10-QPeriod: Q2 FY2003

ELECTRONIC ARTS INC. Quarterly Report for Q2 Ended Sep 30, 2002

Filed November 8, 2002For Securities:EA

Summary

Electronic Arts Inc. (EA) reported a strong turnaround in its financial performance for the quarter ended September 30, 2002, compared to the same period last year. Net revenues surged by 88.8% to $453.5 million, driven by robust sales across multiple platforms, particularly PlayStation 2 and the launch of new titles on Xbox and Nintendo GameCube. The company also saw significant growth in international markets, with Europe showing a remarkable 119.3% increase in net revenues. The company transitioned from a net loss of $32.8 million in the prior year's quarter to a net income of $50.2 million, demonstrating significant operational improvements. This positive shift was supported by a notable increase in gross profit and a more controlled growth in operating expenses relative to revenue. EA also benefited from the adoption of SFAS No. 142, which ceased goodwill amortization, positively impacting net income.

Key Highlights

  • 1Revenue doubled year-over-year, reaching $453.5 million for the quarter due to strong performance across key gaming platforms like PlayStation 2, Xbox, and Nintendo GameCube.
  • 2Net income turned positive, swinging from a $32.8 million loss in Q2 FY2001 to a $50.2 million profit in Q2 FY2002.
  • 3Significant international growth was observed, with Europe's net revenues increasing by 119.3%.
  • 4New platform revenue from Xbox and Nintendo GameCube began to contribute, with no comparable revenue in the prior year's quarter.
  • 5The company adopted SFAS No. 142, ceasing goodwill amortization, which positively impacted earnings.
  • 6Strong sales of The Sims franchise continued to drive PC product revenue growth.
  • 7Cash, cash equivalents, and short-term investments saw a substantial increase, indicating a healthy liquidity position.

Frequently Asked Questions

The primary driver was strong sales across multiple gaming platforms, including PlayStation 2 with key franchise titles like Madden NFL and NCAA Football, and the introduction of new titles on emerging platforms such as Xbox and Nintendo GameCube. International sales, particularly in Europe, also contributed significantly to the growth.

EA.com continued to incur losses in the quarter, with an operating loss of $23.3 million, a slight improvement from a $37.3 million loss in the same quarter last year. While net revenues for EA.com increased slightly, the segment's research and development expenses also rose significantly.

The adoption of SFAS No. 142, which requires the cessation of goodwill amortization, had a positive impact on the reported results. For the three months ended September 30, 2001, goodwill amortization was $2.9 million (net of tax), which is no longer recognized in the current period, thus improving net income.

Electronic Arts has a strong liquidity position, with cash, cash equivalents, and short-term investments totaling $920.8 million as of September 30, 2002. The company generated positive cash flow from operations and expects its existing liquid assets and operating cash flow to be sufficient to meet its cash requirements for at least the next 12 months.