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Table of Contents














10-Q


☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


September 30, 2019





☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





000-17948


ELECTRONIC ARTS INC.





Delaware94-2838567(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)209 Redwood Shores Parkway94065Redwood CityCalifornia(Address of principal executive offices)(Zip Code)


650
  628-1500





Title of Each ClassTrading SymbolName of Each Exchange on Which RegisteredCommon Stock, $0.01 par valueEANASDAQ Global Select Market


Yes


Yes





Large accelerated filer☑Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐☐








☐


291,978,913








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PagePart I - FINANCIAL INFORMATIONItem 1.Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2019 and March 31, 20193Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2019 and 20184Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2019 and 20185Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2019 and 20186Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 20187Notes to Condensed Consolidated Financial Statements8Report of Independent Registered Public Accounting Firm31Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations32Item 3.Quantitative and Qualitative Disclosures About Market Risk49Item 4.Controls and Procedures51Part II - OTHER INFORMATIONItem 1.Legal Proceedings52Item 1A.Risk Factors52Item 2.Unregistered Sales of Equity Securities and Use of Proceeds63Item 3.Defaults Upon Senior Securities63Item 4.Mine Safety Disclosures63Item 6.Exhibits63Exhibit Index64Signature65








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|        |                                                        
|------- | -------------------------------------------------------
|Item 1. | Condensed Consolidated Financial Statements (Unaudited)













(Unaudited)(In millions, except par value data)September 30, 2019March 31, 2019(a)ASSETSCurrent assets:Cash and cash equivalents$2,940$4,708Short-term investments1,943737Receivables, net856623Other current assets301313Total current assets6,0406,381Property and equipment, net442448Goodwill1,8901,892Acquisition-related intangibles, net7287Deferred income taxes, net1,83535Other assets314114TOTAL ASSETS$10,593$8,957LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable$148$113Accrued and other current liabilities1,0241,052Deferred net revenue (online-enabled games)6461,100Total current liabilities1,8182,265Senior notes, net995994Income tax obligations361233Deferred income taxes, net22Other liabilities259132Total liabilities3,4353,626Commitments and contingencies (SeeNote 12)Stockholders’ equity:Common stock, $0.01 par value. 1,000 shares authorized; 293 and 298 shares issued and outstanding, respectively33Additional paid-in capital——Retained earnings7,1655,358Accumulated other comprehensive loss(10)(30)Total stockholders’ equity7,1585,331TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$10,593$8,957





Derived from audited Consolidated Financial Statements.








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(Unaudited)Three Months Ended September 30,Six Months Ended September 30,(In millions, except per share data)2019201820192018Net revenue:Product$568$623$734$825Service and other7806631,8231,598Total net revenue1,3481,2862,5572,423Cost of revenue:Product193222228290Service and other212196364343Total cost of revenue405418592633Gross profit9438681,9651,790Operating expenses:Research and development387339768701Marketing and sales152146262286General and administrative128117238231Acquisition-related contingent consideration2232Amortization of intangibles661112Total operating expenses6756101,2821,232Operating income268258683558Interest and other income (expense), net16183737Income before provision for (benefit from) income taxes284276720595Provision for (benefit from) income taxes(570)21(1,555)47Net income$854$255$2,275$548Earnings per share:Basic$2.89$0.84$7.69$1.80Diluted$2.89$0.83$7.66$1.77Number of shares used in computation:Basic295305296305Diluted296307297309














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(Unaudited)Three Months Ended September 30,Six Months Ended September 30,(In millions)2019201820192018Net income$854$255$2,275$548Other comprehensive income, net of tax:Net gains on available-for-sale securities—131Net gains on derivative instruments1632596Foreign currency translation adjustments(9)3(8)(12)Total other comprehensive income, net of tax772085Total comprehensive income$861$262$2,295$633














