental Indenture, the “Supplemental Indentures”) to the Indenture, dated as of December 17, 2020 (the “2026 Indenture” and, together with the 2024 Indenture, the “Indentures”), between Zynga and the Trustee, relating to Zynga’s 0% Convertible Senior Notes due 2026 (the “2026 Convertible Notes” and, together with the 2024 Convertible Notes, the “Convertible Notes”). As of the closing date of the acquisition, approximately $690.0 aggregate principal amount of the 2024 Convertible Notes were issued at 98.5%outstanding and approximately $874.5 aggregate principal amount of par value for proceeds of $246,250. Interest on the 1.00%2026 Convertible Notes were outstanding.
Following the acquisition and according to the Supplemental Indentures, we assumed all of Zynga’s rights and obligations under the Indentures, and the Company guaranteed the payment and other obligations of Zynga under the Convertible Notes. As a result of our acquisition of Zynga, the right to convert each one thousand dollar principal amount of such Convertible Notes into shares of Zynga common stock was changed into a right to convert such principal amount of such Convertible Notes into the number of units of Reference Property equal to the conversion rate in effect immediately prior to the closing of the Zynga Acquisition, in each case pursuant to the terms and procedures set forth in the applicable Indenture. A unit of Reference Property is payable semi-annuallydefined in arrears on July 1steach Indenture as 0.0406 shares of Take-Two common stock and January 1st$3.50 in cash, without interest, plus cash in lieu of each year, commencing on January 1, 2014. any fractional shares of Take-Two common stock.
The 1.00%2024 Convertible Notes and 2026 Convertible Notes mature on JulyJune 1, 2018,2024, and December 15, 2026, respectively, unless earlier converted, redeemed, or repurchased byin accordance with their terms, respectively, prior to the Company or converted. Wematurity date. Interest is payable semiannually on the 2024 Convertible Notes in arrears on March 1 and September 1 of each year. The 2026 Convertible Notes do not havebear regular interest, and the principal amount does not accrete.
The acquisition of Zynga constituted a Fundamental Change, a Make-Whole Fundamental Change, and a Share Exchange Event (each as defined in the Indentures) under the Indentures. The effective date of the Fundamental Change, Make-Whole Fundamental Change and Share Exchange Event in respect of the Convertible Notes was May 23, 2022 (the “Convertible Notes Effective Date”), and the related tender and conversion periods expired on June 22, 2022. As a result, each holder of Convertible Notes had the right to redeem the 1.00%tender its Convertible Notes prior to maturity. We also granted the underwriters a 30-day optionCompany for cash or surrender its Convertible Notes for conversion into the Reference Property at the applicable conversion rate, in each case pursuant to purchase up to an additional $37,500the terms and procedures set forth in the applicable Indenture.
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As of the expiration of the Fundamental Change, Make-Whole Fundamental Change, and Share Exchange Event, (a) $0.3 aggregate principal amount of 1.00%the 2024 Convertible Notes to cover overallotments, if any. On July 17, 2013, we closed our public offering of $37,500and (b) $845.1 aggregate principal amount of our 1.00%the 2026 Convertible Notes as a resultwere tendered for cash. In addition, (a) $668.3 aggregate principal amount of the underwriters exercising their overallotment option in full on July 12, 2013, bringing the total proceeds to $283,188.
The 1.00%2024 Convertible Notes, are convertible at an initialand (b) no 2026 Convertible Notes were surrendered for conversion rate of 46.4727into the applicable Reference Property. In total, we paid $321.6 for the tendered or converted 2024 Convertible Notes, including interest, and $845.1 for the tendered 2026 Convertible Notes in cash, and we issued 3.7 shares of our common stock per $1upon the conversion of the 2024 Convertible Notes. After settlement of all Convertible Notes tendered or surrendered for conversion, $21.4 aggregate principal amount of 1.00%the 2024 Convertible Notes (representing an initial conversion priceremained outstanding and $29.4 aggregate principal amount of approximately $21.52 per share of common stock for a total of approximately 13,361,000 underlying conversion shares) subject to adjustment in certain circumstances. Holders were able to convert the 1.00%2026 Convertible Notes remained outstanding at their optionSeptember 30, 2022.
The 2024 Convertible Notes and 2026 Convertible Notes constitute senior unsecured indebtedness of Zynga, ranking pari passu with all of our other existing and future senior unsecured unsubordinated obligations of Zynga. As a result the 2024 Convertible Notes and 2026 Convertible Notes are structurally senior to the indebtedness of the Company as to Zynga and its assets. As noted above, the Company also guaranteed the payment and other obligations of Zynga under the Convertible Notes. The Company's guarantees of the 2024 Convertible Notes and 2026 Convertible Notes are the Company's senior unsecured obligations and rank equally with all of the Company's other existing and future senior unsecured unsubordinated obligations.
Under the terms of the applicable Indentures, prior to the close of business on the business day immediately preceding JanuaryMarch 1, 20182024 with respect to the 2024 Convertible Notes and September 15, 2026 with respect to the 2026 Convertible Notes, the Convertible Notes will be convertible only under the following circumstances: (1)
•    during any fiscalcalendar quarter, commencing after September 30, 2013, if the value of a unit of Reference Property (based on the last reported salesales price of theour common stockstock), for at least 20 trading days (whether or not consecutive) duringin a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscalcalendar quarter is greater than or equal to 130% of the applicable conversion price of the applicable series of the 2024 Convertible Notes or 2026 Convertible Notes, respectively, on each applicable trading day; (2)day;
•    during the five business daybusiness-day period after any 10five consecutive trading daytrading-day period (the "measurement period") in which the trading price per $1one thousand dollar principal amount of 1.00%each applicable series of the 2024 Convertible Notes or 2026 Convertible Notes for eachsuch trading day of that measurement period was less than 98% of the product of the value of a unit of Reference Property (based on the last reported sale price of our common stockstock) and the applicable conversion rate of the applicable series of the 2024 Convertible Notes or 2026 Convertible Notes, respectively, on each such day;trading day;
•    if we call the 2024 Convertible Notes or (3)2026 Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the respective redemption date; or
•    upon the occurrence of specified corporate events. On and after January 1, 2018 untilevents described in the close of business on the business day immediately preceding the maturity date,respective Indentures.
Upon any conversion, holders may convert their

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1.00% Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 1.00% Convertible Notes may be settled, at our election, inwill receive either cash shares of our common stock, or a combination of cash and shares of Take-Two common stock, at our common stock. Accordingly, aselection. As of January 1, 2018,September 30, 2022, the 1.00% Convertible Notes may be converted at the holder's option through June 30, 2018. During the three and nine months ended December 31, 2017, 1.00% Convertible Notes with an aggregate principal amount of $40,088 and $253,986, respectively, were settled, and an additional $2 were tendered for conversion with January 2018 settlement dates. As a result of early conversions of the 1.00% Convertible Notes, we recorded a gain within Interest and other, net on our Consolidated Statement of Operations of $0.7 million and $4.9 million for the three and nine month period ended December 31, 2017.
We elected to settle in shares of our common stock. Our intent and ability, given our option, would be to settle future conversions in shares of our common stock. As such, we have continued to classify these 1.00% Convertible Notes as long-term debt.
Upon the occurrence of certain fundamental changes involving the Company,conditions allowing holders of the 1.00% Convertible Notes may require us to purchase all or a portion of their 1.00% Convertible Notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the fundamental change purchase date.
The indenture governing the 1.00% Convertible Notes contains customary terms and covenants and events of default. If an event of default (as defined therein) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the 1.00% Convertible Notes then outstanding by notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest (including additional interest, if any) on all the 1.00% Convertible Notes to be due and payable. In the case of an event of default arising out of certain bankruptcy events, 100%convert their respective series of the principal of and accrued and unpaid interest (including additional interest, if any), on the 1.00% Convertible Notes will automatically become duehave not been met and payable immediately.
The 1.00%therefore both the Convertible Notes are senior unsecured obligationsnot yet convertible.
We have elected to account for these Convertible Notes, which are considered derivatives, using the fair value option (Level 2) under ASC 825, as the Convertible Notes were initially recognized at fair value under the acquisition method of accounting in connection with the Zynga Acquisition (refer to Note 14 - Acquisitions) and rank seniorwe do not expect significant fluctuations in right offair value through maturity. We initially recorded $778.6 as the acquisition date fair value for the 2024 Convertible Notes and $874.5 for the 2026 Convertible Notes. The fair value was determined as the expected cash payment to our existing and future indebtedness that is expressly subordinated in right of payment to the 1.00% Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of shares to be issued to settle the assets securing such indebtedness; and structurally junior to all existing and future indebtedness incurred by our subsidiaries.
We separately account for the liability and equity componentsConvertible Notes. As of the 1.00% Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate. We estimatedSeptember 30, 2022, we recorded $23.5 as the fair value of the 1.00%remaining outstanding 2024 Convertible Notes, to be $225,567 upon issuance of our 1.00% Convertible Notes, assuming a 6.15% non-convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $57,621 by deductingand $29.4 as the fair value of the liability component fromremaining outstanding 2026 Convertible Notes, within Long-term debt, net in our Condensed Consolidated Balance Sheet. During the three and six months ended September 30, 2022, we recognized a gain of $1.5 and a loss of $46.3 within Gain (loss) on fair value adjustments, net proceedsin our Condensed Consolidated Statements of Operations, which includes the loss recognized on the converted Convertible Notes.
Capped Calls
In connection with the Convertible Notes, Zynga also previously entered into privately negotiated Capped Call options with certain counterparties. These Capped Call options were intended to reduce the potential economic dilution of Zynga shares upon any conversion of the 1.00% Convertible Notes. TheNotes and/or offset any cash payments made in excess of the principal amount of converted notes with such reduction and/or offset, as the liability component over its carrying amount is amortizedcase might have been, subject to interest and other, net overa maximum based on the termcap price.
Following the acquisition of the 1.00% Convertible Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the $2,815 of banking, legal and accounting feesZynga, we entered into Termination Agreements with each counterparty related to the issuanceacquired Capped Call arrangements to be settled in cash. Pursuant to the terms of the 1.00% Convertible Notes, we allocated $2,209 toTermination Agreements, the liability componentCapped Call options will be terminated over a period of time specified in each Termination Agreement and $606 to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest and other, net over the term of the 1.00% Convertible Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.
As of December 31, 2017 and March 31, 2017, the if-converted value of our 1.00% Convertible Notes exceeded the principal amount of $14,163 and $268,149, respectively by $58,064 and $470,456, respectively.
The following table provides additional information related to our 1.00% Convertible Notes:each counterparty will owe a
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 December 31, 2017 March 31, 2017
Additional paid-in capital$35,784
 $35,784
Principal amount of 1.00% Convertible Notes$14,163
 $268,149
Unamortized discount of the liability component311
 15,751
Carrying amount of debt issuance costs14
 469
Net carrying amount of 1.00% Convertible Notes$13,838
 $251,929


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cash payment to the Company, as applicable, as a result of the termination of the Capped Call options that will be calculated based on their fair market value calculated by each counterparty during a termination valuation period.
We have accounted for these Capped Calls as derivatives under ASC 815. We initially recorded $131.3 as the acquisition date fair value of these Capped Calls, and, as of June 30, 2022, the fair value of $140.1 is recorded on our Condensed Consolidated Balance Sheet. The following table providesfair value (Level 2), in each instance, was determined based on negotiated termination agreements with the componentscounterparties, which are dependent on our stock price over a certain period of interest expense related totime as further defined in the respective agreements. During the six months ended September 30, 2022, we recognized a gain of $8.8 within Gain (loss) on fair value adjustments, net in our 1.00% Convertible Notes:
Consolidated Statements of Operations.
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Cash interest expense (coupon interest expense)$(60) $698
 $519
 $2,115
Non-cash amortization of discount on 1.00% Convertible Notes1,509
 3,285
 15,424
 10,289
Amortization of debt issuance costs48
 99
 471
 333
Total interest expense related to 1.00% Convertible Notes$1,497
 $4,082
 $16,414
 $12,737
In July 2022, we received $140.1 in cash for settlement of these Capped Calls.
10. (LOSS) EARNINGS (LOSS) PER SHARE ("EPS")
The following table sets forth the computation of basic and diluted (loss) earnings (loss) per share (shares in thousands):
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Computation of Basic earnings (loss) per share: 
  
  
  
Net income (loss)$25,140
 $(29,842) $82,680
 $(31,977)
Less: net income allocated to participating securities(62) —
 (211) —
Net income (loss) for basic earnings (loss) per share calculation$25,078
 $(29,842) $82,469
 $(31,977)
        
Total weighted average shares outstanding—basic113,991
 90,428
 109,010
 86,796
Less: weighted average participating shares outstanding(279) —
 (278) —
Weighted average common shares outstanding—basic113,712
 90,428
 108,732
 86,796
        
Basic earnings (loss) per share$0.22
 $(0.33) $0.76
 $(0.37)
        
Computation of Diluted earnings (loss) per share:       
Net income (loss)$25,140
 $(29,842) $82,680
 $(31,977)
Less: net income allocated to participating securities(59) —
 (206) —
Net income (loss) for diluted earnings (loss) per share calculation          $25,081
 $(29,842) $82,474
 $(31,977)
        
Weighted average common shares outstanding—basic113,712
 90,428
 108,732
 86,796
Add: dilutive effect of common stock equivalents4,206
 —
 2,708
 —
Weighted average common shares outstanding—diluted117,918
 90,428
 111,440
 86,796
Less: weighted average participating shares outstanding(279) —
 (278) —
Weighted average common shares outstanding- diluted117,639
 90,428
 111,162
 $86,796
        
Diluted earnings (loss) per share$0.21
 $(0.33) $0.74
 $(0.37)
Certain of our unvested restricted stock awards (including restricted stock units and time-based and market-based restricted stock awards) are considered participating securities since these securities have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award, and thus require the two-class method of computing EPS.
The calculation of EPS for common stock under the two-class method shown above for the three and nine months ended December 31, 2017 excludes income attributable to the participating securities from the numerator and excludes the dilutive effect of those awards from the denominator.share:
 Three Months Ended September 30,Six Months Ended September 30,
 2022202120222021
Computation of Basic (loss) earnings per share:    
Net (loss) income$(257.0)$10.2 $(361.0)$162.5 
Weighted average shares outstanding—basic166.9 115.8 151.8 115.7 
Basic (loss) earnings per share$(1.54)$0.09 $(2.38)$1.40 
Computation of Diluted (loss) earnings per share:
Net (loss) income$(257.0)$10.2 $(361.0)$162.5 
Weighted average shares outstanding—basic166.9 115.8 151.8 115.7 
Add: dilutive effect of common stock equivalents— 1.0 — 1.2 
Weighted average common shares outstanding—diluted166.9 116.8 151.8 116.9 
Diluted (loss) earnings per share$(1.54)$0.09 $(2.38)$1.39 
We incurred a net loss for the three and ninesix months ended December 31, 2016;September 30, 2022; therefore, the basic and diluted weighted average shares outstanding for those periods exclude the effect of the unvested share-based awards that are considered participating securities and all common stock equivalents because their effect would be antidilutive. For the three and nine months ended


December 31, 2016, September 30, 2022, we had 4,912,000 of unvested1.5 potentially dilutive shares from share-based awards and 0.2 of shares from Convertible Notes that are excluded from the EPS calculation due to the net loss for those periods.
We define common stock equivalents as restricted stockthe period. For the six months ended September 30, 2022, we had 1.6 potentially dilutive shares from share-based awards and common stock related1.0 of shares from Convertible Notes that are excluded due to the Convertible Notes (see Note 9) outstanding duringnet loss for the period. Common stock equivalents are measured using the treasury stock method, except for the Convertible Notes, which are assessed for their effect on diluted EPS using the more dilutive of the treasury stock method or the if-converted method. Under the provisions of the if-converted method, the Convertible Notes are assumed to be converted and included in the denominator of the EPS calculation and the interest expense, net of tax, recorded in connection with the Convertible Notes is added back to the numerator.
During the ninesix months ended December 31, 2017, 2,877,000September 30, 2022, 1.8 restricted stock awards vested, we granted 2,303,0002.7 unvested restricted stock awards, and 1,575,0001.2 unvested restricted stock awards were forfeited. The forfeiture of awards resulted in the reversal of expense of $17,214$48.3 and amounts capitalized as software development costs of $53,569.$8.1.

