Electronic Arts 2002 Annual Report Download - page 31

The restructuring plan resulted in the termination of approximately 270 personnel, or one third of EA.com's
workforce, which affected all departments across the organization.The estimated costs for consolidation of
facilities are comprised of contractual rental commitments under real estate leases for unutilized office space
offset by estimated future sub-lease income. Included in these costs are estimated costs to close offices or
consolidate facilities in various locations and costs to writeoff a portion of the assets from these facilities.
In addition, the restructuring efforts required an evaluation of asset impairment in accordance with
Statement of Financial Accounting Standards No. 121 (“SFAS 121”), “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of”
,to adjust these depreciable assets and
certain intangibles to their estimated fair value. Management evaluated the impact of consolidating or
abandoning certain EA.com technologies and processes and reviewed the effect of changes to EA.com’s
subscription product offerings in relation to EA.com’s asset base. Impairment charges on long-lived assets
amounted to $12,818,000 and included $11,177,000 relating to consolidated or abandoned technologies
for the EA.com infrastructure and $1,641,000 of goodwill and intangibles impairment charges relating to
the EA.com’s San Diego and Kesmai studios.There are no assurances that the impairment factors evalu-
ated by management will not change in subsequent periods and accordingly, this could result in additional
impairment charges in future periods.
We will continue to evaluate the effectiveness of products, departments, technology and processes and look
for ways to consolidate and streamline EA.com operations in an effort to further reduce operating expenses.
Interest and Other Income, Net
% OF NET % OF NET
2002 REVENUES 2001 REVENUES % CHANGE
$12,848,000 0.7% $16,886,000 1.3% (23.9%)
Interest and other income, net, decreased in absolute dollars by 23.9% primarily due to lower interest
income as a result of lower interest rates in the current year and an increase in the cost of utilizing foreign
exchange hedge contracts.
Income Taxes
EFFECTIVE EFFECTIVE
2002 TAX RATE 2001 TAX RATE % CHANGE
$45,969,000 31.0% $(4,163,000) 31.0% N/M
Our effective tax rate was 31.0% for fiscal 2002 and fiscal 2001. At March 31, 2002, we generated a federal
income tax net operating loss.This loss will be carried forward to future tax years. At March 31, 2001, we also
generated a federal income tax net operating loss. A substantial portion of this loss was utilized in a carryback
claim with the remainder being carried forward.The net operating losses for both fiscal 2002 and fiscal 2001
resulted from losses from EA.com’s operations as well as stock option deductions. A valuation allowance has
not been established on these loss carryforwards or other net deferred tax assets as we believe it is more likely
than not that the results of future operations will generate sufficient taxable income to realize them.
Net Income (loss)
% OF NET % OF NET
2002 REVENUES 2001 REVENUES % CHANGE
$101,509,000 5.9% $(11,082,000) (0.8%) N/M
In absolute dollars, reported net income (loss) increased in fiscal 2002 primarily related to higher net rev-
enues, partially offset by higher expenses compared to the same period last year.The increase in expenses
was primarily due to increases in marketing and advertising costs to support a higher number of franchise
titles. In addition, higher expenses were due to the charge for restructuring and impairment in fiscal 2002.
We believe the disclosure of pro forma net income (loss) and operating profit (loss), which does not
include unusual events or transactions, such as restructuring and asset impairment costs and charge for
acquired in-process technology, and also excludes amortization of intangibles and non-cash stock compensa-
tion charges, helps investors more meaningfully evaluate the results of our ongoing operations. However, we
urge investors to carefully review the GAAP financial information included as part of this Annual Report and
compare GAAP financial information with the pro forma financial results disclosed in this Annual Report.
EA 2002 AR 27