TAKE-TWO INTERACTIVE SOFTWARE, INC. Overview
Our Business
We are a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We develop and publish products principally throughRockstar Games , 2K, Private Division,Social Point , andPlaydots . Our products are currently designed for console gaming systems and PC, including smartphones and tablets. We deliver our products through physical retail, digital download, online platforms and cloud streaming services. 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 29.2% of our net revenue for the fiscal year endedMarch 31, 2021 . 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 the COVID-19 pandemic, that may unfavorably affect our businesses, such as deteriorating consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency exchange rates. The 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. However, we cannot be certain as to the duration of these effects, the impact of vaccination efforts or of the lifting of certain restrictions on them, and the potential offsetting impacts of deteriorating economic conditions and decreased consumer spending generally. We expect that engagement trends will continue to be notably higher than they were pre-pandemic; however, as the return to normalcy continues, we expect a moderation of the trends that benefited our industry over the past year. We have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, such as our transition, based on our concern for the health and safety of our teams, to working from home for the vast majority of our teams over the last year, which to date has 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, above, in Item 1A of this Form 10-K and could materially adversely affect our business, financial condition, results of operations, or stock price. Therefore, the effects of COVID-19 may 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 78.4%, 71.5% and 70.1% of net revenue during the fiscal years endedMarch 31, 2021 , 2020 and 2019, respectively. As ofMarch 31, 2021 and 2020, five customers comprised 77.6% and 58.1% 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 69.2% and 48.8% of such balance atMarch 31, 2021 and 2020, respectively. We had two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as ofMarch 31, 2021 and two customers who accounted for 29.4% and 19.4% of our gross accounts receivable as ofMarch 31, 2020 . We did not have any additional customers that exceeded 10% of our gross accounts receivable as ofMarch 31, 2021 and 2020. The economic environment has affected our customers in the past, and may do so in the 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. The COVID-19 pandemic has led, and may continue to lead, to increased consolidation as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility. Certain of our large customers sell used copies of our games, which may negatively affect our business by reducing demand for new copies of our games. While the downloadable content that we now offer for certain of our titles may serve to reduce used game sales, we expect used game sales to continue to adversely affect our business.
Hardware Platforms. We derive most of our revenue from the sale of products made for video game consoles manufactured by third parties, which comprised 74.6% of our net revenue by product platform for the fiscal year ended
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March 31, 2021 . The success of our business is dependent upon the consumer
acceptance of these platforms 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 interactive
entertainment used on older platforms typically declines, which may negatively
affect our business during the market transition to the new consoles. 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, COVID-19 or other
events, 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 is to focus our development efforts on a select number
of the highest quality titles for these platforms, while also expanding our
offerings for other platforms such as tablets, smartphones, and online games.
Online Content and Digital Distribution. The interactive entertainment
software industry is delivering a growing amount of content through digital
online delivery methods. We provide a variety of online delivered products and
offerings. Virtually all of our titles that are available through retailers as
packaged goods products are also available through direct digital download (from
websites we own and others owned by third parties) as well as a 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, and in-game purchases. We also publish an
expanding variety of titles for tablets and smartphones, which are delivered to
consumers through digital download. As disclosed in our "Results of Operations,"
below, net revenue from digital online channels comprised 86.6% of our net
revenue for the fiscal year ended March 31, 2021 . We expect online delivery of
games and game offerings to continue to grow and to be the primary part of our
business over the long term.
Content Release Highlights
During fiscal year 2021, we released new content for a number of our biggest
franchises, including, but not limited to Grand Theft Auto Online, Red Dead
Online, Borderlands, and Sid Meier's Civilization. Our 2K label also released
NBA 2K21 and PGA TOUR 2K21.
To date we have announced that, during fiscal year 2022, Rockstar Games will
release Grand Theft Auto V for the PS5 and Xbox Series X|S, Private Division
will release OlliOlli World digitally, and 2K will release NBA 2K22 and WWE
2K22. In addition, throughout the year, we expect our labels 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 the potential to
drive growth over the long-term.
