Exhibit 99.1
EA REPORTS SECOND QUARTER FISCAL 2007 RESULTS
Q2 Net Revenue a Record $784 Million Driven by EA SPORTS Titles
Need for Speed CarbonDebuts on 10 Platforms
REDWOOD CITY, CA – November 2, 2006 – Electronic Arts (NASDAQ: ERTS) today announced preliminary financial results for its fiscal second quarter ended September 30, 2006.
Fiscal Second Quarter Results
Net revenue for the second quarter was $784 million, up 16 percent as compared with $675 million for the prior year. Sales were driven primarily byMadden NFL 07, NCAA® Football 07, FIFA 07, NBA Live 07and catalog titles.
Gross profit for the quarter was $445 million, up 14 percent year-over-year. Net income for the quarter was $22 million as compared with $51 million for the prior year. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R “Share-Based Payment” at the beginning of its fiscal year resulting in pre-tax stock-based compensation charges of $33 million in the second quarter. Diluted earnings per share were $0.07 as compared with $0.16 for the prior year.
Non-GAAP net income was $65 million as compared with $46 million a year ago – an increase of 41 percent year-over-year. Non-GAAP diluted earnings per share were $0.21 as compared with $0.15 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)
Trailing twelve month operating cash flow was $571 million as compared with $592 million a year ago. The Company ended the quarter with cash, cash equivalents and marketable securities of $2.4 billion.
“We are well prepared for the holidays on all platforms, including the Xbox 360, PLAYSTATION 3 and the Nintendo Wii,” said Larry Probst, Chairman and Chief Executive Officer. “In the quarter, we plan to release eight titles across multiple platforms and currently have more than 30 next-generation games in development.”
“This was a strong quarter for EA,” said Warren Jenson, Chief Financial and Administrative Officer. “While our industry remains in the midst of transition the landscape looks strong enough that we are able to increase our guidance range for the year.”
Highlights (comparisons are to the quarter ended September 30, 2005)
| | • | | Net revenue: North America – up 16 percent to a Q2 record $512 million; Europe – up 28 percent to a Q2 record $245 million; Asia – down 34 percent to $27 million. Movements in foreign currency rates positively impacted net revenue by $10 million, or one percent. |
| | • | | Xbox 360™ revenue was $166 million– offsetting a 25 percent decline in current-generation console revenue. |
| | • | | Year-to-date, EA is the number one publisher on the Xbox 360in both North America and Europe. |
1
| | • | | Madden NFL 07 had a record launch with five million copies sold in just five weeks.Year-to-date,Madden NFL 07 is the industry’s number one title in North America. |
| | • | | NCAA Football 07set a record – selling over 2 million copies in the quarter. |
| | • | | NHL® 07has gone platinum since launch. |
| | • | | FIFA 07had a strong international launch – selling nearly two million copies in just one week. |
| | • | | EA has partnered with Apple® to bring its games to the iPod®. |
| | • | | EA has joined with Massive and IGAto introduce dynamic in-game advertising to several titles. |
| | • | | EA purchased Phenomic Games, a talented European developer of real time strategy games. |
| | • | | EA closed the acquisition of Mythic Entertainment,the critically acclaimed developer of massively multiplayer online games. |
Business Outlook
The following forward-looking statements, as well as those made above, reflect expectations as of November 2, 2006. Results may be materially different and are affected by many factors, such as: the timely release of next-generation hardware and the ability of console manufacturers to produce an adequate supply of consoles to meet demand; development delays on EA’s products; changes in foreign exchange rates; the overall global economy; the popular appeal of EA’s products; competition in the industry; EA’s effective tax rate and other factors detailed in this release and in EA’s annual and quarterly SEC filings.
Fiscal Third Quarter Expectations – Ending December 31, 2006
| | • | | Net revenue is expected to be between $1.2 and $1.3 billion. |
| | • | | GAAP diluted earnings per share are expected to be between $0.33 and $0.43. |
| | • | | Non-GAAP diluted earnings per share are expected to be between $0.50 and $0.60. Expected non-GAAP diluted earnings per share exclude the following items from expected GAAP diluted earnings per share: approximately $0.09 of estimated stock-based compensation; approximately $0.04 related to the Company’s acquisition of Mythic Entertainment; approximately $0.03 of amortization of intangible assets; and approximately $0.01 of estimated restructuring charges related to the reorganization and establishment of an international publishing headquarters in Geneva. |
Fiscal Year Expectations – Ending March 31, 2007
| | • | | Net revenue is expected to be between $2.950 and $3.125 billion – up from previous expectations of $2.8 to 3.0 billion |
| | • | | GAAP diluted earnings per share are expected to be breakeven to $0.15 – versus previous expectations of ($0.30) to breakeven. |
| | • | | Non-GAAP diluted earnings per share are expected to be between $0.55 and $0.70 – up from previous expectations of $0.35 to $0.65. Expected non-GAAP diluted earnings per share excludes the following items from expected GAAP diluted earnings per share: approximately $0.33 of estimated stock-based compensation; approximately $0.13 of amortization of intangible assets; approximately $0.05 related to the Company’s acquisitions of Mythic Entertainment and Digital Illusions; and approximately $0.04 of |
2
| | estimated restructuring charges related to the reorganization and establishment of an international publishing headquarters in Geneva. |
Conference Call
Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the second quarter of fiscal 2007 and to discuss its outlook for the future. During the course of the call, Electronic Arts may also disclose material developments affecting its business and/or financial performance.Listeners may access the conference call live through the following dial-in number (800) 500-0311, access code 220497, or a webcast:http://investor.ea.com.
