Electronic Arts 2001 Annual Report Download - page 30

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2001 AR
INCOME TAXES Our effective tax rate was 31.0% for fiscal 2000 and 38.3% for fiscal 1999. The effective tax rate
was lower than the comparable prior year period (excluding the effect of the one-time charges in the prior year)
primarily as a result of a higher portion of international income for fiscal 2000 subject to a lower foreign tax rate
as compared to the prior year. Our effective tax rate for fiscal 1999 was negatively affected as there was no tax
benefit recorded for a portion of the charges related to the acquired in-process technology. Excluding the effect of
these charges, the effective tax rate for fiscal 1999 would have been 32.0%.
NET INCOME In absolute dollars, reported net income increased by 60% primarily related to higher revenues and
gross profits as compared to fiscal 1999. The increase was also due to significant one-time charges for acquired in-
process technology in fiscal 1999. This was partially offset by higher costs incurred by EA.com for the develop-
ment of online projects, the network infrastructure development and higher infrastructure costs for Ultima Online
and Ultima Online: The Second Age. Excluding the one-time charges relating to acquired in-process technology of
$4,512,000, net of taxes, in fiscal 2000, net income would have been $121,263,000. Excluding the one-time
charges relating to acquired in-process technology of $37,506,000, net of taxes in fiscal 1999, net income would
have been $110,378,000.
Excluding one-time charges related to acquired in-process technology and goodwill amortization, net income
would have been $129,535,000 for fiscal 2000. Excluding one-time charges relating to acquired in-process tech-
nology and goodwill amortization, net income would have been $114,376,000 for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, our working capital was $478,701,000 compared to $440,021,000 at March 31, 2000. Cash,
cash equivalents and short-term investments increased by $126,688,000 in fiscal 2001. We generated $193,939,000
of cash from operations, $102,628,000 of cash through the sale of equity securities under our stock plans, offset
by $120,347,000 of cash used in capital expenditures in fiscal 2001. During fiscal 2001, we invested $43,333,000
in cash for the acquisition of Pogo.
Reserves for bad debts and sales returns increased from $65,067,000 at March 31, 2000 to $89,833,000 at
March 31, 2001. Reserves have been charged for returns of product and price protection credits issued for prod-
ucts sold in prior periods. Management believes these reserves are adequate based on historical experience and its
current estimate of potential returns and allowances.
Our principal source of liquidity is $466,492,000 in cash, cash equivalents and short-term investments and
$10,022,000 in marketable securities. Management believes the existing cash, cash equivalents, short-term invest-
ments, marketable securities and cash generated from operations will be sufficient to meet cash and investment
requirements on both a short-term and long-term basis.
Included in the amounts above is the following for the EA.com business:
• With the exception of the proceeds from the sale of stock to AOL in fiscal 2000 in the amount of $20,000,000, to
date, EA.com has been funded solely by Electronic Arts. This funding has been accounted for as capital contri-
butions from Electronic Arts. Excess cash generated from operations is transferred to Electronic Arts, and has
been accounted for as a return of capital. We anticipate these funding procedures will continue in the near-term.
However, Electronic Arts may, at its discretion, provide funds to EA.com under a debt arrangement, instead of
treating such funding as a capital contribution.