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(Unaudited)Common StockAdditional Paid-inCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome (loss)TotalStockholders’Equity(In millions, except per share data)SharesAmountBalances as of March 31, 2019298,107$3$—$5,358$(30)$5,331Total comprehensive income———1,421131,434Stock-based compensation——73——73Issuance of common stock985—(48)——(48)Repurchase and retirement of common stock(3,205)—(25)(280)—(305)Balances as of June 30, 2019295,8873—6,499(17)6,485Total comprehensive income———8547861Stock-based compensation——92——92Issuance of common stock584—26——26Repurchase and retirement of common stock(3,253)—(118)(188)—(306)Balances as of September 30, 2019293,218$3$—$7,165$(10)$7,158(Unaudited)Common StockAdditional Paid-inCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome (loss)TotalStockholders’Equity(In millions, except per share data)SharesAmountBalances as of March 31, 2018306,370$3$657$4,062$(127)$4,595Cumulative-effect adjustment from the adoption of ASC 606———59022612Cumulative-effect adjustment from the adoption of ASU 2018-02———(1)1—Total comprehensive income———29378371Stock-based compensation——70——70Issuance of common stock1,280—(88)——(88)Repurchase and retirement of common stock(2,264)—(300)——(300)Balances as of June 30, 2018305,38633394,944(26)5,260Total comprehensive income———2557262Stock-based compensation——66——66Issuance of common stock618—28——28Repurchase and retirement of common stock(2,334)—(299)——(299)Balances as of September 30, 2018303,670$3$134$5,199$(19)$5,317

















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(Unaudited)Six Months Ended September 30,(In millions)20192018OPERATING ACTIVITIESNet income$2,275$548Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation, amortization and accretion7274Stock-based compensation165136Change in assets and liabilities:Receivables, net(235)(422)Other assets3320Accounts payable51132Accrued and other liabilities88(25)Deferred income taxes, net(1,800)(94)Deferred net revenue (online-enabled games)(454)(375)Net cash provided by (used in) operating activities195(6)INVESTING ACTIVITIESCapital expenditures(72)(63)Proceeds from maturities and sales of short-term investments793446Purchase of short-term investments(1,984)(1,029)Acquisition, net of cash acquired—(58)Net cash used in investing activities(1,263)(704)FINANCING ACTIVITIESProceeds from issuance of common stock3336Cash paid to taxing authorities for shares withheld from employees(55)(96)Repurchase and retirement of common stock(611)(599)Acquisition-related contingent consideration payment(64)—Net cash used in financing activities(697)(659)Effect of foreign exchange on cash and cash equivalents(3)(8)Decrease in cash and cash equivalents(1,768)(1,377)Beginning cash and cash equivalents4,7084,258Ending cash and cash equivalents$2,940$2,881Supplemental cash flow information:Cash paid during the period for income taxes, net$77$78Cash paid during the period for interest2121Non-cash investing activities:Change in accrued capital expenditures$(16)$(11)














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DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION





























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BALANCE SHEETS(In millions)Balance at March 31, 2019Adjustments due to New Lease Standard AdoptionBalance atApril 1, 2019AssetsOther current assets$313$(6)$307Other assets114215329LiabilitiesAccrued and other current liabilities$1,052$47$1,099Other liabilities132162294





Note 11 — Leases





Note 4 — Derivative Financial Instruments





























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FAIR VALUE MEASUREMENTS











|  |                                                                              
|- | -----------------------------------------------------------------------------
|• | Level 1. Quoted prices in active markets for identical assets or liabilities.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.







Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Marketsfor IdenticalFinancialInstrumentsSignificantOtherObservableInputsSignificantUnobservableInputsAs of September 30, 2019(Level 1)(Level 2)(Level 3)Balance Sheet ClassificationAssetsBank and time deposits$50$50$—$—Cash equivalentsMoney market funds938938——Cash equivalentsAvailable-for-sale securities:Corporate bonds746—746—Short-term investmentsU.S. Treasury securities520520—Short-term investments and cash equivalentsU.S. agency securities11—11—Short-term investmentsCommercial paper447—447—Short-term investments and cash equivalentsForeign government securities34—34—Short-term investmentsAsset-backed securities287—287—Short-term investmentsCertificates of deposit45—45—Short-term investments and cash equivalentsForeign currency derivatives55—55—Other current assets and other assetsDeferred compensation plan assets(a)1313——Other assetsTotal assets at fair value$3,146$1,521$1,625$—LiabilitiesContingent consideration(b)$69$—$—$69Accrued and other current liabilitiesForeign currency derivatives8—8—Accrued and other current liabilities and other liabilitiesDeferred compensation plan liabilities(a)1313——Other liabilitiesTotal liabilities at fair value$90$13$8$69