A dial-in replay of the conference call will be provided until November 9, 2006 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year athttp://investor.ea.com.
Non-GAAP Financial Measures
To supplement the Company’s unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Electronic Arts include non-GAAP 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 from the Company’s statement of operations:
| | • | | Acquired in-process technology |
| | • | | Amortization of intangibles |
| | • | | Certain litigation expense |
| | • | | Stock-based compensation |
| | • | | Income tax adjustments (consisting of the income tax effect of the items listed above and certain one-time income tax adjustments) |
In addition, 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.
3
In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:
Amortization of Intangibles. When analyzing the operating performance of an acquired entity, Electronic Arts’ management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of acquired intangible assets to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.
In addition, in accordance with GAAP, Electronic Arts generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, Electronic Arts believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.
Stock-Based Compensation. Electronic Arts adopted SFAS No. 123R, “Share-Based Payment” beginning in its fiscal year 2007. When evaluating the performance of its individual business units, the Company does not consider stock-based compensation charges. Likewise, the Company’s management teams exclude stock-based compensation expense from their short and long-term operating plans. In contrast, the Company’s management teams are held accountable for cash-based compensation and such amounts are included in their operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company’s management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts’ performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business. In addition, given the Company’s adoption of SFAS No. 123R, “Share-Based Payment” beginning with its fiscal year ending March 31, 2007, Electronic Arts believes that a non-GAAP financial measure that excludes stock-based compensation will facilitate the comparison of its year-over-year results.
Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities over the past several years, each has been a discrete, extraordinary event based on a unique
4
set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.
In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.
Forward-Looking Statements
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: the timely release of next-generation hardware; the availability of an adequate supply of current-generation and next-generation hardware units (including the Xbox 360™ video game and entertainment system, the PLAYSTATION®3 computer entertainment system and the Wii™); the Company’s ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of Electronic Arts’ products; competition in the interactive entertainment industry; the Company’s ability to manage expenses during fiscal year 2007; 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; the Company’s ability to secure licenses to valuable entertainment properties on favorable terms; and other factors described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2006 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. These forward-looking statements speak only as of November 2, 2006. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements, including those made under the “Business Outlook” heading. In addition, the financial results set forth in this release are estimates based on information currently available to Electronic Arts. While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended September 30, 2006.
About Electronic Arts
Electronic Arts Inc. (EA), headquartered in Redwood City, California, is the world’s leading interactive entertainment software company. Founded in 1982, the company develops, publishes, and distributes interactive software worldwide for videogame systems, personal computers, cellular handsets and the Internet. Electronic Arts markets its products under four brand names: EA SPORTSTM, EATM, EA SPORTS BIGTM and POGOTM. In fiscal 2006, EA posted revenue of $2.95 billion and had 27 titles that sold more than one million copies. EA’s
5
homepage and online game site iswww.ea.com. More information about EA’s products and full text of press releases can be found on the Internet athttp://info.ea.com.
All 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 |
6
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
| | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30,
| | | Six Months Ended
September 30,
| |
| | | 2006
| | 2005
| | | 2006
| | | 2005
| |
