-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PNnHtAFTmBC6+gJr/0KSI96HjIHiBRzGzlhZq/p/YUw5BNg1eLGg7te/yFoU0fwV rDx3I5Slo+1xvPb4+/QRyw== 0000950005-99-000745.txt : 19990813 0000950005-99-000745.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950005-99-000745 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC ARTS INC CENTRAL INDEX KEY: 0000712515 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942838567 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17948 FILM NUMBER: 99686344 BUSINESS ADDRESS: STREET 1: 1450 FASHION ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4155717171 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONIC ARTS DATE OF NAME CHANGE: 19911211 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 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 (I.R.S. Employer incorporation or organization) Identification No.) 209 Redwood Shores Parkway Redwood City, California 94065 (Address of principal executive offices) (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. Outstanding at Class of Common Stock August 4, 1999 --------------------- -------------- $0.01 par value per share 62,316,057 ELECTRONIC ARTS INC. AND SUBSIDIARIES INDEX Part I - Financial Information Page - ------------------------------ ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets at June 30, 1999 and March 31, 1999 3 Consolidated Statements of Income and Comprehensive Income for the Three Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Part II - Other Information - --------------------------- Item 1. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 27 - ---------- 2 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited)
ASSETS June 30, March 31, 1999 1999 --------- --------- Current assets: Cash, cash equivalents and short-term investments $ 319,667 $ 312,822 Marketable securities 4,327 4,884 Receivables, less allowances of $55,355 and $72,850, respectively 73,297 149,468 Inventories 16,003 22,376 Deferred income taxes 25,833 25,406 Other current assets 76,162 54,509 --------- --------- Total current assets 515,289 569,465 Property and equipment, net 192,628 181,266 Long-term investments 18,400 18,400 Investments in affiliates 17,086 25,864 Goodwill and other intangibles 88,099 90,682 Long-term deferred taxes 5,733 5,733 Other assets 25,830 10,463 --------- --------- $ 863,065 $ 901,873 ========= ========= LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 44,111 $ 63,881 Accrued liabilities 133,264 172,328 --------- --------- Total current liabilities 177,375 236,209 Minority interest in consolidated joint venture 2,622 2,733 Stockholders' equity: Preferred stock, $0.01 par value. Authorized 1,000,000 shares -- -- Common stock, $0.01 par value. Authorized 104,000,000 shares; Issued 61,885,385 and 61,291,849 shares; outstanding 61,885,385 and 61,169,286 shares, respectively 619 613 Paid-in capital 283,934 267,699 Treasury stock, at cost; 122,563 shares at March 31, 1999 -- (4,926) Retained earnings 401,943 402,112 Accumulated other comprehensive loss (3,428) (2,567) --------- --------- Total stockholders' equity 683,068 662,931 --------- --------- $ 863,065 $ 901,873 ========= ========= See accompanying notes to consolidated financial statements.
3 ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) (unaudited) Three Months Ended June 30, 1999 1998 --------- --------- Net revenues $ 186,120 $ 178,221 Cost of goods sold 85,517 87,589 --------- --------- Gross profit 100,603 90,632 --------- --------- Operating expenses: Marketing and sales 33,847 33,644 General and administrative 17,564 15,417 Research and development 47,453 36,242 Amortization of intangibles 2,588 -- Charge for acquired in-process technology -- 2,279 --------- --------- Total operating expenses 101,452 87,582 --------- --------- Operating income (loss) (849) 3,050 Interest and other income, net 4,138 2,815 --------- --------- Income before provision for income taxes and minority interest 3,289 5,865 Provision for income taxes 1,052 1,935 --------- --------- Income before minority interest 2,237 3,930 Minority interest in consolidated joint venture 89 (230) --------- --------- Net income $ 2,326 $ 3,700 ========= ========= Net income per share: Basic $ 0.04 $ 0.06 ========= ========= Diluted $ 0.04 $ 0.06 ========= ========= Number of shares used in computation: Basic 61,455 60,304 ========= ========= Diluted 64,119 62,996 ========= ========= Total comprehensive income $ 1,465 $ 3,164 ========= ========= See accompanying notes to consolidated financial statements. 4 ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)
Three Months Ended June 30, 1999 1998 --------- --------- Operating activities: Net income $ 2,326 $ 3,700 Adjustments to reconcile net income to net cash used in operating activities: Minority interest in consolidated joint venture (89) 230 Equity in net loss of affiliates 428 134 Gain on sale of affiliate (842) -- Depreciation and amortization 9,897 7,409 Loss on sale of fixed assets 76 496 Gain on sale of marketable securities (1,210) (76) Provision for doubtful accounts 712 1,162 Charge for acquired in-process technology -- 2,279 Change in assets and liabilities, net of acquisitions: Receivables 75,459 38,166 Inventories 6,373 616 Other assets (37,020) (1,849) Accounts payable (19,770) (14,681) Accrued liabilities (38,578) (41,776) Deferred income taxes (461) (26) --------- --------- Net cash used in operating activities (2,699) (4,216) --------- --------- Investing activities: Proceeds from sale of property and equipment 34 -- Proceeds from sales of marketable securities 1,400 101 Proceeds from sale of affiliate 8,842 -- Capital expenditures (18,781) (11,398) Investment in affiliates, net (150) (2,628) Proceeds from maturity of securities -- 6,330 Change in short-term investments, net (47,667) (9,344) Acquisition of subsidiaries, net of cash acquired -- (2,339) --------- --------- Net cash used in investing activities (56,322) (19,278) --------- --------- Financing activities: Proceeds from sales of shares through employee stock plans and other plans 13,729 6,813 Tax benefit from exercise of stock options 4,943 1,631 Proceeds from minority interest investment in consolidated joint venture -- 2,109 --------- --------- Net cash provided by financing activities 18,672 10,553 --------- --------- Translation adjustment 79 (1,314) --------- --------- Decrease in cash and cash equivalents (40,270) (14,255) Beginning cash and cash equivalents 242,208 215,963 --------- --------- Ending cash and cash equivalents 201,938 201,708 Short-term investments 117,729 161,611 --------- --------- Ending cash and short-term investments $ 319,667 $ 363,319 ========= ========= 5 ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Dollars in thousands) (unaudited) Three Months Ended June 30, 1999 1998 --------- --------- Supplemental cash flow information: Cash paid during the year for income taxes $ 1,670 $ 9,832 ========= ========= Non-cash investing activities: Change in unrealized appreciation of investments and marketable securities $ (1,414) $ 1,165 ========= ========= See accompanying notes to consolidated financial statements.
