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 December 31, 1994
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.)
1450 Fashion Island Boulevard
San Mateo, California 94404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 571-7171
(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 January 21, 1995
------------------------- ----------------
$0.01 par value per share 48,259,245
ELECTRONIC ARTS INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at
December 31, 1994 and March 31, 1994 3
Consolidated Statements of Income for
the Three Months Ended December 31, 1994 and 1993 4
and the Nine Months Ended December 31, 1994 and 1993
Consolidated Statements of Cash Flows for
the Nine Months Ended December 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
December 31, March 31,
1994 1994
-------------------------
(unaudited)
Current assets:
Cash and short-term investments $104,212 $130,318
Marketable securities 9,580 11,931
Receivables, less allowances of $44,919 and $29,113, respectively 145,063 65,115
Inventories 17,174 9,691
Prepaid royalties 8,692 8,642
Deferred income taxes 5,309 5,284
Other current assets 5,726 2,748
-------------------------
Total current assets 295,756 233,729
Property and equipment, net 27,366 25,147
Prepaid royalties 6,494 6,879
Investment in affiliate 5,810 -
Deferred income taxes 4,738 4,738
Other assets 9,532 3,158
-------------------------
$349,696 $273,651
-------------------------
-------------------------
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $43,789 $35,852
Accrued liabilities 86,618 62,136
-------------------------
Total current liabilities 130,407 97,988
Minority interest in consolidated joint venture 1,454 3,485
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares - -
Common stock, $0.01 par value. Authorized 70,000,000 shares;
issued and outstanding 48,122,395 and 47,668,554 shares,
respectively. 481 477
Paid-in capital 70,474 65,677
Retained earnings 151,223 108,878
Translation adjustment (1,992) (2,854)
Unrealized depreciation of investments (2,351) -
-------------------------
Total stockholders' equity 217,835 172,178
-------------------------
$349,696 $273,651
-------------------------
-------------------------
See accompanying notes to consolidated financial statements.
3
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
---------------------------------------------------------
Net revenues $216,652 $149,541 $377,182 $311,131
Cost of goods sold 126,941 84,562 209,435 167,963
------- ------ ------- -------
Gross profit 89,711 64,979 167,747 143,168
------ ------ ------- -------
Operating expenses:
Marketing and sales 25,886 15,580 46,862 35,508
General and administrative 9,680 7,475 22,849 18,523
Research and development 20,818 17,488 50,588 44,756
------ ------ ------ ------
Total operating expenses 56,384 40,543 120,299 98,787
------ ------ ------- ------
Operating income 33,327 24,436 47,448 44,381
Interest and other income, net 769 761 11,458 2,645
--- --- ------ -----
Income before provision for income
taxes and minority interest 34,096 25,197 58,906 47,026
Provision for income taxes 10,979 7,559 18,671 14,327
------ ------ ------ ------
Income before minority interest 23,117 17,638 40,235 32,699
Minority interest in consolidated
joint venture 726 470 2,110 762
------ ------ ------ ------
Net income $23,843 $18,108 $42,345 $33,461
------- ------- ------- -------
------- ------- ------- -------
Net income per share: $ .48 $ .36 $ .85 $ .67
------- ------- ------- -------
------- ------- ------- -------
Number of shares used in computation 50,165 50,258 49,793 49,958
------- ------- ------ ------
------- ------- ------ ------
See accompanying notes to consolidated financial statements.
