UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2023

OR

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

For the transition period from   to

Commission File No. 000-17948

ELECTRONIC ARTS INC.

(Exact name of registrant as specified in its charter)

Delaware		94-2838567
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
209 Redwood Shores Parkway		94065
Redwood City	California
(Address of principal executive offices)		(Zip Code)

(650) 628-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	EA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☑

As of August 4, 2023, there were 270,911,657 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

1

ELECTRONIC ARTS INC.

FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2023

Table of Contents

 

		Page
Part I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2023 and March 31, 2023	3
	Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements	8
	Report of Independent Registered Public Accounting Firm	27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	43
Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	54
Exhibit Index		55
Signature		56

2

PART I – FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In millions, except par value data)	June 30, 2023		March 31, 2023 (a)
ASSETS
Current assets:
Cash and cash equivalents	$	2,259	$	2,424
Short-term investments	343		343
Receivables, net	517		684
Other current assets	455		518
Total current assets	3,574		3,969
Property and equipment, net	545		549
Goodwill	5,381		5,380
Acquisition-related intangibles, net	577		618
Deferred income taxes, net	2,555		2,462
Other assets	451		481
TOTAL ASSETS	$	13,083	$	13,459
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	75	$	99
Accrued and other current liabilities	1,145		1,285
Deferred net revenue (online-enabled games)	1,580		1,901
Total current liabilities	2,800		3,285
Senior notes, net	1,880		1,880
Income tax obligations	681		607
Deferred income taxes, net	1		1
Other liabilities	387		393
Total liabilities	5,749		6,166
Commitments and contingencies (See Note 12)
Stockholders’ equity:
Common stock, $0.01 par value. 1,000 shares authorized; 272 and 273 shares issued and outstanding, respectively	3		3
Additional paid-in capital	—		—
Retained earnings	7,406		7,357
Accumulated other comprehensive income (loss)	(75)		(67)
Total stockholders’ equity	7,334		7,293
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,083	$	13,459

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

(a) Derived from audited Consolidated Financial Statements.

3

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)	Three Months Ended June 30,
(In millions, except per share data)	2023		2022
Net revenue	$	1,924	$	1,767
Cost of revenue	368		314
Gross profit	1,556		1,453
Operating expenses:
Research and development	596		572
Marketing and sales	229		234
General and administrative	163		167
Amortization and impairment of intangibles	25		39
Restructuring (See Note 7)	1		—
Total operating expenses	1,014		1,012
Operating income	542		441
Interest and other income (expense), net	14		(5)
Income before provision for income taxes	556		436
Provision for income taxes	154		125
Net income	$	402	$	311
Earnings per share:
Basic	$	1.48	$	1.11
Diluted	$	1.47	$	1.11
Number of shares used in computation:
Basic	272		279
Diluted	274		281

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

4

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)	Three Months Ended June 30,
(In millions)	2023		2022
Net income	$	402	$	311
Other comprehensive income (loss), net of tax:
Net gains (losses) on available-for-sale securities	—		(1)
Net gains (losses) on derivative instruments	(15)		90
Foreign currency translation adjustments	7		(33)
Total other comprehensive income (loss), net of tax	(8)		56
Total comprehensive income	$	394	$	367

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

5

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Total Stockholders’ Equity
(In millions, except share data in thousands)	Shares	Amount
Balances as of March 31, 2023	272,914	$	3	$	—	$	7,357	$	(67)	$	7,293
Total comprehensive income	—	—		—		402		(8)		394
Stock-based compensation	—	—		130		—		—		130
Issuance of common stock	1,408	—		(105)		—		—		(105)
Common stock repurchases and excise tax	(2,574)	—		(25)		(301)		—		(326)
Cash dividends declared ($0.19 per common share)	—	—		—		(52)		—		(52)
Balances as of June 30, 2023	271,748	$	3	$	—	$	7,406	$	(75)	$	7,334
(Unaudited)	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Total Stockholders’ Equity
(In millions, except share data in thousands)	Shares	Amount
Balances as of March 31, 2022	280,051	$	3	$	—	$	7,607	$	15	$	7,625
Total comprehensive income	—	—		—		311		56		367
Stock-based compensation	—	—		125		—		—		125
Issuance of common stock	1,413	—		(103)		—		—		(103)
Common stock repurchases	(2,512)	—		(22)		(298)		—		(320)
Cash dividends declared ($0.19 per common share)	—	—		—		(53)		—		(53)
Balances as of June 30, 2022	278,952	$	3	$	—	$	7,567	$	71	$	7,641

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

6

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)	Three Months Ended June 30,
(In millions)	2023		2022
OPERATING ACTIVITIES
Net income	$	402	$	311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, accretion and impairment	88		114
Stock-based compensation	130		125
Change in assets and liabilities:
Receivables, net	167		70
Other assets	96		(15)
Accounts payable	(18)		(16)
Accrued and other liabilities	(92)		(105)
Deferred income taxes, net	(93)		(86)
Deferred net revenue (online-enabled games)	(321)		(476)
Net cash provided by operating activities	359		(78)
INVESTING ACTIVITIES
Capital expenditures	(45)		(59)
Proceeds from maturities and sales of short-term investments	151		87
Purchase of short-term investments	(150)		(93)
Net cash used in investing activities	(44)		(65)
FINANCING ACTIVITIES
Proceeds from issuance of common stock	—		1
Cash dividends paid	(52)		(53)
Cash paid to taxing authorities for shares withheld from employees	(105)		(104)
Common stock repurchases	(325)		(320)
Net cash used in financing activities	(482)		(476)
Effect of foreign exchange on cash and cash equivalents	2		(31)
Increase (decrease) in cash and cash equivalents	(165)		(650)
Beginning cash and cash equivalents	2,424		2,732
Ending cash and cash equivalents	$	2,259	$	2,082
Supplemental cash flow information:
Cash paid during the period for income taxes, net	$	23	$	36

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

7

ELECTRONIC ARTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Electronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and services that can be experienced on game consoles, PCs, mobile phones and tablets. At our core is a portfolio of intellectual property from which we create innovative games and experiences that deliver high-quality entertainment and drive engagement across our network of hundreds of millions of unique active accounts. Our portfolio includes brands that we either wholly own (such as Apex Legends, Battlefield, and The Sims) or license from others (such as Madden NFL, Star Wars, and the 300+ licenses within our global football ecosystem). Through our live services offerings, we offer high-quality experiences designed to provide value to players, and extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated in addition to the sale of our base games. We are focusing on building games and experiences that grow the global online communities around our key franchises; reaching more players through connecting interactive storytelling to key intellectual property; and building re-occurring revenue from our annualized sports franchises, our console, PC and mobile catalog titles, and our live services.

Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal year ending March 31, 2024 contains 52 weeks and ends on March 30, 2024. Our results of operations for the fiscal year ended March 31, 2023 contained 52 weeks and ended on April 1, 2023. Our results of operations for the three months ended June 30, 2023 contained 13 weeks and ended on July 1, 2023. Our results of operations for the three months ended June 30, 2022 contained 13 weeks and ended on July 2, 2022. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end.

The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals unless otherwise indicated) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period.

These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, as filed with the United States Securities and Exchange Commission (“SEC”) on May 24, 2023.

(2) FAIR VALUE MEASUREMENTS

There are various valuation techniques used to estimate fair value, the primary one being the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:

•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.

8

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, 2023 and March 31, 2023, our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):

			Fair Value Measurements at Reporting Date Using
	As of June 30, 2023		Quoted Prices in Active Markets  for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance Sheet  Classification
			(Level 1)		(Level 2)		(Level 3)
Assets
Bank and time deposits	$	57	$	57	$	—	$	—	Cash equivalents
Money market funds	629		629		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	97		—		97		—		Short-term investments
U.S. Treasury securities	96		96		—		—		Short-term investments
U.S. agency securities	24		—		24		—		Short-term investments
Commercial paper	71		—		71		—		Short-term investments and cash equivalents
Foreign government securities	10		—		10		—		Short-term investments
Asset-backed securities	38		—		38		—		Short-term investments
Certificates of deposit	15		—		15		—		Short-term investments
Foreign currency derivatives	27		—		27		—		Other current assets and other assets
Deferred compensation plan assets (a)	25		25		—		—		Other assets
Total assets at fair value	$	1,089	$	807	$	282	$	—
Liabilities
Foreign currency derivatives	$	53	$	—	$	53	$	—	Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)	26		26		—		—		Other liabilities
Total liabilities at fair value	$	79	$	26	$	53	$	—