Fiscal 2021 Financial Summary
Our Net revenue for fiscal year ended March 31, 2021 was led by titles from a
variety of our top franchises, primarily NBA 2K; Grand Theft Auto Online and
Grand Theft Auto V; Red Dead Redemption 2 and Red Dead Online; Borderlands 3,
and our WWE 2K franchise. Our Net revenue increased to $3,372.8 million , an
increase of $283.8 million or 9.2% compared to the fiscal year ended March 31,
2020 .
For the fiscal year ended March 31, 2021 , our Net income was $588.9 million ,
as compared to Net income of $404.5 million in the prior year, and includes the
reversal of share-based compensation expense of $69.8 million due to forfeitures
and a gain of $40.6 million due to primarily the sale of one of our investments.
Diluted earnings per share for the fiscal year ended March 31, 2021 was $5.09 ,
as compared to Diluted income per share of $3.54 for the fiscal year ended
March 31, 2020 . Our operating income for the fiscal year ended March 31, 2021
increased compared to the operating income for fiscal year ended March 31, 2020 ,
due primarily to higher Gross profit, which was due primarily to higher revenue
from the titles described above, lower capitalized software amortization as a
percentage of net revenue, and lower internal royalties as a percentage of net
revenue, partially offset by higher Operating expenses primarily due to higher
headcount.
At March 31, 2021 , we had $2,060.2 million of Cash and cash equivalents and
Restricted cash and cash equivalents, compared to $1,993.4 million at March 31,
2020 . The increase in Cash and cash equivalents and Restricted cash and cash
equivalents from March 31, 2020 was due primarily to Net cash provided by
operating activities from sales primarily from the previously mentioned titles,
partially offset by investments in software development and licenses as well as
royalty payments. This net increase was partially offset by (i) Net cash used in
investing activities primarily related to changes in bank time deposits and net
purchases of available for sale securities, our acquisition of Playdots , and
purchases of fixed assets and (ii) Net cash used in financing activities, which
was primarily related to tax payments related to net share settlements of our
restricted stock.
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
Our most critical accounting policies, which are those that require
significant judgment, include revenue recognition; price protection and
allowances for returns; capitalization and recognition of software development
costs and licenses; fair value estimates including valuation of goodwill, and
intangible assets; valuation and recognition of stock-based compensation; and
income taxes. See Note 1 - Basis of Presentation and Significant Accounting
Policies in the Notes to our Consolidated Financial Statements in this Annual
Report on Form 10-K.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 1 - Basis of Presentation and Significant Accounting Policies .
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:
Fiscal Year Ended March 31,
2021 2020 Increase/(decrease) Increase/(decrease) %
Net Bookings $ 3,552,598 $ 2,990,358 $ 562,240 18.8 %
For the fiscal year ended March 31, 2021 , Net Bookings increased by $562.2
million as compared to the prior year due primarily to increases in Net Bookings
from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, our
Mafia franchise, PGA TOUR 2K21, which released in August 2020 , Two Dots, which
was part of our Playdots acquisition completed in September 2020 , and Dragon
City, partially offset by a decrease in Net Bookings from Borderlands 3, which
released in September 2019 , and The Outer Worlds, which released in October
2019 .
Results of Operations
In this section, we discuss the results of our operations for the fiscal year
ended March 31, 2021 compared to the fiscal year ended March 31, 2020 . For the
comparison of fiscal year 2020 to fiscal year 2019, refer to Part II, Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K for the year ended March 31,
2020.
