Statement Of Financial Position
Statement Of Financial Position Classified (USD $) | |||||||||||||||||||
In Millions | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Mar. 31, 2009 | |||||||||||||||||
Current assets: | |||||||||||||||||||
Cash and cash equivalents | $1,205 | $1,621 | [1] | ||||||||||||||||
Short-term investments | 634 | 534 | [1] | ||||||||||||||||
Marketable equity securities | 440 | 365 | [1] | ||||||||||||||||
Receivables, net of allowances of $190 and $217, respectively | 375 | 116 | [1] | ||||||||||||||||
Inventories | 215 | 217 | [1] | ||||||||||||||||
Deferred income taxes, net | 56 | 51 | [1] | ||||||||||||||||
Other current assets | 251 | 216 | [1] | ||||||||||||||||
Total current assets | 3,176 | 3,120 | [1] | ||||||||||||||||
Property and equipment, net | 341 | 354 | [1] | ||||||||||||||||
Goodwill | 814 | 807 | [1] | ||||||||||||||||
Acquisition-related intangibles, net | 208 | 221 | [1] | ||||||||||||||||
Deferred income taxes, net | 67 | 61 | [1] | ||||||||||||||||
Other assets | 116 | 115 | [1] | ||||||||||||||||
TOTAL ASSETS | 4,722 | 4,678 | [1] | ||||||||||||||||
Current liabilities: | |||||||||||||||||||
Accounts payable | 166 | 152 | [1] | ||||||||||||||||
Accrued and other current liabilities | 661 | 723 | [1] | ||||||||||||||||
Deferred net revenue (packaged goods and digital content) | 433 | 261 | [1] | ||||||||||||||||
Total current liabilities | 1,260 | 1,136 | [1] | ||||||||||||||||
Income tax obligations | 315 | 268 | [1] | ||||||||||||||||
Deferred income taxes, net | 40 | 42 | [1] | ||||||||||||||||
Other liabilities | 106 | 98 | [1] | ||||||||||||||||
Total liabilities | 1,721 | 1,544 | [1] | ||||||||||||||||
Commitments and contingencies (See Note 11) | - | - | [1] | ||||||||||||||||
Stockholders' equity: | |||||||||||||||||||
Preferred stock, $0.01 par value. 10 shares authorized | 0 | 0 | [1] | ||||||||||||||||
Common stock, $0.01 par value. 1,000 shares authorized; 323 shares issued and outstanding | 3 | 3 | [1] | ||||||||||||||||
Paid-in capital | 2,118 | 2,142 | [1] | ||||||||||||||||
Retained earnings | 566 | 800 | [1] | ||||||||||||||||
Accumulated other comprehensive income | 314 | 189 | [1] | ||||||||||||||||
Total stockholders' equity | 3,001 | 3,134 | [1] | ||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $4,722 | $4,678 | [1] | ||||||||||||||||
[1]Derived from audited consolidated financial statements. |
1_Statement Of Financial Positi
Statement Of Financial Position Classified (Parenthetical) (USD $) | |||||||||||||||||||
In Millions, except Per Share data | Jun. 30, 2009
| Mar. 31, 2009
| |||||||||||||||||
Receivables, allowances | $190 | $217 | [1] | ||||||||||||||||
Preferred stock, par value | 0.01 | 0.01 | [1] | ||||||||||||||||
Preferred stock, shares authorized | 10 | 10 | [1] | ||||||||||||||||
Common stock, par value | 0.01 | 0.01 | [1] | ||||||||||||||||
Common stock, shares authorized | 1,000 | 1,000 | [1] | ||||||||||||||||
Common stock, shares issued | 323 | 323 | [1] | ||||||||||||||||
Common stock, shares outstanding | 323 | 323 | [1] | ||||||||||||||||
[1]Derived from audited consolidated financial statements. |
Statement Of Income
Statement Of Income (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 |
Net revenue | $644 | $804 |
Cost of goods sold | 321 | 296 |
Gross profit | 323 | 508 |
Operating expenses: | ||
Marketing and sales | 164 | 128 |
General and administrative | 66 | 84 |
Research and development | 312 | 356 |
Acquired in-process technology | 0 | 2 |
Amortization of intangibles | 12 | 15 |
Restructuring charges | 14 | 20 |
Total operating expenses | 568 | 605 |
Operating loss | (245) | (97) |
Losses on strategic investments | (16) | (6) |
Interest and other income, net | 3 | 15 |
Loss before provision for (benefit from) income taxes | (258) | (88) |
Provision for (benefit from) income taxes | (24) | 7 |
Net loss | ($234) | ($95) |
Net loss per share: | ||
Basic and Diluted | -0.72 | -0.3 |
Number of shares used in computation: | ||
Basic and Diluted | 323 | 318 |
Statement Of Cash Flows Indirec
Statement Of Cash Flows Indirect (USD $) | |||||||||||||||||||
In Millions | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | |||||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||||
Net loss | ($234) | ($95) | |||||||||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||||
Acquired in-process technology | 0 | 2 | |||||||||||||||||
Depreciation, amortization and accretion, net | 48 | 50 | |||||||||||||||||
Net losses on investments and sale of property and equipment | 15 | 6 | |||||||||||||||||
Non-cash restructuring charges | 7 | 16 | |||||||||||||||||
Stock-based compensation | 33 | 50 | |||||||||||||||||
Change in assets and liabilities: | |||||||||||||||||||
Receivables, net | (252) | 38 | |||||||||||||||||
Inventories | 4 | (56) | |||||||||||||||||
Other assets | (35) | (7) | |||||||||||||||||
Accounts payable | 8 | (33) | |||||||||||||||||
Accrued and other liabilities | (82) | (41) | |||||||||||||||||
Deferred income taxes, net | (12) | (26) | |||||||||||||||||
Deferred net revenue (packaged goods and digital content) | 172 | (195) | |||||||||||||||||
Net cash used in operating activities | (328) | (291) | |||||||||||||||||
