þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
94-2838567
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
209 Redwood Shores Parkway
Redwood City, California
|
94065
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
|
þ
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
¨
|
Emerging growth company
|
¨
|
(Do not check if a smaller reporting company)
|
¨
|
|
|
Page
|
|
||
Item 1.
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
|
||
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
Item 6.
|
||
Item 1.
|
Condensed Consolidated Financial Statements (Unaudited)
|
(Unaudited)
(In millions, except par value data)
|
December 31, 2017
|
|
March 31, 2017
(a)
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
2,566
|
|
|
$
|
2,565
|
|
Short-term investments
|
2,318
|
|
|
1,967
|
|
||
Receivables, net of allowances of $231 and $145, respectively
|
886
|
|
|
359
|
|
||
Other current assets
|
196
|
|
|
308
|
|
||
Total current assets
|
5,966
|
|
|
5,199
|
|
||
Property and equipment, net
|
447
|
|
|
434
|
|
||
Goodwill
|
1,879
|
|
|
1,707
|
|
||
Acquisition-related intangibles, net
|
81
|
|
|
8
|
|
||
Deferred income taxes, net
|
159
|
|
|
286
|
|
||
Other assets
|
110
|
|
|
84
|
|
||
TOTAL ASSETS
|
$
|
8,642
|
|
|
$
|
7,718
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
91
|
|
|
$
|
87
|
|
Accrued and other current liabilities
|
1,070
|
|
|
789
|
|
||
Deferred net revenue (online-enabled games)
|
1,946
|
|
|
1,539
|
|
||
Total current liabilities
|
3,107
|
|
|
2,415
|
|
||
Senior notes, net
|
992
|
|
|
990
|
|
||
Income tax obligations
|
194
|
|
|
104
|
|
||
Deferred income taxes, net
|
2
|
|
|
1
|
|
||
Other liabilities
|
261
|
|
|
148
|
|
||
Total liabilities
|
4,556
|
|
|
3,658
|
|
||
Commitments and contingencies (See Note 12)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Common stock, $0.01 par value. 1,000 shares authorized; 307 and 308 shares issued and outstanding, respectively
|
3
|
|
|
3
|
|
||
Additional paid-in capital
|
723
|
|
|
1,049
|
|
||
Retained earnings
|
3,455
|
|
|
3,027
|
|
||
Accumulated other comprehensive loss
|
(95
|
)
|
|
(19
|
)
|
||
Total stockholders’ equity
|
4,086
|
|
|
4,060
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
8,642
|
|
|
$
|
7,718
|
|
(Unaudited)
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
(In millions, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
547
|
|
|
$
|
649
|
|
|
$
|
1,829
|
|
|
$
|
1,753
|
|
Service and other
|
613
|
|
|
500
|
|
|
1,739
|
|
|
1,565
|
|
||||
Total net revenue
|
1,160
|
|
|
1,149
|
|
|
3,568
|
|
|
3,318
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
352
|
|
|
389
|
|
|
716
|
|
|
796
|
|
||||
Service and other
|
149
|
|
|
127
|
|
|
328
|
|
|
300
|
|
||||
Total cost of revenue
|
501
|
|
|
516
|
|
|
1,044
|
|
|
1,096
|
|
||||
Gross profit
|
659
|
|
|
633
|
|
|
2,524
|
|
|
2,222
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
329
|
|
|
285
|
|
|
985
|
|
|
870
|
|
||||
Marketing and sales
|
230
|
|
|
240
|
|
|
511
|
|
|
511
|
|
||||
General and administrative
|
120
|
|
|
110
|
|
|
343
|
|
|
329
|
|
||||
Amortization of intangibles
|
1
|
|
|
2
|
|
|
4
|
|
|
5
|
|
||||
Total operating expenses
|
680
|
|
|
637
|
|
|
1,843
|
|
|
1,715
|
|
||||
Operating income (loss)
|
(21
|
)
|
|
(4
|
)
|
|
681
|
|
|
507
|
|
||||
Interest and other income (expense), net
|
5
|
|
|
(2
|
)
|
|
14
|
|
|
(13
|
)
|
||||
Income (loss) before provision for (benefit from) income taxes
|
(16
|
)
|
|
(6
|
)
|
|
695
|
|
|
494
|
|
||||
Provision for (benefit from) income taxes
|
170
|
|
|
(5
|
)
|
|
259
|
|
|
93
|
|
||||
Net income (loss)
|
$
|
(186
|
)
|
|
$
|
(1
|
)
|
|
$
|
436
|
|
|
$
|
401
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.60
|
)
|
|
$ (
|
0.00)
|
|
|
$
|
1.41
|
|
|
$
|
1.33
|
|
Diluted
|
$
|
(0.60
|
)
|
|
$ (
|
0.00)
|
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
Number of shares used in computation:
|
|
|
|
|
|
|
|
||||||||
Basic
|
308
|
|
|
303
|
|
|
309
|
|
|
302
|
|
||||
Diluted
|
308
|
|
|
303
|
|
|
312
|
|
|
314
|
|
(Unaudited)
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income (loss)
|
$
|
(186
|
)
|
|
$
|
(1
|
)
|
|
$
|
436
|
|
|
$
|
401
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
||||||||
Net losses on available-for-sale securities
|
(4
|
)
|
|
(5
|
)
|
|
(4
|
)
|
|
(5
|
)
|
||||
Net gains (losses) on derivative instruments
|
(6
|
)
|
|
31
|
|
|
(96
|
)
|
|
48
|
|
||||
Foreign currency translation adjustments
|
(12
|
)
|
|
(17
|
)
|
|
24
|
|
|
(28
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
(22
|
)
|
|
9
|
|
|
(76
|
)
|
|
15
|
|
||||
Total comprehensive income (loss)
|
$
|
(208
|
)
|
|
$
|
8
|
|
|
$
|
360
|
|
|
$
|
416
|
|
(Unaudited)
|
Nine Months Ended
December 31, |
||||||
(In millions)
|
2017
|
|
2016
|
||||
OPERATING ACTIVITIES
|
|
|
|
||||
Net income
|
$
|
436
|
|
|
$
|
401
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation, amortization and accretion
|
97
|
|
|
140
|
|
||
Stock-based compensation
|
173
|
|
|
144
|
|
||
Change in assets and liabilities:
|
|
|
|
||||
Receivables, net
|
(527
|
)
|
|
(367
|
)
|
||
Other assets
|
79
|
|
|
40
|
|
||
Accounts payable
|
16
|
|
|
(6
|
)
|
||
Accrued and other liabilities
|
265
|
|
|
276
|
|
||
Deferred income taxes, net
|
130
|
|
|
—
|
|
||
Deferred net revenue (online-enabled games)
|
408
|
|
|
513
|
|
||
Net cash provided by operating activities
|
1,077
|
|
|
1,141
|
|
||
INVESTING ACTIVITIES
|
|
|
|
||||
Capital expenditures
|
(87
|
)
|
|
(94
|
)
|
||
Proceeds from maturities and sales of short-term investments
|
1,656
|
|
|
968
|
|
||
Purchase of short-term investments
|
(2,012
|
)
|
|
(1,372
|
)
|
||
Acquisition, net of cash acquired
|
(150
|
)
|
|
—
|
|
||
Net cash used in investing activities
|
(593
|
)
|
|
(498
|
)
|
||
FINANCING ACTIVITIES
|
|
|
|
||||
Payment of convertible notes
|
—
|
|
|
(163
|
)
|
||
Proceeds from issuance of common stock
|
57
|
|
|
33
|
|
||
