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8-K - CURRENT REPORT ON FORM 8-K - ELECTRONIC ARTS INC.d8k.htm

Exhibit 99.1

 

  ELECTRONIC ARTS REPORTS Q3 FY11 FINANCIAL RESULTS    LOGO  

Q3 Non-GAAP Net Income Up More than 75% Year-Over-Year

Q3 Non-GAAP EPS Ahead of Expectations

Q3 Non-GAAP Digital Revenues Increased 39% Year-Over-Year

$600 Million Stock Buyback Announced

Dead Space 2 Launched with 91-Rating

REDWOOD CITY, CA – February 1, 2011 – Electronic Arts Inc. (NASDAQ: ERTS) today announced preliminary financial results for its third fiscal quarter ended December 31, 2010.

“We had a solid third quarter with non-GAAP earnings up more than 75% year-over-year,” said Eric Brown, Chief Financial Officer. “EA reported 39% growth in digital and is tracking toward our $750 million full year non-GAAP digital revenue target.”

“We are pleased to report another strong quarter,” said John Riccitiello, Chief Executive Officer. “Our $600 million stock buyback demonstrates our confidence in EA’s digital strategy.”

Selected Operating Highlights and Metrics:

 

  ¡  

In 2010, in Western markets, EA was the #1 publisher on high definition consoles (PlayStation®3 and Xbox 360®).

  ¡  

In Western markets in the third quarter, EA was the #1 publisher in the Apple App StoreSM for both iPhone® and iPad™ and #1 on Microsoft Windows® Phone 7.

  ¡  

Two of our third quarter frontline titles, Medal of Honor™ and Need For Speed™ Hot Pursuit, sold in more than five million units to date.

  ¡  

In 2010, EA launched five games which sold in more than five million units each – FIFA 11, Medal of Honor, Madden NFL 11, Need for Speed Hot Pursuit and Battlefield: Bad Company™ 2.

  ¡  

EA’s SCRABBLE game outsold every book to become the #1 selling item on Kindle in the last week of December.

  ¡  

On Facebook®, Madden NFL Superstars and FIFA Superstars have attracted loyal audiences and good monetization.

  ¡  

Dead Space™ 2 launched last week with a critical index of 91 – outscoring the original Dead Space and outselling it two-to-one.

 


Q3 FY11 Financial Highlights:

Non-GAAP net revenue was $1,410 million, consistent with guidance of $1,375 million to $1,500 million. Non-GAAP EPS were $0.59, at the high end of guidance of $0.50 to $0.60.

 

(in millions of $ except per share amounts)    Quarter
Ended
12/31/10
    Quarter
Ended
12/31/09
 

Net Digital Revenue

   $ 195      $ 133   

Net Publishing Packaged Goods and Other Revenue

     767        845   

Net Distribution Packaged Goods Revenue

     91        265   
                

GAAP Total Net Revenue

     1,053        1,243   
                

Non-GAAP Net Digital Revenue

   $ 211      $ 152   

Non-GAAP Net Publishing Packaged Goods and Other Revenue

     1,108        929   

Non-GAAP Net Distribution Packaged Goods Revenue

     91        265   
                

Non-GAAP Total Net Revenue

     1,410        1,346   
                

GAAP Net Loss

     (322     (82

Non-GAAP Net Income

     196        109   

GAAP Diluted Loss Per Share

     (0.97     (0.25

Non-GAAP Diluted Earnings Per Share

     0.59        0.33   

Cash Flow from Operations

     349        221   

Trailing Twelve Month (TTM) Financial Highlights:

 

  

(in millions of $ except per share data)    Year
Ended
12/31/10
    Year
Ended
12/31/09
 

GAAP Net Revenue

   $ 3,478      $ 3,535   

GAAP Net Loss

     (397     (749

GAAP Diluted Loss Per Share

     (1.20     (2.31

Non-GAAP Net Revenue

     3,683        3,918   

Non-GAAP Net Income

     173        2   

Non-GAAP Diluted Earnings Per Share

     0.52        0.00   

Cash Flow from Operations

     320        114   

Q3 FY11 Digital Metrics:

 

    
(in millions)    Quarter
Ended
12/31/10
    Quarter
Ended
12/31/09
 

GAAP Net Mobile Revenue

   $ 59      $ 56   

Monthly Active Users (MAU) in Social Games

     39        58   

Core Registered Users

     98        50   


Stock Repurchase Program

EA has announced that its Board of Directors has authorized a program to repurchase up to $600 million of EA’s common stock over the next eighteen months.

