EXHIBIT 99.1
EA REPORTS FOURTH QUARTER AND FISCAL YEAR 2005 RESULTS
Record $3.1 Billion Revenue Driven by 31 Platinum Titles
REDWOOD CITY, CA – May 3, 2005 – Electronic Arts (NASDAQ: ERTS) today announced preliminary financial results for the fourth quarter and fiscal year ended March 31, 2005.
Full Year Results
Net revenue for the fiscal year ended March 31, 2005 was $3.129 billion, up 6 percent as compared with $2.957 billion for the prior year. EA had 31 platinum titles (over one million units sold) in fiscal 2005 compared to 27 a year ago. Six franchises sold more than five million units:The Sims™,Need for Speed™,Madden NFL Football,FIFA,The Lord of the Rings™ andHarry Potter™.
Net income for the year was $504 million as compared with $577 million for the prior year. Diluted earnings per share were $1.59 as compared with $1.87 for the prior year.
Non-GAAP net income for the year, which excludes certain items, was $543 million as compared with $566 million for the prior year. Non-GAAP diluted earnings per share were $1.71 as compared with $1.84 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)
Operating cash flow was $634 million as compared with $669 million a year ago.
“As we begin the new fiscal year, we are focused on successfully navigating through the console transition,” said Larry Probst, Chairman and Chief Executive Officer. “EA has the people, franchises and strategies to extend our leadership on next generation platforms.”
“This is a year of execution and investment,” said Warren Jenson, Chief Financial and Administrative Officer. “We have a strong title line up that allows us to make investments for long-term leadership.”
Highlights for the Year (comparisons are to the fiscal year ended March 31, 2004)
| | · | Net revenue surpassed $3 billion for the first time in EA’s history. |
| | · | Net revenue: North America – up 3 percent to $1.7 billion; total international – up 9 percent to $1.5 billion. The increase in total international net revenue was driven by: Europe – up 9 percent to $1.3 billion; Asia Pacific, including Japan – up 8 percent to $180 million. Movement in foreign currency rates contributed $95 million or 3 percent of the increase in total net revenue. |
| | · | Operating income was $669 million – compared to $776 million.Operating margin was 21 percent – compared to 26 percent a year ago. |
| | · | EA entered into long-term exclusive agreements with the NFL, NFLPA, ESPN, NCAA and AFL. |
| | · | The Sims franchise sold more than 16 million copies. |
| | · | TheNeed for Speed franchise sold more than 15 million copies. |
| | · | Need for Speed™ Rivals was the #1 title on the PSP™ handheld entertainment system in North America. All EA releases on the PSP charted in the top 10. |
| | · | EA completed the acquisition of Criterion Software,bringing the award-winningBurnout™ andBlack™ franchises and RenderWare™ technology. |
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| | · | EA completed its tender offer for Digital Illusions, creators of the award-winning Battlefield franchise. |
Fourth Quarter Results
Net revenue for the fourth quarter was $553 million, down 8 percent as compared with $598 million for the prior year. Sales were driven byNBA STREET 3, EA SPORTS™ Fight Night Round 2, Need for Speed™ Underground 2, FIFA STREETand Time Splitters Future Perfect™.
Net income for the quarter was $8 million, as compared with $90 million for the prior year. Diluted earnings per share were $0.02 for the quarter, as compared with $0.29 for the prior year. The decrease in net income was driven by lower net revenues at a lower gross margin and higher operating costs.
Non-GAAP net income was $30 million as compared with $77 million for the prior year. Non-GAAP net income excludes a $21 million pretax charge associated with employment-related litigation. Non-GAAP net income also excludes $9 million primarily attributable to pretax acquisition-related charges. Non-GAAP net income for the prior year excludes a $20 million non-recurring income tax benefit and $10 million primarily related to pretax restructuring charges.
Non-GAAP diluted earnings per share were $0.09, as compared with $0.25 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)
Business Outlook
The following forward-looking statements reflect expectations as of May 3, 2005. Results may be materially different and are affected by many factors, such as changes in foreign exchange rates, the overall global economy, the popular appeal of EA’s products, competition in the industry, the ability of console manufacturers to meet demand, EA’s effective tax rate, development delays, EA’s ability to secure key licenses and other factors detailed in this release and in EA’s annual and quarterly SEC filings.
Fiscal Year Expectations – Ending March 31, 2006
| | · | Net revenue is expected to be between $3.4 and $3.5 billion – up 9 to 12 percent year-over-year. |
| | · | Diluted earnings per share are expected to be between $1.55 and $1.70 – as compared with $1.59 for fiscal 2005. |
Fiscal First Quarter Expectations – Ending June 30, 2005
| | · | Net revenue is expected to be between $300 and $340 million – as compared with $432 million for the prior year. |
| | · | Diluted net loss per share is expected to be between $0.22 and $0.28 – as compared with diluted net income per share of $0.08 for the comparable period in fiscal 2005. |
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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 any related tax effect, from the Company’s statement of operations:
| | · | Amortization of intangibles |
| | · | Employee stock-based compensation |
| | · | Restructuring and asset impairment charges |
| | · | Acquired in-process technology |
| | · | Certain non-recurring litigation expenses |
| | · | Other-than-temporary impairment of investments in affiliates |
In addition, other significant unforeseeable and non-recurring items may occur from time to time that require an adjustment to these non-GAAP measures. For example, during the fourth quarter of fiscal 2004, a $20 million non-recurring benefit to the Company’s income tax expense was included in the GAAP results but excluded from the non-GAAP results. When these items occur, the accounting impact will become a reconciling item between the GAAP results and these non-GAAP measures.
