EA Reports Record Q2 Non-GAAP Net Revenue of $1.15 Billion
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Revenue Exceeds Street Expectations
#1 Publisher Across All Platforms - Console, PC, Mobile
Segment Share Increases Four Points Fiscal Year-to-Date
All-Time Record Digital Direct Revenues
Cost-Reduction Plan to Cut $100 Million in Operating Expenses
Acquires Social Gaming Leader Playfish
REDWOOD CITY, Calif.--(BUSINESS WIRE)-- Electronic Arts Inc. (NASDAQ: ERTS) today announced preliminary financial results for its second quarter ended September 30, 2009.
Fiscal Second Quarter Results (comparisons are to the quarter ended September 30, 2008)
GAAP net revenue for the quarter, which includes the impact of deferred net revenue adjustments, was $788 million as compared with $894 million for the prior year. During the quarter, EA had a net revenue deferral of $359 million related to certain online-enabled packaged goods and digital content as compared with $232 million in the second quarter of the prior year.
Non-GAAP net revenue for the quarter was a record $1.147 billion, up 2 percent as compared with $1.126 billion for the prior year. Revenues were above street expectations. Sales were driven by the launches of FIFA 10, Madden NFL 10, The Beatles(TM): Rock Band(R), Need for Speed(TM) SHIFT and NCAA Football 10.
GAAP net loss for the quarter, including the impact of deferred net revenue, was $391 million as compared with a net loss of $310 million for the prior year. GAAP diluted loss per share was $1.21 as compared with GAAP diluted loss per share of $0.97 for the prior year.
Non-GAAP net income was $19 million as compared with a non-GAAP net loss of $20 million a year ago. Non-GAAP diluted earnings per share was $0.06 as compared with a non-GAAP diluted loss per share of $0.06 for the prior year.
"EA is performing well, with quality, sales and segment share up so far this year," said John Riccitiello, Chief Executive Officer. "We are making tough calls to cut cost in targeted areas and investing more in our biggest games and digital businesses."
"We met our second quarter expectations and delivered a record quarter for revenue," said Eric Brown, Chief Financial Officer. "Today we are announcing a significant cut in our operating expenses and the acquisition of a leader in social games, Playfish."
Acquisition of Playfish
EA has announced that it has acquired Playfish Limited, a leading social games company, for approximately $275 million in cash and approximately $25 million in equity retention arrangements. In addition, the sellers are entitled to up to an additional $100 million in consideration upon the achievement of certain performance milestones. The acquisition accelerates EA's growth in social entertainment and strengthens its focus on the transition to digital and social gaming.
Playfish will operate within EA Interactive, a division of EA focused on the web and wireless space. Playfish's industry-leading talent and critically acclaimed games join EA to capture the exciting opportunities for social gaming and networking across a mass-market audience.
Cost Reduction Plan
EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities.
This action will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan. The majority of these actions will be completed by March 31, 2010. This plan will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million.
EA remains committed to delivering high quality games for consumers and leading the industry in the growing digital direct gaming sector.
Highlights (comparisons are to the quarter ended September 30, 2008)
-- EA was the #1 publisher in North America and Europe fiscal year to date,
with 21% segment share - up four points. EA had four of the top-ten
games in both North America and Europe.
-- Eight EA titles launched this quarter with a Metacritic rating of 80 or
above, including: NHL(R) 10, The Beatles: Rock Band, FIFA 10,
Battlefield 1943(TM), Madden NFL 10, NCAA Football 10, Dead Space(TM)
Extraction, and Need for Speed SHIFT. Calendar year-to-date, EA has 17
titles rated at 80 or above.
-- FIFA 10,with a Metacritic rating of 91 on the Xbox 360(R) and
PlayStation(R)3, was EA's strongest European title launch in its history
- selling 4.5 million copies in week one.
-- Madden NFL 10was the #1 title in North America for the quarter,
according to NPD.
-- Need for Speed SHIFT, with a 22 point increase in quality as measured by
Metacritic, sold over 2.5 million copies in the quarter.
-- Digital non-GAAP net revenue was an all time quarter high at $138
million - up 23 percent year-over-year.
-- EA recently signed five new advertising partners - Johnson & Johnson,
Doritos, Apple, Pfizer and Renault -- for $7 million in incremental
advertising bookings.
-- EA Mobile, the world's leading publisher of games for phones, delivered
$50 million of non-GAAP net revenue in the quarter - up nine percent
year-over-year. EA is the #1 publisher of games on the iPhone with seven
of the top 10 games; and #1 on Verizon with eight of the top 10 games.
