Exhibit 99.1
EA REPORTS THIRD QUARTER FISCAL 2008 RESULTS
Largest Revenue Quarter in EA’s History
Burnout Paradise – Up Over 20 Percent at Retail Week One
REDWOOD CITY, CA – January 31, 2008 – Electronic Arts (NASDAQ: ERTS) today announced preliminary financial results for its fiscal third quarter ended December 31, 2007.
Fiscal Third Quarter Results(comparisons are to the quarter ended December 31, 2006)
Net revenue for the third quarter was $1.503 billion, up 17 percent as compared with $1.281 billion for the prior year. Beginning in fiscal 2008, EA no longer charges for its service related to certain online-enabled packaged goods games. As a result, the Company recognizes revenue from the sale of these games over the estimated service period. This change resulted in a $231 million sequential net increase in deferred net revenue as of December 31, 2007, which will be recognized in future periods.
Sales were driven byNeed for Speed™Pro Street,FIFA 08,Rock Band™,The Simpsons™Game,Madden NFL 08,The Sims™2Castaway, andNBA LIVE 08.
Gross profit for the quarter was $721 million, down 11 percent year-over-year. Net loss for the quarter was $33 million as compared with net income of $160 million for the prior year. Diluted loss per share was $0.10 as compared with diluted earnings per share of $0.50 for the prior year.
Non-GAAP net income was $290 million as compared with $201 million a year ago. Non-GAAP diluted earnings per share were $0.90 as compared with $0.63 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)
“This was a record revenue quarter for EA and the single biggest revenue quarter for any third party publisher in our industry,” said John Riccitiello, Chief Executive Officer. “While we are disappointed that two titles slipped out of the March quarter,Burnout Paradise is off to a terrific start and we are looking forward to the upcoming launches ofArmy of TwoandFIFA Street 3.”
“Our holiday quarter was solid, with non-GAAP earnings up 43 percent,” said Warren Jenson, Chief Financial and Administrative Officer. “For fiscal 2008, we tightened our top-line range toward the high end of our previous guidance, but given that two high-margin titles are now shipping in fiscal 2009, we tightened our bottom-line range toward the lower end of our previous guidance.”
Highlights (comparisons are to the quarter ended December 31, 2006)
| | • | | EA Partners posted its strongest quarterly performance everdriven byRock Band, Half Life® 2 Orange Box, Crysis® andHellgate™: London. |
| | • | | Need for Speed Pro Streetsold over 5.5 million copies in the quarter — over 65 percent internationally. |
| | • | | FIFA 08sold over 4.5 million copiesin the quarter and is EA’s top-selling title year-to-date. |
| | • | | The critically-acclaimedRock Band had a strong North American launch on the Xbox 360™, PLAYSTATION®3 and PlayStation 2— selling 1.5 million copies. |
| | • | | The Simpsons Game sold 4.0 million copiesin the quarter and was the highest rated entertainment-based game in 2007. |
| | • | | In calendar year 2007, EA was the number one global publisheracross all platforms with 18 percent share in North America and 19 percent in Europe. |
| | • | | On the Wii™, EA was the number one third-party publisher in calendar 2007 in Europe with 15 percent share— up 11 points from a year ago; in North America, EA had 12 percent share — up three points from a year ago. |
| | • | | EA closed the acquisition of BioWare Corp. and Pandemic Studios in January 2008,adding strong development talent and ten new franchises. |
Business Outlook
The following forward-looking statements, as well as those made above, reflect expectations as of January 31, 2008. Results may be materially different and are affected by many factors, including: development delays on EA’s products; competition in the industry; changes in anticipated costs, expected savings and impact on EA’s operations of the Company’s reorganization plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; consumer demand for games for legacy consoles, particularly the PlayStation®2; the financial impact of the Company’s acquisition of VG Holding Corp. (BioWare Corp. and Pandemic Studios); the popular appeal of EA’s products; changes in foreign exchange rates; the overall global economy; EA’s effective tax rate; and other factors detailed in this release and in EA’s annual and quarterly SEC filings.
Fiscal Fourth Quarter Expectations – Ending March 31, 2008
| | • | | Net revenue is expected to be between $925 million and $1.05 billion. |
| | • | | Net revenue excluding the impact of the change in deferred net revenue (packaged goods and digital content) is expected to be between $775 and $850 million. |
| | • | | GAAP diluted loss per share is expected to be between ($0.52) and ($0.33). |
| | • | | Non-GAAP diluted earnings per share are expected to be between a loss per share of ($0.03) and earnings per share of $0.02. Expected non-GAAP diluted earnings (loss) per share exclude the following items from expected GAAP diluted loss per share: |
| | • | | ($0.52) to ($0.38) for the impact of the change in deferred net revenue (packaged goods and digital content) |
| | • | | $0.65 for acquisition-related charges |
| | • | | $0.14 of estimated stock-based compensation |
| | • | | $0.05 of amortization of intangible assets |
| | • | | $0.03 of restructuring charges |
The Company expectsBattlefield: Bad Company™ andMercenaries 2: World in Flames™ to ship in fiscal 2009.
Fiscal Year Expectations – Ending March 31, 2008
| | • | | Net revenue is expected to be between $3.462 and $3.587 billion – as compared to Company’s previous guidance of $3.35 to $3.65 billion. |
| | • | | Net revenue excluding the impact of the change in deferred net revenue (packaged goods and digital content) is expected to be between $3.875 and $3.95 billion — as compared to the Company’s previous guidance of $3.8 and $4.0 billion. |
| | • | | GAAP diluted loss per share is expected to be between ($1.67) and ($1.48) – as compared to the Company’s previous guidance of GAAP diluted loss per share of ($1.60) and ($0.91). |
| | • | | Non-GAAP diluted earnings per share are expected to be between $0.93 and $0.98 – as compared to the Company’s previous guidance of $0.85 to $1.15. Expected non-GAAP diluted earnings per share exclude the following items from expected GAAP diluted loss per share: |
| | • | | $0.92 to $1.06 for the impact of the change in deferred net revenue (packaged goods and digital content) |
| | • | | $0.65 for acquisition-related charges |
| | • | | $0.41 of estimated stock-based compensation |
| | • | | $0.27 of restructuring charges |
| | • | | $0.15 of amortization of intangible assets |
| | • | | $0.04 of losses on strategic investments |
| | • | | $0.02 related to the difference between diluted and basic share count |
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 third quarter of fiscal 2008 ended December 31, 2007 and 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: (877) 723-9523, access code 220497, or via webcast:http://investor.ea.com.
A dial-in replay of the conference call will be provided until February 7, 2008 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year athttp://investor.ea.com.
Analyst Meeting
Electronic Arts will host an analyst meeting on February 12, 2008 at 8:00 am PT (11:00 am ET) at its corporate headquarters in Redwood City, California. Listeners may access the analyst meeting via webcast:http://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 net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted
earnings (loss) per share. These non-GAAP financial measures exclude the following items from the Company’s unaudited condensed consolidated statements of operations:
| | • | | Change in deferred net revenue (packaged goods and digital content) |
| | • | | Acquisition-related charges |
| | • | | Amortization of intangibles |
| | • | | Certain litigation expenses |
| | • | | Losses on strategic investments |
| | • | | Stock-based compensation |
| | • | | Income tax adjustments (consisting of the income tax effect of the items listed above and certain one-time income tax adjustments) |
Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company’s performance by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. Electronic Arts’ management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company’s operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the Company’s performance to prior periods.