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 is included as part of the supplemental disclosures to this release.
Conference Call
Electronic Arts will host a conference call on May 3, 2005 at 2:00 pm PT (5:00 pm ET) to review the results for the Company’s fourth quarter and fiscal year ended March 31, 2005. Listeners may access the conference call live via webcast (http://investor.ea.com). A webcast archive of the conference call will be available for one year at http://investor.ea.com.
Some statements set forth in this release, including the estimates under the heading “Business Outlook,” contain forward-looking statements that are subject to change. Statements including words such as “anticipate”, “believe”, “estimate” or “expect” and statements in the future tense are forward-looking statements. These forward-looking statements are subject to 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: competition in the interactive entertainment industry; the availability of an adequate supply of hardware platforms; the Company’s ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of Electronic Arts’ products; the Company’s ability to manage expenses during fiscal year 2006; the Company’s ability to secure licenses to valuable entertainment properties on favorable terms; the Company’s ability to attract and retain key personnel; changes in the Company’s effective tax rates; 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; fluctuations in foreign exchange rates; and other factors
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described in the Company’s annual report on Form 10-K for the year ended March 31, 2004 and quarterly report on Form 10-Q for the quarter ended December 31, 2004. Electronic Arts does not intend to update these forward-looking statements, including those made under the “Business Outlook” heading.
Note to Editors: Need for Speed, The Sims, John Madden Football, Burnout and Black are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. RenderWare is a trademark or registered trademark of Criterion Software Ltd. The Lord of the Rings and the names of the characters, items, events and places therein are trademarks of the Saul Zaentz Company d/b/a Tolkien Enterprises under license to New Line Productions, Inc. HARRY POTTER and all related characters and elements are trademarks of and© Warner Bros. Entertainment Inc. TimeSplitters Future Perfect is a trademark of Free Radical Design Ltd. NBA, NFL, and FIFA are trademarks of their respective owners and used with permission. PSP is a trademark of Sony Computer Entertainment Inc. All other trademarks are the property of their respective owners.
| | |
| For additional information, please contact: | | |
Tricia Gugler | | Jeff Brown |
Director, Investor Relations | | Vice President, Corporate Communications |
650-628-7327 | | 650-628-7922 |
4
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
| | | | | | | | | | | | |
| | | Three Months Ended
March 31,
| | Year Ended
March 31,
|
| | | 2005
| | 2004
| | 2005
| | 2004(a)
|
Net revenue | | $ | 553 | | $ | 598 | | $ | 3,129 | | $ | 2,957 |
Cost of goods sold | | | 233 | | | 226 | | | 1,197 | | | 1,103 |
| | |
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| |
|
| |
|
| |
|
|
Gross profit | | | 320 | | | 372 | | | 1,932 | | | 1,854 |
| | | | |
Operating expenses: | | | | | | | | | | | | |
Marketing and sales | | | 87 | | | 67 | | | 391 | | | 370 |
General and administrative | | | 66 | | | 46 | | | 221 | | | 185 |
Research and development | | | 161 | | | 155 | | | 633 | | | 511 |
Amortization of intangibles | | | 1 | | | 1 | | | 3 | | | 3 |
Acquired in-process technology | | | 4 | | | — | | | 13 | | | — |
Restructuring charges | | | 1 | | | 9 | | | 2 | | | 9 |
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Total operating expenses | | | 320 | | | 278 | | | 1,263 | | | 1,078 |
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| |
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|
|
Operating income | | | — | | | 94 | | | 669 | | | 776 |
| | | | |
Interest and other income, net | | | 12 | | | 6 | | | 56 | | | 21 |
| | |
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| |
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|
Income before provision for income taxes and minority interest | | | 12 | | | 100 | | | 725 | | | 797 |
| | | | |
Provision for income taxes | | | 4 | | | 10 | | | 221 | | | 220 |
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| |
|
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Income before minority interest | | | 8 | | | 90 | | | 504 | | | 577 |
Minority interest | | | — | | | — | | | — | | | — |
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| |
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|