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11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides the components of accumulated other comprehensive loss:
 Six Months Ended September 30, 2022
 Foreign
currency
translation
adjustments		Unrealized
gain (loss) on
available-for-
sales
securities		Total
Balance at March 31, 2022$(52.8)$(4.5)$(57.3)
Other comprehensive loss before reclassifications(179.1)0.1 (179.0)
Balance at September 30, 2022$(231.9)$(4.4)$(236.3)
 Six Months Ended September 30, 2021
 Foreign
currency
translation
adjustments		Unrealized
gain (loss) on
available-for-
sales
securities		Total
Balance at March 31, 2021$(9.3)$0.6 $(8.7)
Other comprehensive income (loss) before reclassifications(10.6)(0.4)(11.0)
Balance at September 30, 2021$(19.9)$0.2 $(19.7)
 Nine Months Ended December 31, 2017
 Foreign
currency
translation
adjustments		 Unrealized
gain (loss) on
forward contracts		 Unrealized
gain (loss) on
cross-currency swap		 Unrealized
gain (loss) on
available-for-
sales
securities(1)		 Total
Balance at March 31, 2017$(47,666) $600
 $—
 $(76) $(47,142)
Other comprehensive income (loss) before reclassifications23,391
 —
 (8,626) (705) 14,060
Amounts reclassified from accumulated other comprehensive loss—
 —
 1,987
 —
 1,987
Balance at December , 2017$(24,275) $600
 $(6,639) $(781) $(31,095)


 Nine Months Ended December 31, 2016
 Foreign
currency
translation
adjustments		 Unrealized
gain (loss) on
derivative
instruments		 Unrealized
gain (loss) on
available-for-
sales
securities		 Total
Balance at March 31, 2016$(38,580) $600
 $84
 $(37,896)
Other comprehensive (loss) income before reclassifications(10,067) —
 (221) (10,288)
Amounts reclassified from accumulated other comprehensive loss—
 —
 9
 9
Balance at December 31, 2016$(48,647) $600
 $(128) $(48,175)

12. COMMITMENTS AND CONTINGENCIES
A summary of annual minimum contractual obligations and commitments as of September 30, 2022 is as follows:
Fiscal Year Ending March 31,Software
Development
and Licensing		MarketingOperating LeasesPurchase
Obligations		Total
2023 (remaining)$210.8 $32.5 $36.5 $154.1 $433.9 
2024254.3 56.6 56.8115.6 483.3 
2025204.4 74.0 63.059.1 400.5 
2026109.1 51.5 47.14.9 212.6 
202725.1 7.3 43.11.3 76.8 
Thereafter29.5 19.0 225.9— 274.4 
Total$833.2 $240.9 $472.4 $335.0 $1,881.5 
Software Development and Licensing Agreements:    We make payments to third-party software developers that include contractual payments to developers under several software development agreements that expire at various times through July 2031. Our aggregate outstanding software development commitments assume satisfactory performance by third-party software developers. We also have licensing commitments that primarily consist of obligations to holders of intellectual property rights for use of their trademarks, copyrights, technology or other intellectual property rights in the development of our products.
    Marketing Agreements:    We have entered intocertain minimum marketing support commitments where we commit to spend specified amounts related to marketing our products. Marketing commitments expire at various times through March 2029 and primarily reflect our agreements inwith major sports leagues and players' associations.
    Purchase Obligations:    These obligations are primarily related to agreements to purchase services that are enforceable and legally binding on us that specifies all significant terms, including fixed, minimum or variable pricing provisions; and the ordinary courseapproximate timing of business that require substantial cash commitments over the next several years. Other than agreements entered into in the ordinary course of businesstransactions, expiring at various times through March 2027.
Operating Leases:    Our offices are occupied under non-cancelable operating leases expiring at various times through December 2037. We also lease certain furniture, equipment 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, 2017, we did not have any significant changes to our commitments since March 31, 2017.automobiles under non-cancelable leases expiring through February 2026.
Legal and Other Proceedings
Proceedings:    We are, or may become, subject to demands and claims (including intellectual property and employment related claims) and are involved in routine litigation in the ordinary course of business which we do not believe to be material to our business or financial statements.condition or results of operations. We have appropriately accrued amounts
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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

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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. Motion practice in both the federal and state actions is ongoing. While we believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims, we have accrued what we believe to be an adequate amount for this matter, which amounts are classified in Business reorganization within Accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheet (see Note 8). We do not believe that the ultimate outcome of such litigation, even if in excess of our current accrual, will have a material adverse effect on our business, financial condition or results of operations.
13. BUSINESS REORGANIZATION
In the first quarter of fiscal 2018, we announced and initiated actions to implement a strategic reorganization at one of our labels (the "2018 Plan"). In connection with this initiative, we incurred business reorganization expenses of $700 during the three months ended December 31, 2017 due to true-up of estimates for employee separation costs and $13,012 during the nine months ended December 31, 2017 due primarily to employee separation costs. Through December 31, 2017, we paid $3,029 related to these reorganization activities. As of December 31, 2017, $5,170 remained accrued for in Accrued expenses and other current liabilities and $4,813 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.
14. INCOME TAXES
On December 22, 2017, the United States (“U.S.”) enacted comprehensive tax legislation commonly referred as the "Tax Cuts and Jobs Act” (herein referred to as the "Act”). The Act makes broad and complex changes to the U.S. tax code, which could materially affect us. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018 and requires companies to pay a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act makes other changes that may affect us, beginning April 1, 2018. These changes include but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT), 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. To the extent the accounting for certain income tax effects of the Act is incomplete, we can determine a reasonable estimate for those effects and record a provisional estimate.
During the three months ended December 31, 2017, we recorded discrete income tax expense of $18,078 related to the one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, as a result of the decrease in the U.S. federal corporate income tax rate from 35% to 21%, we estimated a decrease to net deferred tax assets of $47,677 and corresponding decrease to valuation allowance of $47,677, resulting in no impact to our tax provision. The re-measurement of a deferred tax liability relating to indefinite lived intangibles, which cannot be used to offset deferred tax assets, resulted in a discrete tax benefit of $6,202.
We are currently evaluating the potential impact of the Act, and the amounts recorded represent provisional estimates for certain identified income tax effects, for which the accounting is incomplete but a reasonable estimate can be determined. Additional information and further analysis is 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 may be issued. The impact of the Act may differ from these estimates, possibly materially, due to changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Act. We expect to continue to analyze the Act and its impacts and record any adjustments to provisional estimates no later than the third quarter of fiscal 2019. We are also reviewing whether the Act will affect our existing intention to indefinitely reinvest earnings of our foreign subsidiaries and therefore have not recorded any tax liabilities associated with the repatriation of foreign earnings.

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We are also currently analyzing other provisions of the Act that are effective for us April 1, 2018. These provisions include BEAT, the elimination of U.S. federal income taxes on dividends from foreign subsidiaries, GILTI, and other base broadening provisions.
The benefit from income taxes for the three months ended December 31, 2017September 30, 2022 is based on our projected annual effective tax rate for fiscal year 2018,2023, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $12,914$44.1 for the three months ended December 31, 2017September 30, 2022, as compared to $2,282the provision for income taxes of $9.7 for the prior year period.
As a result of phasing in the reduction in U.S. corporate income tax rate, which was effective January 1, 2018, for our fiscal fourth quarter, our blended statutory rate is 31.6%. When compared to the statutory rate of 31.6%21%, the effective tax rate of (105.6)%14.6% for the three months ended December 31, 2017,September 30, 2022 was due primarily due to provisional amounts recorded as a resulttax benefits of the Act as described above, a$8.5 from tax benefitcredits, tax benefits of $9,773 as a result of changes in our valuation allowance relating to temporary items$3.4 from employee stock-based compensation, and tax carryforwards anticipatedexpense of $12.8 related to be utilized, as well as $12,555 of discrete tax benefits recorded during the three months ended December 31, 2017 from changes in unrecognized tax benefits primarily due to expiration of the statute of limitations and $4,131 of excess tax benefits from employee stock compensation as a component of the benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in additional paid-in-capital). To a lesser extent, our rate was also impacted by tax credits and geographic mix of earnings.
The benefit from income taxes reported for the ninesix months ended December 31, 2017September 30, 2022 is based on our projected annual effective tax rate for fiscal year 2018,2023, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $37,331$46.4 for the ninesix months ended December 31, 2017,September 30, 2022, as compared to $2,169the provision for income taxes of $28.9 for the prior year period.
When compared to the statutory rate of 31.6%21%, the effective tax rate of (82.3)%11.4% for the ninesix months ended December 31, 2017September 30, 2022 was due primarily due to provisional amounts recorded as a resulttax expense of the Act as described above, a tax benefit of $14,437 as a result of changes in our valuation allowance relating$22.6 related to temporary items and tax carryforwards anticipated to be utilized, a tax benefit of $8,891 as result of tax credits anticipated to be utilized, as well as $11,174 of discrete tax benefits recorded during the nine months ended December 31, 2017 from changes in unrecognized tax benefits primarily due to expiration of the statute of limitations and $28,624 for excess tax benefits from employee stock compensation as a component of the benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in additional paid-in-capital). To a lesser extent, our rate was also impacted by geographic mix of earnings.earnings, tax expense of $6.0 from employee stock-based compensation, nondeductible expense of $8.2 related to the settlement of convertible debt, offset by benefits of $30.9 from tax credits.
The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174.Although Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance that the requirement will be repealed or otherwise modified. The requirement was effective for the Company beginning April 1, 2022. For the six months ended September 30, 2022, we recorded an estimated increase to income tax payable and deferred tax assets of approximately $70.0 due to Section 174 capitalization. The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States.If legislation is not passed to defer, repeal, or otherwise modify the capitalization and amortization requirement we expect our cash taxes payable and deferred tax assets to increase in the future.
In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which includes a 15% book-income alternative minimum tax on corporations with average applicable financial statement income over $1 billion for any 3-year period ending with 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. We will continue to evaluate the potential impact of the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.
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.
15. SHARE REPURCHASE14. ACQUISITIONS
Our BoardOn May 23, 2022, we completed our acquisition of Directors has authorized100% of the repurchase of up to 14,217,683issued and outstanding shares of our common stock.Zynga, a leading developer of mobile games (the "Zynga Acquisition"). 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 marketterms and conditions the trading price of the stock, the Company's financial performancemerger agreement, each Zynga stockholder received $3.50 in cash and other conditions. The program may be suspended or discontinued at any time for any reason.
During the three and nine months ended December 31, 2017 we repurchased 1,063,7500.0406 shares of our common stock and cash in the open marketlieu of fractional shares for $110,147, including commissionseach share of $10, as partZynga common stock outstanding at closing. Our consideration consisted of the program. We have repurchased a totalan aggregate of 6,235,080$3,992.4 in cash, 46.3 shares of our common stock, underand $143.6 of replacement equity awards attributable to the programpre-acquisition service period (see below). In connection with the transaction, on April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our Senior Notes (refer to Note 9 - Debt). The cash portion of the merger consideration was funded from our cash on hand, including the proceeds from our senior notes offering. Transaction costs of $18.3, $1.6, and $1.2 for the three months ended September 30, 2022 have been recorded within General and administrative expense, Research and development, and Selling and marketing, respectively, in our Condensed Consolidated Statements of Operations. Transaction costs of $123.1, $9.9, and $6.8 for the six months ended September 30, 2022 have been recorded within General and administrative expense, Research and development, and Selling and marketing, respectively, in our Condensed Consolidated Statements of Operations.
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We acquired Zynga as part of our ongoing strategy to expand selectively our portfolio of owned intellectual property and to diversify and strengthen further our mobile offerings

The acquisition-date fair value of the consideration totaled $9,513.7, which consisted of the following:

Fair value of purchase consideration
Cash$3,992.4 
Common stock (46.3 shares)5,377.7 
Replacement equity awards143.6 
Total$9,513.7 

We used the acquisition method of accounting and recognized assets acquired and liabilities assumed at their fair value as of December 31, 2017. 7,982,603the date of acquisition, with the excess recorded to goodwill. As we finalize our estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months from the acquisition date). The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Zynga:
Fair ValueWeighted average useful life
Cash acquired$864.9 N/A
Accounts receivable271.2 N/A
Prepaid expenses and other191.0 N/A
Fixed assets54.1 N/A
Right-of-use assets92.7 N/A
Other tangible assets67.4 N/A
Accounts payable(78.5)N/A
Accrued expenses and other current liabilities(354.8)N/A
Deferred revenue(333.1)N/A
Lease liabilities(15.7)N/A
Long-term debt(1,653.1)N/A
Non-current lease liabilities(131.6)N/A
Deferred tax liabilities, net(1,137.3)N/A
Other liabilities assumed(61.5)N/A
Intangible Assets
Developed game technology4,440.0 7
Branding and trade names384.0 12
Game engine technology261.0 4
User base316.0 1
Developer relationships57.0 4
Advertising technology43.0 3
Customer relationships31.0 5
Goodwill6,206.0 N/A
Total$9,513.7 
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Convertible Notes and Related Capped Calls

Refer to Note 9 - Debt for a discussion of the Convertible Notes and related Capped Calls that were previously issued by Zynga.

Identifiable Intangible Assets Acquired and Goodwill

The preliminary fair value estimates of Developed game technology, Game engine technology, and Advertising technology were estimated using the multi-period excess earnings method. The excess earnings methodology is an income approach methodology that estimates the projected cash flows of the business attributable to the Developed game technology, Advertising technology, and Game engine technology intangible assets, respectively, net of charges for the use of other identifiable assets of the business including working capital, fixed assets and other intangible assets. The amortization for these intangible assets have been recorded to Cost of revenue in our Condensed Consolidated Statements of Operations.

The preliminary fair value estimate of Branding and trade names was estimated using the relief-from-royalty method, which presumes the owner of the asset avoids hypothetical royalty payments that would need to be made for the use of the asset if the asset was not owned. The amortization for the Branding and trade names intangible asset has been recorded to Depreciation and amortization in our Condensed Consolidated Statements of Operations.

The preliminary fair value estimate of User base was estimated using the replacement cost method. The replacement cost methodology is a cost approach methodology based on replacement or reproduction cost of the User Base as an indicator of fair value. The amortization for the User base intangible asset has been recorded to Selling and marketing in our Condensed Consolidated Statements of Operations.

The preliminary fair value estimate of Developer relationships and Customer relationships were estimated using the with and without method, which is a form of the income approach. The with and without method considers the hypothetical impact to the projected cash flows of the business if the asset were not in place. The amortization for the Developer relationships and Customer relationships intangible assets have been recorded to Research and development and Selling and marketing, respectively, in our Condensed Consolidated Statements of Operations.

The $6,206.0 of goodwill recognized, which is not deductible for U.S. income tax purposes, is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

Stock-Based Compensation

In connection with the Zynga Acquisition, (i) the outstanding and unexercised options to purchase Zynga common stock were assumed by the Company and automatically converted into options exercisable for shares of ourTake-Two common stock remain available(the “Converted Options”), (ii) the issued and outstanding restricted stock unit awards with respect to Zynga common stock were assumed by the Company and automatically converted into a Take-Two restricted stock unit award with respect to shares of Take-Two common stock (the “Converted RSUs”), and (iii) the issued and outstanding performance stock unit awards with respect to Zynga common stock were assumed by the Company and automatically converted into a Take-Two restricted stock unit award with respect to shares of Take-Two common stock (the “Converted PSUs” and together with the Converted Options and the Converted RSUs, the “Converted Awards”). As a result, we issued replacement equity options and PSU/RSU awards of 1.5 and 4.2, respectively. The portion of the fair value related to pre-combination services of $143.6 was included in the purchase price, and $28.6 was recognized as day-one post-combination expense for repurchase underacceleration of awards, while the share repurchase program.remaining fair value will be recognized over the remaining service periods. As of September 30, 2022, the future expense for the Converted RSU and PSU Awards was approximately $325.3, which will be recognized over a weighted average service period of approximately 1.6 years. As of September 30, 2022, the future expense for the Converted Options was approximately $1.7, which will be recognized over a weighted average service period of approximately 0.8 years.

Zynga Revenue and Earnings

The amounts of revenue and earnings of Zynga included in our Condensed Consolidated Statement of Operations from the acquisition date are as follows:
Three Months Ended September 30, 2022Six Months Ended September 30, 2022
Net revenue$639.4 916.1 
Net loss$275.2 452.7 
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Pro-forma Financial Information

The following table summarizes the pro-forma consolidated results of operations (unaudited) for the three and six months ended September 30, 2022 and 2021, as though the acquisition had occurred on April 1, 2021, the beginning of fiscal year 2022, and Zynga had been included in our consolidated results for the entire periods subsequent to that date.

Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Pro-forma Net revenue$1,393.5 $1,552.3 $2,874.1 $3,090.6 
Pro-forma Net loss$151.6 $317.8 $176.5 $544.9 

The unaudited pro-forma consolidated results above are based on the historical financial statements of Take-Two and Zynga and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of fiscal year 2022 and are not indicative of the future operating results of the combined company. The unaudited pro-forma information for all periods presented includes the following adjustments, where applicable, for business combination accounting effects resulting from the acquisition: (i) alignment of revenue accounting policy regarding the timing of recognition of consumable and durable virtual items, (ii) additional interest expense related to financing for the acquisition, (iii) additional incremental stock-based compensation expense for the replacement of Zynga’s outstanding equity awards with Take-Two replacement equity awards, (iv) alignment of Zynga's accounting policy with Take-Two’s policy to expense certain royalty prepayments until technological feasibility is established, (v) additional lease expense resulting from the fair value adjustments to the operating lease liabilities and operating lease assets, (vi) additional amortization expense related to finite-lived intangible assets acquired, and (vii) the related tax effects assuming that the business combination occurred on April 1, 2021.

