10-KPeriod: FY2004

ELECTRONIC ARTS INC. Annual Report, Year Ended Mar 31, 2004

Filed June 4, 2004For Securities:EA

Summary

Electronic Arts Inc. (EA) reported robust financial performance for the fiscal year ended March 31, 2004, with net revenue reaching $2,957.1 million, a 19.1% increase year-over-year. This growth was driven by strong sales across multiple platforms, particularly the PlayStation 2, and a significant increase in the number of "platinum titles" (games selling over one million units). Net income saw a substantial rise of 82.1% to $577.3 million, with diluted earnings per share growing 73.1% to $1.87. The company benefited from a favorable foreign exchange environment, particularly the strengthening Euro, which added approximately $156 million to net revenue. EA also demonstrated improved cost management, with cost of goods sold decreasing as a percentage of net revenue due to lower product and royalty costs. The company continues to invest heavily in research and development, with a 27.4% increase to $510.9 million, reflecting its commitment to developing new titles and technologies for current and next-generation consoles. Despite increased R&D spending and marketing efforts, EA's overall financial health appears strong, supported by a significant increase in cash and cash equivalents. The company also announced plans to consolidate studio facilities and expects continued international revenue growth.

Key Highlights

  • 1Net revenue grew 19.1% to $2,957.1 million, driven by strong performance across multiple gaming platforms.
  • 2Net income increased by 82.1% to $577.3 million, demonstrating significant profit growth.
  • 3Diluted earnings per share rose 73.1% to $1.87, indicating improved per-share profitability.
  • 4EA published 27 titles that sold over one million units, up from 22 in the prior year, highlighting strong product reception.
  • 5International revenue increased by 28.8% to $1,347.6 million, representing 45% of total net revenue.
  • 6Cost of goods sold as a percentage of net revenue decreased from 43.2% to 37.3%, improving gross margins.
  • 7Research and development expenses increased by 27.4% to $510.9 million, reflecting continued investment in product development and technology.

Frequently Asked Questions

Revenue growth was driven by an increase in sales of "hit" titles, particularly those released for the PlayStation 2, Xbox, and Nintendo GameCube consoles. Franchises like Need for Speed, Madden NFL, The Lord of the Rings, and Medal of Honor were top performers. The expanding installed base of current-generation consoles and favorable foreign exchange rates also contributed significantly to the revenue increase.

Electronic Arts improved its cost management, leading to a decrease in cost of goods sold as a percentage of net revenue. This was achieved through lower co-publishing and distribution product costs, reduced average manufacturing costs, and lower royalty rates, partly due to an increased mix of internally developed titles.

The company is heavily investing in research and development, increasing spending to support studio expansions and the development of next-generation console technologies. EA also aims to develop more titles internally to leverage its studio resources and improve gross margins. The company's focus on franchise titles and international expansion also indicates its strategy for sustained growth.

Key highlights include a 19.1% increase in net revenue to $2,957.1 million, an 82.1% increase in net income to $577.3 million, and a 73.1% increase in diluted EPS to $1.87. The company also saw a significant increase in platinum titles and a growing contribution from international sales.