Net income | | $ | 8 | | $ | 90 | | $ | 504 | | $ | 577 |
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Net income: | | | | | | | | | | | | |
Basic | | $ | 8 | | $ | 90 | | $ | 504 | | $ | 577 |
Diluted | | $ | 8 | | $ | 90 | | $ | 504 | | $ | 577 |
| | | | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.02 | | $ | 0.30 | | $ | 1.65 | | $ | 1.95 |
Diluted | | $ | 0.02 | | $ | 0.29 | | $ | 1.59 | | $ | 1.87 |
| | | | |
Number of shares used in computation: | | | | | | | | | | | | |
Basic | | | 309 | | | 300 | | | 305 | | | 295 |
Diluted | | | 322 | | | 313 | | | 318 | | | 308 |
| (a) | Derived from audited financial statements. |
Non-GAAP Results (in millions, except per share data)
The following table shows the Company’s non-GAAP results reconciled to the Generally Accepted Accounting Principles (“GAAP”) Condensed Consolidated Statements of Operations. The Company’s non-GAAP results do not include amortization of intangibles, employee stock-based compensation, acquired in-process technology, restructuring charges, asset impairment charges, certain non-recurring litigation expenses and other-than-temporary impairment of investments in affiliates and their related income tax effect. The three months and year ending March 31, 2004 also exclude the impact of a one-time income tax benefit.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31,
| | | Year Ended
March 31,
| |
| | | 2005
| | | 2004
| | | 2005
| | | 2004
| |
Net income | | $ | 8 | | | $ | 90 | | | $ | 504 | | | $ | 577 | |
| | | | |
Amortization of intangibles | | | 1 | | | | 1 | | | | 3 | | | | 3 | |
COGS amortization of intangibles | | | 2 | | | | — | | | | 3 | | | | — | |
Employee stock-based compensation | | | 2 | | | | — | | | | 6 | | | | — | |
Acquired in-process technology | | | 3 | | | | — | | | | 13 | | | | — | |
Restructuring charges | | | 1 | | | | 9 | | | | 1 | | | | 10 | |
Certain non-recurring litigation expenses | | | 21 | | | | — | | | | 21 | | | | — | |
Income taxes effect on the above items | | | (8 | ) | | | (3 | ) | | | (8 | ) | | | (4 | ) |
Income tax adjustment | | | — | | | | (20 | ) | | | — | | | | (20 | ) |
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Non-GAAP net income | | $ | 30 | | | $ | 77 | | | $ | 543 | | | $ | 566 | |
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Non-GAAP diluted earnings per share | | $ | 0.09 | | | $ | 0.25 | | | $ | 1.71 | | | $ | 1.84 | |
Number of shares used in diluted earnings per share computation | | | 322 | | | | 313 | | | | 318 | | | | 308 | |
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ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
| | | | | | |
| | | March 31,
2005
| | March 31,
2004(a)
|
ASSETS | | | | | | |
| | |
Current assets: | | | | | | |
Cash, cash equivalents and short-term investments | | $ | 2,958 | | $ | 2,414 |
Marketable equity securities | | | 140 | | | 1 |
Receivables, net of allowances of $162 million and $155 million, respectively | | | 296 | | | 212 |
Inventories | | | 62 | | | 55 |
Deferred income taxes | | | 86 | | | 84 |
Other current assets | | | 164 | | | 163 |
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| |
|
|
Total current assets | | | 3,706 | | | 2,929 |
| | |
Property and equipment, net | | | 353 | | | 298 |
Investment in affiliates | | | 10 | | | 14 |
Goodwill | | | 153 | | | 92 |
Other intangibles, net | | | 36 | | | 18 |
Deferred income taxes | | | 19 | | | 41 |
Other assets | | | 93 | | | 72 |
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| |
|
|
Total Assets | | $ | 4,370 | | $ | 3,464 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 134 | | $ | 114 |
Accrued and other liabilities | | | 694 | | | 630 |
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Total current liabilities | | | 828 | | | 744 |
| | |
Other liabilities | | | 33 | | | 42 |
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Total liabilities | | | 861 | | | 786 |
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Minority interest | | | 11 | | | — |
| | |
Stockholders’ equity: | | | | | | |
Common stock | | | 3 | | | 3 |
Paid-in capital | | | 1,434 | | | 1,154 |
Retained earnings | | | 2,005 | | | 1,501 |
Accumulated other comprehensive income | | | 56 | | | 20 |
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Total stockholders’ equity | | | 3,498 | | | 2,678 |
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|
Total Liabilities, Minority Interest and Stockholders’ Equity | | $ | 4,370 | | $ | 3,464 |
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| (a) | Derived from audited financial statements. |
6
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31,
| | | Year Ended March 31,
| |
| | | 2005
| | | 2004
| | | 2005
| | | 2004 (a)
| |
