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February 1, 2012

Electronic Arts Reports Q3 FY12 Financial Results

Q3 Non-GAAP Revenue and EPS Ahead of Expectations

Highest Operating Cash Flow in 31 Quarters

More Than $1 Billion in Non-GAAP Digital Revenue in Calendar Year 2011

Battlefield 3 and FIFA 12 Each Sells-Through Over 10 Million Units

Origin Generates $100 Million in Calendar Year 2011

Star Wars: The Old Republic Has More Than 1.7 Million Active Subscribers

REDWOOD CITY, Calif.--(BUSINESS WIRE)-- Electronic Arts Inc. (NASDAQ:EA) today announced preliminary financial results for its third fiscal quarter ended December 31, 2011.

"We are pleased to report a strong holiday quarter driven by Battlefield 3, FIFA12 and a strong showing by our digital games and services," said Chief Executive Officer John Riccitiello. "Star Wars: The Old Republic is developing a committed community of players with more than 1.7 million active subscribers and growing."

"We recorded our highest operating cash flow in 31 quarters and grew segment share in both Europe and North America," said Eric Brown, Chief Financial Officer. "Third quarter non-GAAP digital revenue grew 79% year-over year, and we achieved our goal of generating over $1 billion in non-GAAP digital revenue on a trailing-twelve-month basis."

Selected Operating Highlights and Metrics:

  • Star Wars®: The Old Republic™ has generated 1.7 million active subscribers and sold through more than 2 million units in a little over one month.
  • Battlefield 3™ and FIFA 12 each sold through more than 10 million units. Madden NFL 12 has sold through almost 5 million units life-to-date.
  • EA was the number one publisher by segment share in Western markets for the calendar year, where EA segment share grew by 3% to 20% in Europe and by 1% to 17% in North America.
  • PopCap — which joined EA in August has grown revenue by 30 percent on a trailing-twelve-month basis.
  • EA's Playfish social gaming network released Risk™: Factions in partnership with Hasbro.
  • EA was the number one game publisher in the Apple App StoreSM in December. In December, EA's first free-to-play mobile game, The Sims™: FreePlay, reached the number one position on the list of top-grossing iPad® Apps.
  • EA's Nucleus registration system now has a database of more than 168 million consumers.
  • Origin™ — EA's direct-to-consumer digital service has registered more than 9.3 million consumers and generated more than $100 million in non-GAAP revenue since launch. Origin has publishing agreements with Warner Brothers, THQ, CapCom and recently added 11 new publishing partners including Trion and Robot Entertainment.
  • Non-GAAP digital revenue exceeded $1 billion in calendar year 2011 and continues to grow significantly with new subscriptions, micro-transactions and advertising.

Q3 FY12 Financial Highlights:

Non-GAAP net revenue of $1,651 million exceeded our guidance of $1,550 million to $1,650 million. Non-GAAP diluted earnings per share of $0.99 exceeded our guidance of $0.85 to $0.95. Non-GAAP net revenue in Q3 fiscal 2012 was higher as compared to Q3 fiscal 2011 driven by digital growth and by the successful launches of Battlefield 3 and Star Wars: The Old Republic.

 

 

(in millions of $ except per share amounts)

 

Quarter
Ended
12/31/11

 

Quarter
Ended
12/31/10

 
Net Digital Revenue $ 274 $ 195
Net Publishing Packaged Goods and Other Revenue 738 767
Net Distribution Packaged Goods Revenue   49       91  
GAAP Total Net Revenue   1,061       1,053  
 
Non-GAAP Net Digital Revenue $ 377 $ 211
Non-GAAP Net Publishing Packaged Goods and Other Revenue 1,225 1,108

Non-GAAP Net Distribution Packaged Goods Revenue

  49       91  
Non-GAAP Total Net Revenue   1,651       1,410  
 
GAAP Net Loss (205 ) (322 )
Non-GAAP Net Income 334 196
GAAP Diluted Loss Per Share (0.62 ) (0.97 )
Non-GAAP Diluted Earnings Per Share 0.99 0.59
 