In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:
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 123(R), “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.
Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete, extraordinary event based on a unique set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. 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.
Change in Deferred Net Revenue (Packaged Goods and Digital Content). Beginning in fiscal 2008, Electronic Arts is no longer able to objectively determine the fair value of the online service included in certain of its packaged goods games and online content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. Although Electronic Arts will defer the recognition of a significant portion of its net revenue as a result of this change, there will be no adverse impact to its operating cash flow. Internally, Electronic Arts’ management excludes the impact of the change in deferred net revenue related to packaged goods games and digital content in its non-GAAP financial measures when evaluating the Company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The Company believes that excluding the impact of the change in deferred net revenue from its operating results is important to facilitate comparisons to prior periods during which the Company was able to objectively determine the fair value of the online service and not delay the recognition of significant amounts of net revenue related to online-enabled packaged goods.
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 headings “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: timely development and release of Electronic Arts’ products; competition in the interactive entertainment industry; the Company’s ability to successfully implement its reorganization plans; the consumer demand for, and the availability of an adequate supply of console hardware units (including the Xbox 360™ video game and entertainment system, the PLAYSTATION®3 computer entertainment system and the Wii™); consumer demand for software for legacy consoles, particularly the PlayStation 2; the Company’s ability to predict consumer preferences among competing hardware platforms; the Company’s ability to realize the anticipated benefits of its acquisition of VG Holding Corp.; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; the Company’s ability to manage expenses during the remainder of fiscal year 2008 and beyond; the Company’s ability to attract and retain key personnel; changes in the Company’s effective tax rates; losses on strategic investments; 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, 2007 and Quarterly Report for the quarter ended September 30, 2007. These forward-looking statements speak only as of January 31, 2008. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements, including those made under the heading “Business Outlook”. In addition, the preliminary financial results set forth in this release are estimates based on information currently available to Electronic Arts. While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2007. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended December 31, 2007.
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 video game systems, personal computers, cellular handsets and the Internet. Electronic Arts markets its products under four brand names: EA SPORTS™, EA™, EA SPORTS BIG™ and POGO™. In fiscal 2007, EA posted revenue of $3.09 billion and had 24 titles that sold more than one million copies. EA’s 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.
For additional information, please contact:
| | |
Tricia Gugler | | Jeff Brown |
Director, Investor Relations | | Vice President, Corporate Communications |
650-628-7327 | | 650-628-7922 |
EA, EA SPORTS, EA SPORTS BIG, POGO, Need for Speed, The Sims, FaceBreaker and Burnout are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. Battlefield: Bad Company is a trademark of EA Digital Illusions CE AB. Mercenaries™ and Mercenaries 2: World in
Flames™ are trademarks and/or registered trademarks of Pandemic Studios, LLC. Crysis is a trademark of Crytek. Half-Life is a trademark or registered trademark of Valve Corporation in the U.S. and/or other countries. Rock Band is a trademark of Harmonix Music Systems, Inc., a division of MTV Networks. The Simpsons is a trademark of Twentieth Century Fox Film Corporation. Hellgate™: London is a trademark and/or registered trademark of Flagship Studios, Inc. throughout the world. John Madden, NFL, NBA and FIFA are trademarks or other intellectual property of their respective owners and used with permission. “PlayStation” and “PLAYSTATION” are registered trademarks of Sony Computer Entertainment Inc. Xbox and Xbox 360 are trademarks of the Microsoft group of companies. Wii is a trademark of Nintendo.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
| | | | | | | | | | | | | | |
| | | Three Months Ended
December 31, | | Nine Months Ended
December 31, |
| | | 2007 | | | 2006 | | 2007 | | | 2006 |
Net revenue | | $ | 1,503 | | | $ | 1,281 | | $ | 2,537 | | | $ | 2,478 |
Cost of goods sold | | | 782 | | | | 470 | | | 1,342 | | | | 977 |
| | | | | | | | | | | | | | |
Gross profit | | | 721 | | | | 811 | | | 1,195 | | | | 1,501 |
| | | | |
Operating expenses: | | | | | | | | | | | | | | |
Marketing and sales | | | 213 | | | | 165 | | | 459 | | | | 350 |
General and administrative | | | 95 | | | | 91 | | | 250 | | | | 222 |
Research and development | | | 321 | | | | 330 | | | 829 | | | | 783 |
Amortization of intangibles | | | 7 | | | | 7 | | | 21 | | | | 20 |
Acquired in-process technology | | | — | | | | 1 | | | — | | | | 3 |
Restructuring charges | | | 78 | | | | 2 | | | 85 | | | | 12 |
| | | | | | | | | | | | | | |
Total operating expenses | | | 714 | | | | 596 | | | 1,644 | | | | 1,390 |
| | | | | | | | | | | | | | |
| | | | |
Operating income (loss) | | | 7 | | | | 215 | | | (449 | ) | | | 111 |
Interest and other income, net | | | 20 | | | | 25 | | | 78 | | | | 69 |
| | | | | | | | | | | | | | |
Income (loss) before provision for (benefit from) income taxes and minority interest | | | 27 | | | | 240 | | | (371 | ) | | | 180 |
Provision for (benefit from) income taxes | | | 60 | | | | 84 | | | (10 | ) | | | 83 |
| | | | | | | | | | | | | | |
