EA Reports First Quarter Results

REDWOOD CITY, Calif.--(BUSINESS WIRE)--July 26, 2005--Electronic Arts (NASDAQ: ERTS - News) today announced financial results for the fiscal first quarter ended June 30, 2005.

Net revenue for the first quarter was $365 million, down 16 percent as compared with $432 million for the prior year. Sales were driven by Medal of Honor European Assault and Battlefield 2 -- each reaching platinum status (over one million copies sold) in the quarter -- and to a lesser extent Batman. FIFA Street, MVP Baseball 2005 and Need for Speed Underground 2 had continued strong sales, each selling over 500 thousand copies in the quarter.

Net loss for the quarter was $58 million as compared with net income of $24 million for the prior year. Diluted loss per share was $0.19 as compared with diluted earnings per share of $0.08 for the prior year.

Non-GAAP net loss, excluding certain items, was $55 million as compared with non-GAAP net income of $25 million for the prior year. Non-GAAP diluted loss per share was $0.18 as compared with non-GAAP earnings per share of $0.08. (Please see Non-GAAP Financial Measures and reconciliation information included in this release.)

Trailing-twelve-month operating cash flow increased to $669 million as compared to $638 million for the same period a year ago.

"Our teams continue to set the standard for high quality development and marketing excellence in our industry," said Larry Probst, Chairman and Chief Executive Officer. "Battlefield 2 is an exceptional creative achievement and a ground-breaking online experience."

"We are taking our portfolio to new and exciting platforms," said Warren Jenson, Chief Financial and Administrative Officer. "EA was number one on the PSP in June and this quarter we expect to launch six games for mobile phones."

Current Highlights (comparisons are to the quarter ended June 30, 2004)

• Battlefield 2 reached platinum status in just two weeks.

• EA has 26 percent revenue share on the PSP in North America since launch.

• EA's agreement with John Madden was renewed for 12 years.

• EA has entered a multi-year relationship with Valve to deliver games, including Half-Life 2 for the Xbox.

• Distribution agreements were signed with Verizon and Sprint to deliver games to mobile phones in North America - EA expects to launch six games in the second quarter.

• EA won seven Game Critics Awards: Best of E3 2005: Spore - Best of Show, Best Original Game, Best PC Game, Best Simulation Game; Madden NFL 2006 - Best Sports Game; Burnout Revenge - Best Racing Game; Battlefield 2 - Best On-Line Multiplayer Game.

• The Company repurchased 6.3 million shares of its common stock during the quarter.

• Vivek Paul was appointed to EA's Board of Directors. Mr. Paul is Vice Chairman of Wipro, Ltd. and Chief Executive Officer of Wipro's global information technology, product, engineering, and business services segments. He recently announced his intention to leave Wipro, Ltd. to become a Partner at the Texas Pacific Group, a leading private equity firm.

Business Outlook

The following forward-looking statements reflect expectations as of July 26, 2005. Results may be materially different and are affected by many factors, such as development delays, hardware availability, competition, the popular appeal of our products, changes in foreign exchange rates, our effective tax rate, and other factors detailed in this release and in EA's annual and quarterly SEC filings.

Fiscal Second Quarter Expectations - Ending September 30, 2005

• Net revenue is expected to be between $600 and $630 million.

• GAAP and non-GAAP diluted earnings per share are expected to be between flat and $0.05.

Fiscal Year Expectations - Ending March 31, 2006

• Net revenue is expected to be between $3.3 and $3.4 billion.

• GAAP and non-GAAP diluted earnings per share are expected to be between $1.45 and $1.60.

Non-GAAP Financial Measures

Electronic Arts uses non-GAAP measures of operating income, net income and diluted earnings per share. These non-GAAP measures exclude the following items, including any related tax effect, from the Company's statement of operations:

• Amortization of intangibles

• Employee stock-based compensation

• Restructuring and asset impairment charges

• Acquired in-process technology

• Certain non-recurring litigation expenses

• Other-than-temporary impairment of investments in affiliates

In addition, other significant non-recurring items may occur from time to time that require an adjustment to these non-GAAP measures. When these items occur, the accounting impact will become a reconciling item between the GAAP results and these non-GAAP measures.

The Company believes that excluding these items is useful for illustrating and explaining operating results and comparisons to prior periods. Management considers these non-GAAP measures in its decision-making to facilitate more relevant operating comparisons.

A reconciliation of GAAP operating income to non-GAAP operating income; GAAP net income to non-GAAP net income; and GAAP diluted earnings per share to non-GAAP diluted earnings per share is included as part of the supplemental disclosures to this release.

Conference Call

Electronic Arts will host a conference call on July 26, 2005 at 2:00 pm PT (5:00 pm ET) to review the results for the Company's first quarter ended June 30, 2005. Listeners may access the conference call live via webcast (http://investor.ea.com). A webcast archive of the conference call will be available for one year at http://investor.ea.com.

Some statements set forth in this release, including the estimates under the heading "Business Outlook," 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 subject to 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: competition in the interactive entertainment industry; the availability of an adequate supply of hardware units; the Company's ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of Electronic Arts' products; the Company's ability to manage expenses during fiscal year 2006; the Company's ability to secure licenses to valuable entertainment properties on favorable terms; the Company's ability to attract and retain key personnel; changes in the Company's effective tax rates; adoption of new accounting regulations and standards; potential regulation of the Company's products in key territories; developments in the law regarding protection of the Company's products; fluctuations in foreign exchange rates; and other factors described in the Company's annual report on Form 10-K for the year ended March 31, 2005. Electronic Arts does not intend to update these forward-looking statements, including those made under the "Business Outlook" heading.