4
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Nine Months
Ended December 31,
--------------------
1994 1993
--------------------
Operating activities:
Net income $ 42,345 $ 33,461
Adjustments to reconcile to net cash used by operating
activities:
Minority interest in consolidated joint venture (2,110) (762)
Depreciation and amortization 7,652 5,483
Loss on sale of fixed assets 8 23
Deferred rent (81) 137
Change in assets and liabilities:
Receivables (79,948) (56,085)
Inventories (7,703) 968
Prepaid royalties, net (5,355) (4,104)
Other assets (9,428) (2,252)
Accounts payable 7,937 239
Accrued liabilities 24,563 17,123
Deferred income taxes (25) (228)
--------------------
Net cash used by operating activities (22,145) (5,997)
--------------------
Investing activities:
Proceeds from sales of furniture and equipment 429 82
Capital expenditures (10,132) (10,967)
Change in short-term investments 21,200 --
--------------------
Net cash provided/(used) in investing
activities 11,497 (10,885)
--------------------
Financing activities:
Proceeds from issuance of common stock 4,294 6,957
Tax benefit from exercise of stock options 507 5,394
--------------------
Net cash provided by financing activities 4,801 12,351
--------------------
Translation adjustment 862 506
Minority interest on translation adjustment 79 262
--------------------
Decrease in cash and cash equivalents (4,906) (3,763)
--------------------
Beginning cash and cash equivalents 93,918 86,529
--------------------
Ending cash and cash equivalents 89,012 82,766
Short-term investments 15,200 11,500
--------------------
Ending cash and short-term investments $104,212 $ 94,266
--------------------
--------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 1,475 $ 592
--------------------
--------------------
NON-CASH INVESTING ACTIVITIES:
Transfer of assets at net book value to affiliated
company $6,003 --
--------------------
--------------------
See accompanying notes to consolidated financial statements.
5
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
periods.
Certain amounts in the fiscal 1994 financial statements have been reclassified
to conform with fiscal 1995 presentation.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the current year or any other period.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994 as filed with the
Securities and Exchange Commission on June 29, 1994.
NOTE 2. CASH AND SHORT-TERM INVESTMENTS
Cash equivalents consist of highly liquid investments with maturities of three
months or less at the date of purchase. In May 1993, the Financial Accounting
Standards Board issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The Statement is effective for fiscal years beginning
after December 15, 1993. The Company adopted the provisions of SFAS 115 for
investments held as of or acquired after April 1, 1994. Under SFAS 115,
investments in equity and debt securities are classified in three categories and
accounted for based upon the classification. The Company has accounted for
investments in debt securities as "available-for-sale" and has stated applicable
investments at fair value, which approximates cost. The cost of securities sold
is based upon the specific identification method. In accordance with the
provisions of SFAS 115, prior period financial statements have not been restated
to reflect the change in accounting principle. The cumulative effect, net of
taxes, as of April 1, 1994, of adopting SFAS 115 was immaterial to the prior
period financial statements.
6
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cash and short-term investments at December 31, 1994 and March 31, 1994
consisted of (in thousands):
December 31, 1994 March 31, 1994
----------------- --------------
Cash and equivalents:
Cash $ 7,148 $ 4,037
Municipal securities 18,074 17,659
Money market funds 39,863 44,245
Mutual fund preferreds - 1,999
Commercial paper - 4,500
Certificates of deposit - 5,801
Variable rate demand bonds 5,050 5,550
Government backed bonds 12,937 10,127
Repurchase agreements 5,940 -
-------- --------
89,012 93,918
-------- --------
Short-term investments:
Municipal securities 7,900 15,100
Mutual fund preferreds 3,500 10,900
Money market preferreds 3,800 10,400
-------- --------
15,200 36,400
-------- --------
Cash and short-term investments $104,212 $130,318
-------- --------
-------- --------
NOTE 3. MARKETABLE SECURITIES
Marketable securities consist of equity securities. The Company has accounted
for investments in equity securities as "available-for-sale" and has stated
applicable investments at fair value, with unrealized losses reported as a
separate component of stockholders' equity. Marketable securities had an
aggregate cost (in thousands) of $11,931 at December 31, 1994.
NOTE 4. SOFTWARE DEVELOPMENT COSTS
To date the Company has not capitalized any software development costs in
accordance with Statement of Financial Accounting Standard (SFAS) No. 86 since
the impact to the financial statements for all periods presented has been
immaterial.
7
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 5. INVENTORIES
Inventories are stated at the lower of weighted average cost or market.
Inventories at December 31, 1994 and March 31, 1994 consisted of (in thousands):
December 31, 1994 March 31, 1994
----------------- --------------
Raw materials and work in process $ 3,503 $ 3,704
Finished goods 13,671 5,987
--------- --------
$ 17,174 $ 9,691
-------- --------
-------- --------
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of furniture and
equipment is computed using the declining balance method over the estimated
useful lives of the respective assets, which range from three to seven years.
The building is being depreciated using the declining balance method over 20
years. Amortization of leasehold improvements is computed using the declining
balance method over the lesser of the lease terms or the estimated useful lives
of the improvements.
