Electronic Arts Reports Q3 FY12 Financial Results

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Electronic Arts Inc. (NASDAQ:EA) today announced preliminary financial results for its third fiscal quarter ended December 31, 2011.

"We are pleased to report a strong holiday quarter driven by Battlefield 3, FIFA12 and a strong showing by our digital games and services," said Chief Executive Officer John Riccitiello. "Star Wars: The Old Republic is developing a committed community of players with more than 1.7 million active subscribers and growing."

"We recorded our highest operating cash flow in 31 quarters and grew segment share in both Europe and North America," said Eric Brown, Chief Financial Officer. "Third quarter non-GAAP digital revenue grew 79% year-over year, and we achieved our goal of generating over $1 billion in non-GAAP digital revenue on a trailing-twelve-month basis."

Selected Operating Highlights and Metrics:

  • Star Wars®: The Old RepublicTM has generated 1.7 million active subscribers and sold through more than 2 million units in a little over one month.
  • Battlefield 3TM and FIFA 12 each sold through more than 10 million units. Madden NFL 12 has sold through almost 5 million units life-to-date.
  • EA was the number one publisher by segment share in Western markets for the calendar year, where EA segment share grew by 3% to 20% in Europe and by 1% to 17% in North America.
  • PopCap - which joined EA in August has grown revenue by 30 percent on a trailing-twelve-month basis.
  • EA's Playfish social gaming network released RiskTM: Factions in partnership with Hasbro.
  • EA was the number one game publisher in the Apple App StoreSM in December. In December, EA's first free-to-play mobile game, The SimsTM: FreePlay, reached the number one position on the list of top-grossing iPad® Apps.
  • EA's Nucleus registration system now has a database of more than 168 million consumers.
  • OriginTM - EA's direct-to-consumer digital service has registered more than 9.3 million consumers and generated more than $100 million in non-GAAP revenue since launch. Origin has publishing agreements with Warner Brothers, THQ, CapCom and recently added 11 new publishing partners including Trion and Robot Entertainment.
  • Non-GAAP digital revenue exceeded $1 billion in calendar year 2011 and continues to grow significantly with new subscriptions, micro-transactions and advertising.

Q3 FY12 Financial Highlights:

Non-GAAP net revenue of $1,651 million exceeded our guidance of $1,550 million to $1,650 million. Non-GAAP diluted earnings per share of $0.99 exceeded our guidance of $0.85 to $0.95. Non-GAAP net revenue in Q3 fiscal 2012 was higher as compared to Q3 fiscal 2011 driven by digital growth and by the successful launches of Battlefield 3 and Star Wars: The Old Republic.

 

 

(in millions of $ except per share amounts)

 

Quarter
Ended
12/31/11

 

Quarter
Ended
12/31/10





 
Net Digital Revenue
$ 274

$ 195
Net Publishing Packaged Goods and Other Revenue

738


767
Net Distribution Packaged Goods Revenue
  49       91  
GAAP Total Net Revenue
  1,061       1,053  




 
Non-GAAP Net Digital Revenue
$ 377

$ 211
Non-GAAP Net Publishing Packaged Goods and Other Revenue

1,225


1,108

Non-GAAP Net Distribution Packaged Goods Revenue


  49       91  
Non-GAAP Total Net Revenue
  1,651       1,410  




 
GAAP Net Loss

(205 )

(322 )
Non-GAAP Net Income

334


196
GAAP Diluted Loss Per Share

(0.62 )

(0.97 )
Non-GAAP Diluted Earnings Per Share

0.99


0.59




 
Cash Flow from Operations

475


349




 

Trailing Twelve Month (TTM) Financial Highlights:





 

 

(in millions of $ except per share data)


TTM
Ended
12/31/11


TTM
Ended
12/31/10





 
GAAP Net Revenue
$ 3,865

$ 3,478
GAAP Net Loss

(173 )

(397 )
GAAP Diluted Loss Per Share

(0.54 )

(1.20 )




 
Non-GAAP Net Revenue

4,204


3,683
Non-GAAP Net Income

311


173
Non-GAAP Diluted Earnings Per Share

0.92


0.52




 
Cash Flow from Operations

243


320




 

