Electronic Arts (EA) 8-K Ea Announces Record First Quarter Results

Exhibit 99.1

EA ANNOUNCES RECORD FIRST QUARTER RESULTS

Driven By NBA STREET Vol. 2, Def Jam VENDETTA, The Sims Superstar

REDWOOD CITY, CA – July 23, 2003 – Electronic Arts (NASDAQ: ERTS) today announced financial results for the fiscal first quarter ended June 30, 2003.

Net revenue for the first quarter was $353 million, up six percent as compared with $332 million for the fiscal quarter ended June 30, 2002. Sales were driven byNBA STREET Vol. 2, Def Jam VENDETTA^™andThe Sims^™ Superstar Expansion Pack. BothNBA STREET Vol. 2 andThe Sims Superstar Expansion Pack went platinum in the quarter – having each sold more than one million units.

Net income for the quarter was $18 million, a 148 percent increase over the same period a year ago. Diluted earnings per share for the quarter increased 141 percent to $0.12 as compared with $0.05 for the prior year. The growth in earnings was driven by increased revenue and a higher gross margin.

Trailing twelve month operating cash flow was $673 million, or $4.55 per share.

Non-GAAP net income in the first quarter, excluding certain items, was up 110 percent to $19 million. Non-GAAP diluted earnings per share were up 104 percent to $0.13. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)

“EA further enhanced its line-up of franchise hits this quarter,” said Larry Probst, Chairman and Chief Executive Officer. “NBA STREET Vol. 2 is a runaway hit and we also launched Def Jam VENDETTA, a new property. Year in and year out it is our objective to add significant new intellectual properties to our existing franchise base. We are off to a great start in our new fiscal year.”

“The strength of our first quarter performance positions us well for the remainder of the year,” said Warren Jenson, Chief Financial and Administrative Officer. “Our Fall development is on schedule and looks great. We expect fiscal 2004 to be another record year on both the top and bottom lines.”

Highlights for the Quarter (comparisons are to the quarter ending June 30, 2002)

n Net revenue: North America – up 15 percent to $199 million; Europe – up 1 percent to $128 million; Asia Pacific – down 5 percent to $14 million; Japan – down 27 percent to $12 million. Net revenue was favorably impacted by changes in foreign currency rates by approximately $21 million.

n Results in the year-ago quarter included sales of both2002 FIFA World Cup^™ andMedal of Honor Frontline^™ – together representing sales in excess of four million units.

n Gross margin was 57.6 percent versus 57.1 percent.

n Operating income was $22 million – up 247 percent. Operating margin increased four points year-over-year to 6 percent.

n New programming agreement with AOL.AOL will pay a programming fee for integrated content including access to EA’s Club Pogo^™ subscription games, additional web content and extended international and broadband service. AOL will provide their customers with free access to Club Pogo games. The agreement is for two years. All remaining EA carriage fee obligations have been eliminated.

n EA was the number one publisher on the PC.In the U.S., the Company had four of the top-ten-selling PC games based on dollar sales according to The NPD Group / NPD Techworld.

n EA was the number one publisher on current generation consoles. In the U.S., the Company had two of the top-six-selling current generation console titles (includes PlayStation^®2, Xbox^™ and Nintendo GameCube^™ consoles) based on dollar sales according to The NPD Group / NPD Funworld^® / TRSTS^®.

n EA appointed Gregory B. Maffei to its Board of Directors. Mr. Maffei is Chairman and Chief Executive Officer of 360networks Corporation and a former Senior Vice President and Chief Financial Officer of Microsoft.

Business Outlook

The following forward-looking statements reflect expectations as of July 23, 2003. Results may be materially different and are affected by many factors, such as changes in the overall global economy, actual consumer spending, consumer acceptance of our products, development delays and other risk factors referenced below in this release.

Fiscal Second Quarter Expectations – Ending September 30, 2003

n Net revenue is expected to be between $470 and $510 million – up 4 to 12 percent year-over-year.

n Diluted earnings per share are expected to be between $0.35 and $0.42 – up 3 to 24 percent year-over-year.

Fiscal Year Expectations – Ending March 31, 2004

n Net revenue is expected to be between $2.8 and $2.9 billion – up 13 to 17 percent year-over-year.

n Diluted earnings per share are expected to be between $3.25 and $3.40 – up 50 to 57 percent year-over-year.