Cash paid to taxing authorities for shares withheld from employees
|
(112
|
)
|
|
(112
|
)
|
||
Repurchase and retirement of common stock
|
(453
|
)
|
|
(383
|
)
|
||
Net cash used in financing activities
|
(508
|
)
|
|
(625
|
)
|
||
Effect of foreign exchange on cash and cash equivalents
|
25
|
|
|
(28
|
)
|
||
Increase (decrease) in cash and cash equivalents
|
1
|
|
|
(10
|
)
|
||
Beginning cash and cash equivalents
|
2,565
|
|
|
2,493
|
|
||
Ending cash and cash equivalents
|
$
|
2,566
|
|
|
$
|
2,483
|
|
Supplemental cash flow information:
|
|
|
|
||||
Cash paid during the period for income taxes, net
|
$
|
46
|
|
|
$
|
51
|
|
Cash paid during the period for interest
|
21
|
|
|
23
|
|
||
Non-cash investing activities:
|
|
|
|
||||
Change in accrued capital expenditures
|
$
|
(13
|
)
|
|
$
|
(16
|
)
|
|
Nine months ended December 31,
|
||||||
(In millions):
|
2017
|
|
2016
|
||||
Excess tax benefits from stock-based compensation
|
$
|
40
|
|
|
$
|
53
|
|
Cash paid to taxing authorities for shares withheld from employees
|
112
|
|
|
112
|
|
||
Increase to net cash provided by operating activities and net cash used in financing activities
|
$
|
152
|
|
|
$
|
165
|
|
•
|
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 Using
|
|
|
||||||||||||
|
|
|
Quoted Prices in
Active Markets
for Identical
Financial
Instruments
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
||||||||
|
As of
December 31, 2017 |
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balance Sheet Classification
|
||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||
Bank and time deposits
|
$
|
299
|
|
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Money market funds
|
563
|
|
|
563
|
|
|
—
|
|
|
—
|
|
|
Cash equivalents
|
||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
1,258
|
|
|
—
|
|
|
1,258
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
U.S. Treasury securities
|
446
|
|
|
446
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
||||
U.S. agency securities
|
118
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
Commercial paper
|
341
|
|
|
—
|
|
|
341
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
Foreign government securities
|
100
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
Asset-backed securities
|
134
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
Short-term investments
|
||||
Certificates of deposit
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
Short-term investments
|
||||
Foreign currency derivatives
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
Other current assets and other assets
|
||||
Deferred compensation plan assets
(a)
|
10
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
Other assets
|
||||
Total assets at fair value
|
$
|
3,299
|
|
|
$
|
1,318
|
|
|
$
|
1,981
|
|
|
$
|
—
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||
Contingent consideration
(b)
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
122
|
|
|
Other liabilities
|
Foreign currency derivatives
|
41
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
Accrued and other current liabilities and other liabilities
|
||||
Deferred compensation plan liabilities
(a)
|
11
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
||||
Total liabilities at fair value
|
$
|
174
|
|
|
$
|
11
|
|
|
$
|
41
|
|
|
$
|
122
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
|
|
|
||||||
|
|
|
|
|
|
|
Contingent
Consideration
|
|
|
||
Balance as of March 31, 2017
|
|
|
|
|
|
|
$
|
—
|
|
|
|
Additions
|
|
|
|
|
|
|
122
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
|
|
|
|
$
|
122
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
||||||||||||
|
|
|
Quoted Prices in
Active Markets
for Identical
Financial
Instruments
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
||||||||
|
As of
March 31, 2017 |
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balance Sheet Classification
|
||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||
Bank and time deposits
|
$
|
233
|
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash equivalents
|
Money market funds
|
405
|
|
|
405
|
|
|
—
|
|
|
—
|
|
|
Cash equivalents
|
||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate bonds
|
963
|
|
|
—
|
|
|
963
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
U.S. Treasury securities
|
460
|
|
|
460
|
|
|
—
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
U.S. agency securities
|
172
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
Commercial paper
|
270
|
|
|
—
|
|
|
270
|
|
|
—
|
|
|
Short-term investments and cash equivalents
|
||||
Foreign government securities
|
113
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
Short-term investments
|
||||
Asset-backed securities
|
135
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
Short-term investments
|
||||
Foreign currency derivatives
|
19
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
Other current assets and other assets
|
||||
Deferred compensation plan assets
(a)
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
Other assets
|
||||
Total assets at fair value
|
$
|
2,778
|
|
|
$
|
1,106
|
|
|
$
|
1,672
|
|
|
$
|
—
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency derivatives
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
Accrued and other current liabilities and other liabilities
|
Deferred compensation plan liabilities
(a)
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
||||
Total liabilities at fair value
|
$
|
17
|
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
|
(a)
|
The Deferred Compensation Plan assets consist of various mutual funds. See Note 13 in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2017
, 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 the 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. The discount rates used ranged from 2.7 percent to 3.3 percent. See Note 6 for additional information regarding the Respawn acquisition.