6 ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim period. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. Certain amounts have been reclassified to conform to the fiscal 2000 presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Electronic Arts Inc. (the "Company") Annual Report on Form 10-K for the fiscal year ended March 31, 1999 as filed with the Securities and Exchange Commission ("Commission") on June 29, 1999. Note 2. Prepaid Royalties Prepaid royalties consist primarily of prepayments for manufacturing royalties, original equipment manufacturer (OEM) fees and license fees paid to celebrities and professional sports organizations for use of their trade name. Also included in prepaid royalties are prepayments made to independent software developers under development arrangements that have alternative future uses. Prepaid royalties are expensed at the contractual royalty rate as cost of goods sold based on actual net product sales. Management evaluates the future realization of prepaid royalties quarterly and charges to income any amounts that management deems unlikely to be realized through product sales. Royalty advances are classified as current and non-current assets based upon estimated net product sales for the following year. The current portion of prepaid royalties, included in other current assets, was $44,259,000 and $35,057,000 at June 30, 1999 and March 31, 1999, respectively. The long-term portion of prepaid royalties, included in other assets, was $16,343,000 and $7,602,000 at June 30, 1999 and March 31, 1999, respectively. Note 3. Inventories Inventories are stated at the lower of cost or market. Inventories at June 30, 1999 and March 31, 1999 consisted of (in thousands): June 30, March 31, 1999 1999 ------- ------- Raw materials and work in process $ 1,265 $ 2,983 Finished goods 14,738 19,393 ------- ------- $16,003 $22,376 ======= ======= Note 4. Accrued Liabilities Accrued liabilities at June 30, 1999 and March 31, 1999 consisted of (in thousands): June 30, March 31, 1999 1999 -------- -------- Accrued expenses $ 48,595 $ 46,595 Accrued compensation and benefits 28,875 46,541 Accrued royalties 28,741 36,429 Accrued income taxes 16,067 23,724 Warranty reserve 6,515 7,900 Deferred income taxes 2,447 2,933 Deferred revenue 2,024 8,206 -------- -------- $133,264 $172,328 ======== ======== 7 ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5. Segment Information In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No. 131 establishes standards for the reporting by public business enterprises of information about product lines, geographic areas and major customers. The Company has four reportable segments: North America, Europe, Asia Pacific and Japan, which are organized, managed and analyzed geographically and operate in one industry segment: the creation, marketing and distribution of entertainment software. Information about the Company's operations in the North America and foreign areas for the three months ended June 30, 1999 and 1998 is presented below:
Asia (in thousands) Pacific North (excluding America Europe Japan) Japan Eliminations Total --------- --------- --------- --------- ------------ --------- Three months ended June 30, 1999 - -------------------------------- Net revenues from unaffiliated customers $ 102,050 $ 67,870 $ 10,869 $ 5,331 $ -- $ 186,120 Intersegment revenues 3,632 4,436 771 -- (8,839) -- --------- --------- --------- --------- --------- --------- Total net revenues $ 105,682 $ 72,306 $ 11,640 $ 5,331 $ (8,839) $ 186,120 ========= ========= ========= ========= ========= ========= Operating income (loss) $ 6,537 $ (8,028) $ 1,022 $ (380) $ -- $ (849) Interest income $ 2,563 $ 362 $ 27 $ -- $ -- $ 2,952 Depreciation and amortization $ 7,584 $ 2,017 $ 137 $ 159 $ -- $ 9,897 Identifiable assets $ 580,339 $ 249,242 $ 20,494 $ 12,990 $ -- $ 863,065 Capital expenditures $ 7,489 $ 10,911 $ 294 $ 87 $ -- $ 18,781 Three months ended June 30, 1998 - -------------------------------- Net revenues from unaffiliated customers $ 69,114 $ 86,794 $ 8,363 $ 13,950 $ -- $ 178,221 Intersegment revenues 5,836 2,512 -- 13 (8,361) -- --------- --------- --------- --------- --------- --------- Total net revenues $ 74,950 $ 89,306 $ 8,363 $ 13,963 $ (8,361) $ 178,221 ========= ========= ========= ========= ========= ========= Operating income (loss) $ (10,184) $ 10,263 $ 268 $ 2,703 $ -- $ 3,050 Interest income $ 3,393 $ 849 $ 68 $ -- $ -- $ 4,310 Depreciation and amortization $ 6,071 $ 904 $ 51 $ 383 $ -- $ 7,409 Identifiable assets $ 480,843 $ 187,790 $ 16,416 $ 18,096 $ -- $ 703,145 Capital expenditures $ 7,830 $ 2,548 $ 212 $ 808 $ -- $ 11,398
8 ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Information about the Company's net revenues by product line for the three months ended June 30, 1999 and 1998 is presented below (in thousands): Three Months Ended June 30, 1999 1998 -------- -------- PlayStation $ 69,251 $ 95,957 PC-CD 63,596 39,210 Affiliated label 33,432 14,814 N64 11,842 20,947 License, OEM, Online and Other 7,999 7,293 -------- -------- $186,120 $178,221 ======== ======== Note 6. Comprehensive Income In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and the display of comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. SFAS 130 requires classification of other comprehensive income in a financial statement and display of other comprehensive income separately from retained earnings and additional paid-in capital. Other comprehensive income includes primarily foreign currency translation adjustments and unrealized gains (losses) on investments. The components of comprehensive income, net of tax, for the three months ended June 30, 1999 and 1998 were as follows (in thousands):
Three Months Ended June 30, 1999 1998 ------- ------- Net income $ 2,326 $ 3,700 Other comprehensive loss: Change in unrealized appreciation of investments, net of a tax provision (benefit) of $(65) and $408 (139) 829 Reclassification adjustment for gains realized in net income, net of a tax benefit of $(387) and $(25) (823) (51) Foreign currency translation adjustments 101 (1,314) ------- ------- Total other comprehensive loss (861) (536) Total comprehensive income $ 1,465 $ 3,164
