Ea Reports Second Quarter Fiscal 2008 Results

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Ea Reports Second Quarter Fiscal 2008 Results EA REPORTS SECOND QUARTER FISCAL 2008 RESULTS Ten Titles Hitting Retail Shelves This Holiday Season Number One 3rd Party Publisher on Wii Year to Date REDWOOD CITY, CA – November 1, 2007 – Electronic Arts (NASDAQ: ERTS) today announced preliminary financial results for its second quarter ended September 30, 2007. Fiscal Second Quarter Results (comparisons are to the quarter ended September 30, 2006) Net revenue for the quarter was $640 million, down 18 percent as compared with $784 million for the prior year. Beginning in fiscal 2008, EA no longer charges for its service related to certain online-enabled packaged goods games. As a result, the Company recognize s revenue from the sale of these games over the estimated service period. This change resulted in a $296 million sequential net increase in deferred net revenue as of September 30, 200 7, which will be recognized in future periods. Sales were driven by Madden NFL 08, FIFA 08, NCAA® Football 08 , Tiger Woods PGA TOUR® 08 and MySims™, each selling over one million copies. Gross profit for the quarter was $245 million, down 45 percent year-over-year. Net loss for the quarter was $195 million as compared with net income of $22 million for the prior year. Diluted loss per share was $0.62 as compared with earnings per share of $0.07 for the prior year. Non-GAAP diluted earnings per share were $0.27 as compared with $0.21 for the prior year. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.) “Our strategic priorities on quality, innovation and managing cost are showing progress,” said John Riccitiello, Chief Executive Officer. “Highly accessible new properties like SKATE and MySims have broken through with consumers and EA SPORTS continues to deliver great experiences on every platform. We’ve also announced a restructuring as part of a plan to better align cost with revenues.” “We think this will be a great holiday season for consumers,” said Warren Jenson, Chief Financial and Administrative Officer. “We plan to launch over ten titles including The Simpsons Game, Need for Speed Pro Street, Hellgate: London, Rock Band, NBA Live 08, SimCity Societies and Crysis .” Highlights Madden NFL 08 sold 4.5 million copies and was EA’s best performing title in the quarter. FIFA 08 sold 2.9 million copies internationally – with sell through at retail up double digits year-over-year. MySims, a new owned intellectual property, sold over one million copies on the Nintendo DS™ and Wii. SKATE, a new owned intellectual property with a metacritic rating of 85, is the highest rated new game in the popular skate boarding genre. On the Wii™ from Nintendo, EA had 12 percent share in North America and an estimated 13 percent in Europe – making EA the number one third party publisher on this system year-to-date. Current generation (Xbox 360™, PLAYSTATION®3 and Wii) revenue (excluding deferral) was $399 million. EA announced the acquisition of BioWare Corp. and Pandemic Studios -- leaders in Role Playing, Action and Adventure games. Will Wright, creator of The Sims™ and SPORE™, was the recipient of the British Academy of Film and Television Arts Fellowship – the first interactive entertainment professional to receive this award. EA’s Reorganization Plan On October 29, 2007, EA’s Board of Directors approved a plan of reorganization in connection with the reorganization of EA’s business into several divisions, including four new “Labels”. Pursuant to the plan, over the next 24 months, EA anticipates (a) closing certain facilities, including EA’s facility in Chertsey, England, (b) relocating and/or eliminating certain job positions, (c) incurring costs in connection with lease and other contract terminations, and (d) incurring IT and consulting costs to assist in the reorganization of business support functions. The Company expects to incur total pre-tax charges of between $90 million and $110 million, the majority of which will be incurred in fiscal 2008. The Company estimates these actions will result in annual pre-tax cost savings of approximately $25 million to $30 million. Business Outlook The following forward-looking statements, as well as those made above, reflect expectations as of November 1, 2007. Results may be materially different and are affected by many factors, such as: consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; consumer demand for games for legacy consoles, particularly the PlayStation®2 computer entertainment