Electronic Arts 1999 Annual Report Download - page 17

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Other Operating Expenses 1998 1997 % change
Charge for acquired in-process technology $ 1,500,000 $ – N/M
As a percentage of net revenues 0.2% N/A
Merger costs $ 10,792,000 $ – N/M
As a percentage of net revenues 1.2% N/A
In connection with the acquisition of the remaining 35% minority ownership interest in EAV in December 1997, we incurred
a charge of $1,500,000 for acquired in-process technology. This charge was made after we concluded that the in-process
technology had no alternative future use after taking into consideration the potential for usage of the software in different
products and resale of the software.
On July 25, 1997, we completed a merger with Maxis. In conjunction with the merger, we recorded costs of $10,792,000
which included direct transaction fees and costs associated with integrating the operations of the two companies.
1998 1997 % change
Operating income $ 83,449,000 $ 62,769,000 32.9
As a percentage of net revenues 9.2% 9.3%
Operating income increased due to higher net revenues and related gross profit partially offset by increased operating
expenses including the charge for acquired in-process technology as well as merger costs related to the acquisition
of Maxis.
1998 1997 % change
Interest and other income, net $ 24,811,000 $ 13,279,000 86.8
As a percentage of net revenues 2.7% 2.0%
The increase in other income is primarily due to higher interest income attributable to higher cash balances as compared
to the previous year and the sale of our 50% ownership interest in Creative Wonders, LLC in December 1997. The sale of
Creative Wonders resulted in a gain of $12,625,000. This increase was partially offset by lower gains on sales of marketable
securities in the amount of $4,098,000 compared to $8,393,000 in the prior year.
1998 1997 % change
Income taxes $ 35,726,000 $ 26,003,000 37.4
Effective tax rate 33.0% 34.2%
Our effective tax rate was lower for the year as a result of a higher proportion of international income subject to a lower
foreign tax rate as compared to the prior year and the reinstatement of the federal research and development tax credit for
the full fiscal year 1998.
1998 1997 % change
Minority interest in
consolidated joint venture $ 28,000 $ 1,282,000 (97.8)
As a percentage of net revenues 0.0% 0.2%
As discussed above, we acquired the remaining minority ownership interest in EAV in December 1997. Prior to the acquisi-
tion, EAV was sixty-five percent owned by us and thirty-five percent owned by VEI. Minority interest for the year reflected
only a portion of reported losses for EAV as the net equity of EAV fell below zero in the first quarter of fiscal 1998.