Q3 FY12 Digital Metrics:





 

(in millions)


Quarter
Ended
12/31/11


Quarter
Ended
12/31/10





 
GAAP Net Mobile Revenue

Non-GAAP Net Mobile Revenue


$

70

83



$

59

64


Monthly Active Users (MAU) in Social Games

52


39
Core Registered Users

160


98

Business Outlook as of February 1, 2012

The following forward-looking statements, as well as those made above, reflect expectations as of February 1, 2012. 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; the financial impact of 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 2012 Expectations - Ending March 31, 2012

  • GAAP net revenue is expected to be approximately $1.425 billion to $1.475 billion.
  • Non-GAAP net revenue is expected to be approximately $925 million to $975 million.
  • GAAP diluted earnings per share is expected to be approximately $1.45 to $1.59.
  • Non-GAAP diluted earnings per share is expected to be approximately $0.10 to $0.20.
  • For purposes of calculating fourth quarter fiscal year 2012 diluted earnings per share, the Company estimates a share count of 338 million.
  • Expected non-GAAP net income excludes the following from expected GAAP net income:

    o Non-GAAP net revenue is expected to be approximately $500 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);
    o Approximately $45 million of estimated stock-based compensation;
    o Approximately $20 million of acquisition-related expenses;
    o Approximately $2 million of restructuring charges;
    o Approximately $5 million from the amortization of debt discount; and
    o Non-GAAP tax expense is expected to be $28 million to $41 million higher than GAAP tax benefit.

Fiscal Year 2012 Key Titles by Label and Platform

Q1   Games   Alice: Madness Returns(2)   Console       PC
        Portal 2(1)   Console       PC
        Shadows of the Damned(2)   Console        
                     
    Maxis   Darkspore           PC
                     
Q2   Sports   FIFA 12   Console   Handheld/Mobile   PC
        Madden NFL 12   Console   Handheld/Mobile    
        NCAA Football 12   Console        
        NHL 12   Console        
                     
    Maxis   Harry Potter And The Deathly Hallows Part 2   Console   Handheld/Mobile   PC
                     
Q3   Games   Battlefield 3   Console       PC
        Need for Speed The Run   Console   Handheld/Mobile   PC
                     
    Sports   FIFA Manager 12           PC
                     
    Maxis   The Sims 3 Pets   Console   Handheld/Mobile   PC
                     
    EAi   Hasbro Family Game Night 4   Console        
                     
    BioWare   Star Wars: The Old Republic           PC
                     
Q4   Games   Kingdoms of Amalur: Reckoning(2)   Console       PC
        Syndicate(2)   Console       PC
                     
    BioWare   Mass Effect 3   Console   Handheld/Mobile   PC
                     
    Sports   SSX   Console        
        EA SPORTS Grand Slam Tennis 2   Console        
        FIFA Street   Console        
        Tiger Woods PGA TOUR 13   Console        

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

This Key Titles Schedule is current as of February 1, 2012 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 on February 1, 2012 at 2:00 pm PT (5:00 pm ET) to review its results for the third quarter ended December 31, 2011 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: 773-799-3213 (domestic) or 888-677-1083 (international), using the password "EA" 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 15, 2012 at the following number: 203-369-0099 (domestic) or 866-356-3373 (international). A webcast replay 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
  • Amortization of debt discount
  • Change in deferred net revenue (packaged goods and digital content)
  • Loss on licensed intellectual property commitment
  • Loss (gain) 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:

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 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 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.

Amortization of Debt Discount on the Convertible Senior Notes. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as a debt discount an amount equal to the fair value of the conversion option as interest expense on the Company's $632.5 million of 0.75% convertible senior notes that were issued in a private placement in July 2011 over the term of the notes. Electronic Arts' management will exclude the effect of this amortization when evaluating the Company's 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.

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 period of game play. 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.

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.

Loss (Gain) 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.

