Electronic Arts 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Electronic Arts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

฀฀(55<(39,769;

Table of contents

  • Page 1
    ฀ ฀ ( 5 5

  • Page 2
    ฀ ฀ ฀ ฀

  • Page 3
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀฀฀฀฀฀฀฀฀ ฀ ฀ ฀ ฀ ฀฀฀฀฀฀฀฀฀฀

  • Page 4

  • Page 5
    ฀ ฀ 0U ÄZJHS  ,SLJ[YVUPJ (Y[Z HJOPL]LK YLJVYK YLZ\S[Z HUK ZL[ UL^ Z[HUKHYKZ VM WLYMVYTHUJL MVY V\Y JVTWHU` HUK [OL PU[LYHJ[P]L LU [LY[HPUTLU[ PUK\Z[Y` >VYSK^PKL V\Y WYVK\J[Z OH]L UL]LY SVVRLK IL[[LY" V\Y THYRL[PUN HUK ZHSLZ L_LJ\[PVU OHZ UL]LY ILLU...

  • Page 6
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 7
    ฀ ฀ ฀ ฀ ฀ ( / ( & 7 5 2 1 , & $ 5 7 6 

  • Page 8
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ( / ( & 7 5 2 1 , & $ 5 7 6 

  • Page 9
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 10
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 11
    ¸>OVH[OH[^HZYLHSS`JVVS¹ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 12
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 13
    ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 14
    ฀ ฀ ฀ ( / ( & 7 5 2 1 , & $ 5 7 6 

  • Page 15
     /, "   ,/-  ° ˆÃV>Ê9i>ÀÊ ˜`i`Ê>ÀVÂ...ÊΣ]ÊÃ"ää{ œÀÂ"Ê£ä‡

  • Page 16
    ... EXCHANGE ACT OF 1934 For the transition period from Commission File No. 0-17948 to ELECTRONIC ARTS INC. (Exact name of Registrant as speciÃ'ed in its charter) Delaware (State or other jurisdiction of incorporation or organization) 209 Redwood Shores Parkway Redwood City, California (Address...

  • Page 17
    ... Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services PART IV Exhibits, Financial Statement Schedule and Reports on Form 8-K 96 99 101 Signatures Exhibit Index 95 95...

  • Page 18
    ...studios located near San Francisco, Los Angeles, Orlando (Florida), Chicago, Vancouver, Montreal, London and Tokyo. We publish our EA Studio products under three major brands: EA SPORTSTM Ì examples of some of our recent products published under the EA SPORTS brand are Madden NFL 2004 (professional...

  • Page 19
    ... software games that are developed by other companies. An example of a recent distribution product is Final Fantasy X-2, which was produced by Square Co. Ltd. During Ã'scal 2004, we published 32 new internally developed titles and co-published an additional 11 new titles. Of these titles, 27 sold...

  • Page 20
    ... and software code. We acquire intellectual property rights to include in our products through license agreements such as those with sports leagues and player associations, movie studios and performing talent, music labels, music publishers and musicians. These licenses are typically limited to use...

  • Page 21
    ... business is still in its early stages. To date, we have had limited success in Ã'nding ways of generating revenue and proÃ'ts from online games, including subscription fees, ""pay-to-play'' fees and advertising. In addition, we have had limited experience with developing optimal pricing strategies...

  • Page 22
    ... segment is also based on product quality and features, timing of product releases, brand-name recognition, access to distribution channels, eÃ...ectiveness of marketing and price. In the software games segment, we compete with Sony, Microsoft and Nintendo, each of which develop and publish software...

  • Page 23
    ... titles in Ã'scal 2003. Our top Ã've Xbox releases for the year were Need for Speed Underground, Madden NFL 2004, Medal of Honor Rising Sun, The Lord of the Rings; The Return of the King and FIFA Soccer 2004. Nintendo. Under the terms of a licensing agreement we entered into with Nintendo of America...

  • Page 24
    ... capability for six PC and 12 PlayStation 2 titles. In addition, we provide 17 free online games on our Pogo web site under the EA SPORTS and EA SPORTS BIG brands. In the EA SPORTS BIG category, SSX Snowdreams leverages the EA SPORTS BIG franchise to form a community of sports gamers. The EA SPORTS...