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | |
Net income | | $ | 8 | | | $ | 90 | | | $ | 504 | | | $ | 577 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 22 | | | | 18 | | | | 75 | | | | 78 | |
Non-cash restructuring and asset impairment charges | | | — | | | | 1 | | | | — | | | | 2 | |
Other-than-temporary impairment of investments in affiliates | | | — | | | | (1 | ) | | | — | | | | — | |
Realized losses on investments and sale of property and equipment | | | 2 | | | | 2 | | | | (8 | ) | | | 2 | |
Stock-based compensation | | | 2 | | | | — | | | | 6 | | | | 1 | |
Tax benefit from exercise of stock options | | | 40 | | | | 27 | | | | 75 | | | | 69 | |
Acquired in-process technology | | | 4 | | | | — | | | | 13 | | | | — | |
Other operating activities | | | (2 | ) | | | — | | | | — | | | | (2 | ) |
Change in assets and liabilities: | | | | | | | | | | | | | | | | |
Receivables, net | | | 608 | | | | 593 | | | | (80 | ) | | | (194 | ) |
Inventories | | | 17 | | | | 3 | | | | (14 | ) | | | (23 | ) |
Other assets | | | (20 | ) | | | (68 | ) | | | (35 | ) | | | (61 | ) |
Accounts payable | | | (56 | ) | | | (31 | ) | | | 28 | | | | 23 | |
Accrued and other liabilities | | | (176 | ) | | | (21 | ) | | | 46 | | | | 191 | |
Deferred income taxes | | | 25 | | | | (51 | ) | | | 24 | | | | 6 | |
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|
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|
Net cash provided by operating activities | | | 474 | | | | 562 | | | | 634 | | | | 669 | |
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INVESTING ACTIVITIES | | | | | | | | | | | | | | | | |
Capital expenditures | | | (44 | ) | | | (34 | ) | | | (126 | ) | | | (90 | ) |
Proceeds from sale of property and equipment | | | — | | | | 1 | | | | 16 | | | | 1 | |
Proceeds from sale of marketable equity securities | | | — | | | | 2 | | | | 4 | | | | 2 | |
Purchase of marketable equity securities | | | (90 | ) | | | — | | | | (90 | ) | | | — | |
Purchase of investment in affiliates | | | — | | | | — | | | | (2 | ) | | | (1 | ) |
Proceeds from sale of investment in affiliates | | | — | | | | — | | | | — | | | | 8 | |
Proceeds from maturities and sales of short-term investments | | | 99 | | | | 1,610 | | | | 996 | | | | 2,883 | |
Purchase of short-term investments | | | (194 | ) | | | (620 | ) | | | (2,442 | ) | | | (2,511 | ) |
Acquisition of subsidiary, net of cash acquired | | | (22 | ) | | | (2 | ) | | | (81 | ) | | | (3 | ) |
Other investing activities | | | 1 | | | | (1 | ) | | | (1 | ) | | | (1 | ) |
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Net cash provided by (used in) investing activities | | | (250 | ) | | | 956 | | | | (1,726 | ) | | | 288 | |
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FINANCING ACTIVITIES | | | | | | | | | | | | | | | | |
Proceeds from sale of common stock through employee stock plans and other plans | | | 94 | | | | 62 | | | | 241 | | | | 228 | |
Repurchase and retirement of common stock | | | (10 | ) | | | — | | | | (41 | ) | | | — | |
Other financing activities | | | — | | | | — | | | | — | | | | (3 | ) |
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Net cash provided by financing activities | | | 84 | | | | 62 | | | | 200 | | | | 225 | |
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Effect of foreign exchange on cash and cash equivalents | | | (1 | ) | | | (3 | ) | | | 12 | | | | 18 | |
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Increase (decrease) in cash and cash equivalents | | | 307 | | | | 1,577 | | | | (880 | ) | | | 1,200 | |
Beginning cash and cash equivalents | | | 963 | | | | 573 | | | | 2,150 | | | | 950 | |
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Ending cash and cash equivalents | | | 1,270 | | | | 2,150 | | | | 1,270 | | | | 2,150 | |
Short-term investments | | | 1,688 | | | | 264 | | | | 1,688 | | | | 264 | |
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Ending cash, cash equivalents and short-term investments | | $ | 2,958 | | | $ | 2,414 | | | $ | 2,958 | | | $ | 2,414 | |
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| (a) | Derived from audited financial statements. |
7
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”) Condensed Consolidated Statements of Operations. The Company’s non-GAAP results do not include amortization of intangibles, employee stock-based compensation, acquired-in-process technology, restructuring charges, asset impairment charges, certain non-recurring litigation expenses, and other-than-temporary impairment of investments in affiliates, and their related income tax effect. The three months and year ended March 31, 2004 also exclude the impact of a one-time income tax adjustment.
| | | | | | | | | | | | | | | | | | | | |