INVESTING ACTIVITIES | |||||||||||||||||||
Capital expenditures | (8) | (31) | |||||||||||||||||
Proceeds from maturities and sales of short-term investments | 168 | 135 | |||||||||||||||||
Purchase of short-term investments | (269) | (158) | |||||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (3) | (42) | |||||||||||||||||
Net cash used in investing activities | (112) | (96) | |||||||||||||||||
FINANCING ACTIVITIES | |||||||||||||||||||
Proceeds from issuance of common stock | 3 | 25 | |||||||||||||||||
Excess tax benefit from stock-based compensation | 0 | 9 | |||||||||||||||||
Net cash provided by financing activities | 3 | 34 | |||||||||||||||||
Effect of foreign exchange on cash and cash equivalents | 21 | (1) | |||||||||||||||||
Decrease in cash and cash equivalents | (416) | (354) | |||||||||||||||||
Beginning cash and cash equivalents | 1,621 | [1] | 1,553 | ||||||||||||||||
Ending cash and cash equivalents | 1,205 | 1,199 | |||||||||||||||||
Short-term investments | 634 | 748 | |||||||||||||||||
Ending cash, cash equivalents and short-term investments | 1,839 | 1,947 | |||||||||||||||||
Supplemental cash flow information: | |||||||||||||||||||
Net cash paid (refunded) during the period for income taxes | (2) | 6 | |||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||
Change in unrealized gains (losses) on investments, net | $77 | ($5) | |||||||||||||||||
[1]Derived from audited consolidated financial statements. |
Notes to Financial Statements
Notes to Financial Statements | |
3 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Financial Statements [Abstract] | |
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | (1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION We develop, market, publish and distribute video game software and content that can be played by consumers on a variety of platforms, including video game consoles (such as the PLAYSTATION 3, Microsoft Xbox 360 and Nintendo Wii), personal computers, handheld game players (such as the PlayStation Portable (PSP) and the Nintendo DS) and wireless devices (such as cellular phones and smart phones including the Apple iPhone). Some of our games are based on content that we license from others (e.g., Madden NFL Football, Harry Potter and FIFA Soccer), and some of our games are based on our own wholly-owned intellectual property (e.g., The Sims, Need for Speed, Dead Space and Pogo). Our goal is to publish titles with global mass-market appeal, which often means translating and localizing them for sale in non-English speaking countries. In addition, we also attempt to create software game franchises that allow us to publish new titles on a recurring basis that are based on the same property. Examples of this franchise approach are the annual iterations of our sports-based products (e.g., Madden NFL Football, NCAA Football and FIFA Soccer), wholly-owned properties that can be successfully sequeled (e.g., The Sims, Need for Speed and Battlefield) and titles based on long-lived literary and/or movie properties (e.g., The Godfather and Harry Potter). Our fiscal year is reported on a 52 or 53-week period that ends on the Saturday nearest March31. Our results of operations for the fiscal years ending or ended, as the case may be, March31, 2010 and 2009 contain 53 and 52 weeks, respectively, and end on April3, 2010 and March28, 2009, respectively. Our results of operations for the three months ended June30, 2009 and 2008 contain 14 and 13 weeks, respectively, and ended on July4, 2009 and June28, 2008, respectively. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end. The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals unless otherwise indicated) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period. Certain reclassifications have been made to the 2009 financial information to conform to the 2010 presentation. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March31, 2009, as filed with the United States Securities and Exchange Commission (SEC) on May22, 2009. |
(2) FAIR VALUE MEASUREMENTS | (2) FAIR VALUE MEASUREMENTS On April1, 2009, we adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) Financial Accounting Standard (FAS) 157-2, Effective Date of FASB Statement No.157, as it applies to nonfinancial assets and nonfinancial liabilities. These nonfinancial items include assets and liabilities such as a reporting unit measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis. Assets and Liabilities Measured at Fair Value on a Recurring Basis Our money market funds, available-for-sale fixed income and equity securities, deferred compensation plan assets and foreign currency derivatives are measured and recorded at fair value on a recurring basis. Our Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. Our Level 2 financial instruments, including derivative instruments, are valued using quoted prices for identical instruments in less active markets or using other observable market inputs for comparable instruments. As of June30, 2009 and March31, 2009, we did not have any Level3 financial instruments that were measured and recorded at fair value on a recurring basis. As of June30, 2009 and March31, 2009, our financial assets and liabilities that are measured