Income (loss) before minority interest | | | (33 | ) | | | 156 | | | (361 | ) | | | 97 |
Minority interest | | | — | | | | 4 | | | — | | | | 4 |
| | | | | | | | | | | | | | |
| | | | |
Net income (loss) | | $ | (33 | ) | | $ | 160 | | $ | (361 | ) | | $ | 101 |
| | | | | | | | | | | | | | |
Earnings (loss) per share: | | | | | | | | | | | | | | |
Basic | | $ | (0.10 | ) | | $ | 0.52 | | $ | (1.15 | ) | | $ | 0.33 |
Diluted | | $ | (0.10 | ) | | $ | 0.50 | | $ | (1.15 | ) | | $ | 0.32 |
| | | | |
Number of shares used in computation: | | | | | | | | | | | | | | |
Basic | | | 315 | | | | 309 | | | 313 | | | | 307 |
Diluted | | | 315 | | | | 319 | | | 313 | | | | 316 |
Non-GAAP Results (in millions, except per share data)
The following tables reconcile 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”) to its non-GAAP net income and non-GAAP diluted earnings per share. The Company’s non-GAAP results exclude the following, if any: the impact of the change in deferred net revenue (packaged goods and digital content), acquisition-related expenses (such as acquired in-process technology and amortization of intangibles), certain litigation expenses, losses on strategic investments, restructuring charges, and stock-based compensation. In addition, the Company's non-GAAP results 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
December 31, | | | Nine Months Ended
December 31, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Net income (loss) | | $ | (33 | ) | | $ | 160 | | | $ | (361 | ) | | $ | 101 | |
| | | | |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | 231 | | | | | | | | 563 | | | | | |
Acquired in-process technology | | | — | | | | 1 | | | | — | | | | 3 | |
Amortization of intangibles | | | 7 | | | | 7 | | | | 21 | | | | 20 | |
COGS amortization of intangibles | | | 6 | | | | 7 | | | | 20 | | | | 20 | |
Losses on strategic investments | | | 12 | | | | — | | | | 12 | | | | — | |
Restructuring charges | | | 78 | | | | 2 | | | | 85 | | | | 12 | |
Stock-based compensation | | | 38 | | | | 35 | | | | 105 | | | | 105 | |
Income tax adjustments | | | (49 | ) | | | (11 | ) | | | (137 | ) | | | (33 | ) |
| | | | | | | | | | | | | | | | |
Non-GAAP net income | | $ | 290 | | | $ | 201 | | | $ | 308 | | | $ | 228 | |
| | | | | | | | | | | | | | | | |
| | | | |
Non-GAAP diluted earnings per share | | $ | 0.90 | | | $ | 0.63 | | | $ | 0.96 | | | $ | 0.72 | |
Shares used in non-GAAP diluted earnings per share computation | | | 323 | | | | 319 | | | | 320 | | | | 316 | |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
| | | | | | |
| | | December 31,
2007 | | March 31,
2007(a) |
ASSETS | | | | | | |
| | |
Current assets: | | | | | | |
Cash, cash equivalents and short-term investments | | $ | 2,583 | | $ | 2,635 |
Marketable equity securities | | | 837 | | | 341 |
Receivables, net of allowances of $259 and $214, respectively | | | 830 | | | 256 |
Inventories | | | 178 | | | 62 |
Deferred income taxes, net | | | 122 | | | 84 |
Other current assets | | | 347 | | | 219 |
| | | | | | |
Total current assets | | | 4,897 | | | 3,597 |
Property and equipment, net | | | 393 | | | 484 |
Investment in affiliates | | | 29 | | | 6 |
Goodwill | | | 737 | | | 734 |
Other intangibles, net | | | 170 | | | 210 |
Deferred income taxes, net | | | 89 | | | 25 |
Other assets | | | 130 | | | 90 |
| | | | | | |
TOTAL ASSETS | | $ | 6,445 | | $ | 5,146 |
| | | | | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 371 | | $ | 180 |
Accrued and other current liabilities | | | 782 | | | 814 |
Deferred net revenue (packaged goods and digital content) | | | 595 | | | 32 |
| | | | | | |
Total current liabilities | | | 1,748 | | | 1,026 |
| | |
Income tax obligations | | | 301 | | | — |
Deferred income taxes, net | | | 8 | | | 8 |
Other liabilities | | | 85 | | | 80 |
| | | | | | |
Total liabilities | | | 2,142 | | | 1,114 |
| | |
Stockholders’ equity: | | | | | | |
Common stock | | | 3 | | | 3 |
Paid-in capital | | | 1,726 | | | 1,412 |
Retained earnings | | | 1,981 | | | 2,323 |
Accumulated other comprehensive income | | | 593 | | | 294 |
| | | | | | |
Total stockholders’ equity | | | 4,303 | | | 4,032 |
| | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 6,445 | | $ | 5,146 |
| | | | | | |
(a) | Derived from audited financial statements. |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31, | | | Nine Months Ended
December 31, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (33 | ) | | $ | 160 | | | $ | (361 | ) | | $ | 101 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation, amortization and accretion | | | 42 | | | | 38 | | | | 115 | | | | 110 | |
Stock-based compensation | | | 38 | | | | 35 | | | | 105 | | | | 105 | |
Minority interest | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
Non-cash restructuring charges | | | 42 | | | | — | | | | 42 | | | | — | |
Net losses on investments and sale of property and equipment | | | 9 | | | | — | | | | 8 | | | | 1 | |
Acquired in-process technology | | | — | | | | 1 | | | | — | | | | 3 | |
Change in assets and liabilities: | | | | | | | | | | | | | | | | |
Receivables, net | | | (383 | ) | | | (275 | ) | | | (539 | ) | | | (338 | ) |
Inventories | | | (69 | ) | | | (2 | ) | | | (108 | ) | | | (7 | ) |
Other assets | | | 22 | | | | 49 | | | | (56 | ) | | | 63 | |
Accounts payable | | | 140 | | | | (34 | ) | | | 169 | | | | 1 | |
Accrued and other liabilities | | | 267 | | | | 249 | | | | 183 | | | | 160 | |
Deferred income taxes, net | | | 43 | | | | (11 | ) | | | (68 | ) | | | (35 | ) |
Deferred net revenue (packaged goods and digital content) | | | 231 | | | | 21 | | | | 563 | | | | 23 | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 349 | | | | 227 | | | | 53 | | | | 183 | |
| | | | | | | | | | | | | | | | |
| | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | |
Capital expenditures | | | (25 | ) | | | (32 | ) | | | (62 | ) | | | (118 | ) |
Purchase of marketable equity securities and investments in affiliates | | | — | | | | — | | | | (277 | ) | | | (1 | ) |
Proceeds from maturities and sales of short-term investments | | | 587 | | | | 231 | | | | 1,978 | | | | 911 | |
Purchase of short-term investments | | | (179 | ) | | | (485 | ) | | | (1,388 | ) | | | (1,086 | ) |
Loan advance | | | (30 | ) | | | — | | | | (30 | ) | | | — | |