Cash Flow from Operations 475 349
 

Trailing Twelve Month (TTM) Financial Highlights:

 

 

(in millions of $ except per share data)

TTM
Ended
12/31/11

TTM
Ended
12/31/10

 
GAAP Net Revenue $ 3,865 $ 3,478
GAAP Net Loss (173 ) (397 )
GAAP Diluted Loss Per Share (0.54 ) (1.20 )
 
Non-GAAP Net Revenue 4,204 3,683
Non-GAAP Net Income 311 173
Non-GAAP Diluted Earnings Per Share 0.92 0.52
 
Cash Flow from Operations 243 320
 

Q3 FY12 Digital Metrics:

 

(in millions)

Quarter
Ended
12/31/11

Quarter
Ended
12/31/10

 
GAAP Net Mobile Revenue

Non-GAAP Net Mobile Revenue

$

70

83

$

59

64

Monthly Active Users (MAU) in Social Games 52 39
Core Registered Users 160 98

Business Outlook as of February 1, 2012

The following forward-looking statements, as well as those made above, reflect expectations as of February 1, 2012. Electronic Arts assumes no obligation to update these statements. Results may be materially different and are affected by many factors, including: product development delays; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; the financial impact of acquisitions by EA; the popular appeal of EA's products; EA's effective tax rate; and other factors detailed in this release and in EA's annual and quarterly SEC filings.

Fourth Quarter Fiscal Year 2012 Expectations — Ending March 31, 2012

  • GAAP net revenue is expected to be approximately $1.425 billion to $1.475 billion.
  • Non-GAAP net revenue is expected to be approximately $925 million to $975 million.
  • GAAP diluted earnings per share is expected to be approximately $1.45 to $1.59.
  • Non-GAAP diluted earnings per share is expected to be approximately $0.10 to $0.20.
  • For purposes of calculating fourth quarter fiscal year 2012 diluted earnings per share, the Company estimates a share count of 338 million.
  • Expected non-GAAP net income excludes the following from expected GAAP net income:

    o Non-GAAP net revenue is expected to be approximately $500 million lower than GAAP net revenue due to the impact of the change in deferred net revenue (packaged goods and digital content);
    o Approximately $45 million of estimated stock-based compensation;
    o Approximately $20 million of acquisition-related expenses;
    o Approximately $2 million of restructuring charges;
    o Approximately $5 million from the amortization of debt discount; and
    o Non-GAAP tax expense is expected to be $28 million to $41 million higher than GAAP tax benefit.

Fiscal Year 2012 Key Titles by Label and Platform

Q1   Games   Alice: Madness Returns(2)   Console       PC
        Portal 2(1)   Console       PC
        Shadows of the Damned(2)   Console        
                     
    Maxis   Darkspore           PC
                     
Q2   Sports   FIFA 12   Console   Handheld/Mobile   PC
        Madden NFL 12   Console   Handheld/Mobile    
        NCAA Football 12   Console        
        NHL 12   Console        
                     
    Maxis   Harry Potter And The Deathly Hallows Part 2   Console   Handheld/Mobile   PC
                     
Q3   Games   Battlefield 3   Console       PC
        Need for Speed The Run   Console   Handheld/Mobile   PC
                     
    Sports   FIFA Manager 12           PC
                     
    Maxis   The Sims 3 Pets   Console   Handheld/Mobile   PC
                     
    EAi   Hasbro Family Game Night 4   Console        
                     
    BioWare   Star Wars: The Old Republic           PC
                     
Q4   Games   Kingdoms of Amalur: Reckoning(2)   Console       PC
        Syndicate(2)   Console       PC
                     
    BioWare   Mass Effect 3   Console   Handheld/Mobile   PC
                     
    Sports   SSX   Console        
        EA SPORTS Grand Slam Tennis 2   Console        
        FIFA Street   Console        
        Tiger Woods PGA TOUR 13   Console        

Note: (1) Distribution Title, (2) Co-Published Title.

