Electronic Arts Reports Q1 FY17 Financial Results

REDWOOD CITY, Calif.–(BUSINESS WIRE)–Electronic Arts Inc. (NASDAQ:EA) today announced preliminary financial

results for its first fiscal quarter ended June 30, 2016.

“Q1 was a great quarter for Electronic Arts with amazing engagement in

our global communities,” said Chief Executive Officer Andrew Wilson. “EA

is leading our industry through innovation, with more of our biggest

games powered by Frostbite, breakthrough EA SPORTS titles on console and

mobile, and the unstoppable combination of Battlefield 1 and Titanfall

2 coming this holiday. We’re looking forward to connecting more

players around the world to each other through the games they love to

play.”

“Our digital business drove this quarter, particularly outperformance

from FIFA Ultimate Team on console and Star Wars: Galaxy of

Heroes on mobile,” said Chief Financial Officer Blake Jorgensen. “This

success along with the launch of NBA LIVE Mobile gives us great

confidence in our ability to operate and add new live services through

the year.”

News and ongoing updates regarding EA and our games are available on

EA’s blog at www.ea.com/news.

Selected Operating Highlights and Metrics:

• 
  The Battlefield™ franchise, led by Battlefield 4™, had
  
  more than 11.5 million unique players during Q1.
  


• 
  Star Wars™ Battlefront™ had more than 6.6 million unique
  
  players in Q1.
  


• 
  Madden NFL 16 unique players increased more than 20%
  
  year-over-year during Q1.
  


• 
  Madden NFL Mobile had 25% more monthly active players in Q1
  
  over last year.
  


• 
  Star Wars: Galaxy of Heroes players averaged nearly 2.5 hours
  
  of gameplay per day in Q1.
  


• 
  EA titles shown at EA PLAY and E3 garnered 81 awards, including the
  
  Best Action Game for Battlefield 1 and Best Online Multiplayer
  
  for Titanfall® 2 from the E3 Game Critics.
  


• 
  The EA Access subscriber base more than doubled year-over-year in Q1.
  

Selected Financial Highlights:

• 
  For the quarter, GAAP net revenue of $1.271 billion was above guidance
  
  of $1.250 billion. Of the total GAAP net revenue 54%, or $689 million,
  
  was digital. Diluted GAAP EPS of $1.40 was above guidance of $1.30.
  


• 
  For the quarter, change in deferred net revenue was ($589) million of
  
  which ($121) million was digital.
  


• 
  For the quarter, non-GAAP net revenue of $682 million was above
  
  guidance of $640 million. Of the total non-GAAP net revenue 83%, or
  
  $568 million, was digital. Diluted non-GAAP EPS of $0.07 was above
  
  guidance of ($0.05).
  


• 
  EA repurchased 1.9 million shares in Q1 for $129 million.
  

(in millions of $, except per share amounts)				Quarter Ended			Quarter Ended
				6/30/16			6/30/15
GAAP Digital Net Revenue				$689			$623
GAAP Packaged Goods and Other Net Revenue				582			580
GAAP Total Net Revenue				$1,271			$1,203
Digital Change in Deferred Net Revenue				$(121)			$(91)
Packaged Goods and Other Change in Deferred Net Revenue				(468)			(419)
Change in Deferred Net Revenue				$(589)			$(510)
Non-GAAP Digital Net Revenue				$568			$532
Non-GAAP Packaged Goods and Other Net Revenue				114			161
Non-GAAP Total Net Revenue				$682			$693
GAAP Net Income				$440			$442
Non-GAAP Net Income				22			49
GAAP Diluted Earnings Per Share				$1.40			$1.32
Non-GAAP Diluted Earnings Per Share				0.07			0.15
Operating Cash Flow				$(248)			$(71)

TTM Financial Highlights:
(in millions)				TTM Ended			TTM Ended
				6/30/16			6/30/15
GAAP Digital Net Revenue				$2,475			$2,286
GAAP Packaged Goods and Other Net Revenue				1,989			2,218
GAAP Total Net Revenue				$4,464			$4,504
Digital Change in Deferred Net Revenue Packaged Goods and Other Change in Deferred Net Revenue				$92 (1)			$(6) (261)
Change in Deferred Net Revenue				$91			$(267)
Non-GAAP Digital Net Revenue				$2,567			$2,280
Non-GAAP Packaged Goods and Other Net Revenue				1,988			1,957
Non-GAAP Total Net Revenue				$4,555			$4,237
GAAP Net Income				$1,154			$982
Non-GAAP Net Income				991			794
Operating Cash Flow				$1,046			$992
Value of Shares Repurchased				$1,015			$419
Number of Shares Repurchased				15			9

Please note that this is the final quarter that EA will be reporting any

non-GAAP measure that adjusts for deferred revenue. EA will report GAAP

financial measures and will also separately report financial data that

EA management uses internally to calculate adjustments to its GAAP

financial measures so that investors may be able to calculate measures

comparable to our historical non-GAAP financial measures. For more

information regarding this change to external reporting, please refer to

the July 19, 2016 investor call transcript, FAQ document and financial

model available at http://investor.ea.com.

