Electronic Arts 2000 Annual Report Download - page 33

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EA.com is required to pay $50,000,000 to AOL as a carriage fee (including certain advertising fees of which $604,000 was
expensed in the twelve months ended March 31, 2000) under the AOL agreement. Of this amount, $25,000,000 was paid upon
signing the agreement and the remainder is due in four equal annual installments on the first four anniversaries of the initial
payment. Payment of the first annual installment of $6,250,000 will be accelerated to June 1, 2000 since certain launch require-
ments will not be met by that date. EA.com is also required to pay to AOL $31,000,000 as an advance of a minimum guaran-
teed revenue share for revenues generated by subscriptions and other certain commercial transactions on the EA.com site. Of
this amount, $11,000,000 was paid upon signing of the agreement and the remainder is due in four equal annual installments
on the first anniversary of the initial payment.
EA.com also made a commitment to spend $15,000,000 in offline media advertisements promoting our online games,
including those on the AOL service, during the term of the AOL agreement.
Future liquidity needs of EA.com will be met by Electronic Arts as Electronic Arts intends to continue to fund the cash
requirements of EA.com for the foreseeable future.
YEAR 2000 READINESS DISCLOSURE
Year 2000 Status
As of the date of this filing, we have not incurred any significant business disruptions as a result of Year 2000 issues. However,
while no such occurrence has developed, Year 2000 issues that may arise related to key suppliers and service providers may
not become apparent immediately. We have received assurances of Year 2000 compliance from key suppliers. We have also
received assurances from key service providers such as financial institutions, our payroll service provider, and our retirement
plan administrator as to their Year 2000 readiness. We will continue to monitor our own systems and our business partners to
identify and address any potential risk situations related to the Year 2000. We can provide no assurance that we will not be
adversely affected by these suppliers and service providers due to noncompliance in the future.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between
their existing currencies (the “legacy currency”) and the one common legal currency known as the “Euro”. From January 1, 1999
through June 30, 2002 the countries will be able to use their legacy currencies or the Euro to transact business. By July 1, 2002,
at the latest, the conversion to the Euro will be complete at which time the legacy currencies will no longer be legal tender. The
fixed conversion rates between their existing currencies have eliminated exchange rate risk among the member countries.
The conversion to the Euro has reduced the number of forward contracts that we use to hedge the exchange rate risk. The
forward contracts that were used to hedge the individual legacy currencies have been replaced by a single Euro hedge contract
and the intercompany transactions among subsidiaries within the European Union are no longer subject to exchange rate risk.
EA 2000 AR
31
MD&A