| | | Q4
FY04
| | | Q1
FY05
| | | Q2
FY05
| | | Q3
FY05
| | | Q4
FY05
| |
QUARTERLY RESULTS | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Operating Income | | | | | | | | | | | | | | | | | | | | |
GAAP operating income | | $ | 94 | | | $ | 25 | | | $ | 125 | | | $ | 519 | | | $ | — | |
Adjustments: | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles | | | 1 | | | | 1 | | | | — | | | | 1 | | | | 1 | |
COGS amortization of intangibles | | | — | | | | — | | | | — | | | | 1 | | | | 2 | |
Employee stock-based compensation | | | — | | | | — | | | | — | | | | 4 | | | | 2 | |
Acquired-in-process technology | | | — | | | | — | | | | — | | | | 10 | | | | 4 | |
Restructuring charges | | | 9 | | | | — | | | | — | | | | — | | | | 1 | |
Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
Certain non-recurring litigation expenses | | | — | | | | — | | | | — | | | | — | | | | 21 | |
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Total adjustments | | | 10 | | | | 1 | | | | — | | | | 16 | | | | 31 | |
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Non-GAAP operating income | | $ | 104 | | | $ | 26 | | | $ | 125 | | | $ | 535 | | | $ | 31 | |
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Non-GAAP operating income margin - % of net revenue | | | 17 | % | | | 6 | % | | | 18 | % | | | 37 | % | | | 6 | % |
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Net Income | | | | | | | | | | | | | | | | | | | | |
GAAP net income | | $ | 90 | | | $ | 24 | | | $ | 97 | | | $ | 375 | | | $ | 8 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | |
COGS amortization of intangibles | | | — | | | | — | | | | — | | | | 1 | | | | 2 | |
Employee stock-based compensation | | | — | | | | — | | | | — | | | | 4 | | | | 2 | |
Acquired-in-process technology | | | — | | | | — | | | | — | | | | 10 | | | | 3 | |
Restructuring charges | | | 9 | | | | — | | | | — | | | | — | | | | 1 | |
Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
Certain non-recurring litigation expenses | | | — | | | | — | | | | — | | | | — | | | | 21 | |
Other-than-temporary impairment of investment in affiliates | | | — | | | | — | | | | — | | | | — | | | | — | |
Income taxes effect on the above items | | | (3 | ) | | | — | | | | — | | | | — | | | | (8 | ) |
Income tax adjustment | | | (20 | ) | | | — | | | | — | | | | — | | | | — | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total adjustments | | | (13 | ) | | | 1 | | | | 1 | | | | 16 | | | | 22 | |
| | | | | |
Non-GAAP net income | | $ | 77 | | | $ | 25 | | | $ | 98 | | | $ | 391 | | | $ | 30 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Non-GAAP net income margin - % of net revenue | | | 13 | % | | | 6 | % | | | 14 | % | | | 27 | % | | | 5 | % |
| | | | | |
GAAP diluted earnings per share | | $ | 0.29 | | | $ | 0.08 | | | $ | 0.31 | | | $ | 1.18 | | | $ | 0.02 | |
Non-GAAP diluted earnings per share | | $ | 0.25 | | | $ | 0.08 | | | $ | 0.31 | | | $ | 1.23 | | | $ | 0.09 | |
Shares used in diluted earnings per share computation | | | 313 | | | | 316 | | | | 316 | | | | 317 | | | | 322 | |
| | | | | |
TRAILING TWELVE MONTH RESULTS | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Operating Income | | | | | | | | | | | | | | | | | | | | |
GAAP operating income | | $ | 776 | | | $ | 779 | | | $ | 802 | | | $ | 763 | | | $ | 669 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles | | | 3 | | | | 4 | | | | 3 | | | | 3 | | | | 3 | |
COGS amortization of intangibles | | | — | | | | — | | | | — | | | | 1 | | | | 3 | |
Employee stock-based compensation | | | — | | | | — | | | | — | | | | 4 | | | | 6 | |
Acquired-in-process technology | | | — | | | | — | | | | — | | | | 10 | | | | 14 | |
Restructuring charges | | | 9 | | | | 9 | | | | 9 | | | | 9 | | | | 1 | |
Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
Certain non-recurring litigation expenses | | | — | | | | — | | | | — | | | | — | | | | 21 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total adjustments | | | 12 | | | | 13 | | | | 12 | | | | 27 | | | | 48 | |
| | | | | |
Non-GAAP operating income | | $ | 788 | | | $ | 792 | | | $ | 814 | | | $ | 790 | | | $ | 717 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Non-GAAP operating income margin - % of net revenue | | | 27 | % | | | 26 | % | | | 25 | % | | | 25 | % | | | 23 | % |
8
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”) Condensed Consolidated Statements of Operations. The Company’s non-GAAP results do not include amortization of intangibles, employee stock-based compensation,acquired-in-process technology, restructuring charges, asset impairment charges, certain non-recurring litigation expenses, and other-than-temporary impairment ofinvestments in affiliates, and their related income tax effect. The three months and year ended March 31, 2004 also exclude the impact of a one-timeincome tax adjustment.