Acquisition of subsidiaries, net of cash acquired | | | — | | | | (27 | ) | | | — | | | | (94 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 353 | | | | (313 | ) | | | 221 | | | | (388 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | 74 | | | | 48 | | | | 160 | | | | 133 | |
Excess tax benefit from stock-based compensation | | | 14 | | | | 15 | | | | 45 | | | | 27 | |
Repayment of note assumed in connection with acquisition | | | — | | | | — | | | | — | | | | (14 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 88 | | | | 63 | | | | 205 | | | | 146 | |
| | | | | | | | | | | | | | | | |
| | | | |
Effect of foreign exchange on cash and cash equivalents | | | 14 | | | | 10 | | | | 28 | | | | 16 | |
| | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 804 | | | | (13 | ) | | | 507 | | | | (43 | ) |
Beginning cash and cash equivalents | | | 1,074 | | | | 1,212 | | | | 1,371 | | | | 1,242 | |
| | | | | | | | | | | | | | | | |
Ending cash and cash equivalents | | | 1,878 | | | | 1,199 | | | | 1,878 | | | | 1,199 | |
Short-term investments | | | 705 | | | | 1,212 | | | | 705 | | | | 1,212 | |
| | | | | | | | | | | | | | | | |
Ending cash, cash equivalents and short-term investments | | $ | 2,583 | | | $ | 2,411 | | | $ | 2,583 | | | $ | 2,411 | |
| | | | | | | | | | | | | | | | |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | Q2
FY08 | | Q3
FY08 | | YOY %
Change |
CONSOLIDATED FINANCIAL DATA | | | | | | | | | | | | |
Net revenue | | 1,281 | | 613 | | 395 | | 640 | | 1,503 | | 17% |
Net revenue - trailing twelve months (“TTM”) | | 3,119 | | 3,091 | | 3,073 | | 2,929 | | 3,151 | | 1% |
| | | | | | |
Gross profit | | 811 | | 378 | | 229 | | 245 | | 721 | | (11%) |
Gross margin - % of net revenue | | 63% | | 62% | | 58% | | 38% | | 48% | | |
Gross profit - TTM | | 1,898 | | 1,879 | | 1,863 | | 1,663 | | 1,573 | | (17%) |
Gross margin - TTM % of net revenue | | 61% | | 61% | | 61% | | 57% | | 50% | | |
| | | | | | |
Operating income (loss) | | 215 | | (71) | | (183) | | (274) | | 7 | | (97%) |
Operating income (loss) margin -% of net revenue | | 17% | | (12%) | | (46%) | | (43%) | | — | | |
Operating income (loss) - TTM | | 135 | | 39 | | (25) | | (313) | | (521) | | (486%) |
Operating income (loss) margin - TTM % of net revenue | | 4% | | 1% | | (1%) | | (11%) | | (17%) | | |
| | | | | | |
Net income (loss) | | 160 | | (25) | | (132) | | (195) | | (33) | | (121%) |
Diluted earnings (loss) per share | | $0.50 | | ($0.08) | | ($0.42) | | ($0.62) | | ($0.10) | | (120%) |
Net income (loss) - TTM | | 85 | | 76 | | 25 | | (192) | | (385) | | (553%) |
Diluted earnings (loss) per share - TTM | | $0.26 | | $0.24 | | $0.07 | | ($0.62) | | ($1.22) | | (570%) |
| | | | | | |
CASH FLOW DATA | | | | | | | | | | | | |
Operating cash flow | | 227 | | 214 | | (192) | | (104) | | 349 | | 54% |
Operating cash flow - TTM | | 520 | | 397 | | 243 | | 145 | | 267 | | (49%) |
| | | | | | |
Capital expenditures | | 32 | | 60 | | 14 | | 23 | | 25 | | (22%) |
Capital expenditures - TTM | | 154 | | 178 | | 154 | | 129 | | 122 | | (21%) |
| | | | | | |
BALANCE SHEET DATA | | | | | | | | | | | | |
Cash, cash equivalents and short-term investments | | 2,411 | | 2,635 | | 2,189 | | 2,176 | | 2,583 | | 7% |
Marketable equity securities | | 235 | | 341 | | 660 | | 716 | | 837 | | 256% |
Receivables, net | | 551 | | 256 | | 123 | | 424 | | 830 | | 51% |
Inventories | | 72 | | 62 | | 74 | | 103 | | 178 | | 147% |
Deferred net revenue (packaged goods and digital content) (a): | | | | | | | | | | | | |
End of the quarter | | | | 32 | | 68 | | 364 | | 595 | | |
Less: Beginning of the quarter | | | | — | | 32 | | 68 | | 364 | | |
| | | | | | | | | | | | |
Change in deferred net revenue
(packaged goods and digital content) | | | | 32 | | 36 | | 296 | | 231 | | |
| | | | | | |
STOCK-BASED COMPENSATION | | | | | | | | | | | | |
Cost of goods sold | | — | | 1 | | — | | 1 | | 1 | | |
Marketing and sales | | 5 | | 3 | | 4 | | 5 | | 5 | | |
General and administrative | | 10 | | 7 | | 8 | | 10 | | 11 | | |
Research and development | | 20 | | 17 | | 16 | | 22 | | 21 | | |
| | | | | | | | | | | | |
Total Stock-Based Compensation | | 35 | | 28 | | 28 | | 38 | | 38 | | |
| | | | | | |
STOCK-BASED COMPENSATION - as a % of Net Revenue | | | | | | | | | | | | |
Cost of goods sold | | — | | — | | — | | — | | — | | |
Marketing and sales | | — | | 1% | | 1% | | 1% | | 1% | | |
General and administrative | | 1% | | 1% | | 2% | | 2% | | 1% | | |
Research and development | | 2% | | 3% | | 4% | | 3% | | 1% | | |
| | | | | | | | | | | | |
Total Stock-Based Compensation | | 3% | | 5% | | 7% | | 6% | | 3% | | |
| | | | | | |
OTHER | | | | | | | | | | | | |
Employees | | 7,761 | | 7,893 | | 8,101 | | 8,239 | | 8,165 | | 5% |
Diluted weighted-average shares | | 319 | | 310 | | 311 | | 313 | | 315 | | |
| | | | | | |
GEOGRAPHIC NET REVENUE MIX | | | | | | | | | | | | |
North America | | 637 | | 307 | | 163 | | 362 | | 768 | | 21% |
International | | 644 | | 306 | | 232 | | 278 | | 735 | | 14% |
| | | | | | |
Europe | | 583 | | 264 | | 204 | | 246 | | 668 | | 15% |
Asia | | 61 | | 42 | | 28 | | 32 | | 67 | | 10% |
| | | | | | | | | | | | |
Net Revenue | | 1,281 | | 613 | | 395 | | 640 | | 1,503 | | 17% |
| | | | | | |
GEOGRAPHIC NET REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | |
North America | | 50% | | 50% | | 41% | | 57% | | 51% | | |
International | | 50% | | 50% | | 59% | | 43% | | 49% | | |
| | | | | | |
Europe | | 45% | | 43% | | 52% | | 38% | | 44% | | |
Asia | | 5% | | 7% | | 7% | | 5% | | 5% | | |
| | | | | | | | | | | | |
Net Revenue | | 100% | | 100% | | 100% | | 100% | | 100% | | |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and Headcount)
| | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | Q2
FY08 | | Q3
FY08 | | YOY%
Change |
PLATFORM NET REVENUE MIX | | | | | | | | | | | | |
PlayStation 2 | | 400 | | 117 | | 61 | | 73 | | 301 | | (25%) |
Xbox 360 | | 172 | | 82 | | 47 | | 218 | | 196 | | 14% |
Wii | | 29 | | 36 | | 29 | | 59 | | 139 | | 379% |
PLAYSTATION 3 | | 41 | | 52 | | 13 | | 17 | | 102 | | 149% |
Xbox | | 62 | | 7 | | 3 | | 12 | | 3 | | (95%) |
Nintendo GameCube | | 32 | | 4 | | 1 | | 3 | | 1 | | (97%) |
| | | | | | | | | | | | |
Total Consoles | | 736 | | 298 | | 154 | | 382 | | 742 | | 1% |
| | | | | | |
PC | | 218 | | 128 | | 89 | | 79 | | 148 | | (32%) |