Business Outlook
The following forward-looking statements, as well as those made above, reflect expectations as of November 9, 2009. Results may be materially different and are affected by many factors, including: development delays on EA's products; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; expected savings and impact on EA's operations of the Company's cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; the financial impact of the Playfish acquisition and potential future acquisitions by EA; the popular appeal of EA's products; EA's effective tax rate; and other factors detailed in this release and in EA's annual and quarterly SEC filings.
Fiscal Year Expectations - Ending March 31, 2010
-- GAAP net revenue is expected to be between $3.6 and $3.9 billion.
-- Non-GAAP net revenue is expected to be approximately $4.2 to $4.4
billion.
-- GAAP diluted loss per share is expected to be between $1.20 and $2.05.
-- Non-GAAP diluted earnings per share is expected to be between $0.70 and
$1.00 and EA expects to be profitable in both Q3 and Q4.
-- For purposes of calculating fiscal year 2010 GAAP loss per share, the
Company estimates a share count of 324 million and for non-GAAP EPS, the
Company estimates a share count of 326 million.
-- Expected non-GAAP net income excludes the following items from expected
GAAP net income:
- $500 to $600 million for the impact of the change in deferred net revenue (packaged goods and digital content);
- $170 to $175 million of estimated stock-based compensation;
- $55 million of amortization of intangible assets;
- $120 to $145 million of restructuring charges;
- $24 million of losses on strategic investments;
- $14 million loss on lease obligation; and
- ($120) to ($170) million in the difference between the Company's GAAP and non-GAAP tax expenses.
The above fiscal 2010 expectations do not reflect the financial impact of the acquisition of Playfish Limited, which is expected to be roughly neutral to non-GAAP expectations and increase GAAP loss per share by $0.15 to $0.25, due primarily to acquisition-related tax expenses, deferred revenue adjustments, additional stock-based compensation, and amortization of intangible assets. These preliminary estimates are based on currently available information and are subject to change.
Conference Call
Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the fiscal second quarter ended September 30, 2009 and its outlook for the future. During the course of the call, Electronic Arts may also disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (888) 455-2238, access code 220497, or via webcast: http://investor.ea.com.
A dial-in replay of the conference call will be provided until November 16, 2009 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year at http://investor.ea.com.
Non-GAAP Financial Measures
To supplement the Company's unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Electronic Arts include: non-GAAP net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items, as applicable in a given reporting period, from the Company's unaudited condensed consolidated statements of operations:
-- Acquired in-process technology
-- Amortization of intangibles
-- Certain abandoned acquisition-related costs
-- Change in deferred net revenue (packaged goods and digital content)
-- Goodwill impairment
-- Loss on lease obligation and facilities acquisition
-- Loss on licensed intellectual property commitment
-- Losses (gains) on strategic investments
-- Restructuring charges
-- Stock-based compensation
-- Income tax adjustments
Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company's performance by excluding certain items that may not be indicative of the Company's core business, operating results or future outlook. Electronic Arts' management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company's operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the Company's performance to prior periods.
In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:
Amortization of Intangibles. When analyzing the operating performance of an acquired entity, Electronic Arts' management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company's management excludes the GAAP impact of acquired intangible assets to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.
In addition, in accordance with GAAP, Electronic Arts generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, Electronic Arts believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.
Certain Abandoned Acquisition-Related Costs. Electronic Arts incurred significant legal, banking and other consulting fees related to the Company's proposed acquisition and related cash tender offer for all of the outstanding shares of Take-Two Interactive Software, Inc. On August 18, 2008, the Company allowed the tender offer to expire without purchasing any shares of Take-Two and, on September 14, 2008, the Company announced that it had terminated discussions with Take-Two. The costs incurred in connection with the abandoned proposal and tender offer were outside the ordinary course of business and were excluded by the Company when assessing the performance of its management team. As such, the Company believes it is appropriate to exclude such expenses from its non-GAAP financial measures.
