Electronic Arts Reports Q1 FY12 Financial Results

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 second quarter and full fiscal year 2012 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; general economic conditions; and other factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

These forward-looking statements are current as of July 26, 2011. 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 June 30, 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 June 30, 2011.

About Electronic Arts

Electronic Arts (NASDAQ: ERTS) 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.

EA SPORTS, Dead Space, Need for Speed, Alice: Madness Returns, SSX, Darkspore and The Sims are trademarks of Electronic Arts Inc. Dragon Age and Mass Effect are trademarks of EA International (Studio and Publishing) Ltd. Battlefield: Bad Company and Battlefield 3 are trademarks of EA Digital Illusions CE AB. FAMILY GAME NIGHT is a trademark of Hasbro and used with permission. Crysis is a registered trademark of Crytek. 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. John Madden is a trademark or other intellectual property of Red Bear, Inc. or John Madden. NFL is a trademark of the National Football League. NCAA is a registered trademark of the National Collegiate Athletic Association. NHL is a registered trademark of National Hockey League. The name of Tiger Woods is a trademark, copyrighted design and/or other form of intellectual property that is the exclusive property of ETW Corp. or Tiger Woods and may not be used, in whole or in part, without the prior written consent of ETW Corp. or Tiger Woods. PGA TOUR is a trademark of PGA TOUR, INC. and used by permission. “Masters” is a trademark and trade name of Augusta National, Inc. and such trademark and trade name appears courtesy Augusta National, Inc. iPhone and iPad are trademarks of Apple Inc. 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
June 30,
  2011     2010  
 
Net revenue $ 999 $ 815
Cost of goods sold   240     222  
Gross profit 759 593
 
Operating expenses:
Marketing and sales 140 127
General and administrative 74 74
Research and development 285 275
Acquisition-related contingent consideration 2 2
Amortization of intangibles 13 15
Restructuring and other   18     2  
Total operating expenses   532     495  
 
Operating income 227 98
 
Loss on strategic investments - (5 )
Interest and other income, net   3     -  
 
Income before provision for (benefit from) income taxes 230 93
 
Provision for (benefit from) income taxes   9     (3 )
 
Net income $ 221   $ 96  
 
Earnings per share
Basic $ 0.67 $ 0.29
Diluted $ 0.66 $ 0.29
 
Number of shares used in computation
Basic 331 328
Diluted 337 332
 
 
Non-GAAP Results (in millions, except per share data)
The following tables reconcile the Company's net income and earnings 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 loss and non-GAAP diluted loss per share.
 
Three Months Ended
June 30,
  2011     2010  
 
Net income $ 221 $ 96
 
Acquisition-related expenses 18 20
Change in deferred net revenue (packaged goods and digital content) (475 ) (276 )
Loss on strategic investments - 5
Restructuring and other 18 2
Stock-based compensation 38 47
Income tax adjustments   57     28  
 
Non-GAAP net loss $ (123 ) $ (78 )
 
Non-GAAP diluted loss per share $ (0.37 ) $ (0.24 )
 
Number of shares used in Non-GAAP computation
Diluted 331 328
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
             
June 30, March 31,
  2011

2011 (a)

 

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,173 $ 1,579
Short-term investments 503 497
Marketable equity securities 172 161
Receivables, net of allowances of $227 and $304, respectively 30 335
Inventories 75 77
Deferred income taxes, net 58 56
Other current assets   343   327  
Total current assets 2,354 3,032
 
Property and equipment, net 516 513
Goodwill 1,132 1,110
Acquisition-related intangibles, net 134 144
Deferred income taxes, net 49 49
Other assets   170   80  
 
TOTAL ASSETS $ 4,355 $ 4,928  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 91 $ 228
Accrued and other current liabilities 604 768
Deferred net revenue (packaged goods and digital content)   530   1,005  
Total current liabilities 1,225 2,001
 
Income tax obligations 192 192
Deferred income taxes, net 42 37
Other liabilities   146   134  
Total liabilities 1,605 2,364
 
Common stock 3 3
Paid-in capital 2,439 2,495
Retained earnings (accumulated deficit) 68 (153 )
Accumulated other comprehensive income   240   219  
Total stockholders' equity   2,750   2,564  
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,355 $ 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
June 30,
  2011       2010  
 