9

			Fair Value Measurements at Reporting Date Using
	As of March 31, 2023		Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance Sheet  Classification
			(Level 1)		(Level 2)		(Level 3)
Assets
Bank and time deposits	$	56	$	56	$	—	$	—	Cash equivalents
Money market funds	956		956		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	113		—		113		—		Short-term investments
U.S. Treasury securities	80		80		—		—		Short-term investments
U.S. agency securities	28		—		28		—		Short-term investments and cash equivalents
Commercial paper	66		—		66		—		Short-term investments and cash equivalents
Foreign government securities	11		—		11		—		Short-term investments
Asset-backed securities	37		—		37		—		Short-term investments
Certificates of deposit	14		—		14		—		Short-term investments
Foreign currency derivatives	29		—		29		—		Other current assets and other assets
Deferred compensation plan assets (a)	23		23		—		—		Other assets
Total assets at fair value	$	1,413	$	1,115	$	298	$	—
Liabilities
Foreign currency derivatives	$	65	$	—	$	65	$	—	Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)	24		24		—		—		Other liabilities
Total liabilities at fair value	$	89	$	24	$	65	$	—

(a)The Deferred Compensation Plan consists of various mutual funds. See Note 15 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, for additional information regarding our Deferred Compensation Plan.

(3) FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

As of June 30, 2023 and March 31, 2023, our cash and cash equivalents were $2,259 million and $2,424 million, respectively. Cash equivalents were valued using quoted market prices or other readily available market information.

10

Short-Term Investments

Short-term investments consisted of the following as of June 30, 2023 and March 31, 2023 (in millions):

	As of June 30, 2023								As of March 31, 2023
	Cost or Amortized Cost		Gross Unrealized				Fair Value		Cost or Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Corporate bonds	$	98	$	—	$	(1)	$	97	$	114	$	—	$	(1)	$	113
U.S. Treasury securities	96		—		—		96		80		—		—		80
U.S. agency securities	24		—		—		24		25		—		—		25
Commercial paper	63		—		—		63		63		—		—		63
Foreign government securities	10		—		—		10		11		—		—		11
Asset-backed securities	38		—		—		38		37		—		—		37
Certificates of deposit	15		—		—		15		14		—		—		14
Short-term investments	$	344	$	—	$	(1)	$	343	$	344	$	—	$	(1)	$	343

The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of June 30, 2023 and March 31, 2023 (in millions):

	As of June 30, 2023				As of March 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Short-term investments
Due within 1 year	$	275	$	274	$	267	$	266
Due 1 year through 5 years	65		65		72		72
Due after 5 years	4		4		5		5
Short-term investments	$	344	$	343	$	344	$	343

(4) DERIVATIVE FINANCIAL INSTRUMENTS

Assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed Consolidated Balance Sheets. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative instrument and whether it is designated and qualifies for hedge accounting.

We transact business in various foreign currencies and have significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency forward contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in certain foreign currencies. Our cash flow risks are primarily related to fluctuations in the Euro, British pound sterling, Canadian dollar, Swedish krona, Australian dollar, Japanese yen, Chinese yuan, South Korean won and Polish zloty. In addition, we utilize foreign currency forward contracts to mitigate foreign currency exchange risk associated with foreign-currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts not designated as hedging instruments generally have a contractual term of approximately three months or less and are transacted near month-end. We do not use foreign currency forward contracts for speculative trading purposes.