Business Outlook as of August 2, 2016

The following forward-looking statements, as well as those made above,

reflect expectations as of August 2, 2016. Electronic Arts assumes no

obligation to update these statements. Results may be materially

different and are affected by many factors detailed in this release and

in EA’s annual and quarterly SEC filings.

Fiscal Year 2017 Expectations – Ending March 31, 2017

• 
  GAAP net revenue is expected to be approximately $4.750 billion.
  


• 
  Change in deferred net revenue is expected to be approximately $150
  
  million.
  


• 
  GAAP net income is expected to be approximately $809 million.
  


• 
  GAAP diluted earnings per share is expected to be approximately $2.56.
  


• 
  Operating cash flow is expected to be approximately $1.300 billion.
  


• 
  The Company estimates a share count of 316 million for purposes of
  
  calculating fiscal year 2017 GAAP diluted earnings per share.
  

In addition, while EA no longer provides expectations on non-GAAP

financial performance measures, the following outlook for GAAP-based

financial data and a long-term tax rate of 21% are used internally by EA

to adjust our GAAP expectations to assess EA’s operating results and

plan for future periods:

Amortization of

debt discount

Change in

Acquisition-

and loss on

deferred net

Shares from

GAAP

related

conversion of

revenue (online-

Stock-based

convertible

Guidance

expenses

notes

enabled games)

compensation

bond hedge

Digital Net Revenue

$

2,800

–

–

100

–

–

Packaged Goods & Other Net Revenue

$

1,950

–

–

50

–

–

Total Net Revenue

$

4,750

–

–

150

–

–

Cost of Goods Sold

$

1,381

(32

)

–

–

(2

)

–

Operating Expense

$

2,304

(6

)

–

–

(198

)

–

Profit / (Loss) Before Tax

$

1,024

38

2

150

200

–

Diluted Shares

316

–

–

–

–

(1

)

Note: In millions

Second Quarter Fiscal Year 2017 Expectations – Ending September 30,

2016

• 
  GAAP net revenue is expected to be approximately $915 million.
  


• 
  Change in deferred net revenue is expected to be approximately $160
  
  million.
  


• 
  GAAP net loss is expected to be approximately ($51) million.
  


• 
  GAAP loss per share is expected to be approximately ($0.17).
  


• 
  The Company estimates a GAAP basic and diluted share count of 302
  
  million shares due to a forecasted net loss. If the Company reports
  
  net income instead of a net loss, diluted share count for calculating
  
  diluted earnings per share would be 315 million shares.
  

In addition, while EA no longer provides expectations on non-GAAP

financial performance measures, the following outlook for GAAP-based

financial data and a long-term tax rate of 21% are used internally by EA

to adjust our GAAP expectations to assess EA’s operating results and

plan for future periods:

Amortization of

debt discount

Change in

Acquisition-

and loss on

deferred net

GAAP

related

conversion of

revenue (online-

Stock-based

Guidance

expenses

notes

enabled games)

compensation

Total Net Revenue

$

915

–

–

160

–

Cost of Goods Sold

$

405

(13

)

–

–

–

Operating Expense

$

566

(1

)

–

–

(50

)

Profit / (Loss) Before Tax

$

(65

)

14

–

160

50

Basic Shares

302

–

–

–

–

Note: In millions

Conference Call and Supporting Documents

Electronic Arts will host a conference call on August 2, 2016 at 2:00 pm

PT (5:00 pm ET) to review its results for the first quarter ended June

30, 2016 and its outlook for the future. During the course of the call,

Electronic Arts may disclose material developments affecting its

business and/or financial performance. Listeners may access the

conference call live through the following dial-in number 844-215-4106

(domestic) or 918-534-8313 (international), using the password “EA” or

via webcast at http://ir.ea.com.

EA will also post a slide presentation that accompanies the call at http://ir.ea.com.

A dial-in replay of the conference call will be available until August

16, 2016 at 855-859-2056 (domestic) or 404-537-3406 (international). An

audio webcast replay of the conference call will be available for one

year at http://ir.ea.com.

Non-GAAP Financial Measures

Please note that this is the final quarter that EA will be reporting any

non-GAAP measure that adjusts for deferred revenue. EA will continue to

report GAAP financial measures and will also separately report financial

data that EA management uses internally to calculate adjustments to its

GAAP financial measures so that investors may be able to calculate

measures comparable to our historical non-GAAP financial measures. For

more information regarding this change to external reporting, please

refer to the July 19, 2016 investor call transcript, FAQ document and

financial model available at http://investor.ea.com.