The following table sets forth, for the periods indicated, our statements of
operations, net revenue by geographic region, net revenue by platform, net
revenue by distribution channel, and net revenue by content type:
Fiscal Year Ended March 31,
2021 2020 2019
Net revenue $ 3,372,772 100.0 % $ 3,088,970 100.0 % $ 2,668,394 100.0 %
Cost of goods sold 1,535,085 45.5 % 1,542,450 49.9 % 1,523,644 57.1 %
Gross profit 1,837,687 54.5 % 1,546,520 50.1 % 1,144,750 42.9 %
Selling and marketing 444,985 13.2 % 458,424 14.8 % 391,400 14.7 %
General and administrative 390,683 11.6 % 318,235 10.3 % 281,234 10.5 %
Research and development 317,311 9.4 % 296,398 9.6 % 230,170 8.6 %
Depreciation and amortization 55,596 1.6 % 48,113 1.6 % 40,232 1.5 %
Business reorganization (272) - % 83 - % (4,958) (0.2) %
Total operating expenses 1,208,303 35.8 % 1,121,253 36.3 % 938,078 35.2 %
Income from operations 629,384 18.7 % 425,267 13.8 % 206,672 7.7 %
Interest and other, net 8,796 0.3 % 38,505 1.2 % 26,113 1.0 %
Gain (loss) on long-term investments, net 39,636 1.2 % (5,333) (0.2) % - - %
Income before income taxes 677,816 20.1 % 458,439 14.8 % 232,785 8.7 %
Provision for (benefit from) income taxes 88,930 2.6 % 53,980 1.7 % (101,052) (3.8) %
Net income $ 588,886 17.5 % $ 404,459 13.1 % $ 333,837 12.5 %
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Fiscal Year Ended March 31,
2021 2020 2019
Net revenue by geographic region:
United States $ 2,015,885 59.8 % $ 1,775,682 57.5 % $ 1,426,906 53.5 %
International 1,356,887 40.2 % 1,313,288 42.5 % 1,241,488 46.5 %
Net revenue by platform:
Console $ 2,516,993 74.6 % $ 2,308,602 74.7 % 2,233,861 83.7 %
PC and other 855,779 25.4 % 780,368 25.3 % 434,533 16.3 %
Net revenue by distribution channel:
Digital online $ 2,919,292 86.6 % $ 2,378,563 77.0 % 1,681,609 63.0 %
Physical retail and other 453,480 13.4 % 710,407 23.0 % 986,785 37.0 %
Net revenue by content:
Recurrent consumer spending $ 2,074,687 61.5 % 1,384,999 44.8 % 1,070,916 40.1 %
Full game and other 1,298,085 38.5 % $ 1,703,971 55.2 % $ 1,597,478 59.9 %
Fiscal Years ended
% of net % of net
(thousands of dollars) 2021 revenue 2020 revenue Increase/(decrease) % Increase/(decrease)
Net revenue $ 3,372,772 100.0 % $ 3,088,970 100.0 % $ 283,802 9.2 %
Internal royalties 637,652 18.9 % 483,697 15.7 % 153,955 31.8 %
Software development costs and
royalties(1) 396,797 11.8 % 611,198 19.8 % (214,401) (35.1) %
Licenses 260,721 7.7 % 170,408 5.5 % 90,313 53.0 %
Product costs 239,915 7.1 % 277,147 9.0 % (37,232) (13.4) %
Cost of goods sold 1,535,085 45.5 % 1,542,450 49.9 % (7,365) (0.5) %
Gross profit $ 1,837,687 54.5 % $ 1,546,520 50.1 % $ 291,167 18.8 %
(1) Includes
For the fiscal year endedMarch 31, 2021 , net revenue increased by$283.8 million , as compared to the prior year. The increase was due primarily to an increase in net revenue of (i)$378.6 million from our NBA 2K franchise, (ii)$267.4 million from Grand Theft Auto Online and Grand Theft Auto V, (iii)$75.5 million from our Mafia franchise, (iv)$65.0 million fromPGA TOUR 2K21, which released inAugust 2020 , (vi)$24.1 million from Dragon City, and (vii)$20.5 million from Two Dots, which was part of ourPlaydots . acquisition completed inSeptember 2020 . These increases were offset by a decrease in net revenue of (i)$226.4 million from Borderlands 3, which released inSeptember 2019 , (ii)$217.8 million from Red Dead Redemption 2, which released on PC inNovember 2019 , and (iii)$124.7 million from The Outer Worlds, which released inOctober 2019 . Net revenue from console games increased by$208.4 million and accounted for 74.6% of our total net revenue in the fiscal year endedMarch 31, 2021 , as compared to 74.7% in the prior year. The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online,PGA TOUR 2K21, and our Mafia franchise, partially offset by a decrease in net revenue from Red Dead Redemption 2, Borderlands 3, and The Outer Worlds. Net revenue from PC and other increased by$75.4 million and accounted for 25.4% of our total net revenue in the fiscal year endedMarch 31, 2021 , as compared to 25.3% in the prior year. The increase was due to an increase in net revenue from Grand Theft Auto V and Grand Theft Auto Online, our NBA 2K franchise, Dragon City, Two Dots, and our Mafia franchise, partially offset by a decrease in net revenue from Borderlands 3 and The Outer Worlds. Net revenue from digital online channels increased by$540.7 million and accounted for 86.6% of our total net revenue for the fiscal year endedMarch 31, 2021 , as compared to 77.0% in the prior year. The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, our Mafia franchise, andPGA TOUR 2K21, partially offset by a decrease in net revenue from Borderlands 3, The Outer Worlds, and Red Dead Redemption 2. Net revenue from physical retail and other channels decreased by$256.9 million and accounted for 13.4% of our total net revenue for the fiscal year endedMarch 31, 2021 , as compared to 23.0% for the prior year. The decrease was due to a decrease in net revenue from Red Dead Redemption 2, Borderlands 3, and The Outer Worlds, partially offset by an increase in net revenue from our Mafia franchise andPGA TOUR 2K21. Recurrent consumer spending is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases. Net revenue from recurrent consumer spending increased by$689.7 million and accounted for 61.5% of net revenue for the fiscal year endedMarch 31, 2021 , as compared to 44.8% for the prior year. The increase was due to an increase in net revenue from our NBA 2K franchise, Grand Theft Auto Online and Grand Theft Auto V, 28 -------------------------------------------------------------------------------- Civilization VI, Dragon City and Two Dots. Net revenue from full game and other decreased by$405.9 million and accounted for 38.5% of net revenue for the fiscal year endedMarch 31, 2021 , as compared to 55.2% for the prior year. The decrease was due to a decrease in net revenue from Borderlands 3, Red Dead Redemption 2, and The Outer Worlds, partially offset by an increase in net revenue from our Mafia franchise, andPGA TOUR 2K21.
Gross profit as a percentage of net revenue for the fiscal year ended
ote
17 - Stock -B ased Compensation ), partially offset by higher internal royalties as a percentage of net revenue due to the timing of when royalties are earned, and product mix.