This Key Titles Schedule is current as of February 1, 2012 and is subject to change. Electronic Arts assumes no obligation to update this schedule.

Conference Call and Supporting Documents

Electronic Arts will host a conference call on February 1, 2012 at 2:00 pm PT (5:00 pm ET) to review its results for the third quarter ended December 31, 2011 and its outlook for the future. During the course of the call, Electronic Arts may disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: 773-799-3213 (domestic) or 888-677-1083 (international), using the password "EA" or via webcast at http://ir.ea.com.

EA will also post a slide presentation that accompanies the call at http://ir.ea.com.

A dial-in replay of the conference call will be provided until February 15, 2012 at the following number: 203-369-0099 (domestic) or 866-356-3373 (international). A webcast replay of the conference call will be available for one year at http://ir.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, as applicable in a given reporting period, from the Company's unaudited condensed consolidated statements of operations:

  • Acquisition-related expenses
  • Amortization of debt discount
  • Change in deferred net revenue (packaged goods and digital content)
  • Loss on licensed intellectual property commitment
  • Loss (gain) on strategic investments
  • Restructuring charges
  • Stock-based compensation
  • 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:

Acquisition-Related Expenses. GAAP requires expenses to be recognized for various types of events associated with a business acquisition. These events include, expensing acquired intangible assets, including acquired in-process technology, post-closing adjustments associated with changes in the estimated amount of contingent consideration to be paid in an acquisition, and the impairment of accounting goodwill created as a result of an acquisition when future events indicated there has a decline in its value. 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 including the final amounts paid for contingent consideration) without taking into consideration any allocations made for accounting purposes. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both contingent consideration and to the intangible assets (including goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company's management excludes the GAAP impact of any adjustments to the fair value of these acquisition-related balances to its financial results.

Amortization of Debt Discount on the Convertible Senior Notes. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as a debt discount an amount equal to the fair value of the conversion option as interest expense on the Company's $632.5 million of 0.75% convertible senior notes that were issued in a private placement in July 2011 over the term of the notes. Electronic Arts' management will exclude the effect of this amortization when evaluating the Company's operating performance and the performance of its management team during this period and will continue to do so, when it plans, forecasts and analyzes future periods.

Change in Deferred Net Revenue (Packaged Goods and Digital Content). Electronic Arts is not able to objectively determine the fair value of the online service included in certain of its packaged goods and digital content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. In other transactions, at the date we sell the software product we have an obligation to provide incremental unspecified digital content in the future without an additional fee. In these cases, we account for the sale of the software product as a multiple element arrangement and recognize the revenue on a straight-line basis over the estimated period of game play. 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 (1) 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 and (2) understanding our operations because all related costs are expensed as incurred instead of deferred and recognized ratably.

Loss on Licensed Intellectual Property Commitment. During the fourth quarter of fiscal 2009, Electronic Arts amended an agreement with a content licensor. This amendment resulted in the termination of our rights to use the licensor's intellectual property in certain products and we incurred a related estimated loss of $38 million. This significant non-recurring loss is excluded from our non-GAAP financial measures in order to provide comparability between periods. Further, the Company excluded this loss when evaluating its operating performance and the performance of its management team during this period and will continue to do so when it plans, forecasts and analyzes future periods.

Loss (Gain) on Strategic Investments. From time to time, the Company makes strategic investments. Electronic Arts' management excludes the impact of any losses and gains on such investments when evaluating the Company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. In addition, the Company believes that excluding the impact of such losses and gains on these investments from its operating results is important to facilitate comparisons to prior periods.

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. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.

Stock-Based Compensation. 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.

Income Tax Adjustments. The Company uses a fixed, long-term projected tax rate of 28 percent internally to evaluate its operating performance, to forecast, plan and analyze future periods, and to assess the performance of its management team. Accordingly, the Company has applied the same 28 percent tax rate to its non-GAAP financial results.

In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to the historical non-GAAP financial measures used in this press release.