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, non-GAAP net income, non-GAAP

diluted earnings per share and non-GAAP diluted shares. These non-GAAP

financial measures are adjusted for the items referenced below, as

applicable in a given reporting period, from the Company’s unaudited

condensed consolidated statements of operations. The adjustments to the

non-GAAP financial measures exclude the following items (other than

shares from the Convertible Bond Hedge, which are included):

• 
  Acquisition-related expenses
  


• 
  Amortization of debt discount and loss on conversion of notes
  


• 
  Change in deferred net revenue (online-enabled games)
  


• 
  Income tax adjustments
  


• 
  Shares from Convertible Bond Hedge
  


• 
  Stock-based compensation
  

Electronic Arts’ management uses these non-GAAP financial measures in

assessing the Company’s operating results both as a consolidated entity

and at the business unit level, as well as when planning, forecasting

and analyzing future periods. The Company’s management team is evaluated

on the basis of non-GAAP financial measures and these measures also

facilitate comparisons of the Company’s performance to prior periods.

In addition to the reasons stated above, which are generally applicable

to each of the items Electronic Arts excludes from its non-GAAP

financial measures, the Company believes it is appropriate to exclude

certain items for the following reasons:

Acquisition-Related Expenses. GAAP requires expenses to be

recognized for various types of events associated with a business

acquisition. These events include expensing acquired intangible assets,

including acquired in-process technology, post-closing adjustments

associated with changes in the estimated amount of contingent

consideration to be paid in an acquisition, and the impairment of

accounting goodwill created as a result of an acquisition when future

events indicate there has been a decline in its value. When analyzing

the operating performance of an acquired entity, Electronic Arts’

management focuses on the total return provided by the investment (i.e.,

operating profit generated from the acquired entity as compared to the

purchase price paid including the final amounts paid for contingent

consideration) without taking into consideration any allocations made

for accounting purposes. When analyzing the operating performance of an

acquisition in subsequent periods, the Company’s management excludes the

GAAP impact of any adjustments to the fair value of these

acquisition-related balances to its financial results.

Amortization of Debt Discount and Loss on Conversion of Notes. In

July 2011, EA issued $632.5 million of 0.75% convertible senior notes in

a private placement offering (the “Convertible Notes”). Under GAAP,

certain convertible debt instruments that may be settled in cash on

conversion are required to be separately accounted for as liability

(debt) and equity (conversion option) components of the instrument in a

manner that reflects the issuer’s non-convertible debt borrowing rate.

Accordingly, for GAAP purposes, we amortize as a debt discount an amount

equal to the fair value of the conversion option on the Convertible

Notes over their term. The debt discount is classified as interest

expense. Upon settlement of our Convertible Notes, we attribute the fair

value of the consideration transferred to the liability and equity

components. The difference between the fair value of the consideration

attributed to the liability component and the carrying value of the

liability is recorded as a non-cash loss in the statement of the

operations. Electronic Arts’ management excludes the effect of the

amortization of debt discount and the non-cash loss on the early

conversion of debt in its non-GAAP financial measures. The Convertible

Notes matured on July 15, 2016 and have been repaid in full.

Change in Deferred Net Revenue (Online-enabled Games). The

majority of our software games can be connected to the Internet whereby

a consumer may be able to download unspecified content or updates on a

when-and-if-available basis (“unspecified updates”) for use with the

original game software. In addition, we may also offer an online

matchmaking service that permits consumers to play against each other

via the Internet. GAAP requires us to account for the consumer’s right

to receive unspecified updates or the matchmaking service for no

additional fee as a “bundled” sale, or multiple-element arrangement.

Electronic Arts is not able to objectively determine the fair value of

these unspecified updates or online service included in certain of its

online-enabled games. As a result, the Company recognizes the revenue

from the sale of these online-enabled games on a straight-line basis

over the estimated offering period. Specifically, an increase in change

in deferred net revenue on the balance sheet during the period would

result in lower GAAP net revenue as compared to non-GAAP net revenue and

a (decrease) in change in deferred net revenue on the balance sheet

during the period would result in a higher GAAP net revenue compared to

non-GAAP net revenue. Electronic Arts’ management excludes the impact of

the change in deferred net revenue related to online-enabled games in

its non-GAAP financial measures for the reasons stated above and also to

facilitate an understanding of our operations because the related costs

of revenue are generally expensed as incurred instead of deferred and

recognized ratably. The difference between the change in deferred net

revenue (online-enabled games) from the balance sheet does not always

equal the change in deferred net revenue (online-enabled games) in the

GAAP financial measures due to the net impact of unrecognized

gains/losses on cash flow hedges.