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 fourth quarter guidance information under the heading "Business Outlook", and the fiscal year 2012 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 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 Company's ability to realize the anticipated benefits of acquisitions, including the PopCap acquisition; the consumer demand for, and the availability of an adequate supply of console hardware units; the Company's ability to predict consumer preferences among competing platforms; the Company's ability to service and support digital product offerings, including managing online security; general economic conditions; and other factors described in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011.

These forward-looking statements are current as of February 1, 2012. 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, 2011. 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, 2011.

About Electronic Arts

Electronic Arts (NASDAQ:EA) is a global leader in digital interactive entertainment. The Company's game franchises are offered as both packaged goods products and online services delivered through Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 100 million registered players and operates in 75 countries. In fiscal year 2011, EA posted GAAP net revenue of $3.6 billion. Headquartered in Redwood City, California, EA is recognized for critically acclaimed, high-quality blockbuster franchises such as The SimsTM, Madden NFL, FIFA Soccer, Need for SpeedTM, Battlefield, and Mass EffectTM. More information about EA is available at http://info.ea.com.

The Sims Social, Need for Speed, The Sims, Pogo, EA SPORTS, Alice: Madness Returns, SSX, Darkspore, Origin and Syndicate are trademarks of Electronic Arts Inc. Mass Effect is a trademark of EA International (Studio and Publishing) Ltd. Battlefield 3 is a trademarks of EA Digital Illusions CE AB. Playfish is a trademark of Electronic Arts Ltd. FAMILY GAME NIGHT is a trademark of Hasbro and used with permission. GRAND SLAM is a registered Trademark jointly owned by Tennis Australia, French Tennis Federation, All England Lawn Tennis Club (AELTC) and the United States Tennis Association. GRAND SLAM is used by EA with the permission of the GSTP. HARRY POTTER characters, names and related indicia are trademarks of and © Warner Bros. Entertainment Inc. STAR WARS and related properties are trademarks in the United States and/or other countries of Lucasfilm Ltd. and/or its affiliates. Shadows of the Damned is a trademark of GRASSHOPPER MANUFACTURE INC. RISK is a trademark of Hasbro and is used with permission. John Madden, NFL, NCAA, NHL, FIFA, Tiger Woods, PGA TOUR are trademarks of their respective owners and used with permission. App Store is at service mark of Apple Inc. iPad is a trademark of Apple Inc., registered in the U.S. and other countries. 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   Nine Months Ended




December 31,
December 31,




2011   2010
2011   2010










 
Net revenue
$ 1,061

$ 1,053

$ 2,775

$ 2,499
Cost of goods sold
  552  
  586  
  1,224  
  1,171  
Gross profit

509


467


1,551


1,328










 
Operating expenses:







Marketing and sales

269


253


631


553
General and administrative

98


75


260


226
Research and development

325


273


928


825
Acquisition-related contingent consideration

(11 )

1


8


(25 )
Amortization of intangibles

11


14


37


44
Restructuring and other
  -  
  154  
  17  
  162  
Total operating expenses
  692  
  770  
  1,881  
  1,785  










 
Operating loss

(183 )

(303 )

(330 )

(457 )










 
Gain on strategic investments, net

-


-


-


23
Interest and other income (expense), net
  (10 )
  -  
  (13 )
  6  










 
Loss before provision for (benefit from) income taxes

(193 )

(303 )

(343 )

(428 )










 
Provision for (benefit from) income taxes
  12  
  19  
  (19 )
  (1 )










 
Net loss
$ (205 )
$ (322 )
$ (324 )
$ (427 )










 
Loss per share







Basic and Diluted
$ (0.62 )
$ (0.97 )
$ (0.98 )
$ (1.29 )










 
Number of shares used in computation







Basic and diluted

332


332


331


330










 










 
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 earnings per share.










