ELECTRONIC ARTS INC. (Exact Name of Registrant As Specified in Its Charter) Delaware 94-2838567 (State Or Other Jurisdiction of (I.R.S
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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 December 31, 2020 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) (650) 628-1500 (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 February 4, 2021, there were 287,626,027 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding. 1 Table of Contents ELECTRONIC ARTS INC. FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 2020 Table of Contents Page Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2020 and 2019 4 Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2020 and 2019 5 Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2020 and 2019 6 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2020 and 2019 7 Notes to Condensed Consolidated Financial Statements 8 Report of Independent Registered Public Accounting Firm 29 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 3. Quantitative and Qualitative Disclosures About Market Risk 46 Item 4. Controls and Procedures 48 Part II - OTHER INFORMATION Item 1. Legal Proceedings 49 Item 1A. Risk Factors 49 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61 Item 3. Defaults Upon Senior Securities 61 Item 4. Mine Safety Disclosures 61 Item 5. Exhibits 61 Exhibit Index 62 Signature 63 2 Table of Contents PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) ELECTRONIC ARTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions, except par value data) December 31, 2020 March 31, 2020 (a) ASSETS Current assets: Cash and cash equivalents $ 4,772 $ 3,768 Short-term investments 1,938 1,967 Receivables, net 778 461 Other current assets 233 321 Total current assets 7,721 6,517 Property and equipment, net 467 449 Goodwill 1,896 1,885 Acquisition-related intangibles, net 37 53 Deferred income taxes, net 1,924 1,903 Other assets 375 305 TOTAL ASSETS $ 12,420 $ 11,112 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 89 $ 68 Accrued and other current liabilities 1,423 1,052 Deferred net revenue (online-enabled games) 1,380 945 Senior notes, current, net 600 599 Total current liabilities 3,492 2,664 Senior notes, net 397 397 Income tax obligations 296 373 Deferred income taxes, net 1 1 Other liabilities 271 216 Total liabilities 4,457 3,651 Commitments and contingencies (See Note 12) Stockholders’ equity: Common stock, $0.01 par value. 1,000 shares authorized; 288 and 288 shares issued and outstanding, respectively 3 3 Additional paid-in capital — — Retained earnings 8,054 7,508 Accumulated other comprehensive loss (94) (50) Total stockholders’ equity 7,963 7,461 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 12,420 $ 11,112 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited). (a) Derived from audited Consolidated Financial Statements. 3 Table of Contents ELECTRONIC ARTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended (Unaudited) December 31, December 31, (In millions, except per share data) 2020 2019 2020 2019 Net revenue $ 1,673 $ 1,593 $ 4,283 $ 4,150 Cost of revenue 601 508 1,175 1,100 Gross profit 1,072 1,085 3,108 3,050 Operating expenses: Research and development 451 389 1,310 1,157 Marketing and sales 216 202 493 464 General and administrative 149 126 418 364 Acquisition-related contingent consideration — 2 — 5 Amortization of intangibles 5 5 16 16 Total operating expenses 821 724 2,237 2,006 Operating income 251 361 871 1,044 Interest and other income (expense), net (6) 13 (19) 50 Income before provision for (benefit from) income taxes 245 374 852 1,094 Provision for (benefit from) income taxes 34 28 91 (1,527) Net income $ 211 $ 346 $ 761 $ 2,621 Earnings per share: Basic $ 0.73 $ 1.18 $ 2.63 $ 8.91 Diluted $ 0.72 $ 1.18 $ 2.61 $ 8.85 Number of shares used in computation: Basic 290 292 289 294 Diluted 292 294 292 296 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited). 4 Table of Contents ELECTRONIC ARTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Nine Months Ended (Unaudited) December 31, December 31, (In millions) 2020 2019 2020 2019 Net income $ 211 $ 346 $ 761 $ 2,621 Other comprehensive loss, net of tax: Net gains (losses) on available-for-sale securities (2) (1) 6 2 Net losses on derivative instruments (26) (29) (106) (4) Foreign currency translation adjustments 23 7 56 (1) Total other comprehensive loss, net of tax (5) (23) (44) (3) Total comprehensive income $ 206 $ 323 $ 717 $ 2,618 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited). 5 Table of Contents ELECTRONIC ARTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Accumulated Common Stock Additional Other Total (Unaudited) Paid-in Retained Comprehensive Stockholders’ (In millions, except per share data) Shares Amount Capital Earnings Income (loss) Equity Balances as of March 31, 2020 288,413 $ 3 $ — $ 7,508 $ (50) $ 7,461 Total comprehensive income — — — 365 (2) 363 Stock-based compensation — — 102 — — 102 Issuance of common stock 1,088 — (66) — — (66) Repurchase and retirement of common stock (747) — (36) (42) — (78) Balances as of June 30, 2020 288,754 3 — 7,831 (52) 7,782 Total comprehensive income — — — 185 (37) 148 Stock-based compensation — — 113 — — 113 Issuance of common stock 868 — 32 — — 32 Repurchase and retirement of common stock — — — — — — Balances as of September 30, 2020 289,622 3 145 8,016 (89) 8,075 Total comprehensive income — — — 211 (5) 206 Stock-based compensation — — 111 — — 111 Issuance of common stock 1,345 — (54) — — (54) Repurchase and retirement of common stock (2,524) — (202) (124) — (326) Cash dividends declared ($0.17 per common share) — — — (49) — (49) Balances as of December 31, 2020 288,443 $ 3 $ — $ 8,054 $ (94) $ 7,963 Accumulated Common Stock Additional Other Total (Unaudited) Paid-in Retained Comprehensive Stockholders’ (In millions, except per share data) Shares Amount Capital Earnings Income (loss) Equity Balances as of March 31, 2019 298,107 $ 3 $ — $ 5,358 $ (30) $ 5,331 Total comprehensive income — — — 1,421 13 1,434 Stock-based compensation — — 73 — — 73 Issuance of common stock 985 — (48) — — (48) Repurchase and retirement of common stock (3,205) — (25) (280) — (305) Balances as of June 30, 2019 295,887 3 — 6,499 (17) 6,485 Total comprehensive income — — — 854 7 861 Stock-based compensation — — 92 — — 92 Issuance of common stock 584 — 26 — — 26 Repurchase and retirement of common stock (3,253) — (118) (188) — (306) Balances as of September 30, 2019 293,218 3 — 7,165 (10) 7,158 Total comprehensive income — — — 346 (23) 323 Stock-based compensation — — 91 — — 91 Issuance of common stock 492 — (30) — — (30) Repurchase and retirement of common stock (3,101) — (61) (244) — (305)