Income Tax Adjustments. The Company uses a fixed, long-term

projected tax rate internally to evaluate its operating performance, to

forecast, plan and analyze future periods, and to assess the performance

of its management team. Accordingly, the Company applies the same tax

rate to its non-GAAP financial results. During fiscal year 2017, the

Company applies a tax rate of 21 percent to its non-GAAP financial

results. During fiscal year 2016, the Company applied a tax rate of 22

percent.

Shares from Convertible Bond Hedge. The Convertible Notes were

issued with an initial conversion price of approximately $31.74 per

share. When the quarterly average trading price of EA’s common stock is

above $31.74 per share, the potential conversion of the Convertible

Notes has a dilutive impact on the Company’s earnings per share. At the

time they were issued, the Company entered into convertible note hedge

transactions (the “Convertible Bond Hedge”) to offset the dilutive

effect of the Convertible Notes. The Company includes the anti-dilutive

effect of the Convertible Bond Hedge in determining its non-GAAP

dilutive shares. In connection with the maturity of the Convertible

Notes, the Convertible Bond Hedges have been settled.

Stock-Based Compensation. When evaluating the performance of its

individual business units, the Company does not consider stock-based

compensation charges. Likewise, the Company’s management teams exclude

stock-based compensation expense from their short and long-term

operating plans. In contrast, the Company’s management teams are held

accountable for cash-based compensation and such amounts are included in

their operating plans. Further, when considering the impact of equity

award grants, Electronic Arts places a greater emphasis on overall

shareholder dilution rather than the accounting charges associated with

such grants.

In the financial tables below, Electronic Arts has provided a

reconciliation of the most comparable GAAP financial measures to

non-GAAP financial measures used in this press release.

Forward-Looking Statements

Some statements set forth in this release, including the information

relating to EA’s fiscal 2017 guidance information under the heading

“Business Outlook,” and changes to EA’s financial reporting contain

forward-looking statements that are subject to change. Statements

including words such as “anticipate,” “believe,” “estimate” or “expect”

and statements in the future tense are forward-looking statements. These

forward-looking statements are preliminary estimates and expectations

based on current information and are subject to business and economic

risks and uncertainties that could cause actual events or actual future

results to differ materially from the expectations set forth in the

forward-looking statements.

Some of the factors which could cause the Company’s results to differ

materially from its expectations include the following: sales of the

Company’s titles; the Company’s ability to manage expenses; the

competition in the interactive entertainment industry; the effectiveness

of the Company’s sales and marketing programs; timely development and

release of Electronic Arts’ products; the Company’s ability to realize

the anticipated benefits of acquisitions; the consumer demand for, and

the availability of an adequate supply of console hardware units; the

Company’s ability to predict consumer preferences among competing

platforms; the Company’s ability to service and support digital product

offerings, including managing online security; general economic

conditions; and other factors described in the Company’s Annual Report

on Form 10-K for the fiscal year ended March 31, 2016.

These forward-looking statements are current as of August 2, 2016.

Electronic Arts assumes no obligation and does not intend to update

these forward-looking statements. In addition, the preliminary financial

results set forth in this release are estimates based on information

currently available to Electronic Arts.

While Electronic Arts believes these estimates are meaningful, they

could differ from the actual amounts that Electronic Arts ultimately

reports in its Quarterly Report on Form 10-Q for the fiscal quarter

ended June 30, 2016. Electronic Arts assumes no obligation and does not

intend to update these estimates prior to filing its Form 10-Q for the

fiscal quarter ended June 30, 2016.

About Electronic Arts

Electronic Arts (NASDAQ:EA) is a global leader in digital interactive

entertainment. The Company delivers games, content and online services

for Internet-connected consoles, personal computers, mobile phones and

tablets. EA has more than 300 million registered players around the

world.

In fiscal year 2016, EA posted GAAP net revenue of $4.4 billion.

Headquartered in Redwood City, California, EA is recognized for a

portfolio of critically acclaimed, high-quality blockbuster brands such

as The Sims™, Madden NFL, EA SPORTS™ FIFA, Battlefield™, Dragon Age™ and

Plants vs. Zombies™. More information about EA is available at www.ea.com/news.

EA SPORTS, Battlefield, Battlefield 4, The Sims, Dragon Age, Ultimate

Team and Plants vs. Zombies are trademarks of Electronic Arts Inc. and

its subsidiaries. STAR WARS © & TM 2015 Lucasfilm Ltd. All rights

reserved. Titanfall is a trademark of Respawn Entertainment, LLC. John

Madden, NFL, NBA and FIFA are the property of their respective owners

and used with permission.