 




Three Months Ended
Nine Months Ended




December 31,
December 31,




2011
2010
2011
2010










 
Net loss
$ (205 )
$ (322 )
$ (324 )
$ (427 )










 
Acquisition-related expenses

14


18


70


28
Amortization of debt discount

5


-


9


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

590


357


434


334
Gain on strategic investments

-


-


-


(23 )
Loss on licensed intellectual property commitment (COGS)

-


-


-


(1 )
Restructuring and other

-


154


17


162
Stock-based compensation

48


46


129


136
Income tax adjustments
  (118 )
  (57 )
  (107 )
  (59 )










 
Non-GAAP net income
$ 334  
$ 196  
$ 228  
$ 150  










 
Non-GAAP earnings per share







Basic
$ 1.01

$ 0.59

$ 0.69

$ 0.45
Diluted
$ 0.99

$ 0.59

$ 0.67

$ 0.45










 
Number of shares used in Non-GAAP computation







Basic

332


332


331


330
Diluted

338


335


338


333
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
     
 
 





December 31,
March 31,





2011

2011 (a)








 
ASSETS










 
Current assets:



Cash and cash equivalents
$ 1,242

$ 1,579
Short-term investments

406


497
Marketable equity securities

143


161
Receivables, net of allowances of $295 and $304, respectively

526


335
Inventories

69


77
Deferred income taxes, net

92


56
Other current assets
  328  
  327  
Total current assets

2,806


3,032







 
Property and equipment, net

547


513
Goodwill

1,716


1,110
Acquisition-related intangibles, net

402


144
Deferred income taxes, net

44


49
Other assets
  181  
  80  







 
TOTAL ASSETS
$ 5,696  
$ 4,928  







 
LIABILITIES AND STOCKHOLDERS' EQUITY










 
Current liabilities:



Accounts payable
$ 112

$ 228
Accrued and other current liabilities

846


768
Deferred net revenue (packaged goods and digital content)
  1,439  
  1,005  
Total current liabilities

2,397


2,001







 
0.75% convertible senior notes due 2016, net

534


-
Income tax obligations

183


192
Deferred income taxes, net

82


37
Other liabilities
  235  
  134  
Total liabilities

3,431


2,364







 
Common stock

3


3
Paid-in capital

2,549


2,495
Accumulated deficit

(477 )

(153 )
Accumulated other comprehensive income
  190  
  219  
Total stockholders' equity
  2,265  
  2,564  







 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 5,696  
$ 4,928  







 

(a) Derived from audited consolidated financial statements.

         
 
 
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)













 







Three Months Ended
Nine Months Ended







December 31,   December 31,







2011
2010
2011
2010













 
OPERATING ACTIVITIES




















 
Net loss
$ (205 )
$ (322 )
$ (324 )
$ (427 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:







Acquisition-related contingent consideration

(11 )

1


8


(25 )
Depreciation, amortization and accretion, net

54


44


148


138
Net gains on investments and sale of property and equipment

-


-


(12 )

(24 )
Other non-cash restructuring charges

(3 )

2


(3 )

1
Stock-based compensation

48


48


129


138
Change in assets and liabilities:







Receivables, net

39


57


(176 )

(180 )
Inventories

22


51


11


(4 )
Other assets

(18 )

(23 )

(81 )

(9 )
Accounts payable

(93 )

(47 )

(150 )

59
Accrued and other liabilities

48


176


50


34
Deferred income taxes, net

4


5


(44 )

32
Deferred net revenue (packaged goods and digital content)
  590  
  357  
  434  
  334  
Net cash provided by (used in) operating activities
  475  
  349  
  (10 )
  67  













 
INVESTING ACTIVITIES




















 
Capital expenditures

(44 )

(15 )

(128 )

(38 )
Proceeds from sale of property

-


-


26


-
Proceeds from sale of marketable equity securities

-


-


-


132
Proceeds from maturities and sales of short-term investments

144


85


463


282
Purchase of short-term investments

(195 )

(105 )

(374 )

(367 )
Acquisition of subsidiaries, net of cash acquired
  (19 )
  (16 )
  (676 )
  (16 )
Net cash used in investing activities
  (114 )
  (51 )
  (689 )
  (7 )













 
FINANCING ACTIVITIES




















 
Proceeds from borrowings on convertible senior notes, net of issuance costs

-


-


617


-
Proceeds from issuance of warrants

-


-


65


-
Purchase of convertible note hedge

-


-


(107 )