Change in Deferred Net Revenue (Packaged Goods and Digital Content). Electronic Arts is not able to objectively determine the fair value of the online service included in certain of its packaged goods and digital content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. In other transactions, at the date we sell the software product we have an obligation to provide incremental unspecified digital content in the future without an additional fee. In these cases, we account for the sale of the software product as a multiple element arrangement and recognize the revenue on a straight-line basis over the estimated life of the game. Internally, Electronic Arts' management excludes the impact of the change in deferred net revenue related to packaged goods games and digital content in its non-GAAP financial measures when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The Company believes that excluding the impact of the change in deferred net revenue from its operating results is important to (1) facilitate comparisons to prior periods during which the Company was able to objectively determine the fair value of the online service and not delay the recognition of significant amounts of net revenue related to online-enabled packaged goods and (2) understanding our operations because all related costs are expensed as incurred instead of deferred and recognized ratably.
Goodwill Impairment. Adverse economic conditions, including the decline in the Company's market capitalization and expected financial performance, indicated that a potential impairment of goodwill existed during the three months ended December 31, 2008. As a result, the Company performed goodwill impairment tests for its reporting units and determined that goodwill related to its mobile reporting unit was impaired. As the Company excludes the GAAP impact of acquired intangible assets (such as goodwill) from its financial results when analyzing the operating performance of an acquisition in subsequent periods, Electronic Arts believes it is appropriate to exclude goodwill impairment charges from its non-GAAP financial measures.
Loss on Lease Obligation and Facilities Acquisition. During the second quarter of fiscal 2010, Electronic Arts completed the acquisition of its headquarters facilities in Redwood City, California pursuant to the terms of the loan financing agreements underlying the build-to-suit leases for the facilities. These leases expired in July 2009, and had previously been accounted for as operating leases. The total amount paid under the terms of the leases was $247 million, of which $233 million related to the purchase price of the facilities and $14 million was for the loss on our lease obligation. In addition, Electronic Arts recorded a tax benefit of approximately $31 million, consisting of approximately $6 million related to the loss on our lease obligation, and a $25 million reduction in our valuation allowance due to the acquisition. As a result of this lease obligation and facility acquisition, on an after-tax basis, Electronic Arts incurred a positive net income effect of $17 million. Electronic Arts' management excluded the effect of this transaction when evaluating the Company's operating performance and when assessing the performance of its management team during this period and will continue to do so, when it plans, forecasts and analyzes future periods.
Loss on Licensed Intellectual Property Commitment. During the fourth quarter of fiscal 2009, Electronic Arts amended an agreement with a content licensor. This amendment resulted in the termination of our rights to use the licensor's intellectual property in certain products and we incurred a related estimated loss of $38 million. This significant non-recurring loss is excluded from our Non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this loss when evaluating its operating performance and the performance of its management team during this period and will continue to do so when it plans, forecasts and analyzes future periods.
Losses (Gains) on Strategic Investments. From time to time, the Company makes strategic investments. Electronic Arts' management excludes the impact of any losses and gains on such investments when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, the Company believes that excluding the impact of such losses and gains on these investments from its operating results is important to facilitate comparisons to prior periods.
Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete, extraordinary event based on a unique set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.
Stock-Based Compensation. When evaluating the performance of its individual business units, the Company does not consider stock-based compensation charges. Likewise, the Company's management teams exclude stock-based compensation expense from their short and long-term operating plans. In contrast, the Company's management teams are held accountable for cash-based compensation and such amounts are included in their operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company's management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts' performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business.
Income Tax Adjustments. The Company uses a fixed, long-term projected tax rate of 28 percent internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Accordingly, the Company has applied the same 28 percent tax rate to its non-GAAP financial results.
In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to the historical non-GAAP financial measures used in this press release.
Forward-Looking Statements
Some statements set forth in this release, including the estimates relating to EA's cost reduction plan and fiscal year 2010 guidance information under the heading "Business Outlook", contain forward-looking statements that are subject to change. Statements including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are preliminary estimates and expectations based on current information and are subject to business and economic risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause the Company's results to differ materially from its expectations include the following: sales of the Company's titles during fiscal year 2010; the general health of the U.S. and global economy and the related impact on discretionary consumer spending; fluctuations in foreign exchange rates; consumer spending trends; the Company's ability to manage expenses; the competition in the interactive entertainment industry; the effectiveness of the Company's sales and marketing programs; timely development and release of Electronic Arts' products; the consumer demand for, and the availability of an adequate supply of console hardware units (including the Xbox 360(R) video game and entertainment system, the PLAYSTATION(R)3 computer entertainment system and the Wii(TM)); the Company's ability to predict consumer preferences among competing hardware platforms; the financial impact of the Playfish acquisition and potential future acquisitions by EA; the Company's ability to realize the anticipated benefits of acquisitions; the seasonal and cyclical nature of the interactive game segment; the Company's ability to attract and retain key personnel; changes in the Company's effective tax rates; the performance of strategic investments; the impact of certain accounting requirements, such as the Company's ability to estimate and recognize goodwill impairment charges and make tax valuation allowances; adoption of new accounting regulations and standards; potential regulation of the Company's products in key territories; developments in the law regarding protection of the Company's products; the Company's ability to secure licenses to valuable entertainment properties on favorable terms; the stability of the Company's key customers, and other factors described in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2009. These forward-looking statements speak only as of November 9, 2009. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. In addition, the preliminary financial results set forth in this release are estimates based on information currently available to Electronic Arts. While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended September 30, 2009.
