Electronic Arts 2002 Annual Report Download - page 40

EA.COM
Included in the amounts above is the following for the EA.com business:
|•••»With the exception of the proceeds from the sale of stock and warrant 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 contributions 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.
|•••»During fiscal 2002, EA.com used $99,696,000 of cash in operations (including payments to AOL of
approximately $11,250,000), $13,112,000 in capital expenditures for computer equipment, network
infrastructure, internal use software and related third party software, offset by $114,837,000 pro-
vided through the capital contributions from Electronic Arts. As a result of the net operating loss
generated, we realized a tax benefit of approximately $47,011,000.
|•••»During fiscal 2001, EA.com used $132,210,000 of cash in operations (including payments to AOL of
approximately $11,250,000), $68,887,000 in capital expenditures for computer equipment, network
infrastructure, internal use software and related third party software, $43,333,000 for the acquisition
of Pogo, excluding cash received of $762,000, offset by $245,141,000 provided through the capital
contributions from Electronic Arts. As a result of the net operating loss generated, we realized a tax
benefit of approximately $47,586,000.
Under the AOL agreement entered into in November 1999, EA.com is required to pay $81,000,000 to AOL
over the life of the five-year agreement. Of this amount, $36,000,000 was paid upon signing the agreement
with the remainder due in four equal annual installments beginning with the first anniversary of the initial
payments. EA.com paid AOL $11,250,000 in both fiscal 2001 and 2002.
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.
OTHER COMMITMENTS
Advertising Commitments
We made a commitment to spend $15,000,000 in offline media advertisements promoting our online
games, including those on the AOL service, prior to March 31, 2005. As of March 31, 2002, we have spent
approximately $3,500,000 against this commitment.
On February 7, 2000, we acquired Kesmai from News America Corporation (“News Corp”) in
exchange for $22,500,000 in cash and approximately 206,000 shares of our existing common stock valued
at $8,650,000.We agreed to spend $12,500,000 through the period ended June 1, 2002 in advertising
with News Corp or any of its affiliates. In addition, if certain conditions are met, including that a qualified
public offering of Class B common stock does not occur within twenty-four months of News Corp’s pur-
chase of such shares and all of the Class B outstanding shares have been converted to Class A common
stock, then (1) News Corp has the right to (i) exchange Class B common stock for approximately 206,000
shares of Class A common stock, and (ii) receive cash from Electronic Arts in the amount of $9,650,000,
and (2) we will agree to spend an additional $11,675,000 in advertising with News Corp and its affiliates.
Lease Commitments
We lease certain of our current facilities and certain equipment under non-cancelable capital and operating
lease agreements.We are required to pay property taxes, insurance and normal maintenance costs for certain
of our facilities and will be required to pay any increases over the base year of these expenses on the remainder
of our facilities.
In February of 1995, we entered into a build-to-suit lease with a financial institution on our headquar-
ter’s facility in Redwood City, California, which was extended in July of 2001 and runs through July of 2006.
We accounted for this arrangement as an operating lease in accordance with Statement of Financial Accounting
Standards No. 13 (“SFAS 13”),
“Accounting for Leases” ,as amended. Existing campus facilities developed
in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration
EA 2002 AR
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