OPERATING ACTIVITIES
 
Net income $ 221 $ 96
Adjustments to reconcile net income to net cash used in operating activities:
Acquisition-related contingent consideration 2 2
Depreciation, amortization and accretion, net 43 48
Net losses on investments and sale of property and equipment - 5
Stock-based compensation 38 47
Change in assets and liabilities:
Receivables, net 307 97
Inventories 4 16
Other assets (101 ) (37 )
Accounts payable (133 ) (40 )
Accrued and other liabilities (181 ) (109 )
Deferred income taxes, net 1 3
Deferred net revenue (packaged goods and digital content)   (475 )   (276 )
Net cash used in operating activities   (274 )   (148 )
 
INVESTING ACTIVITIES
 
Capital expenditures (32 ) (11 )
Proceeds from sale of marketable equity securities - 8
Proceeds from maturities and sales of short-term investments 83 98
Purchase of short-term investments (90 ) (148 )
Acquisition of subsidiaries, net of cash acquired   (25 )   -  
Net cash used in investing activities   (64 )   (53 )
 
FINANCING ACTIVITIES
 
Proceeds from issuance of common stock 14 1
Excess tax benefit from stock-based compensation 2 -
Repurchase and retirement of common stock   (91 )   -  
Net cash provided by (used in) financing activities   (75 )   1  
 
Effect of foreign exchange on cash and cash equivalents   7     (16 )
Decrease in cash and cash equivalents (406 ) (216 )
Beginning cash and cash equivalents   1,579     1,273  
Ending cash and cash equivalents $ 1,173   $ 1,057  
                         
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
     
Q1 Q2 Q3 Q4 Q1 YOY %
FY11 FY11 FY11 FY11 FY12 Change
 
QUARTERLY RECONCILIATION OF RESULTS
 
Net Revenue
GAAP net revenue $ 815 $ 631 $ 1,053 $ 1,090 $ 999 23 %
Change in deferred net revenue (packaged goods and digital content)   (276 )   253     357     (95 )   (475 )
Non-GAAP net revenue $ 539   $ 884   $ 1,410   $ 995   $ 524   (3 %)
 
Gross Profit
GAAP gross profit $ 593 $ 268 $ 467 $ 762 $ 759 28 %
Acquisition-related expenses 3 3 3 3 3
Change in deferred net revenue (packaged goods and digital content) (276 ) 253 357 (95 ) (475 )
Loss on licensed intellectual property commitment (COGS) - (1 ) - - -
Stock-based compensation   1     -     1     -     1  
Non-GAAP gross profit $ 321   $ 523   $ 828   $ 670   $ 288   (10 %)
GAAP gross profit % (as a % of GAAP net revenue) 73 % 42 % 44 % 70 % 76 %
Non-GAAP gross profit % (as a % of non-GAAP net revenue) 60 % 59 % 59 % 67 % 55 %
 
Operating Income (Loss)
GAAP operating income (loss) $ 98 $ (252 ) $ (303 ) $ 145 $ 227 132 %
Acquisition-related expenses 20 (10 ) 18 24 18
Change in deferred net revenue (packaged goods and digital content) (276 ) 253 357 (95 ) (475 )
Loss on licensed intellectual property commitment (COGS) - (1 ) - - -
Restructuring and other 2 6 154 (1 ) 18
Stock-based compensation   47     43     46     38     38  
Non-GAAP operating income (loss) $ (109 ) $ 39   $ 272   $ 111   $ (174 ) 60 %
GAAP operating income (loss) % (as a % of GAAP net revenue) 12 % (40 %) (29 %) 13 % 23 %
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue) (20 %) 4 % 19 % 11 % (33 %)
 
Net Income (Loss)
GAAP net income (loss) $ 96 $ (201 ) $ (322 ) $ 151 $ 221 130 %
Acquisition-related expenses 20 (10 ) 18 24 18
Change in deferred net revenue (packaged goods and digital content) (276 ) 253 357 (95 ) (475 )
Loss on licensed intellectual property commitment (COGS) - (1 ) - - -
Loss (gain) on strategic investments 5 (28 ) - - -
Restructuring and other 2 6 154 (1 ) 18
Stock-based compensation 47 43 46 38 38
Income tax adjustments   28     (30 )   (57 )   (34 )   57  
Non-GAAP net income (loss) $ (78 ) $ 32   $ 196   $ 83   $ (123 ) 58 %
GAAP net income (loss) % (as a % of GAAP net revenue) 12 % (32 %) (31 %) 14 % 22 %
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue) (14 %) 4 % 14 % 8 % (23 %)
 