Net revenue | | $ | 784 | | $ | 675 | | | $ | 1,196 | | | $ | 1,040 | |
Cost of goods sold | | | 339 | | | 284 | | | | 506 | | | | 434 | |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Gross profit | | | 445 | | | 391 | | | | 690 | | | | 606 | |
| | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Marketing and sales | | | 108 | | | 107 | | | | 185 | | | | 182 | |
General and administrative | | | 72 | | | 52 | | | | 131 | | | | 103 | |
Research and development | | | 238 | | | 182 | | | | 454 | | | | 365 | |
Amortization of intangibles | | | 7 | | | 1 | | | | 13 | | | | 2 | |
Acquired in-process technology | | | 2 | | | — | | | | 2 | | | | — | |
Restructuring charges | | | 4 | | | — | | | | 10 | | | | — | |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Total operating expenses | | | 431 | | | 342 | | | | 795 | | | | 652 | |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Operating income (loss) | | | 14 | | | 49 | | | | (105 | ) | | | (46 | ) |
| | | | |
Interest and other income, net | | | 24 | | | 13 | | | | 45 | | | | 30 | |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Income (loss) before provision (benefit) from income taxes and minority interest | | | 38 | | | 62 | | | | (60 | ) | | | (16 | ) |
Provision (benefit) from income taxes | | | 16 | | | 9 | | | | (1 | ) | | | (13 | ) |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Income (loss) before minority interest | | | 22 | | | 53 | | | | (59 | ) | | | (3 | ) |
Minority interest | | | — | | | (2 | ) | | | — | | | | (4 | ) |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Net income (loss) | | $ | 22 | | $ | 51 | | | $ | (59 | ) | | $ | (7 | ) |
| | |
|
| |
|
|
| |
|
|
| |
|
|
|
Earnings (loss) per share: | | | | | | | | | | | | | | | |
Basic | | $ | 0.07 | | $ | 0.17 | | | $ | (0.19 | ) | | $ | (0.02 | ) |
Diluted | | $ | 0.07 | | $ | 0.16 | | | $ | (0.19 | ) | | $ | (0.02 | ) |
| | | | |
Number of shares used in computation: | | | | | | | | | | | | | | | |
Basic | | | 307 | | | 302 | | | | 306 | | | | 305 | |
Diluted | | | 315 | | | 314 | | | | 306 | | | | 305 | |
Non-GAAP Results (in millions, except per share data)
The following table reconciles the Company’s net income (loss) and diluted earnings (loss) per share as presented in its Unaudited Condensed Consolidated Statements of Operations as prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) with its non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share. The Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude acquired in-process technology, amortization of intangibles, certain litigation expense, restructuring charges, and stock-based compensation. In addition, the Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude income tax adjustments consisting of the income tax expense associated with the foregoing excluded items and the impact of certain one-time income tax adjustments.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30,
| | | Six Months Ended
September 30,
| |
| | | 2006
| | | 2005
| | | 2006
| | | 2005
| |
Net income (loss) | | $ | 22 | | | $ | 51 | | | $ | (59 | ) | | $ | (7 | ) |
Acquired in-process technology | | | 2 | | | | — | | | | 2 | | | | — | |
Amortization of intangibles | | | 7 | | | | 1 | | | | 13 | | | | 2 | |
Certain litigation expense | | | — | | | | 1 | | | | — | | | | 1 | |
COGS amortization of intangibles | | | 7 | | | | 2 | | | | 13 | | | | 4 | |
Restructuring charges | | | 4 | | | | — | | | | 10 | | | | — | |
Stock-based compensation | | | 33 | | | | 1 | | | | 70 | | | | 1 | |
Income tax adjustments | | | (10 | ) | | | (10 | ) | | | (22 | ) | | | (10 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Non-GAAP net income (loss) | | $ | 65 | | | $ | 46 | | | $ | 27 | | | $ | (9 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Non-GAAP diluted earnings (loss) per share | | $ | 0.21 | | | $ | 0.15 | | | $ | 0.09 | | | $ | (0.03 | ) |
Number of shares used in non-GAAP diluted earnings (loss) per share computation | | | 315 | | | | 314 | | | | 314 | | | | 305 | |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
| | | | | | | |
| | | September 30,
2006
| | | March 31,
2006(a)
|
ASSETS | | | | | | | |
| | |
Current assets: | | | | | | | |
Cash, cash equivalents and short-term investments | | $ | 2,172 | | | $ | 2,272 |
Marketable equity securities | | | 204 | | | | 160 |
Receivables, net of allowances of $172 million and $232 million, respectively | | | 267 | | | | 199 |
Inventories | | | 67 | | | | 61 |
Deferred income taxes, net | | | 89 | | | | 86 |
Other current assets | | | 210 | | | | 234 |
| | |
|
|
| |
|
|
Total current assets | | | 3,009 | | | | 3,012 |
| | |
Property and equipment, net | | | 448 | | | | 392 |
Investment in affiliates | | | 11 | | | | 11 |
Goodwill | | | 709 | | | | 647 |
Other intangibles, net | | | 231 | | | | 232 |
Other assets | | | 103 | | | | 92 |