The significant nonrecurring adjustments reflected in the unaudited pro-forma consolidated information above include the reclassification of the transaction costs and the related tax effects incurred after the acquisition to the earliest period presented.

15. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
    The change in our goodwill balance is as follows:
Total
Balance at March 31, 2022$674.6
Acquisition of Zynga (see Note 14)
6,206.0 
Additions from immaterial acquisitions27.2 
Currency translation adjustment(36.3)
Balance at September 30, 2022$6,871.5
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Intangibles
    The following table sets forth the intangible assets that are subject to amortization:
 September 30, 2022
Gross
Carrying
Amount		Accumulated
Amortization		Net Book
Value		Weighted average useful life
Developed Game Technology$4,777.7 $(377.1)$4,400.6 7 years
Branding and Trade Names$394.6 $(16.2)$378.4 12 years
User Base$325.4 $(122.6)$202.8 1 year
Game Engine Technology$291.8 $(35.6)$256.2 4 years
Developer Relationships$57.0 $(5.1)$51.9 4 years
Advertising Technology$43.0 $(5.1)$37.9 3 years
Customer relationships$31.0 $(2.2)$28.8 5 years
Analytics Technology$26.8 $(26.7)$0.1 0 years
Intellectual Property$22.3 $(16.9)$5.4 6 years
In Place Lease$1.5 $(0.7)$0.8 4 years
Total intangible assets$5,971.1 $(608.2)$5,362.9 
    Amortization of intangible assets is included in our Condensed Consolidated Statements of Operations as follows:
 Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Cost of revenue$201.6 $14.4 $298.9 $25.7 
Selling and marketing$101.0 $1.8 $116.0 $3.7 
Research and development$9.2 $1.6 $10.3 $3.4 
Depreciation and amortization$8.9 $0.6 $13.0 $0.9 
Total amortization of intangible assets$320.7 $18.4 $438.2 $33.7 
    Estimated future amortization of intangible assets that will be recorded in Cost of revenue and operating expenses are as follows:
Fiscal Year Ended March 31,Amortization
2023 (remaining)$590.6 
2024$909.1 
2025$858.7 
2026$837.7 
2027$778.0 

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
The statements contained herein, which are not historical facts including statements relating to our acquisition of Zynga Inc. (the "Zynga Acquisition"), 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""should," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company'sour 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

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results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including those contained herein,the uncertainty of the impact of the COVID-19 pandemic and measures taken in response thereto; the Company'seffect that measures taken to mitigate the COVID-19 pandemic have on our operations, including our ability to timely deliver our titles and other products, and on the operations of our counterparties, including retailers, including digital storefronts and platform partners, and distributors; the effects of the COVID-19 pandemic on consumer demand and the discretionary spending patterns of our customers as the situation with the pandemic continues to evolve; the impact of changes in interest rates by the Federal Reserve and other central banks, including on our short-term investment portfolio; the impact of inflation; volatility in foreign currency exchange rates; risks that the Zynga Acquisition disrupts our plans and operations; the ability company to retain key personnel subsequent to the Zynga Acquisition; the ability to realize the benefits of the Zynga Acquisition, including Net Bookings opportunities and cost synergies; the ability to successfully integrate Zynga’s business with Take-Two’s business or to integrate the businesses within the anticipated timeframe; the outcome of any legal proceedings that may be instituted against Take-Two, Zynga or others related to the acquisition; the amount of the costs, fees, expenses and charges related to the acquisition; other risks included herein; as well as, but not limited to, the risks and uncertainties discussed under the heading "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, in the section entitled "Risk Factors,"2022; and the Company'sour 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 undertakesWe undertake 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, 2017.2022. All figures are in millions, except per share amounts or as otherwise noted.
Overview
Zynga Acquisition and Related Debt Transactions
We acquired Zynga on May 23, 2022, for consideration having an acquisition date fair value of $9,513.7, consisting of $3,992.4 in cash, the issuance of 46.3 shares of our common stock, and $143.6 of replacement equity awards attributable to the pre-acquisition service period. Refer to Note 14 - Acquisitions of our Condensed Consolidated Financial Statements. Zynga is a leading developer of mobile games with a mission to connect the world through games.
Also, in connection with the Zynga Acquisition, we entered into several debt transactions (refer to Note 9 - Debt).
On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Senior Notes”).The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee (the “Trustee”).
The 2024 Notes mature on March 28, 2024, and bear interest at an annual rate of 3.300%. The 2025 Notes mature on April 14, 2025, and bear interest at an annual rate of 3.550%. The 2027 Notes mature on April 14, 2027, and bear interest at an annual rate of 3.700%. The 2032 Notes mature on April 14, 2032, and bear interest at an annual rate of 4.000%. We will pay interest on the 2024 Notes semiannually on March 28 and September 28 of each year, commencing September 28, 2022. During the three months ended September 30, 2022, we made interest payments of $15.0. We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022. The proceeds were used to finance our acquisition of Zynga.
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On May 23, 2022, we entered into a new unsecured Credit Agreement (the "2022 Credit Agreement"), which replaced in its entirety the Company's prior Credit Agreement and provides for an unsecured five-year revolving credit facility with commitments of $500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $100.0 and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros, and Canadian Dollars in an aggregate principal amount of up to $100.0. In addition, the 2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).
Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (6.25% at September 30, 2022) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 3.04% at September 30, 2022, which rates are determined by the Company's credit rating. On June 22, 2022, we drew down approximately $200.0 at 3.28% from our facility under the 2022 Credit Agreement.
On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which margins are determined by reference to our credit rating. We fully drew down on the Term Loan on June 22, 2022 at 3.6%.
The proceeds from our draw-downs of the 2022 Credit Agreement and Term Loan were used to finance a portion of the settlement of the Convertible Notes acquired from Zynga. In total, we paid $321.6 for the tendered or converted 2024 Convertible Notes, including interest, and $845.1 for the tendered 2026 Convertible Notes in cash, and we issued 3.7 shares of our common stock upon the conversion of the 2024 Convertible Notes. After settlement of all Convertible Notes tendered or surrendered for conversion, $21.4 aggregate principal amount of the 2024 Convertible Notes remained outstanding and $29.4 aggregate principal amount of the 2026 Convertible Notes remained outstanding at September 30, 2022.
Cybersecurity Incident
In September 2022, we experienced a network intrusion in which an unauthorized third party illegally accessed and downloaded confidential information from our systems, including early development footage for the next Grand Theft Auto. We immediately took steps to isolate and contain the incident. Rockstar Games did not experience and does not anticipate any disruption to its current services nor any long-term effect on its development timelines as a result of this incident. Subsequently, also in September 2022, we became aware that an unauthorized third party illegally accessed credentials for a vendor platform that 2K Games uses to provide help desk support to its customers. The unauthorized party sent a communication to certain players containing a malicious link. 2K Games immediately notified all affected users and took steps to restrict further unauthorized activity until service was restored. In connection with this activity (the “Cybersecurity Incident”), we have incurred certain immaterial incremental one-time costs related to consultants, experts and data recovery efforts and expect to incur additional costs related to cybersecurity protections in the future. We are in the process of implementing a variety of measures to further enhance our cybersecurity protections.
Our Business
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, and 2K, as well as our new Private Division, label and Social Point, a leading developer of mobile games.Zynga. Our products are currently designed for console gaming systems, such as Sony's PlayStation®4 ("PS4")PC, and PlayStation®3 ("PS3"), Microsoft's Xbox One® ("Xbox One") and Xbox 360® ("Xbox 360"), Nintendo's Switch, and personal computers ("PC"),Mobile 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-qualitycreating the highest-quality, most engaging interactive entertainment experiencesfranchises in the business and delivering them across a rangean array of genres.platforms to captivate our global audience. 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, microtransactionsin-game purchases, and online play.in-game advertising. 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.
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Our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third parties. Operating margins are dependent in part upon our ability to release new, commercially successful software products and to manage effectively their development and marketing costs. We have internal development studios located in Australia, Canada, China, Czech Republic, Finland, Germany, Hungary, India, Serbia, South Korea, Spain, Turkey, the United Kingdom (U.K.), and the United States.States (U.S.).
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.entertainment. 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 275385 million units. The latestOur most recent installment, Grand Theft Auto V, which was released on Sony's PS3in 2013, has sold-in more than 170 million units worldwide and Microsoft's Xbox 360 in September 2013, on Sony's PS4 and Microsoft's Xbox One in November 2014, and on PC in April 2015. Grand Theft Auto V includes access to Grand Theft Auto Online, . Red Dead Redemption 2, which initially launched in October 2013.has been a critical and commercial success that set numerous entertainment industry records, has sold-in more than 45 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 releasingadditional content. Rockstar Game's titles for smartphones and tablets.are published across all key platforms, including mobile. In February 2022, Rockstar Games announced that active development of the next entry in the Grand Theft Auto series is well underway.
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 successful externally developed brands, such as Battleborn, Borderlandsand EvolveTiny Tina's Wonderlands. 2K's realistic sports simulation titles include our flagship NBA 2K series, which continues to be the top-ranked NBA basketball video game, and the WWE 2K professional wrestling series.series, and PGA TOUR 2K. In March 2020, 2K announced a multi-year partnership with the National Football League encompassing multiple future video games that will be non-simulation football game experiences. 2K also publishes mobile titles, such as WWE SuperCard.

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On December 14, 2017, we announced the formation ofOur Private Division our new label that is dedicated to bringing titles from top independent developersthe industry's leading creative talent to market.market and is the publisher and owner of Kerbal Space Program and OlliOlli World. Kerbal Space Program 2 is planned for early access release in fiscal year 2023. Private Division will publish several upcoming titles based on new IP from renowned industry creative talent, including thealso previously announced released The Outer Worlds and Ancestors: The Humankind Odysseyfrom Panache Digital Game, a studio led by the creator of the Assassin's Creed franchise Patrice Désilets; an unannounced role-playing game ("RPG") currently codenamed Project Wight from The Outsiders, a studio formed by ex-DICE developers David Goldfarb.
Our Zynga label, which includes our former T2 Mobile Games label (which included Socialpoint, Playdots, and Ben Cousins; an unannounced RPG from Obsidian Entertainment led by Tim Cain and Leonard Boyarsky, co-creators of Fallout; and an unannounced sci-fi first-person shooter from V1 Interactive, a studio founded by Halo co-creator Marcus Lehto. Additionally, Private Division is the publisher of Kerbal Space Program, which we acquired in May 2017.
On January 31, 2017, we acquired privately-held Social Point S.L. ("Social Point") for $175 million in cash and the issuance of 1,480,168 shares of our common stock, plus potential earn-out consideration of up to an aggregate of $25.9 million in cash and shares of our common stock. Founded in 2008 and headquartered in Barcelona, Spain, Social Point is a developer ofNordeus), publishes popular free-to-play mobile games that focusesdeliver high quality, deeply engaging entertainment experiences and generates revenue from in-game sales and in-game advertising. Zynga's diverse portfolio of popular game franchises has been downloaded more than 6 billion times on delivering high-quality, deeply-engaging entertainment experiences. Social Point currently has multiple profitablemobile, including CSR Racing, Dragon City, Empires & Puzzles, FarmVille, Golf Rival, Harry Potter: Puzzles & Spells, Merge Dragons, Merge Magic, Monster Legends, Toon Blast, Top Eleven, Toy Blast, Two Dots, Words With Friends, Zynga Poker, and a high volume of hyper-casual titles, inincluding Hair Challenge and High Heels, published by Rollic. Zynga is also an industry-leading next-generation platform with the market, includingability to acquire new users, cross-promote games, apply live services content updates, and optimize programmatic advertising and yields at scale through Chartboost, its two most successful games, Dragon Cityleading mobile advertising and Monster Legends. In addition, Social Point has a robust development pipeline with a number of exciting games planned for launch over the next two years.monetization platform.
We are continuing to execute on our growth initiativesstrategy 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 developoffer an online version of the NBA simulation game in China, Taiwan, South Korea, and Southeast Asia. In October 2012, NBA 2K Online, our free-to-play NBA simulation game that is based on the console edition of NBA 2K, which was co-developed by 2K and Tencent, launched commercially onis the Tencent Games portaltop online PC sports game in China.China with more than 55 million registered users. We have released two iterations of NBA 2K Online and continue to enhance the title with new features. Additionally, we see a long-term opportunity to expand our mobile efforts across various emerging markets, particularly throughout Asia.
We have expanded our relationship with the NBA through the NBA 2K League. This groundbreaking competitive gaming league is jointly owned by us and the NBA and consists of teams operated by actual NBA franchises and several international partners. The NBA 2K League follows a professional sports league format: head-to-head competition throughout a regular season, followed by a bracketed playoff system and a finals match-up. The NBA 2K League is currently gearing up for its sixth season.
Trends and Factors Affecting our Business
Product Release Schedule.    Our financial results are affected by the timing of our product releases and the commercial success of those titles. Our Grand Theft Auto products in particular have historically accounted for a significant portion of our revenue. Sales of Grand Theft Auto products generated 38.1%15.8% of our net revenue for the ninesix months ended December 31, 2017.
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September 30, 2022. The timing of our Grand Theft Auto product releases may affect our financial performance on a quarterly and annual basis.
Economic Environment and Retailer Performance.    We continue to monitor economic conditions, including the impact of various macroeconomic and geopolitical factors, including inflation and the COVID-19 pandemic, that may unfavorably affect our businesses,business, by affecting areas such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates. OurThe COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, customers, partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time. During fiscal year 2021, as in the final quarter of fiscal year 2020, we noted a positive impact to our results that we believe was partly due to increased consumer engagement with our products because of the COVID-19 related business closures and movement restrictions, such as "shelter in place" and "lockdown" orders, implemented around the world, as well as the online accessibility and social nature of our products. As expected, during fiscal year 2022 and the first two quarters of fiscal year 2023, we experienced a moderation in engagement from the all-time highs experienced in fiscal year 2021, but overall engagement continued to be notably higher than it was pre-pandemic.
Based on our concern for the health and safety of our teams, we transitioned the vast majority of our teams to working from home throughout fiscal years 2021 and 2022; however, the majority of our offices either have reopened or are scheduled to reopen in the coming months. Given the evolving dynamics of the COVID-19 pandemic, we continue to adhere to safety standards in the planning and implementation of our return to office. To date, our plans have resulted in minimal disruption. However, despite largely positive outcomes to date, these efforts may ultimately not be effective, and a protracted economic downturn may limit the effectiveness of our mitigation efforts. Any of these considerations described above could cause or contribute to the risks described under the heading "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and could materially adversely affect our business, financial condition, results of operations, or stock price. Therefore, the effects of the COVID-19 pandemic will not be fully reflected in our financial results until future periods, and, at this time, we are not able to predict its ultimate impact on our business.
Additionally, 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 67.1%79.9% and 65.8%79.8% of net revenue during the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021, respectively. As of December 31, 2017September 30, 2022, and March 31, 2017, our2022, five largest customers comprised 67.2%68.9% and 69.9%72.8% of our gross accounts receivable, respectively, with our significant customers (those that individually comprised more than 10% of our gross accounts receivable balance) accounting for 55.8%51.0% and 57.6%63.8% of such balance at December 31, 2017September 30, 2022, and March 31, 2017,2022, respectively. We had threetwo customers who accounted for 29.7%, 14.2%,32.4% and 11.9%18.6% of our gross accounts receivable as of December 31, 2017September 30, 2022, and two customers who accounted for 40.2%43.5% and 17.4%20.3% of our gross accounts receivable as of March 31, 2017.2022. We did not have any additional customers that exceeded 10% of our gross accounts receivable as of September 30, 2022, and March 31, 2022. The economic environment has affected our customers in the past, and may do so in the future.future, including as a result of the COVID-19 pandemic. 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. CertainThere has been increased consolidation in our industry, as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of our large customers sell used copies of our games, which may negatively affect oureconomic downturn and sustain their business by reducing demand for new copies of our games. While the downloadable content that we now offer for certain of our titles may serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.through financial volatility.
Hardware Platforms.    We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, such as Sony's PS4 and PS3 and Microsoft's Xbox One and Xbox 360, which comprised 81.9%46.4% of our net revenue by product platform for the ninesix months ended December 31, 2017.September 30, 2022. The success of our business is dependent upon the consumer acceptance of these consolesplatforms and the continued growth in the installed base of these platforms. When new hardware platforms are introduced, such as those released in November 2020 by Sony and Microsoft, demand for softwareinteractive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. We continually monitor console hardware sales.The new Sony and Microsoft consoles provide "backwards compatibility" (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products. Further, events beyond our control may impact the availability of these new consoles, which may also affect demand. We manage our product delivery on each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development. Accordingly, our strategy for these platforms 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.titles.
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. MostVirtually all of our titles that are available through retailers as packaged goods products are also available through direct digital download (from websitesdigital storefronts we own and others owned by third parties). as well as a large selection of our catalog titles. In addition, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through virtual currency, add-on content, in-game purchases, and microtransactions. We also publishin-game advertising. As disclosed in our "Results of