  • Page 25
    ... development expertise to our partners via an internal production staÃ..., while also making available our publishing resources to provide sales, marketing and distribution services on a global basis. EA Partners currently has relationships with DICE, Lionhead, Krome Studios, Black Hole Games, Free...

  • Page 26
    ... written agreements or informal arrangements, depending on the business customs of the territories. In North America, we have stock-balancing programs for our PC products, which allow for the exchange of PC products by resellers under certain circumstances. In all of our major geographical markets...

  • Page 27
    ... and a seasonal low in revenue and proÃ'ts in the quarter ending in June. However, our results can vary based on title release dates and shipment schedules. Employees As of March 31, 2004, we employed approximately 4,800 people, of whom over 2,300 were outside the United States. We believe that our...

  • Page 28
    ...Head, Worldwide Studios Executive Vice President, Human Resources & Facilities Executive Vice President and General Manager, North American Publishing Senior Vice President, International Publishing Senior Vice President and Managing Director, European Publishing Senior Vice President, Global Online...

  • Page 29
    ...position of Senior Vice President of North American Sales and Distribution from July 1993 to October 1996 and as Vice President of Sales from 1988 to 1993. Ms. Smith has also served as Western Regional Sales Manager and National Sales Manager since she joined Electronic Arts in 1984. Ms. Smith holds...

  • Page 30
    ...Securities and Exchange Commission (""SEC''), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports. These reports are available free of charge on the Investor Relations section of our website, http://investor.ea.com, as...

  • Page 31
    ... our future needs. Redwood City, California Headquarters Campus Our principal administrative, sales and marketing, and support facility is located in Redwood City, California. This location also includes facilities for research and development. In February 1995, we entered into a build-to-suit lease...

  • Page 32
    ... or in the aggregate would not have a material adverse eÃ...ect upon our consolidated Ã'nancial position or results of operations. Item 4: Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the quarter ended March 31, 2004. 17

  • Page 33
    ... that a signiÃ'cant number of beneÃ'cial owners of our Class A common stock hold their shares in street name. As of June 1, 2004, there were 12 holders of record of our Class B common stock. There is no established trading market for shares of our Class B common stock. Dividend Policy We have not...

  • Page 34
    ...share data) STATEMENTS OF OPERATIONS DATA 2004 2003 Year Ended March 31, 2002 2001 2000 Net revenue 2,957,141 Cost of goods sold 1,102,950 Gross proÃ't 1,854,191 Operating expenses: Marketing and sales 370,468 General and administrative 184,825 Research and development 510,858 Amortization of...

  • Page 35
    ELECTRONIC ARTS INC. AND SUBSIDIARIES SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA (Continued) (In thousands) BALANCE SHEET DATA 2004 2003 Year Ended March 31, 2002 2001 2000 Cash and cash equivalents Short-term investments Marketable equity securities Working capital Total assets Total ...

  • Page 36
    ... sports-based franchises (e.g., NCAA Football and FIFA Soccer), titles based on long-lived movie properties (e.g., James BondTM and Harry Potter) and wholly-owned properties that can be successfully sequeled (e.g., The Sims and Medal of Honor). Overview of Fiscal 2004 Financial Results Net revenue...

  • Page 37
    ... games, however, as a result of a more value-oriented consumer base, and a greater number of software titles being published, we expect average software prices to gradually come down, which we expect to negatively impact our gross margin. International Sales Growth. Our Ã'scal 2004 net revenue...

  • Page 38
    ... software games designed for play on videogame platforms (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and hand-held game machines (such as the Nintendo Game Boy Advance). Product revenue is recognized net of sales allowances. We also have stock-balancing programs for our PC products...

  • Page 39
    ... future value of the asset by evaluating future business prospects and estimated cash Ã-ows. Our future net cash Ã-ows are primarily dependent on the sale of products for play on proprietary videogame consoles, hand-held game machines and PCs (""platforms''). The success of our products is aÃ...ected...

  • Page 40
    ... to the year ended March 31, 2003. Increases in net revenue from these franchises were partially oÃ...set by (1) a decrease in our Harry Potter franchise, as the Ã'scal 2004 title, Harry PotterTM: QuidditchTM World Cup, had no associated movie release, while our Ã'scal 2003 product, Harry Potter and...

