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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2002
 
OR
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                  to                 
 
Commission File No. 0-17948
 
ELECTRONIC ARTS INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
94-2838567
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
209 Redwood Shores Parkway
Redwood City, California
(Address of principal executive offices)
 
94065
(Zip Code)
 
(650) 628-1500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES   X                                           NO         
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class of Common Stock

 
Par Value

 
Outstanding at
August 6, 2002

Class A common stock
 
$0.01
 
139,235,558


Table of Contents
ELECTRONIC ARTS INC. AND SUBSIDIARIES
 
INDEX
 
Part I—Financial Information

  
Page

Item 1.
  
Unaudited Condensed Consolidated Financial Statements
    
       
3
       
4
       
5
       
7
Item 2.
     
18
Item 3.
     
47
Part II—Other Information

    
Item 1.
     
49
Item 4.
     
49
Item 6.
     
49
  
51
  
52

2


Table of Contents
 
PART I—FINANCIAL INFORMATION
 
Item 1.    Condensed Consolidated Financial Statements
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
 
    
June 30,
2002
    
March 31,
2002
 
 



ASSETS
Current assets:
                 
Cash, cash equivalents and short-term investments
  
$
826,866
 
  
$
796,936
 
Marketable securities
  
 
5,403
 
  
 
6,869
 
Receivables, less allowances of $128,518 and $115,870, respectively
  
 
118,347
 
  
 
190,495
 
Inventories, net
  
 
24,074
 
  
 
23,780
 
Deferred income taxes
  
 
37,710
 
  
 
38,597
 
Other current assets
  
 
117,872
 
  
 
95,866
 
    


  


Total current assets
  
 
1,130,272
 
  
 
1,152,543
 
Property and equipment, net
  
 
309,892
 
  
 
308,827
 
Investments in affiliates
  
 
18,999
 
  
 
19,077
 
Goodwill and other intangibles, net
  
 
108,213
 
  
 
110,512
 
Long-term deferred income taxes
  
 
64,014
 
  
 
64,065
 
Other assets
  
 
42,475
 
  
 
44,350
 
    


  


    
$
1,673,865
 
  
$
1,699,374
 
    


  


LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
                 
Accounts payable
  
$
86,326
 
  
$
88,563
 
Accrued and other liabilities
  
 
298,964
 
  
 
364,419
 
    


  


Total current liabilities
  
 
385,290
 
  
 
452,982
 
Minority interest in consolidated joint venture
  
 
2,462
 
  
 
3,098
 
Stockholders’ equity:
                 
Preferred stock, $0.01 par value. Authorized 10,000,000 shares
  
 
—  
 
  
 
—  
 
Common stock
                 
Class A common stock, $0.01 par value. Authorized 400,000,000 shares; issued and outstanding 139,140,406 and 138,429,269 shares, respectively
  
 
1,391
 
  
 
1,384
 
Class B common stock, $0.01 par value. Authorized 100,000,000 shares; issued and outstanding 6,233,463 and 6,233,413 shares, respectively
  
 
62
 
  
 
62
 
Paid-in capital
  
 
675,960
 
  
 
649,777
 
Retained earnings
  
 
614,199
 
  
 
606,795
 
Accumulated other comprehensive loss
  
 
(5,499
)
  
 
(14,724
)
    


  


Total stockholders’ equity
  
 
1,286,113
 
  
 
1,243,294
 
    


  


    
$
1,673,865
 
  
$
1,699,374
 
    


  


 
See accompanying Notes to Condensed Consolidated Financial Statements.