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share $ 0.29 $ (0.61 ) $ (0.97 ) $ 0.45 $ 0.66 128 %
Non-GAAP earnings (loss) per share $ (0.24 ) $ 0.10 $ 0.59 $ 0.25 $ (0.37 ) 54 %
 
Number of diluted shares used in computation
GAAP 332 329 332 336 337
Non-GAAP 328 333 335 336 331
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
                             
Q1 Q2 Q3 Q4 Q1 YOY %
FY11 FY11 FY11 FY11 FY12 Change
 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Geography Net Revenue
North America 451 327 528 530 501 11 %
Europe 317 262 477 507 438 38 %
Asia 47   42   48   53   60   28 %
Total GAAP Net Revenue 815   631   1,053   1,090   999   23 %
North America (184 ) 142 169 (56 ) (240 )
Europe (81 ) 122 163 (45 ) (215 )
Asia (11 ) (11 ) 25   6   (20 )
Change In Deferred Net Revenue (Packaged Goods and Digital Content) (276 ) 253   357   (95 ) (475 )
North America 267 469 697 474 261 (2 %)
Europe 236 384 640 462 223 (6 %)
Asia 36   31   73   59   40   11 %
Total Non-GAAP Net Revenue 539   884   1,410   995   524   (3 %)
 
North America 55 % 52 % 50 % 49 % 50 %
Europe 39 % 41 % 45 % 46 % 44 %
Asia 6 % 7 % 5 % 5 % 6 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
North America 49 % 53 % 50 % 48 % 50 %
Europe 44 % 43 % 45 % 46 % 42 %
Asia 7 % 4 % 5 % 6 % 8 %
Total Non-GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
 
Net Revenue Composition
Publishing and Other 586 441 767 838 647 10 %
Wireless, Internet-derived, and Advertising (Digital) 176 161 195 211 232 32 %
Distribution 53   29   91   41   120   126 %
Total GAAP Net Revenue 815   631   1,053   1,090   999   23 %
Publishing and Other (288 ) 248 341 (152 ) (452 )
Wireless, Internet-derived, and Advertising (Digital) 12 5 16 57 (23 )
Distribution -   -   -   -   -  
Change In Deferred Net Revenue (Packaged Goods and Digital Content) (276 ) 253   357   (95 ) (475 )
Publishing and Other 298 689 1,108 686 195 (35 %)
Wireless, Internet-derived, and Advertising (Digital) 188 166 211 268 209 11 %
Distribution 53   29   91   41   120   126 %
Total Non-GAAP Net Revenue 539   884   1,410   995   524   (3 %)
 
Publishing and Other 72 % 70 % 73 % 77 % 65 %
Wireless, Internet-derived, and Advertising (Digital) 21 % 26 % 18 % 19 % 23 %
Distribution 7 % 4 % 9 % 4 % 12 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
Publishing and Other 55 % 78 % 79 % 69 % 37 %
Wireless, Internet-derived, and Advertising (Digital) 35 % 19 % 15 % 27 % 40 %
Distribution 10 % 3 % 6 % 4 % 23 %
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)
 