The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. 9 ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7. Acquisitions During the quarter ended June 30, 1998, the Company acquired two software development companies. In connection with these acquisitions, the Company incurred a charge of $2,279,000 for acquired in-process technology. The charge was made after the Company concluded that the in-process technology had not reached technological feasibility and had no alternative future use after taking into consideration the potential for usage of the software in different products and resale of the software. Note 8. Earnings Per Share The following summarizes the computations of Basic Earnings Per Share ("EPS") and Diluted EPS. Basic EPS is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution 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 thousands except per share amounts): Three Months Ended June 30, 1999 1998 ------- ------- Net income $ 2,326 $ 3,700 Shares used to compute net income per share: Weighted-average common shares 61,455 60,304 Dilutive stock options 2,664 2,692 ------- ------- Dilutive potential common shares 64,119 62,996 ======= ======= Net income per share: Basic $ 0.04 $ 0.06 Diluted $ 0.04 $ 0.06 10 ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Excluded from the above computation of weighted-average shares for diluted EPS for the three months ended June 30, 1999 and 1998 were options to purchase 193,808, and 18,810 shares of common stock, respectively, as the options' exercise price was greater than the average market price of the common shares. For the three months ended June 30, 1999, the weighted-average exercise price of the respective options was $52.81. Note 9. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 is effective as of the beginning of the first quarter of the fiscal year beginning after June 15, 2000. The Company is determining the effect of SFAS 133 on its financial statements. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q and in particular Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward looking statements regarding future events or our future financial performance that involve certain risks and uncertainties including those discussed in "Risk Factors" below at pages 20 to 22, as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 1999 as filed with the Securities and Exchange Commission on June 29, 1999 and other documents filed with the Commission. Actual events or actual future results may differ materially from any forward looking statements due to such risks and uncertainties. We derive revenues primarily from shipments of entertainment software, which includes EA Studio CD products for dedicated entertainment systems ("CD-video games"), EA Studio CD personal computer products ("PC-CD"), EA Studio cartridge products and Affiliated Label ("AL") products that are published by third parties and distributed or co-published by us. We also derive revenues from licensing of EA Studio products and AL products through hardware companies ("OEMs") and online subscription revenues. Information about our net revenues for North America and foreign areas for the three months ended June 30, 1999 and 1998 is summarized below:
Net Revenues As a Percent As a Percent June 30, of Total Net June 30, of Total Net Increase/ % 1999 Revenues 1998 Revenues (Decrease) change ------------ -------- ------------ -------- ------------ ------- North America $102,050,000 54.8% $ 69,114,000 38.8% $ 32,936,000 47.7% ------------ -------- ------------ -------- ------------ ------- Europe $ 67,870,000 36.5% $ 86,794,000 48.7% $(18,924,000) (21.8%) Asia Pacific $ 10,869,000 5.8% $ 8,363,000 4.7% $ 2,506,000 30.0% Japan $ 5,331,000 2.9% $ 13,950,000 7.8% $ (8,619,000) (61.8%) ------------ -------- ------------ -------- ------------ ------- International $ 84,070,000 45.2% $109,107,000 61.2% $(25,037,000) (22.9%) ------------ -------- ------------ -------- ------------ ------- Consolidated Net Revenues $186,120,000 100.0% $178,221,000 100.0% $ 7,899,000 4.4% ------------ -------- ------------ -------- ------------ -------
North America Net Revenues North America net revenues increased compared to the same period last year primarily due to increased sales of PC-CD and PlayStation titles as well as the distribution of AL products. PC-CD revenues increased due to the continued strong sales of Sim City 3000 as well as current titles released for this platform including Need for Speed: High Stakes. Total North America PlayStation revenues increased due to the greater installed base of this console, strong catalog sales and the release of three titles for this platform. Affiliated label revenues increased due to the distribution of products published by Square EA, which began in the second quarter last year. 12 International Net Revenues The decrease in international net revenues compared to the same period last year was mainly attributable to decreases in sales for Europe and Japan partially offset by an increase in Asia Pacific revenues. European net revenues decreased due to decreases in PlayStation and N64 sales, mainly attributable to the shipment of World Cup 98 in the prior year. This was partially offset by an increase in AL revenues, primarily due to sales of products published by ABC Software, which was acquired in July 1998. Net revenues for Japan decreased primarily due to decreases in sales of PlayStation and N64 titles, mainly attributable to the shipment of FIFA: Road to World Cup 98 in the prior year, partially offset by an increase in PC-CD sales, due to sales of Sim City 3000. Sales in the Asia Pacific region increased due to higher PC-CD and PlayStation title sales, primarily due to the shipment of two locally developed products. Information about our net revenues by product line for the three months ended June 30, 1999 and 1998 is presented below:
Net Revenues As a Percent As a Percent June 30, of Total Net June 30, of Total Net Increase/ % 1999 Revenues 1998 Revenues (Decrease) change -------------- ------------ -------------- ------------ ------------- ------------ EA Studio: PlayStation $ 69,251,000 37.2% $ 95,957,000 53.8% $ (26,706,000) (27.8%) PC-CD $ 63,596,000 34.1% $ 39,210,000 22.0% $ 24,386,000 62.2% N64 $ 11,842,000 6.4% $ 20,947,000 11.8% $ (9,105,000) (43.5%) License, OEM, Online and Other $ 7,999,000 4.3% $ 7,293,000 4.1% $ 706,000 9.7% -------------- ------------ -------------- ------------ ------------- ------------ $ 152,688,000 82.0% $ 163,407,000 91.7% $ (10,719,000) (6.6%) -------------- ------------ -------------- ------------ ------------- ------------ Affiliated Label: $ 33,432,000 18.0% $ 14,814,000 8.3% $ 18,618,000 125.7% -------------- ------------ -------------- ------------ ------------- ------------ $ 186,120,000 100.0% $ 178,221,000 100.0% $ 7,899,000 4.4% -------------- ------------ -------------- ------------ ------------- ------------