Under the program, EA may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. EA is not obligated to repurchase any specific number of shares under the program and the repurchase program may be modified, suspended or discontinued at any time.

Business Outlook as of February 1, 2011

The following forward-looking statements, as well as those made above, reflect expectations as of February 1, 2011. Electronic Arts assumes no obligation to update these statements. Results may be materially different and are affected by many factors, including: product development delays; 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 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.

Fourth Quarter Fiscal Year 2011 Expectations – Ending March 31, 2011

 

  ¡  

GAAP net revenue is expected to be approximately $975 to $1,075 million.

  ¡  

Non-GAAP net revenue is expected to be approximately $850 to $950 million.

  ¡  

GAAP diluted earnings per share is expected to be approximately $0.38 to $0.51.

  ¡  

Non-GAAP diluted earnings per share is expected to be approximately $0.15 to $0.25.

  ¡  

For purposes of calculating fourth quarter fiscal year 2011 earnings per share, the Company estimates a diluted share count of 337 million.

  ¡  

Expected non-GAAP net income excludes the following items from expected GAAP net income:

   

Non-GAAP net revenue is expected to be approximately $125 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);

   

Approximately $40 million of estimated stock-based compensation;

   

Approximately $17 million of acquisition-related expenses;

   

Approximately $5 million of restructuring charges; and

   

Non-GAAP tax expenses are expected to be $14 to $26 million higher than GAAP tax expenses.


Fiscal Year 2011 Expectations – Ending March 31, 2011

EA is revising its full year FY11 non-GAAP guidance for net revenue and raising the lower end of its earnings per share guidance range.

 

  ¡  

GAAP net revenue is expected to be approximately $3.473 to $3.573 billion and non-GAAP net revenue is expected to be approximately $3.682 to $3.782 billion.

  ¡  

GAAP operating expense is expected to be approximately $2.35 billion and non-GAAP operating expense is expected to be approximately $2.0 billion.

  ¡  

GAAP diluted loss per share is expected to be approximately ($0.90) to ($0.77).

  ¡  

Non-GAAP diluted earnings per share is expected to be approximately $0.60 to $0.70.

  ¡  

For purposes of calculating fiscal year 2011 earnings/(loss) per share, the Company estimates a share count of 331 million for loss per share computations and 334 million for earnings per share computations.

  ¡  

Expected non-GAAP net income excludes the following items from expected GAAP net loss:

   

Non-GAAP net revenue is expected to be approximately $209 million higher than GAAP revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);

   

Approximately $176 million of estimated stock-based compensation;

   

Approximately $45 million of acquisition-related expenses;

   

Approximately $167 million of restructuring charges;

   

Approximately $23 million from net gains on sale of strategic investments; and

   

Non-GAAP tax expenses are expected to be $73 to $85 million higher than GAAP tax expenses.


Fiscal Year 2011 Key Titles by Label and Platform

Q1

  Games    Skate™ 3    Console      
     Green Day Rock Band™ (1)    Console      
     APB All Points Bulletin (1)          PC
  Sports    2010 FIFA World Cup South Africa™    Console    Handheld/Mobile   
     Tiger Woods PGA TOUR® Online          PC
     Tiger Woods PGA TOUR® 11    Console      
Q2
  Games    Need for Speed™ World          PC
  Sports    NCAA® Football 11    Console      
     Madden NFL 11    Console    Handheld/Mobile   
     FIFA 11    Console    Handheld/Mobile    PC
     NHL® 11    Console      
     FIFA Online 3          PC
  Play    MySims Skyheroes™    Console    Handheld/Mobile   
Q3
  Games    Medal of Honor™    Console    Handheld/Mobile    PC
     Need For Speed™ Hot Pursuit    Console    Handheld/Mobile    PC
     Rock Band® 3 (1)    Console    Handheld/Mobile   
  Sports    EA SPORTS™ MMA    Console    Handheld/Mobile   
     FIFA Manager 11          PC
     NBA Jam    Console      
     EA SPORTS Active NFL Training Camp    Console      
     EA SPORTS Active 2    Console    Handheld/Mobile   
  Play    HASBRO FAMILY GAME NIGHT 3    Console      
     LITTLEST PET SHOP 3: Biggest Stars series       Handheld/Mobile   
     MONOPOLY Streets    Console    Handheld/Mobile   
     Harry Potter and the Deathly Hallows™ Part 1    Console    Handheld/Mobile    PC
     Create™    Console       PC
     The Sims™ 3    Console    Handheld/Mobile   
Q4
  Games    Dead Space™ 2    Console    Handheld/Mobile    PC
     Dragon Age™ 2    Console       PC
     Bulletstorm™ (2)    Console       PC
     Crysis® 2 (2)    Console       PC
     Need For Speed™ Shift 2    Console       PC
     Rango (1)    Console      
  Sports    Fight Night Champion    Console      
     Tiger Woods PGA TOUR 12: The Masters®    Console    Handheld/Mobile   
  Play    The Sims™ Medieval          PC
     Darkspore™          PC

Note: (1) Distribution Title, (2) Co-Published Title

The Key Titles Schedule for fiscal year 2011 is current as of February 1, 2011 and is subject to change. Electronic Arts assumes no obligation to update this schedule.


Conference Call and Supporting Documents

Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the third quarter ended December 31, 2010 and its outlook for the future. During the course of the call, Electronic Arts may disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (706) 643-3915, access code 37361642, or via webcast at http://ir.ea.com.

EA will also post a slide presentation that accompanies the call at http://ir.ea.com.

A dial-in replay of the conference call will be provided until February 8, 2011 at (706) 645-9291, access code 37361642. A webcast archive of the conference call will be available for one year at http://ir.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:

 

  ¡  

Acquisition-related expenses

  ¡  

Change in deferred net revenue (packaged goods and digital content)

  ¡  

Gain (loss) on strategic investments

  ¡  

Loss on lease obligation and facilities acquisition

  ¡  

Loss on licensed intellectual property commitment

  ¡  

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:

Acquisition-Related Expenses. GAAP requires expenses to be recognized for various types of events associated with a business acquisition. These events include, expensing acquired intangible assets, including acquired in-process technology, post-closing adjustments associated with changes in the estimated amount of contingent consideration to be paid in an acquisition, and the impairment of accounting goodwill created as a result of an acquisition when future events indicated there has been a decline in its value. 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 including the final amounts paid for contingent consideration) without taking into consideration any allocations made for accounting purposes. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both contingent consideration and to the 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 any adjustments to the fair value of these acquisition-related balances 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.

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.

Gain (Loss) 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.

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.

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 fiscal year 2011 guidance information under the heading “Business Outlook”, and the fiscal year 2011 key title slate, 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; 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® video game and entertainment system, the PlayStation®3 computer entertainment system and the Wii™); the Company’s ability to predict consumer preferences among competing hardware platforms; the financial impact of recent acquisitions 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 determine deferred 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 September 30, 2010.

These forward-looking statements are current as of February 1, 2011. 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 December 31, 2010. 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 December 31, 2010.

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 2010, EA posted GAAP net revenue of $3.7 billion and had 27 titles that sold more than one million units. 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.