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Operations
(in millions, except share per data)
				Three Months Ended June 30,
				2016					2015
Net revenue
Product				$	684				$	743
Service and other				587					460
Total net revenue				1,271					1,203
Cost of revenue
Product				90					94
Service and other				89					79
Total cost of revenue				179					173
Gross profit				1,092					1,030
Operating expenses:
Research and development				294					296
Marketing and sales				128					123
General and administrative				108					98
Amortization of intangibles				2					1
Total operating expenses				532					518
Operating income				560					512
Interest and other income (expense), net				(8		)			(3		)
Income before provision for income taxes				552					509
Provision for income taxes				112					67
Net income				$	440				$	442
Earnings per share
Basic				$	1.46				$	1.42
Diluted				$	1.40				$	1.32
Number of shares used in computation
Basic				301					311
Diluted				315					335

GAAP and Non-GAAP Results (in millions, except per share data)

The following tables reconcile the Company’s net revenue, gross profit,

operating income, net income and number of diluted shares as presented

in its Unaudited Condensed Consolidated Statements of Operations and

prepared in accordance with Generally Accepted Accounting Principles

(“GAAP”) to its non-GAAP net revenue, non-GAAP gross profit, non-GAAP

operating income, non-GAAP net income, and number of non-GAAP diluted

shares. The following table also reports the variance of the actuals

versus our guidance for the three months ended June 30, 2016.

				Three Months Ended June 30,
				2016										2016					2015
				Guidance					Variance					Actuals					Actuals
Net revenue
GAAP net revenue				$	1,250				$	21				$	1,271				$	1,203
GAAP impact of selected data
Change in deferred net revenue (online-enabled games)				(610		)			21					(589		)			(510		)
Non-GAAP net revenue				$	640				$	42				$	682				$	693
Gross profit
GAAP gross profit				$	1,074				$	18				$	1,092				$	1,030
GAAP impact of selected data
Acquisition-related expenses				13					—					13					12
Change in deferred net revenue (online-enabled games)				(610		)			21					(589		)			(510		)
Stock-based compensation				—					1					1					—
Non-GAAP gross profit				$	477				$	40				$	517				$	532
Operating income
GAAP operating income				$	542				$	18				$	560				$	512
GAAP impact of selected data
Acquisition-related expenses				15					—					15					13
Change in deferred net revenue (online-enabled games)				(610		)			21					(589		)			(510		)
Stock-based compensation				45					3					48					45
Non-GAAP operating income (loss)				$	(8	)			$	42				$	34				$	60
Net income
GAAP net income				$	418				$	22				$	440				$	442
GAAP impact of selected data
Acquisition-related expenses				15					—					15					13
Amortization of debt discount and loss on conversion of notes				2					—					2					6
Change in deferred net revenue (online-enabled games)				(610		)			21					(589		)			(510		)
Stock-based compensation				45					3					48					45
Income tax adjustments				115					(9		)			106					53
Non-GAAP net income (loss)				$	(15	)			$	37				$	22				$	49
GAAP earnings per share
Basic				$	1.38				0.08					$	1.46				$	1.42
Diluted				$	1.30				0.10					$	1.40				$	1.32
Non-GAAP earnings (loss) per share
Basic				$	(0.05	)			0.12					$	0.07				$	0.16
Diluted				$	(0.05	)			0.12					$	0.07				$	0.15
Number of shares
GAAP & Non-GAAP Basic				303					(2		)			301					311
GAAP Diluted				321					(6		)			315					335
Anti-dilutive shares excluded for Non-GAAP loss position1				(15		)			15					—					—
Shares from convertible bond hedge				(3		)			1					(2		)			(10		)
Non-GAAP Diluted				303					10					313					325

1		Diluted earnings per share reflects the potential dilution from common shares (calculated using the treasury stock method), issuable through stock-based compensation plans. When the company incurs a loss, shares issuable through stock-based compensation plans are excluded from the diluted loss per share calculation as inclusion would be anti-dilutive.

Guidance (in millions, except per share data)

The following tables provide the Company’s guidance for the twelve

months ended March 31, 3017 and the three months ended September 30,

2016. In addition, while EA no longer provides expectations on non-GAAP

financial performance measures, the following outlook for GAAP-based

financial data and a long-term tax rate of 21% are used internally by EA

to adjust our GAAP expectations to assess EA’s operating results and

plan for future periods:

				Three Months Ended					Twelve Months Ended
				Sep 30, 2016					Mar 31, 2017
Net revenue
GAAP net revenue				$	915				$	4,750
GAAP impact of selected data
Change in deferred net revenue (online-enabled games)				160					150
Cost of goods sold
GAAP cost of goods sold				$	405				$	1,381
GAAP impact of selected data
Acquisition-related expenses				(13		)			(32		)
Stock-based compensation				—					(2		)
Operating expenses
GAAP operating expenses				$	566				$	2,304
GAAP impact of selected data
Acquisition-related expenses				(1		)			(6		)
Stock-based compensation				(50		)			(198		)
Income (loss) before tax
GAAP income (loss) before tax				$	(65	)			$	1,024
GAAP impact of selected data
Acquisition-related expenses				14					38
Amortization of debt discount and loss on conversion of notes				—					2
Change in deferred net revenue (online-enabled games)				160					150
Stock-based compensation				50					200
GAAP earnings (loss) per share
Basic				$	(0.17	)			$	2.65
Diluted				$	(0.17	)			$	2.56
Number of shares
GAAP Basic				302					305
GAAP Diluted 2				—					316

2		The Company estimates a GAAP basic and diluted share count of 302 million shares due to a forecasted net loss. If the Company reports net income instead of a net loss, diluted share count for calculating diluted earnings per share would be 315 million shares.

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in millions)
				June 30, 2016					March 31, 2016 3
ASSETS
Current assets:
Cash and cash equivalents				$	2,042				$	2,493
Short-term investments				1,385					1,341
Receivables, net of allowances of $135 and $159, respectively				246					233
Inventories				26					33
Other current assets				273					254
Total current assets				3,972					4,354
Property and equipment, net				435					439
Goodwill				1,708					1,710
Acquisition-related intangibles, net				42					57
Deferred income taxes, net				343					387
Other assets				105					103
TOTAL ASSETS				$	6,605				$	7,050
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable				$	44				$	89
Accrued and other current liabilities				597					710
0.75% convertible senior notes due 2016, net				136					161
Deferred net revenue (online-enabled games)				873					1,458
Total current liabilities				1,650					2,418
Senior notes, net				989					989
Income tax obligations				88					80
Deferred income taxes, net				2					2
Other liabilities				160					163
Total liabilities				2,889					3,652
0.75% convertible senior notes due 2016				—					2
Common stock				3					3
Additional paid-in capital				1,210					1,349
Retained earnings				2,500					2,060
Accumulated other comprehensive income (loss)				3					(16		)
Total stockholders’ equity				3,716					3,396
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY				$	6,605				$	7,050

3		Derived from audited consolidated financial statements.

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
	Three Months Ended June 30,
	2016				2015
OPERATING ACTIVITIES
Net income	$	440			$	442
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion	46				49
Stock-based compensation	48				45
Change in assets and liabilities:
Receivables, net	(12		)		219
Inventories	7				3
Other assets	(1		)		26
Accounts payable	(32		)		(16		)
Accrued and other liabilities	(202		)		(331		)
Deferred income taxes, net	43				—
Deferred net revenue (online-enabled games)	(585		)		(508		)
Net cash used in operating activities	(248		)		(71		)
INVESTING ACTIVITIES
Capital expenditures	(40		)		(24		)
Proceeds from maturities and sales of short-term investments	276				249
Purchase of short-term investments	(317		)		(365		)
Net cash used in investing activities	(81		)		(140		)
FINANCING ACTIVITIES
Payment of convertible notes	(27		)		—
Proceeds from issuance of common stock	4				45
Excess tax benefit from stock-based compensation	33				40
Repurchase and retirement of common stock	(129		)		(132		)
Net cash used in financing activities	(119		)		(47		)
Effect of foreign exchange on cash and cash equivalents	(3		)		—
Decrease in cash and cash equivalents	(451		)		(258		)
Beginning cash and cash equivalents	2,493				2,068
Ending cash and cash equivalents	$	2,042			$	1,810