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an expanding variety of titles for tablets and smartphones, which are delivered to consumers through digital download via the Internet. Our "Results of Operations" discloses thatOperations," below, net revenue from digital online channels comprised 61.8%94.4% of our net revenue by distribution channel for the ninesix months ended December 31, 2017.September 30, 2022. We expect online delivery of games and game offerings to continue to grow andcontinue to become an increasingbe the primary part of our business over the long-term.long term.
Product ReleasesWe also publish an expanding variety of titles for Mobile, which are delivered to consumers through digital download, and are primarily distributed, marketed, and promoted through third parties, primarily Apple’s App Store and the Google Play Store. Virtual items for our Mobile games are purchased through the payment processing systems of these platform providers. We generate a significant portion of our net revenue through the Apple and Google platforms and expect to continue to do so for the foreseeable future as we launch more games for Mobile. Apple and Google generally have the discretion to set the amounts of their platform fees and change their platforms’ terms of service and other policies with respect to us or other developers at their sole discretion, and those changes may be unfavorable to us. These platform fees are recorded as cost of revenue as incurred. Further, as a result of the platform fees associated with online game sales, our Mobile Net revenue generally generates lower gross margin percentage than our Console or PC revenue. Accordingly, the overall product mix between Mobile and other game sales may impact our gross margins.
WePlayer acquisition costs.    Principally for our Mobile titles, we use advertising and other forms of player acquisition and retention to grow and retain our player audience. These expenditures, which are recorded within Sales and marketing in our Consolidated Statements of Operations, generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation. Over time, these acquisition and retention-related programs may become either less effective or costlier, negatively impacting our operating results.
Content Release Highlights
During fiscal year 2023, Private Division released Rollerdrome, and 2K released The Quarry, NBA 2K23, PGA TOUR 2K23, and New Tales from the following key titlesBorderlands.
To date we have announced that, during the nine months ended December 31, 2017:
remainder of fiscal year 2023, 2K will release Marvel's Midnight Suns and WWE 2K23, and Private Division will release Kerbal Space Program 2 early access on PC.
TitlePublishing
Label		Internal or External
Development		Platform(s)Date Released
NBA 2K182KInternalXbox 360, Xbox One, PS3, PS4, PC, Switch (digital)September 19, 2017
WWE 2K182KInternal/ExternalPS4, Xbox OneOctober 13, 2017
NBA 2K182KInternalSwitch (physical)October 17, 2017
WWE 2K182KInternal/ExternalPCOctober 17, 2017
L.A. NoireRockstar GamesInternalPS4, Xbox One, SwitchNovember 14, 2017
WWE 2K182KInternal/ExternalSwitchDecember 6, 2017
L.A. Noire: The VR Case FilesRockstar GamesInternalHTC ViveDecember 15, 2017
Product Pipeline
In addition, throughout the year, we expect to continue to deliver new content for our franchises. We will also continue to invest in opportunities that we believe will enhance and scale our business and have announced the following future key titlespotential to date (this list does not represent all titles currently in development):
TitlePublishing
Label		Internal or External
Development		Platform(s)Expected Release Date
Kerbal Space Program: Enhanced EditionPrivate DivisionExternalPS4, Xbox OneJanuary 16, 2018 (released)
Red Dead Redemption 2Rockstar GamesInternalPS4, Xbox OneOctober 26, 2018

drive growth over the long-term.
Critical Accounting Policies and Estimates
Our most critical accounting policies, which are those that require significant judgment, include:include revenue recognition; price protection and allowances for returns; capitalization and recognition of software development costs and licenses; fair value estimates including inventory obsolescence, and valuation of goodwill, intangible assets, and long-lived assets; valuation and recognition of stock-based compensation; and income taxes. We are reiterating our significant accounting policy on revenue recognition, which is included in Note 1 - Basis of Presentation, including certain revenue policies applied upon close of the Zynga Acquisition. In-depth descriptions of theseour other critical accounting policies and estimates can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2022.
Revenue RecognitionRecently Adopted and Recently Issued Accounting Pronouncements
As part of our on-going assessment of estimated service periods, during the three months ended June 30, 2017, we extended Grand Theft Auto V's estimated service period from 41 to 50 months, or through December 2018. We expect this change in estimated service period to have a material impact on our Consolidated Financial Statements for fiscal 2018. The impact of this change in estimate is further discussed in See Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 1 - Basis of Presentation and Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements 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 September 30,Six Months Ended September 30,
20222021Increase/
(decrease)		% Increase/
(decrease)		20222021Increase/
(decrease)		% Increase/
(decrease)
Net Bookings$1,504.8 $984.9 $519.9 52.8 %$2,507.3 $1,696.3 $811.0 47.8 %


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For the three months ended September 30, 2022, Net Bookings increased by $519.9 as compared to the prior year period. The increase was primarily due to Net Bookings from Zynga, which we acquired in May 2022 (refer to Note 14 - Acquisitions), including top contributors Rollic's hyper-casual portfolio, Empires & Puzzles, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in Net Bookings from Tiny Tina’s Wonderlands, which released in March 2022. These increases were partially offset by a decrease in Net Bookings from our Grand Theft Auto, Borderlands, and Red Dead Redemption franchises.
For the six months ended September 30, 2022, Net Bookings increased by $811.0 as compared to the prior year period. The increase was primarily due to Net Bookings from Zynga, which we acquired in May 2022 (refer to Note 14 - Acquisitions), including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in Net Bookings from (i) Tiny Tina’s Wonderlands; (ii) The Quarry, which released in June 2022; (iii) our WWE 2K franchise, including our March 2022 release of WWE 2K22; and (iv) Top Eleven, which was part of our June 2021 Nordeus acquisition. These increases were partially offset by a decrease in Net Bookings from our Grand Theft Auto, Borderlands,and Red Dead Redemption franchises.
Results of Operations
The following table setstables set forth, for the periods indicated, our Condensed Consolidated Statements of Operations, net revenue by geographic region, net revenue by product platform, net revenue by distribution channel, and net revenue by distribution channel:content type:
 Three Months Ended September 30,Six Months Ended September 30,
(millions of dollars)2022202120222021
Net revenue$1,393.5 100.0 %$858.2 100.0 %$2,495.9 100.0 %$1,671.5 100.0 %
Cost of revenue713.9 51.2 %456.7 53.2 %1,149.7 46.1 %786.4 47.0 %
Gross profit679.6 48.8 %401.5 46.8 %1,346.2 53.9 %885.1 53.0 %
Selling and marketing444.4 31.9 %136.0 15.8 %716.4 28.7 %239.9 14.4 %
General and administrative214.6 15.4 %127.8 14.9 %451.7 18.1 %232.2 13.9 %
Research and development243.2 17.5 %101.5 11.8 %417.0 16.7 %193.8 11.6 %
Depreciation and amortization29.9 2.1 %16.1 1.9 %51.0 2.0 %28.6 1.7 %
Total operating expenses932.1 66.9 %381.4 44.4 %1,636.1 65.6 %694.5 41.5 %
(Loss) income from operations(252.5)(18.1)%20.1 2.3 %(289.9)(11.6)%190.6 11.4 %
Interest and other, net(50.5)(3.6)%(0.6)(0.1)%(79.8)(3.2)%(1.6)(0.1)%
Gain (loss) on fair value adjustments, net1.9 0.1 %0.4 — %(37.7)(1.5)%2.4 0.1 %
(Loss) income before income taxes(301.1)(21.6)%19.9 2.3 %(407.4)(16.3)%191.4 11.5 %
(Benefit from) provision for income taxes(44.1)(3.2)%9.7 1.1 %(46.4)(1.9)%28.9 1.7 %
Net (loss) income$(257.0)(18.4)%$10.2 1.2 %$(361.0)(14.5)%$162.5 9.7 %
Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net revenue by geographic region:
United States$842.9 60.5 %$514.9 60.0 %$1,525.8 61.1 %$1,008.1 60.3 %
International550.6 39.5 %343.3 40.0 %970.1 38.9 %663.4 39.7 %
Net revenue by platform:
Console$551.9 39.6 %$596.1 69.5 %$1,159.1 46.4 %$1,198.5 71.7 %
Mobile730.1 52.4 %115.1 13.4 %1,099.7 44.1 %197.4 11.8 %
PC and other111.5 8.0 %147.0 17.1 %237.1 9.5 %275.6 16.5 %
Net revenue by distribution channel:
Digital online$1,319.2 94.7 %$779.1 90.8 %$2,357.0 94.4 %$1,519.9 90.9 %
Physical retail and other74.3 5.3 %79.1 9.2 %138.9 5.6 %151.6 9.1 %
Net revenue by content:
Recurrent consumer spending$1,101.8 79.1 %$563.6 65.7 %$1,927.4 77.2 %$1,135.9 68.0 %
Full game and other291.7 20.9 %294.6 34.3 %568.5 22.8 %535.6 32.0 %
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 Three Months Ended December 31, Nine Months Ended December 31,
(thousands of dollars)2017 2016 2017 2016
Net revenue$480,840
 100.0 % $476,473
 100.0 % $1,342,618
 100.0 % $1,208,192
 100.0 %
Cost of goods sold267,983
 55.7 % 311,074
 65.3 % 709,100
 52.8 % 708,059
 58.6 %
Gross profit212,857
 44.3 % 165,399
 34.7 % 633,518
 47.2 % 500,133
 41.4 %
Selling and marketing79,513
 16.5 % 95,820
 20.1 % 208,641
 15.5 % 247,141
 20.5 %
General and administrative65,951
 13.7 % 52,939
 11.1 % 187,378
 14.0 % 149,367
 12.4 %
Research and development49,977
 10.4 % 37,589
 7.9 % 142,245
 10.6 % 101,494
 8.4 %
Depreciation and amortization7,864
 1.6 % 7,460
 1.6 % 34,490
 2.6 % 22,329
 1.8 %
Business reorganization700
 0.1 % —
 — % 13,012
 1.0 % —
 — %
Total operating expenses204,005
 42.4 % 193,808
 40.7 % 585,766
 43.6 % 520,331
 43.1 %
Income (loss) from operations8,852
 1.8 % (28,409) (6.0)% 47,752
 3.6 % (20,198) (1.7)%
Interest and other, net3,374
 0.7 % (3,715) (0.8)% (2,403) (0.2)% (15,298) (1.3)%
Gain on long-term investments, net—
 —
 —
 — % —
 — % 1,350
 0.1 %
Income (loss) before income taxes12,226
 2.5 % (32,124) (6.7)% 45,349
 3.4 % (34,146) (2.8)%
Benefit from income taxes(12,914) (2.7)% (2,282) (0.5)% (37,331) (2.8)% (2,169) (0.2)%
Net income (loss)$25,140
 5.2 % $(29,842) (6.3)% $82,680
 6.2 % $(31,977) (2.6)%
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Net revenue by geographic region: 
  
  
  
  
  
  
  
United States$262,338
 54.6% $257,504
 54.0% $796,603
 59.3% $703,088
 58.2%
International218,502
 45.4% 218,969
 46.0% 546,015
 40.7% 505,104
 41.8%
Net revenue by product platform: 
  
  
  
  
  
  
  
Console$394,461
 82.0% $354,220
 74.3% $1,099,843
 81.9% $961,285
 79.6%
PC and other86,379
 18.0% 122,253
 25.7% 242,775
 18.1% 246,907
 20.4%
Net revenue by distribution channel: 
  
  
  
  
  
  
  
Digital online$258,442
 53.7% $240,213
 50.4% $829,564
 61.8% $643,051
 53.2%
Physical retail and other222,398
 46.3% 236,260
 49.6% 513,054
 38.2% 565,141
 46.8%
Three Months Ended December 31, 2017September 30, 2022 Compared to December 31, 2016
September 30, 2021
(millions of dollars)2022%2021%Increase/
(decrease)		% Increase/
(decrease)
Total net revenue$1,393.5 100.0 %$858.2 100.0 %$535.3 62.4 %
Software development costs and royalties (1)289.9 20.8 %144.9 16.9 %145.0 100.1 %
Product costs204.5 14.7 %66.1 7.7 %138.4 209.4 %
Internal royalties124.3 8.9 %159.6 18.6 %(35.3)(22.1)%
Licenses95.2 6.8 %86.1 10.0 %9.1 10.6 %
Cost of revenue713.9 51.2 %456.7 53.2 %257.2 56.3 %
Gross profit$679.6 48.8 %$401.5 46.8 %$278.1 69.3 %
(thousands of dollars)2017 % 2016 % Increase/
(decrease)		 % Increase/
(decrease)
Net revenue$480,840
 100.0% $476,473
 100.0% $4,367
 0.9 %
Internal royalties112,996
 23.5% 103,613
 21.7% 9,383
 9.1 %
Product costs69,492
 14.5% 70,089
 14.7% (597) (0.9)%
Software development costs and royalties(1)54,008
 11.2% 109,900
 23.1% (55,892) (50.9)%
Licenses31,487
 6.5% 27,472
 5.8% 4,015
 14.6 %
Cost of goods sold267,983
 55.7% 311,074
 65.3% (43,091) (13.9)%
Gross profit$212,857
 44.3% $165,399
 34.7% $47,458
 28.7 %
(1) Includes $8.0 and $10.3 of stock-based compensation expense in 2022 and 2021, respectively, in software development costs and royalties.


(1)Includes $(8,262) and $6,022 of stock-based compensation expense in 2017 and 2016, respectively, in software development costs and royalties.
For the three months ended December 31, 2017,September 30, 2022, net revenue increased by $4.4 million$535.3 as compared to the prior year period. ThisThe increase was primarily due primarily to (i) an aggregate increasenet revenue of $25.9 million$639.3 from our NBA 2K franchise, (ii)Zynga, which we acquired in May 2022 (refer to Note 14- Acquisitions), including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in net revenue of $21.9 million$20.0 from L.A. Noire due to releasesTiny Tina's Wonderlands, which released in the current quarter on PS4, Xbox One, Switch, and HTC Vive, (iii) $10.6 million from Social Point titles with no comparable revenues in prior year period, as it was acquired in January 2017, and (iv) a net increase of

