How did Electronic Arts perform financially in fiscal 2000?

Revenue rose 16.2% to $1.42 billion, operating income rose 46% to $153.8 million, and net income rose 60% to $116.8 million, or $1.76 per diluted share. Results were supported by strong PC and PlayStation sales. Excluding one-time acquisition charges and goodwill amortization, net income was $129.5 million.

What is the EA.com tracking stock and why was it created?

In March 2000, shareholders approved a Class B common stock that tracks the performance of EA.com, the online and e-Commerce division. The existing stock became Class A, reflecting EA Core. The structure lets investors value the online business separately while it is still loss-making, and it provided capital through the AOL stock sale.

What are the main risks to EA's outlook?

Key risks include the decline in PlayStation and N64 sales during the console transition, EA.com's continuing losses and uncertain profitability, and the AOL agreement's launch deadlines, which EA.com already missed. The business is also seasonal and hit-driven, and it depends on platform licensors who control manufacturing and are also competitors. Patent litigation and foreign currency exposure, particularly to the euro, are additional concerns.

How is the company's international business performing?

International revenue rose 10.9% to $573.4 million, or 40% of total revenue. Europe grew 10.9% and Asia Pacific grew 20.3%, while Japan was flat. The euro's devaluation weighed on European results, and management expects international growth to slow compared with prior years.

Does the company pay dividends or face material legal exposure?

EA has never paid cash dividends and does not expect to in the foreseeable future. Management states that pending claims and litigation, including a patent suit over Internet-playable PC games, would not have a material adverse effect on the company's financial condition, although defense costs will be substantial.

EA 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed June 29, 2000. Cited figures are marked; the original filing is the authoritative source.

Electronic Arts' 10-K covers fiscal 2000 (year ended March 31, 2000), a year of record results driven by the PC and PlayStation franchises.

Net revenues rose 16.2% to $1.42 billion^a, gross margin expanded to 50.3% from 48.7%, and net income climbed 60% to $116.8 million, or $1.76 per diluted share. Excluding one-time acquisition charges and goodwill amortization, net income was $129.5 million. North America grew 20.1%, Europe 10.9%, and Asia Pacific 20.3%, while Japan was flat.

PC revenue rose 46.9%^b on Command & Conquer: Tiberian Sun, Sim City 3000 and The Sims, offsetting an expected 21% decline in N64 sales. The filing's central story is the creation of two tracking stock segments. Shareholders approved a Class B tracking stock in March 2000 to reflect the performance of EA.com, the online division built around Ultima Online and a five-year AOL agreement.

EA.com lost $54.6 million^c in fiscal 2000 on a standalone basis and management expects significant operating losses in the first half of fiscal 2001 as online investment continues. The AOL deal carries a $50 million carriage fee and $31 million in minimum revenue-share advances, and EA.com missed its June 1, 2000 launch target, which could give AOL termination rights. Investors should weigh strong core profitability against near-term risks.

Sales of PlayStation and N64 products are expected to decline as the console market transitions to PlayStation 2, Dreamcast, Dolphin and Xbox. The company is highly seasonal and depends on hit titles, and it relies on platform licensors who are also its chief competitors.

The balance sheet is solid, with $339.8 million^d in cash and short-term investments, working capital of $440 million, and no dividends. The filing was signed on June 28, 2000 and reports a stock price range of $45.63 to $120.94 for the year.

02—Key points

Key Highlights

Record fiscal 2000 results: net revenues up 16.2% to $1.42 billion and net income up 60% to $116.8 million, with diluted EPS of $1.76 versus $1.15 a year earlier.
Gross margin improved to 50.3% from 48.7%, helped by higher-margin PC titles and a lower mix of N64 products.
PC revenue grew 46.9% to $397.8 million, led by Command & Conquer: Tiberian Sun, Sim City 3000 and The Sims. PlayStation revenue rose 12.9% to $586.8 million, and N64 fell 21% to $120.4 million.
EA.com (online division, Ultima Online) reported a $54.6 million operating loss, and management expects significant operating losses in the first half of fiscal 2001 as online investment continues.
A Class B tracking stock tied to EA.com was approved in March 2000. AOL took a 10% equity stake for $18.7 million, plus a warrant, in connection with a $50 million carriage fee and $31 million minimum revenue-share commitment.
Management expects PlayStation and N64 sales to decline in fiscal 2001 during the console platform transition, with PlayStation 2, Dreamcast, Dolphin and Xbox all competing for consumer spending.
Strong liquidity: $339.8 million in cash and short-term investments, $440 million of working capital, and no cash dividend policy.

03—Questions

Frequently Asked Questions

How did Electronic Arts perform financially in fiscal 2000?
Revenue rose 16.2% to $1.42 billion, operating income rose 46% to $153.8 million, and net income rose 60% to $116.8 million, or $1.76 per diluted share. Results were supported by strong PC and PlayStation sales. Excluding one-time acquisition charges and goodwill amortization, net income was $129.5 million.
What is the EA.com tracking stock and why was it created?
In March 2000, shareholders approved a Class B common stock that tracks the performance of EA.com, the online and e-Commerce division. The existing stock became Class A, reflecting EA Core. The structure lets investors value the online business separately while it is still loss-making, and it provided capital through the AOL stock sale.
What are the main risks to EA's outlook?
Key risks include the decline in PlayStation and N64 sales during the console transition, EA.com's continuing losses and uncertain profitability, and the AOL agreement's launch deadlines, which EA.com already missed. The business is also seasonal and hit-driven, and it depends on platform licensors who control manufacturing and are also competitors. Patent litigation and foreign currency exposure, particularly to the euro, are additional concerns.
How is the company's international business performing?
International revenue rose 10.9% to $573.4 million, or 40% of total revenue. Europe grew 10.9% and Asia Pacific grew 20.3%, while Japan was flat. The euro's devaluation weighed on European results, and management expects international growth to slow compared with prior years.
Does the company pay dividends or face material legal exposure?
EA has never paid cash dividends and does not expect to in the foreseeable future. Management states that pending claims and litigation, including a patent suit over Internet-playable PC games, would not have a material adverse effect on the company's financial condition, although defense costs will be substantial.

04—Continue

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