EA posts $641 million Q3 loss, will close 12 facilities

Tuesday, 3 February 2009 22:09 GMT By Patrick Garratt


EA’s posted a huge loss for the three months ending December 31, amounting to $641 million.

Revenue for the period was was $1.65 billion, up $151 million compared with the $1.50 billion for the prior year.

FIFA 09, Rock Band 2, Need for Speed Undercover, Rock Band, Left 4 Dead, Dead Space, Madden NFL 09, Littlest Pet Shop, NBA Live 09 and Mirror’s Edge were named by the firm as Christmas cash-drivers.

The news, however, is bad. EA said today it’s to extend planned redundancies from 10 percent to 11 percent of its total workforce, meaning 1,100 staff now face job loss.

In addition, 12 EA facilities are to be closed as part of a deep cost-cutting exercise.

Sir John’s brow is beaten, but that lip remains stiff.

“Our holiday quarter came in below our expectations and we have significantly reduced our financial outlook for fiscal 2009, a clear disappointment,” said CEO John Riccitiello.

“We delivered on game quality and innovation in calendar 2008, with 13 titles rated 80 or above — more than any third-party publisher. We expect to build on this great quality record in the year ahead while delivering more profitability.”

The full press release is after the break.

Press Release Source: Electronic Arts Inc.

EA Reports Third Quarter Fiscal Year 2009 Results
Tuesday February 3, 4:00 pm ET
Quality Scores Rise in Calendar 2008 Cost-Reduction Initiatives to Result in Significantly Lower Operating Expenses in Fiscal 2010

REDWOOD CITY, Calif.–(BUSINESS WIRE)–Electronic Arts Inc. (NASDAQ:ERTS – News) today announced preliminary financial results for its fiscal third quarter ended December 31, 2008.

Fiscal Third Quarter Results (comparisons are to the quarter ended December 31, 2007)

GAAP net revenue for the third quarter was $1.65 billion, up $151 million as compared with $1.50 billion for the prior year. During the quarter, EA had a net deferral of $88 million of net revenue related to certain online-enabled packaged goods games and digital content as compared with $231 million in the prior year.

Non-GAAP net revenue was $1.74 billion, as compared with $1.73 billion for the prior year. Sales were driven by FIFA 09, Rock Band™ 2, Need for Speed™ Undercover, Rock Band, Left 4 Dead™, Dead Space™, Madden NFL 09, LITTLEST PET SHOP, NBA Live 09 and Mirror’s Edge™.

GAAP net loss for the quarter was $641 million, including certain charges, as compared with a net loss of $33 million for the prior year. Diluted loss per share was $2.00 as compared with diluted loss per share of $0.10 for the prior year. During the quarter, the Company recorded an estimated pre-tax goodwill impairment charge of $368 million related to its wireless business and a $244 million charge for a valuation allowance reserve on certain deferred tax assets.

Non-GAAP net income was $179 million as compared with non-GAAP net income of $290 million a year ago. Non-GAAP diluted earnings per share were $0.56 as compared with non-GAAP diluted earnings per share of $0.90 for the prior year.

Trailing-twelve-month operating cash flow was $82 million as compared with $267 million a year ago. The Company ended the quarter with cash and short-term investments of $2.0 billion.

“Our holiday quarter came in below our expectations and we have significantly reduced our financial outlook for fiscal 2009, a clear disappointment,” said John Riccitiello, Chief Executive Officer. “We delivered on game quality and innovation in calendar 2008, with 13 titles rated 80 or above — more than any third-party publisher. We expect to build on this great quality record in the year ahead while delivering more profitability.”

As a part of an overall cost reduction program, the Company is reducing its workforce by approximately 11%, or 1,100 people, closing 12 facilities, narrowing its product portfolio and cutting other variable costs. The Company expects to incur total restructuring charges, including severance and facility closures, of $65 to $75 million, which will be recorded over the next twelve months.

“Given our recent performance and the current economic environment, we are aligning our cost structure with a lower projection of revenue, resulting in approximately $500 million of operating expense reductions in fiscal 2010 as compared with our previous plans,” said Eric Brown, Chief Financial Officer.