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$6.4 million from our Grand Theft Auto franchise. March 2022. These increases were partially offset by a decrease in net revenue of $52.4 million(i) $54.5 from our Civilization Grand Theft Autofranchise due to Civilization VI, which released in October 2016, and a decrease of $7.5 million(ii) $42.0 from Battleborn, which released in May 2016.our Borderlands franchise.
Net revenue from console games increaseddecreased by $40.2 million$44.2 and accounted for 82.0%39.6% of our total net revenue for the three months ended December 31, 2017,September 30, 2022, as compared to 74.3% for the prior year period. The increase in net revenue from console games was due primarily to higher net revenues from our NBA 2K franchise, L.A. Noire due to releases in the current quarter on PS4, Xbox One, and Switch, and Grand Theft Auto Online. These increases were offset by lower net revenues from Grand Theft Auto V, our WWE2K franchise, and Battleborn, which released in May 2016. Net revenue from PC and other decreased by $35.9 million and accounted for 18.0% of our total net revenue for the three months ended December 31, 2017, as compared to 25.7%69.5% for the prior year period. The decrease in net revenue from console games was due to a decrease in net revenue from our Grand Theft Auto, Red Dead Redemption, and Borderlands franchises and Hades, which released in August 2021. These decreases in net revenue from console games were partially offset by an increase in net revenue from our WWE 2K franchise, Tiny Tina's Wonderlands, and The Quarry. Net revenue from PC and other was due primarily to lower net revenues from Civilization VI, whichreleased in October 2016. The decrease was partially offsetdecreased by increases in net revenues from Social Point titles with no comparable revenues in the prior year period, as it was acquired in January 2017, and WWE SuperCard.
Net revenue from digital online channels increased by $18.2 million$35.5 and accounted for 53.7%8.0% of our total net revenue for the three months ended December 31, 2017,September 30, 2022, as compared to 50.4%17.1% for the prior year period. The decrease was primarily due to a decrease in net revenue from Tiny Tina's Wonderlands. Net revenue from mobile increased by $615.0 and accounted for 52.4% of our total net revenue for three months ended September 30, 2022, as compared to 13.4% for the prior year period. The increase was primarily due to net revenue of $630.3 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends,and Merge Dragons!, as well as an increase in net revenue from Top Eleven.
Net revenue from digital online channels increased by $540.1 and accounted for 94.7% of our total net revenue for the three months ended September 30, 2022, as compared to 90.8% for the prior year period. The increase was primarily due to highernet revenue of $638.8 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!. This increase was partially offset by a decrease in net revenue from our Grand Theft Auto Online, our NBA 2K franchise, our WWE 2K franchise, and net revenue from Social Point titles with no comparable revenues in prior year period, as it was acquired in January 2017. These increases were partially offset by lower net revenues from Civilization VI, whichreleased in October 2016, and Grand Theft Auto VBorderlands franchises. Net revenue from physical retail and other channels decreased by $13.9 million$4.8 and accounted for 46.3%5.3% of our total net revenuesrevenue for the three months ended December 31, 2017,September 30, 2022, as compared to 49.6%9.2% for the same period in the prior year period. The decrease in net revenue from physical retail and other channels was due primarily to lower net revenues from Grand Theft Auto V, Civilization VI, whichreleaseda decrease in October 2016, and our WWE 2K franchise. These decreases were partially offset by higher net revenue from L.A. Noire, whichreleased on PS4, Xbox One, SwitchHades.
Recurrent consumer spending is generated from ongoing consumer engagement and HTC Vive,includes revenue from virtual currency, add-on content, in-game purchases, and our NBA 2K franchise.
Revenuesin-game advertising. Net revenue from recurrent consumer spending on our titles through virtual currency, add-on content, and microtransactions increased by $60.4 million$538.2 and accounted for 32.0%79.1% of net revenue for the three months ended December 31, 2017,September 30, 2022, as compared to 19.6%65.7% of net revenue for the prior year period. The increase in revenuesnet revenue from recurrent consumer spending was primarily due to higher net revenuesrevenue of $628.9 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!. These increases were partially offset by a decrease in net revenue from our Grand Theft Auto Online, our NBA 2K franchise Social Point titles with no comparable revenues in. Net revenue from full game and other decreased by $2.9 and accounted for 20.9% of net revenue for the three months ended September 30, 2022 as compared to 34.3% of net revenue for the prior year period, as itperiod. The decrease in net revenue from full game and other was acquireddue primarily to a decrease in January 2017, net revenue from our Borderlands franchise. This decrease was partially offset by an increase in net revenue from Tiny Tina's Wonderlands, our NBA 2K franchiseand WWE SuperCard. The Quarry.
Gross profit as a percentage of net revenue for the three months ended December 31, 2017September 30, 2022 was 44.3%48.8% as compared to 34.7%46.8% for the prior year period. The increase in gross profit as a percentage of net revenue was due primarily to lower software development costs due to (i) lower stock-based compensation expense as a resultinternal royalties due to the timing of forfeited share-based awardswhen royalties are earned and (ii) Mafia III and Civilization VI releasinglower capitalized software amortization due to impairments recognized in the prior year period, partially offset by (i) higher internal royaltiesamortization related to intangible assets related to our Zynga acquisition and (ii) higher product costs for fees paid to platform partners due to an increase in Mobile revenues as a percentageresult of net revenue due to the timingZynga acquisition.
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Table of when royalties are earned.Contents
Net revenue earned outside of the United States was relatively flat compared to the prior year periodincreased by $207.3 and decreased by $0.5 million, accountingaccounted for 45.4%39.5% of our total net revenue for the three months ended December 31, 2017,September 30, 2022, as compared to 46.0%40.0% in the prior year period. The increase in net revenue outside of the United States was primarily due to net revenue of $255.5 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Zynga Poker, and Merge Dragons!. Thin increase was partially offset by a decrease in net revenue from our Grand Theft Auto and Borderlands franchises. Changes in foreign currency exchange rates increaseddecreased net revenue by $5.3 million$8.3 and increaseddecreased gross profit by $2.8 million$4.4 for the three months ended December 31, 2017September 30, 2022 as compared to the prior year period.
Operating Expenses
(millions of dollars)2022% of net revenue2021% of net revenueIncrease/
(decrease)		% Increase/
(decrease)
Selling and marketing$444.4 31.9 %$136.0 15.8 %$308.4 226.8 %
General and administrative214.6 15.4 %127.8 14.9 %86.8 67.9 %
Research and development243.2 17.5 %101.5 11.8 %141.7 139.6 %
Depreciation and amortization29.9 2.1 %16.1 1.9 %13.8 85.7 %
Total operating expenses(1)
$932.1 66.9 %$381.4 44.4 %$550.7 144.4 %
(thousands of dollars)2017 % of net
revenue		 2016 % of net
revenue		 Increase/
(decrease)		 % Increase/
(decrease)
Selling and marketing$79,513
 16.5% $95,820
 20.1% $(16,307) (17.0)%
General and administrative65,951
 13.7% 52,939
 11.1% 13,012
 24.6 %
Research and development49,977
 10.4% 37,589
 7.9% 12,388
 33.0 %
Depreciation and amortization7,864
 1.6% 7,460
 1.6% 404
 5.4 %
Business reorganization700
 0.1% —
 —% 700
 100.0 %
Total operating expenses(1)$204,005
 42.4% $193,808
 40.7% $10,197
 5.3 %


(1)Includes stock-based compensation expense, which was allocated as follows (in thousands):
 2017 2016
Selling and marketing$3,015
 $2,441
General and administrative$16,051
 $10,382
Research and development$2,224
 $3,243

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(1) Includes stock-based compensation expense, which was allocated as follows:
20222021
Selling and marketing$17.5 $7.1 
General and administrative44.2 16.7 
Research and development38.2 13.0 
Changes in foreign currency exchange rates increaseddecreased total operating expenses by $4.0 million$19.8 for the three months ended December 31, 2017,September 30, 2022, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses decreasedincreased by $16.3 million$308.4 for the three months ended December 31, 2017,September 30, 2022, as compared to the prior year period, due primarily to $18.4 million in lower advertising expenses. Advertising expenses were lower in the current period due primarily(i) marketing expense for titles from our Zynga acquisition, including Rollic's hyper-casual portfolio, Toon Blast, Merge Dragons!, Empires & Puzzles, and Toy Blast, (ii) higher amortization related to prior year period advertisingintangible assets related to our Zynga acquisition, and (iii) higher personnel expenses for Mafia III and Civilization VI, both of which releasedin October 2016, with no corresponding advertising expense in the current year, partially offset by higher advertising expenses for Grand Theft Auto Online and L.A. Noire. The overall decrease was partially offset by higher personnel costs, due to higher bonuses and higheradditional headcount, including fromrelated to our acquisition of Social Point.Zynga.
General and administrative
General and administrative expenses increased by $13.0 million$86.8 for the three months ended December 31, 2017,September 30, 2022, as compared to the prior year period, due primarily to (i) increases in (i) personnel expenses for additional headcount, including from our acquisition of Social Point,Zynga and (ii) increases in professional fees including stock and incentive compensation expense related primarily to our management agreement with ZelnickMedia due to the increase in our share price, (iii) increases in IT related expenses from the purchasingacquisition and integration of computer hardware and software, and (iv) increases in rent expense due to new locations, including our new corporate headquarters in New York and for Social Point, as well as increased rent at other locations. Zynga.
General and administrative expenses for the three months ended December 31, 2017September 30, 2022 and 20162021 included occupancy expense (primarily rent, utilities and office expenses) of $4.5 million$16.6 and $4.2 million,$8.4, respectively, related to our development studios.
Research and development
Research and development expenses increased by $12.4 million$141.7 for the three months ended December 31, 2017,September 30, 2022, as compared to the prior year period. The increase wasperiod, due primarily due to increases in personnel expenses from additionaldue to increased headcount, including related to our acquisition of Social Point and an increase in production and development expenses for titles that have not reached technological feasibility.Zynga.
Depreciation and Amortization
Depreciation and amortization expenses increased by $0.4 million$13.8 for the three months ended December 31, 2017 and were relatively flatSeptember 30, 2022 as compared to the prior year period.
Business reorganization
During the three months ended December 31, 2017, we recognized $0.7 million of business reorganizationperiod, due primarily to acquired intangible assets and depreciation expense duerelated to the true-up of an estimate relating to employee separation costs in connection with the implementation of a strategic reorganization at one of our labels, with no corresponding costs in the prior year period.Zynga.
Interest and other, net
Interest and other, net was incomeexpense of $3.4 million$50.5 for the three months ended December 31, 2017,September 30, 2022, as compared to $0.6 for the prior year period. The increase was due primarily to interest expense related to our Senior Notes, Term Loan, 2022 Credit Agreement, and Bridge Loan commitment, including the amortization of $3.7 millionrelated deferred costs, in connection with our acquisition of Zynga (refer to Note 9 - Debt and Note 14 - Acquisitions) and foreign currency losses.
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Gain (loss) on fair value adjustments, net
Gain (loss) on fair value adjustments, net was a gain of $1.9 for the three months ended September 30, 2022 as compared to $0.4 for the prior year period. The change was due primarily to lower interest expense as a result ofchanges in fair value based on the settlementobservable price changes of our 1.75% Convertible Notes due 2016 (the "1.75% Convertible Notes") in December 2016 and higher interest income due to the nature of our investments and the rise in interest rates, partially offset by lower foreign exchange transaction gains.long-term investments.
Benefit from Income Taxes
The benefit from income taxes for the three months ended December 31, 2017September 30, 2022 is based on our projected annual effective tax rate for fiscal year 2018,2023, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $12.9 million$44.1 for the three months ended December 31, 2017September 30, 2022 as compared to $2.3 millionthe provision for income taxes of $9.7 for the prior year period.
On December 22, 2017, The Tax and Jobs Act (the "Act”) was enacted, which lowers U.S. corporate income tax rates as of January 1, 2018. Accordingly, for fiscal year 2018, our blended statutory rate is 31.6%. When compared to the statutory rate of 31.6%21.0%, the effective tax rate of (105.6)%14.6% for the three months ended December 31, 2017,September 30, 2022 was due primarily due to provisional amounts recorded as a result of the Act (as described in Note 14 of our Condensed Consolidated Financial Statements), recorded tax benefit of $9.8 million as a result of changes in our valuation allowance relating to temporary items and tax carryforwards anticipated to be utilized, as well as $12.6 million of discrete tax benefits recorded during the three months ended December 31, 2017of $8.5 from changes in unrecognizedtax credits, tax benefits primarily due to expiration in statute of limitations, and $4.1 million for excess tax benefits$3.4 from employee stock-based compensation, as a componentand tax expense of the benefit from income taxes (previously excess tax benefit and tax

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deficiencies were recognized in additional paid-in-capital). To a lesser extent, our rate was impacted by tax credits and$12.8 related to geographic mix of earnings.
In the prior year period, when compared to theour statutory rate of 35%21%, the effective tax rate of 7.1%48.4% for the three months ended September 30, 2021 was lowerdue primarily due to a tax expense of $2.4 related to a nondeductible increase in fair value of the impactcontingent consideration liability associated with the acquisition of projectedNordeus, tax benefits relating to tax credits,expense of $5.4 from a shortfall on employee stock-based compensation offset by $2.6 from the geographic mix of earnings, and changes in valuation allowance. earnings.
The change in the effective tax rate, when compared to the prior year period, is primarily due to provisional amounts recorded as a result of the Act (as described in Note 14) as well as the impact of the rate change on our projected annualperiod's effective tax rate, discreteis due primarily to increased tax benefits recorded during the three month period ended December 31, 2017 of $12.6 million from changes in unrecognized tax benefits primarily due to expiration of statute of limitations, $4.1 million of excesscredits, increased tax benefits from employee stock-based compensation as a componentin the current period, and by the geographic mix of earnings.
The accounting for share-based compensation will increase or decrease our effective tax rate based upon 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 benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in additional paid-in-capital), and increased benefits from tax credits and changes in valuation allowance.employee award vesting.
We anticipate that additional excess tax benefits or shortfalls from employee stock compensation, tax credits, as well asand changes in valuation allowance may arise in future period whichour geographic mix of earnings could have a significant impact on our effective tax rate.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 or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods.
The Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174.Although Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance that the requirement will be repealed or otherwise modified. The requirement was effective for the Company beginning April 1, 2022. The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States.If legislation is not passed to defer, repeal, or otherwise modify the capitalization and amortization requirement we expect our cash taxes payable and deferred tax assets to increase in the future.
On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted. The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees. The ARPA did not have a material impact on our Consolidated Financial Statements for the three months ended September 30, 2022. We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.
In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which includes a 15% book-income alternative minimum tax on corporations with average applicable financial statement income over $1 billion for any 3-year period ending with 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. We will continue to evaluate the potential impact of the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.
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Net (loss) income and (loss) earnings per share
For the three months ended September 30, 2022, net loss was $257.0, as compared to income of $10.2 in the prior year period. Diluted loss per share for the three months ended September 30, 2022 was $1.54, as compared to diluted earnings per share of $0.09 in the prior year period. Basic weighted average shares of 166.9 were 50.1 shares higher as compared to the prior year period diluted weighted average shares, due to stock issued as consideration for the Zynga Acquisition and for the conversion of Convertible Notes. See Note 10 - (Loss) Earnings Per Share to our Condensed Consolidated Financial Statements for additional information.
Six Months Ended September 30, 2022 Compared to September 30, 2021
(millions of dollars)2022%2021%Increase/
(decrease)		% Increase/
(decrease)
Total net revenue$2,495.9 100.0 %$1,671.5 100.0 %$824.4 49.3 %
Internal royalties217.7 8.7 %305.0 18.2 %(87.3)(28.6)%
Software development costs and royalties (1)
455.0 18.2 %231.9 13.9 %223.1 96.2 %
Licenses155.6 6.2 %136.5 8.2 %19.1 14.0 %
Product costs321.4 12.9 %113.0 6.8 %208.4 184.4 %
Cost of revenue1,149.7 46.1 %786.4 47.0 %363.3 46.2 %
Gross profit$1,346.2 53.9 %$885.1 53.0 %$461.1 52.1 %
(1) Includes $(25.4) and $22.4 of stock-based compensation expense in 2022 and 2021, respectively, in software development costs and royalties.

For the six months ended September 30, 2022, net revenue increased by $824.4 million as compared to the prior year period. The increase was primarily due to net revenue of $916.1 from Zynga, which we acquired in May 2022 (refer to Note 14- Acquisitions), including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well an increase in net revenue of $61.3 million from Tiny Tina's Wonderlands, which released in March 2022. These increases were partially offset by a decrease in net revenue of (i) $127.1 million from our Grand Theft Auto franchise and (ii) $63.3 million from our Borderlands franchise.

Net revenue from console games decreased by $39.4 million and accounted for 46.4% of our total net revenue for the six months ended September 30, 2022, as compared to 71.7% for the prior year period. The decrease was due to a decrease in net revenue from our Grand Theft Auto, Red Dead Redemption, and Borderlands franchises,partially offset by an increase in net revenue from Tiny Tina's Wonderlands, our WWE 2K franchise, and The Quarry.Net revenue from PC and other decreased by $38.5 million and accounted for 9.5% of our total net revenue for the six months ended September 30, 2022, as compared to 16.5% for the prior year period. The decrease was due to a decrease in net revenue from our Borderlands and Grand Theft Auto franchises,partially offset by an increase in net revenue from Tiny Tina's Wonderlands. Net revenue from mobile increased by $902.3 million and accounted for 44.1% of our total net revenue for six months ended September 30, 2022, as compared to 11.8% for the prior year period. The increase was primarily due to net revenue of $903.2 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!,as well as an increase in net revenue from Top Eleven.

Net revenue from digital online channels increased by $837.1 million and accounted for 94.4% of our total net revenue for the six months ended September 30, 2022, as compared to 90.9% for the prior year period. The increase was primarily due to net revenue of $915.5 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in net revenue from Tiny Tina's Wonderlands.These increases in net revenue from digital online channels were partially offset by a decrease in net revenue from our Grand Theft Auto and Borderlands franchises.Net revenue from physical retail and other channels decreased by $12.7 million and accounted for 5.6% of our total net revenue for the six months ended September 30, 2022, as compared to 9.1% for the prior year period. The decrease was due to a decrease in net revenue from our NBA 2K franchise, partially offset by an increase in net revenue from The Quarry.

Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, in-game purchases, and in-game advertising. Net revenue from recurrent consumer spending increased by $791.5 million and accounted for 77.2% of net revenue for the six months ended September 30, 2022, as compared to 68.0% of net revenue for the prior year period. The increase was primarily due to net revenue of $902.4 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Words With Friends, and Merge Dragons!, as well as an increase in net revenue from Top Eleven. The increase in net revenue from recurrent consumer spending was partially offset by a decrease in net revenue from our Grand Theft Auto franchise. Net revenue from full game and other increased by $32.9 million and accounted for 22.8% of net revenue for the six months ended
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September 30, 2022 as compared to 32.0% of net revenue for the prior year period. The increase was due to an increase in net revenue from The Quarry, Tiny Tina's Wonderlands, and our NBA 2K and WWE 2K franchises, partially offset by a decrease in net revenue from our Borderlands,Grand Theft Auto, and Red Dead Redemption franchises.
Gross profit as a percentage of net revenue for the six months ended September 30, 2022 was 53.9% as compared to 53.0% for the prior year period. The increase in gross profit as a percentage of net revenue was due to lower internal royalties due to the timing of when royalties are earned and (ii) lower capitalized software amortization due to impairments recognized in the prior year period, partially offset by (i) higher amortization related to intangible assets related to our Zynga acquisition and (ii) higher product costs for fees paid to platform partners due to an increase in Mobile revenues as a result of the Zynga acquisition.
Net revenue earned outside of the United States increased by $306.7 million and accounted for 38.9% of our total net revenue for the six months ended September 30, 2022, as compared to 39.7% in the prior year period. The increase in net revenue outside of the United States was primarily due to net revenue of $346.5 from our May 2022 acquisition of Zynga, including top contributors Empires & Puzzles, Rollic's hyper-casual portfolio, Toon Blast, Zynga Poker, and Merge Dragons!, as well as an increase in net revenue from Top Eleven, partially offset by a decrease in net revenue from our Grand Theft Auto and Borderlands franchises. Changes in foreign currency exchange rates decreased net revenue by $20.8 million and decreased gross profit by $8.8 million for the six months ended September 30, 2022 as compared to the prior year period.
Operating Expenses
(millions of dollars)2022% of net revenue2021% of net revenueIncrease/
(decrease)		% Increase/
(decrease)
Selling and marketing$716.4 28.7 %$239.9 14.4 %$476.5 198.6 %
General and administrative451.7 18.1 %232.2 13.9 %219.5 94.5 %
Research and development417.0 16.7 %193.8 11.6 %223.2 115.2 %
Depreciation and amortization51.0 2.0 %28.6 1.7 %22.4 78.3 %
Total operating expenses (1)
$1,636.1 65.6 %$694.5 41.5 %$941.6 135.6 %
(1) Includes stock-based compensation expense, which was allocated as follows (in millions):
20222021
Selling and marketing53.2 $15.2 
General and administrative64.7 33.9 
Research and development59.3 24.8 
Changes in foreign currency exchange rates decreased total operating expenses by $35.8 million for the six months ended September 30, 2022, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses increased by $476.5 million for the six months ended September 30, 2022, as compared to the prior year period, due primarily to (i) marketing expense for titles from our Zynga acquisition, including Rollic's hyper-casual portfolio, Toon Blast, Merge Dragons!, Empires & Puzzles, and Toy Blast, (ii) higher amortization related to intangible assets related to our Zynga acquisition, and (iii) higher personnel expenses for additional headcount, including related to our acquisition of Zynga.
General and administrative
General and administrative expenses increased by $219.5 million for the six months ended September 30, 2022, as compared to the prior year period, due to increases in (i) professional fees related to our acquisition and integration of Zynga and (ii) personnel expenses for additional headcount, including our acquisition of Zynga.
General and administrative expenses for the six months ended September 30, 2022 and 2021 included occupancy expense (primarily rent, utilities and office expenses) of $29.5 million and $15.9 million, respectively, related to our development studios.
Research and development
Research and development expenses increased by $223.2 million for the six months ended September 30, 2022, as compared to the prior year period, due primarily to increases in personnel expenses due to increased headcount, including related to our acquisition of Zynga.
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Depreciation and Amortization
Depreciation and amortization expenses for the six months ended September 30, 2022 increased by $22.4 million, as compared to the prior year period, due primarily to acquired intangible assets and depreciation expense related to Zynga.
Interest and other, net
Interest and other, net was expense of $79.8 million for the six months ended September 30, 2022, as compared to $1.6 million for the prior year period. The increase was due primarily to interest expense related to our Senior Notes, Term Loan, 2022 Credit Agreement, and Bridge Loan commitment, including the amortization of related deferred costs, in connection with our acquisition of Zynga (refer to Note 9 - Debt and Note 14 - Acquisitions) and foreign currency losses.
Gain (loss) on fair value adjustments, net
Gain (loss) on fair value adjustments, net was a loss of $37.7 for the six months ended September 30, 2022 as compared to a gain of $2.4 for the prior year period. The change was due primarily to a loss relating to our Convertible Notes, partially offset by a gain related to our Capped Calls, both as result of our Zynga Acquisition (refer to Note 9 - Debt and Note 14 - Acquisitions).
Benefit from Income Taxes
The benefit from income taxes for the six months ended September 30, 2022 is based on our projected annual effective tax rate for fiscal year 2023, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit for income taxes was $46.4 for the six months ended September 30, 2022 as compared to a provision for income taxes of $28.9 for the prior year period.

When compared to the statutory rate of 21.0%, the effective tax rate of 11.4% for the six months ended September 30, 2022 was due primarily to a tax expense of $22.6 related to the geographic mix of earnings, nondeductible expense of $8.2 related to the settlement of convertible debt, tax expense of $6.0 from employee stock-based compensation, offset by benefits of $30.9 from tax credits.

In the prior year period, when compared to the statutory rate of 21.0%, the effective tax rate of 15.1% for the six months ended September 30, 2021 was due primarily to a tax benefit of $11.4 as a result of tax credits anticipated to be utilized and excess tax benefits of $4.0 from employee stock-based compensation offset by a tax expense of $2.4 related to a nondeductible increase in fair value of the contingent consideration liability associated with the acquisition of Nordeus and by the geographic mix of earnings.

The change in the effective tax rate, when compared to the prior year period's effective tax rate, is due primarily to increased tax benefits from tax credits in the current period, increased expense from employee stock-based compensation, nondeductible expense related to the settlement of convertible debt and by the geographic mix of earnings.

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.

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 Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174.Although Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance that the requirement will be repealed or otherwise modified. The requirement was effective for the Company beginning April 1, 2022. For the six months ended September 30, 2022, we recorded an estimated increase to income tax payable and deferred tax assets of approximately $70.0 due to Section 174 capitalization. The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States.If legislation is not
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passed to defer, repeal, or otherwise modify the capitalization and amortization requirement we expect our cash taxes payable and deferred tax assets to increase in the future.

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted. The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (April 1, 2027 for the Company), the ARPA expands the limitation to cover the next five most highly compensated employees. The ARPA did not have a material impact on our Consolidated Financial Statements for the six months ended September 30, 2022. We continue to evaluate the potential impact the ARPA may have on our operations and Consolidated Financial Statements in future periods.
In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which includes a 15% book-income alternative minimum tax on corporations with average applicable financial statement income over $1 billion for any 3-year period ending with 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. We will continue to evaluate the potential impact of the Inflation Reduction Act may have on our operations and Consolidated Financial Statements in future periods.
Net (loss) income and (loss) and earnings (loss) per share
For the threesix months ended December 31, 2017,September 30, 2022, net incomeloss was $25.1$361.0 million, as compared to net lossincome of $29.8$162.5 million in the prior year period. For the threesix months ended December 31, 2017, basic andSeptember 30, 2022, diluted loss per share was $2.38 as compared to diluted earnings per share were $0.22 and $0.21, respectively, as compared to loss per share of $0.33$1.39 in the prior year period. Basic weighted average shares of 113.7151.8 million were 23.334.9 million shares higher as compared to the prior year period, due primarily to stock issued as consideration for the settlementZynga Acquisition and for the conversion of our 1.75% Convertible Notes and our 1.00% Convertible Notes, which were converted to shares of our common stock using the stated conversion rate and, to a lesser extent, the vesting of restricted stock awards.Notes. See Note 10 - (Loss) Earnings Per Share to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.
Nine Months Ended December 31, 2017 Compared to December 31, 2016
(thousands of dollars)2017 % 2016 % Increase/
(decrease)		 % Increase/
(decrease)
Net revenue$1,342,618
 100.0% $1,208,192
 100.0% $134,426
 11.1 %
Internal royalties294,749
 22.0% 240,711
 19.9% 54,038
 22.4 %
Software development costs and royalties(1)164,419
 12.2% 218,753
 18.1% (54,334) (24.8)%
Product costs156,124
 11.6% 170,127
 14.1% (14,003) (8.2)%
Licenses93,808
 7.0% 78,468
 6.5% 15,340
 19.5 %
Cost of goods sold709,100
 52.8% 708,059
 58.6% 1,041
 0.1 %
Gross profit$633,518
 47.2% $500,133
 41.4% 133,385
 26.7 %
(1)Includes $23,284 and $15,974 of stock-based compensation expense in 2017 and 2016, respectively, in software development costs and royalties.
For the nine months ended December 31, 2017, net revenue increased by $134.4 million as compared to the prior year period. This increase was due primarily to (i) an increase of $122.5 million from our NBA 2K franchise, (ii) an increase of $43.8 million from our Grand Theft Auto franchise, (iii) $26.3 million from Social Point titles with no comparable revenues in prior year period as it was acquired in January 2017, and (iv) an increase of $21.6 million from L.A. Noire due to releases on PS4, Xbox One, Switch, and HTC Vive. These increases were partially offset by a decrease of $41.0 million in Civilization VI, which released in October 2016 and a decrease of $25.0 million from BioShock: The Collection, which released in September 2016.
Net revenue from console games increased by $138.6 million and accounted for 81.9% of our total net revenue for the nine months ended December 31, 2017, as compared to 79.6% for the prior year period. The increase in net revenue from console games was due primarily to our NBA 2K franchise and Grand Theft Auto Online. These increases were partially offset by lower net revenues from Grand Theft Auto V and BioShock: The Collection, which released in September 2016. Net revenue from PC and other decreased by $4.1 million and accounted for 18.1% of our total net revenue for the nine months ended December 31, 2017, as compared to 20.4% for the prior year period. The decrease in net revenue from PC and other was due primarily to lower net revenues from Civilization VI, which released in October 2016, Grand Theft Auto V, and Battleborn, which released in May

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2016. These decreases were partially offset by net revenues from Social Point titles with no comparable revenues in the prior year period as it was acquired in January 2017 and higher net revenues from WWE SuperCard, our NBA 2K franchise, Grand Theft Auto Online, our XCOM franchise, and Carnival Games.
Net revenue from digital online channels increased by $186.5 million and accounted for 61.8% of our total net revenue for the nine months ended December 31, 2017, as compared to 53.2% for the prior year period. The increase in net revenue from digital online channels was due to higher net revenues from our NBA 2K franchise and Grand Theft Auto Online, partially offset by lower net revenues from Civilization VI, which released in October 2016, and Grand Theft Auto V. Net revenue from physical retail and other channels decreased by $52.1 million and accounted for 38.2% of our total net revenues for the nine months ended December 31, 2017, as compared to 46.8% for the same period in the prior year period. The decrease in net revenue from physical retail and other channels was due primarily to lower net revenues from Grand Theft Auto V,BioShock: The Collection, which released in September 2016, Civilization VI, which released in October 2016,and Battleborn, which released in May 2016. These decreases were partially offset by higher net revenues from L.A. Noire due to releases on PS4, Xbox One, Switch, and HTC Viveas well as in-game advertising revenue from Social Point titles with no comparable revenues in the prior year period.
Revenues from recurrent consumer spending on our titles through virtual currency, add-on content, and microtransactions increased by $220.7 million and accounted for 40.3% of net revenue for the nine months ended December 31, 2017, as compared to 26.5% of net revenue for the prior year period. The increase in revenues from recurrent consumer spending was primarily due to higher net revenues from Grand Theft Auto Online, our NBA 2K franchise, WWE Supercard, and Social Point titles with no comparable revenues in prior year period as it was acquired in January 2017.
Gross profit as a percentage of net revenue for the nine months ended December 31, 2017 was 47.2% as compared to 41.4% for the prior year period. The percentage increase was due primarily to lower software development costs as a percentage of net revenue due to Mafia III and Civilization VI releasing in the prior year period, as well as lower product costs as a percentage of net revenue due to the decrease in net revenue from physical and retail sales. The increase was offset by higher internal royalties as a percentage of net revenue due to the timing of when royalties are earned and higher stock-based compensation costs as a percentage of net revenue due to previously issued share based awards, which were historically classified as liability awards, being modified to equity awards during the period. This modification reflects the impact of differences between the share price at the time of the modification and contractually stipulated cash settlement values of the awards prior to the modification. This impact was partially offset by a reversal of expense due to forfeited awards.
Net revenue earned outside of the United States increased by $40.9 million, and accounted for 40.7% of our total net revenue for the nine months ended December 31, 2017, as compared to 41.8% in the prior year period. The increase in net revenue outside of the United States was due primarily to Grand Theft Auto Online, our NBA franchise, and Social Point titles with no comparable revenues in the prior year period. These increases were offset by a decrease in Civilization VI, which released in October 2016 and a decrease in Grand Theft Auto V. Changes in foreign currency exchange rates increased net revenue by $3.6 million and increased gross profit by $1.8 million for the nine months ended December 31, 2017 as compared to the prior year period.
Operating Expenses
(thousands of dollars)2017 % of net
revenue		 2016 % of net
revenue		 Increase/
(decrease)		 % Increase/
(decrease)
Selling and marketing$208,641 15.5% $247,141
 20.5% $(38,500) (15.6)%
General and administrative187,378 14.0% 149,367
 12.4% 38,011
 25.4 %
Research and development142,245 10.6% 101,494
 8.4% 40,751
 40.2 %
Depreciation and amortization34,490 2.6% 22,329
 1.8% 12,161
 54.5 %
Business reorganization13,012 1.0% —
 —% 13,012
 100.0 %
Total operating expenses (1)$585,766
 43.6% $520,331
 43.1% $65,435
 12.6 %
(1)Includes stock-based compensation expense, which was allocated as follows (in thousands):
 20172016
Selling and marketing$8,787
$7,269
General and administrative$48,629
$26,861
Research and development$12,990
$5,317
Business reorganization$2,421
$—

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Changes in foreign currency exchange rates increased total operating expenses by $2.6 million for the nine months ended December 31, 2017, as compared to the prior year period.
Selling and marketing
Selling and marketing expenses decreased by $38.5 million for the nine months ended December 31, 2017, as compared to the prior year period, due primarily to $49.8 million in lower advertising expenses. Advertising expenses were lower in the current year period due primarily to the releases of Mafia III and Civilization VI in October 2016 and Battleborn in May 2016, partially offset by higher marketing in the current year period for Grand Theft Auto Online and Read Dead Redemption 2. The overall decrease was partially offset by higher personnel expenses, primarily due to higher incentive compensation expense.
General and administrative
General and administrative expenses increased by $38.0 million for the nine months ended December 31, 2017, as compared to the prior year period, due primarily to increases in personnel expenses, including stock and incentive compensation expense, due to additional headcount, including our acquisition of Social Point, increases in professional fees, related primarily to our management agreement with ZelnickMedia as a result of the increase in our share price, and increases in rent expense due to new locations, including our new corporate headquarters in New York and for Social Point, as well as increased rent at other locations. The overall increase was partially offset primarily by a $7.0 million reduction of expense related to the fair value as of December 31, 2017 of contingent consideration included in the Social Point acquisition.
General and administrative expenses for the nine months ended December 31, 2017 and 2016 included occupancy expense (primarily rent, utilities and office expenses) of $13.2 million and $11.8 million, respectively, related to our development studios.
Research and development
Research and development expenses increased by $40.8 million for the nine months ended December 31, 2017, as compared to the prior year period, due primarily to increased personnel expense due to increased headcount, including our acquisition of Social Point, and due to a $5.4 millionstock compensation charge due to a share-based award modification. These increases were partially offset by lower production expenses for titles that have not reached technological feasibility.
Depreciation and Amortization
Depreciation and amortization expenses for the nine months ended December 31, 2017 increased by $12.2 million, as compared to the prior year period, due primarily to the recognition of an $11.3 million impairment charge in September 2017, as a result of our decision not to proceed with further development of certain IPR&D from our acquisition of Social Point.
Business reorganization
During the nine months ended December 31, 2017, we announced and initiated actions to implement a strategic reorganization at one of our labels. In connection with this initiative, we incurred business reorganization expenses of $13.0 million for the nine months ended December 31, 2017 due primarily to employee separation costs, with no corresponding costs in the prior year period.
Interest and other, net
Interest and other, net was an expense of $2.4 million for the nine months ended December 31, 2017, as compared to $15.3 million for the prior year period. The decrease was due primarily to lower interest expense as a result of the settlement of our 1.75% Convertible Notes in December 2016 and higher gains on early conversions of our 1.00% Convertible Notes as well as higher interest income due to the nature of our investments and the rise in interest rates, partially offset by foreign exchange transaction losses in the nine months ended December 31, 2017 as compared to foreign exchange transaction gains in the prior year period.
Benefit from Income Taxes
The benefit from income taxes for the nine months ended December 31, 2017 is based on our projected annual effective tax rate for fiscal year 2018, adjusted for specific items that are required to be recognized in the period in which they are incurred. The benefit from income taxes was $37.3 million for the nine months ended December 31, 2017, as compared to a benefit of $2.2 million for the prior year period.
When compared to the statutory rate of 31.6%, the effective tax rate of (82.3)% for the nine months ended December 31, 2017 was primarily due to provisional amounts recorded as a result of the Act (as described in Note 14), recorded tax benefit of $14.4 million as a result of changes in our valuation allowance relating to temporary items and tax carryforwards anticipated to be utilized, $8.9 million tax benefit resulting from tax credits anticipated to be utilized, as well as discrete tax benefits recorded during the nine month period of $11.2 million from changes in unrecognized tax benefits primarily due to expiration of statute of