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1994 and March 31, 1994 consisted of (in
thousands):
December 31, 1994 March 31, 1994
----------------- --------------
Accrued expenses $29,671 $22,332
Accrued income taxes 25,841 16,324
Accrued royalties 22,600 13,511
Accrued compensation and benefits 8,506 9,969
----- -----
$86,618 $62,136
------- -------
------- -------
NOTE 8. NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average number of
common shares and common equivalent shares outstanding and is adjusted for
shares issuable upon exercise of stock options. The computation assumes the
proceeds from the exercise of stock options were used to repurchase common
shares at the average market price of the Company's common stock during each
period. Such average shares outstanding (in thousands) for the three months
ended December 31, 1994 and 1993 were 50,165 and 50,258, respectively, and for
the nine months ended December 31, 1994 and 1993 were 49,793 and 49,958,
respectively. There is no significant difference between primary and fully
diluted earnings per share.
8
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9. INVESTMENT AND JOINT VENTURE
THE 3DO COMPANY
The Company has approximately an 18.5% ownership interest in The 3DO Company
("3DO"). Other investors include Time Warner Enterprises, a unit of Time
Warner, Inc., Matsushita Electric Industrial Co., Ltd., MCA, AT&T and two
venture capital firms. The investment is accounted for under the equity method.
In December 1992, the Company paid 3DO (in thousands) $2,000 as prepaid non
refundable software royalties in connection with an offer by 3DO to all of its
software licensees to reduce its royalty rate from $3.00 to $2.00 per copy to
the extent of royalties prepaid by December 1992. Accordingly, the Company had
prepaid the royalties on the first one million units of software published by
the Company that are based on the 3DO technology. At December 31, 1994, the
Company had a prepaid software royalty balance (in thousands) in the amount of
approximately $482. Additionally, the Company had prepaid royalties (in
thousands) of approximately $600 at December 31, 1994 for two products developed
by 3DO and published and distributed by the Company.
ELECTRONIC ARTS VICTOR, INC.
The Company has a majority interest in a joint venture corporation, Electronic
Arts Victor, Inc. ("EAV"), for the development and distribution of entertainment
software products in Japan as well as certain Asian countries. EAV is sixty-
five percent owned by the Company and thirty-five percent owned by Victor
Entertainment Industries, Inc. ("VEI"), a wholly owned subsidiary of Victor
Company of Japan, Limited. The Company has consolidated 100% of the assets,
liabilities and results of operations for EAV. VEI's 35% interest in EAV and
the loss therefrom has been reflected as "Minority interest in consolidated
joint venture" on the Company's Consolidated Financial Statements.
ABC/EA HOME SOFTWARE, INC.
On December 6, 1994, the Company and Capital Cities/ABC, Inc. announced the
formation of a joint venture company to develop and publish software for
personal computers and new generation entertainment machines. The new venture,
ABC/EA Home Software, Inc., will publish children's edutainment and interactive
entertainment multimedia titles as well as reference products. Under the terms
of the agreement, each company will maintain a 50% ownership interest in the
joint venture company. The investment is accounted for under the equity method.
Electronic Arts will be the exclusive distributor of any interactive titles sold
by the joint venture in the retail channel.
9
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10: OPERATIONS BY GEOGRAPHIC AREAS
The Company operates in one industry segment. Information about the Company's
operations in North America, Europe, Australia and Japan for the three months
and nine months ended December 31, 1994 and 1993 is presented below (in
thousands). All intersegment sales among North American entities (EA San Mateo,
EA Canada Inc., EA Puerto Rico Inc., EA Productions Inc. and Origin Systems,
Inc.) have been eliminated. Therefore, intersegment activity disclosed on this
schedule reflects only the transactions that have taken place between the
geographic segments disclosed below.
