Electronic Arts Reports Q2 FY13 Financial Results

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 230 million registered players and operates in 75 countries. In fiscal year 2012, EA posted GAAP net revenue of $4.1 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, EA SPORTS, Origin, Medal of Honor, The Sims and Need for Speed are trademarks of Electronic Arts Inc. Mass Effect is a trademark of EA International (Studio and Publishing) Ltd. Battlefield 3 and Battlefield are trademarks of EA Digital Illusions CE AB. The Simpsons TM & © 2012 Twentieth Century Fox Film Corporation. All Rights Reserved . All rights reserved. John Madden, NFL and FIFA are the property of their respective owners and used with permission. 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										Six Months Ended
		September 30,										September 30,
		2012					2011					2012					2011
Net revenue
Product		$	481				$	592				$	1,183				$	1,486
Service and other			230					123					483					228
Total net revenue			711					715					1,666					1,714
Cost of revenue
Product			371					399					503					611
Service and other			74					33					147					61
Total cost of revenue			445					432					650					672
Gross profit			266					283					1,016					1,042
Operating expenses:
Marketing and sales			212					222					357					362
General and administrative			99					88					185					162
Research and development			314					318					604					603
Acquisition-related contingent consideration			-					17					(20	)				19
Amortization of intangibles			7					13					14					26
Restructuring and other			(2	)				(1	)				25					17
Total operating expenses			630					657					1,165					1,189
Operating loss			(364	)				(374	)				(149	)				(147	)
Interest and other expense, net			(4	)				(6	)				(9	)				(3	)
Loss before provision for (benefit from) income taxes			(368	)				(380	)				(158	)				(150	)
Provision for (benefit from) income taxes			13					(40	)				22					(31	)
Net loss		$	(381	)			$	(340	)			$	(180	)			$	(119	)
Loss per share
Basic and Diluted		$	(1.21	)			$	(1.03	)			$	(0.57	)			$	(0.36	)
Number of shares used in computation
Basic and Diluted			316					331					317					331

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 (loss) and non-GAAP earnings (loss) per share.

		Three Months Ended										Six Months Ended
		September 30,										September 30,
		2012					2011					2012					2011
Net loss		$	(381	)			$	(340	)			$	(180	)			$	(119	)
Acquisition-related expenses			21					38					23					56
Amortization of debt discount			5					4					10					4
Change in deferred net revenue (packaged goods and digital content)			369					319					(95	)				(156	)
Restructuring and other			(2	)				(1	)				25					17
Stock-based compensation			44					43					83					81
Income tax adjustments			(7	)				(46	)				53					11
Non-GAAP net income (loss)		$	49				$	17				$	(81	)			$	(106	)
Non-GAAP earnings (loss) per share
Basic		$	0.16				$	0.05				$	(0.26	)			$	(0.32	)
Diluted		$	0.15				$	0.05				$	(0.26	)			$	(0.32	)
Number of shares used in Non-GAAP computation
Basic			316					331					317					331
Diluted			318					337					317					331

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
		September 30,					March 31,
		2012					2012 (a)
ASSETS
Current assets:
Cash and cash equivalents		$	871				$	1,293
Short-term investments			351					437
Marketable equity securities			93					119
Receivables, net of allowances of $182 and $252, respectively			643					366
Inventories			71					59
Deferred income taxes, net			64					67
Other current assets			239					268
Total current assets			2,332					2,609
Property and equipment, net			561					568
Goodwill			1,723					1,718
Acquisition-related intangibles, net			334					369
Deferred income taxes, net			49					42
Other assets			192					185
TOTAL ASSETS		$	5,191				$	5,491
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	219				$	215
Accrued and other current liabilities			874					857
Deferred net revenue (packaged goods and digital content)			953					1,048
Total current liabilities			2,046					2,120
0.75% convertible senior notes due 2016, net			549					539
Income tax obligations			209					189
Deferred income taxes, net			2					8
Other liabilities			231					177
Total liabilities			3,037					3,033
Common stock			3					3
Paid-in capital			2,259					2,359
Accumulated deficit			(257	)				(77	)
Accumulated other comprehensive income			149					173
Total stockholders' equity			2,154					2,458
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	5,191				$	5,491
(a) Derived from audited consolidated financial statements.

