10-QPeriod: Q2 FY2002

ELECTRONIC ARTS INC. Quarterly Report for Q2 Ended Sep 30, 2001

Filed November 14, 2001For Securities:EA

Summary

Electronic Arts Inc. (EA) reported its financial results for the second quarter and first half of fiscal year 2002, ending September 29, 2001. The company experienced revenue growth, with consolidated net revenues increasing by 9.2% to $240.2 million for the quarter and 12.7% to $422.1 million for the first half, compared to the prior year periods. Despite revenue growth, EA reported net losses for both periods: $32.8 million for the quarter and $78.1 million for the first half. The company is navigating a significant industry-wide transition to new gaming platforms like PlayStation 2, Xbox, and GameCube, which is impacting sales of older console titles but driving growth in newer ones. The EA.com segment continues to be a significant investment area, contributing to operating expenses but also showing growth in advertising revenue and online subscriptions. Key financial trends include a decrease in cash, cash equivalents, and short-term investments, alongside a reduction in allowance for doubtful accounts and sales returns. The company's liquidity position remains strong, with substantial cash reserves expected to be sufficient for its short-term and long-term needs. Management is actively managing market risks, particularly foreign currency exchange rates and interest rates, through hedging strategies and a conservative investment portfolio.

Key Highlights

  • 1Consolidated net revenues increased by 9.2% to $240.2 million for the three months ended September 30, 2001, and by 12.7% to $422.1 million for the six months ended September 30, 2001.
  • 2The company reported net losses of $32.8 million for the three-month period and $78.1 million for the six-month period, though these losses narrowed compared to the prior year's equivalent periods.
  • 3Significant revenue growth was observed in PlayStation 2 titles, driven by new releases and a growing install base, while revenues from older platforms like PlayStation and N64 declined due to console transitions.
  • 4Advertising revenue is a new and growing stream, contributing $7.1 million and $14.8 million in the respective periods, largely due to the acquisition of Pogo and the launch of EA.com's gamesite.
  • 5The EA.com segment continues to incur operating losses but shows strategic importance with growth in online subscriptions and advertising, funded by capital contributions from Electronic Arts.
  • 6The company's cash, cash equivalents, and short-term investments decreased during the first half of the fiscal year, but overall liquidity is considered strong with $407.9 million in cash, cash equivalents, and short-term investments as of September 30, 2001.
  • 7EA is actively managing market risks, particularly foreign currency exchange rates, through the use of foreign exchange contracts, and interest rate risk through its investment portfolio.

Frequently Asked Questions

For the three months ended September 30, 2001, Electronic Arts reported net revenues of $240.2 million, an increase of 9.2% year-over-year, and a net loss of $32.8 million. For the six months ended September 30, 2001, net revenues were $422.1 million, up 12.7%, with a net loss of $78.1 million.

The transition to new platforms like PlayStation 2 is driving significant revenue growth for EA, particularly with titles like Madden NFL 2002. However, revenues from older platforms such as PlayStation and N64 are declining as expected due to the shift in consumer preference and fewer new titles being released for those consoles.

The EA.com segment continues to be a strategic focus and investment area, contributing to operating expenses and net losses. However, it is showing positive developments with growth in online subscriptions and the emergence of advertising revenue. EA.com is primarily funded by capital contributions from Electronic Arts, and its future performance is subject to the growth of online gaming and e-commerce.

As of September 30, 2001, EA reported working capital of $469.1 million and cash, cash equivalents, and short-term investments totaling $407.9 million. The company believes its existing cash reserves and expected cash flow from operations are sufficient to meet its short-term and long-term financial requirements.