PlayStation Product Net Revenues We released three PlayStation titles during the first quarter of fiscal 2000 and fiscal 1999. The decrease in PlayStation sales for the three months ended June 30, 1999 compared to the prior year was primarily attributable to the shipment of World Cup 98 and Road Rash 3D in the prior year. We expect revenues from PlayStation products to grow in fiscal 2000, but as revenues for these products increase, we do not expect to maintain the same growth rates as those in the prior years. Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America in July 1994 (the "Sony Agreement"), as amended, we are authorized to develop and distribute CD-based software products compatible with the PlayStation. Pursuant to the Sony Agreement, we engage Sony to supply PlayStation CDs for distribution by us. Accordingly, we have limited ability to control our supply of PlayStation CD products or the timing of their delivery. See Risk Factors - "Our platform licensors are our chief competitors and frequently control the manufacturing of our video game products", below. 13 Personal Computer CD Product Net Revenues We released five PC-CD titles in the first quarter of the current fiscal year for the IBM personal computer and compatibles including Need for Speed: High Stakes and Dungeon Keeper 2, compared to two for the same period last year. The increase in sales of PC-CD products for the three months ended June 30, 1999 was attributable to the shipment of key titles released during the quarter as well as strong catalog sales of titles such as Sim City 3000 and Triple Play 2000 released in the prior quarter. This increase was partially offset by the prior year shipment of World Cup 98. We expect revenues from PC-CD products to continue to grow in fiscal 2000, but as revenues for these products increase, we do not expect to maintain these growth rates. N64 Product Net Revenues The decrease in N64 revenues was due to the prior year release of World Cup 98 compared to no new releases in the current period. This decrease was partially offset by strong catalog sales for the three months ended June 30, 1999. We do not expect significant growth in revenues for N64 products in fiscal 2000. Under the terms of the N64 Agreement, we engage Nintendo to manufacture our N64 cartridges for distribution by us. Accordingly, we have little ability to control our supply of N64 cartridges or the timing of their delivery. A shortage of microchips or other factors outside our control could impair our ability to obtain an adequate supply of cartridges. In connection with our purchases of N64 cartridges for distribution in North America, Nintendo requires us to provide irrevocable letters of credit prior to Nintendo's acceptance of purchase orders from us for purchases of these cartridges. For purchases of N64 cartridges for distribution in Japan and Europe, Nintendo requires us to make cash deposits. Furthermore, Nintendo maintains a policy of not accepting returns of N64 cartridges. Because of these and other factors, the carrying of an inventory of cartridges entails significant capital and risk. See Risk Factors--"Our platform licensors are our chief competitors and frequently control the manufacturing of our video game products", below. Affiliated Label Product Net Revenues The increase in Affiliated Label net revenues for the three months ended June 30, 1999 compared to the same period last year was primarily due to higher sales of AL products in Europe and North America. The increase was primarily attributable to the distribution of products by ABC Software in Switzerland and Square EA in North America. We expect revenues from AL products to continue to grow in fiscal 2000, but as revenues for these products increase, we do not expect to maintain these growth rates. Cost of Goods Sold June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 85,517,000 $ 87,589,000 (2.4%) as a percentage of net revenues 45.9% 49.1% The decrease in costs of goods sold as a percentage of net revenues for the three months ended June 30, 1999 compared to the same period last year was primarily due to 14 increased sales of higher margin PC-CD products and higher sales of internally developed titles such as Sim City 3000 and Dungeon Keeper 2. Marketing and Sales June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 33,847,000 $ 33,644,000 0.6% as a percentage of net revenues 18.2% 18.9% Marketing and sales expenses for the three months ended June 30, 1999 was comparable with the same period last year. Although we had additional headcount expenses related to the continued expansion of our worldwide distribution business, this was offset by lower advertising spending. General and Administrative June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 17,564,000 $ 15,417,000 13.9% as a percentage of net revenues 9.4% 8.7% The increase in general and administrative expenses for the three months ended June 30, 1999 was due primarily to an increase in payroll and occupancy costs to support the increased growth in North America and Europe operations, including expenses relating to the acquisition of ABC in July 1998. Research and Development June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 47,453,000 $ 36,242,000 30.9% as a percentage of net revenues 25.5% 20.3% The increase in research and development expenses for the three months ended June 30, 1999 was due to: the acquisition of Westwood in September 1998; an increase in online development; additional headcount related expenses attributable to increased in-house development capacity due to a higher number of SKUs to be released in fiscal 2000; and spending for next generation console products. Charge for Acquired In-Process Technology June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ -- $ 2,279,000 (100.0%) as a percentage of net revenues N/A 1.3% In connection with the acquisition of two software development companies, in the first quarter of fiscal 1999, we incurred a total charge of $2,279,000 for acquired in-process technology. This charge was made after we concluded that the in-process technology had not reached technological feasibility and had no alternative future use after taking into 15 consideration the potential for usage of the software in different products and resale of the software. Amortization of Intangibles June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 2,588,000 $ -- N/M as a percentage of net revenues 1.4% N/A Amortization of intangibles results from the acquisitions of Westwood, ABC Software and other acquisitions made in prior periods. Interest and Other Income, Net