* EA was the leading publisher in North America with approximately 20 percent segment share according to NPD. In Europe, EA was number two behind Nintendo with an estimated 16 percent segment share.
* EA had 13 titles rated 80 or above in calendar 2008 – up from seven a year ago.
* FIFA 09 was EA’s best selling title with 7.8 million copies and charted at number one across all platforms in Europe in the holiday quarter.
* Rock Band was the number one title across all platforms in North America for calendar 2008, based on NPD data.
* Need for Speed Undercover sold 5.2M copies. For fiscal year 2010, the Company will launch three separate versions of Need For Speed (NFS), NFS Shift for the PLAYSTATION®3 computer entertainment system and Xbox 360® video game and entertainment system, NFS Nitro for the Wii™ and Nintendo DS™ and NFS World Online for the PC.
* LITTLEST PET SHOP sold 2.8 million copies on the Nintendo DS, Wii and PC. In the holiday quarter, it was a top-five title on the Nintendo DS in Europe and North America, based on NPD data.
* Warhammer® Online: Age of Reckoning®, an MMO from EA’s Mythic Entertainment studio, ended the quarter with over 300K paying subscribers in North America and Europe.
* EA’s digital direct-to-consumer revenue, which includes online and wireless, was $313 million year-to-date, up 27 percent year-over-year.
* Pogo™ achieved an all-time high of 1.7M paying subscribers in the quarter.
* EA Mobile™ is the world’s leading publisher of games for phones – with revenue of $50 million in the quarter – up 28 percent year-over-year.

Business Outlook

The following forward-looking statements, as well as those made above, reflect expectations as of February 3, 2009. Results may be materially different and are affected by many factors, including: development delays on EA’s products; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; expected savings and impact on EA’s operations of the Company’s cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; the financial impact of potential future acquisitions by EA; the popular appeal of EA’s products; EA’s effective tax rate; and other factors detailed in this release and in EA’s annual and quarterly SEC filings.

The Company updated its fiscal year 2009 guidance and provided initial guidance for fiscal year 2010.

Fiscal Year Expectations – Ending March 31, 2009

* GAAP net revenue is expected to be between $4.2 and $4.25 billion.
* Non-GAAP net revenue is expected to be approximately $4.1 billion.
* GAAP diluted loss per share is expected to be between $3.29 and $3.56.
* Non-GAAP diluted loss per share is expected to be approximately $0.35.
* For purposes of calculating fiscal year 2009 GAAP and non-GAAP loss per share, the Company estimates a share count of 321 million shares.
* Expected non-GAAP net loss excludes the following pre-tax items (other than the difference in the Company’s GAAP and non-GAAP tax expenses) from expected GAAP net loss:

* $(150) to $(100) million for the impact of the change in deferred net revenue (packaged goods and digital content),
* $368 million of estimated goodwill impairment,
* $206 million of estimated stock-based compensation,
* $21 million of certain abandoned acquisition related costs
* $75 million of amortization of intangible assets,
* $60 to $70 million of restructuring charges,
* $67 million of losses on strategic investments,
* $3 million in acquired-in process technology, and

$295 to $320 million in difference between the Company’s GAAP and non-GAAP tax expenses.

The Company’s updated fiscal year 2009 revenue guidance is lower than its previously announced guidance primarily as a result of weaker than expected sales, the Company’s decision to release certain titles, including The Sims 3, Godfather 2 and Dragon Age on the PC in fiscal 2010 (rather than in fiscal 2009), and the strengthening of the US dollar.

In fiscal 2009, the Company began using a fixed, long-term projected tax rate of 28 percent 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 has applied the same 28 percent tax rate to its fiscal 2009 non-GAAP financial results. The Company expects its GAAP tax expense to be approximately $250 to $275 million for fiscal 2009.

Fiscal Year Expectations – Ending March 31, 2010

* GAAP net revenue is expected to be between $4.2 and $4.35 billion.
* Non-GAAP net revenue is expected to be approximately $4.3 billion.
* GAAP diluted earnings (loss) per share are expected to be between a loss per share of $0.05 and earnings per share of $0.40.
* Non-GAAP diluted earnings per share are expected to be approximately $1.00.
* For purposes of calculating fiscal year 2010 GAAP and non-GAAP earnings (loss) per share, the Company estimates a share count of 323 million shares.
* Expected non-GAAP net income excludes the following pre-tax items from expected GAAP net income (other than the difference in the Company’s GAAP and non-GAAP tax expenses):

* $100 to $(50) million for the impact of the change in deferred net revenue (packaged goods and digital content),
* $185 million of estimated stock-based compensation,
* $85 million of amortization of intangible assets,
* $40 to $55 million of restructuring charges, and
* $(65) to $(85) million in difference between the Company’s GAAP and non-GAAP tax expenses.