|
|
As of December 31, 2017
|
|
As of March 31, 2017
|
||||||||||||||||||||||||||||
|
Cost or
Amortized
Cost
|
|
Gross Unrealized
|
|
Fair
Value
|
|
Cost or
Amortized
Cost
|
|
Gross Unrealized
|
|
Fair
Value
|
||||||||||||||||||||
|
Gains
|
|
Losses
|
|
Gains
|
|
Losses
|
|
|||||||||||||||||||||||
Corporate bonds
|
$
|
1,212
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,209
|
|
|
$
|
944
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
943
|
|
U.S. Treasury securities
|
448
|
|
|
—
|
|
|
(2
|
)
|
|
446
|
|
|
414
|
|
|
—
|
|
|
(1
|
)
|
|
413
|
|
||||||||
U.S. agency securities
|
117
|
|
|
—
|
|
|
(2
|
)
|
|
115
|
|
|
152
|
|
|
—
|
|
|
(1
|
)
|
|
151
|
|
||||||||
Commercial paper
|
294
|
|
|
—
|
|
|
—
|
|
|
294
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
212
|
|
||||||||
Foreign government securities
|
98
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
113
|
|
||||||||
Asset-backed securities
|
135
|
|
|
—
|
|
|
(1
|
)
|
|
134
|
|
|
135
|
|
|
—
|
|
|
—
|
|
|
135
|
|
||||||||
Certificates of deposit
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Short-term investments
|
$
|
2,326
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
2,318
|
|
|
$
|
1,970
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,967
|
|
|
As of December 31, 2017
|
|
As of March 31, 2017
|
||||||||||||
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
||||||||
Short-term investments
|
|
|
|
|
|
|
|
||||||||
Due within 1 year
|
$
|
1,598
|
|
|
$
|
1,596
|
|
|
$
|
1,237
|
|
|
$
|
1,236
|
|
Due 1 year through 5 years
|
725
|
|
|
719
|
|
|
721
|
|
|
719
|
|
||||
Due after 5 years
|
3
|
|
|
3
|
|
|
12
|
|
|
12
|
|
||||
Short-term investments
|
$
|
2,326
|
|
|
$
|
2,318
|
|
|
$
|
1,970
|
|
|
$
|
1,967
|
|
|
As of December 31, 2017
|
|
As of March 31, 2017
|
||||||||||||||||||||
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
||||||||||||||||
|
|
Asset
|
|
Liability
|
|
|
Asset
|
|
Liability
|
||||||||||||||
Forward contracts to purchase
|
$
|
209
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
185
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Forward contracts to sell
|
$
|
985
|
|
|
$
|
1
|
|
|
$
|
33
|
|
|
$
|
840
|
|
|
$
|
19
|
|
|
$
|
3
|
|
|
As of December 31, 2017
|
|
As of March 31, 2017
|
||||||||||||||||||||
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
||||||||||||||||
|
|
Asset
|
|
Liability
|
|
|
Asset
|
|
Liability
|
||||||||||||||
Forward contracts to purchase
|
$
|
354
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Forward contracts to sell
|
$
|
785
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
166
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Statement of Operations Classification
|
|
Amount of Gain (Loss) Recognized in the Statement of Operations
|
||||||||||||||
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||
Foreign currency forward contracts not designated as hedging instruments
|
Interest and other income (expense), net
|
|
$
|
(4
|
)
|
|
$
|
49
|
|
|
$
|
(13
|
)
|
|
$
|
50
|
|
|
Unrealized Net Gains (Losses) on Available-for-Sale Securities
|
|
Unrealized Net Gains (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||||
Balances as of September 30, 2017
|
$
|
(3
|
)
|
|
$
|
(58
|
)
|
|
$
|
(12
|
)
|
|
$
|
(73
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4
|
)
|
|
(14
|
)
|
|
(12
|
)
|
|
(30
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
||||
Total other comprehensive income (loss), net of tax
|
(4
|
)
|
|
(6
|
)
|
|
(12
|
)
|
|
(22
|
)
|
||||
Balance as of December 31, 2017
|
$
|
(7
|
)
|
|
$
|
(64
|
)
|
|
$
|
(24
|
)
|
|
$
|
(95
|
)
|
|
Unrealized Net Gains (Losses) on Available-for-Sale Securities
|
|
Unrealized Net Gains (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||||
Balances as of September 30, 2016
|
$
|
1
|
|
|
$
|
31
|
|
|
$
|
(42
|
)
|
|
$
|
(10
|
)
|
Other comprehensive income (loss) before reclassifications
|
(5
|
)
|
|
39
|
|
|
(17
|
)
|
|
17
|
|
||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
(5
|
)
|
|
31
|
|
|
(17
|
)
|
|
9
|
|
||||
Balance as of December 31, 2016
|
$
|
(4
|
)
|
|
$
|
62
|
|
|
$
|
(59
|
)
|
|
$
|
(1
|
)
|
|
Unrealized Net Gains (Losses) on Available-for-Sale Securities
|
|
Unrealized Net Gains (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||||
Balances as of March 31, 2017
|
$
|
(3
|
)
|
|
$
|
32
|
|
|
$
|
(48
|
)
|
|
$
|
(19
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4
|
)
|
|
(82
|
)
|
|
34
|
|
|
(52
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(14
|
)
|
|
(10
|
)
|
|
(24
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
(4
|
)
|
|
(96
|
)
|
|
24
|
|
|
(76
|
)
|
||||
Balance as of December 31, 2017
|
$
|
(7
|
)
|
|
$
|
(64
|
)
|
|
$
|
(24
|
)
|
|
$
|
(95
|
)
|
|
Unrealized Net Gains (Losses) on Available-for-Sale Securities
|
|
Unrealized Net Gains (Losses) on Derivative Instruments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||||