| | | | | | |
Nintendo DS | | 55 | | 27 | | 25 | | 47 | | 122 | | 122% |
PSP | | 118 | | 39 | | 21 | | 21 | | 74 | | (37%) |
Cellular Handsets | | 35 | | 36 | | 33 | | 37 | | 38 | | 9% |
Game Boy Advance | | 21 | | 3 | | 2 | | 4 | | 2 | | (90%) |
| | | | | | | | | | | | |
Total Mobility | | 229 | | 105 | | 81 | | 109 | | 236 | | 3% |
| | | | | | |
Co-publishing and Distribution | | 49 | | 45 | | 39 | | 33 | | 320 | | 553% |
| | | | | | |
Licensing, Advertising & Other | | 25 | | 13 | | 9 | | 14 | | 34 | | 36% |
Subscription Services | | 24 | | 24 | | 23 | | 23 | | 23 | | (4%) |
| | | | | | | | | | | | |
Total Internet Services, Licensing & Other | | 49 | | 37 | | 32 | | 37 | | 57 | | 16% |
| | | | | | | | | | | | |
Net Revenue | | 1,281 | | 613 | | 395 | | 640 | | 1,503 | | 17% |
| | | | | | | | | | | | |
| | | | | | |
PLATFORM NET REVENUE MIX - as a % of Net Revenue | | | | | | | | | | | | |
PlayStation 2 | | 31% | | 19% | | 16% | | 11% | | 20% | | |
Xbox 360 | | 13% | | 13% | | 12% | | 34% | | 13% | | |
Wii | | 2% | | 6% | | 7% | | 9% | | 9% | | |
PLAYSTATION 3 | | 3% | | 9% | | 3% | | 3% | | 7% | | |
Xbox | | 5% | | 1% | | 1% | | 2% | | — | | |
Nintendo GameCube | | 3% | | 1% | | — | | 1% | | — | | |
| | | | | | | | | | | | |
Total Consoles | | 57% | | 49% | | 39% | | 60% | | 49% | | |
| | | | | | |
PC | | 17% | | 21% | | 23% | | 12% | | 10% | | |
| | | | | | |
Nintendo DS | | 4% | | 5% | | 6% | | 7% | | 8% | | |
PSP | | 9% | | 6% | | 5% | | 3% | | 5% | | |
Cellular Handsets | | 3% | | 6% | | 8% | | 6% | | 3% | | |
Game Boy Advance | | 2% | | — | | 1% | | 1% | | — | | |
| | | | | | | | | | | | |
Total Mobility | | 18% | | 17% | | 20% | | 17% | | 16% | | |
| | | | | | |
Co-publishing and Distribution | | 4% | | 7% | | 10% | | 5% | | 21% | | |
| | | | | | |
Licensing, Advertising & Other | | 2% | | 2% | | 2% | | 2% | | 2% | | |
Subscription Services | | 2% | | 4% | | 6% | | 4% | | 2% | | |
| | | | | | | | | | | | |
Total Internet Services, Licensing & Other | | 4% | | 6% | | 8% | | 6% | | 4% | | |
| | | | | | | | | | | | |
Net Revenue | | 100% | | 100% | | 100% | | 100% | | 100% | | |
| | | | | | | | | | | | |
| | | | | | |
PLATFORM SKU RELEASE MIX(a) | | | | | | | | | | | | |
PlayStation 2 | | 6 | | 6 | | 1 | | 7 | | 7 | | 17% |
Xbox 360 | | 5 | | 4 | | 2 | | 8 | | 5 | | — |
Wii | | 2 | | 4 | | 2 | | 5 | | 7 | | 250% |
PLAYSTATION 3 | | 4 | | 3 | | 1 | | 7 | | 5 | | 25% |
Xbox | | 2 | | — | | — | | 2 | | — | | (100%) |
Nintendo GameCube | | 2 | | — | | — | | 1 | | — | | (100%) |
| | | | | | | | | | | | |
Total Consoles | | 21 | | 17 | | 6 | | 30 | | 24 | | 14% |
| | | | | | |
PC | | 9 | | 6 | | 5 | | 7 | | 4 | | (56%) |
| | | | | | |
Nintendo DS | | 3 | | 2 | | 2 | | 4 | | 5 | | 67% |
PSP | | 5 | | 2 | | 1 | | 3 | | 4 | | (20%) |
Game Boy Advance | | 3 | | — | | — | | 1 | | — | | (100%) |
| | | | | | | | | | | | |
Total Mobility | | 11 | | 4 | | 3 | | 8 | | 9 | | (18%) |
| | | | | | | | | | | | |
Total SKUs | | 41 | | 27 | | 14 | | 45 | | 37 | | (10%) |
| | | | | | | | | | | | |
(a) | Cellular Handsets, Mac®, iPod® nano, and iPod® classic are not included in SKU count. |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Fact Sheet for Q3 Fiscal 2008
| | |
Q3 Product Releases | | Platform(i) |
| |
• Boogie™ | | PlayStation®2 |
• Madden NFL 08 en Español | | PlayStation 2 |
• NBA LIVE 08 | | PlayStation 2 |
• NCAA® March Madness® 08 | | PlayStation 2 |
• Need For Speed™ ProStreet | | PlayStation 2 |
• The Sims™ 2 Castaway | | PlayStation 2 |
• The Simpsons™ Game | | PlayStation 2 |
| |
• Madden NFL 08 en Español | | Xbox 360™ |
• NBA LIVE 08 | | Xbox 360 |
• NCAA March Madness 08 | | Xbox 360 |
• Need For Speed ProStreet | | Xbox 360 |
• The Simpsons Game | | Xbox 360 |
| |
• Medal of Honor Heroes™ 2 | | Wii™ |
• NBA LIVE 08 | | Wii |
• Need For Speed ProStreet | | Wii |
• EA Playground™ | | Wii |
• Smarty Pants™ | | Wii |
• The Sims 2 Castaway | | Wii |
• The Simpsons Game | | Wii |
| |
• Medal of Honor Airborne™ | | PLAYSTATION®3 |
• NBA LIVE 08 | | PLAYSTATION 3 |
• NCAA March Madness 08 | | PLAYSTATION 3 |
• Need For Speed ProStreet | | PLAYSTATION 3 |
• The Simpsons Game | | PLAYSTATION 3 |
| |
• NBA LIVE 08 | | PC |
• Need For Speed ProStreet | | PC |
• SimCity™ Societies | | PC |
• The Sims™ 2 Teen Style Stuff | | PC |
| |
• Madden NFL 08 | | Mac® |
• The Sims™ 2 Bon Voyage | | Mac |
• Tiger Woods PGA TOUR® 08 | | Mac |
| |
• Boogie | | Nintendo DS™ |
• Need For Speed ProStreet | | Nintendo DS |
• EA Playground | | Nintendo DS |
• The Sims 2 Castaway | | Nintendo DS |
• The Simpsons Game | | Nintendo DS |
| |
• Medal of Honor Heroes 2 | | PSP® |
• NBA LIVE 08 | | PSP |
• The Sims 2 Castaway | | PSP |
• The Simpsons Game | | PSP |
| |
• The Sims™ DJ | | Cellular Handsets |
• Need For Speed ProStreet | | Cellular Handsets |
• BlastDown™ | | Cellular Handsets |
• Block’d | | Cellular Handsets |
• SimCity Societies | | Cellular Handsets |
• Harry Potter™ Mastering Magic | | Cellular Handsets |
• NBA LIVE 08 | | Cellular Handsets |
• ESPN® Darts | | Cellular Handsets |
• Dakar Rally 2008 | | Cellular Handsets |
• Orcs & Elves II™ | | Cellular Handsets |
• EA SPORTS™ FIFA Soccer 08 | | Cellular Handsets |
• LEGO Escape | | Cellular Handsets |
• Asterix: The Official Mobile Game of the Movie | | Cellular Handsets |
| |
• The Sims™ Bowling | | iPod® nano/iPod® classic |
• The Sims™ Pool | | iPod nano/iPod classic |
• Tetris® | | iPod nano/iPod classic |
• EA™ Sudoku | | iPod nano/iPod classic |
| |
Co-publishing, Distribution, and International only(ii) | | |
| |
• Rock Band™ | | PlayStation 2 |
| |
• Half-Life® 2: Orange Box | | Xbox 360 |
• Rock Band | | Xbox 360 |
| |
• Half-Life 2: Orange Box | | PLAYSTATION 3 |
• Rock Band | | PLAYSTATION 3 |
| |
• Crysis® | | PC |
• Crysis® Collector’s Edition | | PC |
• EA SPORTS™ Gameshow | | PC |
• FIFA Manager 08 | | PC |
• Half-Life 2: Orange Box | | PC |
• Hellgate™: London | | PC |
• Hellgate™: London Collector’s Edition | | PC |
• Rail Simulator® | | PC |
| |
• Orcs & Elves® | | Nintendo DS |
| | (i) | Cellular Handsets, Mac®, iPod® nano, and iPod® classic releases are not included in SKU count. |
| | (ii) | Co-publishing, Distribution, and International only are not included in SKU count. |
All trademarks are the property of their respective owners.