11

Cash Flow Hedging Activities

Certain of our forward contracts are designated and qualify as cash flow hedges. To qualify for hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions. The derivative assets or liabilities associated with our hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed Consolidated Balance Sheets. The gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive income (loss) in stockholders’ equity. The gains or losses resulting from changes in the fair value of these hedges are subsequently reclassified into net revenue or research and development expenses, as appropriate, in the period when the forecasted transaction is recognized in our Condensed Consolidated Statements of Operations. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur within the defined hedge period, the gains or losses on the related cash flow hedges are reclassified from accumulated other comprehensive income (loss) to net revenue or research and development expenses, in our Condensed Consolidated Statements of Operations.Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation are as follows (in millions):

	As of June 30, 2023						As of March 31, 2023
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset		Liability				Asset		Liability
Forward contracts to purchase	$	257	$	3	$	4	$	371	$	2	$	9
Forward contracts to sell	$	1,830	$	23	$	45	$	2,255	$	23	$	46

The effects of cash flow hedge accounting in our Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022 are as follows (in millions):

	Three Months Ended June 30,
	2023				2022
	Net revenue		Research and development		Net revenue		Research and development
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	1,924	$	596	$	1,767	$	572
Gains (losses) on foreign currency forward contracts designated as cash flow hedges	$	30	$	(5)	$	19	$	(3)

Balance Sheet Hedging Activities

Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or accrued and other current liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations. The gains and losses on these foreign currency forward contracts generally offset the gains and losses in the underlying foreign-currency-denominated monetary assets and liabilities, which are also reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations.

Total gross notional amounts and fair values for currency derivatives that are not designated as hedging instruments are accounted for as follows (in millions):

	As of June 30, 2023						As of March 31, 2023
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset		Liability				Asset		Liability
Forward contracts to purchase	$	447	$	—	$	2	$	504	$	4	$	—
Forward contracts to sell	$	568	$	1	$	2	$	587	$	—	$	10

12

The effect of foreign currency forward contracts not designated as hedging instruments in our Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022 was as follows (in millions):

	Three Months Ended June 30,
	2023		2022
	Interest and other income (expense), net
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of balance sheet hedges are recorded	$	14	$	(5)
Gains (losses) on foreign currency forward contracts not designated as hedging instruments	$	3	$	13

(5) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended June 30, 2023 and 2022 are as follows (in millions):

	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, 2023	$	(1)	$	13	$	(79)	$	(67)
Other comprehensive income (loss) before reclassifications	—		10		7		17
Amounts reclassified from accumulated other comprehensive income (loss)	—		(25)		—		(25)
Total other comprehensive income (loss), net of tax	—		(15)		7		(8)
Balances as of June 30, 2023	$	(1)	$	(2)	$	(72)	$	(75)

	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, 2022	$	(3)	$	47	$	(29)	$	15
Other comprehensive income (loss) before reclassifications	(1)		106		(33)		72
Amounts reclassified from accumulated other comprehensive income (loss)	—		(16)		—		(16)
Total other comprehensive income (loss), net of tax	(1)		90		(33)		56
Balances as of June 30, 2022	$	(4)	$	137	$	(62)	$	71

The effects on net income of amounts reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2023 and 2022 were as follows (in millions):

	Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
Statement of Operations Classification	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
(Gains) losses on foreign currency forward contracts designated as cash flow hedges
Net revenue	$	(30)	$	(19)
Research and development	5		3
Total net (gain) loss reclassified, net of tax	$	(25)	$	(16)

13

(6) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET

The changes in the carrying amount of goodwill for the three months ended June 30, 2023 are as follows (in millions):

	As of March 31, 2023		Activity		Effects of Foreign Currency Translation		As of June 30, 2023
Goodwill	$	5,748	$	—	$	1	$	5,749
Accumulated impairment	(368)		—		—		(368)
Total	$	5,380	$	—	$	1	$	5,381

Acquisition-related intangibles consisted of the following (in millions):