Balances as of March 31, 2016
|
$
|
1
|
|
|
$
|
14
|
|
|
$
|
(31
|
)
|
|
$
|
(16
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4
|
)
|
|
66
|
|
|
(28
|
)
|
|
34
|
|
||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
(1
|
)
|
|
(18
|
)
|
|
—
|
|
|
(19
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
(5
|
)
|
|
48
|
|
|
(28
|
)
|
|
15
|
|
||||
Balance as of December 31, 2016
|
$
|
(4
|
)
|
|
$
|
62
|
|
|
$
|
(59
|
)
|
|
$
|
(1
|
)
|
|
|
Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
|
||||||
Statement of Operations Classification
|
|
Three Months Ended
December 31, 2017 |
|
Nine Months Ended
December 31, 2017 |
||||
(Gains) losses on cash flow hedges from forward contracts
|
|
|
|
|
||||
Net revenue
|
|
$
|
9
|
|
|
$
|
(13
|
)
|
Research and development
|
|
(1
|
)
|
|
(1
|
)
|
||
Total, net of tax
|
|
$
|
8
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
||||
(Gains) losses on foreign currency translation
|
|
|
|
|
||||
Interest and other income (expense), net
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
Total, net of tax
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
||||
Total net (gain) loss reclassified, net of tax
|
|
$
|
8
|
|
|
$
|
(24
|
)
|
|
|
Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
|
||||||
Statement of Operations Classification
|
|
Three Months Ended
December 31, 2016 |
|
Nine Months Ended
December 31, 2016 |
||||
(Gains) losses on available-for-sale securities
|
|
|
|
|
||||
Interest and other income (expense), net
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Total, net of tax
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
||||
(Gains) losses on cash flow hedges from forward contracts
|
|
|
|
|
||||
Net revenue
|
|
$
|
(9
|
)
|
|
$
|
(18
|
)
|
Research and development
|
|
1
|
|
|
—
|
|
||
Total, net of tax
|
|
$
|
(8
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
||||
Total net (gain) loss reclassified, net of tax
|
|
$
|
(8
|
)
|
|
$
|
(19
|
)
|
|
As of
March 31, 2017 |
|
Activity
|
|
Effects of Foreign Currency Translation
|
|
As of
December 31, 2017 |
||||||||
Goodwill
|
$
|
2,075
|
|
|
$
|
167
|
|
|
$
|
5
|
|
|
$
|
2,247
|
|
Accumulated impairment
|
(368
|
)
|
|
—
|
|
|
—
|
|
|
(368
|
)
|
||||
Total
|
$
|
1,707
|
|
|
$
|
167
|
|
|
$
|
5
|
|
|
$
|
1,879
|
|
|
As of December 31, 2017
|
|
As of March 31, 2017
|
||||||||||||||||||||
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Acquisition-
Related
Intangibles, Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Acquisition-
Related
Intangibles, Net
|
||||||||||||
Developed and core technology
|
$
|
419
|
|
|
$
|
(412
|
)
|
|
$
|
7
|
|
|
$
|
412
|
|
|
$
|
(412
|
)
|
|
$
|
—
|
|
Trade names and trademarks
|
153
|
|
|
(103
|
)
|
|
50
|
|
|
106
|
|
|
(98
|
)
|
|
8
|
|
||||||
Registered user base and other intangibles
|
5
|
|
|
(5
|
)
|
|
—
|
|
|
5
|
|
|
(5
|
)
|
|
—
|
|
||||||
Carrier contracts and related
|
85
|
|
|
(85
|
)
|
|
—
|
|
|
85
|
|
|
(85
|
)
|
|
—
|
|
||||||
In-process research and development
|
24
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total
|
$
|
686
|
|
|
$
|
(605
|
)
|
|
$
|
81
|
|
|
$
|
608
|
|
|
$
|
(600
|
)
|
|
$
|
8
|
|
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Cost of service and other
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Cost of product
|
1
|
|
|
18
|
|
|
1
|
|
|
27
|
|
||||
Operating expenses
|
1
|
|
|
2
|
|
|
4
|
|
|
5
|
|
||||
Total
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
5
|
|
|
$
|
48
|
|
Fiscal Year Ending March 31,
|
|
||
2018 (remaining three months)
|
$
|
5
|
|
2019
|
13
|
|
|
2020
|
6
|
|
|
2021
|
6
|
|
|
2022
|
6
|
|
|
2023
|
6
|
|
|
Thereafter
|
15
|
|
|
Total
|
$
|
57
|
|
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
||||
Other current assets
|
$
|
20
|
|
|
$
|
79
|
|
Other assets
|
34
|
|
|
39
|
|
||
Royalty-related assets
|
$
|
54
|
|
|
$
|
118
|
|
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
||||
Accrued royalties
|
$
|
260
|
|
|
$
|
165
|
|
Other liabilities
|
80
|
|
|
97
|
|
||
Royalty-related liabilities
|
$
|
340
|
|
|
$
|
262
|
|
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
||||
Computer, equipment and software
|
$
|
724
|
|
|
$
|
723
|
|
Buildings
|
336
|
|
|
316
|
|
||
Leasehold improvements
|
137
|
|
|
126
|
|
||
Equipment, furniture and fixtures, and other
|
81
|
|
|
82
|
|
||
Land
|
66
|
|
|
61
|
|
||
Construction in progress
|
7
|
|
|
7
|
|
||
|
1,351
|
|
|
1,315
|
|
||
Less: accumulated depreciation
|
(904
|
)
|
|
(881
|
)
|
||
Property and equipment, net
|
$
|
447
|
|
|
$
|
434
|
|
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
||||
Other accrued expenses
|
$
|
346
|
|
|
$
|
210
|
|
Accrued compensation and benefits
|
249
|
|
|
267
|
|
||
Accrued royalties
|
260
|
|
|
165
|
|
||
Deferred net revenue (other)
|
215
|
|
|
147
|
|
||
Accrued and other current liabilities
|
$
|
1,070
|
|
|
$
|
789
|
|
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
