Electronic Arts 2002 Annual Report Download - page 59

Sale of Class B Common Stock and Warrant to AOL
In connection with the agreement with AOL, the Company sold shares of Class B common stock to AOL (the “AOL
Shares”) representing 10 percent of the initial equity value attributable to EA.com valued at $18,700,000.
In addition to the AOL Shares, the Company sold AOL a warrant (the “AOL Warrant”) to purchase
shares of Class B common stock representing an additional 5 percent of the initial equity value attributable
to EA.com for $1,300,000.The aggregate exercise price of the AOL Warrant will be $40,000,000.The
AOL Warrant expires at the latest at the fifth anniversary of its date of issuance, and under certain condi-
tions may expire at an earlier date.
AOL Exchange Rights
AOL may exchange their Class B common stock shares for a number of Class A common stock based on the
ratio of per share price paid by AOL for the Class B stock relative to $41.89. As of March 31, 2002, none
of the AOL shares have been exchanged for Class A common stock.
(6) CONCENTRATION OF CREDIT RISK
The Company extends credit to various companies in the retail and mass merchandising industry. Collection of
trade receivables may be affected by changes in economic or other industry conditions and may, accordingly,
impact the Company’s overall credit risk. Although the Company generally does not require collateral, the Com-
pany performs ongoing credit evaluations of its customers and reserves for potential credit losses are
maintained. For the fiscal year ended March 31, 2002, the Company had receivable balances from one customer
which represented 13% of total gross accounts receivables. For the fiscal years ended March 31, 2001 and
2000, there were no customers with receivable balances greater than 10% of total gross accounts receivables.
Short-term investments are placed with high credit-quality financial institutions or in short-duration
high quality securities.The Company limits the amount of credit exposure in any one institution or type of
investment instrument.
(7) LITIGATION
The Company is subject to pending claims and litigation. Management, after review and consultation with
counsel, considers that any liability from the disposition of such lawsuits would not have a material adverse
effect upon the consolidated financial condition or results of operations of the Company.
(8) PREFERRED STOCK
At March 31, 2002 and 2001, the Company had 10,000,000 shares of Preferred Stock authorized but
unissued.The rights, preferences, and restrictions of the Preferred Stock may be designated by the Board of
Directors without further action by the Company’s stockholders.
(9) TREASURY STOCK
In September 2001,the Board of Directors approved a plan to purchase up to two million shares of the Company’s
Class A common stock. For the fiscal year ended March 31, 2002, the Company repurchased 280,000 shares for
approximately $11,922,000 under the program. In February 2002, all of the 280,000 shares were retired.
(10) STOCK PLANS
(a) Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan program whereby eligible employees may authorize
payroll deductions of up to 10% of their compensation to purchase shares at 85% of the lower of the fair
market value of the Class A Common Stock on the date of commencement of the offering or on the last day
of the six-month purchase period.The program commenced in September 1991. A new Employee Stock
Purchase Plan program was approved by the Board of Directors in May 2000 and commenced in August
2000. In fiscal 2002, 313,240 shares were purchased by the Company and distributed to employees at
prices ranging from $42.45 to $45.05. In fiscal 2001, 350,164 shares were purchased by the Company and
distributed to employees at prices ranging from $29.14 to $42.50. In fiscal 2000, 491,046 shares were
purchased by the Company and distributed to employees at prices ranging from $16.21 to $29.14.The
weighted average fair value of the fiscal 2002, fiscal 2001 and fiscal 2000 awards was $18.88, $18.31 and
$10.00, respectively. At March 31, 2002, the Company had 1,009,673 shares of Class A Common Stock
reserved for future issuance under the Plans.
EA 2002 AR 55