Q1 Q2 Q3 Q4 Q1 YOY %
FY11 FY11 FY11 FY11 FY12 Change
 
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
 
Platform Net Revenue
Xbox 360 262 172 285 336 345 32 %
PLAYSTATION 3 209 152 282 357 308 47 %
Wii 40 25 130 71 42 5 %
PlayStation 2 11   29   20   4   3   (73 %)
Total Consoles 522 378 717 768 698 34 %
Mobile 52 49 59 70 57 10 %
PSP 19 17 22 16 11 (42 %)
Nintendo DS 11   8   49   28   8   (27 %)
Total Mobile and Handhelds 82 74 130 114 76 (7 %)
PC 186 157 155 171 205 10 %
Other 25   22   51   37   20   (20 %)
Total GAAP Net Revenue 815   631   1,053   1,090   999   23 %
Xbox 360 (121 ) 96 126 (12 ) (193 )
PLAYSTATION 3 (89 ) 150 131 (75 ) (197 )
Wii (5 ) 24 39 (44 ) (26 )
PlayStation 2 (5 ) 1 (1 ) - -
Mobile - - 5 (3 ) -
PSP (1 ) 4 - (6 ) (6 )
Nintendo DS (4 ) 1 8 (6 ) (2 )
PC (51 ) (23 ) 49   51   (51 )
Change in Deferred Net Revenue (Packaged Goods and Digital Content) (276 ) 253   357   (95 ) (475 )
Xbox 360 141 268 411 324 152 8 %
PLAYSTATION 3 120 302 413 282 111 (8 %)
Wii 35 49 169 27 16 (54 %)
PlayStation 2 6   30   19   4   3   (50 %)
Total Consoles 302 649 1,012 637 282 (7 %)
Mobile 52 49 64 67 57 10 %
PSP 18 21 22 10 5 (72 %)
Nintendo DS 7   9   57   22   6   (14 %)
Total Mobile and Handhelds 77 79 143 99 68 (12 %)
PC 135 134 204 222 154 14 %
Other 25   22   51   37   20   (20 %)
Total Non-GAAP Net Revenue 539   884   1,410   995   524   (3 %)
 
Xbox 360 32 % 27 % 27 % 31 % 35 %
PLAYSTATION 3 26 % 24 % 27 % 33 % 31 %
Wii 5 % 4 % 12 % 6 % 4 %
PlayStation 2 1 % 5 % 2 % -   -  
Total Consoles 64 % 60 % 68 % 70 % 70 %
Mobile 7 % 8 % 5 % 6 % 6 %
PSP 2 % 3 % 2 % 1 % 1 %
Nintendo DS 1 % 1 % 5 % 3 % 1 %
Total Mobile and Handhelds 10 % 12 % 12 % 10 % 8 %
PC 23 % 25 % 15 % 16 % 20 %
Other 3 % 3 % 5 % 4 % 2 %
Total GAAP Net Revenue % 100 % 100 % 100 % 100 % 100 %
Xbox 360 26 % 30 % 29 % 33 % 29 %
PLAYSTATION 3 22 % 34 % 30 % 28 % 21 %
Wii 7 % 6 % 12 % 3 % 3 %
PlayStation 2 1 % 3 % 1 % -   1 %
Total Consoles 56 % 73 % 72 % 64 % 54 %
Mobile 10 % 6 % 4 % 7 % 11 %
PSP 3 % 2 % 2 % 1 % 1 %
Nintendo DS 1 % 1 % 4 % 2 % 1 %
Total Mobile and Handhelds 14 % 9 % 10 % 10 % 13 %
PC 25 % 15 % 14 % 22 % 29 %
Other 5 % 3 % 4 % 4 % 4 %
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)
     
Q1 Q2 Q3 Q4 Q1 YOY %
FY11 FY11 FY11 FY11 FY12 Change
 
CASH FLOW DATA
 
Operating cash flow (148 ) (134 ) 349 253 (274 ) 85 %
Operating cash flow - TTM 332 192 320 320 194 (42 %)
Capital expenditures 11 12 15 21 32 191 %
Capital expenditures - TTM 75 61 60 59 80 7 %
 
BALANCE SHEET DATA
 
Cash and cash equivalents 1,057 1,056 1,353 1,579 1,173 11 %
Short-term investments 480 495 511 497 503 5 %
Marketable equity securities 193 106 107 161 172 (11 %)
Receivables, net 103 444 390 335 30 (71 %)
Inventories 82 155 105 77 75 (9 %)
Deferred net revenue (packaged goods and digital content)
End of the quarter 490 743 1,100 1,005 530
Less: Beginning of the quarter 766   490   743 1,100   1,005  
Change in deferred net revenue (packaged goods and digital content) (276 ) 253   357 (95 ) (475 )
 
STOCK-BASED COMPENSATION
 
Cost of goods sold 1 - 1 - 1
Marketing and sales 4 6 6 5 5
General and administrative 12 10 10 8 9
Research and development 30   27   29 25   23  
Total Stock-Based Compensation (excluding restructuring and other) 47 43 46 38 38
Restructuring and other -   -   2 -   -  
Total Stock-Based Compensation (including restructuring and other) 47   43   48 38   38  
 
EMPLOYEES 7,758 7,820 7,742 7,645 7,973 3 %

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