-
Proceeds from issuance of common stock

4


-


39


17
Excess tax benefit from stock-based compensation

1


-


4


-
Repurchase and retirement of common stock
  (41 )
  -  
  (230 )
  -  
Net cash provided by (used in) financing activities
 

(36

)
  -  
  388  
  17  













 
Effect of foreign exchange on cash and cash equivalents
  (13 )
  (1 )
  (26 )
  3  
Increase (decrease) in cash and cash equivalents

312


297


(337 )

80
Beginning cash and cash equivalents
  930  
  1,056  
  1,579  
  1,273  
Ending cash and cash equivalents
$ 1,242  
$ 1,353  
$ 1,242  
$ 1,353  
   
 
 
 
 
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)














 




Q3
Q4
Q1
Q2
Q3
YOY %




FY11
FY11
FY12
FY12
FY12
Change














 
QUARTERLY RECONCILIATION OF RESULTS

























 
Net Revenue











GAAP net revenue
$ 1,053

$ 1,090

$ 999

$ 715

$ 1,061

1 %
Change in deferred net revenue (packaged goods and digital content)
  357  
  (95 )
  (475 )
  319  
  590  

Non-GAAP net revenue
$ 1,410  
$ 995  
$ 524  
$ 1,034  
$ 1,651  
17 %














 
Gross Profit











GAAP gross profit
$ 467

$ 762

$ 759

$ 283

$ 509

9 %
Acquisition-related expenses

3


3


3


8


14


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

357


(95 )

(475 )

319


590


Stock-based compensation
  1  
  -  
  1  
  -  
  -  

Non-GAAP gross profit
$ 828  
$ 670  
$ 288  
$ 610  
$ 1,113  
34 %
GAAP gross profit % (as a % of GAAP net revenue)

44 %

70 %

76 %

40 %

48 %

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

59 %

67 %

55 %

59 %

67 %















 
Operating Income (Loss)











GAAP operating income (loss)
$ (303 )
$ 145

$ 227

$ (374 )
$ (183 )
(40 %)
Acquisition-related expenses

18


24


18


38


14


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

357


(95 )

(475 )

319


590


Restructuring and other

154


(1 )

18


(1 )

-


Stock-based compensation
  46  
  38  
  38  
  43  
  48  

Non-GAAP operating income (loss)
$ 272  
$ 111  
$ (174 )
$ 25  
$ 469  
72 %
GAAP operating income (loss) % (as a % of GAAP net revenue)

(29 %)

13 %

23 %

(52 %)

(17 %)

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

19 %

11 %

(33 %)

2 %

28 %















 
Net Income (Loss)











GAAP net income (loss)
$ (322 )
$ 151

$ 221

$ (340 )
$ (205 )
(36 %)
Acquisition-related expenses

18


24


18


38


14


Amortization of debt discount

-


-


-


4


5


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

357


(95 )

(475 )

319


590


Restructuring and other

154


(1 )

18


(1 )

-


Stock-based compensation

46


38


38


43


48


Income tax adjustments
  (57 )
  (34 )
  57  
  (46 )
  (118 )

Non-GAAP net income (loss)
$ 196  
$ 83  
$ (123 )
$ 17  
$ 334  
70 %
GAAP net income (loss) % (as a % of GAAP net revenue)

(31 %)

14 %

22 %

(48 %)

(19 %)

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

14 %

8 %

(23 %)

2 %

20 %















 
Diluted Earnings (Loss) Per Share











GAAP earnings (loss) per share
$ (0.97 )
$ 0.45

$ 0.66

$ (1.03 )
$ (0.62 )
(36 %)
Non-GAAP earnings (loss) per share
$ 0.59

$ 0.25

$ (0.37 )
$ 0.05

$ 0.99

68 %














 
Number of diluted shares used in computation











GAAP

332


336


337


331


332


Non-GAAP

335


336


331


337


338


   
 
 
 
 
 
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)














 




Q3
Q4
Q1
Q2
Q3
YOY %




FY11
FY11
FY12
FY12
FY12
Change














 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP

























 
Geography Net Revenue











North America
528

530

501

337

500

(5 %)
Europe
477

507

438

328

505

6 %
Asia
48  
53  
60  
50  
56  
17 %
Total GAAP Net Revenue
1,053  
1,090  
999  
715  
1,061  
1 %
North America
169

