10-QPeriod: Q2 FY2006

ELECTRONIC ARTS INC. Quarterly Report for Q2 Ended Sep 30, 2005

Filed November 10, 2005For Securities:EA

Summary

This filing for Electronic Arts Inc. (EA) covers the period ending September 29, 2005. A significant event during this quarter was the settlement of the Kirschenbaum v. Electronic Arts Inc. class action lawsuit for $15.6 million, which addresses claims of improper classification of "Image Production Employees." The company also continues to defend against another employment-related class action (Hasty v. Electronic Arts Inc.) and faces securities class action lawsuits related to alleged false and misleading statements, along with shareholder derivative actions. Operationally, EA completed its $750 million common stock repurchase program in September 2005, buying back a substantial number of shares. Furthermore, the company announced a significant international publishing reorganization plan, intending to establish a headquarters in Geneva, Switzerland. This initiative is expected to incur between $55 million and $65 million in restructuring costs over the next twelve months, primarily related to employee relocation, moving expenses, and facility exit costs, with approximately $15 million expected in the remainder of fiscal 2006. Additional annual operating expenses of $10 million to $15 million are also anticipated post-reorganization.

Key Highlights

  • 1Settlement reached in Kirschenbaum v. Electronic Arts Inc. class action lawsuit for $15.6 million to resolve claims regarding "Image Production Employees."
  • 2Ongoing defense against Hasty v. Electronic Arts Inc. employment class action and federal securities class action lawsuits.
  • 3Completed the previously authorized $750 million common stock repurchase program in September 2005.
  • 4Announced a plan to reorganize international publishing operations, establishing a new headquarters in Geneva, Switzerland.
  • 5Expects to incur $55-$65 million in restructuring costs over the next twelve months due to the international reorganization, with approximately $15 million expected in the remainder of fiscal 2006.
  • 6Anticipates incremental annual operating expenses of $10-$15 million post-international reorganization.
  • 7Shareholders approved amendments to the 2000 Equity Incentive Plan and the 2000 Employee Stock Purchase Plan, including increasing authorized shares.

Frequently Asked Questions

EA has reached a settlement for the Kirschenbaum v. Electronic Arts Inc. class action lawsuit for $15.6 million, awaiting final court approval. The company is actively defending against the Hasty v. Electronic Arts Inc. employment class action lawsuit and securities class action lawsuits. Management believes that liabilities from other claims and litigation will not have a material adverse effect on the company's financial position or results of operations.

Electronic Arts Inc. completed its $750 million common stock repurchase program in September 2005. During the three months ended September 30, 2005, the company repurchased a total of 6,326,757 shares of its common stock.

EA is reorganizing its international publishing business with plans to establish a new headquarters in Geneva, Switzerland. This will involve opening a new facility, relocating and hiring employees, and closing certain UK facilities. The company expects significant restructuring costs and increased operating expenses as a result.

EA anticipates incurring between $55 million and $65 million in total restructuring costs, primarily for employee relocation, moving expenses, and facility exit costs. Approximately $15 million of these costs are expected in the remainder of fiscal 2006. Additionally, incremental operating expenses of $10 million to $15 million annually are expected thereafter.