For additional information, please contact:

 

Peter Ausnit    Jeff Brown   
Vice President, Investor Relations    Vice President, Corporate Communications   
650-628-7327    650-628-7922   
pausnit@ea.com    jbrown@ea.com   

EA, EA SPORTS, EA Mobile, POGO, Dead Space, EA SPORTS Active, Medal of Honor, MySims, MySims SkyHeroes, Need for Speed, Skate, Create, Darkspore and The Sims are trademarks of Electronic Arts Inc. Dragon Age is a trademark of EA International (Studio and Publishing) Ltd. Battlefield: Bad Company is a trademark of EA Digital Illusions CE AB. FAMILY GAME NIGHT, LITTLEST PET SHOP, SCRABBLE and MONOPOLY are trademarks of Hasbro and used with permission. Crysis is a registered trademark of Crytek. HARRY POTTER characters, names and related indicia are trademarks of and © Warner Bros. Entertainment Inc. APB All Points Bulletin is a trademark of Realtime Worlds Inc. and its affiliated companies. Bulletstorm is a trademark or registered trademark of People Can Fly in the United States of America and elsewhere. Harmonix, Rock Band, Rock Band 2, Rock Band 3, Rock Band Network and all related titles and logos are trademarks of Harmonix Music Systems, Inc., an MTV Networks company. John Madden is a trademark or other intellectual property of Red Bear, Inc. or John Madden. NFL is a trademark of the National Football League. NBA is a registered trademark of NBA Properties, Inc. NCAA is a registered trademark of the National Collegiate Athletic Association. 2010 FIFA World Cup South Africa is a trademark of FIFA. ‘TIGERWOODS’ is a trademark of ETW Corp. PGA TOUR is a registered trademark of PGA TOUR, INC. “Masters” is a trademark of Augusta National, Inc. NHL is a registered trademark of National Hockey League. Microsoft, Windows, Xbox and Xbox 360 are trademarks of the Microsoft group of companies. “PlayStation” is a registered trademark of Sony Computer Entertainment Inc. Wii is a trademark of Nintendo. Apple, iPhone and iPad are trademarks and App Store is a service mark of Apple Inc. Kindle is a registered trademark of Amazon Technologies, Inc. Facebook is a registered trademark of Facebook, 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
December 31,
    Nine Months Ended
December  31,
 
     2010     2009     2010     2009  

Net revenue

   $ 1,053      $ 1,243      $ 2,499      $ 2,675   

Cost of goods sold

     586        654        1,171        1,568   
                                

Gross profit

     467        589        1,328        1,107   

Operating expenses:

        

Marketing and sales

     253        208        553        559   

General and administrative

     75        84        226        241   

Research and development

     273        290        825        918   

Acquisition-related contingent consideration

     1        -        (25     -   

Amortization of intangibles

     14        14        44        38   

Restructuring and other

     154        100        162        120   
                                

Total operating expenses

     770        696        1,785        1,876   
                                

Operating loss

     (303     (107     (457     (769

Gain (loss) on strategic investments

     -        (1     23        (25

Interest and other income (expense), net

     -        (2     6        8   
                                

Loss before provision for (benefit from) income taxes

     (303     (110     (428     (786

Provision for (benefit from) income taxes

     19        (28     (1     (79
                                

Net loss

   $ (322   $ (82   $ (427   $ (707
                                

Loss per share

        

Basic and diluted

   $ (0.97   $ (0.25   $ (1.29   $ (2.18

Number of shares used in computation

        

Basic and diluted

     332        325        330        324   

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 and non-GAAP diluted earnings per share.

 

     Three Months Ended
December 31,
    Nine Months Ended
December  31,
 
     2010     2009     2010     2009  

Net loss

   $ (322   $ (82   $ (427   $ (707

Acquisition-related expenses

     18        16        28        46   

Change in deferred net revenue (packaged goods and digital content)

     357        103        334        634   

Loss on lease obligation (G&A)

     -        -        -        14   

Loss on licensed intellectual property commitment (COGS)

     -        -        (1     (2

Loss (gain) on strategic investments

     -        1        (23     25   

Restructuring and other

     154        100        162        120   

Stock-based compensation

     46        42        136        119   

Income tax adjustments

     (57     (71     (59     (127
                                

Non-GAAP net income

   $ 196      $ 109      $ 150      $ 122   
                                

Non-GAAP diluted earnings per share

   $ 0.59      $ 0.33      $ 0.45      $ 0.37   

Number of shares used in computation

        