Forward-Looking Statements

Some statements set forth in this release, including the estimates relating to EA's fourth quarter guidance information under the heading "Business Outlook", and the fiscal year 2012 key title slate, 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 preliminary estimates and expectations based on current information and are subject to business and economic 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: sales of the Company's titles; the Company's ability to manage expenses; the competition in the interactive entertainment industry; the effectiveness of the Company's sales and marketing programs; timely development and release of Electronic Arts' products; the Company's ability to realize the anticipated benefits of acquisitions, including the PopCap acquisition; the consumer demand for, and the availability of an adequate supply of console hardware units; the Company's ability to predict consumer preferences among competing platforms; the Company's ability to service and support digital product offerings, including managing online security; general economic conditions; and other factors described in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011.

These forward-looking statements are current as of February 1, 2012. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements. 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, 2011. 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, 2011.

About Electronic Arts

Electronic Arts (NASDAQ:EA) is a global leader in digital interactive entertainment. The Company's game franchises are offered as both packaged goods products and online services delivered through Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 100 million registered players and operates in 75 countries. In fiscal year 2011, EA posted GAAP net revenue of $3.6 billion. Headquartered in Redwood City, California, EA is recognized for critically acclaimed, high-quality blockbuster franchises such as The Sims™, Madden NFL, FIFA Soccer, Need for Speed™, Battlefield, and Mass Effect™. More information about EA is available at http://info.ea.com.

The Sims Social, Need for Speed, The Sims, Pogo, EA SPORTS, Alice: Madness Returns, SSX, Darkspore, Origin and Syndicate are trademarks of Electronic Arts Inc. Mass Effect is a trademark of EA International (Studio and Publishing) Ltd. Battlefield 3 is a trademarks of EA Digital Illusions CE AB. Playfish is a trademark of Electronic Arts Ltd. FAMILY GAME NIGHT is a trademark of Hasbro and used with permission. GRAND SLAM is a registered Trademark jointly owned by Tennis Australia, French Tennis Federation, All England Lawn Tennis Club (AELTC) and the United States Tennis Association. GRAND SLAM is used by EA with the permission of the GSTP. HARRY POTTER characters, names and related indicia are trademarks of and © Warner Bros. Entertainment Inc. STAR WARS and related properties are trademarks in the United States and/or other countries of Lucasfilm Ltd. and/or its affiliates. Shadows of the Damned is a trademark of GRASSHOPPER MANUFACTURE INC. RISK is a trademark of Hasbro and is used with permission. John Madden, NFL, NCAA, NHL, FIFA, Tiger Woods, PGA TOUR are trademarks of their respective owners and used with permission. App Store is at service mark of Apple Inc. iPad is a trademark of Apple Inc., registered in the U.S. and other countries. All other trademarks are the property of their respective owners.

 

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in millions, except per share data)

 
      Three Months Ended   Nine Months Ended
December 31, December 31,
2011   2010 2011   2010
 
Net revenue $ 1,061 $ 1,053 $ 2,775 $ 2,499
Cost of goods sold   552     586     1,224     1,171  
Gross profit 509 467 1,551 1,328
 
Operating expenses:
Marketing and sales 269 253 631 553
General and administrative 98 75 260 226
Research and development 325 273 928 825
Acquisition-related contingent consideration (11 ) 1 8 (25 )
Amortization of intangibles 11 14 37 44
Restructuring and other   -     154     17     162  
Total operating expenses   692     770     1,881     1,785  
 
Operating loss (183 ) (303 ) (330 ) (457 )
 
Gain on strategic investments, net - - - 23
Interest and other income (expense), net   (10 )   -     (13 )   6  
 
Loss before provision for (benefit from) income taxes (193 ) (303 ) (343 ) (428 )
 
Provision for (benefit from) income taxes   12     19     (19 )   (1 )
 
Net loss $ (205 ) $ (322 ) $ (324 ) $ (427 )
 
Loss per share
Basic and Diluted $ (0.62 ) $ (0.97 ) $ (0.98 ) $ (1.29 )
 
Number of shares used in computation
Basic and diluted 332 332 331 330
 
 
Non-GAAP Results (in millions, except per share data)
The following tables reconcile the Company's net loss and loss per share as presented in its Unaudited Condensed Consolidated Statements of Operations and prepared in accordance with Generally Accepted Accounting Principles ("GAAP") to its non-GAAP net income and non-GAAP earnings per share.
 