  • Page 41
    ...31, 2004. From a franchise perspective, the net revenue increase was primarily driven by higher sales of products released during the year ended March 31, 2004 in the following eleven franchises: Need for Speed, The Sims, FIFA Soccer, Lord of the RingsTM, Medal of Honor, Final Fantasy, SSX, Football...

  • Page 42
    ...): Year Ended March 31, 2004 2003 Increase/ (Decrease) % Change PlayStation 2 PC Xbox Nintendo GameCube Game Boy Advance Subscription Services PlayStation EA Studio Net Product RevenueÏÏÏÏ Co-publishing and Distribution Advertising, Programming, Licensing, and Other Total Net Revenue...

  • Page 43
    ...our online product subscription business consists primarily of data center and bandwidth costs associated with hosting our websites, credit card fees and royalties for use of third party properties. Cost of goods sold for our website advertising business primarily consists of ad serving costs. Costs...

  • Page 44
    ... of net revenue, increased total gross margin by 1.1 percent in Ã'scal 2004. We expect cost of goods sold as a percentage of net revenue to increase in Ã'scal 2005 as a result of (1) a gradual decrease in the average selling price due to the current-generation lifecycle, (2) overall product mix, and...

  • Page 45
    ... business include expenses incurred by our studios consisting of direct development costs and related overhead costs in connection with the development and production of our online games. Research and development expenses also include expenses associated with development of website content, network...

  • Page 46
    ...ce located in San Francisco, California and our studio located in Seattle, Washington. The oÇce and studio closures were the result of a strategic decision to consolidate local development eÃ...orts in Redwood City, California and Vancouver, British Columbia, Canada. We recorded total pre-tax charges...

  • Page 47
    ... most of our plans to develop similar online products that would have utilized long-lived assets associated with the EA.com business. Impairment charges on long-lived assets amounted to $62.9 million and included $24.9 million relating to impaired customized internal-use software systems for the...

  • Page 48
    ... income of $5.5 million recorded from our equity investment in Square EA, LLC. Income Taxes Income taxes for Ã'scal years 2004 and 2003 (in thousands): March 31, 2004 EÃ...ective Tax Rate March 31, 2003 EÃ...ective Tax Rate % Change $219,268 27.5% $143,049 31.0% 53.3% Our eÃ...ective income tax rate...

  • Page 49
    ... tax assets, or developments in tax audit matters with various tax authorities. For example, in the fourth quarter of Ã'scal 2004, we resolved certain tax-related matters with the Internal Revenue Service, which lowered our income tax expense by $19.7 million and resulted in a 2.5 percent rate...

  • Page 50
    ... of products released during the year ended March 31, 2003 in the following nine franchises: Medal of Honor, Lord of the Rings, Kingdom Hearts, The Sims, Need for Speed, Harry Potter, NCAA Football, Bond and Tiger Woods/PGA TOUR. Increased sales in these franchises resulted in increased net revenue...

  • Page 51
    ...): Year Ended March 31, 2003 2002 Increase/ (Decrease) % Change PlayStation 2 PC Xbox Nintendo GameCube Game Boy Advance Subscription Services PlayStation EA Studio Net Product RevenueÏÏÏÏ Co-publishing and Distribution Advertising, Programming, Licensing, and Other Total Net Revenue...

  • Page 52
    ... Lord of the Rings and Harry Potter franchises and the increased number of Game Boy Advance titles available in Ã'scal 2003. In Ã'scal 2003, we released seven titles on the Game Boy Advance platform compared to three in Ã'scal 2002. PlayStation In Ã'scal 2003, net revenue from PlayStation products...

  • Page 53
    ... advertising spending of $46.1 million to support product releases on multiple platforms and across multiple territories including Madden NFLTM 2003, NBA Live 2003, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets, The Sims franchise titles and The Sims Online. Overall...

  • Page 54
    ... technologies consisting of customized internal-use software systems for the EA.com infrastructure, $1.0 million of Kesmai intangibles impairment because associated products and services were discontinued and $0.6 million of goodwill charges relating to EA.com's San Diego studio closure. The...

  • Page 55
    ...ective tax rate was 31.0 percent for Ã'scal 2003 and Ã'scal 2002. Net Income Net income for Ã'scal years 2003 and 2002 (in thousands): March 31, 2003 % of Net Revenue March 31, 2002 % of Net Revenue $ Change % Change $317,097 12.8% $101,509 5.9% $215,588 212.4% Reported net income increased...