||||
Senior Notes:
|
|
|
|
||||
3.70% Senior Notes due 2021
|
$
|
600
|
|
|
$
|
600
|
|
4.80% Senior Notes due 2026
|
400
|
|
|
400
|
|
||
Total principal amount
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Unaccreted discount
|
(2
|
)
|
|
(2
|
)
|
||
Unamortized debt issuance costs
|
(6
|
)
|
|
(8
|
)
|
||
Net carrying value of Senior Notes
|
$
|
992
|
|
|
$
|
990
|
|
|
|
|
|
||||
Fair value of Senior Notes (Level 2)
|
$
|
1,059
|
|
|
$
|
1,054
|
|
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Amortization of debt discount
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
Amortization of debt issuance costs
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
||||
Coupon interest expense
|
(10
|
)
|
|
(10
|
)
|
|
(31
|
)
|
|
(31
|
)
|
||||
Other interest expense
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||
Total interest expense
|
$
|
(10
|
)
|
|
$
|
(12
|
)
|
|
$
|
(32
|
)
|
|
$
|
(36
|
)
|
|
|
|
Fiscal Years Ending March 31,
|
||||||||||||||||||||||||||||
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
(Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Total
|
|
three mos.)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
||||||||||||||||
Unrecognized commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Developer/licensor commitments
|
$
|
987
|
|
|
$
|
26
|
|
|
$
|
224
|
|
|
$
|
229
|
|
|
$
|
205
|
|
|
$
|
222
|
|
|
$
|
80
|
|
|
$
|
1
|
|
Marketing commitments
|
355
|
|
|
9
|
|
|
86
|
|
|
83
|
|
|
77
|
|
|
73
|
|
|
27
|
|
|
—
|
|
||||||||
Operating leases
|
249
|
|
|
8
|
|
|
43
|
|
|
39
|
|
|
39
|
|
|
32
|
|
|
25
|
|
|
63
|
|
||||||||
Senior Notes interest
|
227
|
|
|
7
|
|
|
41
|
|
|
41
|
|
|
41
|
|
|
20
|
|
|
19
|
|
|
58
|
|
||||||||
Other purchase obligations
|
109
|
|
|
9
|
|
|
30
|
|
|
27
|
|
|
14
|
|
|
9
|
|
|
6
|
|
|
14
|
|
||||||||
Total unrecognized commitments
|
1,927
|
|
|
59
|
|
|
424
|
|
|
419
|
|
|
376
|
|
|
356
|
|
|
157
|
|
|
136
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Recognized commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Senior Notes principal and interest
|
1,013
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
600
|
|
|
—
|
|
|
—
|
|
|
400
|
|
||||||||
Licensing obligations
|
107
|
|
|
6
|
|
|
23
|
|
|
25
|
|
|
26
|
|
|
27
|
|
|
—
|
|
|
—
|
|
||||||||
Total recognized commitments
|
1,120
|
|
|
19
|
|
|
23
|
|
|
25
|
|
|
626
|
|
|
27
|
|
|
—
|
|
|
400
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total commitments
|
$
|
3,047
|
|
|
$
|
78
|
|
|
$
|
447
|
|
|
$
|
444
|
|
|
$
|
1,002
|
|
|
$
|
383
|
|
|
$
|
157
|
|
|
$
|
536
|
|
•
|
Restricted Stock Units
and
Performance-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 determined 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 determined 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. Expected term is determined based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior.
|
|
|
ESPP Purchase Rights
|
||||
|
|
Three Months Ended
December 31, |
||||
|
|
2017
|
|
2016
|
||
Risk-free interest rate
|
|
1.13 - 1.24%
|
|
|
0.5 - 0.6%
|
|
Expected volatility
|
|
28
|
%
|
|
29 - 32%
|
|
Weighted-average volatility
|
|
28
|
%
|
|
31
|
%
|
Expected term
|
|
6 - 12 months
|
|
|
6 - 12 months
|
|
Expected dividends
|
|
None
|
|
|
None
|
|
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Cost of revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Research and development
|
38
|
|
|
27
|
|
|
102
|
|
|
81
|
|
||||
Marketing and sales
|
8
|
|
|
8
|
|
|
24
|
|
|
23
|
|
||||
General and administrative
|
17
|
|
|
13
|
|
|
45
|
|
|
38
|
|
||||
Stock-based compensation expense
|
$
|
63
|
|
|
$
|
48
|
|
|
$
|
173
|
|
|
$
|
144
|
|
|
|
Options
(in thousands)
|
|
Weighted-
Average
Exercise Prices
|
|
Weighted-
Average
Remaining
Contractual
Term (in years)
|
|
Aggregate
Intrinsic Value
(in millions)
|
|||||
Outstanding as of March 31, 2017
|
|
2,377
|
|
|
$
|
33.35
|
|
|
|
|
|
||
Granted
|
|
3
|
|
|
108.88
|
|
|
|
|
|
|||
Exercised
|
|
(746
|
)
|
|
40.58
|
|
|
|
|
|
|||
Forfeited, cancelled or expired
|
|
(2
|
)
|
|
45.15
|
|
|
|
|
|
|||
Outstanding as of December 31, 2017
|
|
1,632
|
|
|
$
|
30.20
|
|
|
5.67
|
|
$
|
122
|
|
Vested and expected to vest
|
|
1,632
|
|
|
$
|
30.20
|
|
|
5.67
|
|
$
|
122
|
|
Exercisable as of December 31, 2017
|
|
1,612
|
|
|
$
|
30.24
|
|
|
5.66
|
|
$
|
121
|
|
|
|
Restricted
Stock Rights
(in thousands)
|
|
Weighted-
Average Grant
Date Fair Values
|
|||
Outstanding as of March 31, 2017
|
|
5,153
|
|
|
$
|
65.03
|
|
Granted
|
|
3,661
|
|
|
109.33
|
|
|
Vested
|
|
(2,370
|
)
|
|
111.14
|
|
|
Forfeited or cancelled
|
|
(330
|
)
|
|
77.44
|
|
|
Outstanding as of December 31, 2017
|
|
6,114
|
|
|
$
|
73.01
|
|
|
Performance-
Based Restricted Stock Units (in thousands) |
|
Weighted-
Average Grant
Date Fair Value
|
|||
Outstanding as of March 31, 2017
|
—
|
|
|
$
|
—
|
|
Granted
|
796
|
|
|
110.51
|
|
|