(56 )
(240 )
144

310


Europe
163

(45 )
(215 )
174

235


Asia
25  
6  
(20 )
1  
45  

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

357

 
(95 )
(475 )
319  
590  

North America
697

474

261

481

810

16 %
Europe
640

462

223

502

740

16 %
Asia
73  
59  
40  
51  
101  
38 %
Total Non-GAAP Net Revenue
1,410  
995  
524  
1,034  
1,651  
17 %














 
North America
50 %
49 %
50 %
47 %
47 %

Europe
45 %
46 %
44 %
46 %
48 %

Asia
5 %
5 %
6 %
7 %
5 %

Total GAAP Net Revenue %
100 %
100 %
100 %
100 %
100 %

North America
50 %
48 %
50 %
46 %
49 %

Europe
45 %
46 %
42 %
49 %
45 %

Asia
5 %
6 %
8 %
5 %
6 %

Total Non-GAAP Net Revenue %
100 %
100 %
100 %
100 %
100 %















 
Net Revenue Composition











Publishing and Other
767

838

647

450

738

(4 %)
Wireless, Internet-derived, and Advertising (Digital)
195

211

232

234

274

41 %
Distribution
91  
41  
120  
31  
49  
(46 %)
Total GAAP Net Revenue
1,053  
1,090  
999  
715  
1,061  
1 %
Publishing and Other
341

(152 )
(452 )
337

487


Wireless, Internet-derived, and Advertising (Digital)
16

57

(23 )
(18 )
103


Distribution
-  
-  
-  
-  
-  

Change In Deferred Net Revenue (Packaged Goods and Digital Content)
357  
(95 )
(475 )
319  
590  

Publishing and Other
1,108

686

195

787

1,225

11 %
Wireless, Internet-derived, and Advertising (Digital)
211

268

209

216

377

79 %
Distribution
91  
41  
120  
31  
49  
(46 %)
Total Non-GAAP Net Revenue
1,410  
995  
524  
1,034  
1,651  
17 %














 
Publishing and Other
73 %
77 %
65 %
63 %
69 %

Wireless, Internet-derived, and Advertising (Digital)
18 %
19 %
23 %
33 %
26 %

Distribution
9 %
4 %
12 %
4 %
5 %

Total GAAP Net Revenue %
100 %
100 %
100 %
100 %
100 %

Publishing and Other
79 %
69 %
37 %
76 %
74 %

Wireless, Internet-derived, and Advertising (Digital)
15 %
27 %
40 %
21 %
23 %

Distribution
6 %
4 %
23 %
3 %
3 %

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
Q4
Q1
Q2
Q3
YOY %





FY11
FY11
FY12
FY12
FY12
Change















 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP























 
Platform Net Revenue











Xbox 360
285

336

345

213

331

16 %
PLAYSTATION 3
282

357

308

169

314

11 %
Wii
130

71

42

35

49

(62 %)
PlayStation 2
20  
4  
3  
15  
7  
(65 %)
Total Consoles
717

768

698

432

701

(2 %)
Mobile
59

70

57

55

70

19 %
PSP
22

16

11

17

14

(36 %)
Nintendo DS
49  
28  
8  
7  
15  
(69 %)
Total Mobile and Handhelds
130

114

76

79

99

(24 %)
PC
155

171

205

178

214

38 %
Other
51  
37  
20  
26  
47  
(8 %)
Total GAAP Net Revenue
1,053  
1,090  
999  
715  
1,061  
1 %
Xbox 360
126

(12 )
(193 )
140

174


PLAYSTATION 3
131

(75 )
(197 )
205

179


Wii
39

(44 )
(26 )
(1 )
3


PlayStation 2
(1 )
-

-

-

-


Mobile
5

(3 )
-

-

13


PSP
-

(6 )
(6 )
-

(2 )