  • Page 56
    ... Los Angeles and Vancouver studios. These non-operating expenditures were oÃ...set by net proceeds of $371.8 million in short-term investments and $227.8 million in proceeds from the sale of our common stock through stock plans during the year ended March 31, 2004. Receivables, Net Our gross accounts...

  • Page 57
    ... March 31, 2004 from $464.5 million as of March 31, 2003, as a result of the overall increase in our sales and related operational expenses and proÃ't. The increase was due to increases in income taxes payable, accrued compensation and beneÃ'ts, accrued development, deferred revenue and VAT payable...

  • Page 58
    ...(Harry Potter, Catwoman and Superman); MGM/Danjaq (James Bond); New Line Productions (The Lord of the Rings); National Football League and Players Inc. (professional football); Collegiate Licensing Company (collegiate football and basketball); ISC (stock car racing); Major League Baseball Properties...

  • Page 59
    ... required to pay any increases over the base year of these expenses on the remainder of our facilities. In February 1995, we entered into a build-to-suit lease with a third party for our headquarters facility in Redwood City, California, which was reÃ'nanced with Keybank National Association in July...

  • Page 60
    ... in Los Angeles, California, which commenced in October 2003 and expires in September 2013 with two Ã've-year options to extend the lease term. Additionally, we have options to purchase the property after Ã've and ten years based on the fair market value of the property at the date of sale, a right...

  • Page 61
    ... value of our securities could decline. The success of our business is highly dependent on being able to predict which new videogame platforms will be successful, and on the market acceptance and timely release of those platforms. We derive most of our revenue from the sale of products for play...

  • Page 62
    ... increase our costs. Many of our products are based on or incorporate intellectual property owned by others. For example, our EA SPORTS products include rights licensed from the major sports leagues and players associations. Similarly, many of our hit EA GAMES franchises, such as Bond, Harry Potter...

  • Page 63
    ...in our operating results. Our ability to meet product development schedules is aÃ...ected by a number of factors, including the creative processes involved, the coordination of large and sometimes geographically dispersed development teams required by the increasing complexity of our products, and the...

  • Page 64
    ...console platform products. If Microsoft or Sony refused to approve our products with online capabilities or signiÃ'cantly impacted the Ã'nancial terms on which these services are oÃ...ered to our customers, our business could be harmed. Our international net revenue is subject to currency Ã-uctuations...

  • Page 65
    ... rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a signiÃ'cant amount of our management's time and focus and may create unforeseen operating diÇculties...

  • Page 66
    ...on our operating results to date, highly organized pirate operations have been expanding globally. In addition, the proliferation of technology designed to circumvent the protection measures we use in our products, the availability of broadband access to the Internet, the ability to download pirated...

  • Page 67
    ... 31, 2004. The information is provided in U.S. dollar equivalents and presents the notional amount (forward or option amount), the weighted-average contractual foreign currency exchange rates and fair value. The fair value of our forward and option contracts is recorded in other current assets on...

  • Page 68
    ... the risks associated with interest rate Ã-uctuations. The table below presents the amounts (in thousands) and related weighted-average interest rates of our investment portfolio as of March 31, 2004: WeightedAverage Interest Rate Cost Fair Value Cash equivalents(1) Fixed rate Variable rate Short...

  • Page 69
    ... and 2002 ÏÏÏÏ Notes to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Financial Statement Schedules: The following Ã'nancial statement schedule of Electronic Arts Inc. and Subsidiaries for the years ended March 31, 2004, 2003 and 2002 is Ã'led as...

  • Page 70
    ... and cash equivalents Short-term investments Marketable equity securities Receivables, net of allowances of $154,682 and $164,634, respectively Inventories Deferred income taxes Other current assets Total current assets Property and equipment, net Investments in aÇliates Goodwill Other...

  • Page 71
    ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) 2004 Year Ended March 31, 2003 2002 Net revenue Cost of goods sold Gross proÃ't Operating expenses: Marketing and sales General and administrative Research and development ...

