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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