| | |
|
|
| |
|
|
TOTAL ASSETS | | $ | 4,511 | | | $ | 4,386 |
| | |
|
|
| |
|
|
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 199 | | | $ | 163 |
Accrued and other liabilities | | | 634 | | | | 706 |
| | |
|
|
| |
|
|
Total current liabilities | | | 833 | | | | 869 |
| | |
Deferred income taxes, net | | | 13 | | | | 29 |
Other liabilities | | | 61 | | | | 68 |
| | |
|
|
| |
|
|
Total liabilities | | | 907 | | | | 966 |
| | |
Minority interest | | | 13 | | | | 12 |
| | |
Stockholders’ equity: | | | | | | | |
Common stock | | | 3 | | | | 3 |
Paid-in capital | | | 1,249 | | | | 1,081 |
Retained earnings | | | 2,182 | | | | 2,241 |
Accumulated other comprehensive income | | | 157 | | | | 83 |
| | |
|
|
| |
|
|
Total stockholders’ equity | | | 3,591 | | | | 3,408 |
| | |
|
|
| |
|
|
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY | | $ | 4,511 | | | $ | 4,386 |
| | |
|
|
| |
|
|
| (a) | Derived from audited financial statements. |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
| | | | | | | | | | | | |
| | | Three Months Ended
September 30,
| | Six Months Ended
September 30,
|
| | | 2006
| | 2005
| | 2006
| | 2005
|
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net income (loss) | | $ | 22 | | $ | 51 | | $ | (59) | | $ | (7) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 37 | | | 23 | | | 72 | | | 46 |
Stock-based compensation | | | 33 | | | — | | | 70 | | | — |
Minority interest | | | — | | | 2 | | | — | | | 4 |
Realized net losses on investments and sale of property and equipment | | | 1 | | | 1 | | | 1 | | | 2 |
Tax benefit from exercise of stock options | | | — | | | 87 | | | — | | | 92 |
Acquired in-process technology | | | 2 | | | — | | | 2 | | | — |
Change in assets and liabilities: | | | | | | | | | | | | |
Receivables, net | | | (222) | | | (162) | | | (63) | | | (20) |
Inventories | | | (8) | | | (10) | | | (5) | | | (9) |
Other assets | | | 2 | | | (4) | | | 14 | | | (16) |
Accounts payable | | | 85 | | | 59 | | | 35 | | | 34 |
Accrued and other liabilities | | | 42 | | | (35) | | | (111) | | | (145) |
| | |
|
| |
|
| |
|
| |
|
|
Net cash provided by (used in) operating activities | | | (6) | | | 12 | | | (44) | | | (19) |
| | |
|
| |
|
| |
|
| |
|
|
INVESTING ACTIVITIES | | | | | | | | | | | | |
Capital expenditures | | | (48) | | | (23) | | | (86) | | | (56) |
Proceeds from sale of marketable equity securities | | | — | | | — | | | — | | | 4 |
Proceeds from maturities and sales of short-term investments | | | 484 | | | 187 | | | 680 | | | 321 |
Purchase of short-term investments | | | (455) | | | (143) | | | (604) | | | (281) |
Acquisition of subsidiaries, net of cash acquired | | | (67) | | | — | | | (67) | | | (3) |
Other investing activities | | | — | | | — | | | 2 | | | (1) |
| | |
|
| |
|
| |
|
| |
|
|
Net cash provided by (used in) investing activities | | | (86) | | | 21 | | | (75) | | | (16) |
| | |
|
| |
|
| |
|
| |
|
|
| FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from sale of common stock throughemployee stock plans and other plans | | | 48 | | | 41 | | | 85 | | | 60 |
Excess tax benefit from stock-based compensation | | | 8 | | | — | | | 12 | | | — |
Repayment of note assumed in connection with acquisition | | | — | | | — | | | (14) | | | — |
Repurchase and retirement of common stock | | | — | | | (372) | | | — | | | (709) |
| | |
|
| |
|
| |
|
| |
|
|
Net cash provided by (used in) financing activities | | | 56 | | | (331) | | | 83 | | | (649) |
| | |
|
| |
|
| |
|
| |
|
|
Effect of foreign exchange on cash and cash equivalents | | | — | | | (1) | | | 6 | | | (11) |
| | |
|
| |
|
| |
|
| |
|
|
Decrease in cash and cash equivalents | | | (36) | | | (299) | | | (30) | | | (695) |
Beginning cash and cash equivalents | | | 1,248 | | | 874 | | | 1,242 | | | 1,270 |
| | |
|
| |
|
| |
|
| |
|
|
Ending cash and cash equivalents | | | 1,212 | | | 575 | | | 1,212 | | | 575 |
Short-term investments | | | 960 | | | 1,655 | | | 960 | | | 1,655 |
| | |
|
| |
|
| |
|
| |
|
|
Ending cash, cash equivalents and short-term investments | | $ | 2,172 | | $ | 2,230 | | $ | 2,172 | | $ | 2,230 |
| | |
|
| |
|
| |
|
| |
|
|
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | | | | | | |
| | | Q2 FY06
| | Q3 FY06
| | Q4 FY06
| | Q1 FY07
| | Q2 FY07
| | YOY %
Change
|
CONSOLIDATED FINANCIAL DATA | | | | | | | | | | | | | | | | | |
Net revenue | | | 675 | | | 1,270 | | | 641 | | | 413 | | | 784 | | 16% |
Net revenue - trailing twelve months (“TTM”) | | | 3,021 | | | 2,863 | | | 2,951 | | | 2,999 | | | 3,108 | | 3% |
| | | | | | |
Gross profit | | | 391 | | | 768 | | | 397 | | | 245 | | | 445 | | 14% |
Gross margin - % of net revenue | | | 58% | | | 60% | | | 62% | | | 59% | | | 57% | | |
Gross profit - TTM | | | 1,850 | | | 1,693 | | | 1,770 | | | 1,801 | | | 1,855 | | — |