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 fiscal third quarter ended December 31, 2008 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) 874-1565, access code 220497, or via webcast:

A dial-in replay of the conference call will be provided until February 10, 2009 at (719) 457-0820, access code 220497. A webcast archive of the conference call will be available for one year at

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, as applicable in a given reporting period, from the Company’s unaudited condensed consolidated statements of operations:

* Amortization of intangibles
* Stock-based compensation
* Acquired in-process technology
* Restructuring charges
* Losses on strategic investments
* Change in deferred net revenue (packaged goods and digital content)
* Certain abandoned acquisition-related costs
* Estimated goodwill impairment

Through the end of fiscal 2008, Electronic Arts made certain income tax adjustments to its non-GAAP financial measures to reflect the income tax effects of each of the items it excluded from its pre-tax non-GAAP financial measures, as well as certain discrete one-time income tax adjustments. This approach was consistent with how the Company evaluated operating performance, planned, forecasted and analyzed future periods, and assessed the performance of its management team.

In fiscal 2009, the Company began using a fixed, long-term projected tax rate of 28 percent 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 has applied the same 28 percent tax rate to its fiscal 2009 non-GAAP financial results.

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.

Electronic Arts believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company’s performance by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. Electronic Arts’ management uses, and believes that investors benefit from referring to, 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. These non-GAAP financial 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:

Amortization of Intangibles. 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) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of acquired intangible assets to its financial results. Electronic Arts believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.

In addition, in accordance with GAAP, Electronic Arts generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, Electronic Arts believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

Stock-Based Compensation. Electronic Arts adopted SFAS 123(R), “Share-Based Payment” beginning in its fiscal year 2007. 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.

Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical. The Company’s management analyzes its business and operating performance in the context of these business cycles, comparing Electronic Arts’ performance at similar stages of different cycles. For comparability purposes, Electronic Arts believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its core business.

Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past, each has been a discrete, extraordinary event based on a unique set of business objectives. Each of these restructurings has been unlike its predecessors in terms of its operational implementation, business impact and scope. The Company does not engage in restructuring activities on a regular basis or in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.

Change in Deferred Net Revenue (Packaged Goods and Digital Content). Beginning in fiscal 2008, Electronic Arts was no longer able to objectively determine the fair value of the online service included in certain of its packaged goods games and online content. As a result, the Company began recognizing the revenue from the sale of these games and content over the estimated online service period. Although Electronic Arts defers the recognition of a significant portion of its net revenue as a result of this change, there has been no adverse impact to its operating cash flow. Internally, Electronic Arts’ management excludes the impact of the change in deferred net revenue related to packaged goods games and digital content in its non-GAAP financial measures when evaluating the Company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. The Company believes that excluding the impact of the change in deferred net revenue from its operating results is important to facilitate comparisons to prior periods during which the Company was able to objectively determine the fair value of the online service and not delay the recognition of significant amounts of net revenue related to online-enabled packaged goods.

Certain Abandoned Acquisition-Related Costs. Electronic Arts incurred significant legal, banking and other consulting fees related to the Company’s proposed acquisition and related cash tender offer for all of the outstanding shares of Take-Two Interactive Software, Inc. On August 18, 2008, the Company allowed the tender offer to expire without purchasing any shares of Take-Two and, on September 14, 2008, the Company announced that it had terminated discussions with, and would not be making a proposal to acquire, Take-Two. The costs incurred in connection with the abandoned proposal and tender offer were outside the ordinary course of business and will be excluded by the Company when assessing the performance of its management team. As such, the Company believes it is appropriate to exclude such expenses from its non-GAAP financial measures.

Estimated Goodwill Impairment. Adverse economic conditions, including the decline in the Company’s market capitalization and expected financial performance, indicated that a potential impairment of goodwill existed during the three months ended December 31, 2008. As a result, the Company performed goodwill impairment tests for its reporting units in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” and determined that goodwill related to its mobile reporting unit was impaired. As the Company excludes the GAAP impact of acquired intangible assets (such as goodwill) from its financial results when analyzing the operating performance of an acquisition in subsequent periods, Electronic Arts believes it is appropriate to exclude estimated goodwill impairment charges from its non-GAAP financial measures.

In the financial tables below, Electronic Arts has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.


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  1. Grimrita

    This is stunning. They keep cutting the work force but how about being more productive? I used to work at EA and there are so many people trying to justify their jobs.

