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, 2020 O R ☐ 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 CityCalifornia (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 November 6, 2020, there were 290,077,481 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 SEPTEMBER 30, 2020 Table of Contents Page Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2020 and 2019 4 Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2020 and 2019 5 Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2020 and 2019 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2020 and 2019 7 Notes to Condensed Consolidated Financial Statements 8 Report of Independent Registered Public Accounting Firm 28 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk 44 Item 4. Controls and Procedures 46 Part II - OTHER INFORMATION Item 1. Legal Proceedings 47 Item 1A. Risk Factors 47 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 59 Item 3. Defaults Upon Senior Securities 59 Item 4. Mine Safety Disclosures 59 Item 6. Exhibits 59 Exhibit Index 60 Signature 61 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) September 30, 2020 March 31, 2020 (a) ASSETS Current assets: Cash and cash equivalents $ 4,059 $ 3,768 Short-term investments 1,972 1,967 Receivables, net 423 461 Other current assets 376 321 Total current assets 6,830 6,517 Property and equipment, net 458 449 Goodwill 1,891 1,885 Acquisition-related intangibles, net 42 53 Deferred income taxes, net 1,937 1,903 Other assets 312 305 TOTAL ASSETS $ 11,470 $ 11,112 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 164 $ 68 Accrued and other current liabilities 1,083 1,052 Deferred net revenue (online-enabled games) 639 945 Senior notes, current, net 599 599 Total current liabilities 2,485 2,664 Senior notes, net 397 397 Income tax obligations 301 373 Deferred income taxes, net 1 1 Other liabilities 211 216 Total liabilities 3,395 3,651 Commitments and contingencies (See Note 11) Stockholders’ equity: Common stock, $0.01 par value. 1,000 shares authorized; 290 and 288 shares issued and outstanding, respectively 3 3 Additional paid-in capital 145 — Retained earnings 8,016 7,508 Accumulated other comprehensive loss (89) (50) Total stockholders’ equity 8,075 7,461 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 11,470 $ 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 Six Months Ended (Unaudited) September 30, September 30, (In millions, except per share data) 2020 2019 2020 2019 Net revenue $ 1,151 $ 1,348 $ 2,610 $ 2,557 Cost of revenue 286 405 574 592 Gross profit 865 943 2,036 1,965 Operating expenses: Research and development 421 387 859 768 Marketing and sales 156 152 277 262 General and administrative 133 128 269 238 Acquisition-related contingent consideration — 2 — 3 Amortization of intangibles 6 6 11 11 Total operating expenses 716 675 1,416 1,282 Operating income 149 268 620 683 Interest and other income (expense), net (10) 16 (13) 37 Income before provision for (benefit from) income taxes 139 284 607 720 Provision for (benefit from) income taxes (46) (570) 57 (1,555) Net income $ 185 $ 854 $ 550 $ 2,275 Earnings per share: Basic $ 0.64 $ 2.89 $ 1.90 $ 7.69 Diluted $ 0.63 $ 2.89 $ 1.88 $ 7.66 Number of shares used in computation: Basic 289 295 289 296 Diluted 293 296 292 297 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 Six Months Ended (Unaudited) September 30, September 30, (In millions) 2020 2019 2020 2019 Net income $ 185 $ 854 $ 550 $ 2,275 Other comprehensive income (loss), net of tax: Net gains (losses) on available-for-sale securities (3) — 8 3 Net gains (losses) on derivative instruments (43) 16 (80) 25 Foreign currency translation adjustments 9 (9) 33 (8) Total other comprehensive income (loss), net of tax (37) 7 (39) 20 Total comprehensive income $ 148 $ 861 $ 511 $ 2,295 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 O ther 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 Accumulated Common Stock Additional O ther 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 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited). 6 Table of Contents ELECTRONIC ARTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended (Unaudited) September 30, (In millions) 2020 2019 OPERATING ACTIVITIES Net income $ 550 $ 2,275 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 77 72 Stock-based compensation 215 165 Change in assets and liabilities: