Electronic Arts Inc
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ELECTRONIC ARTS INC. FORM 10-K (Annual Report) Filed 05/24/17 for the Period Ending 03/31/17 Address 209 REDWOOD SHORES PARKWAY REDWOOD CITY, CA 94065 Telephone 650-628-1500 CIK 0000712515 Symbol EA SIC Code 7372 - Prepackaged Software Industry Software Sector Technology Fiscal Year 03/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2017 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 (Zip Code) (Address of principal executive offices) Registrant’s telephone number, including area code: (650) 628-1500 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $0.01 par value NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ 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 þ No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ 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 þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨ (Do not check if a smaller reporting 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 þ The aggregate market value of the registrant’s common stock, $0.01 par value, held by non-affiliates of the registrant as of September 30, 2016, the last business day of our second fiscal quarter, was $24,908 million . As of May 22, 2017 , there were 310,028,355 shares of the registrant’s common stock, $0.01 par value, outstanding. Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for its 2017 Annual Meeting of Stockholders (the “2017 Proxy”) are incorporated by reference into Part III hereof. The 2017 Proxy is expected to be filed not later than 120 days after the registrant’s fiscal year end. ELECTRONIC ARTS INC. 2017 FORM 10-K ANNUAL REPORT Table of Contents Page PART I Item 1 Business 3 Item 1A Risk Factors 9 Item 1B Unresolved Staff Comments 18 Item 2 Properties 18 Item 3 Legal Proceedings 18 Item 4 Mine Safety Disclosures 18 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19 Item 6 Selected Financial Data 22 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A Quantitative and Qualitative Disclosures About Market Risk 40 Item 8 Financial Statements and Supplementary Data 42 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 81 Item 9A Controls and Procedures 81 Item 9B Other Information 81 PART III Item 10 Directors, Executive Officers and Corporate Governance 82 Item 11 Executive Compensation 82 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 82 Item 13 Certain Relationships and Related Transactions, and Director Independence 82 Item 14 Principal Accounting Fees and Services 82 PART IV Item 15 Exhibits, Financial Statement Schedules 82 Signatures 83 Exhibit Index 85 2 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, made in this Report are forward looking. Examples of forward-looking statements include statements related to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie the forward-looking statements. We use words such as “anticipate,” “believe,” “expect,” “intend,” “estimate” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management’s current expectations, and involve subjects that are inherently uncertain and difficult to predict. Our actual results could differ materially from those in the forward-looking statements. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors,” beginning on page 9. PART I Item 1: Business Overview We are a global leader in digital interactive entertainment. We develop, market, publish and distribute games, content and services that can be played by consumers on a variety of platforms, which include game consoles, PCs, mobile phones and tablets. Our Strategy We have three core pillars to our strategy: • Players First • Commitment to Digital • One EA Players First Players are the foundation of our success, and we are committed to thinking about players first in everything we do. Our goal is to build deep, on-going and meaningful relationships with our players. We aim to build these relationships by creating amazing games and services that deliver long-lasting fun and enduring value, by connecting with our players across platforms and by delivering flexibility and innovation in our business models. Our games and services are based on a portfolio of intellectual property that includes established brands such as FIFA, Madden NFL, Star Wars, Battlefield, the Sims and Need for Speed. Our goal is to develop and publish a broad and deep portfolio of games and services that engages players across geographies, platforms and business models. We were the number one publisher on PlayStation 4 and Xbox One consoles in the Western World for fiscal year 2017 based on available sources and EA estimates and in calendar year 2016, FIFA 17 was the best-selling console title in the world. Commitment to Digital Players increasingly purchase our games digitally and engage with the live services associated with our portfolio of games. Our live services engagement model includes microtransactions, downloadable content, subscriptions, esports, among others. For example, features such as the Ultimate Team mode in our FIFA, Madden NFL and NHL games and live services for our Star Wars, Battlefield and Sims franchises have extended the life of those games by engaging players over longer periods of time. This digital transformation also is creating opportunities in platforms, content models and modalities of play. For example, we have leveraged franchises historically associated with consoles and traditional PC gaming, such as FIFA, Madden NFL, The Sims, SimCity, and Star Wars, to create mobile and PC free-to-download games that are monetized through a business model in which we sell incremental content and/or features in discrete transactions. We have significantly increased our digital net revenue from $2.199 billion in fiscal year 2015 to $2.409 billion in fiscal year 2016 and $2.874 billion during fiscal year 2017. We believe that our digital revenue, which generally has a higher gross margin relative to packaged goods revenue, will continue to increase during fiscal year 2018 relative to packaged goods 3 revenue and in absolute terms as we continue to focus on developing and monetizing products and services that can be delivered digitally. One EA The pursuit of our goals requires that we operate as one team that is fast, focused and constantly evolving and we have undertaken a cultural shift across our organization to become more flexible.