June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 4,138,000 $ 2,815,000 47.0% as a percentage of net revenues 2.2% 1.6% Interest and other income, net, increased for the three months ended June 30, 1999 compared to the same period last year primarily due to the gain on sale of marketable securities and a gain on sale of a minority interest in an affiliate in the current year. This was partially offset by lower interest income attributable to lower cash balances as compared to the prior year period. Income Taxes June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 1,052,000 $ 1,935,000 (45.6%) effective tax rate 32.0% 33.0% The Company's effective tax rate for the three months ended June 30, 1999 was lower than the comparable prior year period primarily as a result of a projected higher portion of international income for fiscal 2000 subject to a lower foreign tax rate as compared to the prior year. Minority Interest in Consolidated Joint Venture June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 89,000 $ (230,000) 138.7% as a percentage of net revenues 0.0% (0.1%) In the first quarter of fiscal 1999, we formed EA Square KK, which is seventy percent owned by us and thirty percent owned by Square Co. Ltd. ("Square"), a leading developer and publisher of entertainment software in Japan. Minority interest for the three months 16 ended June 30, 1999 and June 30, 1998 represents Square's 30% interest in the net loss (income) of EA Square KK. Net Income (Loss) June 30, June 30, % 1999 1998 change ------------- ------------- --------- Three Months Ended $ 2,326,000 $ 3,700,000 (37.1%) as a percentage of net revenues 1.2% 2.1% The decrease in net income for the three months ended June 30, 1999 as compared to the prior year period was primarily related to higher revenues and gross profits offset by higher operating expenses. Liquidity and Capital Resources As of June 30, 1999, our working capital was $337,914,000 compared to $333,256,000 at March 31, 1999. Cash, cash equivalents and short-term investments increased by approximately $6,845,000 during the three months ended June 30, 1999 as we used $2,699,000 of cash in operations and $18,781,000 in capital expenditures, offset by $13,729,000 provided through the sale of equity securities under our stock plans as well as proceeds from the sale of an affiliate and the sale of marketable securities. Reserves for bad debts and sales returns decreased from $72,850,000 at March 31, 1999 to $55,355,000 at June 30, 1999. Reserves have been charged for returns of product and price protection credits issued for products sold in prior periods. Management believes these reserves are adequate based on historical experience and its current estimate of potential returns and allowances. Our principal source of liquidity is $319,667,000 in cash, cash equivalents and short-term investments. Management believes the existing cash, cash equivalents, short-term investments, marketable securities and cash generated from operations will be sufficient to meet cash and investment requirements on both a short-term and long-term basis. Year 2000 Readiness Disclosure Background of Year 2000 Issues Many currently installed computer systems and software products are unable to distinguish between twentieth century dates and twenty-first century dates because such systems may have been developed using two digits rather than four to determine the applicable year. For example, computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This error could result in system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with such "Year 2000" requirements. State of Readiness Our business is dependent on the operation of numerous systems that could potentially be impacted by Year 2000 related problems. Those systems include, among others: hardware and software systems used to deliver products to our customers; communications networks such 17 as the Internet and private intranets, upon which we depend to receive orders from our customers; the internal systems of our customers and suppliers; products sold to customers; the hardware and software systems used internally in the management of our business; and non-information technology systems and services used in the management of our business, such as power, telephone systems and building systems. Based on an analysis of the systems potentially impacted by conducting business in the twenty-first century, we are applying a phased approach to making such systems, and accordingly, our operations, ready for the year 2000. Beyond awareness of the issues and scope of systems involved, the phases of activities in progress include: an assessment of specific underlying computer systems, programs and hardware; renovation, replacement or redeployment of Year 2000 non-compliant technology; validation and testing of technologically compliant Year 2000 solutions; and implementation of the Year 2000 compliant systems. As a third party providing software products, we are dependent on the hardware and software products used to deliver such products and services. If such products are inoperable due to Year 2000 issues, our business, financial condition and results of operations could be adversely affected. An inventory of our internal business systems, and software and hardware upgrades have been completed to ensure Year 2000 compliance. Costs To date we have not incurred significant costs directly related to Year 2000 issues, even in cases where non-compliant information technology systems were redeployed or replaced. We believe that future expenditures to upgrade internal systems and applications will not have a material adverse effect on our business, financial condition and results of operations and are primarily included within our ongoing system development plan. In addition, while the potential costs of redeploying personnel and of any delays in implementing other projects are not known, the costs are anticipated to be immaterial. Risks of the Year 2000 Issues Our financial information systems include an integrated suite of business applications developed and supported by Oracle Corporation. These applications systems are in place and currently support daily operations in the United States and in Europe. Based on representations made by Oracle Corporation and upon our limited tests, we believe these systems to be Year 2000 compliant. We believe our software products are Year 2000 compliant; however, success of our Year 2000 compliance efforts may depend on the success of our customers dealing with their Year 2000 issues. Customer difficulties with Year 2000 issues might require us to devote additional resources to resolve underlying problems. Failures of our computer systems or third parties' computer systems could have a material adverse impact on our ability to conduct business. For example, a significant percentage of purchase orders received from our customers are computer generated and electronically transmitted. In addition, the Year 2000 could affect the ability of consumers to use our PC based products. If the computer systems on which the consumers use our products are not Year 2000 compliant, such noncompliance could affect the consumers' ability to use such products. Contingency Plans We continue to assess certain of our Year 2000 exposure areas in order to determine what additional steps beyond those identified by our internal review in the United States are advisable. 