Nintendo DS
8

(6 )
(2 )
-

9


PC
49  
51  
(51 )
(25 )
214  

Change in Deferred Net Revenue (Packaged Goods and Digital Content)
357  
(95 )
(475 )
319  
590  

Xbox 360
411

324

152

353

505

23 %
PLAYSTATION 3
413

282

111

374

493

19 %
Wii
169

27

16

34

52

(69 %)
PlayStation 2
19  
4  
3  
15  
7  
(63 %)
Total Consoles
1,012

637

282

776

1,057

4 %
Mobile
64

67

57

55

83

30 %
PSP
22

10

5

17

12

(45 %)
Nintendo DS
57  
22  
6  
7  
24  
(58 %)
Total Mobile and Handhelds
143

99

68

79

119

(17 %)
PC
204

222

154

153

428

110 %
Other
51  
37  
20  
26  
47  
(8 %)
Total Non-GAAP Net Revenue
1,410  
995  
524  
1,034  
1,651  
17 %












 
Xbox 360
27 %
31 %
35 %
30 %
31 %

PLAYSTATION 3
27 %
33 %
31 %
23 %
29 %

Wii
12 %
6 %
4 %
5 %
5 %

PlayStation 2
2 %
-  
-  
2 %
1 %

Total Consoles
68 %
70 %
70 %
60 %
66 %

Mobile
5 %
6 %
6 %
8 %
7 %

PSP
2 %
1 %
1 %
2 %
1 %

Nintendo DS
5 %
3 %
1 %
1 %
1 %

Total Mobile and Handhelds
12 %
10 %
8 %
11 %
9 %

PC
15 %
16 %
20 %
25 %
20 %

Other
5 %
4 %
2 %
4 %
5 %

Total GAAP Net Revenue %
100 %
100 %
100 %
100 %
100 %

Xbox 360
29 %
33 %
29 %
34 %
31 %

PLAYSTATION 3
30 %
28 %
21 %
36 %
30 %

Wii
12 %
3 %
3 %
4 %
3 %

PlayStation 2
1 %
-  
1 %
1 %
-  

Total Consoles
72 %
64 %
54 %
75 %
64 %

Mobile
4 %
7 %
11 %
5 %
5 %

PSP
2 %
1 %
1 %
2 %
1 %

Nintendo DS
4 %
2 %
1 %
1 %
1 %

Total Mobile and Handhelds
10 %
10 %
13 %
8 %
7 %

PC
14 %
22 %
29 %
15 %
26 %

Other
4 %
4 %
4 %
2 %
3 %

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
Q4
Q1
Q2
Q3
YOY %





FY11
FY11
FY12
FY12
FY12
Change















 
CASH FLOW DATA


























 
Operating cash flow
349
253

(274 )
(211 )
475
36 %
Operating cash flow - TTM
320
320

194

117

243
(24 %)
Capital expenditures
15
21

32

52

44
193 %
Capital expenditures - TTM
60
59

80

120

149
148 %















 
BALANCE SHEET DATA


























 
Cash and cash equivalents
1,353
1,579

1,173

930

1,242
(8 %)
Short-term investments
511
497

503

355

406
(21 %)
Marketable equity securities
107
161

172

214

143
34 %
Receivables, net
390
335

30

562

526
35 %
Inventories
105
77

75

90

69
(34 %)
Deferred net revenue (packaged goods and digital content)











End of the quarter
1,100
1,005

530

849

1,439

Less: Beginning of the quarter
743
1,100  
1,005  
530  
849

Change in deferred net revenue (packaged goods and digital content)
357
(95 )
(475 )
319  
590
















 
STOCK-BASED COMPENSATION


























 
Cost of goods sold
1
-

1

-

-

Marketing and sales
6
5

5

6

7

General and administrative
10
8

9

9

11

Research and development
29
25  
23  
28  
30

Total Stock-Based Compensation (excluding restructuring and other)
46
38

38

43

48

Restructuring and other
2
-  
-  
-  
-

Total Stock-Based Compensation (including restructuring and other)
48
38  
38  
43  
48
















 
EMPLOYEES
7,742
7,645

7,973

8,687

9,043
17 %