Net revenue earned outside ofthe United States increased by$43.6 million and accounted for 40.2% of our total net revenue in the fiscal year endedMarch 31, 2021 , as compared to 42.5% in the prior year. The increase in net revenue outside ofthe United States was due to an increase in net revenue from Grand Theft Auto Online and Grand Theft Auto V, our NBA 2K franchise, and our Mafia franchise, partially offset by a decrease in net revenue from Red Dead Redemption 2 and Borderlands 3. Changes in foreign currency exchange rates increased net revenue and gross profit by$11.2 million and$7.5 million , respectively, in the fiscal year endedMarch 31, 2021 as compared to the prior year. Operating Expenses % of net % of net (thousands of dollars) 2021 revenue 2020 revenue Increase/(decrease) % Increase/(decrease) Selling and marketing$ 444,985 13.2 %$ 458,424 14.8 % $ (13,439) (2.9) % General and administrative 390,683 11.6 % 318,235 10.3 % 72,448 22.8 % Research and development 317,311 9.4 % 296,398 9.6 % 20,913 7.1 % Depreciation and amortization 55,596 1.6 % 48,113 1.6 % 7,483 15.6 % Business reorganization (272) - % 83 - % (355) (427.7) % Total operating expenses$ 1,208,303 35.8 %$ 1,121,253 36.3 % $ 87,050 7.8 % Includes stock-based compensation expense, which was allocated as follows (in thousands): 2021 2020 Selling and marketing$ 18,348 $ 18,680 General and administrative$ 56,830 $ 53,607 Research and development$ 26,587 $ 31,563 Foreign currency exchange rates increased total operating expenses by$9.7 million in the fiscal year endedMarch 31, 2021 as compared to the prior year. Selling and marketing Selling and marketing expenses decreased by$13.4 million in the fiscal year endedMarch 31, 2021 as compared to the prior year, due primarily to$49.1 million in lower overall marketing expenses due primarily to less spend on Borderlands 3 and Red Dead Redemption 2, partially offset by marketing expenses for Two Dots with no comparable costs in the prior year period. The net decrease was partially offset by an increase in personnel expenses, primarily due to increased headcount. General and administrative General and administrative expenses increased by$72.4 million for the fiscal year endedMarch 31, 2021 , as compared to the prior year, due primarily to increases in (i) personnel expenses for additional headcount and higher incentive compensation, (ii) charitable contributions made in connection with our COVID-19 pandemic response and relief efforts, (iii) professional fees related to consulting, including for our acquisition ofPlaydots and our offer to acquire Codemasters Group Holdings PLC, and (iv) IT expenses, primarily for cloud-based services. General and administrative expenses for the fiscal years endedMarch 31, 2021 and 2020 include occupancy expense (primarily rent, utilities and office expenses) of$27.5 million and$25.9 million , respectively, related to our development studios. Research and development
Research and development expenses increased by
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--------------------------------------------------------------------------------Depreciation and amortization
Depreciation and amortization expenses increased by$7.5 million for the fiscal year endedMarch 31, 2021 , as compared to the prior year, due primarily to an increase in IT infrastructure and leasehold improvements for new office locations. Business Reorganization During the fiscal year endedMarch 31, 2021 , business reorganization expense decreased by$0.4 million as compared to the prior year period and was not material. Interest and other, net % of net % of net (thousands of dollars) 2021 revenue 2020 revenue Increase/(decrease)
% Increase/(decrease) Interest income$ 18,701 0.6 %$ 47,341 1.5 % $ (28,640) (60.5) % Interest expense (6,207) (0.2) % (2,637) (0.1) % (3,570) 135.4 % Foreign currency exchange gain (loss) 727 - % (3,589) (0.1) % 4,316 (120.3) % Other (4,425) (0.1) % (2,610) (0.1) % (1,815) 69.5 % Interest and other, net$ 8,796 0.3 %$ 38,505 1.2 % $ (29,709) (77.2) % Interest and other, net was income of$8.8 million for the fiscal year endedMarch 31, 2021 , as compared to income of$38.5 million for the fiscal year endedMarch 31, 2020 . The decrease was due primarily to a$28.6 million decrease in interest income due to lower interest rates. Gain/(loss) on long-term investments, net Gain/(loss) on long-term investments, net for the fiscal year endedMarch 31, 2021 was a gain of$39.6 million compared to a loss of$5.3 million in the prior year period and was due primarily to the sale of one of our investments (see Note 4 - Fair Value Measurements ). Provision for income taxes
Our income tax expense was