	As of June 30, 2023						As of March 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Acquisition- Related Intangibles, Net		Gross Carrying Amount		Accumulated Amortization		Acquisition- Related Intangibles, Net
Finite-lived acquisition-related intangibles
Developed and core technology	$	1,051	$	(775)	$	276	$	1,051	$	(754)	$	297
Trade names and trademarks	596		(302)		294		596		(285)		311
Registered user base and other intangibles	56		(53)		3		56		(50)		6
Total finite-lived acquisition-related intangibles	$	1,703	$	(1,130)	$	573	$	1,703	$	(1,089)	$	614
Indefinite-lived acquisition-related intangibles
In-process research and development	$	4	$	—	$	4	$	4	$	—	$	4
Total acquisition-related intangibles, net	$	1,707	$	(1,130)	$	577	$	1,707	$	(1,089)	$	618

Amortization of intangibles for the three months ended June 30, 2023 and 2022 are classified in the Condensed Consolidated Statements of Operations as follows (in millions):

	Three Months Ended June 30,
	2023		2022
Cost of revenue	$	16	$	30
Operating expenses	25		39
Total	$	41	$	69

During the three months ended June 30, 2023 and 2022, there were no impairment charges for acquisition-related intangible assets.

Acquisition-related intangible assets are generally amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, currently ranging from 2 to 7 years. As of June 30, 2023 and March 31, 2023, the weighted-average remaining useful life for acquisition-related intangible assets was approximately 4.7 and 4.8 years, respectively.

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As of June 30, 2023, future amortization of finite-lived acquisition-related intangibles that will be recorded in the Condensed Consolidated Statements of Operations is estimated as follows (in millions):

Fiscal Year Ending March 31,
2024 (remaining nine months)	$	109
2025	122
2026	118
2027	99
2028	96
2029	29
Total	$	573

(7) RESTRUCTURING ACTIVITIES

In fiscal year 2023, we announced a restructuring plan (the “2023 Restructuring Plan” or the “Plan”) focused on prioritizing investments to our growth opportunities and optimizing our real estate portfolio. The Plan includes actions driven by portfolio rationalization including headcount reductions, in addition to office space reductions. The actions associated with the Plan are expected to be substantially completed by September 30, 2023.

Since the inception of the 2023 Restructuring Plan through June 30, 2023, we have incurred charges of $158 million. We do not expect to record material future charges.

Restructuring activities as of June 30, 2023 were as follows (in millions):

	Acquisition-Related Intangibles Impairments and Other Charges (a)		Workforce (a)		Office Space Reductions (b)		Total
Charges to operations	$	68	$	43	$	44	$	155
Charges settled in cash	—		(10)		—		(10)
Non-cash items	(66)		—		(44)		(110)
Liability as of March 31, 2023	$	2	$	33	$	—	$	35
Charges to operations	—		1		2		3
Charges settled in cash	(2)		(17)		—		(19)
Non-cash items	—		—		(2)		(2)
Liability as of June 30, 2023	$	—	$	17	$	—	$	17
(a) Charges are recorded within Restructuring in the Condensed Consolidated Statement of Operations. (b) Charges are recorded within General and administrative expenses in the Condensed Consolidated Statement of Operations.

The restructuring liability of $17 million as of June 30, 2023, is included in accrued and other current liabilities on the Condensed Consolidated Balance Sheets.

(8) ROYALTIES AND LICENSES

Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers, and (3) co-publishing and distribution affiliates. Content license royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related to our games. Co-publishing and distribution royalties are payments made to third parties for the delivery of products.

During the three months ended June 30, 2023 and 2022, we did not recognize any material losses or impairment charges on royalty-based commitments.

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The current and long-term portions of prepaid royalties and minimum guaranteed royalty-related assets, included in other current assets and other assets, consisted of (in millions):

	As of June 30, 2023		As of March 31, 2023
Other current assets	$	92	$	105
Other assets	33		31
Royalty-related assets	$	125	$	136

At any given time, depending on the timing of our payments to our co-publishing and/or distribution affiliates, content licensors, and/or independent software developers, we classify any recognized unpaid royalty amounts due to these parties as accrued liabilities. 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 June 30, 2023		As of March 31, 2023
Accrued and other current liabilities	$	211	$	208
Other liabilities	3		—
Royalty-related liabilities	$	214	$	208

As of June 30, 2023, we were committed to pay approximately $2,438 million to content licensors, independent software developers, and co-publishing and/or distribution affiliates, but performance remained with the counterparty (i.e., delivery of the product or content or other factors) and such commitments were therefore not recorded in our Condensed Consolidated Financial Statements. See Note 12 for further information on our developer and licensor commitments.

(9) BALANCE SHEET DETAILS

Property and Equipment, Net

Property and equipment, net, as of June 30, 2023 and March 31, 2023 consisted of (in millions):

	As of June 30, 2023		As of March 31, 2023
Computer, equipment and software	$	912	$	892
Buildings	373		369
Leasehold improvements	189		186
Equipment, furniture and fixtures, and other	93		92
Land	66		66
Construction in progress	18		11
	1,651		1,616
Less: accumulated depreciation	(1,106)		(1,067)
Property and equipment, net	$	545	$	549

Depreciation expense associated with property and equipment was $49 million and $44 million for the three months ended June 30, 2023 and 2022, respectively.

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Accrued and Other Current Liabilities

Accrued and other current liabilities as of June 30, 2023 and March 31, 2023 consisted of (in millions):

	As of June 30, 2023		As of March 31, 2023
Accrued compensation and benefits	$	311	$	436
Accrued royalties	211		208
Deferred net revenue (other)	75		103
Operating lease liabilities	68		66
Other accrued expenses	409		382
Sales returns and price protection reserves	71		90
Accrued and other current liabilities	$	1,145	$	1,285

Deferred net revenue (other) includes the deferral of licensing arrangements, subscription revenue, and other revenue for which revenue recognition criteria has not been met.

Deferred net revenue

Deferred net revenue as of June 30, 2023 and March 31, 2023 consisted of (in millions):

	As of June 30, 2023		As of March 31, 2023
Deferred net revenue (online-enabled games)	$	1,580	$	1,901
Deferred net revenue (other)	75		103
Deferred net revenue (noncurrent)	63		67
Total deferred net revenue	$	1,718	$	2,071

During the three months ended June 30, 2023 and 2022, we recognized $1,124 million and $1,240 million of revenue, respectively, that were included in the deferred net revenue balance at the beginning of the period.

Remaining Performance Obligations

As of June 30, 2023, revenue allocated to remaining performance obligations consists of our deferred revenue balance of $1,718 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 the current portion of deferred net revenue as revenue over the next 12 months.

(10) INCOME TAXES

The provision for income taxes for the three months ended June 30, 2023 is based on our projected annual effective tax rate for fiscal year 2024, adjusted for specific items that are required to be recognized in the period in which they are incurred. Our effective tax rate for the three months ended June 30, 2023 was 28 percent, as compared to 29 percent for the same period in fiscal year 2023. The rate for the three months ended June 30, 2023 was lower than the same period in the prior year due to a higher proportion of non-U.S. income in jurisdictions with lower tax rates.

We are subject to income tax examinations in various jurisdictions with respect to fiscal years after 2013. The timing and potential resolution of income tax examinations is highly uncertain. The gross unrecognized tax benefits as of June 30, 2023 were $942 million.

While we continue to measure our uncertain tax positions, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued. For example, in the period ended June 30, 2020, the decision of the Ninth Circuit Court of Appeals in Altera Corp. v Commissioner (“the Altera opinion”) resulted in a partial decrease of our unrecognized tax benefits. A complete resolution and settlement of the matters underlying the Altera opinion is reasonably possible within the next 12 months, which would result in an additional reduction of our gross

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unrecognized tax benefits. However, it is uncertain whether a complete resolution and settlement of such matters would also result in resolution of all related and unrelated U.S. positions for all applicable years. Therefore, it is not possible to provide a range of potential outcomes associated with a reversal of our gross unrecognized tax benefits. We expect changes in unrecognized tax benefits unrelated to the Altera opinion which may occur within the next twelve months to be insignificant.