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Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)ContingentConsiderationBalance as of March 31, 2019$136Change in fair value(c)3Payment(d)(70)Balance as of September 30, 2019$69


Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Marketsfor IdenticalFinancialInstrumentsSignificantOtherObservableInputsSignificantUnobservableInputsAs of March 31, 2019(Level 1)(Level 2)(Level 3)Balance Sheet ClassificationAssetsBank and time deposits$23$23$—$—Cash equivalentsMoney market funds2,7042,704——Cash equivalentsAvailable-for-sale securities:Corporate bonds327—327—Short-term investments and cash equivalentsU.S. Treasury securities294294——Short-term investments and cash equivalentsU.S. agency securities57—57—Short-term investments and cash equivalentsCommercial paper233—233—Short-term investments and cash equivalentsForeign government securities58—58—Short-term investments and cash equivalentsAsset-backed securities55—55—Short-term investments and cash equivalentsCertificates of deposit2—2—Short-term investments and cash equivalentsForeign currency derivatives33—33—Other current assets and other assetsDeferred compensation plan assets(a)1111——Other assetsTotal assets at fair value$3,797$3,032$765$—LiabilitiesContingent consideration(b)$136$—$—$136Accrued and other current liabilitiesForeign currency derivatives16—16—Accrued and other current liabilities and other liabilitiesDeferred compensation plan liabilities(a)1212——Other liabilitiesTotal liabilities at fair value$164$12$16$136





|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Deferred Compensation Plan assets consist of various mutual funds. SeeNote 15in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019, for additional information regarding our Deferred Compensation Plan.




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisition of Respawn Entertainment, LLC (“Respawn”) that is contingent upon the achievement of certain performance milestones. We estimated fair value using a probability-weighted income approach combined with a real options methodology, and applied a discount rate that appropriately captures the risk associated with the obligation. AtSeptember 30, 2019, the discount rates used ranged from2.5 percentto2.6 percent. There were no material changes in the fair value of the contingent consideration during the six months endedSeptember 30, 2019. AtMarch 31, 2019, the discount rates used ranged from2.9 percentto3.1 percent. SeeNote 7in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2019, for additional information regarding the Respawn acquisition.










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|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(c) | The change in fair value is reported as acquisition-related contingent consideration in our Condensed Consolidated Statements of Operations.




(d)  During thesix months ended September 30, 2019, we paid$70 million for performance milestones achieved in connection with our acquisition of Respawn.








FINANCIAL INSTRUMENTS





2,940
  4,708








As of September 30, 2019As of March 31, 2019Cost orAmortizedCostGross UnrealizedFairValueCost orAmortizedCostGross UnrealizedFairValueGainsLossesGainsLossesCorporate bonds$744$2$—$746$325$—$(1)$324U.S. Treasury securities468——468153——153U.S. agency securities11——1144——44Commercial paper355——355112——112Foreign government securities34——3450——50Asset-backed securities287——28753——53Certificates of deposit42——421——1Short-term investments$1,941$2$—$1,943$738$—$(1)$737





As of September 30, 2019As of March 31, 2019AmortizedCostFairValueAmortizedCostFairValueShort-term investmentsDue within 1 year$1,464$1,465$449$448Due 1 year through 5 years457458287287Due after 5 years202022Short-term investments$1,941$1,943$738$737








DERIVATIVE FINANCIAL INSTRUMENTS





18
  three months








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As of September 30, 2019As of March 31, 2019Notional AmountFair ValueNotional AmountFair ValueAssetLiabilityAssetLiabilityForward contracts to purchase$225$—$5$295$—$10Forward contracts to sell$1,143$53$1$1,355$31$4








Amount of Gain (Loss) Recognized in the Statement of OperationsThree Months Ended September 30,Six Months Ended September 30,2019201820192018Net revenueResearch and developmentNet revenueResearch and developmentNet revenueResearch and developmentNet revenueResearch and developmentTotal amounts presented in our Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded$1,348$387$1,286$339$2,557$768$2,423$701Gains (losses) on foreign currency forward contracts designated as cash flow hedges$25$(1)$2$(3)$41$(7)$(12)$(4)


7
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As of September 30, 2019As of March 31, 2019Notional AmountFair ValueNotional AmountFair ValueAssetLiabilityAssetLiabilityForward contracts to purchase$273$—$1$449$—$2Forward contracts to sell$625$2$1$394$2$—