Forfeited or cancelled
|
—
|
|
|
—
|
|
|
Outstanding as of December 31, 2017
|
796
|
|
|
$
|
110.51
|
|
|
|
Market-Based
Restricted Stock
Units
(in thousands)
|
|
Weighted-
Average Grant
Date Fair Value
|
|||
Outstanding as of March 31, 2017
|
|
1,282
|
|
|
$
|
87.37
|
|
Granted
|
|
706
|
|
|
140.93
|
|
|
Vested
|
|
(430
|
)
|
|
76.27
|
|
|
Forfeited or cancelled
|
|
(216
|
)
|
|
91.88
|
|
|
Outstanding as of December 31, 2017
|
|
1,342
|
|
|
$
|
118.35
|
|
|
May 2015 Program
|
|
May 2017 Program
|
Total
|
||||||||||||||
(in millions)
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
||||||||
Three months ended December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
1.4
|
|
$
|
150
|
|
1.4
|
|
$
|
150
|
|
|
Nine months ended December 31, 2017
|
0.3
|
|
|
$
|
31
|
|
|
3.8
|
|
|
$
|
422
|
|
4.1
|
|
$
|
453
|
|
Three months ended December 31, 2016
|
1.5
|
|
|
$
|
127
|
|
|
—
|
|
|
$
|
—
|
|
1.5
|
|
$
|
127
|
|
Nine months ended December 31, 2016
|
5.0
|
|
|
$
|
383
|
|
|
—
|
|
|
$
|
—
|
|
5.0
|
|
$
|
383
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
||||||||||||
(In millions, except per share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income (loss)
|
$
|
(186
|
)
|
|
$
|
(1
|
)
|
|
$
|
436
|
|
|
$
|
401
|
|
Shares used to compute earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Weighted-average common stock outstanding — basic
|
308
|
|
|
303
|
|
|
309
|
|
|
302
|
|
||||
Dilutive potential common shares related to stock award plans and from assumed exercise of stock options
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
||||
Dilutive potential common shares related to the Convertible Notes
(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
Dilutive potential common shares related to the Warrants
(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
||||
Weighted-average common stock outstanding — diluted
|
308
|
|
|
303
|
|
|
312
|
|
|
314
|
|
||||
Earnings (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.60
|
)
|
|
$ (
|
0.00)
|
|
|
$
|
1.41
|
|
|
$
|
1.33
|
|
Diluted
|
$
|
(0.60
|
)
|
|
$ (
|
0.00)
|
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
(a)
|
See Note 10 - Financing Arrangements in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2017
, for additional information regarding the potential dilutive shares related to our Convertible Notes and Warrants.
|
Santa Clara, California
|
February 6, 2018
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Total net revenue was
$1,160 million
, up
1 percent
year-over-year. On a constant currency basis, we estimate that total net revenue would have been $1,165 million, up 1 percent year over year.
|
•
|
Digital net revenue was
$780 million
, up
14 percent
year-over-year.
|
•
|
International net revenue was
$708 million
, up
20 percent
year-over-year. On a constant currency basis, we estimate that international net revenue would have been $713 million, up 21 percent year over year.
|
•
|
Gross margin was
56.8 percent
, up 1.7 percentage points year-over-year.
|
•
|
Operating expenses were
$680 million
, up
7 percent
year-over-year. On a constant currency basis, we estimate that operating expenses would have been $669 million, up 5 percent year over year.
|
•
|
Net loss was
$186 million
with diluted loss per share of
$0.60
. $176 million of the net loss, or approximately $0.57 per share resulted from the application of the U.S. Tax Act.
|
•
|
Total cash, cash equivalents and short-term investments were
$4,884 million
.
|
|
Three Months Ended
December 31, |
|
Nine Months Ended
December 31, |
||||||||||||
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Total net revenue
|
$
|
1,160
|
|
|
$
|
1,149
|
|
|
$
|
3,568
|
|
|
$
|
3,318
|
|
Change in deferred net revenue (online-enabled games)
|
811
|
|
|
921
|
|
|
357
|
|
|
532
|
|
||||
Net bookings
|
$
|
1,971
|
|
|
$
|
2,070
|
|
|
$
|
3,925
|
|
|
$
|
3,850
|
|
•
|
Evidence of an arrangement
. Evidence of an agreement with the customer that reflects the terms and conditions to deliver the related products or services must be present.
|
•
|
Fixed or determinable fee
. If a portion of the arrangement fee is not fixed or determinable, we recognize revenue as the amount becomes fixed or determinable.
|
•
|
Collection is deemed probable
. Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable as the amounts become due, we generally conclude that collection becomes probable upon cash collection.
|
•
|
Delivery
. For packaged goods, delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer. For digital downloads, delivery is considered to occur when the software is made available to the customer for download. For services and other, delivery is generally considered to occur as the service is delivered, which is determined based on the underlying service obligation. If there is significant uncertainty of acceptance, revenue is recognized once acceptance is reasonably assured.