system; the popular appeal of EA’s products; development delays on EA’s products; changes in anticipated costs, expected savings and impact on EA’s operations of the Company’s reorganization plan; changes in the timing and anticipated financial impact of the Company’s acquisition of VG Holding Corp. (BioWare Corp. and Pandemic Studios); changes in foreign exchange rates; the overall global economy; competition in the industry; EA’s effective tax rate and other factors detailed in this release and in EA’s annual and quarterly SEC filings. Fiscal Year Expectations – Ending March 31, 2008 Net revenue is expected to be between $3.35 and $3.65 billion – up $150 million from the Company’s previous guidance. Net revenue excluding the impact of the change in deferred net revenue (packaged goods and digital content) is expected to be between $3.8 and $4.0 billion – up $150 million from the Company’s previous guidance. GAAP diluted loss per share is expected to be between ($1.60) and ($0.91) – down from the Company’s previous guidance of ($0.63) to ($0.10). Non-GAAP diluted earnings per share are expected to be between $0.85 and $1.15 – down $0.05 from the Company’s previous guidance due to the dilutive impact of the proposed acquisition of BioWare Corp. and Pandemic Studios. Expected non-GAAP diluted earnings per share exclude the following items from expected GAAP diluted loss per share: • $0.86 to $1.10 for the impact of the change in deferred net revenue (packaged goods and digital content) • $0.48 to $0.61 for acquisition-related charges related to the Company’s pending acquisition of BioWare Corp. and Pandemic Studios • $0.39 of estimated stock-based compensation • $0.19 to $0.21 of charges related to the reorganization announced today • $0.15 of amortization of intangible assets • $0.01 of restructuring charges related to the reorganization and establishment of an international publishing headquarters in Geneva. • $0.02 related to the difference between diluted and basic share count Fiscal Third Quarter Expectations – Ending December 31, 2007 Net revenue is expected to be between $1.325 and $1.575 billion. Net revenue excluding the impact of the change in deferred net revenue (packaged goods and digital content) is expected to be between $1.625 and $1.8 billion. GAAP diluted earnings (loss) per share are expected to be between ($0.28) and $0.12. Non-GAAP diluted earnings per share are expected to be between $0.75 and $0.95. Expected non-GAAP diluted earnings per share exclude the following items from expected GAAP diluted loss per share: • $0.54 to $0.74 for the impact of the change in deferred net revenue (packaged goods and digital content) • $0.17 to $0.19 of charges related to the reorganization announced today • $0.09 of estimated stock-based compensation • $0.03 of amortization of intangible assets • $0.02 related to the difference between diluted and basic share count Conference Call Electronic Arts will host a conference call today at 2:00 pm PT (5:00 pm ET) to review its results for the second quarter fiscal 2008 ended September 30, 2007 and its outlook for the future. During the course of the call, Electronic Arts may also disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number: (877) 723-9518, access code 220497, or via webcast: http://investor.ea.com . A dial-in replay of the conference call will be provided until November 8, 2007 at (719) 457- 0820, access code 220497. A webcast archive of the conference call will be available for one year at http://investor.ea.com . Analyst Meeting Electronic Arts will host an analyst meeting on February 12, 2008 at 9:00 am PT (12:00 pm ET) at its corporate headquarters in Redwood City, California. Non-GAAP Financial Measures To supplement the Company’s unaudited condensed consolidated financial statements presented in accordance with GAAP, Electronic Arts uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Electronic Arts include: non-GAAP net revenue, non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items from the Company’s unaudited condensed consolidated statements of operations: The impact of the change in deferred net revenue (packaged goods and digital content) Acquired in-process technology Amortization of intangibles Certain litigation expenses Restructuring charges Stock-based compensation Income tax adjustments (consisting of the income tax effect of the items listed above and certain one-time income tax adjustments) Electronic Arts may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.
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