(11) FINANCING ARRANGEMENTS

Senior Notes

In February 2021, we issued $750 million aggregate principal amount of 1.85% Senior Notes due February 15, 2031 (the “2031 Notes”) and $750 million aggregate principal amount of 2.95% Senior Notes due February 15, 2051 (the “2051 Notes”). Our proceeds were $1,478 million, net of discount of $6 million and issuance costs of $16 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2031 Notes and the 2051 Notes using the effective interest rate method. The effective interest rate is 1.98% for the 2031 Notes and 3.04% for the 2051 Notes. Interest is payable semiannually in arrears, on February 15 and August 15 of each year.

In February 2016, we issued $400 million aggregate principal amount of 4.80% Senior Notes due March 1, 2026 (the “2026 Notes”). Our proceeds were $395 million, net of discount of $1 million and issuance costs of $4 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2026 Notes using the effective interest rate method. The effective interest rate was 4.97%. Interest is payable semiannually in arrears, on March 1 and September 1 of each year.

The carrying and fair values of the Senior Notes are as follows (in millions):

	As of June 30, 2023		As of March 31, 2023
Senior Notes:
4.80% Senior Notes due 2026	$	400	$	400
1.85% Senior Notes due 2031	750		750
2.95% Senior Notes due 2051	750		750
Total principal amount	$	1,900	$	1,900
Unaccreted discount	(6)		(6)
Unamortized debt issuance costs	(14)		(14)
Net carrying value of Senior Notes	$	1,880	$	1,880
Fair value of Senior Notes (Level 2)	$	1,510	$	1,540

As of June 30, 2023, the remaining life of the 2026 Notes, 2031 Notes and 2051 Notes is approximately 2.7 years, 7.6 years, and 27.6 years, respectively.

The Senior Notes are senior unsecured obligations and rank equally with all our other existing and future unsubordinated obligations and any indebtedness that we may incur from time to time under our Credit Facility.

The 2026 Notes, 2031 Notes and 2051 Notes are redeemable at our option at any time prior to December 1, 2025, November 15, 2030, and August 15, 2050, respectively, subject to a make-whole premium. After such dates, we may redeem each such series of Notes, respectively, at a redemption price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. In addition, upon the occurrence of a change of control repurchase event, the holders of each such series of Notes may require us to repurchase all or a portion of these Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. Each such series of Notes also include covenants that limit our ability to incur liens on assets and to enter into sale and leaseback transactions, subject to certain allowances.

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Credit Facility

On March 22, 2023, we entered into a $500 million unsecured revolving credit facility (the “Credit Facility") with a syndicate of banks. The Credit Facility terminates on March 22, 2028 unless the maturity is extended in accordance with its terms. The Credit Facility contains an option to arrange with existing lenders and/or new lenders to provide up to an aggregate of $500 million in additional commitments for revolving loans. Proceeds of loans made under the Credit Facility may be used for general corporate purposes.

The loans denominated in U.S. dollars bear interest, at our option, at the base rate plus an applicable spread or at a forward-looking term rate based upon the secured overnight financing rate plus a credit spread adjustment of 0.10% per annum (the “Adjusted Term SOFR Rate”) plus an applicable spread, in each case with such spread based on our debt credit ratings. We are also obligated to pay other customary fees for a credit facility of this size and type. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period in the case of loans bearing interest at the Adjusted Term SOFR Rate. Principal, together with all accrued and unpaid interest, is due and payable on the maturity date, as such date may be extended in connection with the extension option. We may prepay the loans and terminate the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Facility contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a debt to EBITDA ratio. As of June 30, 2023, we were in compliance with the debt to EBITDA ratio.

The Credit Facility contains customary events of default, including among others, non-payment defaults, covenant defaults, cross-defaults to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults and a change of control default, in each case, subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Facility and an increase in the applicable interest rate.

As of June 30, 2023, no amounts were outstanding under the Credit Facility. $2 million of debt issuance costs that were paid in connection with obtaining this credit facility are being amortized to interest expense over the 5-year term of the Credit Facility.