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
		Three Months Ended										Six Months Ended
		September 30,										September 30,
		2012					2011					2012					2011
OPERATING ACTIVITIES
Net loss		$	(381	)			$	(340	)			$	(180	)			$	(119	)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquisition-related contingent consideration			-					17					(20	)				19
Depreciation, amortization and accretion, net			56					51					112					94
Net gains on investments and sale of property and equipment			-					(12	)				-					(12	)
Non-cash restructuring charges			-					-					7					-
Stock-based compensation			44					43					83					81
Change in assets and liabilities:
Receivables, net			(528	)				(522	)				(274	)				(215	)
Inventories			(11	)				(15	)				(13	)				(11	)
Other assets			29					38					-					(63	)
Accounts payable			166					76					9					(57	)
Accrued and other liabilities			228					183					109					2
Deferred income taxes, net			-					(49	)				(10	)				(48	)
Deferred net revenue (packaged goods and digital content)			369					319					(95	)				(156	)
Net cash used in operating activities			(28	)				(211	)				(272	)				(485	)
INVESTING ACTIVITIES
Capital expenditures			(25	)				(52	)				(56	)				(84	)
Proceeds from sale of property			-					26					-					26
Proceeds from maturities and sales of short-term investments			152					236					280					319
Purchase of short-term investments			(60	)				(89	)				(197	)				(179	)
Acquisition-related restricted cash			25					-					25					-
Acquisition of subsidiaries, net of cash acquired			(10	)				(632	)				(10	)				(657	)
Net cash provided by (used in) investing activities			82					(511	)				42					(575	)
FINANCING ACTIVITIES
Payment of debt issuance costs			(2	)				-					(2	)				-
Proceeds from borrowings on convertible senior notes, net of issuance costs			-					617					-					617
Proceeds from issuance of warrants			-					65					-					65
Purchase of convertible note hedge			-					(107	)				-					(107	)
Proceeds from issuance of common stock			18					21					18					35
Excess tax benefit from stock-based compensation			-					1					-					3
Repurchase and retirement of common stock			(108	)				(98	)				(179	)				(189	)
Acquisition-related contingent consideration payment			(25	)				-					(26	)				-
Net cash provided by (used in) financing activities			(117	)				499					(189	)				424
Effect of foreign exchange on cash and cash equivalents			15					(20	)				(3	)				(13	)
Decrease in cash and cash equivalents			(48	)				(243	)				(422	)				(649	)
Beginning cash and cash equivalents			919					1,173					1,293					1,579
Ending cash and cash equivalents		$	871				$	930				$	871				$	930

