Electronic Arts : Quarterly Report

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

• QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

OR

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File No. 000-17948

ELECTRONIC ARTS INC.

(Exact name of registrant as specified in its charter)

Delaware				94-2838567
(State or other jurisdiction of				(I.R.S. Employer
incorporation or organization)				Identification No.)
209 Redwood Shores Parkway				94065
Redwood City California
(Address of principal executive offices)				(Zip Code)
			[phone]
			(Registrant's telephone number, including area code)
	Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	EA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑ Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 1, 2019, there were 291,978,913 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding.

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Table of Contents

ELECTRONIC ARTS INC.

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2019

Table of Contents

		Page
Part I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2019 and March 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2019 and
	2018	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended September 30, 2019 and	6
	2018
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	8
	Report of Independent Registered Public Accounting Firm	31
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	51
Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 6.	Exhibits	63
Exhibit Index		64
Signature		65
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Table of Contents
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)		September 30, 2019			March 31, 2019 (a)
(In millions, except par value data)
ASSETS
Current assets:
Cash and cash equivalents	$	2,940		$	4,708
Short-term investments		1,943			737
Receivables, net		856			623
Other current assets		301			313
	Total current assets		6,040			6,381
Property and equipment, net		442			448
Goodwill			1,890			1,892
Acquisition-related intangibles, net		72			87
Deferred income taxes, net		1,835			35
Other assets		314			114
TOTAL ASSETS	$	10,593		$	8,957
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	148		$	113
Accrued and other current liabilities		1,024			1,052
Deferred net revenue (online-enabled games)		646			1,100
	Total current liabilities		1,818			2,265
Senior notes, net		995			994
Income tax obligations		361			233
Deferred income taxes, net		2			2
Other liabilities		259			132
	Total liabilities		3,435			3,626
Commitments and contingencies (See Note 12)
Stockholders' equity:
Common stock, $0.01 par value. 1,000 shares authorized; 293 and 298 shares issued and outstanding,
respectively		3			3
Additional paid-in capital		-			-
Retained earnings		7,165			5,358
Accumulated other comprehensive loss		(10)			(30)
	Total stockholders' equity		7,158			5,331
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,593		$	8,957
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

(a) Derived from audited Consolidated Financial Statements.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)	Three Months Ended				Six Months Ended
September 30,				September 30,
(In millions, except per share data)	2019	2018	2019	2018

Net revenue:
Product	$
Service and other
Total net revenue
Cost of revenue:
Product
Service and other
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Marketing and sales
General and administrative
Acquisition-related contingent consideration
Amortization of intangibles
Total operating expenses
Operating income
Interest and other income (expense), net
Income before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income	$
Earnings per share:
Basic	$
Diluted	$
Number of shares used in computation:
Basic
Diluted

568	$	623	$	734	$	825
780				663			1,823			1,598
1,348			1,286			2,557			2,423
193			222			228			290
212				196			364			343
405			418			592			633
943				868			1,965			1,790
387				339			768			701
152			146			262			286
128				117			238			231
2			2			3			2
6				6			11			12
675			610			1,282			1,232
268				258			683			558
16			18			37			37
284				276			720			595
(570)			21			(1,555)			47
854			$	255		$	2,275		$	548
2.89			$	0.84		$	7.69		$	1.80
2.89	$	0.83	$	7.66	$	1.77
295			305			296			305
296				307			297			309

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)		Three Months Ended				Six Months Ended
		September 30,				September 30,
(In millions)	2019		2018				2019			2018
Net income	$		854		$	255		$	2,275		$	548
Other comprehensive income, net of tax:
Net gains on available-for-sale securities			-			1			3			1
Net gains on derivative instruments			16			3			25			96
Foreign currency translation adjustments			(9)			3			(8)			(12)
Total other comprehensive income, net of tax			7			7			20			85
Total comprehensive income	$		861		$	262		$	2,295		$	633

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited). 5