Gross margin - TTM % of net revenue | | | 61% | | | 59% | | | 60% | | | 60% | | | 60% | | |
| | | | | | |
Operating income (loss) | | | 49 | | | 347 | | | 25 | | | (119) | | | 14 | | (71)% |
Operating income (loss) margin - % of net revenue | | | 7% | | | 27% | | | 4% | | | (29)% | | | 2% | | |
Operating income - TTM | | | 472 | | | 300 | | | 325 | | | 302 | | | 267 | | (43)% |
Operating income margin - TTM % of net revenue | | | 16% | | | 10% | | | 11% | | | 10% | | | 9% | | |
| | | | | | |
Net income (loss) | | | 51 | | | 259 | | | (16) | | | (81) | | | 22 | | (57)% |
Diluted earnings (loss) per share | | $ | 0.16 | | $ | 0.83 | | $ | (0.05) | | $ | (0.26) | | $ | 0.07 | | (56)% |
Net income - TTM | | | 376 | | | 260 | | | 236 | | | 213 | | | 184 | | (51)% |
Diluted earnings per share - TTM | | $ | 1.17 | | $ | 0.82 | | $ | 0.75 | | $ | 0.68 | | $ | 0.59 | | (50)% |
| | | | | | |
Non-GAAP operating income (loss)(a) | | | 54 | | | 359 | | | 58 | | | (64) | | | 67 | | 24% |
Non-GAAP operating income (loss) margin - % of net revenue | | | 8% | | | 28% | | | 9% | | | (15)% | | | 9% | | |
Non-GAAP operating income - TTM (a) | | | 528 | | | 352 | | | 378 | | | 407 | | | 420 | | (20)% |
Non-GAAP operating income margin - TTM % of net revenue | | | 17% | | | 12% | | | 13% | | | 14% | | | 14% | | |
| | | | | | |
Non-GAAP net income (loss)(a) | | | 46 | | | 268 | | | 43 | | | (38) | | | 65 | | 41% |
Non-GAAP diluted earnings (loss) per share(a) | | $ | 0.15 | | $ | 0.86 | | $ | 0.14 | | $ | (0.12) | | $ | 0.21 | | 40% |
Non-GAAP net income - TTM(a) | | | 412 | | | 289 | | | 301 | | | 319 | | | 338 | | (18)% |
Non-GAAP diluted earnings per share - TTM(a) | | $ | 1.29 | | $ | 0.92 | | $ | 0.96 | | $ | 1.03 | | $ | 1.09 | | (16)% |
| | | | | | |
| CASH FLOW DATA | | | | | | | | | | | | | | | | | |
Operating cash flow | | | 12 | | | 278 | | | 337 | | | (38) | | | (6) | | (150)% |
Operating cash flow - TTM | | | 592 | | | 733 | | | 596 | | | 589 | | | 571 | | (4)% |
| | | | | | |
Capital expenditures | | | 23 | | | 31 | | | 36 | | | 38 | | | 48 | | 109% |
Capital expenditures - TTM | | | 137 | | | 131 | | | 123 | | | 128 | | | 153 | | 12% |
| | | | | | |
| BALANCE SHEET DATA | | | | | | | | | | | | | | | | | |
Cash, cash equivalents and short term investments | | | 2,230 | | | 2,556 | | | 2,272 | | | 2,231 | | | 2,172 | | (3)% |
Marketable equity securities | | | 182 | | | 167 | | | 160 | | | 166 | | | 204 | | 12% |
Receivables, net | | | 328 | | | 567 | | | 199 | | | 41 | | | 267 | | (19)% |
Inventories | | | 74 | | | 76 | | | 61 | | | 59 | | | 67 | | (9)% |
| | | | | | |
| STOCK-BASED COMPENSATION | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | — | | | — | | | — | | | — | | | 1 | | |
Marketing and sales | | | — | | | — | | | — | | | 5 | | | 4 | | |
General and administrative | | | — | | | — | | | 1 | | | 11 | | | 9 | | |
Research and development | | | 1 | | | — | | | 1 | | | 21 | | | 19 | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Total Stock-Based Compensation | | | 1 | | | — | | | 2 | | | 37 | | | 33 | | |
| | | | | | |
STOCK-BASED COMPENSATION - as a % of Net Revenue | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | — | | | — | | | — | | | — | | | — | | |
Marketing and sales | | | — | | | — | | | — | | | 1% | | | 1% | | |
General and administrative | | | — | | | — | | | — | | | 3% | | | 1% | | |
Research and development | | | — | | | — | | | — | | | 5% | | | 2% | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Total Stock-Based Compensation | | | — | | | — | | | — | | | 9% | | | 4% | | |
| | | | | | |
OTHER | | | | | | | | | | | | | | | | | |
Employees | | | 6,608 | | | 6,819 | | | 7,175 | | | 7,116 | | | 7,517 | | 14% |
Diluted weighted-average shares | | | 314 | | | 311 | | | 304 | | | 306 | | | 315 | | |
| (a) | Please see attached for Unaudited Reconciliation of GAAP to Non-GAAP Results. |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Reconciliation of GAAP to Non-GAAP Results
(in millions, except per share data)
The following tables reconcile the Company’s operating income (loss), net income (loss) and diluted earnings (loss) per share as presented in its Unaudited Condensed Consolidated Statements of Operations as prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) with its non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP earnings (loss) per share. The Company’s non-GAAP operating income (loss), net income (loss) and non-GAAP earnings (loss) per share exclude acquired in-process technology, amortization of intangibles, certain litigation expense, restructuring charges, and stock-based compensation. In addition, the Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude income tax adjustments consisting of the income tax expense associated with the foregoing excluded items and the impact of certain one-time income tax adjustments.