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
		Q2					Q3					Q4					Q1					Q2					YOY %
		FY12					FY12					FY12					FY13					FY13					Change
QUARTERLY RECONCILIATION OF RESULTS
Net Revenue
GAAP net revenue		$	715				$	1,061				$	1,368				$	955				$	711				(1	%)
Change in deferred net revenue (packaged goods and digital content)			319					590					(391	)				(464	)				369
Non-GAAP net revenue		$	1,034				$	1,651				$	977				$	491				$	1,080				4	%
Gross Profit
GAAP gross profit		$	283				$	509				$	994				$	750				$	266				(6	%)
Acquisition-related expenses			8					14					27					15					14
Change in deferred net revenue (packaged goods and digital content)			319					590					(391	)				(464	)				369
Stock-based compensation			-					-					1					1					-
Non-GAAP gross profit		$	610				$	1,113				$	631				$	302				$	649				6	%
GAAP gross profit % (as a % of GAAP net revenue)			40	%				48	%				73	%				79	%				37	%
Non-GAAP gross profit % (as a % of non-GAAP net revenue)			59	%				67	%				65	%				62	%				60	%
Operating Income (Loss)
GAAP operating income (loss)		$	(374	)			$	(183	)			$	365				$	215				$	(364	)			3	%
Acquisition-related expenses			38					14					36					2					21
Certain non-recurring litigation expenses			-					-					27					-					-
Change in deferred net revenue (packaged goods and digital content)			319					590					(391	)				(464	)				369
Restructuring and other			(1	)				-					(1	)				27					(2	)
Stock-based compensation			43					48					41					39					44
Non-GAAP operating income (loss)		$	25				$	469				$	77				$	(181	)			$	68				172	%
GAAP operating income (loss) % (as a % of GAAP net revenue)			(52	%)				(17	%)				27	%				23	%				(51	%)
Non-GAAP operating income (loss) % (as a % of non-GAAP net revenue)			2	%				28	%				8	%				(37	%)				6	%
Net Income (Loss)
GAAP net income (loss)		$	(340	)			$	(205	)			$	400				$	201				$	(381	)			(12	%)
Acquisition-related expenses			38					14					36					2					21
Amortization of debt discount			4					5					5					5					5
Certain non-recurring litigation expenses			-					-					27					-					-
Change in deferred net revenue (packaged goods and digital content)			319					590					(391	)				(464	)				369
Restructuring and other			(1	)				-					(1	)				27					(2	)
Stock-based compensation			43					48					41					39					44
Income tax adjustments			(46	)				(118	)				(61	)				60					(7	)
Non-GAAP net income (loss)		$	17				$	334				$	56				$	(130	)			$	49				188	%
GAAP net income (loss) % (as a % of GAAP net revenue)			(48	%)				(19	%)				29	%				21	%				(54	%)
Non-GAAP net income (loss) % (as a % of non-GAAP net revenue)			2	%				20	%				6	%				(26	%)				5	%
Diluted Earnings (Loss) Per Share
GAAP earnings (loss) per share		$	(1.03	)			$	(0.62	)			$	1.20				$	0.63				$	(1.21	)			(17	%)
Non-GAAP earnings (loss) per share		$	0.05				$	0.99				$	0.17				$	(0.41	)			$	0.15				200	%
Number of diluted shares used in computation
GAAP			331					332					332					320					316
Non-GAAP			337					338					332					317					318
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data, SKU count and headcount)
		Q2					Q3					Q4					Q1					Q2					YOY %
		FY12					FY12					FY12					FY13					FY13					Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Geography Net Revenue
North America			337					500					653					450					329				(2	%)
Europe			328					505					627					435					332				1	%
Asia			50					56					88					70					50				-
Total GAAP Net Revenue			715					1,061					1,368					955					711				(1	%)
North America			144					310					(188	)				(265	)				179
Europe			174					235					(187	)				(174	)				171
Asia			1					45					(16	)				(25	)				19
Change In Deferred Net Revenue (Packaged Goods and Digital Content)			319					590					(391	)				(464	)				369
North America			481					810					465					185					508				6	%
Europe			502					740					440					261					503				-
Asia			51					101					72					45					69				35	%
Total Non-GAAP Net Revenue			1,034					1,651					977					491					1,080				4	%
North America			47	%				47	%				48	%				47	%				46	%
Europe			46	%				48	%				46	%				46	%				47	%
Asia			7	%				5	%				6	%				7	%				7	%
Total GAAP Net Revenue %			100	%				100	%				100	%				100	%				100	%
North America			46	%				49	%				48	%				38	%				47	%
Europe			49	%				45	%				45	%				53	%				47	%
Asia			5	%				6	%				7	%				9	%				6	%
Total Non-GAAP Net Revenue %			100	%				100	%				100	%				100	%				100	%
Net Revenue Composition
Publishing and Other			450					738					926					592					365				(19	%)
Wireless, Internet-derived, and Advertising (Digital)			234					274					419					342					324				38	%
Distribution			31					49					23					21					22				(29	%)
Total GAAP Net Revenue			715					1,061					1,368					955					711				(1	%)
Publishing and Other			337					487					(397	)				(446	)				379
Wireless, Internet-derived, and Advertising (Digital)			(18	)				103					6					(18	)				(10	)
Change In Deferred Net Revenue (Packaged Goods and Digital Content)			319					590					(391	)				(464	)				369
Publishing and Other			787					1,225					529					146					744				(5	%)
Wireless, Internet-derived, and Advertising (Digital)			216					377					425					324					314				45	%
Distribution			31					49					23					21					22				(29	%)
Total Non-GAAP Net Revenue			1,034					1,651					977					491					1,080				4	%