Amount of Gain (Loss) Recognized in the Statement of OperationsThree Months Ended September 30,Six Months Ended September 30,2019201820192018Interest and other income (expense), netTotal amounts presented in our Condensed Consolidated Statements of Operations in which the effects of balance sheet hedges are recorded$16$18$37$37Gain (losses) on foreign currency forward contracts not designated as hedging instruments$1$(5)$(3)$4











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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)








Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotalBalances as of June 30, 2019$2$31$(50)$(17)Other comprehensive income (loss) before reclassifications140(9)32Amounts reclassified from accumulated other comprehensive income (loss)(1)(24)—(25)Total other comprehensive income (loss), net of tax—16(9)7Balances as of September 30, 2019$2$47$(59)$(10)


Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotalBalances as of June 30, 2018$(8)$27$(45)$(26)Other comprehensive income (loss) before reclassifications1236Amounts reclassified from accumulated other comprehensive income (loss)—1—1Total other comprehensive income (loss), net of tax1337Balances as of September 30, 2018$(7)$30$(42)$(19)





Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotalBalances as of March 31, 2019$(1)$22$(51)$(30)Other comprehensive income (loss) before reclassifications459(8)55Amounts reclassified from accumulated other comprehensive income (loss)(1)(34)—(35)Total other comprehensive income (loss), net of tax325(8)20Balances as of September 30, 2019$2$47$(59)$(10)











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Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotalBalances as of March 31, 2018$(8)$(89)$(30)$(127)Cumulative-effect adjustment from the adoption of ASC 606—22—22Cumulative-effect adjustment from the adoption of ASU 2018-02—1—1Balances as of April 1, 2018(8)(66)(30)(104)Other comprehensive income (loss) before reclassifications180(12)69Amounts reclassified from accumulated other comprehensive income (loss)—16—16Total other comprehensive income (loss), net of tax196(12)85Balances as of September 30, 2018$(7)$30$(42)$(19)





Amount Reclassified From Accumulated Other Comprehensive Income (Loss)Statement of Operations ClassificationThree Months Ended September 30, 2019Six Months Ended September 30, 2019(Gains) losses on foreign currency forward contracts designated as cash flow hedgesNet revenue$(25)$(41)Research and development17Total, net of tax$(24)$(34)





Amount Reclassified From Accumulated Other Comprehensive Income (Loss)Statement of Operations ClassificationThree Months Ended September 30, 2018Six Months Ended September 30, 2018(Gains) losses on foreign currency forward contracts designated as cash flow hedgesNet revenue$(2)$12Research and development34Total net (gain) loss reclassified, net of tax$1$16











GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET


As of March 31, 2019ActivityEffects of Foreign Currency TranslationAs of September 30, 2019Goodwill$2,260$—$(2)$2,258Accumulated impairment(368)——(368)Total$1,892$—$(2)$1,890











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As of September 30, 2019As of March 31, 2019GrossCarryingAmountAccumulatedAmortizationAcquisition-RelatedIntangibles, NetGrossCarryingAmountAccumulatedAmortizationAcquisition-RelatedIntangibles, NetDeveloped and core technology$469$(437)$32$469$(427)$42Trade names and trademarks161(126)35161(121)40Registered user base and other intangibles5(5)—5(5)—Carrier contracts and related85(85)—85(85)—In-process research and development5—55—5Total$725$(653)$72$725$(638)$87


Three Months Ended September 30,Six Months Ended September 30,2019201820192018Cost of service and other$2$—$4$—Cost of product—1—2Operating expenses661112Total$8$7$15$14


1
  9
      2.8
  3.2





Fiscal Year Ending March 31,2020 (remaining six months)$15202122202222202382024 and thereafter—Total$67








ROYALTIES AND LICENSES




















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As of September 30, 2019As of March 31, 2019Other current assets$67$53Other assets2730Royalty-related assets$94$83


The current and long-term portions of accrued royalties, included in accrued and other current liabilities and other liabilities, consisted of (in millions):


As of September 30, 2019As of March 31, 2019Accrued royalties$141$144Other liabilities3951Royalty-related liabilities$180$195