3


Table of Contents
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
 
    
Three Months Ended
June 30,
 
    
2002
    
2001
 
 



Net revenues
  
$
331,898
 
  
$
181,950
 
Cost of goods sold
  
 
141,365
 
  
 
89,029
 
    


  


Gross profit
  
 
190,533
 
  
 
92,921
 
    


  


Operating expenses:
                 
Marketing and sales
  
 
65,374
 
  
 
40,804
 
General and administrative
  
 
25,663
 
  
 
23,215
 
Research and development
  
 
90,969
 
  
 
90,805
 
Amortization of intangibles
  
 
2,245
 
  
 
6,475
 
    


  


Total operating expenses
  
 
184,251
 
  
 
161,299
 
    


  


Operating income (loss)
  
 
6,282
 
  
 
(68,378
)
Interest and other income, net
  
 
3,147
 
  
 
2,717
 
    


  


Income (loss) before provision for (benefit from) income taxes and minority interest
  
 
9,429
 
  
 
(65,661
)
Provision for (benefit from) income taxes
  
 
2,923
 
  
 
(20,355
)
    


  


Income (loss) before minority interest
  
 
6,506
 
  
 
(45,306
)
Minority interest in consolidated joint venture
  
 
898
 
  
 
52
 
    


  


Net income (loss)
  
$
7,404
 
  
$
(45,254
)
    


  


Class A common stock:
                 
Net income (loss):
                 
Basic
  
$
10,394
 
  
$
(39,375
)
    


  


Diluted
  
$
7,404
 
  
$
(45,254
)
    


  


Net income (loss) per share:
                 
Basic
  
$
0.07
 
  
$
(0.29
)
Diluted
  
$
0.05
 
  
$
(0.33
)
Number of shares used in computation:
                 
Basic
  
 
138,748
 
  
 
135,730
 
Diluted
  
 
145,222
 
  
 
136,382
 
Class B common stock:
                 
Net loss, net of retained interest in EA.com
  
$
(2,990
)
  
$
(5,879
)
    


  


Net loss per share:
                 
Basic
  
$
(0.49
)
  
$
(0.98
)
Diluted
  
$
(0.49
)
  
$
(0.98
)
Number of shares used in computation:
                 
Basic
  
 
6,043
 
  
 
6,020
 
Diluted
  
 
6,043
 
  
 
6,020
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


Table of Contents
 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
    
Three Months
Ended June 30,
 
    
2002
    
2001
 
 



Operating activities:
                 
Net income (loss)
  
$
7,404
 
  
$
(45,254
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                 
Minority interest in consolidated joint venture
  
 
(898
)
  
 
(52
)
Equity in net (income) loss of affiliates
  
 
(239
)
  
 
290
 
Gain on sale of affiliate
  
 
—  
 
  
 
(200
)
Depreciation and amortization
  
 
24,306
 
  
 
27,355
 
Loss on write-down of affiliate
  
 
471
 
  
 
—  
 
Loss on sale of fixed assets
  
 
95
 
  
 
221
 
Bad debt expense
  
 
1,659
 
  
 
1,144
 
Stock-based compensation
  
 
1,154
 
  
 
698
 
Tax benefit from exercise of stock options
  
 
5,200
 
  
 
14,441
 
Change in assets and liabilities:
                 
Receivables
  
 
70,489
 
  
 
96,314
 
Inventories
  
 
(294
)
  
 
(334
)
Other assets
  
 
(34,108
)
  
 
(29,275
)
Accounts payable
  
 
(2,237
)
  
 
(13,893
)
Accrued and other liabilities
  
 
(66,669
)
  
 
(81,003
)
Deferred income taxes
  
 
310
 
  
 
61
 
    


  


Net cash provided by (used in) operating activities
  
 
6,643
 
  
 
(29,487
)
    


  


Investing activities:
                 
Proceeds from sale of property and equipment
  
 
379
 
  
 
165
 
Proceeds from sale of affiliate
  
 
—  
 
  
 
570
 
Capital expenditures
  
 
(8,409
)
  
 
(15,030
)
Investment in affiliates, net
  
 
(154
)
  
 
3,021
 
Change in short-term investments, net
  
 
7,787
 
  
 
(16,375
)
    


  


Net cash used in investing activities
  
 
(397
)
  
 
(27,649
)
    


  


Financing activities:
                 
Proceeds from sales of Class A shares through employee stock plans and other plans
  
 
19,893
 
  
 
33,262
 
Proceeds from sales of Class B shares through employee stock plans and other plans
  
 
1
 
  
 
—