and recorded at fair value on a recurring basis were as follows (in millions): FairValueMeasurementsatReportingDateUsing QuotedPricesin Active Markets for Identical Financial Instruments Significant Other Observable Inputs Significant Unobservable Inputs Balance Sheet Classification As of June 30, 2009 (Level 1) (Level 2) (Level 3) Assets Money market funds $ 723 $ 723 $ $ Cash equivalents U.S. Treasury securities 203 203 Short-term investments and cash equivalents Corporate bonds 181 181 Short-term investments and cash equivalents U.S. agency securities 165 165 Short-term investments and cash equivalents Commercial paper 92 92 Short-term investments and cash equivalents Asset-backed securities 7 7 Short-term investments Available-for-sale equity securities 440 440 Marketable equity securities Deferred compensation plan assets (a) 11 11 Other assets Foreign currency derivatives 1 1 Other current assets Total assets at fair value $ 1,823 $ 1,377 $ 446 $ As of March31, 2009 (Level 1) (Level 2) (Level 3) Balance Sheet Classification Assets Money market funds $ 1,069 $ 1,069 $ $ Cash equivalents U.S. Treasury securities 212 212 Short-term investments and cash equivalents Corporate bonds 133 |
(3) FINANCIAL INSTRUMENTS | (3) FINANCIAL INSTRUMENTS On April1, 2009, we adopted FSP FAS 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments, which requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies. See Note 2 for information on the methods and assumptions used to estimate the fair value of our financial instruments. Cash, Cash Equivalents, Short-Term Investments and Foreign Currency Option Contracts Cash, cash equivalents and short-term investments consisted of the following as of June30, 2009 and March31, 2009 (in millions): As of June30, 2009 As of March31, 2009 Cost or Amortized Cost GrossUnrealized Fair Value Cost or Amortized Cost GrossUnrealized Fair Value Gains Losses Gains Losses Cash and cash equivalents: Cash $ 468 $ $ $ 468 $ 490 $ $ $ 490 Money market funds 723 723 1,069 1,069 U.S. agency securities 11 11 9 9 Commercial paper 1 1 39 39 U.S. Treasury securities 1 1 12 12 Corporate bonds 1 1 2 2 Cash and cash equivalents 1,205 1,205 1,621 1,621 Short-term investments: U.S. Treasury securities 201 1 202 198 2 200 Corporate bonds 178 2 180 130 1 131 U.S. agency securities 153 1 154 108 1 109 Commercial paper 91 91 79 79 Asset-backed securities 7 7 15 15 Short-term investments 630 4 634 530 4 534 Cash, cash equivalents and short-term investments $ 1,835 $ 4 $ $ 1,839 $ 2,151 $ 4 $ $ 2,155 As of June30, 2009 and March31, 2009, we had less than $1 million in each period in gross unrealized losses primarily attributable to our corporate bonds and U.S. Treasury securities. As of June30, 2009 and March31, 2009, these gross unrealized losses were primarily in loss positions for less than 12 months. We evaluate our investments for impairment quarterly. Factors considered in the review of investments with an unrealized loss include the credit quality of the issuer, the duration that the fair value has been less than the cost basis, severity of the impairment, reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the investees, our intent and ability to hold the investments for a period of a time sufficient to allow for any anticipated recovery in market value, as well a |
(4) DERIVATIVE FINANCIAL INSTRUMENTS | (4) DERIVATIVE FINANCIAL INSTRUMENTS We account for our derivative and hedging activities under SFAS No.133, Accounting for Derivative Instruments and Hedging Activities. The assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets or accrued and other current liabilities, respectively, in our Condensed Consolidated Balance Sheets. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. We transact business in various foreign currencies and have significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency option contracts, generally with maturities of 15months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in certain foreign currencies. In addition, we utilize foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign-currency-denominated assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts generally have a contractual term of approximately three months or less and are transacted near month-end. At each quarter end, the fair value of the foreign currency forward contracts generally is not significant. We do not use foreign currency option or foreign currency forward contracts for speculative or trading purposes. The information on the location and amounts of our derivative instruments that were reported at fair value in our Condensed Consolidated Balance Sheets as of June30, 2009 and March31, 2009 is as follows (in millions): DerivativeAssetsReportedin Other Current Assets (a) Asof June30, 2009 As of March31, 2009 Foreign currency option contracts designated as hedging instruments under SFAS No.133 (b) $ 1 $ 2 (a) As of June30, 2009 and March31, 2009, the fair value of our foreign currency forward contracts not designated as hedging instruments under SFAS No.133 was immaterial and was reported in other current assets and accrued and other current liabilities, respectively, on our Condensed Consolidated Balance Sheets. (b) See Note 2 for information on our valuation techniques used to estimate the fair value of our derivative instruments and see Note 13 for the net-of-tax amounts of our unrealized gains (losses) on foreign currency option contracts. Cash Flow Hedging Activities Our foreign currency option contracts are designated and qualify as cash flow hedges under SFAS No.133. The effectiveness of the cash flow hedge contracts, including time value, is assessed monthly using regression, as well as other timing and probability criteria required by SFAS No.133. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion |
(5) BUSINESS COMBINATIONS | (5) BUSINESS COMBINATIONS On April1, 2009, we adopted SFAS No.141 (revised 2007) (SFAS No.141(R)), Business Combinations, which requires the recognition of assets acquired, liabilities assumed, and any noncontrolling interest in an acquiree at the acquisition date based on their fair value with limited exceptions. SFAS No.141(R) changes the accounting treatment for certain specific items and includes a substantial number of new disclosure requirements. The adoption of SFAS No.141(R) did not have a significant impact on our Condensed Consolidated Financial Statements for the three months ended June30, 2009. |
(6) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET | (6) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET The changes in the carrying amount of goodwill are as follows (in millions): As of March31, 2009 Goodwill Acquired Effects of Foreign Currency Translation As of June30, 2009 Label Segment $ 667 $ $ 5 $ 672 EA Mobile Segment 140 2 142 Total $ 807 $ 2 $ 5 $ 814 Acquisition-related intangibles, net, consist of the following (in millions): As of June30, 2009 As of March31, 2009 Gross Carrying Amount Accumulated Amortization Other Intangibles, Net Gross Carrying Amount Accumulated Amortization Other Intangibles, Net Developed and Core Technology $ 249 $ (132 ) $ 117 $ 249 $ (128 ) $ 121 Trade Name 87 (50 ) 37 86 (43 ) 43 Carrier Contracts and Related 85 (52 ) 33 85 (51 ) 34 Subscribers and Other Intangibles 52 (31 ) 21 51 (28 ) 23 Total $ 473 $ (265 ) $ 208 $ 471 $ (250 ) $ 221 Amortization of intangibles for the three months ended June30, 2009 and 2008 was $15 million (of which $3 million was recognized as cost of goods sold) and $18 million (of which $3 million was recognized as cost of goods sold), respectively. Finite-lived intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the term of the related agreement, typically from two to fifteen years. As of June30, 2009 and March31, 2009, the weighted-average remaining useful life for finite-lived intangible assets was approximately 5.8 years and 6.0 years, respectively. As of June30, 2009, future amortization of finite-lived intangibles that will be recorded in cost of goods sold and operating expenses is estimated as follows (in millions): Fiscal Year Ending March31, 2010 (remaining nine months) $ 42 2011 52 2012 36 2013 21 2014 14 Thereafter 43 Total $ 208 |
(7) RESTRUCTURING CHARGES | (7) RESTRUCTURING CHARGES Restructuring information as of June30, 2009 was as follows (in millions): Fiscal 2009 Restructuring Fiscal 2008 Reorganization Other Restructurings Workforce Facilities- related Other Workforce Facilities- related Other Workforce Facilities- related Other Total Balances as of March31, 2008 $ $ $ $ 1 $ $ 4 $ $ 9 $ $ 14 Charges to operations 32 7 2 22 12 4 1 80 Charges settled in cash (24 ) (1 ) (1 ) (13 ) (4 ) (3 ) (46 ) Charges settled in non-cash (1 ) (2 ) (22 ) (25 ) Balances as of March31, 2009 8 5 3 7 23 Charges to operations 9 3 2 14 Charges settled in cash (4 ) (2 ) (6 ) Charges settled in non-cash (4 ) (3 ) (7 ) Accrual reclassification (7 ) (7 ) Balances as of June30, 2009 $ 4 $ 10 $ $ $ $ 3 $ $ $ $ 17 Fiscal 2009 Restructuring In fiscal year 2009, we announced details of a cost reduction plan as a result of our performance combined with the current economic environment. This plan includes a narrowing of our product portfolio, a reduction in our worldwide workforce of approximately 11percent, or 1,100 employees, the closure of 10 facilities, and reductions in other variable costs and capital expenditures. Since the inception of the fiscal 2009 restructuring plan through June30, 2009, we have incurred charges of $50 million, of which (1)$32 million were for employee-related expenses, (2)$16 million related to the closure of certain of our facilities, and (3)$2million related to asset impairments. The restructuring accrual of $14 million as of June30, 2009 related to our fiscal 2009 restructuring is expected to be settled by September 2016. This accrual is included in other accrued expenses presented in Note 9 of the Notes to Condensed Consolidated Financial Statements. During the remainder of fiscal year 2010, we anticipate incurring between $5 million and $10 million of restructuring charges related to the fiscal 2009 restructuring. Overall, including charges incurred through June30, 2009, we expect to incur total cash and non-cash charges between $55 million and $60 million by March 2010. These charges will consist primarily of employee-related costs (approximately $35 million), facility exit costs (approximately $20 million), as well as other costs including asset impairment costs (approximately $2 million). |