About Electronic Arts
Electronic Arts Inc. (EA), headquartered in Redwood City, California, is a leading global interactive entertainment software company. Founded in 1982, the Company develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, wireless devices and the Internet. Electronic Arts markets its products under four brand names: EA SPORTSTM, EATM, EA MobileTM and POGOTM. In fiscal 2009, EA posted GAAP net revenue of $4.2 billion and had 31 titles that sold more than one million copies. EA's homepage and online game site is www.ea.com. More information about EA's products and full text of press releases can be found on the Internet at http://info.ea.com.
EA, EA SPORTS, EA Mobile, POGO, Need for Speed, and Dead Space are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. Battlefield 1943 is a trademark or registered trademark of EA Digital Illusions CE AB in the U.S. and/or other countries. The Beatles is a trademark of Apple Corps Ltd. Rock Band is a trademark of Harmonix Music Systems, Inc., an MTV Networks company. John Madden, NFL, NCAA, FIFA and NHL are trademarks or registered trademarks of their respective owners and used with permission. Xbox and Xbox 360 are trademarks of the Microsoft group of companies and are used under license from Microsoft. "PlayStation" is a registered trademark of Sony Computer Entertainment Inc. All other trademarks are the property of their respective owners.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Net revenue $ 788 $ 894 $ 1,432 $ 1,698
Cost of goods sold 593 557 914 853
Gross profit 195 337 518 845
Operating expenses:
Marketing and sales 187 197 351 325
General and administrative 91 92 157 176
Research and development 316 372 628 729
Acquired in-process technology - - - 2
Amortization of intangibles 12 16 24 30
Certain abandoned - 21 - 21
acquisition-related costs
Restructuring charges 6 3 20 23
Total operating expenses 612 701 1,180 1,306
Operating loss (417 ) (364 ) (662 ) (461 )
Losses on strategic investments (8 ) (34 ) (24 ) (40 )
Interest and other income, net 7 7 10 23
Loss before benefit from income (418 ) (391 ) (676 ) (478 )
taxes
Benefit from income taxes (27 ) (81 ) (51 ) (73 )
Net loss $ (391 ) $ (310 ) $ (625 ) $ (405 )
Loss per share
Basic and diluted $ (1.21 ) $ (0.97 ) $ (1.93 ) $ (1.27 )
Number of shares used in computation
Basic and diluted 324 319 324 319
Non-GAAP Results (in millions, except per share data)
The following tables reconcile the Company's net loss and loss per share as
presented in its Unaudited Condensed Consolidated Statements of Operations and
prepared in accordance with Generally Accepted Accounting Principles ("GAAP") to
its non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share.
Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Net loss $ (391 ) $ (310 ) $ (625 ) $ (405 )
Acquired in-process technology - - - 2
Amortization of intangibles 12 16 24 30
Certain abandoned - 21 - 21
acquisition-related costs
Change in deferred net revenue 359 232 531 37
(packaged goods and digital content)
COGS amortization of intangibles 3 4 6 7
Loss on lease obligation (G&A) 14 - 14 -
Loss on licensed intellectual (2 ) - (2 ) -
property commitment (COGS)
Losses on strategic investments 8 34 24 40
Restructuring charges 6 3 20 23
Stock-based compensation 44 53 77 103
Income tax adjustments (34 ) (73 ) (56 ) (13 )
Non-GAAP net income (loss) $ 19 $ (20 ) $ 13 $ (155 )
Non-GAAP diluted earnings (loss) per $ 0.06 $ (0.06 ) $ 0.04 $ (0.49 )
share
Number of shares used in computation
Basic 324 319 324 319
Diluted 325 319 325 319
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
September 30, March 31,
2009 2009(a)
ASSETS
Current assets:
Cash and cash equivalents $ 1,042 $ 1,621
Short-term investments 583 534
Marketable equity securities 387 365
Receivables, net of allowances of $194 and $217, 646 116
respectively
Inventories 250 217
Deferred income taxes, net 74 51
Other current assets 245 216
Total current assets 3,227 3,120
Property and equipment, net 569 354
Goodwill 817 807
Acquisition-related intangibles, net 194 221
Deferred income taxes, net 71 61
Other assets 124 115
TOTAL ASSETS $ 5,002 $ 4,678
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 273 $ 152
Accrued and other current liabilities 848 723
Deferred net revenue (packaged goods and digital 792 261
content)
Total current liabilities 1,913 1,136
Income tax obligations 316 268
Deferred income taxes, net 28 42
Other liabilities 89 98
Total liabilities 2,346 1,544
Common stock 3 3
Paid-in capital 2,181 2,142
Retained earnings 175 800
Accumulated other comprehensive income 297 189
Total stockholders' equity 2,656 3,134
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,002 $ 4,678
(a) Derived from audited consolidated financial
statements.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
OPERATING ACTIVITIES
Net loss $ (391 ) $ (310 ) $ (625 ) $ (405 )
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Acquired in-process technology - - - 2
Depreciation, amortization and 46 54 94 104
accretion, net
Net losses on investments and sale 8 34 23 40
of property and equipment
Non-cash restructuring charges - - 7 16
Stock-based compensation 44 53 77 103
Change in assets and liabilities:
Receivables, net (266 ) (291 ) (518 ) (253 )
Inventories (34 ) (107 ) (30 ) (163 )
Other assets 1 25 (34 ) 18
Accounts payable 115 137 123 104
Accrued and other liabilities 155 145 73 104
Deferred income taxes, net (31 ) (96 ) (43 ) (122 )
Deferred net revenue (packaged goods 359 232 531 37
and digital content)
Net cash provided by (used in) 6 (124 ) (322 ) (415 )
operating activities
INVESTING ACTIVITIES
Purchase of headquarters facilities (233 ) - (233 ) -
Capital expenditures (26 ) (32 ) (34 ) (63 )
Proceeds from maturities and sales 191 375 359 510
of investments
Purchase of short-term investments (136 ) (155 ) (405 ) (313 )
Acquisition of subsidiaries, net of - - (3 ) (42 )
cash acquired
Net cash provided by (used in) (204 ) 188 (316 ) 92
investing activities
FINANCING ACTIVITIES
Proceeds from issuance of common 22 44 25 69
stock
Excess tax benefit from stock-based - 7 - 16
compensation
Net cash provided by financing 22 51 25 85
activities
Effect of foreign exchange on cash 13 (17 ) 34 (18 )