When compared to the statutory rate of 21%, the effective tax rate of 13.1% for the fiscal year endedMarch 31, 2021 was due primarily to a$29.1 million tax benefit from tax credits anticipated to be utilized, a$21.4 million tax benefit from our geographic mix of earnings and$13.7 million in excess tax benefits from employee stock compensation. When compared to the statutory rate of 21%, the effective tax rate of 11.8% for the fiscal year endedMarch 31, 2020 was primarily due to a$37.9 million tax benefit from tax credits anticipated to be utilized,$12.7 million from our geographic mix of earnings,$11.9 million due to a net deferred tax asset arising from a step up in tax basis related to the Federal Act on Tax Reform and AVH (Old-Age and Survivors Insurance ) Financing ("TRAF") enacted inSwitzerland during the fiscal year, discussed below,$9.2 million in changes in unrecognized tax benefits primarily due to audit settlements, and$8.4 million in excess tax benefits from employee stock compensation. These benefits were partially offset by tax expense of$19.8 million from the reversal of net deferred tax benefits relating to the Altera case. The effective tax rate in the current year was higher compared to the prior year primarily due to decreased tax benefits related to the one time creation of the net deferred tax asset related to TRAF offset by decreased expense associated with the reversal of net deferred tax benefits relating to the Altera case. 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 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 or the expiration of the statute of limitations could have an impact on our effective tax rate in future periods. 30 -------------------------------------------------------------------------------- OnMarch 11, 2021 , The American Rescue Plan Act of 2021 ("ARPA") was signed into law. ARPA includes several revenue-raising and business provisions. One such provision that impacts the Company is the expansion of the limitation of compensation deductions for certain covered employees of publicly held corporations. EffectiveApril 1, 2027 , ARPA expanded the limitation to cover the next five most highly compensated employees. As ofMarch 31, 2021 , ARPA did not have a material impact on our Consolidated Financial Statements. OnMarch 27, 2020 , theU.S. enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which provides numerous tax and other stimulus measures that generally support theU.S. economy. The CARES Act did not have a material impact on our Consolidated Financial Statements. OnMay 19, 2019 , a public referendum held inSwitzerland approved the TRAF, which was effective for us onJanuary 1, 2020 . The TRAF abolished preferential tax regimes for holding companies, domicile companies, and mixed companies at the cantonal level. The TRAF allows the cantons to establish transition rules, the implementation of which may be subject to a ruling from the canton. For the fiscal year endedMarch 31, 2020 , we recorded a deferred tax asset of$45.3 million offset by a valuation allowance of$33.4 million arising from the Swiss cantonal tax basis step-up. As ofMarch 31, 2021 , we had gross unrecognized tax benefits, including interest and penalties, of$167.6 million , of which$62.6 million would affect our effective tax rate if realized. For the fiscal year endedMarch 31, 2021 , gross unrecognized tax benefits increased by$33.3 million .
We are no longer subject to audit for
For the fiscal year endedMarch 31, 2021 , our net income was$588.9 million , as compared to$404.5 million in the prior year. Diluted earnings per share for the fiscal year endedMarch 31, 2021 was$5.09 , as compared to$3.54 for the fiscal year endedMarch 31, 2020 . Diluted weighted average shares outstanding of 115.7 million were 1.6 million higher due primarily to normal stock compensation activity, including vests as well as grants and forfeitures in the prior year being fully outstanding in the current year. Liquidity and Capital Resources Our primary cash requirements have been to fund (i) the development, manufacturing and marketing of our published products, (ii) working capital, (iii) acquisitions and (iv) capital expenditures. We expect to rely on cash and cash equivalents as well as on short-term investments, funds provided by our operating activities, and our Credit Agreement to satisfy our working capital needs. Short-term Investments As ofMarch 31, 2021 , we had$1,308.7 million of short-term investments, which are highly liquid in nature and represent an investment of cash that is available for current operations. From time to time, we may purchase additional short-term investments depending on future market conditions and liquidity needs. As ofMarch 31, 2021 , based on the composition of our investment portfolio and actions by central banks around the world to cut interest rates, including theU.S. Federal Reserve , in response to the COVID-19 pandemic and related adverse economic conditions, we anticipate investment