(8) ROYALTIES AND LICENSES | (8) ROYALTIES AND LICENSES Our royalty expenses consist of payments to (1)content licensors, (2)independent software developers, and (3)co-publishing and distribution affiliates. License royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related to our games. Co-publishing and distribution royalties are payments made to third parties for the delivery of product. Royalty-based obligations with content licensors and distribution affiliates are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations are generally expensed to cost of goods sold generally at the greater of the contractual rate or an effective royalty rate based on the total projected net revenue. Prepayments made to thinly capitalized independent software developers and co-publishing affiliates are generally in connection with the development of a particular product and, therefore, we are generally subject to development risk prior to the release of the product. Accordingly, payments that are due prior to completion of a product are generally expensed to research and development over the development period as the services are incurred. Payments due after completion of the product (primarily royalty-based in nature) are generally expensed as cost of goods sold. Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract. Royalty liabilities are classified as current liabilities to the extent such royalty obligations are contractually due within the next twelve months. As of June30, 2009 and March31, 2009, approximately $41 million and $37million, respectively, of minimum guaranteed royalty obligations had been recognized and are included in the royalty-related assets and liabilities tables below. Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product sales. Any impairments or losses determined before the launch of a product are charged to research and development expense. Impairments or losses determined post-launch are charged to cost of goods sold. We evaluate long-lived royalty-based assets for impairment based on the provisions of SFAS No.144 (i.e., on an undiscounted cash flow basis when impairment indicators exist). Unrecognized minimum royalty-based commitments are accounted for as executory contracts and, therefore, any losses on these commitments are recognize |
(9) BALANCE SHEET DETAILS | (9) BALANCE SHEET DETAILS Inventories Inventories as of June30, 2009 and March31, 2009 consisted of (in millions): As of June30, 2009 As of March31, 2009 Raw materials and work in process $ 10 $ 7 In-transit inventory 13 9 Finished goods 192 201 Inventories $ 215 $ 217 Property and Equipment, Net Property and equipment, net, as of June30, 2009 and March31, 2009 consisted of (in millions): As of June30, 2009 As of March31, 2009 Computer equipment and software $ 684 $ 663 Buildings 151 143 Leasehold improvements 121 125 Office equipment, furniture and fixtures 67 63 Land 11 11 Warehouse equipment and other 14 14 Construction in progress 19 16 1,067 1,035 Less accumulated depreciation (726 ) (681 ) Property and equipment, net $ 341 $ 354 Depreciation expense associated with property and equipment amounted to $32 million and $31 million for the three months ended June30, 2009 and 2008, respectively. Accrued and Other Current Liabilities Accrued and other current liabilities as of June30, 2009 and March31, 2009 consisted of (in millions): As of June30, 2009 As of March31, 2009 Other accrued expenses $ 241 $ 237 Accrued royalties 219 237 Deferred net revenue (other) 103 107 Accrued compensation and benefits 98 142 Accrued and other current liabilities $ 661 $ 723 Deferred net revenue (other) includes the deferral of subscription revenue, deferrals related to our Switzerland distribution business, advertising revenue, licensing arrangements and other revenue for which revenue recognition criteria has not been met. Deferred Net Revenue (Packaged Goods and Digital Content) Deferred net revenue (packaged goods and digital content) was $433 million as of June30, 2009 and $261 million as of March31, 2009. Deferred net revenue (packaged goods and digital content) includes the deferral of (1)the total net revenue from bundle sales of certain online-enabled packaged goods and digital content for which either we do not have vendor-specific objective evidence of fair value (VSOE) for the online service that we provide in connection with the sale of the software or we have an obligation to provide future incremental unspecified digital content, (2)revenue from certain packaged goods sales of massively-multiplayer online role-playing games, and (3)revenue from the sale of certain incremental content associated with our core subscription services that can only be played online, which are types of micro-transactions. We recognize revenue from sales of online-enabled packaged goods and digital content for which we do not have VSOE for the online service that we provided in connection with the sale and the obligation we had to deliver incremental unspecified digital content in the future without an additional fee on a straight-line ba |