845
    Note 12








BALANCE SHEET DETAILS








As of September 30, 2019As of March 31, 2019Computer, equipment and software$734$710Buildings346343Leasehold improvements157139Equipment, furniture and fixtures, and other8380Land6666Construction in progress9211,3951,359Less: accumulated depreciation(953)(911)Property and equipment, net$442$448


30
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30
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As of September 30, 2019As of March 31, 2019Other accrued expenses$300$290Accrued compensation and benefits198238Accrued royalties141144Sales return and price protection reserves87150Contingent consideration69136Deferred net revenue (other)15494Operating lease liabilities (SeeNote 11)75—Accrued and other current liabilities$1,024$1,052








As of September 30, 2019As of March 31, 2019Deferred net revenue (online-enabled games)$646$1,100Deferred net revenue (other)15494Deferred net revenue (noncurrent)1623Total Deferred net revenue$816$1,217





1,632
  1,131





As ofSeptember 30, 2019, revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes our deferred revenue balance of$816 million. These balances exclude any estimates for future variable consideration as we have elected the optional exemption to exclude sales-based royalty revenue. We expect to recognize substantially all of these balances as revenue over the next12 months .








INCOME TAXES














1.17
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630
  1.8
  0.2
  0.1


90


201
  216
  7.6
  7.9
    12.7
  13.6


21


10








FINANCING ARRANGEMENTS





600
  3.70
  March 1, 2021
  400
  4.80
  March 1, 2026
  989
  2
  9
  3.94
  4.97
  semiannually





As of September 30, 2019As of March 31, 2019Senior Notes:3.70% Senior Notes due 2021$600$6004.80% Senior Notes due 2026400400Total principal amount$1,000$1,000Unaccreted discount(1)(1)Unamortized debt issuance costs(4)(5)Net carrying value of Senior Notes$995$994Fair value of Senior Notes (Level 2)$1,064$1,039





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  6.4








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100
  101





August 29, 2019
  500
  August 29, 2024
  500
  March 19, 2020
  500























2
  5








Three Months Ended September 30,Six Months Ended September 30,2019201820192018Amortization of debt issuance costs$—$—$(1)$(1)Coupon interest expense(11)(11)(21)(21)Total interest expense$(11)$(11)$(22)$(22)











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LEASES





10
































Three Months Ended September 30, 2019Six Months Ended September 30, 2019Operating lease costs$19$34Variable lease costs1120Short-term lease costs29Total lease expense$32$63








Six Months Ended September 30, 2019Cash paid for amounts included in the measurement of lease liability$28ROU assets obtained in exchange for new lease obligations$47








At September 30, 2019Lease term5.1 yearsDiscount rate3.4%














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Balance at April 1, 2019Balance as of September 30, 2019Balance Sheet ClassificationOperating lease ROU assets$215$219Other assetsOperating lease liabilities$50$75Accrued and other current liabilitiesNoncurrent operating lease liabilities197181Other liabilitiesTotal operating lease liabilities$247$256








Fiscal Years Ending March 31,2020 (remaining six months)$34202165202262202345202425202519Thereafter26Total future lease payments276Less imputed interest(20)Total operating lease liabilities$256








Fiscal Years Ending March 31,2020$52202154202244202336202428Thereafter50Total future lease payments$264














COMMITMENTS AND CONTINGENCIES


























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Fiscal Years Ending March 31,2020(RemainingTotalsix mos.)20212022202320242025ThereafterUnrecognized commitmentsDeveloper/licensor commitments$854$62$297$260$94$76$61$4Marketing commitments320299886413927—Senior Notes interest15517412020191919Operating lease imputed interest203643211Other purchase obligations90203425722—Total unrecognized commitments1,43913147639516513811024Recognized commitmentsSenior Notes principal and interest1,0033600————400Operating leases25631595842231825Transition and other taxes74623243558Licensing commitments66132627————Total recognized commitments1,39953708109452823433Total commitments$2,838$184$1,184$504$210$166$133$457





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STOCK-BASED COMPENSATION

















|  |                                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Restricted Stock UnitsandPerformance-Based Restricted Stock Units. The fair value of restricted stock units and performance-based restricted stock units (other than market-based restricted stock units) is determined based on the quoted market price of our common stock on the date of grant.