Three Months Ended Nine Months Ended
December 31, December 31,
2011 2010 2011 2010
 
Net loss $ (205 ) $ (322 ) $ (324 ) $ (427 )
 
Acquisition-related expenses 14 18 70 28
Amortization of debt discount 5 - 9 -
Change in deferred net revenue (packaged goods and digital content) 590 357 434 334
Gain on strategic investments - - - (23 )
Loss on licensed intellectual property commitment (COGS) - - - (1 )
Restructuring and other - 154 17 162
Stock-based compensation 48 46 129 136
Income tax adjustments   (118 )   (57 )   (107 )   (59 )
 
Non-GAAP net income $ 334   $ 196   $ 228   $ 150  
 
Non-GAAP earnings per share
Basic $ 1.01 $ 0.59 $ 0.69 $ 0.45
Diluted $ 0.99 $ 0.59 $ 0.67 $ 0.45
 
Number of shares used in Non-GAAP computation
Basic 332 332 331 330
Diluted 338 335 338 333
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
         
December 31, March 31,
2011

2011 (a)

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,242 $ 1,579
Short-term investments 406 497
Marketable equity securities 143 161
Receivables, net of allowances of $295 and $304, respectively 526 335
Inventories 69 77
Deferred income taxes, net 92 56
Other current assets   328     327  
Total current assets 2,806 3,032
 
Property and equipment, net 547 513
Goodwill 1,716 1,110
Acquisition-related intangibles, net 402 144
Deferred income taxes, net 44 49
Other assets   181     80  
 
TOTAL ASSETS $ 5,696   $ 4,928  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 112 $ 228
Accrued and other current liabilities 846 768
Deferred net revenue (packaged goods and digital content)   1,439     1,005  
Total current liabilities 2,397 2,001
 
0.75% convertible senior notes due 2016, net 534 -
Income tax obligations 183 192
Deferred income taxes, net 82 37
Other liabilities   235     134  
Total liabilities 3,431 2,364
 
Common stock 3 3
Paid-in capital 2,549 2,495
Accumulated deficit (477 ) (153 )
Accumulated other comprehensive income   190     219  
Total stockholders' equity   2,265     2,564  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,696   $ 4,928  
 

(a) Derived from audited consolidated financial statements.

                 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
 
Three Months Ended Nine Months Ended
December 31,   December 31,
2011 2010 2011 2010
 
OPERATING ACTIVITIES
 
Net loss $ (205 ) $ (322 ) $ (324 ) $ (427 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Acquisition-related contingent consideration (11 ) 1 8 (25 )
Depreciation, amortization and accretion, net 54 44 148 138
Net gains on investments and sale of property and equipment - - (12 ) (24 )
Other non-cash restructuring charges (3 ) 2 (3 ) 1
Stock-based compensation 48 48 129 138
Change in assets and liabilities:
Receivables, net 39 57 (176 ) (180 )
Inventories 22 51 11 (4 )
Other assets (18 ) (23 ) (81 ) (9 )
Accounts payable (93 ) (47 ) (150 ) 59
Accrued and other liabilities 48 176 50 34
Deferred income taxes, net 4 5 (44 ) 32
Deferred net revenue (packaged goods and digital content)   590     357     434     334  
Net cash provided by (used in) operating activities   475     349     (10 )   67  
 
INVESTING ACTIVITIES
 
Capital expenditures (44 ) (15 ) (128 ) (38 )
Proceeds from sale of property - - 26 -
Proceeds from sale of marketable equity securities - - - 132
Proceeds from maturities and sales of short-term investments 144 85 463 282
Purchase of short-term investments (195 ) (105 ) (374 ) (367 )
Acquisition of subsidiaries, net of cash acquired   (19 )   (16 )   (676 )   (16 )
Net cash used in investing activities   (114 )   (51 )   (689 )   (7 )
 