(10) INCOME TAXES | (10) INCOME TAXES In accordance with APB No.28, Interim Financial Reporting, as amended, we are required to estimate our annual effective tax rate at the end of each quarterly period. We are also required to record the tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections. We account for income taxes under SFAS No.109, which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement amount and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. SFAS No.109 additionally requires that a valuation allowance must be established against deferred tax assets when, for purposes of SFAS No.109, it is considered more likely than not that all or a portion of deferred tax assets will not be realized. In making this determination, we are required under SFAS No.109 to give significant weight to evidence that can be objectively verified. SFAS No.109 provides that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results, particularly in light of the recent deterioration of the economic environment. Therefore, cumulative losses weigh heavily in the overall assessment. Based on the assumptions and requirements noted above, we have recorded a valuation allowance against most of our U.S. deferred tax assets. In addition, we expect to provide a valuation allowance on future U.S. tax benefits until we can sustain a level of profitability or until other significant positive evidence arises that suggest that these benefits are more likely than not to be realized. In determining the valuation allowance we recorded at June30, 2009, we did not include as a source of future taxable income the taxable temporary difference related to the accumulated tax depreciation on our headquarters facilities in Redwood City, California. These facilities were subject to leases which expired in July 2009, and had been accounted for as operating leases in accordance with SFAS No.13, Accounting for Leases, as amended. On July13, 2009, we purchased the facilities concurrent with the expiration and extinguishment of the lessors financing agreements. The aggregate purchase price of the facilities was approximately $247 million. As a result, we will be able to include a significant portion of the related temporary difference as a source of future taxable income in determining our valuation allowance, and therefore anticipate recording a reduct |
(11) COMMITMENTS AND CONTINGENCIES | (11) COMMITMENTS AND CONTINGENCIES Lease Commitments and Residual Value Guarantees As of June30, 2009, we leased certain of our current facilities, furniture and equipment under non-cancelable operating lease agreements. We were required to pay property taxes, insurance and normal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities. In February 1995, we entered into a build-to-suit lease (Phase One Lease) with a term expiring in January 2039 for our headquarters facilities in Redwood City, California (Phase One Facilities). The Phase One Facilities comprise a total of approximately 350,000 square feet and provide space for sales, marketing, administration and research and development functions. The lessor extended its loan financing underlying the Phase One Lease with its lenders on several occasions, whereby the financing was extended through July 2009. Upon the expiration of the lease financing arrangement, the terms of the Phase One Lease provided for our purchase of the Phase One Facilities for a purchase price of $132 million. In December 2000, we entered into a second build-to-suit lease (Phase Two Lease) for a five and one-half year term to expand our Redwood City, California, headquarters facilities and develop adjacent property (Phase Two Facilities). Construction of the Phase Two Facilities was completed in June 2002. The Phase Two Facilities comprise a total of approximately 310,000 square feet and provide space for sales, marketing, administration and research and development functions. The lessor extended the lease term and its loan financing underlying the Phase Two Lease with its lenders on several occasions, whereby the financing was extended through July 2009. Upon the expiration of the lease financing arrangement, the terms of the Phase Two Lease provided for our purchase of the Phase Two Facilities for a purchase price of $115 million. The two lease agreements described above require us to maintain certain financial covenants. The following table sets forth the financial covenants, all of which we were in compliance with as of June30, 2009. Financial Covenants Requirements for the Quarter Ended June30, 2009 Actual as of June30,2009 Consolidated Net Worth (in millions) equal to or greater than $2,430 $ 3,001 Fixed Charge Coverage Ratio equal to or greater than 1.10:1.00 2.71:1.00 Total Consolidated Debt to Capital equal to or less than 60% 7.6% Quick Ratio equal to or greater than 3.00:1.00 8.97:1.00 On July13, 2009, we purchased the Phase One and Phase Two Facilities concurrent with the expiration and extinguishment of the lessors financing agreements. The aggregate purchase price of the facilities was approximately $247 million. We had accounted for the lease arrangements as operating leases in accordance with SFAS No.13, as amended. Subsequent to our purchase, we will classify the Phase One and Phase Two Facilities on our Condensed Consolidated Balance Sheet as property and equipment, net and will recognize depreciation expense f |