and cash equivalents
Increase (decrease) in cash and cash (163 ) 98 (579 ) (256 )
equivalents
Beginning cash and cash equivalents 1,205 1,199 1,621 1,553
Ending cash and cash equivalents $ 1,042 $ 1,297 $ 1,042 $ 1,297
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q2 Q3 Q4 Q1 Q2 YOY %
FY09 FY09 FY09 FY10 FY10 Change
QUARTERLY
RECONCILIATION OF
RESULTS
Net Revenue
GAAP net revenue $ 894 $ 1,654 $ 860 $ 644 $ 788 (12 %)
Change in deferred
net revenue 232 88 (251 ) 172 359
(packaged goods and
digital content)
Non-GAAP net $ 1,126 $ 1,742 $ 609 $ 816 $ 1,147 2 %
revenue
Gross Profit
GAAP gross profit $ 337 $ 729 $ 511 $ 323 $ 195 (42 %)
Change in deferred
net revenue 232 88 (251 ) 172 359
(packaged goods and
digital content)
COGS amortization 4 4 3 3 3
of intangibles
Loss on licensed
intellectual - - 38 - (2 )
property commitment
(COGS)
Stock-based - - 1 1 -
compensation
Non-GAAP gross $ 573 $ 821 $ 302 $ 499 $ 555 (3 %)
profit
GAAP gross profit %
(as a % of GAAP net 38 % 44 % 59 % 50 % 25 %
revenue)
Non-GAAP gross
profit % (as a % of 51 % 47 % 50 % 61 % 48 %
non-GAAP net
revenue)
Operating Income
(Loss)
GAAP operating loss $ (364 ) $ (304 ) $ (62 ) $ (245 ) $ (417 ) (15 %)
Acquired in-process - 1 - - -
technology
Amortization of 16 15 12 12 12
intangibles
Certain abandoned
acquisition-related 21 - - - -
costs
Change in deferred
net revenue 232 88 (251 ) 172 359
(packaged goods and
digital content)
COGS amortization 4 4 3 3 3
of intangibles
Goodwill impairment - 368 - - -
Loss on lease - - - - 14
obligation (G&A)
Loss on licensed
intellectual - - 38 - (2 )
property commitment
(COGS)
Restructuring 3 18 39 14 6
charges
Stock-based 53 44 56 33 44
compensation
Non-GAAP operating $ (35 ) $ 234 $ (165 ) $ (11 ) $ 19 154 %
income (loss)
GAAP operating loss
% (as a % of GAAP (41 %) (18 %) (7 %) (38 %) (53 %)
net revenue)
Non-GAAP operating
income (loss) % (as (3 %) 13 % (27 %) (1 %) 2 %
a % of non-GAAP net
revenue)
Net Income (Loss)
GAAP net loss $ (310 ) $ (641 ) $ (42 ) $ (234 ) $ (391 ) (26 %)
Acquired in-process - 1 - - -
technology
Amortization of 16 15 12 12 12
intangibles
Certain abandoned
acquisition-related 21 - - - -
costs
Change in deferred
net revenue 232 88 (251 ) 172 359
(packaged goods and
digital content)
COGS amortization 4 4 3 3 3
of intangibles
Goodwill impairment - 368 - - -
Loss on lease - - - - 14
obligation (G&A)
Loss on licensed
intellectual - - 38 - (2 )
property commitment
(COGS)
Losses (gains) on
strategic 34 27 (5 ) 16 8
investments
Restructuring 3 18 39 14 6
charges
Stock-based 53 44 56 33 44
compensation
Income tax (73 ) 255 30 (22 ) (34 )
adjustments
Non-GAAP net income $ (20 ) $ 179 $ (120 ) $ (6 ) $ 19 195 %
(loss)
GAAP net loss % (as
a % of GAAP net (35 %) (39 %) (5 %) (36 %) (50 %)
revenue)
Non-GAAP net income
(loss) % (as a % of (2 %) 10 % (20 %) (1 %) 2 %
non-GAAP net
revenue)
Diluted Earnings
(Loss) Per Share
GAAP loss per share $ (0.97 ) $ (2.00 ) $ (0.13 ) $ (0.72 ) $ (1.21 ) (25 %)
Non-GAAP diluted
earnings (loss) per $ (0.06 ) $ 0.56 $ (0.37 ) $ (0.02 ) $ 0.06 200 %
share
Number of shares
used in computation
Basic 319 321 322 323 324
Diluted 319 322 322 323 325
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q2 Q3 Q4 Q1 Q2 YOY %
FY09 FY09 FY09 FY10 FY10 Change
QUARTERLY NET
REVENUE
PRESENTATIONS -
GAAP AND NON-GAAP
Geography Net
Revenue
North America 555 957 471 343 479 (14 %)
Europe 301 623 336 258 268 (11 %)
Asia 38 74 53 43 41 8 %
Total GAAP Net 894 1,654 860 644 788 (12 %)