18 We have developed a contingency plan for handling Year 2000 problems that are not detected and corrected prior to their occurrence. We believe that the systems, which represent the principal exposures, have been identified, and to the extent necessary, are in the process of being modified to become Year 2000 compliant. Additionally, we have conducted tests of our principal business systems to verify that those systems are Year 2000 compliant. Any failure to address any unforeseen Year 2000 issues could adversely affect our business, financial condition and results of operations. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing currencies (the "legacy currency") and the one common legal currency known as the "Euro". From January 1, 1999 through June 30, 2002 the countries will be able to use their legacy currencies or the Euro to transact business. By July 1, 2002, at the latest, the conversion to the Euro will be complete at which time the legacy currencies will no longer be legal tender. The fixed conversion rates between their existing currencies have eliminated exchange rate risk between the member countries. The conversion to the Euro has reduced the number of forward contracts that we use to hedge the exchange rate risk. The forward contracts that were used to hedge the individual legacy currencies have been replaced by a single Euro hedge contract and the intercompany transactions among subsidiaries within the European Union are no longer subject to exchange rate risk. We do not anticipate any material impact from the Euro conversion on our financial information systems which currently accommodate multiple currencies. Computer software changes necessary to comply with the Year 2000 issues are generally compliant to the Euro conversion issue. Due to numerous uncertainties, we cannot reasonably estimate the effect that the Euro conversion issue will have on our pricing or market strategies, and the impact, if any, it will have on our financial condition and results of operations. 19 Risk Factors EA's business is subject to many risks and uncertainties which may affect our future financial performance. Some of those important risks and uncertainties which may cause our operating results to vary or which may materially and adversely affect our operating results are as follows: - - Product development schedules are frequently unreliable and make predicting quarterly results difficult. Product development schedules, particularly for new hardware platforms and high-end multimedia PCs are difficult to predict because they involve creative processes, use of new development tools for new platforms and the learning process, research and experimentation associated with development for new technologies. For example, SimCity 3000, the follow on product to SimCity 2000, was expected to ship in fiscal 1998, at the time of the merger with Maxis. Due to additional development delays, that product did not ship until the fourth quarter of fiscal year 1999. Also, Tiberian Sun, which was expected to ship in fiscal 1999 at the time of the acquisition of Westwood Studios, is not expected to be released until the second quarter of fiscal 2000 due to development delays. Additionally, development risks for CD-ROM products can cause particular difficulties in predicting quarterly results because brief manufacturing lead times allow finalizing products and projected release dates late in a quarter. Our revenues and earnings are dependent on our ability to meet our product release schedules, and our failure to meet those schedules could result in revenues and earnings which fall short of analysts' expectations for any individual quarter and the fiscal year. - - New video game platforms create additional technical and business model uncertainties. A large portion of our revenues are derived from the sale of products for play on proprietary video game platforms such as the PlayStation and the N64. The success of our products is significantly affected by acceptance of the new video game hardware systems and the life span of older hardware platforms and our ability to accurately predict which platforms will be most successful. Sometimes we will spend development and marketing resources on products designed for new video game systems that have not yet achieved large installed bases or will continue product development for older hardware platforms that may have shorter life cycles than we expected. Conversely, if we do not develop for a platform that achieves significant market acceptance, or discontinue development for a platform that has a longer life cycle than expected, our revenue growth may be adversely affected. For example, while the Sega Dreamcast console is scheduled to launch in the United States in late calendar 1999 and has already launched in Japan, we have no products under development for this platform. Accordingly, we will not have products available should this platform achieve wide market acceptance. Similarly, we intend to launch a variety of products for the new Sony PlayStation platform, the PlayStation II, expected to be released in the United States in September 2000. Should that platform not achieve wide acceptance by consumers, we will have spent a disproportionate amount of our resources for this platform. Additionally, we have not negotiated publishing agreements with Sony, Sega or Nintendo for their next generation platforms, and we do not know whether the terms of those agreement will be favorable. - - The business models and technology for e-commerce and online gaming are unproven. While we do not currently derive significant revenues from online sales of our packaged products or from games played online, we believe that both will become a more significant factor in our business