Basic

     332        325        330        324   

Diluted

     335        327        333        326   


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in millions)

 

     December 31,
2010
    March 31,
2010 (a)
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,353      $ 1,273   

Short-term investments

     511        432   

Marketable equity securities

     107        291   

Receivables, net of allowances of $336 and $217, respectively

     390        206   

Inventories

     105        100   

Deferred income taxes, net

     22        44   

Other current assets

     226        239   
                

Total current assets

     2,714        2,585   

Property and equipment, net

     502        537   

Goodwill

     1,107        1,093   

Acquisition-related intangibles, net

     160        204   

Deferred income taxes, net

     44        52   

Other assets

     200        175   
                

TOTAL ASSETS

   $ 4,727      $ 4,646   
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 162      $ 91   

Accrued and other current liabilities

     746        717   

Deferred net revenue (packaged goods and digital content)

     1,100        766   
                

Total current liabilities

     2,008        1,574   

Income tax obligations

     184        242   

Deferred income taxes, net

     4        2   

Other liabilities

     173        99   
                

Total liabilities

     2,369        1,917   

Common stock

     3        3   

Paid-in capital

     2,504        2,375   

Retained earnings (accumulated deficit)

     (304     123   

Accumulated other comprehensive income

     155        228   
                

Total stockholders’ equity

     2,358        2,729   
                

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 4,727      $ 4,646   
                

 

(a)

Derived from audited consolidated financial statements.


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions)

 

     Three Months Ended
December 31,
    Nine Months Ended
December  31,
 
     2010     2009     2010     2009  

OPERATING ACTIVITIES

        

Net loss

   $ (322   $ (82   $ (427   $ (707

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

        

Acquisition-related contingent consideration

     1        -        (25     -   

Depreciation, amortization and accretion, net

     44        48        138        142   

Net (gains) losses on investments and sale of property and equipment

     -        (3     (24     20   

Other non-cash restructuring charges

     2        20        1        27   

Stock-based compensation

     48        68        138        145   

Change in assets and liabilities:

        

Receivables, net

     57        162        (180     (356

Inventories

     51        107        (4     77   

Other assets

     (23     (19     (9     (53

Accounts payable

     (47     (87     59        36   

Accrued and other liabilities

     176        (115     34        (42

Deferred income taxes, net

     5        19        32        (24

Deferred net revenue (packaged goods and digital content)

     357        103        334        634   
                                

Net cash provided by (used in) operating activities

     349        221        67        (101
                                

INVESTING ACTIVITIES

        

Purchase of headquarters facilities

     -        -        -        (233

Capital expenditures

     (15     (16     (38     (50

Proceeds from sale of marketable equity securities

     -        6        132        10   

Proceeds from maturities and sales of short-term investments

     85        302        282        657   

Purchase of short-term investments

     (105     (72     (367     (477

Acquisition-related restricted cash

     -        (100     -        (100

Acquisition of subsidiaries, net of cash acquired

     (16     (275     (16     (278
                                

Net cash used in investing activities

     (51     (155     (7     (471
                                

FINANCING ACTIVITIES

        

Proceeds from issuance of common stock

     -        -        17        25   

Excess tax benefit from stock-based compensation

     -        13        -        13   
                                

Net cash provided by financing activities

     -        13        17        38   
                                

Effect of foreign exchange on cash and cash equivalents

     (1     (7     3        27   
                                

Increase (decrease) in cash and cash equivalents

     297        72        80        (507

Beginning cash and cash equivalents

     1,056        1,042        1,273        1,621   
                                

Ending cash and cash equivalents

     1,353        1,114        1,353        1,114   
                                


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and headcount)

 

     Q3
FY10
    Q4
FY10
    Q1
FY11
    Q2
FY11
    Q3
FY11
    YOY %
Change
 

QUARTERLY RECONCILIATION OF RESULTS

            

