10-QPeriod: Q3 FY2010

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2009

Filed February 9, 2010For Securities:EA

Summary

Electronic Arts Inc. (EA) reported a net loss of $82 million for the third quarter of fiscal year 2010, a significant improvement from the $641 million net loss in the same period last year. This improvement was largely driven by the absence of a substantial goodwill impairment charge recorded in the prior year and a decrease in income tax provision. However, total net revenue for the quarter declined 25% year-over-year to $1.243 billion, impacted by a $103 million increase in deferred revenue from online-enabled games and digital content sales. For the nine-month period, EA also saw a reduction in its net loss and a decrease in operating cash burn. The company is actively managing its cost structure, evidenced by a significant restructuring plan involving workforce reduction and facility consolidation. Despite revenue headwinds, EA is investing in online content and services, and mobile platforms, aiming to diversify its business and capture future growth opportunities. Investors should monitor the company's ability to navigate the challenging economic environment and the effectiveness of its strategic initiatives, particularly the shift towards digital content and services, as well as the ongoing restructuring efforts.

Financial Highlights

42 data points
Beta

Revenue

$1.24B

47.4% Gross Margin

Net Income

-$82.00M

-6.6% Net Margin

Total Assets

$4.94B

Cash & Equivalents

$1.11B

Free Cash Flow

$221.00M

Financial Statements
Beta
Revenue$1.24B
Cost of Revenue$654.00M
Gross Profit$589.00M
Operating Expenses$696.00M
Operating Income-$107.00M
Net Income-$82.00M

Key Highlights

  • 1Reported a net loss of $82 million for the three months ended December 31, 2009, compared to a net loss of $641 million in the prior year period.
  • 2Total net revenue decreased by 25% to $1.243 billion for the three months ended December 31, 2009, compared to $1.654 billion in the prior year period.
  • 3Deferred net revenue for online-enabled packaged goods and digital content increased, impacting reported net revenue by $103 million in the quarter.
  • 4Announced and began implementing a fiscal 2010 restructuring plan expected to reduce workforce by approximately 1,350 employees.
  • 5Acquired Playfish Limited, a developer of free-to-play social games, for approximately $308 million in cash and equity.
  • 6Cash used in operating activities for the nine months ended December 31, 2009, was $101 million, an improvement from $203 million in the prior year period.
  • 7Acknowledged continued economic environment challenges impacting consumer spending and retailer inventory ordering.

Frequently Asked Questions

The significant improvement in net loss from $641 million in the prior year quarter to $82 million in the current quarter was primarily due to a $368 million goodwill impairment charge recognized in the prior year, a $352 million decrease in the income tax provision largely due to a valuation allowance charge in the prior year, and a $271 million decrease in the cost of goods sold.

Total net revenue decreased by 25% to $1.243 billion due to a combination of factors. A significant portion of this decline was due to an increase in deferred net revenue related to online-enabled packaged goods and digital content sales, which reduced reported revenue by $103 million in the quarter. Additionally, the overall economic environment and a decline in consumer spending impacted demand.

EA announced and began executing its fiscal 2010 restructuring plan, which aims to narrow its product portfolio and focus on higher-margin opportunities. This plan includes reducing its workforce by approximately 1,350 employees, consolidating or closing facilities, and eliminating certain titles. As of December 31, 2009, approximately $96 million in charges had been incurred related to this plan.

EA is making significant investments in electronically delivered content and services, including downloadable content and online games, viewing them as an increasingly important part of its business. The acquisition of Playfish Limited, a social games developer, also reflects this strategic focus. The company is also adapting its revenue recognition policies for online-enabled products.