FINANCING ACTIVITIES
 
Proceeds from borrowings on convertible senior notes, net of issuance costs - - 617 -
Proceeds from issuance of warrants - - 65 -
Purchase of convertible note hedge - - (107 ) -
Proceeds from issuance of common stock 4 - 39 17
Excess tax benefit from stock-based compensation 1 - 4 -
Repurchase and retirement of common stock   (41 )   -     (230 )   -  
Net cash provided by (used in) financing activities  

(36

)   -     388     17  
 
Effect of foreign exchange on cash and cash equivalents   (13 )   (1 )   (26 )   3  
Increase (decrease) in cash and cash equivalents 312 297 (337 ) 80
Beginning cash and cash equivalents   930     1,056     1,579     1,273  
Ending cash and cash equivalents $ 1,242   $ 1,353   $ 1,242   $ 1,353  
               
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
 
Q3 Q4 Q1 Q2 Q3 YOY %
FY11 FY11 FY12 FY12 FY12 Change
 
QUARTERLY RECONCILIATION OF RESULTS
 
Net Revenue
GAAP net revenue $ 1,053 $ 1,090 $ 999 $ 715 $ 1,061 1 %
Change in deferred net revenue (packaged goods and digital content)   357     (95 )   (475 )   319     590  
Non-GAAP net revenue $ 1,410   $ 995   $ 524   $ 1,034   $ 1,651   17 %
 
Gross Profit
GAAP gross profit $ 467 $ 762 $ 759 $ 283 $ 509 9 %
Acquisition-related expenses 3 3 3 8 14
Change in deferred net revenue (packaged goods and digital content) 357 (95 ) (475 ) 319 590
Stock-based compensation   1     -     1     -     -  
Non-GAAP gross profit $ 828   $ 670   $ 288   $ 610   $ 1,113   34 %
GAAP gross profit % (as a % of GAAP net revenue) 44 % 70 % 76 % 40 % 48 %
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 59 % 67 % 55 % 59 % 67 %
 
Operating Income (Loss)
GAAP operating income (loss) $ (303 ) $ 145 $ 227 $ (374 ) $ (183 ) (40 %)
Acquisition-related expenses 18 24 18 38 14
Change in deferred net revenue (packaged goods and digital content) 357 (95 ) (475 ) 319 590
Restructuring and other 154 (1 ) 18 (1 ) -
Stock-based compensation   46     38     38     43     48  
Non-GAAP operating income (loss) $ 272   $ 111   $ (174 ) $ 25   $ 469   72 %
GAAP operating income (loss) % (as a % of GAAP net revenue) (29 %) 13 % 23 % (52 %) (17 %)
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue) 19 % 11 % (33 %) 2 % 28 %
 
Net Income (Loss)
GAAP net income (loss) $ (322 ) $ 151 $ 221 $ (340 ) $ (205 ) (36 %)
Acquisition-related expenses 18 24 18 38 14
Amortization of debt discount - - - 4 5
Change in deferred net revenue (packaged goods and digital content) 357 (95 ) (475 ) 319 590
Restructuring and other 154 (1 ) 18 (1 ) -
Stock-based compensation 46 38 38 43 48
Income tax adjustments   (57 )   (34 )   57     (46 )   (118 )
Non-GAAP net income (loss) $ 196   $ 83   $ (123 ) $ 17   $ 334   70 %
GAAP net income (loss) % (as a % of GAAP net revenue) (31 %) 14 % 22 % (48 %) (19 %)
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) 14 % 8 % (23 %) 2 % 20 %
 
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ (0.97 ) $ 0.45 $ 0.66 $ (1.03 ) $ (0.62 ) (36 %)
Non-GAAP earnings (loss) per share $ 0.59 $ 0.25 $ (0.37 ) $ 0.05 $ 0.99 68 %
 
Number of diluted shares used in computation
GAAP 332 336 337 331 332
Non-GAAP 335 336 331 337 338
               
