EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

 

EA REPORTS SECOND QUARTER FISCAL 2007 RESULTS

Q2 Net Revenue a Record $784 Million Driven by EA SPORTS Titles

Need for Speed Carbon Debuts on 10 Platforms

 

REDWOOD CITY, CA – November 2, 2006 – Electronic Arts (NASDAQ: ERTS) today announced preliminary financial results for its fiscal second quarter ended September 30, 2006.

 

Fiscal Second Quarter Results

 

Net revenue for the second quarter was $784 million, up 16 percent as compared with $675 million for the prior year. Sales were driven primarily by Madden NFL 07, NCAA® Football 07, FIFA 07, NBA Live 07 and catalog titles.

 

Gross profit for the quarter was $445 million, up 14 percent year-over-year. Net income for the quarter was $22 million as compared with $51 million for the prior year. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R “Share-Based Payment” at the beginning of its fiscal year resulting in pre-tax stock-based compensation charges of $33 million in the second quarter. Diluted earnings per share were $0.07 as compared with $0.16 for the prior year.

 

Non-GAAP net income was $65 million as compared with $46 million a year ago – an increase of 41 percent year-over-year. Non-GAAP diluted earnings per share were $0.21 as compared with $0.15 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)

 

Trailing twelve month operating cash flow was $571 million as compared with $592 million a year ago. The Company ended the quarter with cash, cash equivalents and marketable securities of $2.4 billion.

 

“We are well prepared for the holidays on all platforms, including the Xbox 360, PLAYSTATION 3 and the Nintendo Wii,” said Larry Probst, Chairman and Chief Executive Officer. “In the quarter, we plan to release eight titles across multiple platforms and currently have more than 30 next-generation games in development.”

 

“This was a strong quarter for EA,” said Warren Jenson, Chief Financial and Administrative Officer. “While our industry remains in the midst of transition the landscape looks strong enough that we are able to increase our guidance range for the year.”

 

Highlights (comparisons are to the quarter ended September 30, 2005)

 

  •   Net revenue: North America – up 16 percent to a Q2 record $512 million; Europe – up 28 percent to a Q2 record $245 million; Asia – down 34 percent to $27 million. Movements in foreign currency rates positively impacted net revenue by $10 million, or one percent.

 

  •   Xbox 360™ revenue was $166 million – offsetting a 25 percent decline in current-generation console revenue.

 

  •   Year-to-date, EA is the number one publisher on the Xbox 360 in both North America and Europe.

 

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  •   Madden NFL 07 had a record launch with five million copies sold in just five weeks. Year-to-date, Madden NFL 07 is the industry’s number one title in North America.

 

  •   NCAA Football 07 set a record – selling over 2 million copies in the quarter.

 

  •   NHL® 07 has gone platinum since launch.

 

  •   FIFA 07 had a strong international launch – selling nearly two million copies in just one week.

 

  •   EA has partnered with Apple® to bring its games to the iPod®.

 

  •   EA has joined with Massive and IGA to introduce dynamic in-game advertising to several titles.

 

  •   EA purchased Phenomic Games, a talented European developer of real time strategy games.

 

  •   EA closed the acquisition of Mythic Entertainment, the critically acclaimed developer of massively multiplayer online games.

 

Business Outlook

 

The following forward-looking statements, as well as those made above, reflect expectations as of November 2, 2006. Results may be materially different and are affected by many factors, such as: the timely release of next-generation hardware and the ability of console manufacturers to produce an adequate supply of consoles to meet demand; development delays on EA’s products; changes in foreign exchange rates; the overall global economy; the popular appeal of EA’s products; competition in the industry; EA’s effective tax rate and other factors detailed in this release and in EA’s annual and quarterly SEC filings.

 

Fiscal Third Quarter Expectations – Ending December 31, 2006

 

  •   Net revenue is expected to be between $1.2 and $1.3 billion.

 

  •   GAAP diluted earnings per share are expected to be between $0.33 and $0.43.