Non-GAAP Financial Measures

Electronic Arts uses non-GAAP measures of operating income, net income and diluted earnings per share. These non-GAAP measures exclude the following items, including the related tax effect, from the Company’s statement of operations:

n Amortization of intangibles

n Restructuring and asset impairment charges

n Other-than-temporary impairment of investments

n Charges for acquired in-process technology

The Company believes that excluding these items is useful for illustrating and explaining operating results and comparisons to prior periods. Management considers these non-GAAP measures in its decision-making to facilitate more relevant operating comparisons.

A reconciliation of GAAP operating income to non-GAAP operating income; GAAP net income to non-GAAP net income; and GAAP diluted earnings per share to non-GAAP diluted earnings per share are included as part of the supplemental disclosures to this release.

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Webcast

Electronic Arts will host a webcast at 2:00 pm PT (5:00 pm ET) on July 23, 2003 athttp://investor.ea.com to review the results for the Company’s quarter ending June 30, 2003 and to discuss the Company’s near-term outlook. A replay of the webcast will be posted for two weeks. A copy of this release and supplemental information will be available athttp://investor.ea.com.

Some statements set forth in this release, including those under the heading “Business Outlook,” contain forward-looking statements that involve risks and uncertainties. Statements including words such as “anticipate”, “believe” or “expect” and statements in the future tense are forward-looking statements. These forward-looking statements are subject to business and economic risks and actual events or actual future results could differ materially from those set forth in the forward-looking statements due to such risks and uncertainties. Some of the factors which could cause our results to differ materially include the following: our ability to predict consumer preferences among competing hardware platforms; the seasonality and cyclical nature of the interactive game segment; timely development and release of our products; our ability to secure licenses to valuable entertainment properties; consumer spending trends; retention of key personnel; adoption of new accounting regulations and standards; potential regulation of our products in key territories; developments in the law regarding protection of our products; and other factors described in our Annual Report on Form 10K for the year ended March 31, 2003. If any of these risks or uncertainties materializes, our results could differ materially from our expectations described in these forward-looking statements. We do not intend to update these forward-looking statements, including those made under the “Business Outlook” heading.

Note to Editors: The Sims and Medal of Honor Frontline are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. Medal of Honor is a trademark or registered trademark of Electronic Arts in the U.S. and/or other countries for computer and videogame products. Club Pogo is a trademark of Pogo Corporation. Def Jam and Def Jam VENDETTA are used under license from DJR Holdings, LLC and The Island Def Jam Music Group, a division of UMG Recordings, Inc. NBA and FIFA are trademarks of their respective owners and used with permission. PlayStation is a registered trademark of Sony Computer Entertainment Inc. Xbox is a trademark of Microsoft Corporation in the U.S. and/or other countries and used under license. Nintendo GameCube is a trademark of Nintendo. All other trademarks are the property of their respective owners.

For additional information, please contact:

Karen Sansot	Jeff Brown
Director, Investor Relations	Vice President, Corporate Communications
650-628-5597	650-628-7922

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended June 30,
	2003		2002
Net revenue	$	353,381	$	331,898
Cost of goods sold		149,963		142,454
Gross profit		203,418		189,444
Operating expenses:
Marketing and sales		59,084		65,374
General and administrative		30,760		25,663
Research and development		91,122		89,880
Amortization of intangibles		680		2,245
Total operating expenses		181,646		183,162
Operating income		21,772		6,282
Interest and other income, net		4,849		3,147
Income before provision for income taxes and minority interest		26,621		9,429
Provision for income taxes		8,253		2,923
Income before minority interest		18,368		6,506
Minority interest in consolidated joint venture		—		898
Net income	$	18,368	$	7,404
Class A common stock:
Net income:
Diluted	$	18,368	$	7,404
Basic	$	18,368	$	10,394
Earnings per share:
Diluted	$	0.12	$	0.05
Basic	$	0.13	$	0.07
Number of shares used in computation:
Diluted		149,816		145,222
Basic		144,955		138,748
Class B common stock:
Net loss, net of retained interest in EA.com		N/A		(2,990	)
Net loss per share:
Diluted		N/A	$	(0.49	)
Basic		N/A	$	(0.49	)
Number of shares used in computation:
Diluted		N/A		6,043
Basic		N/A		6,043

Non-GAAP Results (In thousands, except per share data)

The following table shows the Company’s non-GAAP results reconciled to the Generally Accepted Accounting Principles (“GAAP”) Consolidated Statements of Operations. The Company’s non-GAAP results do not include amortization of intangibles, restructuring charges, asset impairment charges, other-than-temporary impairment of investments and charges for acquired in-process technology. In addition, income taxes are calculated on a consolidated effective tax rate of 31%.