| | | | | | | | | | | | | | | | | |
| | | Q2
FY06
| | Q3
FY06
| | Q4
FY06
| | Q1
FY07
| | Q2
FY07
| | YOY %
Change
|
| QUARTERLY RECONCILIATION OF RESULTS | | | | | | | | | | | | | | | | | |
GAAP operating income (loss) | | $ | 49 | | $ | 347 | | $ | 25 | | $ | (119) | | $ | 14 | | (71)% |
Acquired in-process technology | | | — | | | — | | | 7 | | | — | | | 2 | | |
Amortization of intangibles | | | 1 | | | 1 | | | 4 | | | 6 | | | 7 | | |
Certain litigation expense | | | 1 | | | — | | | (1) | | | — | | | — | | |
COGS amortization of intangibles | | | 2 | | | 2 | | | 4 | | | 6 | | | 7 | | |
Restructuring charges | | | — | | | 9 | | | 17 | | | 6 | | | 4 | | |
Stock-based compensation | | | 1 | | | — | | | 2 | | | 37 | | | 33 | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP operating income (loss) | | $ | 54 | | $ | 359 | | $ | 58 | | $ | (64) | | $ | 67 | | 24% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP operating income (loss) margin - % of net revenue | | | 8% | | | 28% | | | 9% | | | (15)% | | | 9% | | |
| | | | | | |
GAAP net income (loss) | | $ | 51 | | $ | 259 | | $ | (16) | | $ | (81) | | $ | 22 | | (57)% |
Acquired in-process technology | | | — | | | — | | | 7 | | | — | | | 2 | | |
Amortization of intangibles | | | 1 | | | 1 | | | 4 | | | 6 | | | 7 | | |
Certain litigation expense | | | 1 | | | — | | | (1) | | | — | | | — | | |
COGS amortization of intangibles | | | 2 | | | 2 | | | 4 | | | 6 | | | 7 | | |
Restructuring charges | | | — | | | 9 | | | 17 | | | 6 | | | 4 | | |
Stock-based compensation | | | 1 | | | — | | | 2 | | | 37 | | | 33 | | |
Income tax adjustments | | | (10) | | | (3) | | | 26 | | | (12) | | | (10) | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP net income (loss) | | $ | 46 | | $ | 268 | | $ | 43 | | $ | (38) | | $ | 65 | | 41% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP net income (loss) margin - % of net revenue | | | 7% | | | 21% | | | 7% | | | (9)% | | | 8% | | |
| | | | | | |
GAAP diluted earnings (loss) per share | | $ | 0.16 | | $ | 0.83 | | $ | (0.05) | | $ | (0.26) | | $ | 0.07 | | (56)% |
Non-GAAP diluted earnings (loss) per share | | $ | 0.15 | | $ | 0.86 | | $ | 0.14 | | $ | (0.12) | | $ | 0.21 | | 40% |
Shares used in non-GAAP diluted earnings (loss) per share computation | | | 314 | | | 311 | | | 312 | | | 306 | | | 315 | | |
| TRAILING TWELVE MONTH RECONCILIATION OF RESULTS | | | | | | | | | | | | | | | | | |
GAAP operating income | | $ | 472 | | $ | 300 | | $ | 325 | | $ | 302 | | $ | 267 | | (43)% |
Acquired in-process technology | | | 15 | | | 5 | | | 8 | | | 7 | | | 9 | | |
Amortization of intangibles | | | 4 | | | 4 | | | 7 | | | 12 | | | 18 | | |
Certain litigation expense | | | 22 | | | 22 | | | — | | | — | | | (1) | | |
COGS amortization of intangibles | | | 7 | | | 8 | | | 9 | | | 14 | | | 19 | | |
Restructuring charges | | | 1 | | | 10 | | | 26 | | | 32 | | | 36 | | |
Stock-based compensation | | | 7 | | | 3 | | | 3 | | | 40 | | | 72 | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP operating income | | $ | 528 | | $ | 352 | | $ | 378 | | $ | 407 | | $ | 420 | | (20)% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP operating income margin - % of net revenue | | | 17% | | | 12% | | | 13% | | | 14% | | | 14% | | |
| | | | | | |
GAAP net income | | $ | 376 | | $ | 260 | | $ | 236 | | $ | 213 | | $ | 184 | | (51)% |
Acquired in-process technology | | | 14 | | | 4 | | | 8 | | | 7 | | | 9 | | |
Amortization of intangibles | | | 4 | | | 4 | | | 7 | | | 12 | | | 18 | | |
Certain litigation expense | | | 22 | | | 22 | | | — | | | — | | | (1) | | |