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
				Q1				Q2				Q3				Q4				Q1				YOY %
				FY16				FY16				FY16				FY16				FY17				Change
QUARTERLY RECONCILIATION OF RESULTS
Net revenue
GAAP net revenue				1,203				815				1,070				1,308				1,271				6	%
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Non-GAAP net revenue				693				1,146				1,803				924				682				(2	%)
Gross Profit
GAAP gross profit				1,030				406				524				1,082				1,092				6	%
Acquisition-related expenses				12				11				12				12				13
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Stock-based compensation				—				1				—				1				1
Non-GAAP gross profit				532				749				1,269				711				517				(3	%)
GAAP gross profit % (as a % of GAAP net revenue)				86	%			50	%			49	%			83	%			86	%
Non-GAAP gross profit % (as a % of non-GAAP net revenue)				77	%			65	%			70	%			77	%			76	%
Operating income
GAAP operating income (loss)				512				(119	)			(31	)			536				560				9	%
Acquisition-related expenses				13				14				14				13				15
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Stock-based compensation				45				44				42				47				48
Non-GAAP operating income				60				270				758				212				34				(43	%)
GAAP operating income (loss) % (as a % of GAAP net revenue)				43	%			(15	%)			(3	%)			41	%			44	%
Non-GAAP operating income % (as a % of non-GAAP net revenue)				9	%			24	%			42	%			23	%			5	%
Net income
GAAP net income (loss)				442				(140	)			(45	)			899				440				—
Acquisition-related expenses				13				14				14				13				15
Amortization of debt discount and loss on conversion of notes				6				11				5				5				2
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Stock-based compensation				45				44				42				47				48
Income tax adjustments				53				(48	)			(153	)			(419	)			106
Non-GAAP net income				49				212				596				161				22				(55	%)
GAAP net income (loss) % (as a % of GAAP net revenue)				37	%			(17	%)			(4	%)			69	%			35	%
Non-GAAP net income % (as a % of non-GAAP net revenue)				7	%			18	%			33	%			17	%			3	%
Diluted earnings (loss) per share
GAAP earnings (loss) per share				1.32				(0.45	)			(0.14	)			2.79				1.40				6	%
Non-GAAP earnings per share				0.15				0.65				1.83				0.50				0.07				(53	%)
Number of diluted shares used in computation
GAAP & Non-GAAP Basic				311				312				311				307				301
GAAP Diluted				335				312				311				322				315
Anti-dilutive shares excluded for GAAP loss position1				—				21				20				—				—
Shares from convertible bond hedge				(10	)			(7	)			(6	)			(3	)			(2	)
Non-GAAP Diluted				325				326				325				319				313

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
				Q1				Q2				Q3				Q4				Q1				YOY %
				FY16				FY16				FY16				FY16				FY17				Change
QUARTERLY NET REVENUE PRESENTATIONS – GAAP AND NON-GAAP
Geography net revenue
North America				506				381				448				572				525				4	%
International				697				434				622				736				746				7	%
Total GAAP net revenue				1,203				815				1,070				1,308				1,271				6	%
North America				(215	)			91				403				(147	)			(245	)
International				(295	)			240				330				(237	)			(344	)
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
North America				291				472				851				425				280				(4	%)
International				402				674				952				499				402				—
Total Non-GAAP net revenue				693				1,146				1,803				924				682				(2	%)
North America				42	%			47	%			42	%			44	%			41	%
International				58	%			53	%			58	%			56	%			59	%
Total GAAP net revenue %				100	%			100	%			100	%			100	%			100	%
North America				42	%			41	%			47	%			46	%			41	%
International				58	%			59	%			53	%			54	%			59	%
Total Non-GAAP net revenue %				100	%			100	%			100	%			100	%			100	%
Net revenue composition
Full game downloads				119				82				112				152				137				15	%
Extra content				291				213				241				317				300				3	%
Subscriptions, advertising and other				71				84				89				94				87				23	%
Mobile				142				123				127				152				165				16	%
Total Digital				623				502				569				715				689				11	%
Packaged goods and other				580				313				501				593				582				—
Total GAAP net revenue				1,203				815				1,070				1,308				1,271				6	%
Full game downloads				(35	)			7				83				(18	)			(53	)
Extra content				(36	)			(18	)			119				(7	)			(42	)
Subscriptions, advertising and other				—				(1	)			1				1				(2	)
Mobile				(20	)			(10	)			35				21				(24	)
Total Digital				(91	)			(22	)			238				(3	)			(121	)
Packaged goods and other				(419	)			353				495				(381	)			(468	)
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Full game downloads				84				89				195				134				84				—
Extra content				255				195				360				310				258				1	%
Subscriptions, advertising and other				71				83				90				95				85				20	%
Mobile				122				113				162				173				141				16	%
Total Digital				532				480				807				712				568				7	%
Packaged goods and other				161				666				996				212				114				(29	%)
Total Non-GAAP net revenue				693				1,146				1,803				924				682				(2	%)
Full game downloads				10	%			10	%			10	%			12	%			11	%
Extra content				24	%			26	%			23	%			24	%			23	%
Subscriptions, advertising and other				6	%			11	%			8	%			7	%			7	%
Mobile				12	%			15	%			12	%			12	%			13	%
Total Digital				52	%			62	%			53	%			55	%			54	%
Packaged goods and other				48	%			38	%			47	%			45	%			46	%
Total GAAP net revenue %				100	%			100	%			100	%			100	%			100	%
Full game downloads				12	%			8	%			11	%			14	%			12	%
Extra content				37	%			17	%			20	%			34	%			38	%
Subscriptions, advertising and other				10	%			7	%			5	%			10	%			12	%
Mobile				18	%			10	%			9	%			19	%			21	%
Total Digital				77	%			42	%			45	%			77	%			83	%
Packaged goods and other				23	%			58	%			55	%			23	%			17	%
Total Non-GAAP net revenue %				100	%			100	%			100	%			100	%			100	%