	Three Months Ended June 30,
	2003			2002
Net income	$	18,368		$	7,404
Amortization of intangibles		680			2,245
Income taxes effect on the above items		(211	)		(696	)
Non-GAAP net income	$	18,837		$	8,953
Class A common stock:
Non-GAAP diluted earnings per share	$	0.13		$	0.06
Number of shares used in diluted earnings per share computation		149,816			145,222

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

	June 30, 2003		March 31, 2003(a)
ASSETS
Current assets:
Cash, cash equivalents and short-term investments	$	1,622,073	$	1,587,618
Marketable equity securities		1,217		1,111
Receivables, less allowances of $128,707 and $164,634, respectively		37,211		82,083
Inventories, net		17,034		25,170
Deferred income taxes		116,874		117,180
Other current assets		122,101		97,975
Total current assets		1,916,510		1,911,137
Property and equipment, net		273,263		262,252
Investment in affiliates		12,460		20,277
Goodwill		88,542		86,031
Other intangibles, net		20,653		21,301
Long-term deferred income taxes		13,815		13,523
Other assets		22,960		45,012
Total Assets	$	2,348,203	$	2,359,533
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	67,378	$	106,329
Accrued and other liabilities		372,380		464,547
Total current liabilities		439,758		570,876
Minority interest in consolidated joint venture		—		3,918
Stockholders’ equity:
Common stock		1,468		1,443
Paid-in capital		951,182		857,870
Retained earnings		942,260		923,892
Accumulated other comprehensive income		13,535		1,534
Total stockholders’ equity		1,908,445		1,784,739
Total Liabilities, Minority Interest and Stockholders’ Equity	$	2,348,203	$	2,359,533

^(a)    Derived from audited financial statements.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended June 30,
	2003			2002
OPERATING ACTIVITIES
Net income	$	18,368		$	7,404
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Minority interest in consolidated joint venture		—			(898	)
Equity in net income of affiliates		—			(239	)
Depreciation and amortization		13,223			24,306
Other-than-temporary impairment of investment in affiliates		—			471
Loss on sale of fixed assets and marketable securities		53			95
Bad debt expense		(717	)		1,659
Stock-based compensation		194			1,154
Tax benefit from exercise of stock options		20,143			5,200
Change in assets and liabilities:
Receivables		56,515			70,489
Inventories		8,136			(294	)
Other assets		1,625			(34,108	)
Accounts payable		(46,063	)		(2,237	)
Accrued and other liabilities		(105,788	)		(66,359	)
Net cash provided by (used in) operating activities		(34,311	)		6,643
INVESTING ACTIVITIES
Proceeds from sale of property and equipment		38			379
Proceeds from sale of affiliate		8,467			—
Capital expenditures		(12,187	)		(8,409	)
Investment in affiliates, net		—			(154	)
Purchases of short-term investments		(731,176	)		(24,000	)
Proceeds from maturities and sales of short-term investments		557,746			31,787
Dividend to joint venture and purchase of minority interest		(5,100	)		—
Net cash used in investing activities		(182,212	)		(397	)
FINANCING ACTIVITIES
Proceeds from sale of common stock through employee stock plans and other plans		72,865			19,894
Repayment of Class B notes receivable		135			—
Net cash provided by financing activities		73,000			19,894
Effect of foreign exchange on cash		4,225			9,572
Increase (decrease) in cash and cash equivalents		(139,298	)		35,712
Beginning cash and cash equivalents		949,995			552,826
Ending cash and cash equivalents		810,697			588,538
Short-term investments		811,376			238,328
Ending cash, cash equivalents and short-term investments	$	1,622,073		$	826,866

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations

(in millions, except per share data)

The following tables show the Company’s non-GAAP results reconciled to the Generally Accepted Accounting Principles (“GAAP”) Consolidated Statements of Operations. The Company’s non-GAAP results do not include amortization of intangibles, restructuring charges, asset impairment charges, other-than-temporary impairment of investments, charges for acquired in-process technology and their related income tax effect.