yields to remain low, which would lower our future interest income. Such impact is not expected to be material to our liquidity. Credit Agreement OnFebruary 8, 2019 , we entered into an unsecured Credit Agreement (the "Credit Agreement") that runs throughFebruary 8, 2024 . The Credit Agreement provides for an unsecured five-year revolving credit facility with commitments of$200 million , including sublimits for (i) the issuance of letters of credit in an aggregate face amount of up to$25 million and (ii) borrowings and letters of credit denominated in Pounds Sterling, Euros and Canadian Dollars in an aggregate principal amount of up to$25 million . In addition, the Credit Agreement contains uncommitted incremental capacity permitting the incurrence of up to an additional$250 million in term loans or revolving credit facilities. Loans under the Credit Agreement will bear interest at a margin of (a) 0.125% to 0.750% above a certain base rate (3.25% atMarch 31, 2021 ), or (b) 1.125% to 1.750% above LIBOR (approximately 1.10% atMarch 31, 2021 ), which margins are determined by reference to our consolidated total net leverage ratio. 31 -------------------------------------------------------------------------------- As ofMarch 31, 2021 , there was$197.9 million available to borrow under the Credit Agreement and we had$2.1 million of letters of credit outstanding. AtMarch 31, 2021 , we had no outstanding borrowings under the Credit Agreement. The Credit Agreement also includes, among other terms and conditions, maximum leverage ratio, minimum cash reserves and, in certain circumstances, minimum interest coverage ratio financial covenants, as well as limitations on the Company's and each of its subsidiaries' ability to create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of its property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods). Financial Condition We are subject to credit risks, particularly if any of our receivables represent a limited number of customers or are concentrated in foreign markets. If we are unable to collect our accounts receivable as they become due, it could adversely affect our liquidity and working capital position. Generally, we have been able to collect our accounts receivable in the ordinary course of business. We do not hold any collateral to secure payment from customers. We have trade credit insurance on the majority of our customers to mitigate accounts receivable risk. A majority of our trade receivables are derived from sales to major retailers, including digital storefronts and platform partners, and distributors. Our five largest customers accounted for 78.4%, 71.5%, and 70.1% of net revenue during the fiscal years endedMarch 31, 2021 , 2020, and 2019, respectively. As ofMarch 31, 2021 and 2020, five customers accounted for 77.6% and 58.1% of our gross accounts receivable, respectively. Customers that individually accounted for more than 10% of our gross accounts receivable balance comprised 69.2% and 48.8% of such balances atMarch 31, 2021 and 2020, respectively. We had two customers who accounted for 50.4% and 18.8% of our gross accounts receivable as ofMarch 31, 2021 and two customers who accounted for 29.4%, and 19.4% of our gross accounts receivable as ofMarch 31, 2020 . We did not have any additional customers that exceeded 10% of our gross accounts receivable as ofMarch 31, 2021 and 2020. Based upon performing ongoing credit evaluations, maintaining trade credit insurance on a majority of our customers and our past collection experience, we believe that the receivable balances from these largest customers do not represent a significant credit risk, although we actively monitor each customer's creditworthiness 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, including as a result of the COVID-19 pandemic. We believe our current cash and cash equivalents, short-term investments and projected cash flow from operations, along with availability under our Credit Agreement will provide us with sufficient liquidity to satisfy our cash requirements for working capital, capital expenditures, and commitments on both a short-term and long-term basis. 