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Market-Based Restricted Stock Units. Market-based restricted stock units consist of grants of performance-based restricted stock units to certain members of executive management that vest contingent upon the achievement of pre-determined market and service conditions (referred to herein as “market-based restricted stock units”). The fair value of our market-based restricted stock units is estimated using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient.




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Stock Options and Employee Stock Purchase Plan. The fair value of stock options and stock purchase rights granted pursuant to our equity incentive plans and our 2000 Employee Stock Purchase Plan, as amended (“ESPP”), respectively, is estimated using the Black-Scholes valuation model based on the multiple-award valuation method. Key assumptions of the Black-Scholes valuation model are the risk-free interest rate, expected volatility, expected term and expected dividends. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option. Expected volatility is based on a combination of historical stock price volatility and implied volatility of publicly-traded options on our common stock. An expected term is estimated based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior.




ESPP Purchase RightsThree Months Ended September 30,20192018Risk-free interest rate1.7 - 1.9%2.2 - 2.5%Expected volatility34 - 37%29%Weighted-average volatility36%29%Expected term6 - 12 months6 - 12 monthsExpected dividendsNoneNone


























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Options(in thousands)Weighted-AverageExercise PricesWeighted-AverageRemainingContractualTerm   (in years)AggregateIntrinsic Value(in millions)Outstanding as of March 31, 20191,375$30.63Granted394.74Exercised(160)30.29Forfeited, cancelled or expired——Outstanding as of September 30, 20191,218$30.814.36$79Vested and expected to vest1,218$30.814.36$79Exercisable as of September 30, 20191,218$30.814.36$79











RestrictedStock Rights(in thousands)Weighted-Average GrantDate Fair ValuesOutstanding as of March 31, 20194,960$111.03Granted3,69992.57Vested(1,519)106.86Forfeited or cancelled(285)109.45Outstanding as of September 30, 20196,855$102.06





zero
  200
  50
  50





Performance-Based RestrictedStock Units(in thousands)Weighted-Average GrantDate Fair ValueOutstanding as of March 31, 2019579$110.51Granted——Forfeited or cancelled——Outstanding as of September 30, 2019579$110.51











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zero
  200





Market-BasedRestricted  StockUnits(in thousands)Weighted-Average  GrantDate Fair ValueOutstanding as of March 31, 2019958$155.64Granted785105.05Vested(93)109.05Forfeited or cancelled(260)137.05Outstanding as of September 30, 20191,390$133.66














Three Months Ended September 30,Six Months Ended September 30,2019201820192018Cost of revenue$1$1$2$2Research and development613911086Marketing and sales1091716General and administrative20173632Stock-based compensation expense$92$66$165$136





5
  11
    9
  17


648
  2.1
  648
  571
  68
  9
  66





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3.3
  6.5
  306
  611
    2.3
  4.0
  299
  523








May 2017 ProgramMay 2018 ProgramTotal(in millions)SharesAmountSharesAmountSharesAmountThree months ended September 30, 2019—$—3.3$3063.3$306Six months ended September 30, 2019—$—6.56116.5$611Three months ended September 30, 2018—$—2.3$2992.3$299Six months ended September 30, 20180.6$764.05234.6$599








EARNINGS PER SHARE





Three Months Ended September 30,Six Months Ended September 30,(In millions, except per share amounts)2019201820192018Net income$854$255$2,275$548Shares used to compute earnings per share:Weighted-average common stock outstanding — basic295305296305Dilutive potential common shares related to stock award plans and from assumed exercise of stock options1214Weighted-average common stock outstanding — diluted296307297309Earnings per share:Basic$2.89$0.84$7.69$1.80Diluted$2.89$0.83$7.66$1.77





2





For thethree and six months ended September 30, 2018 , an immaterial amount of restricted stock units and market-based restricted stock units were excluded from the treasury stock method computation of diluted shares as their inclusion would have had an antidilutive effect.