	Q1 FY03			Q2 FY03			Q3 FY03			Q4 FY03			Q1 FY04
QUARTERLY RESULTS
Operating Income
GAAP operating income	$	6		$	71		$	369		$	10		$	22
Adjustments:
Amortization of intangibles		2			2			3			1			—
Restructuring charges		—			—			8			7			—
Asset impairment charges		—			—			2			64			—
Total adjustments		2			2			13			72			—
Non-GAAP operating income	$	8		$	73		$	382		$	82		$	22
Non-GAAP operating income margin – % of net revenue		3	%		16	%		31	%		18	%		6	%
Net Income
GAAP net income	$	7		$	51		$	250		$	9		$	18
Adjustments:
Amortization of intangibles		2			2			3			1			1
Restructuring charges		—			—			8			7			—
Asset impairment charges		—			—			2			64			—
Other-than-temporary impairment of investment in affiliates		—			—			10			—			—
Income taxes effect on the above items		—			(1	)		(8	)		(22	)		—
Total adjustments		2			1			15			50			1
Non-GAAP net income	$	9		$	52		$	265		$	59		$	19
Non-GAAP net income margin – % of net revenue		3	%		11	%		21	%		13	%		5	%
GAAP diluted earnings per share	$	0.05		$	0.34		$	1.69		$	0.06		$	0.12
Non-GAAP diluted earnings per share	$	0.06		$	0.35		$	1.79		$	0.40		$	0.13
Number of shares used in diluted earnings per share computation		145			147			148			147			150
TRAILING TWELVE MONTH RESULTS
Operating Income
GAAP operating income	$	209		$	333		$	513		$	456		$	472
Adjustments:
Amortization of intangibles		20			16			13			8			6
Restructuring charges		7			7			8			15			15
Asset impairment charges		14			14			9			66			66
Total adjustments		41			37			30			89			87
Non-GAAP operating income	$	250		$	370		$	543		$	545		$	559
Non-GAAP operating income margin – % of net revenue		13	%		18	%		22	%		22	%		22	%
Net Income
GAAP net income	$	153		$	237		$	355		$	317		$	328
Adjustments:
Amortization of intangibles		20			16			13			8			7
Restructuring charges		7			7			8			15			15
Asset impairment charges		14			14			9			66			66
Other-than-temporary impairment of investment in affiliates		—			—			10			10			10
Income taxes effect on the above items		(11	)		(11	)		(13	)		(31	)		(31	)
Total adjustments		30			26			27			68			67
Non-GAAP net income	$	183		$	263		$	382		$	385		$	395
Non-GAAP net income margin – % of net revenue		10	%		13	%		15	%		16	%		16	%
GAAP diluted earnings per share	$	1.06		$	1.64		$	2.41		$	2.17		$	2.21
Non-GAAP diluted earnings per share	$	1.26		$	1.82		$	2.59		$	2.63		$	2.67
Number of shares used in diluted earnings per share computation		145			145			147			146			148

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

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

	Q1 FY03	Q2 FY03	Q3 FY03	Q4 FY03	Q1 FY04		YOY % Growth
CONSOLIDATED FINANCIAL DATA
Net revenue	332	453	1,234	463	353		6%
Net revenue—trailing twelve months (“TTM”)	1,875	2,088	2,489	2,482	2,503		34%
Gross profit	189	253	668	299	203		7%
Gross margin—% of net revenue	57%	56%	54%	65%	58%
Gross profit—TTM	1,008	1,138	1,375	1,409	1,423		41%
Gross margin—TTM % of net revenue	54%	55%	55%	57%	57%
Operating income	6	71	369	10	22		247%
Operating income margin—% of net revenue	2%	16%	30%	2%	6%
Operating income—TTM	209	333	513	456	472		125%
Operating income margin—TTM % of net revenue	11%	16%	21%	18%	19%
Net income	7	51	250	9	18		148%
Diluted earnings per share	$0.05	$0.34	$1.69	$0.06	$0.12		141%
Net income—TTM	153	237	355	317	328		113%
Diluted earnings per share—TTM	$1.06	$1.64	$2.41	$2.17	$2.21		108%
Non-GAAP operating income (a)	8	73	382	82	22		163%
Non-GAAP operating income margin—% of net revenue	3%	16%	31%	18%	6%
Non-GAAP operating income—TTM (a)	250	370	543	545	559		122%
Non-GAAP operating income margin—TTM % of net revenue	13%	18%	22%	22%	22%
Non-GAAP net income(a)	9	52	265	59	19		110%
Non-GAAP diluted earnings per share (a)	$0.06	$0.35	$1.79	$0.40	$0.13		104%
Non-GAAP net income—TTM (a)	183	263	382	385	395		116%
Non-GAAP diluted earnings per share—TTM (a)	$1.26	$1.82	$2.59	$2.63	$2.67		112%
CASH FLOW DATA
Operating cash flow	7	78	198	431	(34	)	(616%)
Operating cash flow—TTM	324	453	579	714	673		108%
Capital expenditures	8	15	11	25	12		45%
Capital expenditures—TTM	45	45	46	59	63		40%
BALANCE SHEET DATA
Cash, cash equivalents and short term investments	827	921	1,165	1,588	1,622		96%
Marketable equity securities	5	6	1	1	1		(77%)
Receivables, net	118	139	609	82	37		(69%)
Inventories, net	24	37	33	25	17		(29%)
OTHER
Employees	3,501	3,704	3,788	3,938	4,017		15%