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 net revenue, gross profit, 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 net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP diluted earnings (loss) per share. The Company’s non-GAAP net revenue excludes the impact of the change in deferred net revenue (packaged goods and digital content). The Company’s non-GAAP gross profit excludes the impact of the change in deferred net revenue (packaged goods and digital content), COGS amortization of intangibles, and stock-based compensation. The Company’s non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP diluted earnings (loss) per share exclude the impact of the change in deferred net revenue (packaged goods and digital content), acquired in-process technology, amortization of intangibles, 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 losses on strategic investments and 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.
| | | | | | | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | Q2
FY08 | | Q3
FY08 | | YOY%
Change |
QUARTERLY RECONCILIATION OF RESULTS | | | | | | | | | | | | | | | | | |
GAAP net revenue | | $ | 1,281 | | $ | 613 | | $ | 395 | | $ | 640 | | $ | 1,503 | | 17% |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 296 | | | 231 | | |
| | | | | | | | | | | | | | | | | |
Non-GAAP net revenue(a) | | $ | 1,281 | | $ | 613 | | $ | 431 | | $ | 936 | | $ | 1,734 | | 35% |
| | | | | | | | | | | | | | | | | |
| | | | | | |
GAAP gross profit | | $ | 811 | | $ | 378 | | $ | 229 | | $ | 245 | | $ | 721 | | (11%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 296 | | | 231 | | |
COGS amortization of intangibles | | | 7 | | | 7 | | | 7 | | | 7 | | | 6 | | |
Stock-based compensation | | | — | | | 1 | | | — | | | 1 | | | 1 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP gross profit | | $ | 818 | | $ | 386 | | $ | 272 | | $ | 549 | | $ | 959 | | 17% |
| | | | | | | | | | | | | | | | | |
Non-GAAP gross margin - % of non-GAAP net revenue | | | 64% | | | 63% | | | 63% | | | 59% | | | 55% | | |
| | | | | | |
GAAP operating income (loss) | | $ | 215 | | $ | (71) | | $ | (183) | | $ | (274) | | $ | 7 | | (97%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 296 | | | 231 | | |
Acquired in-process technology | | | 1 | | | — | | | — | | | — | | | — | | |
Amortization of intangibles | | | 7 | | | 7 | | | 7 | | | 7 | | | 7 | | |
COGS amortization of intangibles | | | 7 | | | 7 | | | 7 | | | 7 | | | 6 | | |
Restructuring charges | | | 2 | | | 3 | | | 2 | | | 5 | | | 78 | | |
Stock-based compensation | | | 35 | | | 28 | | | 28 | | | 38 | | | 38 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP operating income (loss) | | $ | 267 | | $ | (26) | | $ | (103) | | $ | 79 | | $ | 367 | | 37% |
| | | | | | | | | | | | | | | | | |
Non-GAAP operating income (loss) margin -
% of non-GAAP net revenue | | | 21% | | | (4%) | | | (24%) | | | 8% | | | 21% | | |
| | | | | | |
GAAP net income (loss) | | $ | 160 | | $ | (25) | | $ | (132) | | $ | (195) | | $ | (33) | | (121%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 296 | | | 231 | | |
Acquired in-process technology | | | 1 | | | — | | | — | | | — | | | — | | |
Amortization of intangibles | | | 7 | | | 7 | | | 7 | | | 7 | | | 7 | | |
COGS amortization of intangibles | | | 7 | | | 7 | | | 7 | | | 7 | | | 6 | | |
Losses on strategic investments | | | — | | | — | | | — | | | — | | | 12 | | |
Restructuring charges | | | 2 | | | 3 | | | 2 | | | 5 | | | 78 | | |
Stock-based compensation | | | 35 | | | 28 | | | 28 | | | 38 | | | 38 | | |
Income tax adjustments | | | (11) | | | (1) | | | (17) | | | (71) | | | (49) | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP net income (loss) | | $ | 201 | | $ | 19 | | $ | (69) | | $ | 87 | | $ | 290 | | 44% |
| | | | | | | | | | | | | | | | | |
Non-GAAP net income (loss) margin -
% of non-GAAP net revenue | | | 16% | | | 3% | | | (16%) | | | 9% | | | 17% | | |
| | | | | | |
GAAP diluted earnings (loss) per share | | | $0.50 | | | ($0.08) | | | ($0.42) | | | ($0.62) | | | ($0.10) | | (120%) |
Non-GAAP diluted earnings (loss) per share | | | $0.63 | | | $0.06 | | | ($0.22) | | | $0.27 | | | $0.90 | | 43% |
Shares used in non-GAAP diluted earnings (loss) per share computation | | | 319 | | | 319 | | | 311 | | | 320 | | | 323 | | |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
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 net revenue, gross profit, 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 net revenue, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, and non-GAAP diluted earnings per share. The Company’s non-GAAP net revenue excludes the impact of the change in deferred net revenue (packaged goods and digital content). The Company’s non-GAAP gross profit excludes the impact of the change in deferred net revenue (packaged goods and digital content), COGS amortization of intangibles, and stock-based compensation. The Company’s non-GAAP operating income, non-GAAP net income, and non-GAAP diluted earnings per share exclude the impact of the change in deferred net revenue (packaged goods and digital content), acquired in-process technology, amortization of intangibles, certain litigation expenses, restructuring charges, and stock-based compensation. In addition, the Company’s non-GAAP net income and non-GAAP diluted earnings per share exclude losses on strategic investments and 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.
| | | | | | | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | Q2
FY08 | | Q3
FY08 | | YOY%
Change |
TRAILING TWELVE MONTH RECONCILIATION OF RESULTS | | | | | | | | | | | | | | |
GAAP net revenue | | $ | 3,119 | | $ | 3,091 | | $ | 3,073 | | $ | 2,929 | | $ | 3,151 | | 1% |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 332 | | | 563 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP net revenue(a) | | $ | 3,119 | | $ | 3,091 | | $ | 3,109 | | $ | 3,261 | | $ | 3,714 | | 19% |
| | | | | | | | | | | | | | | | | |
| | | | | | |
GAAP gross profit | | $ | 1,898 | | $ | 1,879 | | $ | 1,863 | | $ | 1,663 | | $ | 1,573 | | (17%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 332 | | | 563 | | |
COGS amortization of intangibles | | | 24 | | | 27 | | | 28 | | | 28 | | | 27 | | |
Stock-based compensation | | | 1 | | | 2 | | | 2 | | | 2 | | | 3 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP gross profit | | $ | 1,923 | | $ | 1,908 | | $ | 1,929 | | $ | 2,025 | | $ | 2,166 | | 13% |
| | | | | | | | | | | | | | | | | |
Non-GAAP gross margin - % of non-GAAP net revenue | | | 62% | | | 62% | | | 62% | | | 62% | | | 58% | | |
| | | | | | |
GAAP operating income (loss) | | $ | 135 | | $ | 39 | | $ | (25) | | $ | (313) | | $ | (521) | | (486%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 332 | | | 563 | | |
Acquired in-process technology | | | 10 | | | 3 | | | 3 | | | 1 | | | — | | |
Amortization of intangibles | | | 24 | | | 27 | | | 28 | | | 28 | | | 28 | | |
Certain litigation expenses | | | (1) | | | — | | | — | | | — | | | — | | |
COGS amortization of intangibles | | | 24 | | | 27 | | | 28 | | | 28 | | | 27 | | |
Restructuring charges | | | 29 | | | 15 | | | 11 | | | 12 | | | 88 | | |
Stock-based compensation | | | 107 | | | 133 | | | 124 | | | 129 | | | 132 | | |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP operating income | | $ | 328 | | $ | 244 | | $ | 205 | | $ | 217 | | $ | 317 | | (3%) |
| | | | | | | | | | | | | | | | | |
Non-GAAP operating income margin -
% of non-GAAP net revenue | | | 11% | | | 8% | | | 7% | | | 7% | | | 9% | | |
| | | | | | |
GAAP net income (loss) | | $ | 85 | | $ | 76 | | $ | 25 | | $ | (192) | | $ | (385) | | (553%) |
Change in deferred net revenue
(packaged goods and digital content)(a) | | | | | | | | | 36 | | | 332 | | | 563 | | |
Acquired in-process technology | | | 10 | | | 3 | | | 3 | | | 1 | | | — | | |
Amortization of intangibles | | | 24 | | | 27 | | | 28 | | | 28 | | | 28 | | |
Certain litigation expenses | | | (1) | | | — | | | — | | | — | | | — | | |
COGS amortization of intangibles | | | 24 | | | 27 | | | 28 | | | 28 | | | 27 | | |
Losses on strategic investments | | | — | | | — | | | — | | | — | | | 12 | | |
Restructuring charges | | | 29 | | | 15 | | | 11 | | | 12 | | | 88 | | |
Stock-based compensation | | | 107 | | | 133 | | | 124 | | | 129 | | | 132 | | |
Income tax adjustments | | | (7) | | | (34) | | | (39) | | | (100) | | | (138) | | |
| | | | | | | | | | | | | | | | | |
Non-GAAP net income | | $ | 271 | | $ | 247 | | $ | 216 | | $ | 238 | | $ | 327 | | 21% |
| | | | | | | | | | | | | | | | | |
Non-GAAP net income margin - % of non-GAAP net revenue | | | 9% | | | 8% | | | 7% | | | 7% | | | 9% | | |
| | | | | | |
GAAP diluted earnings (loss) per share | | | $0.26 | | | $0.24 | | | $0.07 | | | ($0.62) | | | ($1.22) | | (569%) |
Non-GAAP diluted earnings per share | | | $0.86 | | | $0.78 | | | $0.68 | | | $0.74 | | | $1.01 | | 17% |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Non-GAAP Financial Information and Non-GAAP Business Metrics
(in millions, except per share data)
| | | | | | | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | Q2
FY08 | | Q3
FY08 | | YOY%
Change |
CONSOLIDATED NON-GAAP FINANCIAL DATA(b) | | | | | | | | | | | | | | |
Non-GAAP net revenue | | | 1,281 | | | 613 | | | 431 | | | 936 | | | 1,734 | | 35% |
Non-GAAP net revenue - TTM | | | 3,119 | | | 3,091 | | | 3,109 | | | 3,261 | | | 3,714 | | 19% |
| | | | | | |
Non-GAAP gross profit | | | 818 | | | 386 | | | 272 | | | 549 | | | 959 | | 17% |
Non-GAAP gross margin - % of non-GAAP net revenue | | | 64% | | | 63% | | | 63% | | | 59% | | | 55% | | |
Non-GAAP gross profit - TTM | | | 1,923 | | | 1,908 | | | 1,929 | | | 2,025 | | | 2,166 | | 13% |
Non-GAAP gross margin -
TTM % of non-GAAP net revenue | | | 62% | | | 62% | | | 62% | | | 62% | | | 58% | | |
| | | | | | |
Non-GAAP operating income (loss) | | | 267 | | | (26) | | | (103) | | | 79 | | | 367 | | 37% |
Non-GAAP operating income (loss) margin -
% of non-GAAP net revenue | | | 21% | | | (4%) | | | (24%) | | | 8% | | | 21% | | |
Non-GAAP operating income - TTM | | | 328 | | | 244 | | | 205 | | | 217 | | | 317 | | (3%) |
Non-GAAP operating income margin -
TTM % of non-GAAP net revenue | | | 11% | | | 8% | | | 7% | | | 7% | | | 9% | | |
| | | | | | |
Non-GAAP net income (loss) | | | 201 | | | 19 | | | (69) | | | 87 | | | 290 | | 44% |
Non-GAAP diluted earnings (loss) per share | | $ | 0.63 | | $ | 0.06 | | ($ | 0.22) | | $ | 0.27 | | $ | 0.90 | | 43% |
Non-GAAP net income - TTM | | | 271 | | | 247 | | | 216 | | | 238 | | | 327 | | 21% |
Non-GAAP diluted earnings per share - TTM | | $ | 0.86 | | $ | 0.78 | | $ | 0.68 | | $ | 0.74 | | $ | 1.01 | | 17% |
| | | | | | |
GEOGRAPHIC NET REVENUE MIX -
GAAP to Non-GAAP Reconciliation | | | | | | | | | | | | | | | | | |
| | | | | | |
GAAP | | | | | | | | | | | | | | | | | |
North America | | | 637 | | | 307 | | | 163 | | | 362 | | | 768 | | 21% |
International | | | 644 | | | 306 | | | 232 | | | 278 | | | 735 | | 14% |
| | | | | | |
Europe | | | 583 | | | 264 | | | 204 | | | 246 | | | 668 | | 15% |
Asia | | | 61 | | | 42 | | | 28 | | | 32 | | | 67 | | 10% |
| | | | | | | | | | | | | | | | | |
Net Revenue | | | 1,281 | | | 613 | | | 395 | | | 640 | | | 1,503 | | 17% |
| | | | | | |
CHANGE IN DEFERRED NET REVENUE (PACKAGED GOODS AND DIGITAL CONTENT) GEOGRAPHIC MIX (a) | | | | | | | | | | | | | | | | | |
North America | | | | | | | | | 8 | | | 163 | | | 93 | | |