Net Revenue

            

GAAP net revenue

   $ 1,243      $ 979      $ 815      $ 631      $ 1,053        (15 %) 

Change in deferred net revenue (packaged goods and digital content)

     103        (129     (276     253        357     
                                          

Non-GAAP net revenue

   $ 1,346      $ 850      $ 539      $ 884      $ 1,410        5
                                          

Gross Profit

            

GAAP gross profit

   $ 589      $ 681      $ 593      $ 268      $ 467        (21 %) 

Change in deferred net revenue (packaged goods and digital content)

     103        (129     (276     253        357     

Acquisition-related expenses

     2        2        3        3        3     

Loss on licensed intellectual property commitment (COGS)

     -        (1     -        (1     -     

Stock-based compensation

     -        1        1        -        1     
                                          

Non-GAAP gross profit

   $ 694      $ 554      $ 321      $ 523      $ 828        19
                                          

GAAP gross profit % (as a % of GAAP net revenue)

     47     70     73     42     44  

Non-GAAP gross profit % (as a % of non-GAAP net revenue)

     52     65     60     59     59  

Operating Income (Loss)

            

GAAP operating income (loss)

   $ (107   $ 83      $ 98      $ (252   $ (303     183

Acquisition-related expenses

     16        19        20        (10     18     

Change in deferred net revenue (packaged goods and digital content)

     103        (129     (276     253        357     

Loss on licensed intellectual property commitment (COGS)

     -        (1     -        (1     -     

Restructuring and other

     100        20        2        6        154     

Stock-based compensation

     42        42        47        43        46     
                                          

Non-GAAP operating income (loss)

   $ 154      $ 34      $ (109   $ 39      $ 272        77
                                          

GAAP operating income (loss) % (as a % of GAAP net revenue)

     (9 %)      8     12     (40 %)      (29 %)   

Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue)

     11     4     (20 %)      4     19  

Net Income (Loss)

            

GAAP net income (loss)

   $ (82   $ 30      $ 96      $ (201   $ (322     293

Acquisition-related expenses

     16        19        20        (10     18     

Change in deferred net revenue (packaged goods and digital content)

     103        (129     (276     253        357     

Loss on licensed intellectual property commitment (COGS)

     -        (1     -        (1     -     

Loss (gain) on strategic investments

     1        1        5        (28     -     

Restructuring and other

     100        20        2        6        154     

Stock-based compensation

     42        42        47        43        46     

Income tax adjustments

     (71     41        28        (30     (57  
                                          

Non-GAAP net income (loss)

   $ 109      $ 23      $ (78   $ 32      $ 196        80
                                          

GAAP net income (loss) % (as a % of GAAP net revenue)

     (7 %)      3     12     (32 %)      (31 %)   

Non-GAAP net income (loss) % (as a % of non-GAAP net revenue)

     8     3     (14 %)      4     14  

Diluted Earnings (Loss) Per Share

            

GAAP earnings (loss) per share

   $ (0.25   $ 0.09      $ 0.29      $ (0.61   $ (0.97     288

Non-GAAP earnings (loss) per share

   $ 0.33      $ 0.07      $ (0.24   $ 0.10      $ 0.59        79

Number of shares used in computation

            

Basic

     325        327        328        329        332     

Diluted

     327        330        332        333        335     


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and headcount)

 

     Q3
FY10
    Q4
FY10
    Q1
FY11
    Q2
FY11
    Q3
FY11
    YOY %
Change
 

QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP

            

Geography Net Revenue

            

North America

     693        510        451        327        528        (24 %) 

Europe

     489        418        317        262        477        (2 %) 

Asia

     61        51        47        42        48        (21 %) 
                                          

Total GAAP Net Revenue

     1,243        979        815        631        1,053        (15 %) 
                                          

North America

     87        (55     (184     142        169     

Europe

     8        (78     (81     122        163     

Asia

     8        4        (11     (11     25     
                                          

Change In Deferred Net Revenue (Packaged Goods and Digital Content)