| | | | | | | | | | | | | | | | | | | | |
| | | Q4
FY04
| | | Q1
FY05
| | | Q2
FY05
| | | Q3
FY05
| | | Q4
FY05
| |
TRAILING TWELVE MONTH RESULTS | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net Income | | | | | | | | | | | | | | | | | | | | |
GAAP net income | | $ | 577 | | | $ | 583 | | | $ | 604 | | | $ | 587 | | | $ | 504 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles | | | 3 | | | | 3 | | | | 4 | | | | 3 | | | | 3 | |
COGS amortization of intangibles | | | — | | | | — | | | | — | | | | 1 | | | | 3 | |
Employee stock-based compensation | | | — | | | | — | | | | — | | | | 4 | | | | 6 | |
Acquired-in-process technology | | | — | | | | — | | | | — | | | | 10 | | | | 13 | |
Restructuring charges | | | 10 | | | | 9 | | | | 9 | | | | 9 | | | | 1 | |
Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
Certain non-recurring litigation expenses | | | — | | | | — | | | | — | | | | — | | | | 21 | |
Other-than-temporary impairment of investment in affiliates | | | — | | | | — | | | | — | | | | — | | | | — | |
Income taxes effect on the above items | | | (4 | ) | | | (3 | ) | | | (4 | ) | | | (4 | ) | | | (8 | ) |
Income tax adjustment | | | (20 | ) | | | (20 | ) | | | (20 | ) | | | (20 | ) | | | — | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total adjustments | | | (11 | ) | | | (11 | ) | | | (11 | ) | | | 3 | | | | 39 | |
| | | | | |
Non-GAAP net income | | $ | 566 | | | $ | 572 | | | $ | 593 | | | $ | 590 | | | $ | 543 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Non-GAAP net income margin - % of net revenue | | | 19 | % | | | 19 | % | | | 18 | % | | | 19 | % | | | 17 | % |
| | | | | |
GAAP diluted earnings per share | | $ | 1.87 | | | $ | 1.88 | | | $ | 1.94 | | | $ | 1.86 | | | $ | 1.59 | |
Non-GAAP diluted earnings per share | | $ | 1.84 | | | $ | 1.84 | | | $ | 1.90 | | | $ | 1.87 | | | $ | 1.71 | |
9
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Q4
FY04
| | | Q1
FY05
| | | Q2
FY05
| | | Q3
FY05
| | | Q4
FY05
| | | YOY %
Growth
| |
CONSOLIDATED FINANCIAL DATA | | | | | | | | | | | | | | | | | | | | | | | |
Net revenue | | | 598 | | | | 432 | | | | 716 | | | | 1,428 | | | | 553 | | | (8 | )% |
Net revenue - trailing twelve months (“TTM”) | | | 2,957 | | | | 3,035 | | | | 3,221 | | | | 3,174 | | | | 3,129 | | | 6 | % |
| | | | | | |
Gross profit | | | 372 | | | | 255 | | | | 432 | | | | 925 | | | | 320 | | | (14 | )% |
Gross margin - % of net revenue | | | 62 | % | | | 59 | % | | | 60 | % | | | 65 | % | | | 58 | % | | | |
Gross profit - TTM | | | 1,854 | | | | 1,906 | | | | 2,021 | | | | 1,984 | | | | 1,932 | | | 4 | % |
Gross margin - TTM % of net revenue | | | 63 | % | | | 63 | % | | | 63 | % | | | 63 | % | | | 62 | % | | | |
| | | | | | |
Operating income | | | 94 | | | | 25 | | | | 125 | | | | 519 | | | | — | | | (100 | )% |
Operating income margin - % of net revenue | | | 16 | % | | | 6 | % | | | 17 | % | | | 36 | % | | | — | | | | |
Operating income - TTM | | | 776 | | | | 779 | | | | 802 | | | | 763 | | | | 669 | | | (14 | )% |
Operating income margin - TTM % of net revenue | | | 26 | % | | | 26 | % | | | 25 | % | | | 24 | % | | | 21 | % | | | |
| | | | | | |
Net income | | | 90 | | | | 24 | | | | 97 | | | | 375 | | | | 8 | | | (92 | )% |
Diluted earnings per share | | $ | 0.29 | | | $ | 0.08 | | | $ | 0.31 | | | $ | 1.18 | | | $ | 0.02 | | | (93 | )% |
Net income - TTM | | | 577 | | | | 583 | | | | 604 | | | | 587 | | | | 504 | | | (13 | )% |
Diluted earnings per share - TTM | | $ | 1.87 | | | $ | 1.88 | | | $ | 1.94 | | | $ | 1.86 | | | $ | 1.59 | | | (15 | )% |
| | | | | | |
Non-GAAP operating income(a) | | | 104 | | | | 26 | | | | 125 | | | | 535 | | | | 31 | | | (71 | )% |
Non-GAAP operating income margin - % of net revenue | | | 17 | % | | | 6 | % | | | 18 | % | | | 37 | % | | | 6 | % | | | |
Non-GAAP operating income - TTM(a) | | | 788 | | | | 792 | | | | 814 | | | | 790 | | | | 717 | | | (9 | )% |
Non-GAAP operating income margin - TTM % of net revenue | | | 27 | % | | | 26 | % | | | 25 | % | | | 25 | % | | | 23 | % | | | |
| | | | | | |
Non-GAAP net income(a) | | | 77 | | | | 25 | | | | 98 | | | | 391 | | | | 30 | | | (61 | )% |
Non-GAAP diluted earnings per share(a) | | $ | 0.25 | | | $ | 0.08 | | | $ | 0.31 | | | $ | 1.23 | | | $ | 0.09 | | | (64 | )% |
Non-GAAP net income - TTM(a) | | | 566 | | | | 572 | | | | 593 | | | | 590 | | | | 543 | | | (4 | )% |
Non-GAAP diluted earnings per share - TTM(a) | | $ | 1.84 | | | $ | 1.84 | | | $ | 1.90 | | | $ | 1.87 | | | $ | 1.71 | | | (7 | )% |
| | | | | | |
CASH FLOW DATA | | | | | | | | | | | | | | | | | | | | | | | |