 

  •   Non-GAAP diluted earnings per share are expected to be between $0.50 and $0.60. Expected non-GAAP diluted earnings per share exclude the following items from expected GAAP diluted earnings per share: approximately $0.09 of estimated stock-based compensation; approximately $0.04 related to the Company’s acquisition of Mythic Entertainment; approximately $0.03 of amortization of intangible assets; and approximately $0.01 of estimated restructuring charges related to the reorganization and establishment of an international publishing headquarters in Geneva.

 

Fiscal Year Expectations – Ending March 31, 2007

 

  •   Net revenue is expected to be between $2.950 and $3.125 billion – up from previous expectations of $2.8 to 3.0 billion

 

  •   GAAP diluted earnings per share are expected to be breakeven to $0.15 – versus previous expectations of ($0.30) to breakeven.

 

  •  

Non-GAAP diluted earnings per share are expected to be between $0.55 and $0.70 – up from previous expectations of $0.35 to $0.65. Expected non-GAAP diluted earnings per share excludes the following items from expected GAAP diluted earnings per share: approximately $0.33 of estimated stock-based compensation; approximately $0.13 of amortization of intangible assets; approximately $0.05 related to the Company’s acquisitions of Mythic Entertainment and Digital Illusions; and approximately $0.04 of

 

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estimated restructuring charges related to the reorganization and establishment of an international publishing headquarters in Geneva.

 

Conference Call

 

Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the second quarter of fiscal 2007 and to discuss its outlook for the future. During the course of the call, Electronic Arts may also disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number (800) 500-0311, access code 220497, or a webcast: http://investor.ea.com.

 

A dial-in replay of the conference call will be provided until November 9, 2006 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year at http://investor.ea.com.

 

Non-GAAP Financial Measures

 

To supplement the Company’s unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Electronic Arts include non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items from the Company’s statement of operations:

 

  •   Acquired in-process technology

 

  •   Amortization of intangibles

 

  •   Certain litigation expense

 

  •   Restructuring charges

 

  •   Stock-based compensation

 

  •   Income tax adjustments (consisting of the income tax effect of the items listed above and certain one-time income tax adjustments)

 

In addition, Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

 

Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company’s performance by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. Electronic Arts’ management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company’s operating results both as a consolidated entity and at the business unit level, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the Company’s performance to prior periods.

 

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In addition to the reasons stated above, which are generally applicable to each of the items Electronic Arts excludes from its non-GAAP financial measures, the Company believes it is appropriate to exclude certain items for the following reasons:

 

Amortization of Intangibles. When analyzing the operating performance of an acquired entity, Electronic Arts’ management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of acquired intangible assets to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.

 

In addition, in accordance with GAAP, Electronic Arts generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, Electronic Arts believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

 

Stock-Based Compensation. Electronic Arts adopted SFAS No. 123R, “Share-Based Payment” beginning in its fiscal year 2007. When evaluating the performance of its individual business units, the Company does not consider stock-based compensation charges. Likewise, the Company’s management teams exclude stock-based compensation expense from their short and long-term operating plans. In contrast, the Company’s management teams are held accountable for cash-based compensation and such amounts are included in their operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.

 

Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company’s management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts’ performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business. In addition, given the Company’s adoption of SFAS No. 123R, “Share-Based Payment” beginning with its fiscal year ending March 31, 2007, Electronic Arts believes that a non-GAAP financial measure that excludes stock-based compensation will facilitate the comparison of its year-over-year results.

 

Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities over the past several years, each has been a discrete, extraordinary event based on a unique

 

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set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.