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
 
Q3 Q4 Q1 Q2 Q3 YOY %
FY11 FY11 FY12 FY12 FY12 Change
 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Geography Net Revenue
North America 528 530 501 337 500 (5 %)
Europe 477 507 438 328 505 6 %
Asia 48   53   60   50   56   17 %
Total GAAP Net Revenue 1,053   1,090   999   715   1,061   1 %
North America 169 (56 ) (240 ) 144 310
Europe 163 (45 ) (215 ) 174 235
Asia 25   6   (20 ) 1   45  
Change In Deferred Net Revenue (Packaged Goods and Digital Content)

357

  (95 ) (475 ) 319   590  
North America 697 474 261 481 810 16 %
Europe 640 462 223 502 740 16 %
Asia 73   59   40   51   101   38 %
Total Non-GAAP Net Revenue 1,410   995   524   1,034   1,651   17 %
 
North America 50 % 49 % 50 % 47 % 47 %
Europe 45 % 46 % 44 % 46 % 48 %
Asia 5 % 5 % 6 % 7 % 5 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
North America 50 % 48 % 50 % 46 % 49 %
Europe 45 % 46 % 42 % 49 % 45 %
Asia 5 % 6 % 8 % 5 % 6 %
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
 
Net Revenue Composition
Publishing and Other 767 838 647 450 738 (4 %)
Wireless, Internet-derived, and Advertising (Digital) 195 211 232 234 274 41 %
Distribution 91   41   120   31   49   (46 %)
Total GAAP Net Revenue 1,053   1,090   999   715   1,061   1 %
Publishing and Other 341 (152 ) (452 ) 337 487
Wireless, Internet-derived, and Advertising (Digital) 16 57 (23 ) (18 ) 103
Distribution -   -   -   -   -  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) 357   (95 ) (475 ) 319   590  
Publishing and Other 1,108 686 195 787 1,225 11 %
Wireless, Internet-derived, and Advertising (Digital) 211 268 209 216 377 79 %
Distribution 91   41   120   31   49   (46 %)
Total Non-GAAP Net Revenue 1,410   995   524   1,034   1,651   17 %
 
Publishing and Other 73 % 77 % 65 % 63 % 69 %
Wireless, Internet-derived, and Advertising (Digital) 18 % 19 % 23 % 33 % 26 %
Distribution 9 % 4 % 12 % 4 % 5 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
Publishing and Other 79 % 69 % 37 % 76 % 74 %
Wireless, Internet-derived, and Advertising (Digital) 15 % 27 % 40 % 21 % 23 %
Distribution 6 % 4 % 23 % 3 % 3 %
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
                 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
 
Q3 Q4 Q1 Q2 Q3 YOY %
FY11 FY11 FY12 FY12 FY12 Change
 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Platform Net Revenue
Xbox 360 285 336 345 213 331 16 %
PLAYSTATION 3 282 357 308 169 314 11 %
Wii 130 71 42 35 49 (62 %)
PlayStation 2 20   4   3   15   7   (65 %)
Total Consoles 717 768 698 432 701 (2 %)
Mobile 59 70 57 55 70 19 %
PSP 22 16 11 17 14 (36 %)
Nintendo DS 49   28   8   7   15   (69 %)
Total Mobile and Handhelds 130 114 76 79 99 (24 %)
PC 155 171 205 178 214 38 %
Other 51   37   20   26   47   (8 %)
Total GAAP Net Revenue 1,053   1,090   999   715   1,061   1 %
Xbox 360 126 (12 ) (193 ) 140 174
PLAYSTATION 3 131 (75 ) (197 ) 205 179
Wii 39 (44 ) (26 ) (1 ) 3
PlayStation 2 (1 ) - - - -
Mobile 5 (3 ) - - 13
PSP - (6 ) (6 ) - (2 )
Nintendo DS 8 (6 ) (2 ) - 9
PC 49   51   (51 ) (25 ) 214  
Change in Deferred Net Revenue (Packaged Goods and Digital Content) 357   (95 ) (475 ) 319   590  
Xbox 360 411 324 152 353 505 23 %
PLAYSTATION 3 413 282 111 374 493 19 %
Wii 169 27 16 34 52 (69 %)
PlayStation 2 19   4   3   15   7   (63 %)
Total Consoles 1,012 637 282 776 1,057 4 %
Mobile 64 67 57 55 83 30 %
PSP 22 10 5 17 12 (45 %)
Nintendo DS 57   22   6   7   24   (58 %)
Total Mobile and Handhelds 143 99 68 79 119 (17 %)
PC 204 222 154 153 428 110 %
Other 51   37   20   26   47   (8 %)
Total Non-GAAP Net Revenue 1,410   995   524   1,034   1,651   17 %
 