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limitations and $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). To a lesser extent, our rate was also impacted by tax credits and geographic mix of earnings.
In the prior year period, when compared to the statutory rate of 35%, the effective tax rate of 6.4% was lower primarily due to projected tax benefits relating to tax credits, geographic mix of earnings, and changes in valuation allowance.
The change in effective tax rate, when compared to the prior year period, is primarily due to provisional amounts recorded as a result of the Act (as described in Note 14) as well as the impact on the overall rate change in our projected annual effective tax rate, discrete tax benefits recorded during the nine months ended December 31, 2017 of $11.2 million from changes in unrecognized tax benefit primarily due to expiration of statute of limitations, $28.6 million for excess tax benefits from employee stock compensation as a component of the benefit from income taxes (previously excess tax benefit and tax deficiencies were recognized in additional paid-in-capital), and increased benefits from tax credits and changes in valuation allowance.
We anticipate that additional excess tax benefits, tax credits, as well as changes in valuation allowance may arise in future periods, which could have a significant impact on our effective tax rate.
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 could have an impact on our effective tax rate in future periods.
Net income (loss) and earnings (loss) per share
For the nine months ended December 31, 2017, net income was $82.7 million, as compared to a net loss of $32.0 million in the prior year period. For the nine months ended December 31, 2017, basic earnings per share was $0.76 compared to loss per share of $0.37 and diluted earnings per share was $0.74 as compared to loss per share of $0.37 in the prior year period. Basic weighted average shares of 108.7 million were 21.9 million shares higher as compared to the prior year period, due primarily to the settlement of our 1.75% Convertible Notes and our 1.00% Convertible Notes by converting those notes to shares of our common stock using the stated conversion rate and, to a lesser extent, the vesting of restricted stock awards. See Note 10 to our Condensed Consolidated Financial Statements for additional information regarding earnings per share.
Liquidity and Capital Resources
Our primary cash requirements have beenare to fund (i) the development, manufacturing, and marketing of our published products, (ii) working capital, (iii) capital expenditures, (iv) debt and interest payments, (v) acquisitions, and (iv) capital expenditures.(vi) tax payments. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our 2022 Credit Agreement to satisfy our working capital needs. Refer to Note 9 - Debt for additional discussion of our outstanding debt obligations.
Short-term Investments
As of December 31, 2017,September 30, 2022, we had $547.3 million$348.0 of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations. From time to time, we may purchase additional short-term investments depending on future market conditions and liquidity needs. As of September 30, 2022, based on the composition of our investment portfolio and actions taken in recent months by central banks around the world, including the U.S. Federal Reserve, in response to rising inflation and related adverse economic conditions, we anticipate our investment yields may increase, which could increase our future interest income. Such impact is not expected to be material to our liquidity.
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Senior Notes
On April 14, 2022, we completed our offering and sale of $2,700.0 aggregate principal amount of our senior notes, consisting of $1,000.0 principal amount of our 3.300% Senior Notes due 2024 (the “2024 Notes”), $600.0 principal amount of our 3.550% Senior Notes due 2025 (the “2025 Notes”), $600.0 principal amount of our 3.700% Senior Notes due 2027 (the “2027 Notes”), and $500.0 principal amount of our 4.000% Senior Notes due 2032 (the “2032 Notes” and, together with the 2024 Notes, the 2025 Notes and the 2027 Notes, the “Senior Notes”).The Senior Notes were issued under an indenture between the Company and The Bank of New York Mellon, as trustee.
The Senior Notes are the Company’s senior unsecured obligations and rank equally with all of our other existing and future unsubordinated obligations. The 2024 Notes mature on March 28, 2024 and bear interest at an annual rate of 3.300%. The 2025 Notes mature on April 14, 2025 and bear interest at an annual rate of 3.550%. The 2027 Notes mature on April 14, 2027 and bear interest at an annual rate of 3.700%. The 2032 Notes mature on April 14, 2032 and bear interest at an annual rate of 4.000%. We will pay interest on the 2024 Notes semi-annually on March 28 and September 28 of each year, commencing September 28, 2022. During the three months ended September 30, 2022, we made interest payments of $15.0. We will pay interest on each of the 2025 Notes, 2027 Notes, and 2032 Notes semi-annually on April 14 and October 14 of each year, commencing October 14, 2022. The proceeds were used to finance our acquisition of Zynga.
Credit Agreement
In December 2017,On May 23, 2022, we entered into a Seventh Amendment to our Second Amended and Restatednew unsecured Credit Agreement (as amended,(the "2022 Credit Agreement"), which replaced in its entirety the "Credit Agreement").Company's prior Credit Agreement, dated as of February 8, 2019, which was paid off in full and terminated. The 2022 Credit Agreement provides for borrowingsan unsecured five-year revolving credit facility with commitments of up to $100.0 million, which may be increased by up to $100.0 million pursuant to the terms of the Credit Agreement, and is secured by substantially all of our assets and the equity of our subsidiaries. The Credit Agreement expires on August 18, 2019. Revolving loans under the Credit Agreement bear interest at our election of (a) 0.25% to 0.75% above a certain base rate (4.50% at December 31, 2017), or (b) 1.25% to 1.75% above the LIBOR Rate (approximately 1.57% at December 31, 2017), with the margin rate subject to the achievement of certain average liquidity levels. We are also required to pay a monthly fee on the unused available balance, ranging from 0.25% to 0.375% based on availability.
Availability under the Credit Agreement is unrestricted when liquidity is at least $300.0 million. When liquidity is below $300.0 million, availability under the Credit Agreement is restricted by our United States and United Kingdom based accounts receivable and inventory balances. The Credit Agreement also allows$500.0, including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to $5.0 million.
As of December 31, 2017, there was $98.3 million available to borrow under the Credit Agreement$100.0 and we had $1.7 million of(ii) borrowings and letters of credit outstanding. At December 31, 2017, we had no outstanding borrowings under the Credit Agreement.

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The Credit Agreement contains covenants that substantially limit usdenominated in Pounds Sterling, Euros, and our subsidiaries' ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course of business; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments; or pay dividends or make distributions (each subject to certain limitations); or optionally prepay any indebtedness (subject to certain exceptions, including an exception permitting the redemption of our unsecured convertible senior notes upon the meeting of certain minimum liquidity requirements). In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on indebtedness held by third parties and default on certain material contracts (subject to certain limitations and cure periods). The Credit Agreement also contains a requirement that we maintain an interest coverage ratio of more than one to one for the trailing twelve-month period, if certain average liquidity levels fall below $30.0 million.
1.00% Convertible Notes Due 2018
On June 18, 2013, we issued $250.0 million aggregate principal amount of 1.00% Convertible Notes due 2018. The 1.00% Convertible Notes were issued at 98.5% of par value for proceeds of $246.3 million. Interest on the 1.00% Convertible Notes is payable semi-annuallyCanadian Dollars in arrears on July 1st and January 1st of each year, commencing on January 1, 2014. The 1.00% Convertible Notes mature on July 1, 2018, unless earlier repurchased by the Company or converted. We do not have the right to redeem the 1.00% Convertible Notes prior to maturity. We also granted the underwriters a 30-day option to purchase up to an additional $37.5 million principal amount of 1.00% Convertible Notes to cover overallotments, if any. On July 17, 2013, we closed our public offering of $37.5 million principal amount of our 1.00% Convertible Notes as a result of the underwriters exercising their overallotment option in full on July 12, 2013, bringing the total proceeds to $283.2 million.
The 1.00% Convertible Notes are convertible at an initial conversion rate of 46.4727 shares of our common stock per $1,000 principal amount of 1.00% Convertible Notes (representing an initial conversion price of approximately $21.52 per share of common stock for a total of approximately 13,361,000 underlying conversion shares) subject to adjustment in certain circumstances. Holders were able to convert the 1.00% Convertible Notes at their option prior to the close of business on the business day immediately preceding January 1, 2018 only under the following circumstances: (1) during any fiscal quarter commencing after September 30, 2013, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the "measurement period") in which the trading price per $1 principal amount of 1.00% Convertible Notes for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (3) upon the occurrence of specified corporate events. On and after January 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert their 1.00% Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 1.00% Convertible Notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Accordingly, as of January 1, 2018, the 1.00% Convertible Notes may be converted at the holder's option through June 30, 2018. During the three months ended December 31, 2017, 1.00% Convertible Notes with an aggregate principal amount of $40.1 millionup to $100.0. In addition, the 2022 Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional amount not to exceed the greater of $250.0 and 35.0% of the Company's Consolidated Adjusted EBITDA (as defined in the 2022 Credit Agreement).
Loans under the 2022 Credit Agreement will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (6.25% at September 30, 2022) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 3.04% at September 30, 2022, which rates are determined by the Company's credit rating.
On June 22, 2022, we drew down $200.0 at approximately 3.28% from our facility under the 2022 Credit Agreement. The proceeds were tenderedused to finance a portion of the repurchase of the Convertible Notes. After giving effect to this borrowing, we had approximately $299.5 available for conversion,additional borrowings as of September 30, 2022. On September 22, 2022, we repriced our outstanding borrowing at approximately 4.84%.
Term Loan
On June 22, 2022, we entered into an unsecured 364-Day Term Loan Credit Agreement ("Term Loan"). The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.000% to 0.375% above an alternate base rate (defined on the basis of prime rate) or (b) 0.750% to 1.375% above SOFR, which we electedmargins are determined by reference to settle in sharesour credit rating.
We fully drew down on the Term Loan on June 22, 2022 at approximately 3.60%. The proceeds were used to finance a portion of our common stock. Our intent and ability, given our option, would be to settle future conversions in sharesthe repurchase of our common stock. As such, we have continued to classify these 1.00%the Convertible Notes as long-term debt.
The indenture governing the 1.00% Convertible Notes contains customary terms and covenants and events of default.(refer to Note 9 - Debt).
Financial Condition
We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position.
Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. We have trade credit insurance on the majority of our customers to mitigate accounts receivable risk.
A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors. Our five largest customers accounted for 67.1%79.9% and 65.8%79.8% of net revenue during the threesix months ended December 31, 2017September 30, 2022 and 2016,2021, respectively. As of December 31, 2017September 30, 2022 and March 31, 2017,2022, five customers accounted for 67.2%68.9% and 69.9%72.8% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of
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our gross accounts receivable balance comprised 55.8%51.0% and 57.6%63.8% of such balances at December 31, 2017September 30, 2022 and March 31, 2017,2022, respectively. We had threetwo customers who accounted for 29.7%, 14.2%,32.4% and 11.9%18.6% of our gross accounts receivable as of December 31, 2017,September 30, 2022, respectively, and two customers who accounted for 40.2%43.5% and 17.4%20.3% of our gross accounts receivable as of March 31, 2017,2022, respectively. Based upon performing ongoing credit

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evaluations, maintaining trade credit insurance on a majority of our customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's credit worthiness and economic conditions that may affect our customers' business and access to capital. We are monitoring the current global economic conditions, including credit markets and other factors as it relates to our customers in order to manage the risk of uncollectible accounts receivable.receivable, including as a result of the COVID-19 pandemic.
We believe our current cash and cash equivalents, short-term investments, and projected cash flows from operations, along with availability under our 2022 Credit Agreement, will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis. Our liquidity and capital resources were not materially affected by the COVID-19 pandemic and related volatility and slowdown in the global financial markets to date. For further discussion regarding the potential future impacts of the COVID-19 pandemic and related economic conditions on our business, refer to Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
As of December 31, 2017,September 30, 2022, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $306.0 million.$772.7. These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect for the foreseeable future to have the ability to generate sufficient cash domestically to support ongoing operations.
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 makes broad and complex changes to the U.S. tax code, which could materially affect us.
The Act includes a number of provisions, including international provisions, which generally establish a territorial-style system for taxing foreign-source income of domestic multinational corporations. We are reviewing whether the Act will affect our current intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries and therefore have not recorded any tax liabilities associated with the repatriation of foreign earnings.
Our Board of Directors has authorized the repurchase of up to 14,217,68321.7 shares of our common stock. Under this program, we may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company'sour 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 and nine months ended December 31, 2017September 30, 2022, we repurchased 1,063,750did not repurchase shares of our common stock in the open market, for $110.1 million as part of the program. We have repurchased a total of 6,235,08011.7 shares of our common stock under the program, and as of December 31, 2017, 7,982,603September 30, 2022, 10.0 shares of our common stock remainremained available for repurchase under the share repurchase program.
Our changes in cash flows were as follows:
 Six Months Ended
September 30,
(millions of dollars)20222021
Net cash provided by operating activities$155.4 $283.7 
Net cash used in investing activities(2,790.6)(384.1)
Net cash provided by (used in) financing activities2,133.5 (244.4)
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents(36.2)(0.7)
Net change in cash, cash equivalents, and restricted cash and cash equivalents$(537.9)$(345.5)
 Nine Months Ended
December 31,
(thousands of dollars)2017 2016
Net cash provided by operating activities204,085
 239,602
Net cash (used in) provided by investing activities(182,515) 48,187
Net cash used in financing activities(205,066) (35,235)
Effects of foreign currency exchange rates on cash and cash equivalents14,555
 (11,866)
Net change in cash and cash equivalents$(168,941) $240,688
At December 31, 2017,September 30, 2022, we had $774.5 million$1,657.4 of cash and cash equivalents and restricted cash and cash equivalents, compared to $943.4 million$2,195.3 at March 31, 2017.2022. The decrease in cash and cash equivalents was due primarily to cash used in financing and investing activities. Net cash used in financing activities was primarily related to repurchases of common stock under our share repurchase program and tax payments related to net share settlements of our restricted stock awards. Net cash used in investing activities was primarily related to our Zynga Acquisition (refer to Note 14 - Acquisitions). This net purchasesdecrease was partially offset by Net cash provided by financing activities (refer to Note 9 - Debt), primarily related to proceeds from the issuance of availableSenior Notes and draw-downs on our 2022 Credit Agreement and Term Loan, which were partially offset by payments for sale securities, purchasesConvertible Notes that were part of fixed assets, and other asset acquisitions.our Zynga Acquisition. To a lesser extent, the net decrease was also partially offset by Net cash provided by operating activities was due primarily to cash generated from sales of virtual currency, NBA 2K18, Grand Theft Auto V, and WWE 2K18,our products, partially offset by investments in software development and licenses, and the fundingtiming of internal royalty payments.
Contractual Obligations and Commitments
We have entered into various agreements in the ordinary course of business that require substantial cash commitments over the next several years. Other than agreements entered into in the ordinary course of business and in addition to the agreements requiring known cash commitments as reported in Part II, Item 7 of our Annual Report on Form 10-Kpayments, including for the fiscal year ended March 31, 2017, we did not have any significant changestransaction related costs related to our commitments since March 31, 2017.Zynga Acquisition.
Commitments
Refer to Note 12 - Commitments and Contingencies for disclosures regarding our commitments.

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Capital Expenditures
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 whichIn fiscal year 2023, we do not believeanticipate capital expenditures to be material to our business or financial statements. We have appropriately accrued amounts related to certain of these claims and legal and other proceedings. While it is reasonably possible that a loss may be incurred in excess ofapproximately $150.0. During 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 million 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. Motion practice in both the federal and state actions is ongoing. We believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims.
Off-Balance Sheet Arrangements
As of December 31, 2017 and March 31, 2017, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.six months ended September 30, 2022, capital expenditures were $99.4.
International Operations
Net revenue earned outside of the United States is principally generated by our operations in Europe, Asia, Australia, Canada, and Latin America. For the three months ended December 31, 2017September 30, 2022 and 2016, 45.4%2021, 39.5% and 46.0%, respectively, and for the nine months ended December 31, 2017 and 2016, 40.7% and 41.8%40.0%, respectively, of our net revenue was earned outside of the United States. We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays, and international political, regulatory and economic developments, all of which can have a significant effect on our operating results.
Fluctuations in Quarterly Operating Results and Seasonality
We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles; variations in sales of titles developed for particular platforms; market acceptance of our titles; development and promotional expenses relating to the introduction of new titles; sequels or enhancements of existing titles; projected and actual changes in platforms; the timing and success of title introductions by our competitors; product returns; changes in pricing policies by us and our competitors; the accuracy of retailers' forecasts of consumer demand; the size and timing of acquisitions; the timing of orders from major customers; and order cancellations and delays in product shipment. Sales of our full game products are also seasonal, with peak shipmentsdemand typically occurring in the fourth calendar quarter as a result of increased demand for products during the holiday season. For certain of our software products with multiple element revenue arrangements where we do not have vendor-specific objective evidence ("VSOE") for each element and the deliverables are deemed more-than-inconsequential,performance obligations, we defer the recognition of our net revenuesrevenue over an estimated service period, which generally ranges from 12six to 50fifteen months. We regularly assess estimated service periods and update them when necessary. As a result, the quarter in which we generate the highest net sales volumebookings may be different from the quarter in which we recognize the highest amount of net revenues.revenue. Quarterly comparisons of operating results are not necessarily indicative of future operating results.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
Our exposure to fluctuations in interest rates relates primarily to our short-term investment portfolio and variable rate debt under the 2022 Credit Agreement.