and in the interactive gaming business generally in the future. E-commerce is becoming an increasingly popular method for conducting business with consumers. How that form of distribution will affect the more traditional retail distribution, at 20 which we have historically excelled, and over what time period, is uncertain. Additionally, technology, staffing and support for sales direct to consumers differ from that required for sales to resellers. Online gaming, and particularly multiplayer online gaming such as our Ultima Online product, has many risks not currently associated with most packaged good sales including, but not limited to, the following: In "massively multiplayer" games such as Ultima Online, unanticipated player conduct significantly affects the performance of the game, and social issues raised by players' conduct frequently determine player satisfaction. Our ability to effectively proctor such games is uncertain. The current business model is as yet experimental and maybe unsustainable; whether revenues will continue to be sufficient to maintain the significant support, service and product enhancement demands of online users is uncertain. We have little experience in pricing strategies for online games or in predicting usage patterns of our customers. Additionally, the speed and reliability of the Internet and the performance of a user's Internet service provider are not controlled by us but impact both e-commerce and online game performance. Whether the Internet infrastructure will be adequate to meet increasing demand will affect our ability to grow our Internet dependent businesses. - - Our business, our products, and our distribution are subject to increasing regulation in key territories. Legislation is increasingly introduced which may affect the content of our products and their distribution. For example, privacy rules in the United States and Europe impose various restrictions on our web sites. Those rules vary by territory while of course the Internet recognizes no geographical boundaries. Other countries such as Germany have adopted laws regulating content transmitted over the Internet that are stricter than current United States laws. In the United States, in response to recent events, the federal and several state governments are considering content restrictions on products such as those made by us as well as restrictions on distribution of such products. Any one or more of these factors could harm our business. - - Our platform licensors are our chief competitors and frequently control the manufacturing of our video game products. Our agreements with hardware licensors, which are also our chief competitors, typically give significant control to the licensor over the approval and manufacturing of our products. This fact could, in certain circumstances, leave us unable to get our products approved, manufactured and shipped to customers. In most events, control of the approval and manufacturing process by the platform licensors increases both our manufacturing lead times and costs as compared to those we can achieve independently. For example, in prior years, we experienced delays in obtaining approvals for and manufacturing of PlayStation products which caused delays in shipping those products. The potential for additional delay or refusal to approve or manufacture our products continues with our platform licensors. Such occurrences would harm our business and adversely affect our financial performance. - - We face intense competition for talent from highly valued Internet companies. Competition for employees in the interactive software business continues to be intense. Recently, the most intense competition for recruiting and retaining key employees is from Internet companies. The high market valuations, large equity positions for key executives and creative talent and fast stock price appreciation of these companies make their compensation packages attractive to those who are already working in more mature companies. This situation 21 creates difficulty for us to compete for the attraction and retention of executive and key creative talent. - - Foreign Sales and Currency Fluctuations. For the three months ended June 30, 1999, international net revenues comprised 45% of total consolidated net revenues. For the fiscal year ended March 31, 1999, international net revenues comprised 42% of total consolidated net revenues. We expect foreign sales to continue to account for a significant and growing portion of our revenues. Such sales are subject to unexpected regulatory requirements, tariffs and other barriers. Additionally, foreign sales are primarily made in local currencies which may fluctuate. As a result of current economic conditions in Asia, we are subject to additional foreign currency risk. Though we do not currently derive a significant portion of revenues and operating profits from sales in Asia and other developing countries, our foreign currency exposure may increase as operations in these countries grow and if current economic trends in Asia continue. Any of these factors may significantly harm our business. - - Fluctuations in Stock Price. Due to analysts' expectations of continued growth and other factors, any shortfall in earnings could have an immediate and significant adverse effect on the trading price of our common stock in any given period. As a result of the factors discussed in this report and other factors that may arise in the future, the market price of our common stock historically has been, and may continue to be subject to significant fluctuations over a short period of time. These fluctuations may be due to factors specific to us, to changes in analysts' earnings estimates, or to factors affecting the computer, software, entertainment, media or electronics industries or the securities markets in general. For example, during the fiscal year ended March 31, 1999, the price per share of our common stock ranged from $33.88 to $56.00 and from $45.63 to $54.81 during the three months ended June 30, 1999. Because of these and other factors affecting our operating results and financial condition, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. 22 Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK We are exposed to various market risks, including the changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from changes in market rates and prices. Foreign exchange contracts used to hedge foreign currency exposures and short-term investments are subject to market risk. We do not consider our cash and cash equivalents to be subject to interest rate risk due to their short maturities. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Foreign Currency Exchange Rate Risk We utilize foreign exchange contracts to hedge foreign currency exposures of underlying assets and liabilities, primarily certain intercompany receivables that are denominated in foreign currencies thereby limiting our risk. Gains and losses on foreign exchange contracts are reflected in the income statement. At June 30, 1999, we had foreign exchange contracts, all with maturities of less than nine months to purchase and sell approximately $174,584,000 in foreign currencies, primarily British Pounds, Canadian Dollars, German Deutschmarks, Japanese Yen and other European currencies. Fair value represents the difference in value of the contracts at the spot rate and the forward rate, plus the unamortized premium or discount. The counterparties to these contracts are substantial and creditworthy multinational commercial banks. The risks of counterparty nonperformance associated with these contracts are not considered to be material. Notwithstanding our efforts to manage foreign exchange risks, there can be no assurances that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. The table below provides information about our foreign currency forward exchange contracts at June 30, 1999. The information is provided in U.S. dollar equivalents and presents the notional amount (forward amount), the weighted average contractual foreign currency exchange rates and fair value. All contracts mature within nine months. Weighted- Average Contract Contract Amount Rate Fair Value -------- --------- ---------- (in thousands) (in thousands) Foreign currency to be sold under contract: British Pound $ 91,510 1.59 $ 82 Euro 27,905 1.04 (146) Canadian Dollar 19,248 1.56 (1,217) Japanese Yen 8,355 112.20 635 Australian Dollar 4,102 0.64 (148) South African Rand 3,743 6.68 (380) Danish Krone 1,112 7.20 (10) Brazilian Real 893 1.79 (2) 23 -------- --------- -------- Total $156,868 $ (1,186) -------- --------- -------- Foreign currency to be purchased under contract: British Pound $ 17,716 1.59 $ (155) -------- --------- -------- Total $ 17,716 $ (155) -------- --------- -------- Grand total $174,584 $ (1,341) -------- --------- -------- While the contract amounts provide one measurement of the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts (arising from the possible inabilities of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties' obligations exceed our obligations as these contracts can be settled on a net basis at our option. We control credit risk through credit approvals, limits and monitoring procedures. Interest Rate Risk Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We manage our interest rate risk by maintaining an investment portfolio primarily consisting of debt instruments of high credit quality and relatively short average maturities. We also manage our interest rate risk by maintaining sufficient cash and cash equivalent balances such that we are typically able to hold our investments to maturity. At June 30, 1999, our cash equivalents, short-term and long-term investments included debt securities of $254,386,000. Notwithstanding our efforts to manage interest rate risks, there can be no assurances that we will be adequately protected against the risks associated with interest rate fluctuations. The table below presents the amounts and related weighted average interest rates of our investment portfolio at June 30, 1999: Average Interest Rate Cost Fair Value - -------------------------------------------------------------------------------- (Dollars in thousands) Cash equivalents Fixed rate 0.00% $ -- $ -- Variable rate 4.58% $112,456 $112,456 Short-term investments Fixed rate 4.03% $ 78,203 $ 79,016 Variable rate 2.98% $ 44,250 $ 44,533 Long-term investments Fixed rate 0.00% $ -- $ -- Variable rate 5.69% $ 18,400 $ 18,381 - -------------------------------------------------------------------------------- Maturity dates for short-term investments range from 0 to 3 years. 24 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to pending claims. Management, after review and consultation with counsel, considers that any liability from the disposition of such lawsuits in the aggregate would not have a material adverse effect upon the consolidated financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders, held on July 29, 1999, the stockholders elected the following individuals for one-year terms to the Board of Directors: M. Richard Asher, William J. Byron, Daniel H. Case III, Gary M. Kusin, Timothy Mott and Lawrence F. Probst III. These individuals have received a plurality of the votes eligible to vote, voting either in person or by proxy. In addition, the following matters were voted upon by the Stockholders: To approve an amendment to the Company's 1998 Directors' Stock Option Plan to increase the number of shares by 100,000 to a total of 235,000 shares of common stock for issuance thereunder. Votes ---------------------------------------------------------------------- For Against Abstain 41,174,628 15,811,212 39,786 To approve an amendment to the Company's 1991 Stock Option Plan to increase the number of shares by 2,650,000 to a total of 18,150,000 shares of common stock for issuance thereunder. Votes ---------------------------------------------------------------------- For Against Abstain 38,998,767 17,992,961 33,898 25 To approve an amendment to the Company's Employee Stock Purchase Plan to increase the number of shares by 250,000 to a total of 1,500,000 shares of its common stock for issuance thereunder. Votes ---------------------------------------------------------------------- For Against Abstain 56,725,867 270,125 29,634 To ratify the appointment of KPMG LLP as independent accountants for the Company for the current fiscal year. Votes ---------------------------------------------------------------------- For Against Abstain 56,995,814 10,208 19,604 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ELECTRONIC ARTS INC. (Registrant) /s/ E. STANTON MCKEE ------------------------------------------ DATED: E. STANTON MCKEE August 12, 1999 Executive Vice President and Chief Financial and Administrative Officer 27 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. Dollars 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 1.000 319,667 4,327 128,652 55,355 16,003 515,289 289,803 97,175 863,065 177,375 0 0 0 619 682,449 863,065 186,120 186,120 85,517 85,517 101,452 712 0 3,289 1,052 2,237 0 0 0 2,326 0.04 0.04
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