Xbox 360 27 % 31 % 35 % 30 % 31 %
PLAYSTATION 3 27 % 33 % 31 % 23 % 29 %
Wii 12 % 6 % 4 % 5 % 5 %
PlayStation 2 2 % -   -   2 % 1 %
Total Consoles 68 % 70 % 70 % 60 % 66 %
Mobile 5 % 6 % 6 % 8 % 7 %
PSP 2 % 1 % 1 % 2 % 1 %
Nintendo DS 5 % 3 % 1 % 1 % 1 %
Total Mobile and Handhelds 12 % 10 % 8 % 11 % 9 %
PC 15 % 16 % 20 % 25 % 20 %
Other 5 % 4 % 2 % 4 % 5 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
Xbox 360 29 % 33 % 29 % 34 % 31 %
PLAYSTATION 3 30 % 28 % 21 % 36 % 30 %
Wii 12 % 3 % 3 % 4 % 3 %
PlayStation 2 1 % -   1 % 1 % -  
Total Consoles 72 % 64 % 54 % 75 % 64 %
Mobile 4 % 7 % 11 % 5 % 5 %
PSP 2 % 1 % 1 % 2 % 1 %
Nintendo DS 4 % 2 % 1 % 1 % 1 %
Total Mobile and Handhelds 10 % 10 % 13 % 8 % 7 %
PC 14 % 22 % 29 % 15 % 26 %
Other 4 % 4 % 4 % 2 % 3 %
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
                 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
 
Q3 Q4 Q1 Q2 Q3 YOY %
FY11 FY11 FY12 FY12 FY12 Change
 
CASH FLOW DATA
 
Operating cash flow 349 253 (274 ) (211 ) 475 36 %
Operating cash flow - TTM 320 320 194 117 243 (24 %)
Capital expenditures 15 21 32 52 44 193 %
Capital expenditures - TTM 60 59 80 120 149 148 %
 
BALANCE SHEET DATA
 
Cash and cash equivalents 1,353 1,579 1,173 930 1,242 (8 %)
Short-term investments 511 497 503 355 406 (21 %)
Marketable equity securities 107 161 172 214 143 34 %
Receivables, net 390 335 30 562 526 35 %
Inventories 105 77 75 90 69 (34 %)
Deferred net revenue (packaged goods and digital content)
End of the quarter 1,100 1,005 530 849 1,439
Less: Beginning of the quarter 743 1,100   1,005   530   849
Change in deferred net revenue (packaged goods and digital content) 357 (95 ) (475 ) 319   590
 
STOCK-BASED COMPENSATION
 
Cost of goods sold 1 - 1 - -
Marketing and sales 6 5 5 6 7
General and administrative 10 8 9 9 11
Research and development 29 25   23   28   30
Total Stock-Based Compensation (excluding restructuring and other) 46 38 38 43 48
Restructuring and other 2 -   -   -   -
Total Stock-Based Compensation (including restructuring and other) 48 38   38   43   48
 
EMPLOYEES 7,742 7,645 7,973 8,687 9,043 17 %

Electronic Arts Inc.
Rob Sison, 650-628-7787
Vice President, Investor Relations
rsison@ea.com
Jeff Brown, 650-628-7922
Senior Vice President, Corporate Communications
jbrown@ea.com

Source: Electronic Arts Inc.

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