^(a)    Please see attached Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

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

	Q1 FY03	Q2 FY03	Q3 FY03	Q4 FY03	Q1 FY04	YOY % Growth
GEOGRAPHIC REVENUE MIX
North America Revenue	174	313	696	253	199	15%
Revenue outside North America	158	140	538	210	154	(2%)
Europe Revenue	126	117	471	165	128	1%
Japan Revenue	17	9	29	25	12	(27%)
Asia Pacific Revenue	15	14	38	20	14	(5%)
Net Revenue	332	453	1,234	463	353	6%
GEOGRAPHIC REVENUE MIX— as a % of Net Revenue
North America Revenue	52%	69%	57%	55%	56%
Revenue outside North America	48%	31%	43%	45%	44%
Europe Revenue	38%	26%	38%	36%	36%
Japan Revenue	5%	2%	2%	5%	4%
Asia Pacific Revenue	5%	3%	3%	4%	4%
Net Revenue	100%	100%	100%	100%	100%
PLATFORM REVENUE MIX
Sony PlayStation 2	135	159	460	158	118	(12%)
PC	76	82	219	122	80	6%
Xbox	20	37	117	45	31	57%
Nintendo GameCube	15	28	111	23	21	41%
Game Boy Advance	2	4	68	5	2	10%
Sony PlayStation	13	24	54	9	6	(57%)
Co-publishing and Distribution	47	96	157	75	72	52%
Subscription Services	9	8	12	17	14	60%
Advertising, Programming, Licensing and Other	15	15	36	9	9	(43%)
Net Revenue	332	453	1,234	463	353	6%
PLATFORM REVENUE MIX— as a % of Net Revenue
Sony PlayStation 2	41%	35%	37%	34%	33%
PC	23%	18%	18%	26%	23%
Xbox	6%	8%	9%	10%	9%
Nintendo GameCube	4%	6%	9%	5%	6%
Game Boy Advance	1%	1%	6%	1%	1%
Sony PlayStation	4%	6%	4%	2%	2%
Co-publishing and Distribution	14%	21%	13%	16%	20%
Subscription Services	2%	2%	1%	4%	4%
Advertising, Programming, Licensing and Other	5%	3%	3%	2%	2%
Net Revenue	100%	100%	100%	100%	100%
Platform Sku Release Mix
Sony PlayStation 2	4	4	9	2	3	(25%)
PC	2	3	9	3	2	0%
Xbox	2	3	8	3	2	0%
Nintendo GameCube	2	4	9	2	3	50%
Game Boy Advance	1	1	4	1	—	(100%)
Sony PlayStation	1	2	3	—	—	(100%)
Online and Other	—	1	2	1	—	N/A
Total Skus	12	18	44	12	10	(17%)

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Fact Sheet for Q1 Fiscal 2004

Q1 Product Releases	Platform
•   Def Jam VENDETTA™	PlayStation®2
•   NBA STREET Vol. 2	PlayStation 2
•   F1 Career Challenge	PlayStation 2
•   NBA STREET Vol. 2	Xbox™
•   F1 Career Challenge(a)	Xbox
•   Def Jam VENDETTA	Nintendo GameCube™
•   NBA STREET Vol. 2	Nintendo GameCube
•   F1 Career Challenge(a)	Nintendo GameCube
•   The Sims™ Superstar Expansion Pack	PC
•   F1 Career Challenge	PC

^(a) F1 Career Challenge on the Xbox and Nintendo GameCube platforms were not released in North America in the first quarter of fiscal 2004.

All trademarks are the property of their respective owners.

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