     103        (129     (276     253        357     
                                          

North America

     780        455        267        469        697        (11 %) 

Europe

     497        340        236        384        640        29

Asia

     69        55        36        31        73        6
                                          

Total Non-GAAP Net Revenue

     1,346        850        539        884        1,410        5
                                          

North America

     56     52     55     52     50  

Europe

     39     43     39     41     45  

Asia

     5     5     6     7     5  
                                          

Total GAAP Net Revenue %

     100     100     100     100     100  
                                          

North America

     58     54     49     53     50  

Europe

     37     40     44     43     45  

Asia

     5     6     7     4     5  
                                          

Total Non-GAAP Net Revenue %

     100     100     100     100     100  
                                          

Net Revenue Composition (a)

            

Publishing and Other

     845        794        586        441        767        (9 %) 

Wireless, Internet-derived, and Advertising (Digital)

     133        144        176        161        195        47

Distribution

     265        41        53        29        91        (66 %) 
                                          

Total GAAP Net Revenue

     1,243        979        815        631        1,053        (15 %) 
                                          

Publishing and Other

     84        (141     (288     248        341     

Wireless, Internet-derived, and Advertising (Digital)

     19        12        12        5        16     

Distribution

     -        -        -        -        -     
                                          

Change In Deferred Net Revenue (Packaged Goods and Digital Content)

     103        (129     (276     253        357     
                                          

Publishing and Other

     929        653        298        689        1,108        19

Wireless, Internet-derived, and Advertising (Digital)

     152        156        188        166        211        39

Distribution

     265        41        53        29        91        (66 %) 
                                          

Total Non-GAAP Net Revenue

     1,346        850        539        884        1,410        5
                                          

Publishing and Other

     68     81     72     70     73  

Wireless, Internet-derived, and Advertising (Digital)

     11     15     21     26     18  

Distribution

     21     4     7     4     9  
                                          

Total GAAP Net Revenue %

     100     100     100     100     100  
                                          

Publishing and Other

     69     77     55     78     79  

Wireless, Internet-derived, and Advertising (Digital)

     11     18     35     19     15  

Distribution

     20     5     10     3     6  
                                          

Total Non-GAAP Net Revenue %

     100     100     100     100     100  
                                          

 

(a)

Beginning with the quarter ended June 30, 2010, the Company is no longer presenting licensing and other revenue in a separate caption. This revenue has accordingly been combined with publishing and other or distribution. For comparability purposes, the results for prior periods have been reclassified.


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and headcount)

 

     Q3
FY10
     Q4
FY10
    Q1
FY11
    Q2
FY11
    Q3
FY11
    YOY %
Change
 

QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP

             

Platform Net Revenue

             

Xbox 360

     348         276        262        172        285        (18%

PLAYSTATION 3

     236         272        209        152        282        19%   

Wii

     196         71        40        25        130        (34%

PlayStation 2

     44         22        11        29        20        (55%
                                           

Total Consoles

     824         641        522        378        717        (13% ) 

Mobile

     56         55        52        49        59        5%   

PSP

     30         37        19        17        22        (27%

Nintendo DS

     63         22        11        8        49        (22%
                                           

Total Mobile and Handhelds

     149         114        82        74        130        (13% ) 

PC

     212         178        186        157        155        (27% ) 

Other

     58         46        25        22        51        (12%
                                           

Total GAAP Net Revenue

     1,243         979        815        631        1,053        (15%
                                           

Xbox 360

     29         6        (121     96        126     

PLAYSTATION 3

     49         (83     (89     150        131     

Wii

     1         (31     (5     24        39     

PlayStation 2

     -         (11     (5     1        (1  

Mobile

     1         -        -        -        5     

PSP

     3         (20     (1     4        -     

Nintendo DS

     12         (6     (4     1        8     

PC

     8         16        (51     (23     49     
                                           

Change in Deferred Net Revenue (Packaged Goods and Digital Content)