 

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

 

Forward-Looking Statements

 

Some statements set forth in this release, including the estimates under the heading “Business Outlook,” contain forward-looking statements that are subject to change. Statements including words such as “anticipate”, “believe”, “estimate” or “expect” and statements in the future tense are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause the Company’s results to differ materially from its expectations include the following: the timely release of next-generation hardware; the availability of an adequate supply of current-generation and next-generation hardware units (including the Xbox 360™ video game and entertainment system, the PLAYSTATION®3 computer entertainment system and the Wii™); the Company’s ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of Electronic Arts’ products; competition in the interactive entertainment industry; the Company’s ability to manage expenses during fiscal year 2007; the Company’s ability to attract and retain key personnel; changes in the Company’s effective tax rates; adoption of new accounting regulations and standards; potential regulation of the Company’s products in key territories; developments in the law regarding protection of the Company’s products; fluctuations in foreign exchange rates; the Company’s ability to secure licenses to valuable entertainment properties on favorable terms; and other factors described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2006 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. These forward-looking statements speak only as of November 2, 2006. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements, including those made under the “Business Outlook” heading. In addition, the financial results set forth in this release are estimates based on information currently available to Electronic Arts. While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended September 30, 2006.

 

About Electronic Arts

 

Electronic Arts Inc. (EA), headquartered in Redwood City, California, is the world’s leading interactive entertainment software company. Founded in 1982, the company develops, publishes, and distributes interactive software worldwide for videogame systems, personal computers, cellular handsets and the Internet. Electronic Arts markets its products under four brand names: EA SPORTSTM, EATM, EA SPORTS BIGTM and POGOTM. In fiscal 2006, EA posted revenue of $2.95 billion and had 27 titles that sold more than one million copies. EA’s

 

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homepage and online game site is www.ea.com. More information about EA’s products and full text of press releases can be found on the Internet at http://info.ea.com.

 

All trademarks are the property of their respective owners.

 

For additional information, please contact:

 

Tricia Gugler   Jeff Brown
Director, Investor Relations   Vice President, Corporate Communications
650-628-7327   650-628-7922

 

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in millions, except per share data)

 

     Three Months Ended
September 30,
     Six Months Ended
September 30,
  
     2006
    2005
     2006
     2005
  

Net revenue

    $ 784     $ 675     $ 1,196     $ 1,040  

Cost of goods sold

      339       284       506       434  
    
  
 
 

Gross profit

      445       391       690       606  

Operating expenses:

                                

Marketing and sales

      108       107       185       182  

General and administrative

      72       52       131       103  

Research and development

      238       182       454       365  

Amortization of intangibles

      7       1       13       2  

Acquired in-process technology

      2       —         2       —    

Restructuring charges

      4       —         10       —    
    
  
 
 

Total operating expenses

      431       342       795       652  
    
  
 
 

Operating income (loss)

      14       49       (105 )      (46 )

Interest and other income, net

      24       13       45       30  
    
  
 
 

Income (loss) before provision (benefit) from income taxes and minority interest

      38       62       (60 )     (16 )

Provision (benefit) from income taxes

      16       9       (1 )     (13 )
    
  
 
 

Income (loss) before minority interest

      22       53       (59 )     (3 )

Minority interest

      —         (2 )     —         (4 )
    
  
 
 

Net income (loss)

    $ 22     $ 51     $ (59 )   $ (7 )
    
  
 
 

Earnings (loss) per share:

                                

Basic

    $ 0.07     $ 0.17     $ (0.19 )   $ (0.02 )

Diluted

    $ 0.07     $ 0.16     $ (0.19 )   $ (0.02 )

Number of shares used in computation:

                                

Basic

      307       302       306       305  

Diluted

      315       314       306       305  

 

Non-GAAP Results (in millions, except per share data)

 

The following table reconciles the Company’s net income (loss) and diluted earnings (loss) per share as presented in its Unaudited Condensed Consolidated Statements of Operations as prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) with its non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share. The Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude acquired in-process technology, amortization of intangibles, certain litigation expense, restructuring charges, and stock-based compensation. In addition, the Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude income tax adjustments consisting of the income tax expense associated with the foregoing excluded items and the impact of certain one-time income tax adjustments.

 

     Three Months Ended
September 30,
     Six Months Ended
September 30,
  
     2006
     2005
     2006
     2005
  

Net income (loss)

    $ 22     $ 51     $ (59 )   $ (7 )

Acquired in-process technology

      2       —         2       —    

Amortization of intangibles

      7       1       13       2  

Certain litigation expense

      —         1       —         1  

COGS amortization of intangibles

      7       2       13       4  

Restructuring charges

      4       —         10       —    

Stock-based compensation

      33       1       70       1  

Income tax adjustments

      (10 )      (10 )      (22 )      (10 )
    
 
 
 

Non-GAAP net income (loss)

    $ 65     $ 46     $ 27     $ (9 )
    
 
 
 

Non-GAAP diluted earnings (loss) per share

    $ 0.21     $ 0.15     $ 0.09     $ (0.03 )

Number of shares used in non-GAAP diluted earnings (loss) per share computation

      315       314       314       305  

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in millions)

 

     September 30,
2006
     March 31,
2006 (a)

ASSETS

               

Current assets:

               

Cash, cash equivalents and short-term investments

    $ 2,172       $ 2,272

Marketable equity securities

      204       160

Receivables, net of allowances of $172 million and $232 million, respectively

      267       199

Inventories

      67       61

Deferred income taxes, net

      89       86

Other current assets

      210       234
    
 

Total current assets

      3,009       3,012

Property and equipment, net

      448       392

Investment in affiliates

      11       11

Goodwill

      709       647

Other intangibles, net

      231       232

Other assets

      103       92
    
 

TOTAL ASSETS

    $ 4,511     $ 4,386
    
 

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

    $ 199     $ 163

Accrued and other liabilities

      634       706
    
 

Total current liabilities

      833       869

Deferred income taxes, net

      13       29

Other liabilities

      61       68
    
 

Total liabilities

      907       966

Minority interest

      13       12

Stockholders’ equity:

               

Common stock

      3       3

Paid-in capital

      1,249       1,081

Retained earnings

      2,182       2,241

Accumulated other comprehensive income

      157       83
    
 

Total stockholders’ equity

      3,591       3,408
    
 

TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY

    $ 4,511     $ 4,386
    
 
(a) Derived from audited financial statements.

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions)

 

     Three Months Ended
September 30,
    Six Months Ended
September 30,
     2006
    2005
    2006
    2005

OPERATING ACTIVITIES

                            

Net income (loss)

    $ 22        $ 51       $ (59)       $ (7)   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

                            

Depreciation and amortization

      37          23         72          46    

Stock-based compensation

      33          —          70          —     

Minority interest

      —           2         —           4    

Realized net losses on investments and sale of property and equipment

      1          1         1          2    

Tax benefit from exercise of stock options

      —           87         —           92    

Acquired in-process technology

      2          —           2          —     

Change in assets and liabilities:

                            

Receivables, net

      (222)         (162)        (63)         (20)   

Inventories

      (8)         (10)        (5)         (9)   

Other assets

      2          (4)        14          (16)   

Accounts payable

      85          59         35          34    

Accrued and other liabilities

      42          (35)        (111)         (145)   
    
  
  
  

Net cash provided by (used in) operating activities

      (6)         12         (44)         (19)   
    
  
  
  

INVESTING ACTIVITIES

                            

Capital expenditures

      (48)         (23)        (86)         (56)   

Proceeds from sale of marketable equity securities

      —           —           —           4    

Proceeds from maturities and sales of short-term investments

      484          187         680          321    

Purchase of short-term investments

      (455)         (143)        (604)         (281)   

Acquisition of subsidiaries, net of cash acquired

      (67)         —           (67)         (3)   

Other investing activities

      —           —           2          (1)   
    
  
  
  

Net cash provided by (used in) investing activities

      (86)         21         (75)         (16)   
    
  
  
  
FINANCING ACTIVITIES                            

Proceeds from sale of common stock through employee stock plans and other plans

      48          41         85          60    

Excess tax benefit from stock-based compensation

      8          —           12          —     

Repayment of note assumed in connection with acquisition

      —           —           (14)         —     

Repurchase and retirement of common stock

      —           (372)        —           (709)   
    
  
  
  

Net cash provided by (used in) financing activities

      56          (331)        83          (649)   
    
  
  
  

Effect of foreign exchange on cash and cash equivalents

      —           (1)        6          (11)   
    