Operating cash flow | | | 562 | | | | (66 | ) | | | 89 | | | | 137 | | | | 474 | | | (16 | )% |
Operating cash flow - TTM | | | 669 | | | | 638 | | | | 664 | | | | 722 | | | | 634 | | | (5 | )% |
| | | | | | |
Capital expenditures | | | 34 | | | | 26 | | | | 19 | | | | 37 | | | | 44 | | | 30 | % |
Capital expenditures - TTM | | | 90 | | | | 104 | | | | 106 | | | | 116 | | | | 126 | | | 41 | % |
| | | | | | |
BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents and short term investments | | | 2,414 | | | | 2,369 | | | | 2,490 | | | | 2,565 | | | | 2,958 | | | 23 | % |
Marketable equity securities | | | 1 | | | | 2 | | | | — | | | | 4 | | | | 140 | | | 11353 | % |
Receivables, net | | | 212 | | | | 170 | | | | 379 | | | | 892 | | | | 296 | | | 40 | % |
Inventories | | | 55 | | | | 53 | | | | 79 | | | | 84 | | | | 62 | | | 12 | % |
| | | | | | |
OTHER | | | | | | | | | | | | | | | | | | | | | | | |
Employees | | | 4,773 | | | | 4,813 | | | | 5,104 | | | | 5,669 | | | | 6,122 | | | 28 | % |
Diluted weighted-average shares | | | 313 | | | | 316 | | | | 316 | | | | 317 | | | | 322 | | | | |
| (a) | Please see attached Unaudited Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations. |
10
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | | | | | | | |
| | | Q4
FY04
| | | Q1
FY05
| | | Q2
FY05
| | | Q3
FY05
| | | Q4
FY05
| | | YOY %
Growth
| |
GEOGRAPHIC REVENUE MIX | | | | | | | | | | | | | | | | | | |
North America Revenue | | 299 | | | 211 | | | 473 | | | 692 | | | 288 | | | (4 | )% |
International Revenue | | 299 | | | 221 | | | 243 | | | 736 | | | 265 | | | (11 | )% |
| | | | | | |
Europe Revenue | | 249 | | | 190 | | | 210 | | | 666 | | | 218 | | | (12 | )% |
Asia Pacific Revenue | | 50 | | | 31 | | | 33 | | | 70 | | | 47 | | | (7 | )% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Net Revenue | | 598 | | | 432 | | | 716 | | | 1,428 | | | 553 | | | (8 | )% |
| | | | | | |
GEOGRAPHIC REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | | | | | | | |
North America Revenue | | 50 | % | | 49 | % | | 66 | % | | 48 | % | | 52 | % | | | |
International Revenue | | 50 | % | | 51 | % | | 34 | % | | 52 | % | | 48 | % | | | |
| | | | | | |
Europe Revenue | | 41 | % | | 44 | % | | 29 | % | | 47 | % | | 40 | % | | | |
Asia Pacific Revenue | | 9 | % | | 7 | % | | 5 | % | | 5 | % | | 8 | % | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Net Revenue | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | |
| | | | | | |
PLATFORM REVENUE MIX | | | | | | | | | | | | | | | | | | |
Sony PlayStation 2 | | 244 | | | 162 | | | 312 | | | 661 | | | 196 | | | (20 | )% |
Xbox | | 80 | | | 57 | | | 142 | | | 233 | | | 83 | | | 5 | % |
Nintendo GameCube | | 50 | | | 26 | | | 38 | | | 109 | | | 37 | | | (25 | )% |
Other consoles | | 3 | | | 2 | | | 1 | | | 6 | | | 1 | | | (80 | )% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Consoles | | 377 | | | 247 | | | 493 | | | 1,009 | | | 317 | | | (16 | )% |
| | | | | | |
PC | | 76 | | | 67 | | | 141 | | | 239 | | | 85 | | | 12 | % |
| | | | | | |
PSP | | — | | | — | | | — | | | — | | | 18 | | | N/A | |
Game Boy Advance | | 14 | | | 18 | | | 10 | | | 39 | | | 9 | | | (32 | )% |
Nintendo DS | | — | | | — | | | — | | | 16 | | | 7 | | | N/A | |
Game Boy Color | | — | | | — | | | — | | | — | | | — | | | (100 | )% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Mobility | | 14 | | | 18 | | | 10 | | | 55 | | | 34 | | | 140 | % |
| | | | | | |
Co-publishing and Distribution | | 112 | | | 67 | | | 49 | | | 79 | | | 89 | | | (21 | )% |
| | | | | | |
Subscription Services | | 13 | | | 13 | | | 13 | | | 14 | | | 16 | | | 27 | % |
Licensing, Advertising & Other | | 6 | | | 20 | | | 10 | | | 32 | | | 12 | | | 85 | % |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Internet Services, Licensing & Other | | 19 | | | 33 | | | 23 | | | 46 | | | 28 | | | 46 | % |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Net Revenue | | 598 | | | 432 | | | 716 | | | 1,428 | | | 553 | | | (8 | )% |
| | | | | | |
PLATFORM REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | | | | | | | |
Sony PlayStation 2 | | 41 | % | | 38 | % | | 43 | % | | 46 | % | | 35 | % | | | |
Xbox | | 13 | % | | 13 | % | | 20 | % | | 16 | % | | 15 | % | | | |
Nintendo GameCube | | 9 | % | | 6 | % | | 5 | % | | 8 | % | | 7 | % | | | |
Other consoles | | 0 | % | | 0 | % | | 0 | % | | 1 | % | | 0 | % | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Consoles | | 63 | % | | 57 | % | | 68 | % | | 71 | % | | 57 | % | | | |
| | | | | | |
PC | | 13 | % | | 15 | % | | 20 | % | | 17 | % | | 16 | % | | | |
| | | | | | |
PSP | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 3 | % | | | |
Game Boy Advance | | 2 | % | | 4 | % | | 1 | % | | 3 | % | | 2 | % | | | |