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
				Q1				Q2				Q3				Q4				Q1				YOY %
				FY16				FY16				FY16				FY16				FY17				Change
QUARTERLY NET REVENUE PRESENTATIONS – GAAP AND NON-GAAP
Platform net revenue
Xbox One, PLAYSTATION 4				487				332				571				793				776				59	%
Xbox 360, PLAYSTATION 3				293				155				157				147				133				(55	%)
Other consoles				2				1				3				1				1				(50	%)
Total consoles				782				488				731				941				910				16	%
PC / Browser				253				184				182				195				179				(29	%)
Mobile				145				124				128				151				165				14	%
Other				23				19				29				21				17				(26	%)
Total GAAP net revenue				1,203				815				1,070				1,308				1,271				6	%
Xbox One, PLAYSTATION 4				(253	)			310				626				(287	)			(441	)
Xbox 360, PLAYSTATION 3				(204	)			55				16				(93	)			(92	)
Other consoles				—				1				(1	)			(1	)			—
Total consoles				(457	)			366				641				(381	)			(533	)
PC / Browser				(33	)			(19	)			55				(27	)			(30	)
Mobile				(19	)			(12	)			35				23				(24	)
Other				(1	)			(4	)			2				1				(2	)
Change in deferred net revenue (online-enabled games)				(510	)			331				733				(384	)			(589	)
Xbox One, PLAYSTATION 4				234				642				1,197				506				335				43	%
Xbox 360, PLAYSTATION 3				89				210				173				54				41				(54	%)
Other consoles				2				2				2				—				1				(50	%)
Total consoles				325				854				1,372				560				377				16	%
PC / Browser				220				165				237				168				149				(32	%)
Mobile				126				112				163				174				141				12	%
Other				22				15				31				22				15				(32	%)
Total Non-GAAP net revenue				693				1,146				1,803				924				682				(2	%)
Xbox One, PLAYSTATION 4				41	%			41	%			53	%			61	%			61	%
Xbox 360, PLAYSTATION 3				24	%			19	%			15	%			11	%			11	%
Other consoles				—				—				—				—				—
Total consoles				65	%			60	%			68	%			72	%			72	%
PC / Browser				21	%			23	%			17	%			15	%			14	%
Mobile				12	%			15	%			12	%			11	%			13	%
Other				2	%			2	%			3	%			2	%			1	%
Total GAAP net revenue %				100	%			100	%			100	%			100	%			100	%
Xbox One, PLAYSTATION 4				34	%			56	%			66	%			55	%			49	%
Xbox 360, PLAYSTATION 3				13	%			19	%			10	%			6	%			6	%
Other consoles				—				—				—				—				—
Total consoles				47	%			75	%			76	%			61	%			55	%
PC / Browser				32	%			14	%			13	%			18	%			22	%
Mobile				18	%			10	%			9	%			19	%			21	%
Other				3	%			1	%			2	%			2	%			2	%
Total Non-GAAP net revenue %				100	%			100	%			100	%			100	%			100	%

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in millions, except per share data)
				Q1				Q2			Q3			Q4				Q1				YOY %
				FY16				FY16			FY16			FY16				FY17				Change
CASH FLOW DATA
Operating cash flow				(71	)			9			889			396				(248	)			(249	%)
Operating cash flow – TTM				992				818			1,025			1,223				1,046				5	%
Capital expenditures				24				18			21			30				40				67	%
Capital expenditures – TTM				92				89			95			93				109				18	%
Repurchase and retirement of common stock				132				126			126			634				129				(2	%)
BALANCE SHEET DATA
Cash and cash equivalents				1,810				1,598			2,263			2,493				2,042				13	%
Short-term investments				1,069				990			966			1,341				1,385				30	%
Cash and cash equivalents, and short-term investments				2,879				2,588			3,229			3,834				3,427				19	%
Receivables, net				144				737			621			233				246				71	%
Deferred net revenue (online-enabled games)
End of the quarter				775				1,113			1,844			1,458				873				13	%
Less: Beginning of the quarter				1,283				775			1,113			1,844				1,458
Change in deferred net revenue (online-enabled games)4				(508	)			338			731			(386	)			(585	)
STOCK-BASED COMPENSATION
Cost of revenue				—				1			—			1				1
Research and development				26				25			26			26				27
Marketing and sales				5				7			5			7				7
General and administrative				14				11			11			13				13
Total stock-based compensation				45				44			42			47				48

4		The difference between the balances of deferred net revenue (online-enabled games) does not always equal the change in deferred net revenue (online-enabled games) in the GAAP to Non-GAAP consolidated statement of operations reconciliation due to the impact of unrecognized gains/losses on cash flow hedges.

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Electronic Arts Reports Q1 FY17 Financial Results