  
  
  

Decrease in cash and cash equivalents

      (36)         (299)        (30)         (695)   

Beginning cash and cash equivalents

      1,248          874         1,242          1,270    
    
  
  
  

Ending cash and cash equivalents

      1,212          575         1,212          575    

Short-term investments

      960          1,655         960          1,655    
    
  
  
  

Ending cash, cash equivalents and short-term investments

    $ 2,172        $ 2,230       $ 2,172        $ 2,230    
    
  
  
  

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and Headcount)

 

    

Q2

FY06

   

Q3

FY06

   

Q4

FY06

   

Q1

FY07

   

Q2

FY07

    YOY %
Change

CONSOLIDATED FINANCIAL DATA

                                       

Net revenue

      675          1,270          641          413            784         16% 

Net revenue - trailing twelve months (“TTM”)

      3,021          2,863          2,951          2,999            3,108         3% 

Gross profit

      391          768          397          245            445         14% 

Gross margin - % of net revenue

      58%      60%      62%      59%        57%      

Gross profit - TTM

      1,850          1,693          1,770          1,801            1,855         —     

Gross margin - TTM % of net revenue

      61%      59%      60%      60%         60%      

Operating income (loss)

      49          347          25          (119)           14         (71)% 

Operating income (loss) margin - % of net revenue

      7%      27%      4%      (29)%       2%      

Operating income - TTM

      472          300          325          302             267         (43)% 

Operating income margin - TTM % of net revenue

      16%      10%      11%      10%        9%      

Net income (loss)

      51          259          (16)         (81)           22         (57)% 

Diluted earnings (loss) per share

    $ 0.16        $ 0.83        $ (0.05)      $ (0.26)        $ 0.07        (56)% 

Net income - TTM

      376          260          236           213             184         (51)% 

Diluted earnings per share - TTM

    $ 1.17        $ 0.82        $ 0.75        $ 0.68          $ 0.59        (50)% 

Non-GAAP operating income (loss) (a)

      54          359          58           (64)            67         24% 

Non-GAAP operating income (loss) margin - % of net revenue

      8%      28%      9%      (15)%       9%      

Non-GAAP operating income - TTM (a)

      528          352          378          407             420         (20)% 

Non-GAAP operating income margin - TTM % of net revenue

      17%      12%      13%      14%         14%      

Non-GAAP net income (loss) (a)

      46          268          43          (38)            65         41% 

Non-GAAP diluted earnings (loss) per share (a)

    $ 0.15        $ 0.86        $ 0.14       $ (0.12)         $ 0.21        40% 

Non-GAAP net income - TTM (a)

      412          289          301          319             338         (18)% 

Non-GAAP diluted earnings per share - TTM (a)

    $ 1.29        $ 0.92        $ 0.96        $ 1.03          $ 1.09        (16)% 
CASH FLOW DATA                                        

Operating cash flow

      12          278          337          (38)            (6)        (150)% 

Operating cash flow - TTM

      592          733          596          589             571         (4)% 

Capital expenditures

      23          31          36          38             48         109% 

Capital expenditures - TTM

      137          131          123          128             153         12% 
BALANCE SHEET DATA                                        

Cash, cash equivalents and short term investments

      2,230          2,556          2,272          2,231             2,172         (3)% 

Marketable equity securities

      182          167          160          166             204         12% 

Receivables, net

      328          567          199          41             267         (19)% 

Inventories

      74          76          61          59             67         (9)% 
STOCK-BASED COMPENSATION                                        

Cost of goods sold

      —           —           —           —              1          

Marketing and sales

      —           —           —           5             4          

General and administrative

      —           —           1          11             9          

Research and development

      1          —           1          21             19          
    
  
  
  
  
    

Total Stock-Based Compensation

      1          —           2          37             33          

STOCK-BASED COMPENSATION - as a % of Net Revenue

                                        

Cost of goods sold

      —           —           —           —             —            

Marketing and sales

      —           —           —           1%        1%      

General and administrative

      —           —           —           3%        1%      

Research and development

      —           —           —           5%        2%      
    
  
  
  
  
    

Total Stock-Based Compensation

      —           —           —           9%        4%      

OTHER

                                       

Employees

      6,608          6,819          7,175          7,116             7,517         14% 

Diluted weighted-average shares

      314          311          304          306             315          
(a) Please see attached for Unaudited Reconciliation of GAAP to Non-GAAP Results.