    Maybe its about time EA also took a long hard look at the money it pays the ‘talent’. Yes its nice to have all the big names associated with your brand but when you spend over £1 million for an event in Trafalgar Square, other savings need to be made.

    Good luck to those in the firing line

    #1 6 years ago
  2. Patrick Garratt

    That is a lot of fucking money. And yes, good luck to all about to suffer for it.

    #2 6 years ago
  3. Bringit

    I can’t understand this. Spore, Dead Space, Left 4 Dead, FIFA, Littlest Pet Shop, Tiger Woods, Battlefield and so on were big hits for EA. Mirror’s Edge didn’t quite get the numbers, but even that did okay.

    They must be seriously over-spending in certain areas to record a loss despite so many Top Five hits.

    #3 6 years ago
  4. Grimrita

    They do over spend greatly. I remember that the Need for Speed website costing over $300,000 and I think Skate was even more. They just dont like to shop around

    #4 6 years ago
  5. Mike

    Bringit: you forgot the biggest seller of them all: Madden NFL 09

    #5 6 years ago
  6. Whizzo

    Except it wasn’t, FIFA 09 was.

    Real footie > American rugby

    #6 6 years ago
  7. Blerk

    They have been a bit ‘over-handy’ with their wallets the last few years, though. How much did they pay for Bioware again?

    #7 6 years ago
  8. Patrick Garratt

    $775 million, plus a $35 million loan.

    #8 6 years ago
  9. Blerk


    #9 6 years ago
  10. Patrick Garratt

    Innit. I hope The Old Republic’s worth it.

    #10 6 years ago
  11. Blerk

    I wish they were working on a Star Wars game that I’d actually want to play instead.

    #11 6 years ago
  12. Grimrita

    EA will have nothing to do with the Star Wars MMO. Yes, they now own Bioware but thats it. They will have no say in anything to do with marketing because LucasArts will publish the title in North America, whilst Activision-Blizzard will publish it in Europe.

    Essentially, they are making a game for their rivals

    #12 6 years ago
  13. Blerk

    I think you might be mistaken there, actually. :-D

    #13 6 years ago
  14. Patrick Garratt

    EA’s publishing TOR.

    #14 6 years ago
  15. Grimrita

    I cant see LucasArts changing the publisher for 1 title. Especially as the game was already in development before EA purchased Bioware.

    Activision-Blizzard publish ALL Star Wars titles (apart from some DS stuff) in Europe.

    Time will tell I guess.

    #15 6 years ago
  16. Blerk

    EA already issued a joint press release with LucasArts about The Old Republic. It’s a done deal.

    #16 6 years ago
  17. Patrick Garratt

    When they announced TOR in San Francisco I interviewed the head of EA Games about it at LucasArts. EA is publishing it, dude :)

    #17 6 years ago
  18. Grimrita


    #18 6 years ago
  19. cookiejar

    Well at least T2 is safe from them going by this.

    #19 6 years ago
  20. Michael O'Connor

    “They must be seriously over-spending in certain areas to record a loss despite so many Top Five hits.”

    It’s called a recession, mate.

    It’s the biggest company that take the major blows at times like that.

    #20 6 years ago
  21. Harry

    I wonder if this is going to affect PlayStation 3 support at EA.

    With the focus on the Wii, probably followed by the big-selling games on Xbox 360 is EA going to put less effort into supporting the (current) third place format.

    I’m not suggesting EA will drop PS3. But the format seems the more likely loser in all this.

    #21 6 years ago
  22. Blerk

    Didn’t PS3 game sales of EA stuff increase like a gazillion percent last year? I seem to remember seeing some figures which showed it was actually making them more money than 360 stuff now.

    #22 6 years ago
  23. Psychotext

    The PS3 software earning more than the 360 was a trick of their financials (deferred income) but they certainly increased massively year on year.

    #23 6 years ago
  24. Rhythm

    Heh, judging by their latest releases they gave up on PS3 a *long* time ago. There’s only the odd release here and there that matches the effort put into the 360 equivalents.

    #24 6 years ago
  25. Lutz

    /says nothing.


    #25 6 years ago
  26. evilashchris


    #26 6 years ago
  27. Blerk

    Don’t start here as well, you mentalist! :-D

    #27 6 years ago
  28. jnms

    “It’s called a recession, mate.

    It’s the biggest company that take the major blows at times like that.”

    Not to nitpick – but we are actually entering a global Depression…

    #28 6 years ago

Comments are now closed on this article.

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