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ACQUISITIONS | 3 Months Ended
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Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS | ACQUISITIONS On May 23, 2022, we completed our acquisition of 100% of the issued and outstanding shares of Zynga, a leading developer of mobile games (the "Zynga Acquisition"). Under the terms and conditions of the merger agreement, each Zynga stockholder received $3.50 in cash and 0.0406 shares of our common stock and cash in lieu of fractional shares for each share of Zynga common stock outstanding at closing. Our consideration consisted of an aggregate of $3,992.4 in cash, 46.3 shares of our common stock, and $143.6 of replacement equity awards attributable to the pre-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 - D ebt). 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 $104.8, $8.3, and $5.6 for the three months ended June 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. 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 awards | 143.6 |
Total | $ | 9,513.7 |
We used the acquisition method of accounting and recognized assets acquired and liabilities assumed at their fair value as of the 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 initial accounting is incomplete as of June 30, 2022 for the acquired assets and assumed liabilities as the Company is currently in the process of completing the assessment of intangible assets. Additional intangible assets may be recognized as the valuation is complete. The following table summarizes the preliminary acquisition date fair value of net tangible and intangible assets acquired, net of liabilities assumed from Zynga:
| Fair Value | Weighted average useful life
Cash acquired | $ | 864.9 |  | N/A
Accounts receivable | 271.2 |  | N/A
Prepaid expenses and other | 192.6 |  | N/A
Fixed assets | 41.5 |  | N/A
Right-of-use assets | 85.7 |  | N/A
Other tangible assets | 67.3 |  | N/A
Accounts payable | (78.5) |  | N/A
Accrued expenses and other current liabilities | (355.5) |  | N/A
Deferred revenue | (333.1) |  | N/A
Lease liabilities | (15.4) |  | N/A
Long-term debt | (1,653.1) |  | N/A
Non-current lease liabilities | (129.1) |  | N/A
Deferred tax liabilities, net | (1,254.7) |  | N/A
Other liabilities assumed | (61.5) |  | N/A
Intangible Assets |  |
Developed game technology | 4,526.0 |  | 7
Branding and trade names | 384.0 |  | 12
Game engine technology | 130.0 |  | 3
User base | 126.0 |  | 1
Developer relationships | 72.0 |  | 7
Advertising technology | 42.0 |  | 3
Customer relationships | 35.0 |  | 5
Goodwill | 6,556.4 |  | N/A
Total | $ | 9,513.7 |  |
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 $6,556.4 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 Take-Two common stock (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 acceleration of awards, while the remaining fair value will be recognized over the remaining service periods. As of June 30, 2022, the future expense for the Converted RSU and PSU Awards was approximately $411.5, which will be recognized over a weighted average service period of approximately 1.7 years. As of June 30, 2022, the future expense for the Converted Options was approximately $4.8, which will be recognized over a weighted average service period of approximately 0.9 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 June 30, 2022 |
Net revenue | $ | 276.7 |  |
Net loss | $ | 177.5 |  |
Pro-forma Financial Information The following table summarizes the pro-forma consolidated results of operations (unaudited) for the three months ended June 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 June 30, |  |
| 2022 |  | 2021 |  |  |  |
Pro-forma Net revenue | $ | 1,480.6 |  |  | $ | 1,538.3 |  |  |  |  |
Pro-forma Net loss | $ | 19.1 |  |  | $ | 295.4 |  |  |  |  |
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.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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