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Reconciliation of GAAP to Non-GAAP Results

(in millions, except per share data)

 

The following tables reconcile the Company’s operating income (loss), net income (loss) and diluted earnings (loss) per share as presented in its Unaudited Condensed Consolidated Statements of Operations as prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) with its non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP earnings (loss) per share. The Company’s non-GAAP operating income (loss), net income (loss) and non-GAAP earnings (loss) per share exclude acquired in-process technology, amortization of intangibles, certain litigation expense, restructuring charges, and stock-based compensation. In addition, the Company’s non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per share exclude income tax adjustments consisting of the income tax expense associated with the foregoing excluded items and the impact of certain one-time income tax adjustments.

 

     Q2
FY06
    Q3
FY06
    Q4
FY06
    Q1
FY07
    Q2
FY07
    YOY %
Change
QUARTERLY RECONCILIATION OF RESULTS                                        

GAAP operating income (loss)

    $ 49        $ 347        $ 25        $ (119)         $ 14        (71)%

Acquired in-process technology

      —           —           7          —           2         

Amortization of intangibles

      1          1          4          6           7         

Certain litigation expense

      1          —           (1)          —           —          

COGS amortization of intangibles

      2          2          4          6           7         

Restructuring charges

      —           9          17          6           4         

Stock-based compensation

      1          —           2          37           33         
    
  
  
  
  
    

Non-GAAP operating income (loss)

    $ 54        $ 359        $ 58        $ (64)         $ 67        24% 
    
  
  
  
  
    

Non-GAAP operating income (loss) margin - % of net revenue

      8%      28%       9%       (15)%       9%      

GAAP net income (loss)

    $ 51        $ 259        $ (16)       $ (81)         $ 22        (57)%

Acquired in-process technology

      —           —           7          —           2         

Amortization of intangibles

      1          1          4          6           7         

Certain litigation expense

      1          —           (1)          —           —          

COGS amortization of intangibles

      2          2          4          6           7         

Restructuring charges

      —           9          17          6           4         

Stock-based compensation

      1          —           2          37           33         

Income tax adjustments

      (10)         (3)          26          (12)           (10)        
    
  
  
  
  
    

Non-GAAP net income (loss)

    $ 46        $ 268        $ 43        $ (38)         $ 65         41% 
    
  
  
  
  
    

Non-GAAP net income (loss) margin - % of net revenue

      7%      21%      7%      (9)%       8%      

GAAP diluted earnings (loss) per share

    $ 0.16        $ 0.83        $ (0.05)       $ (0.26)       $ 0.07        (56)%

Non-GAAP diluted earnings (loss) per share

    $ 0.15        $ 0.86        $ 0.14        $ (0.12)       $ 0.21        40% 

Shares used in non-GAAP diluted earnings (loss) per share computation

      314          311          312          306           315         
TRAILING TWELVE MONTH RECONCILIATION OF RESULTS                                        

GAAP operating income

    $ 472        $ 300        $ 325        $ 302         $ 267        (43)%

Acquired in-process technology

      15          5          8          7           9         

Amortization of intangibles

      4          4          7          12           18         

Certain litigation expense

      22          22          —           —             (1)       

COGS amortization of intangibles

      7          8          9          14           19         

Restructuring charges

      1          10          26          32           36         

Stock-based compensation

      7          3          3          40           72         
    
  
  
  
  
    

Non-GAAP operating income

    $ 528        $ 352        $ 378        $ 407         $ 420        (20)%
    
  
  
  
  
    