Revenue
North America 191 (47 ) (105 ) 106 159
Europe 37 123 (133 ) 61 191
Asia 4 12 (13 ) 5 9
Change In Deferred
Net Revenue 232 88 (251 ) 172 359
(Packaged Goods and
Digital Content)
North America 746 910 366 449 638 (14 %)
Europe 338 746 203 319 459 36 %
Asia 42 86 40 48 50 19 %
Total Non-GAAP Net 1,126 1,742 609 816 1,147 2 %
Revenue
North America 62 % 58 % 55 % 53 % 61 %
Europe 34 % 38 % 39 % 40 % 34 %
Asia 4 % 4 % 6 % 7 % 5 %
Total GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
North America 66 % 52 % 60 % 55 % 56 %
Europe 30 % 43 % 33 % 39 % 40 %
Asia 4 % 5 % 7 % 6 % 4 %
Total Non-GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
Publisher Net
Revenue(a)
Publishing 708 1,225 744 579 553 (22 %)
Distribution 186 429 116 65 235 26 %
Total GAAP Net 894 1,654 860 644 788 (12 %)
Revenue
Publishing 232 88 (251 ) 172 359
Distribution - - - - -
Change In Deferred
Net Revenue 232 88 (251 ) 172 359
(Packaged Goods and
Digital Content)
Publishing 940 1,313 493 751 912 (3 %)
Distribution 186 429 116 65 235 26 %
Total Non-GAAP Net 1,126 1,742 609 816 1,147 2 %
Revenue
Publishing 79 % 74 % 87 % 90 % 70 %
Distribution 21 % 26 % 13 % 10 % 30 %
Total GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
Publishing 84 % 75 % 81 % 92 % 80 %
Distribution 16 % 25 % 19 % 8 % 20 %
Total Non-GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
Net Revenue
Composition
Packaged Goods 770 1,480 705 495 636 (17 %)
Wireless,
Internet-derived, 104 126 112 117 128 23 %
and Advertising
(Digital)
Licensing and Other 20 48 43 32 24 20 %
Total GAAP Net 894 1,654 860 644 788 (12 %)
Revenue
Packaged Goods 224 97 (248 ) 165 349
Wireless,
Internet-derived, 8 (9 ) (2 ) 7 10
and Advertising
(Digital)
Licensing and Other - - (1 ) - -
Change In Deferred
Net Revenue 232 88 (251 ) 172 359
(Packaged Goods and
Digital Content)
Packaged Goods 994 1,577 457 660 985 (1 %)
Wireless,
Internet-derived, 112 117 110 124 138 23 %
and Advertising
(Digital)
Licensing and Other 20 48 42 32 24 20 %
Total Non-GAAP Net 1,126 1,742 609 816 1,147 2 %
Revenue
Packaged Goods 86 % 89 % 82 % 77 % 81 %
Wireless,
Internet-derived, 12 % 8 % 13 % 18 % 16 %
and Advertising
(Digital)
Licensing and Other 2 % 3 % 5 % 5 % 3 %
Total GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
Packaged Goods 88 % 90 % 75 % 81 % 86 %
Wireless,
Internet-derived, 10 % 7 % 18 % 15 % 12 %
and Advertising
(Digital)
Licensing and Other 2 % 3 % 7 % 4 % 2 %
Total Non-GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
(a) Publishing includes all net revenue other than Distribution.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q2 Q3 Q4 Q1 Q2 YOY %
FY09 FY09 FY09 FY10 FY10 Change
QUARTERLY NET
REVENUE
PRESENTATIONS -
GAAP AND NON-GAAP
Platform Net
Revenue
Xbox 360 290 448 132 73 171 (41 %)
Wii 94 254 126 161 142 51 %
PLAYSTATION 3 120 297 197 121 142 18 %
PlayStation 2 77 179 53 27 40 (48 %)
Xbox 1 - - - - (100 %)
Total Consoles 582 1,178 508 382 495 (15 %)
Wireless 47 49 49 50 51 9 %
Nintendo DS 44 118 38 28 22 (50 %)
PSP 36 36 44 38 20 (44 %)
Total Mobile 127 203 131 116 93 (27 %)
PC 164 215 180 124 173 5 %
Other 21 58 41 22 27 29 %
Total GAAP Net 894 1,654 860 644 788 (12 %)
Revenue
Xbox 360 - - 3 63 189
Wii 28 27 (32 ) 23 (2 )
PLAYSTATION 3 68 58 (113 ) (22 ) 180
PlayStation 2 22 (11 ) (20 ) (7 ) 14
Wireless (1 ) 1 (1 ) - (1 )
PSP (3 ) 34 (23 ) (16 ) 19
PC 117 (21 ) (65 ) 131 (40 )
Other 1 - - - -
Change in Deferred
Net Revenue 232 88 (251 ) 172 359
(Packaged Goods and