COGS amortization of intangibles | | | 7 | | | 8 | | | 9 | | | 14 | | | 19 | | |
Restructuring charges | | | 1 | | | 10 | | | 26 | | | 32 | | | 36 | | |
Stock-based compensation | | | 7 | | | 3 | | | 3 | | | 40 | | | 72 | | |
Income tax adjustments | | | (19) | | | (22) | | | 12 | | | 1 | | | 1 | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP net income | | $ | 412 | | $ | 289 | | $ | 301 | | $ | 319 | | $ | 338 | | (18)% |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | |
Non-GAAP net income margin - % of net revenue | | | 14% | | | 10% | | | 10% | | | 11% | | | 11% | | |
| | | | | | |
GAAP diluted earnings per share | | $ | 1.17 | | $ | 0.82 | | $ | 0.75 | | $ | 0.68 | | $ | 0.59 | | (50)% |
Non-GAAP diluted earnings per share | | $ | 1.29 | | $ | 0.92 | | $ | 0.96 | | $ | 1.03 | | $ | 1.09 | | (16)% |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | |
| | | Q2
FY06
| | Q3 FY06
| | Q4
FY06
| | Q1
FY07
| | Q2
FY07
| | YOY %
Change
|
GEOGRAPHIC REVENUE MIX | | | | | | | | | | | | |
North America Revenue | | 443 | | 618 | | 340 | | 209 | | 512 | | 16% |
International Revenue | | 232 | | 652 | | 301 | | 204 | | 272 | | 17% |
| | | | | | |
Europe Revenue | | 191 | | 577 | | 262 | | 169 | | 245 | | 28% |
Asia Revenue | | 41 | | 75 | | 39 | | 35 | | 27 | | (34)% |
| | |
| |
| |
| |
| |
| | |
Net Revenue | | 675 | | 1,270 | | 641 | | 413 | | 784 | | 16% |
| | | | | | |
| GEOGRAPHIC REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | |
North America Revenue | | 66% | | 49% | | 53% | | 51% | | 65% | | |
International Revenue | | 34% | | 51% | | 47% | | 49% | | 35% | | |
| | | | | | |
Europe Revenue | | 28% | | 45% | | 41% | | 41% | | 31% | | |
Asia Revenue | | 6% | | 6% | | 6% | | 8% | | 4% | | |
| | |
| |
| |
| |
| |
| | |
Net Revenue | | 100% | | 100% | | 100% | | 100% | | 100% | | |
| | | | | | |
PLATFORM REVENUE MIX | | | | | | | | | | | | |
Sony PlayStation 2 | | 304 | | 495 | | 211 | | 99 | | 269 | | (12)% |
Xbox 360 | | — | | 76 | | 64 | | 61 | | 166 | | N/M |
Xbox | | 136 | | 152 | | 68 | | 23 | | 65 | | (52)% |
Nintendo GameCube | | 27 | | 69 | | 17 | | 11 | | 14 | | (48)% |
Other consoles | | — | | 1 | | — | | — | | — | | N/M |
| | |
| |
| |
| |
| |
| | |
Total Consoles | | 467 | | 793 | | 360 | | 194 | | 514 | | 10% |
| | | | | | |
PC | | 91 | | 148 | | 104 | | 66 | | 86 | | (5)% |
| | | | | | |
PSP | | 45 | | 120 | | 54 | | 37 | | 64 | | 42% |
Nintendo DS | | 8 | | 36 | | 11 | | 8 | | 14 | | 75% |
Game Boy Advance | | 7 | | 35 | | 8 | | 7 | | 8 | | 14% |
Cellular Handsets | | 2 | | 1 | | 15 | | 33 | | 35 | | 1650% |
| | |
| |
| |
| |
| |
| | |
Total Mobility | | 62 | | 192 | | 88 | | 85 | | 121 | | 95% |
| | | | | | |
Co-publishing and Distribution | | 32 | | 99 | | 52 | | 42 | | 39 | | 22% |
| | | | | | |
Subscription Services | | 14 | | 16 | | 17 | | 16 | | 15 | | 7% |
Licensing, Advertising & Other | | 9 | | 22 | | 20 | | 10 | | 9 | | — |
| | |
| |
| |
| |
| |
| | |
Total Internet Services, Licensing & Other | | 23 | | 38 | | 37 | | 26 | | 24 | | 4% |
| | |
| |
| |
| |
| |
| | |
Net Revenue | | 675 | | 1,270 | | 641 | | 413 | | 784 | | 16% |
| | |
| |
| |
| |
| |
| | |
| PLATFORM REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | |
Sony PlayStation 2 | | 45% | | 39% | | 33% | | 24% | | 35% | | |
Xbox 360 | | — | | 6% | | 10% | | 15% | | 21% | | |
Xbox | | 20% | | 12% | | 10% | | 5% | | 8% | | |
Nintendo GameCube | | 4% | | 5% | | 3% | | 3% | | 2% | | |
| | |
| |
| |
| |
| |
| | |
Total Consoles | | 69% | | 62% | | 56% | | 47% | | 66% | | |
| | | | | | |