     103         (129     (276     253        357     
                                           

Xbox 360

     377         282        141        268        411        9%   

PLAYSTATION 3

     285         189        120        302        413        45%   

Wii

     197         40        35        49        169        (14%

PlayStation 2

     44         11        6        30        19        (57%
                                           

Total Consoles

     903         522        302        649        1,012        12%   

Mobile

     57         55        52        49        64        12%   

PSP

     33         17        18        21        22        (33%

Nintendo DS

     75         16        7        9        57        (24%
                                           

Total Mobile and Handhelds

     165         88        77        79        143        (13% ) 

PC

     220         194        135        134        204        (7% ) 

Other

     58         46        25        22        51        (12%
                                           

Total Non-GAAP Net Revenue

     1,346         850        539        884        1,410        5%   
                                           

Xbox 360

     28%         28%        32%        27%        27%     

PLAYSTATION 3

     19%         28%        26%        24%        27%     

Wii

     16%         7%        5%        4%        12%     

PlayStation 2

     3%         2%        1%        5%        2%     
                                           

Total Consoles

     66%         65%        64%        60%        68%     

Mobile

     5%         6%        7%        8%        5%     

PSP

     2%         4%        2%        3%        2%     

Nintendo DS

     5%         2%        1%        1%        5%     

Total Mobile and Handhelds

     12%         12%        10%        12%        12%     

PC

     17%         18%        23%        25%        15%     

Other

     5%         5%        3%        3%        5%     
                                           

Total GAAP Net Revenue %

     100%         100%        100%        100%        100%     
                                           

Xbox 360

     28%         33%        26%        30%        29%     

PLAYSTATION 3

     21%         22%        22%        34%        30%     

Wii

     15%         5%        7%        6%        12%     

PlayStation 2

     3%         1%        1%        3%        1%     
                                           

Total Consoles

     67%         61%        56%        73%        72%     

Mobile

     4%         6%        10%        6%        4%     

PSP

     2%         2%        3%        2%        2%     

Nintendo DS

     6%         2%        1%        1%        4%     
                                           

Total Mobile and Handhelds

     12%         10%        14%        9%        10%     

PC

     17%         24%        25%        15%        14%     

Other

     4%         5%        5%        3%        4%     
                                           

Total Non-GAAP Net Revenue %

     100%         100%        100%        100%        100%     
                                           


ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and headcount)

 

     Q3
FY10
     Q4
FY10
    Q1
FY11
    Q2
FY11
    Q3
FY11
     YOY %
Change
 

CASH FLOW DATA

              

Operating cash flow

     221         253        (148     (134     349         58

Operating cash flow - TTM

     114         152        332        192        320         181

Capital expenditures

     16         22        11        12        15         (6 %) 

Capital expenditures - TTM

     75         72        75        61        60         (20 %) 

BALANCE SHEET DATA

              

Cash and cash equivalents

     1,114         1,273        1,057        1,056        1,353         21

Short-term investments

     352         432        480        495        511         45

Marketable equity securities

     318         291        193        106        107         (66 %) 

Receivables, net

     495         206        103        444        390         (21 %) 

Inventories

     144         100        82        155        105         (27 %) 

Deferred net revenue (packaged goods and digital content)

              

End of the quarter

     895         766        490        743        1,100      

Less: Beginning of the quarter

     792         895        766        490        743      
                                            

Change in deferred net revenue (packaged goods and digital content)

     103         (129     (276     253        357      
                                            

STOCK-BASED COMPENSATION

              

Cost of goods sold

     -         1        1        -        1      

Marketing and sales

     4         4        4        6        6      

General and administrative

     9         9        12        10        10      

Research and development

     29         28        30        27        29      
                                            

Total Stock-Based Compensation (excluding restructuring and other)

     42         42        47        43        46      

Restructuring and other

     26         -        -        -        2      
                                            

Total Stock-Based Compensation (including restructuring and other)

     68         42        47        43        48      
                                            

EMPLOYEES

     8,537         7,842        7,758        7,820        7,742         (9 %)