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EA Reports Second Quarter Fiscal Year 2009 Results
Friday, October 31, 2008

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Vancouver, BC, October 31, 2008--(T-Net)--Electronic Arts Inc. (NASDAQ:ERTS) today announced preliminary financial results for its fiscal second quarter ended September 30, 2008.

Fiscal Second Quarter Results (comparisons are to the quarter ended September 30, 2007)

Net revenue for the second quarter was $894 million, up $254 million as compared with $640 million for the prior year. During the quarter, EA had a net deferral of $232 million of net revenue related to certain online enabled packaged goods games and digital content as compared with $296 million in the prior year.

Non-GAAP net revenue was $1.126 billion, up 20 percent as compared with $936 million for the prior year. Sales were driven by the launches of Madden NFL 09, SPORE™, Mercenaries 2: World in Flames™, NCAA® Football 09, Tiger Woods PGA TOUR 09, Warhammer® Online: Age of Reckoning™, as well as the continued strength of Rock Band™.

Net loss for the quarter was $310 million as compared with net loss of $195 million for the prior year. Diluted loss per share was $0.97 as compared with diluted loss per share of $0.62 for the prior year.

Non-GAAP net loss was $20 million as compared with non-GAAP net income of $87 million a year ago. Non-GAAP diluted loss per share was $0.06 as compared with non-GAAP diluted earnings per share of $0.27 for the prior year.

Trailing-twelve-month operating cash flow was $219 million as compared with $145 million a year ago. The Company ended the quarter with cash and short-term investments of $1.825 billion.

“Considering the slow down at retail we’ve seen in October, we are cautious in the short term,” said John Riccitiello, Chief Executive Officer. “Longer term, we are very bullish on the game sector overall and on EA in particular. The industry is growing double-digits on the strength of three new game consoles and increases in the number of homes with broadband internet connections. EA is well positioned to benefit from these technology drivers due to the strength of our creative studios and our broad collection of game properties--from The Sims, to Spore and Madden NFL, to Warhammer Online.”

Highlights


• Madden NFL 09 sold 4.5 million copies and was the number one title across all platforms in the quarter based on NPD data.
SPORE is a hit selling nearly 2.0 million copies in just 3 weeks – over 40 million creatures have been uploaded into Sporepedia™. SPORE is the number one title on the PC in North America and number three title in Europe year-to-date.

• Warhammer Online: Age of Reckoning, an MMO from EA’s Mythic Entertainment studio, sold 1.2 million copies in the quarter – with over 800 thousand current players.

• The EA SPORTS core portfolio of annual simulation games takes a step up in quality – up 4 points year-over-year according to Metacritic's aggregated review score system on the Xbox 360® and PLAYSTATION®3 entertainment systems.

• EA was awarded 5 of the 9 honors at the Leipzig Games Convention in Germany –Spore as best PC game; Mirror’s Edge™ as best Xbox 360 game; Skate It as best Wii™ game; Warhammer Online: Age of Reckoning as best online game; and Sonic Chronicles, a game developed by EA BioWare, won best Nintendo DS™ game.

• EA Mobile is the world’s leading publisher of games for phones – with revenue of $47 million – up 24 percent year-over-year.

• EA BioWare and LucasArts announced the development of Star Wars®: The Old Republic™, a story-driven massively multiplayer online PC game.

• EA signs publishing agreements with Grasshopper Manufacture and Epic Games.

EA Announces Cost Reduction Plan

EA announced today a cost reduction plan, which will include the elimination of approximately 6% of the Company’s workforce. The Company estimates its cost reduction plan will result in annual pre-tax cost savings of approximately $50 million.

Business Outlook

The following forward-looking statements, as well as those made above, reflect expectations as of October 30, 2008. Results may be materially different and are affected by many factors, including: development delays on EA’s products; 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; expected savings and impact on EA’s operations of the Company’s cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; consumer demand for games for the PlayStation®2; the financial impact of potential future 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.

Fiscal Year Expectations - Ending March 31, 2009

• GAAP net revenue is expected to be between $4.9 and $5.15 billion as compared with $3.665 billion in the prior year - up 33 to 41 percent.

• Non-GAAP net revenue is expected to be between $5.0 and $5.3 billion as compared with $4.020 billion in the prior year - up 24 to 32 percent.

• GAAP diluted earnings per share are expected to be a diluted loss per share of $0.21 to diluted earnings per share of $0.07 as compared with a diluted loss per share of $1.45 in the prior year.

• Non-GAAP diluted earnings per share are expected to be between $1.00 and $1.40 as compared with $1.06 in the prior year.

• Expected non-GAAP net income excludes the following pre-tax items from expected GAAP net income:

• $100 to $150 million for the impact of the change in deferred net revenue (packaged goods and digital content),

• $211 million of estimated stock-based compensation,

• $75 million of amortization of intangible assets,

• $37 million of restructuring charges,

• $40 million of losses on strategic investments,

• $3 million in acquired-in process technology, and

• $21 million of certain abandoned acquisition-related costs

In fiscal 2009, the Company began using 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 fiscal 2009 non-GAAP financial results. The Company expects its GAAP tax expense to be approximately $35 to $70 million for fiscal 2009.