Publishing and Other			63	%				69	%				68	%				62	%				51	%
Wireless, Internet-derived, and Advertising (Digital)			33	%				26	%				30	%				36	%				46	%
Distribution			4	%				5	%				2	%				2	%				3	%
Total GAAP Net Revenue %			100	%				100	%				100	%				100	%				100	%
Publishing and Other			76	%				74	%				54	%				30	%				69	%
Wireless, Internet-derived, and Advertising (Digital)			21	%				23	%				44	%				66	%				29	%
Distribution			3	%				3	%				2	%				4	%				2	%
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)
		Q2					Q3					Q4					Q1					Q2					YOY %
		FY12					FY12					FY12					FY13					FY13					Change
QUARTERLY NET REVENUE PRESENTATIONS - GAAP AND NON-GAAP
Platform Net Revenue
Xbox 360			213					331					454					292					204				(4	%)
PLAYSTATION 3			169					314					432					267					150				(11	%)
Wii			35					49					20					8					17				(51	%)
PlayStation 2			15					7					3					2					6				(60	%)
Total Consoles			432					701					909					569					377				(13	%)
Mobile			55					70					87					69					75				36	%
PlayStation Handhelds			17					14					6					10					14				(18	%)
Nintendo Handhelds			7					15					5					9					8				14	%
Total Mobile and Handhelds			79					99					98					88					97				23	%
PC			178					214					334					276					214				20	%
Other			26					47					27					22					23				(12	%)
Total GAAP Net Revenue			715					1,061					1,368					955					711				(1	%)
Xbox 360			140					174					(128	)				(186	)				144
PLAYSTATION 3			205					179					(210	)				(183	)				222
Wii			(1	)				3					(7	)				(5	)				-
PlayStation 2			-					-					-					(1	)				1
Mobile			-					13					(3	)				9					13
PlayStation Handhelds			-					(2	)				10					(4	)				7
Nintendo Handhelds			-					9					(5	)				(4	)				(2	)
PC			(25	)				214					(48	)				(90	)				(16	)
Change in Deferred Net Revenue (Packaged Goods and Digital Content)			319					590					(391	)				(464	)				369
Xbox 360			353					505					326					106					348				(1	%)
PLAYSTATION 3			374					493					222					84					372				(1	%)
Wii			34					52					13					3					17				(50	%)
PlayStation 2			15					7					3					1					7				(53	%)
Total Consoles			776					1,057					564					194					744				(4	%)
Mobile			55					83					84					78					88				60	%
PlayStation Handhelds			17					12					16					6					21				24	%
Nintendo Handhelds			7					24					-					5					6				(14	%)
Total Mobile and Handhelds			79					119					100					89					115				46	%
PC			153					428					286					186					198				29	%
Other			26					47					27					22					23				(12	%)
Total Non-GAAP Net Revenue			1,034					1,651					977					491					1,080				4	%
Xbox 360			30	%				31	%				33	%				31	%				29	%
PLAYSTATION 3			23	%				29	%				32	%				28	%				21	%
Wii			5	%				5	%				1	%				1	%				2	%
PlayStation 2			2	%				1	%				-					-					1	%
Total Consoles			60	%				66	%				66	%				60	%				53	%
Mobile			8	%				7	%				6	%				7	%				11	%
PlayStation Handhelds			2	%				1	%				1	%				1	%				2	%
Nintendo Handhelds			1	%				1	%				-					1	%				1	%
Total Mobile and Handhelds			11	%				9	%				7	%				9	%				14	%
PC			25	%				20	%				25	%				29	%				30	%
Other			4	%				5	%				2	%				2	%				3	%
Total GAAP Net Revenue %			100	%				100	%				100	%				100	%				100	%
Xbox 360			34	%				31	%				34	%				22	%				32	%
PLAYSTATION 3			36	%				30	%				23	%				17	%				34	%
Wii			4	%				3	%				1	%				1	%				2	%
PlayStation 2			1	%				-					-					-					1	%
Total Consoles			75	%				64	%				58	%				40	%				69	%
Mobile			5	%				5	%				8	%				16	%				8	%
PlayStation Handhelds			2	%				1	%				2	%				1	%				2	%
Nintendo Handhelds			1	%				1	%				-					1	%				1	%
Total Mobile and Handhelds			8	%				7	%				10	%				18	%				11	%
PC			15	%				26	%				29	%				38	%				18	%
Other			2	%				3	%				3	%				4	%				2	%
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)
		Q2					Q3					Q4					Q1					Q2					YOY %
		FY12					FY12					FY12					FY13					FY13					Change
CASH FLOW DATA
Operating cash flow			(211	)				475					287					(244	)				(28	)			87	%
Operating cash flow - TTM			117					243					277					307					490				319	%
Capital expenditures			52					44					44					31					25				(52	%)
Capital expenditures - TTM			120					149					172					171					144				20	%
BALANCE SHEET DATA
Cash and cash equivalents			930					1,242					1,293					919					871				(6	%)
Short-term investments			355					406					437					444					351				(1	%)
Marketable equity securities			214					143					119					76					93				(56	%)
Receivables, net			562					526					366					111					643				14	%
Inventories			90					69					59					60					71				(21	%)
Deferred net revenue (packaged goods and digital content)
End of the quarter			849					1,439					1,048					584					953
Less: Beginning of the quarter			530					849					1,439					1,048					584
Change in deferred net revenue (packaged goods and digital content)			319					590					(391	)				(464	)				369
STOCK-BASED COMPENSATION
Cost of goods sold			-					-					1					1					-
Marketing and sales			6					7					8					7					8
General and administrative			9					11					7					9					9
Research and development			28					30					25					22					27
Total Stock-Based Compensation			43					48					41					39					44
EMPLOYEES			8,687					9,043					9,158					9,225					9,224				6	%

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