  • Page 72
    ... adjustment Comprehensive income Proceeds from sales of shares through stock plans Sale of stock under stock purchase agreement Purchase of treasury stock Retirement of treasury stock Other Tax beneÃ't from exercise of stock options Components of comprehensive income: Net income Change in...

  • Page 73
    ... for losses, realized in net income, net Translation adjustment Comprehensive income Proceeds from sales of shares through stock plans Repurchase of Class B shares ÏÏÏÏÏ Repayment of notes receivable ÏÏÏÏ Stock-based compensation Tax beneÃ't from exercise of stock options 13,066...

  • Page 74
    ... 10,590 ÃŒ Loss on sale of property, equipment and marketable equity securities ÏÏÏÏÏ 2,434 1,233 427 Gain on sale of aÇliate 200) Minority interest in consolidated joint venture 1,303 809 Stock-based compensation 1,027 906 3,099 Tax beneÃ't from exercise of stock options 68,632 74,620 22...

  • Page 75
    ... online networks. Many of our games are based on content that we license from others (e.g., Madden NFL Football, Harry Potter and FIFA Soccer), and many of our games are based on intellectual property that is wholly-owned by EA (e.g., The SimsTM, Medal of HonorTM). Our goal is to develop titles...

  • Page 76
    ... securities, not classiÃ'ed as held-to-maturity, are classiÃ'ed as available-for-sale and are stated at fair value. Unrealized gains and losses are included as a separate component of accumulated other comprehensive income (loss) in stockholders' equity, net of any tax related eÃ...ect. Realized gains...

  • Page 77
    ...evidence of an agreement with the customer reÃ-ecting the terms and conditions to deliver products. Delivery: Delivery is considered to occur when the products are shipped and risk of loss has been transferred to the customer. For online games, revenue is recognized as the service is provided. Fixed...

  • Page 78
    ... the software games business segment and the overall economy, changes in customer demand and acceptance of our products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, we monitor and manage the volume of sales to retailers and...

  • Page 79
    ... were used for grants made in Ã'scal 2004, 2003 and 2002 under the stock plans: 2004 Year Ended March 31, 2003 2002 Risk-free Expected Expected Expected Assumed interest rate volatility life of stock options (in years life of employee stock purchase plans (in months dividends 2.3% 50...

  • Page 80
    ...2004 Year Ended March 31, 2003 2002 As reported - diluted Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax eÃ...ects Add: Stock-based employee compensation expense included in reported net income, net of related tax...

  • Page 81
    ... U.S. dollars using month end exchange rates, and revenue and expenses are translated into U.S. dollars using average exchange rates. The eÃ...ects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders' equity. Foreign...

  • Page 82
    ... as ""available-for-sale'' and have stated applicable investments at fair value, with any net unrealized gain (loss) reported as a separate component of accumulated other comprehensive income (loss) in stockholders' equity. Marketable equity securities had a fair market value of $1.2 million and...

  • Page 83
    .... In North America, the companies formed Square Electronic Arts, LLC (""Square EA''), which had exclusive publishing rights in North America for future interactive entertainment titles created by Square. Additionally, we had the exclusive right to distribute in North America products published by...

  • Page 84
    In Japan, the companies established Electronic Arts Square K.K. (""EA Square KK'') in 1998, which localized and published in Japan; a selection of EA's properties originally created in North America and Europe, as well as developed and published original videogames in Japan. We contributed cash and ...

  • Page 85
    ... interest in Electronic Arts Square K.K. See Note 4 of the Notes to Consolidated Financial Statements for further discussion on this joint venture termination. Additionally, we recorded an additional $3.0 million of goodwill in Ã'scal 2004 as a result of our acquisition of Studio 33 (UK) Limited and...

  • Page 86
    ... primarily related to the Texas facility relocation. Fiscal 2003 Studio Restructuring During the third quarter of Ã'scal 2003, we closed our oÇce located in San Francisco, California and our studio located in Seattle, Washington. The oÇce and studio closures were the result of a strategic decision...

  • Page 87
    ... most of our plans to develop similar online products that would have utilized the long-lived assets associated with the EA.com business. Impairment charges on long-lived assets amounted to $62.9 million and included $24.9 million relating to impaired customized internal-use software systems for the...

  • Page 88
    ... technologies consisting of customized internal-use software systems for the EA.com infrastructure, $1.0 million of Kesmai intangibles impairment because associated products and services were discontinued and $0.6 million of goodwill charges relating to EA.com's San Diego studio closure. The...