Non-GAAP operating income margin - % of net revenue

      17%      12%      13%      14%       14%      

GAAP net income

    $ 376        $ 260        $ 236        $ 213         $ 184        (51)%

Acquired in-process technology

      14          4          8          7           9         

Amortization of intangibles

      4          4          7          12           18         

Certain litigation expense

      22          22          —           —             (1)       

COGS amortization of intangibles

      7          8          9          14           19         

Restructuring charges

      1          10          26          32           36         

Stock-based compensation

      7          3          3          40           72         

Income tax adjustments

      (19)         (22)         12          1           1         
    
  
  
  
  
    

Non-GAAP net income

    $ 412        $ 289        $ 301        $ 319         $ 338        (18)%
    
  
  
  
  
    

Non-GAAP net income margin - % of net revenue

      14%      10%      10%      11%       11%      

GAAP diluted earnings per share

    $ 1.17        $ 0.82        $ 0.75        $ 0.68         $ 0.59        (50)%

Non-GAAP diluted earnings per share

    $ 1.29        $ 0.92        $ 0.96        $ 1.03         $ 1.09        (16)%

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and Headcount)

 

     Q2
FY06
   

Q3

FY06

    Q4
FY06
    Q1
FY07
    Q2
FY07
    YOY %
Change

GEOGRAPHIC REVENUE MIX

                             

North America Revenue

    443        618        340        209        512        16% 

International Revenue

    232        652        301        204        272        17% 

Europe Revenue

    191        577        262        169        245        28% 

Asia Revenue

    41        75        39        35        27        (34)% 
    
  
  
  
  
    

Net Revenue

    675        1,270        641        413        784        16% 
GEOGRAPHIC REVENUE MIX - as a % of Net Revenue                              

North America Revenue

    66%     49%     53%     51%     65%      

International Revenue

    34%     51%     47%     49%     35%      

Europe Revenue

    28%     45%     41%     41%     31%      

Asia Revenue

    6%     6%     6%     8%     4%      
    
  
  
  
  
    

Net Revenue

    100%     100%     100%     100%     100%      

PLATFORM REVENUE MIX

                             

Sony PlayStation 2

    304        495        211        99        269        (12)% 

Xbox 360

    —         76        64        61        166        N/M    

Xbox

    136        152        68        23        65        (52)% 

Nintendo GameCube

    27        69        17        11        14        (48)% 

Other consoles

    —         1        —         —         —         N/M    
    
  
  
  
  
    

Total Consoles

    467        793        360        194        514        10% 

PC

    91        148        104        66        86        (5)% 

PSP

    45        120        54        37        64        42% 

Nintendo DS

    8        36        11        8        14        75% 

Game Boy Advance

    7        35        8        7        8        14% 

Cellular Handsets

    2        1        15        33        35        1650% 
    
  
  
  
  
    

Total Mobility

    62        192        88        85        121        95% 

Co-publishing and Distribution

    32        99        52        42        39        22% 

Subscription Services

    14        16        17        16        15        7% 

Licensing, Advertising & Other

    9        22        20        10        9        —     
    
  
  
  
  
    

Total Internet Services, Licensing & Other

    23        38        37        26        24        4% 
    
  
  
  
  
    

Net Revenue

    675        1,270        641        413        784        16% 
    
  
  
  
  
    
PLATFORM REVENUE MIX - as a % of Net Revenue                              

Sony PlayStation 2

    45%     39%     33%     24%     35%      

Xbox 360

    —         6%     10%     15%     21%      

Xbox

    20%     12%     10%     5%     8%      

Nintendo GameCube

    4%     5%     3%     3%     2%      
    
  
  
  
  
    

Total Consoles

    69%     62%     56%     47%     66%      

PC

    14%     12%     16%     16%     11%      

PSP

    7%     9%     9%     9%     8%      

Nintendo DS

    1%     3%     2%     2%     2%      

Game Boy Advance

    1%     3%     1%     2%     1%      

Cellular Handsets

    —         —         2%     8%     4%      
    
  
  
  
  
    

Total Mobility

    9%     15%     14%     21%     15%      

Co-publishing and Distribution

    5%     8%     8%     10%     5%      

Subscription Services

    2%     1%     3%     4%     2%      

Licensing, Advertising & Other

    1%     2%     3%     2%     1%      
    
  
  