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 fiscal second quarter ended September 30, 2008 and 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: (877) 857-6177, access code 220497, or via webcast: http://investor.ea.com.

A dial-in replay of the conference call will be provided until November 6, 2008 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 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:


• Amortization of intangibles
• Stock-based compensation
• Acquired in-process technology
• Restructuring charges
• Losses on strategic investments
• Change in deferred net revenue (packaged goods and digital content)
• Certain abandoned acquisition-related costs

Through the end of fiscal 2008, Electronic Arts made certain income tax adjustments to its non-GAAP financial measures to reflect the income tax effects of each of the items it excluded from its pre-tax non-GAAP financial measures, as well as certain discrete one-time income tax adjustments. This approach was consistent with how the Company evaluated operating performance, planned, forecasted and analyzed future periods, and assessed the performance of its management team.

In fiscal 2009, the Company began using 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 fiscal 2009 non-GAAP financial results.

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:

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 123(R), “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.

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. 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.

Change in Deferred Net Revenue (Packaged Goods and Digital Content). Beginning in fiscal 2008, Electronic Arts was no longer able to objectively determine the fair value of the online service included in certain of its packaged goods games and online content. As a result, the Company began recognizing the revenue from the sale of these games and content over the estimated online service period. Although Electronic Arts defers the recognition of a significant portion of its net revenue as a result of this change, there has been no adverse impact to its operating cash flow. 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 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.

Certain Abandoned Acquisition-Related Costs. Electronic Arts incurred significant legal, banking and other consulting fees related to the Company’s proposed acquisition and related cash tender offer for all of the outstanding shares of Take-Two Interactive Software, Inc. On August 18, 2008, the Company allowed the tender offer to expire without purchasing any shares of Take-Two and, on September 14, 2008, the Company announced that it had terminated discussions with, and would not be making a proposal to acquire, Take-Two. The costs incurred in connection with the abandoned proposal and tender offer were outside the ordinary course of business and will be excluded by the Company when assessing the performance of its management team. As such, the Company believes it is appropriate to exclude such expenses 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 headings “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: timely development and release of Electronic Arts’ products; competition in the interactive entertainment industry; the Company’s ability to successfully implement its cost reduction plans; the general health of the U.S. and global economy and the related impact on discretionary consumer spending; the consumer demand for, and the availability of an adequate supply of console hardware units (including the Xbox 360® video game and entertainment system, the PLAYSTATION®3 computer entertainment system and the Wii™); consumer demand for software for the PlayStation 2; the Company’s ability to predict consumer preferences among competing hardware platforms; the financial impact of potential future acquisitions by EA; the Company’s ability to realize the anticipated benefits of acquisitions; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; the Company’s ability to manage expenses during fiscal year 2009 and beyond; the Company’s ability to attract and retain key personnel; changes in the Company’s effective tax rates; the performance of strategic investments; 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. These forward-looking statements speak only as of October 30, 2008. Electronic Arts assumes no obligation and does not intend to update these forward-looking statements, including those made under the heading “Business Outlook”. 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 September 30, 2008. 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, 2008.

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 video game systems, personal computers, wireless devices and the Internet. Electronic Arts markets its products under four brand names: EA SPORTSTM, EATM, EA SPORTS Freestyle TM and POGOTM. In fiscal 2008, EA posted GAAP net revenue of $3.67 billion and had 27 titles that sold more than one million copies. EA's 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.

EA, EA SPORTS, EA SPORTS Freestyle, EA Mobile, POGO, SPORE, Sporepedia, Need for Speed, MySims, Dead Space, Mercenaries and Mercenaries 2: World in Flames are trademarks or registered trademarks of Electronic Arts Inc. in the U.S. and/or other countries. Mirror’s Edge and the DICE logo are trademarks or registered trademarks of EA Digital Illusions CE AB. John Madden, NFL, FIFA, Tiger Woods, PGA TOUR and NCAA are trademarks or registered trademarks of their respective owners and used with permission. Rock Band is a trademark of Harmonix Music Systems, Inc., a division of MTV Networks. Warhammer, Warhammer Online, Age of Reckoning, and all associated marks, names, races, race insignia, characters, vehicles, locations, units, illustrations and images from the Warhammer world are either ®, ™ and/or © Games Workshop Ltd 2000-2008. LucasArts, STAR WARS and related properties are trademarks in the United States and/or in other countries of Lucasfilm Ltd. and/or its affiliates. Xbox 360 is a trademark of the Microsoft group of companies and are used under license from Microsoft. “PlayStation” and “PLAYSTATION” are registered trademarks of Sony Computer Entertainment Inc. Wii and Nintendo DS are trademarks of Nintendo. All other trademarks are the property of their respective owners

Electronic Arts (Canada) Inc.

Burnaby, BC (New Media)
1250 Employees In BC (8000 Total)
Founded: 1982 | Revenues: $3.6 Billion

Electronic Arts is a global leader in digital interactive entertainment.

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Electronic Arts (Canada) Inc.

Posted: Oct 31, 2008

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