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SEGMENT INFORMATION











Three Months Ended September 30,Six Months Ended September 30,2019201820192018Net revenue by compositionFull game downloads$180$148$312$264Live services5734121,3041,022Mobile169220355451Total Digital9227801,9711,737Packaged goods and other426506586686Net revenue$1,348$1,286$2,557$2,423











Other revenue includes our non-software licensing revenue.
 Three Months Ended September 30,Six Months Ended September 30,2019201820192018Platform net revenueConsole$923$917$1,683$1,622PC / Browser242149491346Mobile177220373453Other6—102Net revenue$1,348$1,286$2,557$2,423








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Three Months Ended September 30,Six Months Ended September 30,2019201820192018Net revenue from unaffiliated customersNorth America$531$475$1,021$917International8178111,5361,506Net revenue$1,348$1,286$2,557$2,423

















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|Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations











































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|• | Total net revenue was$1,348 million, up5 percentyear-over-year. On a constant currency basis, we estimate




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|• | Digital net revenue was$922 million, up18 percentyear-over-year.

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|• | Gross margin was70.0 percent, up 2.5 percentage points year-over-year.

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|• | Operating expenses were$675 million, up11 percentyear-over-year. On a constant currency basis, we estimate that operating expenses would have been $683 million, up 12 percent year over year.

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|• | Operating income was$268 million, up 4 percent year-over-year.

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|• | Net income was$854 millionwith diluted earnings per share of$2.89. A substantial amount of net income for the quarter is due to one-time income tax benefits. SeeNote 9.

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|• | Operating cash flow was $37 million, up $163 million year-over-year.

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|• | Total cash, cash equivalents and short-term investments were$4,883 million.

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|• | We repurchased3.3 millionshares of our common stock for$306 million.










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Three Months Ended September 30,Six Months Ended September 30,(In millions)2019201820192018Total net revenue$1,348$1,286$2,557$2,423Change in deferred net revenue (online-enabled games)(35)(20)(462)(359)Mobile platform fees(36)(44)(75)(93)Net bookings$1,277$1,222$2,020$1,971
































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|• | full games with both online and offline functionality (“Games with Services”), which generally includes (1) the initial game delivered digitally or via physical disc at the time of sale and typically provide access to offline core game content (“software license”); (2) updates on a when-and-if-available basis, such as software patches or updates, and/or additional free content to be delivered in the future (“future update rights”); and (3) a hosted connection for online playability (“online hosting”);










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|• | full games with online-only functionality which require an Internet connection to access all gameplay and functionality (“Online-Hosted Service Games”);




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|• | extra content related to Games with Services and Online-Hosted Service Games which provides access to additional in-game content;




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|• | subscriptions, such as Origin Access, Origin Access Premier and EA Access, that generally offers access to a selection of full games, in-game content, online services and other benefits typically for a recurring monthly or annual fee; and




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|• | licensing our games to third parties to distribute and host our games.
















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|• | identifying the contract(s) with the customer;




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|• | identifying the performance obligations in the contract;




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|• | determining the transaction price;




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|• | allocating the transaction price to performance obligations in the contract; and




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|• | recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).





























































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|• | the underlying contract terms and conditions between the various parties to the transaction;

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|• | which party is primarily responsible for fulfilling the promise to provide the specified good or service to the end customer;

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|• | which party has inventory risk before the specified good or service has been transferred to the end customer; and

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|• | which party has discretion in establishing the price for the specified good or service.




















































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Note 1 — Description of Business and Basis of Presentation
























































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Three Months Ended September 30,20192018$ Change% ChangeNet revenue:Product$568$623$(55)(9)%Service and other78066311718%Total net revenue$1,348$1,286$625%



































Three Months Ended September 30,20192018$ Change% ChangeNet revenue:Full game downloads$180$148$3222%Live services57341216139%Mobile169220(51)(23)%Total Digital$922$780$14218%Packaged goods and other$426$506$(80)(16)%Total net revenue$1,348$1,286$625%


























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Six Months Ended September 30,20192018$ Change% ChangeNet revenue:Product$734$825$(91)(11)%Service and other1,8231,59822514%Total net revenue$2,557$2,423$1346%



































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Six Months Ended September 30,20192018$ Change% ChangeNet revenue:Full game downloads$312$264$4818%Live services1,3041,02228228%Mobile355451(96)(21)%Total Digital$1,971$1,737$23413%Packaged goods and other$586$686$(100)(15)%Total net revenue$2,557$2,423$1346%






































September 30, 2019% ofRelatedNet RevenueSeptember 30, 2018% ofRelatedNet Revenue% ChangeChange as a % of RelatedNet RevenueCost of revenue:Product$19334.0%$22235.6%(13.1)%(1.6)%Service and other21227.2%19629.6%8.2%(2.4)%Total cost of revenue$40530.0%$41832.5%(3.1)%(2.5)%

