|
•
|
The party responsible for delivery/fulfillment of the product or service to the end consumer
|
•
|
The party responsible for the billing, collection of fees and refunds to the end consumer
|
•
|
The storefront and Terms of Sale that govern the end consumer’s purchase of the product or service
|
•
|
The party that sets the pricing with the end consumer and has credit risk
|
|
Three Months Ended December 31,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
Net revenue:
|
|
|
|
|
|
|
|
|||||||
Product
|
$
|
547
|
|
|
$
|
649
|
|
|
$
|
(102
|
)
|
|
(16
|
)%
|
Service and other
|
613
|
|
|
500
|
|
|
113
|
|
|
23
|
%
|
|||
Total net revenue
|
$
|
1,160
|
|
|
$
|
1,149
|
|
|
$
|
11
|
|
|
1
|
%
|
|
Three Months Ended December 31,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
|
|
|
|
|
|
|
|
|||||||
Full game downloads
|
$
|
143
|
|
|
$
|
169
|
|
|
$
|
(26
|
)
|
|
(15
|
)%
|
Live services
(a)
|
476
|
|
|
369
|
|
|
107
|
|
|
29
|
%
|
|||
Mobile
|
161
|
|
|
147
|
|
|
14
|
|
|
10
|
%
|
|||
Total Digital
|
$
|
780
|
|
|
$
|
685
|
|
|
$
|
95
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|||||||
Packaged goods and other
|
$
|
380
|
|
|
$
|
464
|
|
|
$
|
(84
|
)
|
|
(18
|
)%
|
Net revenue
|
$
|
1,160
|
|
|
$
|
1,149
|
|
|
$
|
11
|
|
|
1
|
%
|
(a)
|
Live services net revenue is comprised of net revenue previously presented as “Extra content” and “Subscription, advertising, and other” through the fourth quarter of fiscal 2017.
|
|
Nine Months Ended December 31,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
Net revenue:
|
|
|
|
|
|
|
|
|||||||
Product
|
$
|
1,829
|
|
|
$
|
1,753
|
|
|
$
|
76
|
|
|
4
|
%
|
Service and other
|
1,739
|
|
|
1,565
|
|
|
174
|
|
|
11
|
%
|
|||
Total net revenue
|
$
|
3,568
|
|
|
$
|
3,318
|
|
|
$
|
250
|
|
|
8
|
%
|
|
Nine Months Ended December 31,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
|
|
|
|
|
|
|
|
|||||||
Full game downloads
|
$
|
475
|
|
|
$
|
400
|
|
|
$
|
75
|
|
|
19
|
%
|
Live services
(a)
|
1,385
|
|
|
1,079
|
|
|
306
|
|
|
28
|
%
|
|||
Mobile
|
488
|
|
|
461
|
|
|
27
|
|
|
6
|
%
|
|||
Total Digital
|
$
|
2,348
|
|
|
$
|
1,940
|
|
|
$
|
408
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|||||||
Packaged goods and other
|
$
|
1,220
|
|
|
$
|
1,378
|
|
|
$
|
(158
|
)
|
|
(11
|
)%
|
Net revenue
|
$
|
3,568
|
|
|
$
|
3,318
|
|
|
$
|
250
|
|
|
8
|
%
|
(a)
|
Live services net revenue is comprised of net revenue previously presented as “Extra content” and “Subscription, advertising, and other” through the fourth quarter of fiscal 2017.
|
|
December 31, 2017
|
|
% of
Related
Net Revenue
|
|
December 31, 2016
|
|
% of
Related
Net Revenue
|
|
% Change
|
|
Change as a
% of Related
Net Revenue
|
||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
352
|
|
|
64.4
|
%
|
|
$
|
389
|
|
|
59.9
|
%
|
|
(9.5
|
)%
|
|
4.5
|
%
|
Service and other
|
149
|
|
|
24.3
|
%
|
|
127
|
|
|
25.4
|
%
|
|
17.3
|
%
|
|
(1.1
|
)%
|
||
Total cost of revenue
|
$
|
501
|
|
|
43.2
|
%
|
|
$
|
516
|
|
|
44.9
|
%
|
|
(2.9
|
)%
|
|
(1.7
|
)%
|
|
December 31, 2017
|
|
% of
Related
Net Revenue
|
|
December 31, 2016
|
|
% of
Related
Net Revenue
|
|
% Change
|
|
Change as a
% of Related
Net Revenue
|
||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
716
|
|
|
39.1
|
%
|
|
$
|
796
|
|
|
45.4
|
%
|
|
(10.1
|
)%
|
|
(6.3
|
)%
|
Service and other
|
328
|
|
|
18.9
|
%
|
|
300
|
|
|
19.2
|
%
|
|
9.3
|
%
|
|
(0.3
|
)%
|
||
Total cost of revenue
|
$
|
1,044
|
|
|
29.3
|
%
|
|
$
|
1,096
|
|
|
33.0
|
%
|
|
(4.7
|
)%
|
|
(3.7
|
)%
|
|
December 31,
2017 |
|
% of Net
Revenue
|
|
December 31,
2016 |
|
% of Net
Revenue
|
|
$ Change
|
|
% Change
|
|||||||||
Three months ended
|
$
|
329
|
|
|
28
|
%
|
|
$
|
285
|
|
|
25
|
%
|
|
$
|
44
|
|
|
15
|
%
|
Nine months ended
|
$
|
985
|
|
|
28
|
%
|
|
$
|
870
|
|
|
26
|
%
|
|
$
|
115
|
|
|
13
|
%
|
|
December 31,
2017 |
|
% of Net
Revenue
|
|
December 31,
2016 |
|
% of Net
Revenue
|
|
$ Change
|
|
% Change
|
|||||||||
Three months ended
|
$
|
230
|
|
|
20
|
%
|
|
$
|
240
|
|
|
21
|
%
|
|
$
|
(10
|
)
|
|
(4
|
)%
|
Nine months ended
|
$
|
511
|
|
|
14
|
%
|
|
$
|
511
|
|
|
15
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
December 31,
2017 |
|
% of Net
Revenue
|
|
December 31,
2016 |
|
% of Net
Revenue
|
|
$ Change
|
|
% Change
|
|||||||||
Three months ended
|
$
|
120
|
|
|
10
|
%
|
|
$
|
110
|
|
|
10
|
%
|
|
$
|
10
|
|
|
9
|
%
|
Nine months ended
|
$
|
343
|
|
|
10
|
%
|
|
$
|
329
|
|
|
10
|
%
|
|
$
|
14
|
|
|