PC | | 14% | | 12% | | 16% | | 16% | | 11% | | |
| | | | | | |
PSP | | 7% | | 9% | | 9% | | 9% | | 8% | | |
Nintendo DS | | 1% | | 3% | | 2% | | 2% | | 2% | | |
Game Boy Advance | | 1% | | 3% | | 1% | | 2% | | 1% | | |
Cellular Handsets | | — | | — | | 2% | | 8% | | 4% | | |
| | |
| |
| |
| |
| |
| | |
Total Mobility | | 9% | | 15% | | 14% | | 21% | | 15% | | |
| | | | | | |
Co-publishing and Distribution | | 5% | | 8% | | 8% | | 10% | | 5% | | |
| | | | | | |
Subscription Services | | 2% | | 1% | | 3% | | 4% | | 2% | | |
Licensing, Advertising & Other | | 1% | | 2% | | 3% | | 2% | | 1% | | |
| | |
| |
| |
| |
| |
| | |
Total Internet Services, Licensing & Other | | 3% | | 3% | | 6% | | 6% | | 3% | | |
| | |
| |
| |
| |
| |
| | |
| | | | | | |
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)
| | | | | | | | | | | | |
| | | Q2
FY06
| | Q3
FY06
| | Q4
FY06
| | Q1
FY07
| | Q2
FY07
| | YOY %
Change
|
| Platform SKU Release Mix | | | | | | | | | | | | |
Sony PlayStation 2 | | 9 | | 8 | | 8 | | 2 | | 8 | | (11)% |
Xbox 360 | | — | | 5 | | 2 | | 2 | | 7 | | N/M |
Xbox | | 9 | | 8 | | 8 | | 2 | | 7 | | (22)% |
Nintendo GameCube | | 6 | | 5 | | 1 | | 1 | | 2 | | (67)% |
| | |
| |
| |
| |
| |
| | |
Total Consoles | | 24 | | 26 | | 19 | | 7 | | 24 | | — |
| | | | | | |
PC | | 6 | | 7 | | 7 | | 5 | | 6 | | — |
| | | | | | |
PSP | | 3 | | 8 | | 2 | | 2 | | 9 | | 200% |
Nintendo DS | | 2 | | 5 | | 1 | | 1 | | 2 | | — |
Game Boy Advance | | 2 | | 3 | | — | | 1 | | 2 | | — |
| | |
| |
| |
| |
| |
| | |
Total Mobility | | 7 | | 16 | | 3 | | 4 | | 13 | | 86% |
| | |
| |
| |
| |
| |
| | |
Total SKUs | | 37 | | 49 | | 29 | | 16 | | 43 | | 16% |
| | |
| |
| |
| |
| |
| | |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Fact Sheet for Q2 Fiscal 2007
| | |
Q2 Product Releases | | Platform |
• FIFA 07 | | PlayStation®2 |
• Madden NFL 07 | | PlayStation 2 |
• Madden NFL 07 Hall of Fame Edition | | PlayStation 2 |
• NASCAR 07 | | PlayStation 2 |
• NBA Live 07 | | PlayStation 2 |
• NCAA® Football 07 | | PlayStation 2 |
• NHL® 07 | | PlayStation 2 |
• Tiger Woods PGA TOUR® 07 | | PlayStation 2 |
• Madden NFL 07 | | XBOX 360™ |
• Madden NFL 07 Hall of Fame Edition | | XBOX 360 |
• NBA Live 07 | | XBOX 360 |
• NCAA Football 07 | | XBOX 360 |
• NHL 07 | | XBOX 360 |
• The Godfather™ The Game | | XBOX 360 |
• The Lord of the Rings™, The Battle for Middle-earth™ II | | XBOX 360 |
• FIFA 07 | | Xbox® |
• Madden NFL 07 | | Xbox |
• NASCAR 07 | | Xbox |
• NBA Live 07 | | Xbox |
• NCAA Football 07 | | Xbox |
• NHL 07 | | Xbox |
• Tiger Woods PGA TOUR 07 | | Xbox |
• FIFA 07 | | Nintendo GameCube™ |
• Madden NFL 07 | | Nintendo GameCube |
• FIFA 07 | | PC |
• Madden NFL 07 | | PC |
• NBA Live 07 | | PC |
• NHL 07 | | PC |
• The Sims™ 2: Glamour Life Stuff | | PC |
• Tiger Woods PGA TOUR 07 | | PC |
• Def Jam® Fight for NY™: The Takeover | | PSP® |
• FIFA 07 | | PSP |
• Madden NFL 07 | | PSP |
• NASCAR 07 | | PSP |
• NBA Live 07 | | PSP |
• NCAA Football 07 | | PSP |
• NHL 07 | | PSP |
• The Godfather™ Mob Wars | | PSP |
• Tiger Woods PGA TOUR 07 | | PSP |
• FIFA 07 | | Nintendo DS™ |
• Madden NFL 07 | | Nintendo DS |
• FIFA 07 | | Game Boy® Advance |
• Madden NFL 07 | | Game Boy Advance |
• Def Jam Fight for NY | | Cellular Handsets |
• EA Sports FIFA Street 2 | | Cellular Handsets |
• EA Sports Madden NFL 07 | | Cellular Handsets |
• Sim City | | Cellular Handsets |
• Tetris Mania | | Cellular Handsets |
• Mahjong | | iPod® |
• Mini-Golf | | iPod |
• Tetris | | iPod |
All trademarks are the property of their respective owners.