Nintendo DS | | 0 | % | | 0 | % | | 0 | % | | 1 | % | | 1 | % | | | |
Game Boy Color | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Mobility | | 2 | % | | 4 | % | | 1 | % | | 4 | % | | 6 | % | | | |
| | | | | | |
Co-publishing and Distribution | | 19 | % | | 16 | % | | 7 | % | | 5 | % | | 16 | % | | | |
| | | | | | |
Subscription Services | | 2 | % | | 3 | % | | 2 | % | | 1 | % | | 3 | % | | | |
Licensing, Advertising & Other | | 1 | % | | 5 | % | | 2 | % | | 2 | % | | 2 | % | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Internet Services, Licensing & Other | | 3 | % | | 8 | % | | 4 | % | | 3 | % | | 5 | % | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Net Revenue | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | |
11
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | | | | | | | |
| | | Q4
FY04
| | | Q1
FY05
| | | Q2
FY05
| | | Q3
FY05
| | | Q4
FY05
| | | YOY %
Growth
| |
Platform SKU Release Mix | | | | | | | | | | | | | | | | | | |
Sony PlayStation 2 | | 4 | | | 3 | | | 9 | | | 9 | | | 6 | | | 50 | % |
Xbox | | 3 | | | 3 | | | 8 | | | 9 | | | 6 | | | 100 | % |
Nintendo GameCube | | 3 | | | 1 | | | 7 | | | 7 | | | 5 | | | 67 | % |
Other consoles | | — | | | — | | | 1 | | | 1 | | | — | | | N/A | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Consoles | | 10 | | | 7 | | | 25 | | | 26 | | | 17 | | | 70 | % |
| | | | | | |
PC | | 1 | | | 3 | | | 6 | | | 7 | | | 5 | | | 400 | % |
| | | | | | |
PSP | | — | | | — | | | — | | | — | | | 3 | | | N/A | |
Game Boy Advance | | — | | | 1 | | | 2 | | | 4 | | | — | | | N/A | |
Nintendo DS | | — | | | — | | | — | | | 3 | | | — | | | N/A | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total Mobility | | — | | | 1 | | | 2 | | | 7 | | | 3 | | | N/A | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Total SKUs | | 11 | | | 11 | | | 33 | | | 40 | | | 25 | | | 127 | % |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
12
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Fact Sheet for Q4 Fiscal 2005
| | |
Q4 Product Releases | | Platform |
· MVP Baseball™ 2005 | | PlayStation® 2 |
· UEFA Champions League 2004/2005 | | PlayStation 2 |
· FIFA Street | | PlayStation 2 |
· EA SPORTS™ Fight Night Round 2 | | PlayStation 2 |
· NBA STREET V3 | | PlayStation 2 |
· EA SPORTS™ Rugby 2005 | | PlayStation 2 |
· MVP Baseball 2005 | | Xbox® |
· UEFA Champions League 2004/2005 | | Xbox |
· FIFA Street | | Xbox |
· EA SPORTS Fight Night Round 2 | | Xbox |
· NBA STREET V3 | | Xbox |
· EA SPORTS Rugby 2005 | | Xbox |
· MVP Baseball 2005 | | Nintendo GameCube™ |
· UEFA Champions League 2004/2005 | | Nintendo GameCube |
· FIFA Street | | Nintendo GameCube |
· EA SPORTS Fight Night Round 2 | | Nintendo GameCube |
· NBA STREET V3 | | Nintendo GameCube |
· MVP Baseball 2005 | | PC |
· UEFA Champions League 2004/2005 | | PC |
· NASCAR® SimRacing™ | | PC |
· EA SPORTS Rugby 2005 | | PC |
· The Sims™ 2 University | | PC |
· Need for Speed™ Underground Rivals | | PSP™ |
· NFL STREET 2: Unleashed | | PSP |
· Tiger Woods PGA TOUR® 2005 | | PSP |
| |
| Co-pub, International only and Others (not in SKU count) | | |
| |
TimeSplitters Future Perfect™ | | PlayStation 2 |
TimeSplitters Future Perfect | | Nintendo GameCube |
TimeSplitters Future Perfect | | Xbox |
Oddworld Stranger’s Wrath™ | | Xbox |
| |
All trademarks are the property of their respective owners. | | |
13
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Schedule of Earnings Adjusted for Stock-Based Compensation
(in millions, except per share data)
Had the Company’s stock-based compensation plans been measured on the estimated fair value at the grant dates in accordance with the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, we estimate that our reported net income (loss) and net earnings (loss) per share would have been the pro forma amounts indicated below:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31,
| | | Year Ended
March 31,
| |
| | | 2005
| | | 2004
| | | 2005
| | | 2004
| |
Net income - as reported | | $ | 8 | | | $ | 90 | | | $ | 504 | | | $ | 577 | |
| | | | |
Stock-based compensation | | | (19 | ) | | | (28 | ) | | | (79 | ) | | | (97 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net income (loss) - pro forma | | $ | (11 | ) | | $ | 62 | | | $ | 425 | | | $ | 480 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net earnings (loss) per share: | | | | | | | | | | | | | | | | |
As reported - basic | | $ | 0.02 | | | $ | 0.30 | | | $ | 1.65 | | | $ | 1.95 | |
| | | | |
Pro forma - basic | | $ | (0.04 | ) | | $ | 0.21 | | | $ | 1.39 | | | $ | 1.63 | |
| | | | |
As reported - diluted | | $ | 0.02 | | | $ | 0.29 | | | $ | 1.59 | | | $ | 1.87 | |
| | | | |
Pro forma - diluted | | $ | (0.04 | ) | | $ | 0.20 | | | $ | 1.35 | | | $ | 1.58 | |
14
