Electronic Arts 1999 Annual Report Download - page 41

NOTE 11 (CONTINUED)
(c) Square Co., Ltd.
In May 1998, the Company and Square Co., Ltd. (“Square”), a leading developer and publisher of entertainment software
in Japan, completed the formation of two new joint ventures in North America and Japan. In North America, the companies
formed Square Electronic Arts, LLC (“Square EA”), which has exclusive publishing rights in North America for future inter-
active entertainment titles created by Square. Additionally, the Company has the exclusive right to distribute in North
America products published by this joint venture. The Company contributed $3,000,000 and owns a 30% minority interest
in this joint venture while Square owns 70%. This joint venture is accounted for under the equity method.
In Japan, the companies established Electronic Arts Square KK (“EA Square KK”), which will localize and publish
in Japan the Company’s properties originally created in North America and Europe, as well as develop and publish
original video games in Japan. The Company contributed cash and has a 70% majority ownership interest, while Square
contributed cash and owns 30%. Accordingly, the assets, liabilities and results of operations for EA Square KK are included
in the Company’s Consolidated Balance Sheets and Results of Operations since June 1, 1998, the date of formation.
Square’s 30% interest in EA Square KK has been reflected as “Minority interest in consolidated joint venture” on the
Company’s Consolidated Financial Statements.
(d) Maxis, Inc.
On July 25, 1997, the Company completed a merger with Maxis, Inc. (“Maxis”), a California-based interactive software
developer. Under the transaction, approximately 4.1 million shares of Electronic Arts’ stock were exchanged for all out-
standing Maxis common stock. The transaction was accounted for as a pooling of interests. The accompanying financial
statements, notes and analyses have been restated for all periods presented to reflect this transaction.
In conjunction with the merger of Maxis, the Company recorded costs of $10,792,000. This charge included direct trans-
action fees for investment bankers, attorneys, accountants, and other related costs of approximately $2,781,000 and costs
associated with integrating the operations of the two companies of approximately $8,011,000. Included in the integration
costs were redundant facility costs, severance payments, equipment abandonment costs and other asset write downs,
contract termination charges and other related expenses. Of the total merger costs, approximately $5,185,000 related to
cash expenditures while approximately $5,607,000 related to noncash charges. At March 31, 1999, there were no accruals
remaining related to these merger related costs.
Total net revenue and net income (loss) for the individual entities for the fiscal year ended March 31, 1997 is as follows
(in thousands):
1997 Electronic Arts Maxis Combined
Net revenue $624,766 $ 48,262 $673,028
Net income (loss) 53,002 (1,675) 51,327
(e) Creative Wonders, LLC
In December 1997, the Company completed the sale of its 50% ownership interest in Creative Wonders, LLC, a joint venture
company formed with the Walt Disney Company for $16,750,000 in cash. The Company recognized a gain of $12,625,000,
which is included in interest and other income. Prior to the sale, the Company distributed children’s interactive titles
published and sold by the joint venture into the retail channel. The investment was accounted for under the equity
method prior to sale.
$ 673,028