Interest Expense

The following table summarizes our interest expense recognized for the three months ended June 30, 2023 and 2022 that is included in interest and other income (expense), net on our Condensed Consolidated Statements of Operations (in millions):

	Three Months Ended June 30,
	2023		2022
Amortization of debt issuance costs	$	(1)	$	—
Coupon interest expense	(14)		(14)
Total interest expense	$	(15)	$	(14)

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(12) COMMITMENTS AND CONTINGENCIES

Development, Celebrity, Professional Sports Organizations and Content Licenses: Payments and Commitments

The products we produce in our studios are designed and created by our employee designers, artists, software programmers and by non-employee software developers (“independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, usually in installment payments made upon the completion of specified development milestones. Contractually, these payments are generally considered advances against subsequent royalties on the sales of the products. These terms are set forth in written agreements entered into with the independent artists and third-party developers.

In addition, we have certain celebrity, professional sports organizations and content license contracts that contain minimum guarantee payments and marketing commitments to promote the games we publish that may not be dependent on any deliverables. These developer and content license commitments represent the sum of (1) the cash payments due under non-royalty-bearing licenses and services agreements and (2) the minimum guaranteed payments and advances against royalties due under royalty-bearing licenses and services agreements, the majority of which are conditional upon performance by the counterparty. These minimum guarantee payments and any related marketing commitments are included in the table below.

The following table summarizes our minimum contractual obligations as of June 30, 2023 (in millions):

			Fiscal Years Ending March 31,
			2024
			(Remaining
	Total		nine mos.)		2025		2026		2027		2028		2029		Thereafter
Unrecognized commitments
Developer/licensor commitments	$	2,438	$	294	$	484	$	520	$	477	$	226	$	207	$	230
Marketing commitments	1,533		173		247		311		269		171		111		251
Senior Notes interest	767		35		55		54		36		36		36		515
Operating lease imputed interest	41		8		8		6		5		4		3		7
Operating leases not yet commenced (a)	100		—		3		8		8		8		8		65
Other purchase obligations	598		212		213		143		29		1		—		—
Total unrecognized commitments	5,477		722		1,010		1,042		824		446		365		1,068
Recognized commitments
Senior Notes principal and interest	1,920		20		—		400		—		—		—		1,500
Operating leases	337		51		62		51		37		29		19		88
Transition Tax and other taxes	17		4		6		7		—		—		—		—
Total recognized commitments	2,274		75		68		458		37		29		19		1,588
Total Commitments	$	7,751	$	797	$	1,078	$	1,500	$	861	$	475	$	384	$	2,656

(a)As of June 30, 2023, we have entered into an office lease that has not yet commenced with aggregate future lease payments of approximately $100 million. This lease is expected to commence in fiscal year 2024, and will have a lease term of 12 years.

The unrecognized amounts represented in the table above reflect our minimum cash obligations for the respective fiscal years, but do not necessarily represent the periods in which they will be recognized and expensed in our Condensed Consolidated Financial Statements. In addition, the amounts in the table above are presented based on the dates the amounts are contractually due as of June 30, 2023; however, certain payment obligations may be accelerated depending on the performance of our operating results.

In addition to the amounts included in the table above, as of June 30, 2023, we had a net liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $668 million, of which we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

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Legal Proceedings

We are subject to claims and litigation arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our Condensed Consolidated Financial Statements.

(13)  STOCK-BASED COMPENSATION

Valuation Assumptions

We recognize compensation cost for stock-based awards to employees based on the awards’ estimated grant-date fair value using a straight-line approach over the service period for which such awards are expected to vest. We account for forfeitures as they occur.

The estimation of the fair value of market-based restricted stock units, stock options and ESPP purchase rights is affected by assumptions regarding subjective and complex variables. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes. We estimate the fair value of our stock-based awards as follows:

•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 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.

There were no ESPP shares issued during the three months ended June 30, 2023 and 2022. There were an insignificant number of stock options granted during the three months ended June 30, 2023 and 2022.

The assumptions used in the Monte-Carlo simulation model to value our market-based restricted stock units were as follows:

	Three Months Ended June 30,
	2023		2022
Risk-free interest rate	4.4	%	3.3	%
Expected volatility	25 - 59%		33 - 56%
Weighted-average volatility	39	%