Digital Content)
Xbox 360 290 448 135 136 360 24 %
PLAYSTATION 3 188 355 84 99 322 71 %
Wii 122 281 94 184 140 15 %
PlayStation 2 99 168 33 20 54 (45 %)
Xbox 1 - - - - (100 %)
Total Consoles 700 1,252 346 439 876 25 %
Wireless 46 50 48 50 50 9 %
PSP 33 70 21 22 39 18 %
Nintendo DS 44 118 38 28 22 (50 %)
Total Mobile 123 238 107 100 111 (10 %)
PC 281 194 115 255 133 (53 %)
Other 22 58 41 22 27 23 %
Total Non-GAAP Net 1,126 1,742 609 816 1,147 2 %
Revenue
Xbox 360 32 % 27 % 15 % 11 % 22 %
Wii 11 % 15 % 15 % 25 % 18 %
PLAYSTATION 3 13 % 18 % 23 % 19 % 18 %
PlayStation 2 9 % 11 % 6 % 4 % 5 %
Total Consoles 65 % 71 % 59 % 59 % 63 %
Wireless 5 % 3 % 6 % 8 % 6 %
Nintendo DS 5 % 7 % 4 % 4 % 3 %
PSP 4 % 2 % 5 % 6 % 3 %
Total Mobile 14 % 12 % 15 % 18 % 12 %
PC 18 % 13 % 21 % 19 % 22 %
Other 3 % 4 % 5 % 4 % 3 %
Total GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
Xbox 360 26 % 26 % 22 % 17 % 31 %
PLAYSTATION 3 16 % 20 % 14 % 12 % 28 %
Wii 11 % 16 % 16 % 23 % 12 %
PlayStation 2 9 % 10 % 5 % 2 % 5 %
Total Consoles 62 % 72 % 57 % 54 % 76 %
Wireless 4 % 3 % 8 % 6 % 5 %
PSP 3 % 4 % 3 % 3 % 3 %
Nintendo DS 4 % 7 % 6 % 3 % 2 %
Total Mobile 11 % 14 % 17 % 12 % 10 %
PC 25 % 11 % 19 % 31 % 12 %
Other 2 % 3 % 7 % 3 % 2 %
Total Non-GAAP Net 100 % 100 % 100 % 100 % 100 %
Revenue %
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
Q2 Q3 Q4 Q1 Q2 YOY %
FY09 FY09 FY09 FY10 FY10 Change
CASH FLOW DATA
Operating cash flow (124 ) 212 215 (328 ) 6 105 %
Operating cash flow 219 82 12 (25 ) 105 (52 %)
- TTM
Capital 32 27 25 8 26 (19 %)
expenditures
Capital 110 112 115 92 86 (22 %)
expenditures - TTM
Purchase of
headquarters - - - - 233 -
facilities
BALANCE SHEET DATA
Cash and cash 1,297 1,379 1,621 1,205 1,042 (20 %)
equivalents
Short-term 528 580 534 634 583 10 %
investments
Marketable equity 640 302 365 440 387 (40 %)
securities
Receivables, net 547 794 116 375 646 18 %
Inventories 328 295 217 215 250 (24 %)
Deferred net
revenue (packaged
goods and digital
content)
End of the quarter 424 512 261 433 792
Less: Beginning of 192 424 512 261 433
the quarter
Change in deferred
net revenue 232 88 (251 ) 172 359
(packaged goods and
digital content)
STOCK-BASED
COMPENSATION
Cost of goods sold - - 1 1 -
Marketing and sales 5 5 5 3 5
General and 13 11 13 5 10
administrative
Research and 35 28 37 24 29
development
Total Stock-Based 53 44 56 33 44
Compensation
EMPLOYEES 9,671 9,760 9,106 8,948 8,829 (9 %)
PLATFORM SKU
RELEASES(Excludes
Co-Publishing,
Distribution and
Wireless)
Xbox 360 7 8 6 4 8
PLAYSTATION 3 7 7 5 4 8
Wii 3 12 4 6 5
PlayStation 2 4 7 1 2 4
Xbox 1 - - - -
Total Consoles 22 34 16 16 25
PSP 3 3 1 2 5
Nintendo DS 6 9 7 2 4
Total Mobile 9 12 8 4 9
PC 3 10 6 3 4
Total SKUs 34 56 30 23 38
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Fact Sheet
PRODUCT RELEASES
Q2 FY10
Xbox Wire-
360 PS3 Wii PS2 less PSP NDS PC
Publishing
Battlefield 1943TM X X
BOGGLE X
Command & ConquerTM Red
AlertTM 3: Commander's X X
Challenge
Command & Conquer(TM) X
Red Alert(TM) Mobile
Dead SpaceTM: Extraction X
FIFA 10 X X X X X X X
FIGHT NIGHT Round 4 X
G.I. JOETM The Rise of X X X X X X X
CobraTM
Harry Potter and the X
Half-Blood Prince(TM)
LITTLEST PET SHOP Online X
Madden NFL 10 X X X X X X
MySimsTM Agents X X
NCAA(R) FOOTBALL 10 X X X X
Need for Speed(TM) Shift X X X X X
NHL(R) 10 X X
SporeTM Hero Arena X X
Zombies & Me X
Distribution
Rock BandTM X
The BeatlesTM: Rock X X X
BandTM
Source: Electronic Arts Inc.
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