  • Page 89
    ... EA.com the exclusive right to provide online games and interactive entertainment content on the ""Games'' channels/areas of certain AOL online services and gain access to and sell our products to AOL subscribers and to users of AOL properties. This agreement provided for carriage fees, advertising...

  • Page 90
    ... over the two-year term of the New Agreement as a programming fee. Of the total $27.5 million, $20.8 million pertains to existing online games content and services that we currently provide on the ""Games'' channels/areas of the AOL properties, and is being recognized as revenue ratably over the...

  • Page 91
    .... License royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademark, copyright, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers...

  • Page 92
    ...31, 2004 2003 Other current assets Other assets Prepaid royalties, net $ $ 13,163 9,508 22,671 $ $ 25,371 7,382 32,753 At any given time, depending on the timing of our payments to our co-publishing and/or distribution aÇliates, content licensors and/or independent software developers, we...

  • Page 93
    ... Value Guarantees We lease certain of our current facilities and certain equipment under non-cancelable 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...

  • Page 94
    ...(Harry Potter, Catwoman and Superman); MGM/Danjaq (James Bond); New Line Productions (The Lord of the Rings); National Football League and Players Inc. (professional football); Collegiate Licensing Company (collegiate football and basketball); ISC (stock car racing); Major League Baseball Properties...

  • Page 95
    ... would not have a material adverse eÃ...ect upon our consolidated Ã'nancial condition or results of operations. Director Indemnity Agreements We have entered into an indemniÃ'cation agreement with the members of our Board of Directors to indemnify our Directors to the extent permitted by law against...

  • Page 96
    ...$ 17,020 131,267 $148,287 Income tax expense (beneÃ't) for the Ã'scal years ended March 31, 2004, 2003 and 2002 consisted of (in thousands): Current Deferred Total March 31, 2004 Federal State Foreign Charge in association with disposition from employee stock plans ÏÏÏ $121,373 3,651 18,017...

  • Page 97
    ... follows: Year Ended March 31, 2004 2003 2002 Statutory federal tax rate State taxes, net of federal beneÃ't DiÃ...erences between statutory rate and foreign eÃ...ective tax rate Research and development credits Resolution of certain tax-related matters with the IRS Other EÃ...ective tax rate 35...

  • Page 98
    ... Electronic Arts. In March 2003, we consolidated the operations of EA.com into our core operations in order to increase eÇciency, simplify our reporting structure and more directly integrate our online activities into our core console and PC business. As a result, we eliminated dual class reporting...

  • Page 99
    ..., the 1995 Stock Option Plan and the 2000 Class A Equity Incentive Plan allow for grants of restricted stock. At our Annual Meeting of Stockholders, held on July 31, 2003, the stockholders approved an amendment to amend the 2000 Class A Equity Incentive Plan to increase the number of shares of...

  • Page 100
    ...31 The following summarizes the activity under the Company's Class B stock option plan during the Ã'scal years ended March 31, 2004, 2003 and 2002: Options Outstanding WeightedAverage Number of Exercise Shares Price Balance at March 31, 2001 Granted Canceled Exercised Balance at March 31, 2002...

  • Page 101
    ...Potential dilution is computed by dividing the options in the related range of exercise prices by the shares of common stock issued and outstanding at March 31, 2004 (301,332,458 shares). The weighted average estimated fair value of stock options granted during Ã'scal 2004, 2003 and 2002 were $16.22...

  • Page 102
    ... that could occur from common shares issuable through stock-based compensation plans including stock options, restricted stock awards, warrants and other convertible securities using the treasury stock method. In Ã'scal years 2003 and 2002, net income (loss) per share is computed individually for...

  • Page 103
    ... the average market price of the common shares. For Ã'scal 2004, 2003 and 2002, the weighted-average exercise price of these respective options was $47.19, $31.16 and $28.83 per share. Due to our Ã'scal 2003 restructuring related to EA.com, (see Note 6), Class B EPS reporting is no longer required...

  • Page 104
    ... and Mr. David Carbone, $44,950. The terms of the notes were Ã've years and the interest, set at a market rate as determined under guidelines set forth in the Internal Revenue Code and state statutes, was due and payable quarterly. In December 2002 and January 2003, Mr. Riccitiello, Mr. Mattrick, Mr...