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September 30, 2019% ofRelatedNet RevenueSeptember 30, 2018% ofRelatedNet Revenue% ChangeChange as a % of RelatedNet RevenueCost of revenue:Product$22831.1%$29035.2%(21.4)%(4.1)%Service and other36420.0%34321.5%6.1%(1.5)%Total cost of revenue$59223.2%$63326.1%(6.5)%(2.9)%












































September 30, 2019% of NetRevenueSeptember 30, 2018% of NetRevenue$ Change% ChangeThree months ended$38729%$33926%$4814%Six months ended$76830%$70129%$6710%











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September 30, 2019% of NetRevenueSeptember 30, 2018% of NetRevenue$ Change% ChangeThree months ended$15211%$14611%$64%Six months ended$26210%$28612%$(24)(8)%





























September 30, 2019% of NetRevenueSeptember 30, 2018% of NetRevenue$ Change% ChangeThree months ended$1289%$1179%$119%Six months ended$2389%$23110%$73%

















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September 30, 2019Effective Tax RateSeptember 30, 2018Effective Tax RateThree months ended$(570)(201)%217.6%Six months ended(1,555)(216)%477.9%
































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(In millions)As of September 30, 2019As of March 31, 2019Increase/(Decrease)Cash and cash equivalents$2,940$4,708$(1,768)Short-term investments1,9437371,206Total$4,883$5,445$(562)Percentage of total assets46%61%


Six Months Ended September 30,(In millions)20192018ChangeNet cash provided by (used in) operating activities$195$(6)$201Net cash used in investing activities(1,263)(704)(559)Net cash used in financing activities(697)(659)(38)Effect of foreign exchange on cash and cash equivalents(3)(8)5Net decrease in cash and cash equivalents$(1,768)$(1,377)$(391)























Note 10 — Financing Arrangements








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Note 10 — Financing Arrangements

















Risk Factors





Note 12 — Commitments and Contingencies











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Note 4 — Derivative Financial Instruments














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|Item 4. | Controls and Procedures




























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|Item 1. | Legal Proceedings










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|Item 1A. | Risk Factors

















































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|• | Requiring the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures and other general corporate purposes;




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|• | Limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and




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|• | Increasing our vulnerability to adverse changes in general economic and industry conditions.











































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Note 1  — Description of Business and Basis of Presentation
































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Fiscal MonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramsMaximum Dollar Value that May Still Be Purchased Under the Programs (in millions)June 30, 2019 - July 27, 2019987,351$93.24987,351$887July 28, 2019 - August 24, 20191,064,890$91.001,064,890$790August 25, 2019 - September 28, 20191,200,397$96.881,200,397$6743,252,638$93.853,252,638








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|Item 3. | Defaults Upon Senior Securities










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|Item 4. | Mine Safety Disclosures










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|Item 6. | Exhibits













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Incorporated by ReferenceNumberExhibit TitleFormFile No.Filing DateFiledHerewith15.1Awareness Letter of KPMG LLP, Independent Registered Public Accounting FirmX31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002X31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002XAdditional exhibits furnished with this report:32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X101.INS†XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X101.SCH†Inline XBRL Taxonomy Extension Schema DocumentX101.CAL†Inline XBRL Taxonomy Extension Calculation Linkbase DocumentX101.DEF†Inline XBRL Taxonomy Extension Definition Linkbase DocumentX101.LAB†Inline XBRL Taxonomy Extension Label Linkbase DocumentX101.PRE†Inline XBRL Taxonomy Extension Presentation Linkbase DocumentX





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|* | Management contract or compensatory plan or arrangement




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|** | Portions of this exhibit have been redacted pursuant to a confidential treatment request filed with the SEC.




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|† | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period endedSeptember 30, 2019are the following formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Operations, (3) Condensed Consolidated Statements of Comprehensive Income, (4) Condensed Consolidated Statements of Stockholders' Equity, (5) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.













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ELECTRONIC ARTS INC.(Registrant)/s/ Blake JorgensenDATED:Blake JorgensenNovember 5, 2019Chief Operating Officer andChief Financial Officer