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 . As ofMarch 31, 2021 , the amount of cash and cash equivalents held outside of theU.S. by our foreign subsidiaries was$321.1 million . These balances are dispersed across various locations around the world. We believe that such dispersion meets the business and liquidity needs of our foreign affiliates. In addition, we expect to have the ability to generate sufficient cash domestically to support ongoing operations for the foreseeable future. The Tax Cuts and Jobs Act, as enacted inDecember 2017 , includes a number of provisions, which generally establish a territorial-style system for taxing foreign income of domestic multinational corporations. Our current intention is to reinvest indefinitely the earnings of our foreign subsidiaries, and, therefore, we have not recorded any material tax liabilities associated with the repatriation of foreign earnings. Our Board of Directors has authorized the repurchase of up to 14.2 million shares of our common stock. Under this program, we may purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. The program does not require us to repurchase shares and may be suspended or discontinued at any time for any reason. During the fiscal years endedMarch 31, 2021 , 2020, and 2019, we repurchased zero, zero, and 3.7 million shares of our common stock, respectively, in the open market for$0.0 million ,$0.0 million , and$362.4 million , respectively, including 32 -------------------------------------------------------------------------------- commissions as part of the program. As ofMarch 31, 2021 , we had repurchased a total of 10.4 million shares of our common stock under the program, and 3.8 million shares of our common stock remained available for repurchase under the share repurchase program. Our changes in cash flows were as follows: Fiscal Year Ended March 31, (thousands of dollars) 2021 2020 2019 Net cash provided by operating activities$ 912,318 $ 685,678 $ 843,515 Net cash (used in) provided by investing activities (806,724) 4,049 (223,576) Net cash used in financing activities (57,338)
(77,453) (463,685) Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents
18,599 (10,868) (10,639)
Net change in cash, cash equivalents, and restricted cash and cash equivalents
$ 66,855
AtMarch 31, 2021 , we had$2,060.2 million of Cash, cash equivalents, and Restricted cash and cash equivalents, compared to$1,993.4 million atMarch 31, 2020 . The increase in Cash, cash equivalents, and Restricted cash and cash equivalents fromMarch 31, 2020 was due primarily to Net cash provided by operating activities from sales primarily from the previously mentioned titles, partially offset by investments in software development and licenses as well as royalty payments. This net increase was partially offset by (i) Net cash used in investing activities primarily related to changes in bank time deposits and net purchases of available for sale securities, our acquisition ofPlaydots , and purchases of fixed assets and (ii) Net cash used in financing activities, which was primarily related to tax payments related to net share settlements of our restricted stock. Commitments
Refer to Note 15 - Commit ments and Contingencies to our Consolidated Financial Statements for disclosures regarding our commitments. Capital Expenditures
In fiscal year 2022, we anticipate capital expenditures to be
As ofMarch 31, 2021 and 2020, we did not have any material relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. International Operations Net revenue earned outside ofthe United States is principally generated by our operations inEurope ,Asia ,Australia ,Canada andLatin America . For the fiscal years endedMarch 31, 2021 , 2020 and 2019, 40.2%, 42.5% and 46.5%, respectively, of our net revenue was earned outsidethe United States . We are subject to risks inherent in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange rates, shipping delays and international political, regulatory and economic developments, all of which can have a significant effect on our operating results. Fluctuations in Quarterly Operating Results and Seasonality We have experienced fluctuations in quarterly and annual operating results as a result of the timing of the introduction of new titles, variations in sales of titles developed for particular platforms, market acceptance of our titles, development and promotional expenses relating to the introduction of new titles, sequels or enhancements of existing titles, projected and actual changes in platforms, the timing and success of title introductions by our competitors, product returns, changes in pricing policies by us and our competitors, the accuracy of retailers' forecasts of consumer demand, the size and timing of acquisitions, the timing of orders from major customers, and order cancellations and delays in product shipment. Sales of our products are also seasonal, with peak demand typically occurring in the fourth calendar quarter during the holiday season. For certain of our software products with multiple performance obligations, we defer the recognition of our net revenue over an estimated service period which generally ranges from six to fifteen months. As a result, the quarter in which we generate the highest net bookings may be different from the quarter in which we recognize the highest amount of net revenue. Quarterly comparisons of operating results are not necessarily indicative of future operating results. 33
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