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We seek to manage our interest rate risk by maintaining a short-term investment portfolio that includes corporate bonds with high credit quality and maturities less than two years. Since short-term investments mature relatively quickly and can be reinvested at the then-current market rates, interest income on a portfolio consisting of short-term securities is more subject to market fluctuations than a portfolio of longer-term maturities. However, the fair value of a short-term portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. We do not currently use derivative financial instruments in our short-term investment portfolio. Our investments are held for purposes other than trading.
As of December 31, 2017,September 30, 2022, we had $547.3 million$348.0 of short-term investments, which included $381.0 million$330.7 of available-for-sale securities. The available-for-sale securities were recorded at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of accumulatedAccumulated other comprehensive income (loss), net of tax, in stockholders'Stockholders' equity. We also had $774.5 million$956.4 of cash and cash equivalents that are comprised primarily of money market funds and bank-time deposits. We determined that, based on the composition of our investment portfolio, there was no material interest rate risk exposure to our Condensed Consolidated Financial Statements or liquidity as of December 31, 2017.September 30, 2022.
Historically, fluctuations in interest rates have not had a significant effect on our operating results.
Under our 2022 Credit Agreement, outstanding balancesloans will bear interest at a rate of (a) 0.000% to 0.625% above an alternate base rate (6.25% at September 30, 2022) or (b) 1.000% to 1.625% above Secured Overnight Financing Rate ("SOFR"), approximately 3.04% at September 30, 2022, which rates are determined by the Company's credit rating. At September 30, 2022, there were borrowings of approximately $200.0 under the 2022 Credit Agreement, which mature in 2027.
We also have borrowings of $350.0 at 3.60% under our Term Loan. The Term Loan provides for an unsecured 364-day term loan credit facility in the aggregate principal amount of $350.0 and matures on June 21, 2023, and will bear interest at our election at a margin of (a) 0.25%0.000% to 0.75%0.375% above a certainan alternate base rate (4.50% at December 31, 2017),(defined on the basis of prime rate) or (b) 1.25%0.750% to 1.75%1.375% above the LIBOR rate (approximately 1.57% at December 31, 2017), with the margin rate subject to the achievement of certain average liquidity levels. Changes in market rates may affect our future interest expense if there is an outstanding balance on our line of credit. At December 31, 2017, there were no outstanding borrowings under our Credit Agreement. The 1.00% Convertible Notes pay interest semi-annually at a fixed rate of 1.00% per annum, and we expect that there will be no fluctuation related to the 1.00% Convertible Notes affecting our cash component of interest expense. For additional details on our Convertible Notes, see Note 9SOFR, which margins are determined by reference to our Condensed Consolidated Financial Statements.credit rating.
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Foreign Currency Exchange Rate Risk
We transact business in foreign currencies and are exposed to risks resulting from fluctuations in foreign currency exchange rates. Accounts relating to foreign operations are translated into United StatesU.S. dollars using prevailing exchange rates at the relevant period end. Translation adjustments are included as a separate component of stockholders' equity.Stockholders' equity on our Condensed Consolidated Balance Sheets. For the three months ended December 31, 2017September 30, 2022 and 2016,2021, our foreign currency translation adjustment was a loss of $0.4 million$116.3 and a loss of $5.0 million, respectively, and for the nine months ended December 31, 2017 and 2016, we recognized a foreign currency translation adjustment gain of $23.4 million and a loss of $10.1 million,$16.7, respectively. For the three months ended December 31, 2017September 30, 2022 and 2016,2021, we recognized a foreign currency exchange transaction loss of $0.2 million$21.9 and a gain of $1.1 million$0.4, respectively, included in Interest and forother, net in our Condensed Consolidated Statements of Operations. For the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021, our foreign currency translation adjustment was a loss of $179.1 and a loss of $10.6, respectively. For the six months ended September 30, 2022 and 2021, we recognized a foreign currency exchange transaction loss of $1.8 million$25.4 and a gainloss of $3.6 million,$1.9, respectively, included in interestInterest and other, net in our Condensed Consolidated Statements of Operations.
Balance Sheet Hedging Activities
We use foreign currency forward contracts to mitigate foreign currency exchange rate risk associated with non-functional currency denominated cash balances and inter-companyintercompany funding loans, non-functional currency denominated accounts receivable and non-functional currency denominated accounts payable. These transactions are not designated as hedging instruments and are accounted for as derivatives whereby the fair value of the contracts is reported as either assets or liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interestInterest and other, net, in our Condensed Consolidated Statements of Operations. We do not enter into derivative financial contracts for speculative or trading purposes. At December 31, 2017,September 30, 2022, we had $130.8 million$197.0 of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $3.9 million$57.3 of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars, all of which have maturities of less than one year. At March 31, 2017,2022, we had $177.5 million$132.8 of forward contracts outstanding to sell foreign currencies in exchange for U.S. dollars and $9.2 million$75.8 of forward contracts outstanding to buy foreign currencies in exchange for U.S. dollars, all of which have maturities of less than one year. For the three months ended December 31, 2017September 30, 2022 and 2016,2021, we recorded a loss of $0.6 million$4.6 and a gain of $11.2 million, respectively, and for$0.6, respectively. For the ninesix months ended December 31, 2017September 30, 2022 and 2016,2021, we recorded a loss of $15.3 million$2.6 and a gainloss of $11.7 million,$1.2, respectively. As of December 31, 2017,September 30, 2022, the fair value of these outstanding forward contracts was a gain of $0.1 million$1.8 and was included in PrepaidAccrued expenses and other current liabilities, and, as of March 31, 2017,2022, the fair value of outstanding forward contracts was aan immaterial loss of $0.4 million$0.2 and was included in Accrued expenses and other current liabilities. The fair value of these outstanding forward contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.
Our hedging programs are designed to reduce, but do not entirely eliminate, the effect of currency exchange rate movements. We believe that the counterparties to these foreign currency forward contracts are creditworthy multinational commercial banks and that the risk of counterparty nonperformance is not material. Notwithstanding our efforts to mitigate some foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations.fluctuations, which may be more volatile as a result of the COVID-19 pandemic. For the three months ended December 31, 2017, 45.4%September 30, 2022, 39.5% of our revenue was generated outside the United States. Using sensitivity analysis, a hypothetical 10% increase in the value of the U.S. dollar against all currencies

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would decrease revenues by 4.5%4.0%, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenues by 4.5%4.0%. In theour opinion, of management, a substantial portion of this fluctuation would be offset by cost of goods soldrevenue and operating expenses incurred in local currency.

Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2017,September 30, 2022, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under
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the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On May 23, 2022, we acquired Zynga. We are currently in the process of incorporating the internal controls and procedures of Zynga into our internal control over financial reporting for purposes of our assessment of and report on internal control over financial reporting for the fiscal year ending March 31, 2023.

Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
We are, or may become, subjectRefer to demandsNote 12 - Commitments 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 materialContingencies to our business or financial statements. We have appropriately accrued amounts related to certain of these claims andCondensed Consolidated Financial Statements for disclosures regarding 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 million 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. Motion practice in both the federal and state actions is ongoing. We believe that we have meritorious defenses to these claims, and we intend to vigorously defend against them and to pursue any counterclaims.
Item 1A.    Risk Factors
There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017. In addition2022 other than as discussed below. Because the Zynga Acquisition has now been consummated and Zynga’s business is expected to recommending that those risk factors be considered when reading this current report, we are providing the following updated risk factor.
Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition.
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 makes broad and complex changes to the U.S. tax code that could materially affect us. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018 and requires companies to pay a one-time transition tax on the previously untaxed earnings of certain foreign subsidiaries. In addition, the Act makes other changes that may affect us, beginning April 1, 2018. These changes include but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT), 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.
We are currently evaluating the potential impact of the Act on our tax provision. It is possible that that these changes could have an adverse impact on our effective tax rate, tax payments, financial condition, or results of operations. The new tax law is complex and additional interpretative guidance may be issued that could affect interpretations and assumptions we have made, as well as actions we may take as a result of the Act.
In addition, numerous countries are evaluating their existing tax laws due in part to recommendations made by the Organization for Economic Co-operation and Development’s (“OECD’s”) Base Erosion and Profit Shifting (“BEPS”) project. Although we cannot predict whether, or in what form, any legislation based on such proposals may be adopted by the countries in which we do business, future tax reform based on such proposals may increase the amount of taxes we pay and adversely affect our operating results and cash flows.
We are a multinational corporation with operations in the U.S. and various other jurisdictions around the world. Accordingly, we are subject to tax in the U.S. and in various other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are required to estimate future taxes. Although we currently believe our tax estimates are reasonable, the estimation process is inherently uncertain, and such estimates are not binding on tax authorities. Further, our effective tax rate could be adversely affected by a variety of factors, including changes in the business, including the mix of earnings in countries with differing statutory tax rates, changes in tax elections, and changes in applicable tax laws. Additionally, tax determinations are regularly subject to audit by tax authorities, and developments in those audits could adversely affect our


income tax provision. Should the ultimate tax liability exceed estimates, our income tax provision and net income or loss could be adversely affected.
Historically, we recorded a valuation allowance against most of our U.S. deferred tax assets. We expect to provide a valuation allowance on future U.S. tax benefits until we can sustain a level of profitability or until other significant positive evidence arises that suggest that these benefits are more likely than not to be realized. Further, our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision. Should our ultimate tax liability exceed our estimates, our income tax provision and net income or loss could be materially affected.
We earn a significant amount of our operating income and holdconstitute a significant portion of our cash outsidebusiness, additional significant risks may apply to the U.S. combined business as detailed in the joint proxy statement/prospectus previously filed on April 7, 2022, and incorporated by reference herein (File No. 333-263511), including the risks relating to Zynga’s business as detailed in Exhibit 99.2 of the Form 8-K previously filed on April 6, 2022, and incorporated by reference herein.
We have updated the Risk Factor below (which was previously included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022) to reference the Cybersecurity Incident, which is discussed under “Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Cybersecurity Incident.”

We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption could have a negative impact on our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks, some of which are reviewing whetherwithin Take-Two and some of which are managed or hosted by third-party providers. All information technology systems and networks are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to cyber-attacks, computer viruses, malicious software, security breaches, energy blackouts, natural disasters, terrorism, war, and telecommunication failures. We have also faced and in the Act willfuture could face sophisticated attacks, including attacks referred to as advanced persistent threats, which are cyber-attacks aimed at compromising our intellectual property and other commercially sensitive information, such as the source code and game assets for our software or confidential customer or employee information, which remain undetected for prolonged periods of time. In September 2022, we experienced a network intrusion in which an unauthorized third party illegally accessed and downloaded confidential information from Rockstar Games’ systems, including early development footage for the next Grand Theft Auto. Subsequently, also in September 2022, an unauthorized third party illegally accessed credentials for a vendor platform that 2K Games uses to provide help desk support to its customers. See “Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Cybersecurity Incident” for further discussion.
Information technology system disruptions, network failures, or security breaches (including the Cybersecurity Incident and similar incidents) have negatively affected, and in the future could negatively affect our existing intentionbusiness continuity, operations and financial results. These risks extend to indefinitely reinvest earningsthe networks and e-commerce sites of console platform providers and other partners who sell or host our content online. The risk of such threats is heightened as a result of international conflicts such as the one between Russia and Ukraine and as a result of an extended period of remote work arrangements due to COVID-19. Along with our partners, we have expended, and expect to continue to expend, financial and operational resources to implement certain systems, processes and technologies to guard against cyber risks and to help protect our data and systems. However, the techniques used to exploit, disable, damage, disrupt or gain access to our networks, our products and services, supporting technological infrastructure, intellectual property and other assets change frequently, continue to evolve in sophistication and volume, and often are not detected for long periods of time. Our systems, processes and technologies, and the systems, processes and technologies of our foreign subsidiariesbusiness partners or our third-party service providers, have not been and therefore holdin the cash outsidefuture may not be adequate against all eventualities. In addition, the costs to respond to, mitigate, or notify affected parties of the U.S. The Act imposes a one-time transition tax on the previously untaxed earnings of certain foreign subsidiariescyber-attacks and other security vulnerabilities are significant. Failures to prevent or mitigate security breaches or cyber risks, or detect or respond adequately to a security breach or cyber risk, could result in a loss of anticipated revenue, interruptions to our products and services, our having to incur significant changesremediation and notification costs, degrade the user experience, cause consumers to lose confidence in our products and services, and significant legal and financial costs. Additionally, applicable insurance policies may be insufficient to reimburse us for all such losses, and it is uncertain whether we will be able to maintain the current level of insurance coverage in the future on reasonable terms or at all.
Successful exploitation of our systems can have other negative effects upon the products, services, and user experience we offer. In particular, the virtual economies that we have established in many of our games are subject to abuse, exploitation and other forms of fraudulent activity that can negatively affect how U.S. companies are taxed on foreign earnings.our business. Virtual economies involve the use of virtual currency or virtual assets that can be used or redeemed by a player within a particular game or service. Although we have implemented and continue to develop programs reasonably designed to prevent such negative impacts, the abuse or exploitation
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of our virtual economies can include the illegitimate generation and sale of virtual items in black markets. These changeskinds of activities and the steps that we take to address and prevent these issues may result in higher effective tax rates for us.a loss of anticipated revenue, interfere with players’ enjoyment of a balanced game environment and cause reputational harm.
We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes, in both the U.S. and foreign jurisdictions. We are regularly under examination by tax authorities with respect to these non-income taxes. There can be no assurance that the outcomes from these examinations, changes in our business, or changes in applicable tax rules will not have an adverse effect on our net income or loss and financial condition.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Share Repurchase Program—In January 2013, ourOur Board of Directors previously authorized the repurchase of up to 7,500,000 shares of our common stock. On May 13, 2015, our Board of Directors approved an increase of 6,717,683 shares to our share repurchase program, increasing the total number of shares that we are permitted to repurchase to 14,217,68321.7 shares of our common stock. The authorizations permit us to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program may be suspended or discontinued at any time for any reason.
During the three months ended December 31, 2017,September 30, 2022, we repurchased 1,063,750did not repurchase any shares of our common stock in the open market, for $110.1 million, including immaterial commissions, as part of the program. As of December 31, 2017,September 30, 2022, we havehad repurchased a total of 6,235,08011.7 shares of our common stock under this program, and 7,982,60310.0 shares of common stock remainremained available for repurchase under the Company'sour share repurchase program. The table below details the share repurchases that were made by us during the three months ended December 31, 2017:
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, 2017 —
 $—
 —
 9,046,353
November 1-30, 2017 —
 $—
 —
 9,046,353
December 1-31, 2017 1,063,750
 $103.54
 1,063,750
 7,982,603




Table of Contents

Item 6.    Exhibits
September 30, 2022:
Exhibits:PeriodShares
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
10.1July 1-31, 2022
Management Agreement, dated as of November 17, 2017, by and between Take-Two Interactive Software, Inc. and ZelnickMedia Corporation (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2017)
— 		$— — 10.0 
10.2August 1-31, 2022
Amendment to the Xbox 360 Publisher License Agreement, signed on December 12, 2017, by and between Take-Two Interactive Software, Inc. and Microsoft Corporation
— 		$— — 10.0 
10.3September 1-30, 2022
Seventh Amendment, dated as of December 22, 2017, to Second Amended and Restated Credit Agreement, dated as of October 17, 2011, by and among Take-Two Interactive Software, Inc. each of its Subsidiaries identified on the signature pages thereto as Borrowers, each of its Subsidiaries identified on the signature pages thereto as Guarantors, the lender parties thereto, and Wells Fargo Capital Finance, Inc., as administrative agent— 
$— — 10.0 

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Table of Contents
Item 6.    Exhibits
10.4Exhibits:
Amendment, dated as of December 15, 2017, to Amended and Restated Restricted Unit Agreement, dated as of May 20, 2016, by and between Take-Two Interactive Software, Inc. and ZelnickMedia Corporation
31.1
31.2
32.1
32.2
101.INS
XBRLThe 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

Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at December 31, 2017September 30, 2022 (Unaudited) and March 31, 2017,2022, (ii) Condensed Consolidated Statements of Operations for the three and ninesix months ended December 31, 2017September 30, 2022 and 2016,2021 (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ninesix months ended December 31, 2017September 30, 2022 and 2016,2021 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the ninesix months ended December 31, 2017September 30, 2022 and 2016;2021 (Unaudited), (v) Condensed Consolidated Statements of Equity for the three and (v)six months ended September 30, 2022 and 2021 (Unaudited); and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Registrant)
Date: FebruaryNovember 7, 20182022By:
/s/ STRAUSS ZELNICK

Strauss Zelnick
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: FebruaryNovember 7, 20182022By:
/s/ LAINIE GOLDSTEIN

Lainie Goldstein
Chief Financial Officer
(Principal Financial Officer)



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