(12) STOCK-BASED COMPENSATION | (12) STOCK-BASED COMPENSATION We are required to estimate the fair value of share-based payment awards on the date of grant. We recognize compensation costs for stock-based payment transactions to employees based on their grant-date fair value over the service period for which such awards are expected to vest. The fair value of restricted stock units is determined based on the quoted price of our common stock on the date of grant. The fair value of stock options and stock purchase rights granted pursuant to our equity incentive plans and our 2000 Employee Stock Purchase Plan (ESPP), respectively, is determined using the Black-Scholes valuation model. The determination of fair value is affected by our stock price, as well as assumptions regarding subjective and complex variables such as expected employee exercise behavior and our expected stock price volatility over the expected term of the award. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes. We estimated the following key assumptions for the Black-Scholes valuation calculation: Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option. Expected volatility. We use a combination of historical stock price volatility and implied volatility computed based on the price of options publicly traded on our common stock for our expected volatility assumption. Expected term. The expected term represents the weighted-average period the stock options are expected to remain outstanding. The expected term is determined based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior. Expected dividends. The assumptions used in the Black-Scholes valuation model to value our option grants were as follows: StockOptionGrants ThreeMonthsEnded June30, 2009 2008 Risk-free interest rate 1.8-3.0% 3.3-3.8% Expected volatility 43-48% 32-34% Weighted-average volatility 46% 33% Expected term 4.1years 4.4years Expected dividends None None There were no ESPP shares valued or issued during the three months ended June30, 2009 and 2008. Employee stock-based compensation expense recognized during the three months ended June30, 2009 and 2008 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. In subsequent periods, if actual forfeitures differ from those estimates, an adjustment to stock-based compensation expense will be recognized at that time. The following table summarizes stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and our ESPP included in our Condensed Consolidated Statements of Operations (in millions): ThreeMonthsEnded June30, 2009 2008 Cost of goods sold $ 1 $ 1 Marketing and sales 3 5 General and administrative 5 10 Research and |
(13) COMPREHENSIVE LOSS | (13) COMPREHENSIVE LOSS We are required to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a balance sheet. Accumulated other comprehensive income primarily includes foreign currency translation adjustments, and the net-of-tax amounts for unrealized gains (losses) on investments and unrealized gains (losses) on derivative instruments designated as cash flow hedges. Foreign currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. The components of comprehensive loss for the three months ended June30, 2009 and 2008 are summarized as follows (in millions): ThreeMonthsEnded June30, 2009 2008 Net loss $ (234 ) $ (95 ) Other comprehensive income: Change in unrealized gains (losses) on investments, net of immaterial taxes 77 (2 ) Reclassification adjustment for losses realized on investments, net of immaterial taxes 15 5 Change in unrealized losses on derivative instruments, net of immaterial taxes (2 ) (1 ) Reclassification adjustment for (gains) losses on derivative instruments, net of immaterial taxes (2 ) 1 Foreign currency translation adjustments 37 Total other comprehensive income 125 3 Total comprehensive loss $ (109 ) $ (92 ) |
(14) NET LOSS PER SHARE | (14) NET LOSS PER SHARE As a result of our net loss for the three months ended June30, 2009 and 2008, we have excluded certain stock awards from the diluted loss per share calculation as their inclusion would have had an antidilutive effect. Had we reported net income for these periods, an additional 1million shares and 7million shares of common stock would have been included in the number of shares used to calculate diluted earnings per share for the three months ended June30, 2009 and 2008, respectively. Options to purchase and restricted stock units to be released in the amount of 38million shares and 19million shares of common stock were excluded from the computation of diluted shares for the three months ended June30, 2009 and 2008, respectively, as their inclusion would have had an antidilutive effect. For the three months ended June30, 2009 and 2008, the weighted-average exercise price of these shares was $36.89 and $53.42 per share, respectively. |
