Mixed Financial News from EA

Accountant mumbo-jumbo shrouds EA results

Posted by Staff
Mixed Financial News from EA
EA's Q1 figures are in and the news is mixed, and certainly tells us very little about the state of the economy or of one of the world's pre-eminent games companies.

GAAP (Generally Accepted Accounting Principles) revenues are down by 20%. However, non GAAP revenues are UP... by 34%.

The thing is, accounting is a black art which exists mainly to make accountants rich, and to make companies look good to investors. Because at any one time, a company will have amounts of goodwill, work in progress, liabilities etc., accountants try and assign a value to these largely notional things, and come up with a number that represents a company's financial health. The company wants this to look good so that investors will be happy, but not too good, or the taxman will come knocking. (Short version: accountants are charlatans, which is why we had WorldCom and Enron, and much of the recent economic woes.)

EA's list of non GAAP measures includes things such as Acquired in-process technology, Amortization of intangibles, Certain abandoned acquisition-related costs, Goodwill impairment and so on and cetera... you get the idea.

So the good (bad) news is that EA revenues and profits were up (down). GAAP profits are down by 36%, but after the accountants had waved their magic wand over this figure, it was turned into a non-GAAP profit increase of 57%. Magic.

The ostensibly confusing figures centre on deferred income from online enabled titles, which negatively impacted Q1 figures by $172 million, but a year ago showed a benefit of $195 million.

Credit was given to The Sims 3 (more on that here), Fight Night Round 4 and EA Sports Active for driving sales.

The underlying news is that EA has managed its costs, concentrated on releasing a good selection of well-performing and critically acclaimed games, and appears to be weathering the economic crisis at least as well as, if not considerably better than most publishers.


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