  • Page 105
    ... segments: EA Core business segment: creation, marketing and distribution of entertainment software. EA.com business segment: creation, marketing and distribution of entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising...

  • Page 106
    ... thousands): North America Asia PaciÃ'c (excluding Japan) Europe Japan Total Year ended March 31, 2004 Net revenue from unaÇliated customersÏÏ Interest income, net Depreciation and amortization Total assets Capital expenditures Long-lived assets Year ended March 31, 2003 Net revenue from...

  • Page 107
    ...19) QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED) (In thousands, except per share data) June 30 Quarter Ended Sept. 30 Dec. 31 March 31 Year Ended Fiscal 2004 Consolidated Net revenue Gross ProÃ't Operating income Net income Class A Stockholders Net income per share - basic Net income...

  • Page 108
    ... consolidated balance sheets of Electronic Arts Inc. and subsidiaries (the Company) as of March 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash Ã-ows for each of the years in the three-year period ended March 31...

  • Page 109
    ... submit under the Exchange Act is recorded, processed, summarized and reported within the time periods speciÃ'ed in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive OÇcer and Executive Vice President, Chief Financial and Administrative...

  • Page 110
    ... of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters The information required by Item 12 is incorporated herein by reference to the information in the Proxy Statement under the captions ""Principal Stockholders'' and ""Equity Compensation Plan Information''. Item 13: Certain...

  • Page 111
    ... Realty Corporation, dated April 1, 1999.(10) Option agreement, agreement of purchase and sale, and escrow instructions for Zones 2 and 4, Electronic Arts Business Park, Redwood Shores California, dated April 5, 1999.(10) Lease Agreement by and between Registrant and Spieker Properties, L.P., dated...

  • Page 112
    ... between Electronic Arts Inc. and Playa Capital Company, LLC, dated July 31, 2003.(18) Licensed Publisher Agreement by and between EA and Sony Computer Entertainment America Inc. dated as of April 1, 2000.(19)(**) Amending Agreement among Ontrea Inc. (the ""Landlord''), Electronic Arts (Canada), Inc...

  • Page 113
    ... Ã'led with Amendment No. 2 to Registrant's Registration Statement on Form S-3, Ã'led November 12, 2003 (File No. 333-102797). (b) Reports on Form 8-K On January 27, 2004, we Ã'led a current report on Form 8-K relating to the announcement of our Ã'nancial results for the quarter ended December 31...

  • Page 114
    ...by the undersigned, thereunto duly authorized. ELECTRONIC ARTS INC. By: /s/ Lawrence F. Probst III Lawrence F. Probst III Chairman of the Board and Chief Executive OÇcer Date: June 4, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 115
    ELECTRONIC ARTS INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended March 31, 2004, 2003 and 2002 (In thousands) Allowance for Doubtful Accounts, Price Protection and Returns Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts(1) Balance...

  • Page 116
    ... 2004 FORM 10-K ANNUAL REPORT EXHIBIT INDEX Exhibit Number Exhibit Title 10.06 10.07 10.36 21.01 23.01 31.1 31.2 Form of Indemnity Agreement with Directors Description of Registrant's FY 2005 Executive OÇcer Bonus Plan First Amendment of Lease by and between Louisville Commerce Realty Corporation...

  • Page 117
     /,"  ,/-  ° ฀ ", Ê"Ê , /", ",*",/ Ê" , ",*",/ " 1 /",- °Ê,ˆVÂ...>À`ÊÃÂ...iÀ œ˜ÃՏÌ>˜Ì œÀÂ"iÀÊ Â...ˆivÊ ÝiVṎÛiÊ "vw ÊViÀÊEÊ*ÀiÈ`i˜ÌÊ *œÞÀ>Â"Ê,iVœÀ`Ã]ʘV° 7ˆˆ>Â"Ê°Ê ÞÀœ˜ œÀÂ"iÀÊ*ÀiÈ`i˜Ì ...

  • Page 118
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ( / ( & 7 5 2 1 , & $ 5 7 6 

  • Page 119
    ( / ( & 7 5 2 1 , & $ 5 7 6  ฀ ฀