International | | | | | | | | | 28 | | | 133 | | | 138 | | |
| | | | | | |
Europe | | | | | | | | | 21 | | | 129 | | | 124 | | |
Asia | | | | | | | | | 7 | | | 4 | | | 14 | | |
| | | | | | | | | | | | | | | | | |
Change In Deferred Net Revenue
(Packaged Goods and Digital Content) | | | | | | | | | 36 | | | 296 | | | 231 | | |
| | | | | | |
Non-GAAP | | | | | | | | | | | | | | | | | |
North America | | | 637 | | | 307 | | | 171 | | | 525 | | | 861 | | 35% |
International | | | 644 | | | 306 | | | 260 | | | 411 | | | 873 | | 36% |
| | | | | | |
Europe | | | 583 | | | 264 | | | 225 | | | 375 | | | 792 | | 36% |
Asia | | | 61 | | | 42 | | | 35 | | | 36 | | | 81 | | 33% |
| | | | | | | | | | | | | | | | | |
Non-GAAP Net Revenue | | | 1,281 | | | 613 | | | 431 | | | 936 | | | 1,734 | | 35% |
| | | | | | | | | | | | | | | | | |
NON-GAAP GEOGRAPHIC NET REVENUE MIX -
as a % of Non-GAAP Net Revenue | | | | | | | | | | | | | | | | | |
North America | | | 50% | | | 50% | | | 40% | | | 56% | | | 50% | | |
International | | | 50% | | | 50% | | | 60% | | | 44% | | | 50% | | |
| | | | | | |
Europe | | | 45% | | | 43% | | | 52% | | | 40% | | | 45% | | |
Asia | | | 5% | | | 7% | | | 8% | | | 4% | | | 5% | | |
| | | | | | | | | | | | | | | | | |
Non-GAAP Net Revenue | | | 100% | | | 100% | | | 100% | | | 100% | | | 100% | | |
| | | | | | | | | | | | | | | | | |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
(b) | Refer to Unaudited Reconciliation of GAAP to Non-GAAP Results. |
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Non-GAAP Financial Information and Non-GAAP Business Metrics
(in millions)
| | | | | | | | | | | | | | | |
| | | Q3
FY07 | | Q4
FY07 | | Q1
FY08 | | | Q2
FY08 | | | Q3
FY08 | | | YOY%
Change |
PLATFORM NON-GAAP NET REVENUE MIX | | | | | | | | | | | | | | | |
PlayStation 2 | | 400 | | 117 | | 69 | | | 204 | | | 324 | | | (19%) |
PLAYSTATION 3 | | 41 | | 52 | | 20 | | | 98 | | | 196 | | | 378% |
Xbox 360 | | 172 | | 82 | | 47 | | | 218 | | | 196 | | | 14% |
Wii | | 29 | | 36 | | 29 | | | 83 | | | 156 | | | 438% |
Xbox | | 62 | | 7 | | 3 | | | 12 | | | 3 | | | (95%) |
Nintendo GameCube | | 32 | | 4 | | 1 | | | 3 | | | 1 | | | (97%) |
| | | | | | | | | | | | | | | |
Total Consoles | | 736 | | 298 | | 169 | | | 618 | | | 876 | | | 19% |
| | | | | | |
PC | | 218 | | 128 | | 96 | | | 116 | | | 153 | | | (30%) |
| | | | | | |
Nintendo DS | | 55 | | 27 | | 25 | | | 47 | | | 122 | | | 122% |
PSP | | 118 | | 39 | | 30 | | | 43 | | | 111 | | | (6%) |
Cellular Handsets | | 35 | | 36 | | 34 | | | 37 | | | 38 | | | 9% |
Game Boy Advance | | 21 | | 3 | | 2 | | | 4 | | | 2 | | | (90%) |
| | | | | | | | | | | | | | | |
Total Mobility | | 229 | | 105 | | 91 | | | 131 | | | 273 | | | 19% |
| | | | | | |
Co-publishing and Distribution | | 49 | | 45 | | 39 | | | 32 | | | 372 | | | 659% |
| | | | | | |
Subscription Services | | 24 | | 24 | | 23 | | | 23 | | | 23 | | | (4%) |
Licensing, Advertising & Other | | 25 | | 13 | | 13 | | | 16 | | | 37 | | | 48% |
| | | | | | | | | | | | | | | |
Total Internet Services, Licensing & Other | | 49 | | 37 | | 36 | | | 39 | | | 60 | | | 22% |
| | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP Net Revenue | | 1,281 | | 613 | | 431 | | | 936 | | | 1,734 | | | 35% |
Change in Deferred Net Revenue
(Packaged Goods and Digital Content) (a) | | | | | | | | | | | | | | | |
PlayStation 2 | | | | | | (8 | ) | | (131 | ) | | (23 | ) | | |
PLAYSTATION 3 | | | | | | (7 | ) | | (81 | ) | | (94 | ) | | |
Wii | | | | | | — | | | (24 | ) | | (17 | ) | | |
PC | | | | | | (7 | ) | | (37 | ) | | (5 | ) | | |
PSP | | | | | | (9 | ) | | (22 | ) | | (37 | ) | | |
Cellular Handsets | | | | | | (1 | ) | | — | | | — | | | |
Co-publishing and Distribution | | | | | | — | | | 1 | | | (52 | ) | | |
Licensing, Advertising & Other | | | | | | (4 | ) | | (2 | ) | | (3 | ) | | |
| | | | | | | | | | | | | | | |
Change in Deferred Net Revenue
(Packaged Goods and Digital Content)(a) | | | | | | (36 | ) | | (296 | ) | | (231 | ) | | |
| | | | | | | | | | | | | | | |
| | | | | | |
GAAP Net Revenue | | | | | | 395 | | | 640 | | | 1,503 | | | |
| | | | | | | | | | | | | | | |
| | | | | | |
PLATFORM NON-GAAP NET REVENUE MIX -
as a % of Non-GAAP Net Revenue | | | | | | | | | | | | | | | |
PlayStation 2 | | 31% | | 19% | | 16% | | | 22% | | | 19% | | | |
PLAYSTATION 3 | | 3% | | 9% | | 5% | | | 11% | | | 11% | | | |
Xbox 360 | | 13% | | 13% | | 11% | | | 23% | | | 11% | | | |
Wii | | 2% | | 6% | | 7% | | | 9% | | | 9% | | | |
Xbox | | 5% | | 1% | | 1% | | | 1% | | | — | | | |
Nintendo GameCube | | 3% | | 1% | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | |
Total Consoles | | 57% | | 49% | | 40% | | | 66% | | | 50% | | | |
| | | | | | |
PC | | 17% | | 21% | | 22% | | | 12% | | | 9% | | | |
| | | | | | |
Nintendo DS | | 4% | | 5% | | 6% | | | 5% | | | 7% | | | |
PSP | | 9% | | 6% | | 7% | | | 5% | | | 7% | | | |
Cellular Handsets | | 3% | | 6% | | 8% | | | 4% | | | 2% | | | |
Game Boy Advance | | 2% | | — | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | |
Total Mobility | | 18% | | 17% | | 21% | | | 14% | | | 16% | | | |
| | | | | | |
Co-publishing and Distribution | | 4% | | 7% | | 9% | | | 4% | | | 22% | | | |
Subscription Services | | 2% | | 4% | | 5% | | | 2% | | | 1% | | | |
Licensing, Advertising & Other | | 2% | | 2% | | 3% | | | 2% | | | 2% | | | |
| | | | | | | | | | | | | | | |
Total Internet Services, Licensing & Other | | 4% | | 6% | | 8% | | | 4% | | | 3% | | | |
| | | | | | | | | | | | | | | |
| | | | | | |
Non-GAAP Net Revenue | | 100% | | 100% | | 100% | | | 100% | | | 100% | | | |
| | | | | | | | | | | | | | | |
(a) | Prior to fiscal 2008, the change in deferred net revenue (packaged goods and digital content) did not have a material impact on the Company’s net revenue. Accordingly, the Company has not revised its fiscal 2007 non-GAAP financial measures to exclude the impact of the change in deferred net revenue (packaged goods and digital content). |