(15) SEGMENT INFORMATION | (15) SEGMENT INFORMATION Our reporting segments are based upon: our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, our Chief Operating Decision Maker (CODM), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Our business is currently organized around three operating labels, EA Games, EA SPORTS and EA Play, as well as EA Interactive, which reports into our Publishing business. In addition, our CODM regularly receives separate financial information for two distinct businesses within the EA Interactive organization: EA Mobile and Pogo. Accordingly, in assessing performance and allocating resources, our CODM reviews the results of our three Labels, as well as the two operating segments in EA Interactive: EA Mobile and Pogo. Due to their similar economic characteristics, products and distribution methods, EA Games, EA SPORTS, EA Play and Pogos results are aggregated into one Reportable Segment (the Label segment) as shown below. The remaining operating segments results are not material for separate disclosure and are included in the reconciliation of Label segment profit (loss) to consolidated operating loss below. In addition to assessing performance and allocating resources based on our operating segments as described herein, to a lesser degree, our CODM also continues to review results based on geographic performance. The following table summarizes the financial performance of the Label segment and a reconciliation of the Label segments profit (loss) to our consolidated operating loss for the three months ended June30, 2009 and 2008 (in millions): ThreeMonthsEnded June30, 2009 2008 Label segment: Net revenue $ 739 $ 538 Depreciation and amortization (15 ) (18 ) Other expenses (637 ) (580 ) Label segment profit (loss) 87 (60 ) Reconciliation to consolidated operating loss: Other: Change in deferred net revenue (packaged goods and digital content) (172 ) 195 Other net revenue 77 71 Depreciation and amortization (32 ) (31 ) Other expenses (205 ) (272 ) Consolidated operating loss $ (245 ) $ (97 ) Label segment profit (loss) differs from the consolidated operating loss primarily due to the exclusion of (1)certain corporate and other functional costs that are not allocated to the Labels, (2)the deferral of certain net revenue related to online-enabled packaged goods and digital content (see Note 9 of the Notes to Condensed Consolidated Financial Statements), and (3)the results of EA Mobile. Our CODM reviews assets on a consolidated basis and not on a segment basis. Information about our total net revenue by platform for the three months ended June30, 2009 and 2008 is presented below (inmillions): ThreeMonthsEnded June30, 2009 2008 Consoles Wii $ 161 $ 109 PLAYSTATION 3 121 |
(16) COLLABORATIVE ARRANGEMENTS | (16) COLLABORATIVE ARRANGEMENTS On April1, 2009, we adopted Emerging Issues Task Force (EITF) 07-01, Accounting for Collaborative Arrangements. EITF 07-01 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The adoption of EITF 07-01 did not have a significant impact on our Condensed Consolidated Financial Statements for the three months ended June30, 2009 and 2008. |
(17) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS | (17) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 2009, the FASB issued SFAS No.167, Amendments to FASB Interpretation No.46(R). SFAS No.167 amends the consolidation guidance for variable interest entities under FASB Interpretation No.46 (revised December 2003), Consolidation of Variable Interest Entities, and requires additional disclosures about a companys involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS No.167 is effective for fiscal years beginning after November15, 2009. We do not expect the adoption of SFAS No.167 to have a material impact on our Condensed Consolidated Financial Statements. In June 2009, the FASB issued SFAS No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. SFAS No.168 replaces SFAS No.162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification as the source of authoritative United States generally accepted accounting principles recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission under authority of federal securities laws are also sources of authoritative generally accepted accounting principles for SEC registrants. On the effective date of SFAS No.168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. SFAS No.168 is effective for financial statements issued for interim and annual reporting periods ending after September15, 2009. The adoption of SFAS No.168 will not have an impact on our Condensed Consolidated Financial Statements. |
(18) SUBSEQUENT EVENTS | (18) SUBSEQUENT EVENTS We have evaluated our Condensed Consolidated Financial Statements for subsequent events through the date of this report, which represents the issuance date of this Form 10-Q. |
Document Information
Document Information | |
3 Months Ended
Jun. 30, 2009 USD / shares | |
Document Information [Text Block] | |
Document Type | 10-Q |
Amendment Flag | false |
Amendment Description | N.A. |
Document Period End Date | 2009-06-30 |
Entity Information
Entity Information (USD $) | |||
3 Months Ended
Jun. 30, 2009 | Aug. 06, 2009
| Sep. 26, 2008
| |
Entity [Text Block] | |||
Trading Symbol | ERTS | ||
Entity Registrant Name | ELECTRONIC ARTS INC. | ||
Entity Central Index Key | 0000712515 | ||
Current Fiscal Year End Date | --03-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Common Stock, Shares Outstanding | 323,522,559 | ||
Entity Public Float | $12,659,469,000 |