  
  
    

Total Internet Services, Licensing & Other

    3%     3%     6%     6%     3%      
    
  
  
  
  
    

Net Revenue

    100%     100%     100%     100%     100%      
    
  
  
  
  
    

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Financial Information and Business Metrics

(in millions, except per share data, SKU count and Headcount)

 

     Q2
FY06
    Q3
FY06
    Q4
FY06
    Q1
FY07
    Q2
FY07
    YOY %
Change
Platform SKU Release Mix                              

Sony PlayStation 2

    9    8    8    2    8    (11)%

Xbox 360

    —      5    2    2    7    N/M

Xbox

    9    8    8    2    7    (22)%

Nintendo GameCube

    6    5    1    1    2    (67)%
    
  
  
  
  
    

Total Consoles

    24    26    19    7    24    —  

PC

    6    7    7    5    6    —  

PSP

    3    8    2    2    9    200%

Nintendo DS

    2    5    1    1    2    —  

Game Boy Advance

    2    3    —      1    2    —  
    
  
  
  
  
    

Total Mobility

    7    16    3    4    13    86%
    
  
  
  
  
    

Total SKUs

    37    49    29    16    43    16%
    
  
  
  
  
    

ELECTRONIC ARTS INC. AND SUBSIDIARIES

Unaudited Supplemental Fact Sheet for Q2 Fiscal 2007

 

Q2 Product Releases

    Platform

•    FIFA 07

    PlayStation®2

•    Madden NFL 07

    PlayStation 2

•    Madden NFL 07 Hall of Fame Edition

    PlayStation 2

•    NASCAR 07

    PlayStation 2

•    NBA Live 07

    PlayStation 2

•    NCAA® Football 07

    PlayStation 2

•    NHL® 07

    PlayStation 2

•    Tiger Woods PGA TOUR® 07

    PlayStation 2

•    Madden NFL 07

    XBOX 360™

•    Madden NFL 07 Hall of Fame Edition

    XBOX 360

•    NBA Live 07

    XBOX 360

•    NCAA Football 07

    XBOX 360

•    NHL 07

    XBOX 360

•    The Godfather™ The Game

    XBOX 360

•    The Lord of the Rings™, The Battle for Middle-earth™ II

    XBOX 360

•    FIFA 07

    Xbox®

•    Madden NFL 07

    Xbox

•    NASCAR 07

    Xbox

•    NBA Live 07

    Xbox

•    NCAA Football 07

    Xbox

•    NHL 07

    Xbox

•    Tiger Woods PGA TOUR 07

    Xbox

•    FIFA 07

    Nintendo GameCube™

•    Madden NFL 07

    Nintendo GameCube

•    FIFA 07

    PC

•    Madden NFL 07

    PC

•    NBA Live 07

    PC

•    NHL 07

    PC

•    The Sims™ 2: Glamour Life Stuff

    PC

•    Tiger Woods PGA TOUR 07

    PC

•    Def Jam® Fight for NY™: The Takeover

    PSP®

•    FIFA 07

    PSP

•    Madden NFL 07

    PSP

•    NASCAR 07

    PSP

•    NBA Live 07

    PSP

•    NCAA Football 07

    PSP

•    NHL 07

    PSP

•    The Godfather™ Mob Wars

    PSP

•    Tiger Woods PGA TOUR 07

    PSP

•    FIFA 07

    Nintendo DS™

•    Madden NFL 07

    Nintendo DS

•    FIFA 07

    Game Boy® Advance

•    Madden NFL 07

    Game Boy Advance

•    Def Jam Fight for NY

    Cellular Handsets

•    EA Sports FIFA Street 2

    Cellular Handsets

•    EA Sports Madden NFL 07

    Cellular Handsets

•    Sim City

    Cellular Handsets

•    Tetris Mania

    Cellular Handsets

•    Mahjong

    iPod®

•    Mini-Golf

    iPod

•    Tetris

    iPod

 

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