4
|
%
|
|
December 31, 2017
|
|
Effective Tax Rate
|
|
December 31, 2016
|
|
Effective Tax Rate
|
||||||
Three Months Ended
|
$
|
170
|
|
|
(1,062.5
|
)%
|
|
$
|
(5
|
)
|
|
83.3
|
%
|
Nine Months Ended
|
$
|
259
|
|
|
37.3
|
%
|
|
$
|
93
|
|
|
18.8
|
%
|
(In millions)
|
As of
December 31, 2017 |
|
As of
March 31, 2017 |
|
Increase/(Decrease)
|
||||||
Cash and cash equivalents
|
$
|
2,566
|
|
|
$
|
2,565
|
|
|
$
|
1
|
|
Short-term investments
|
2,318
|
|
|
1,967
|
|
|
351
|
|
|||
Total
|
$
|
4,884
|
|
|
$
|
4,532
|
|
|
$
|
352
|
|
Percentage of total assets
|
57
|
%
|
|
59
|
%
|
|
|
|
Nine Months Ended December 31,
|
|
|
||||||||
(In millions)
|
2017
|
|
2016
|
|
Change
|
||||||
Net cash provided by operating activities
|
$
|
1,077
|
|
|
$
|
1,141
|
|
|
$
|
(64
|
)
|
Net cash used in investing activities
|
(593
|
)
|
|
(498
|
)
|
|
(95
|
)
|
|||
Net cash used in financing activities
|
(508
|
)
|
|
(625
|
)
|
|
117
|
|
|||
Effect of foreign exchange on cash and cash equivalents
|
25
|
|
|
(28
|
)
|
|
53
|
|
|||
Net increase in cash and cash equivalents
|
$
|
1
|
|
|
$
|
(10
|
)
|
|
$
|
11
|
|
(In millions)
|
Valuation of Securities Given
an Interest Rate Decrease
of X Basis Points
|
|
Fair Value
as of
December 31, 2017
|
|
Valuation of Securities Given
an Interest Rate Increase of
X Basis Points
|
||||||||||||||||||||||
(150 BPS)
|
|
(100 BPS)
|
|
(50 BPS)
|
|
50 BPS
|
|
100 BPS
|
|
150 BPS
|
|||||||||||||||||
Corporate bonds
|
$
|
1,221
|
|
|
$
|
1,217
|
|
|
$
|
1,212
|
|
|
$
|
1,209
|
|
|
$
|
1,204
|
|
|
$
|
1,200
|
|
|
$
|
1,196
|
|
U.S. Treasury securities
|
453
|
|
|
451
|
|
|
449
|
|
|
446
|
|
|
444
|
|
|
442
|
|
|
439
|
|
|||||||
U.S. agency securities
|
118
|
|
|
117
|
|
|
117
|
|
|
115
|
|
|
116
|
|
|
115
|
|
|
114
|
|
|||||||
Commercial paper
|
295
|
|
|
295
|
|
|
294
|
|
|
294
|
|
|
293
|
|
|
293
|
|
|
293
|
|
|||||||
Foreign government securities
|
99
|
|
|
99
|
|
|
98
|
|
|
98
|
|
|
97
|
|
|
96
|
|
|
96
|
|
|||||||
Asset-backed securities
|
136
|
|
|
135
|
|
|
135
|
|
|
134
|
|
|
134
|
|
|
133
|
|
|
133
|
|
|||||||
Certificates of deposit
|
22
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|
22
|
|
|||||||
Total short-term investments
|
$
|
2,344
|
|
|
$
|
2,336
|
|
|
$
|
2,327
|
|
|
$
|
2,318
|
|
|
$
|
2,310
|
|
|
$
|
2,301
|
|
|
$
|
2,293
|
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
•
|
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; and
|
•
|
Limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Fiscal Month
|
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Programs
|
|
Maximum Dollar Value that May Still Be Purchased Under the Programs (in millions)
|
||||||
October 1 - October 28, 2017
|
|
409,732
|
|
|
$
|
116.42
|
|
|
409,732
|
|
|
$
|
880
|
|
October 29 - November 25, 2017
|
|
244,871
|
|
|
$
|
112.41
|
|
|
244,871
|
|
|
$
|
853
|
|
November 26 - December 30, 2017
|
|
704,303
|
|
|
$
|
106.33
|
|
|
704,303
|
|
|
$
|
778
|
|
|
|
1,358,906
|
|
|
$
|
110.47
|
|
|
1,358,906
|
|
|
|
Item 3.
|
Defaults Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 6.
|
Exhibits
|
*
|
Management contract or compensatory plan or arrangement
|
†
|
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2017
are the following formatted in eXtensible Business Reporting Language (“XBRL”): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Operations, (3) Condensed Consolidated Statements of Comprehensive Income (Loss), (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.
|
|
|
ELECTRONIC ARTS INC.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ Blake Jorgensen
|
DATED:
|
|
Blake Jorgensen
|
February 6, 2018
|
|
Executive Vice President,
|
|
|
Chief Financial Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Electronic Arts Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: February 6, 2018
|
By:
|
|
/s/ Andrew Wilson
|
|
|
|
Andrew Wilson
|
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Electronic Arts Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: February 6, 2018
|
By:
|
|
/s/ Blake Jorgensen
|
|
|
|
Blake Jorgensen
|
|
|
|
Executive Vice President,
|
|
|
|
Chief Financial Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.
|
/s/ Andrew Wilson
|
Andrew Wilson
|
Chief Executive Officer
|
Electronic Arts Inc.
|
|
February 6, 2018
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.
|
/s/ Blake Jorgensen
|
Blake Jorgensen
|
Executive Vice President,
|
Chief Financial Officer
|
Electronic Arts Inc.
|
|
February 6, 2018
|