North
America Europe Australia Japan Eliminations Total
-------- ------- --------- ------- ------------ --------
THREE MONTHS ENDED DECEMBER 31, 1994
Net revenues from unaffiliated customers $154,779 $43,372 $5,075 $13,426 $ -- $216,652
Intersegment net revenues 20,410 1,291 8 -- (21,709) --
-------- ------- ------ ------- -------- --------
Total net revenues $175,189 $44,663 $5,083 $13,426 $(21,709) $216,652
-------- ------- ------ ------- -------- --------
-------- ------- ------ ------- -------- --------
Operating income/(loss) $ 24,256 $10,003 $1,078 $(2,010) $ -- $ 33,327
Identifiable assets $258,747 $67,942 $5,884 $17,123 $ -- $349,696
NINE MONTHS ENDED DECEMBER 31, 1994
Net revenues from unaffiliated customers $269,480 $71,674 $9,332 $26,696 $ -- $377,182
Intersegment net revenues 31,043 2,855 52 34 (33,984) --
-------- ------- ------ ------- -------- --------
Total net revenues $300,523 $74,529 $9,384 $26,730 $(33,984) $377,182
-------- ------- ------ ------- -------- --------
-------- ------- ------ ------- -------- --------
Operating income/(loss) $ 35,027 $16,801 $1,770 $(6,150) $ -- $ 47,448
THREE MONTHS ENDED DECEMBER 31, 1993
Net revenues from unaffiliated customers $124,238 $18,443 $1,954 $ 4,906 $ -- $149,541
Intersegment net revenues 8,642 1,204 -- -- (9,846) --
-------- ------- ------ ------- -------- --------
Total net revenues $132,880 $19,647 $1,954 $ 4,906 $(9,846) $149,541
-------- ------- ------ ------- -------- --------
-------- ------- ------ ------- -------- --------
Operating income/(loss) $ 19,683 $ 5,728 $ 360 $(1,335) $ -- $ 24,436
Identifiable assets $182,911 $41,384 $5,813 $14,466 $ -- $244,574
NINE MONTHS ENDED DECEMBER 31, 1993
Net revenues from unaffiliated customers $244,171 $50,489 $5,317 $11,154 $ -- $311,131
Intersegment net revenues 22,541 2,469 -- -- (25,010) --
-------- ------- ------ ------- -------- --------
Total net revenues $266,712 $52,958 $5,317 $11,154 $(25,010) $311,131
-------- ------- ------ ------- -------- --------
-------- ------- ------ ------- -------- --------
Operating income/(loss) $ 35,826 $10,386 $ 793 $(2,624) $ -- $ 44,381
NOTE 11: SUBSEQUENT EVENT
On January 23, 1995, the Company acquired all of the outstanding shares of
Bullfrog Productions, Ltd., a European interactive game developer based in
Surrey, England. Bullfrog, which became a wholly-owned subsidiary of the
Company, has had a seven-year history with the Company as a strategic partner in
designing and developing interactive game software. The acquisition will be
accounted for as a pooling-of-interests.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the consolidated
financial data and the notes thereto included in Item 1 of this Quarterly Report
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994 as filed with the Securities and Exchange Commission
on June 29, 1994.
NET REVENUES
December 31, December 31,
1994 1993 % change
-----------------------------------------
CONSOLIDATED NET REVENUES
Three Months Ended $216,652,000 $149,541,000 44.9%
Nine Months Ended $377,182,000 $311,131,000 21.2%
NORTH AMERICA NET REVENUES
Three Months Ended $154,779,000 $124,238,000 24.6%
as a percentage of net revenues 71.4% 83.1%
Nine Months Ended $269,480,000 $244,171,000 10.4%
as a percentage of net revenues 71.4% 78.5%
INTERNATIONAL NET REVENUES
Three Months Ended $ 61,873,000 $ 25,303,000 144.5%
as a percentage of net revenues 28.6% 16.9%
Nine Months Ended $107,702,000 $66,960,000 60.8%
as a percentage of net revenues 28.6% 21.5%
The Company derives revenues from shipments of EA Studio cartridge products, EA
Studio floppy-disk and CD personal computer products, EA Studio CD products for
dedicated entertainment / educational systems, licenses of EA Studio products
and shipments of Affiliated Label floppy-disk and CD products that are published
by third parties.
North American net revenues increased 24.6% for the three months ended December
31, 1994 compared to the same period last year. The Company released 22
products during the quarter compared to 27 in the same period last year. The
increase in North American net revenues was primarily due to an increased market
share in the maturing 16-bit videogame cartridge market and an increase in the
number of videogame cartridge products released to 14 in the current quarter
compared to 9 in the same period last year. In addition, net revenues derived
from EA Studio CD products increased significantly during the three months ended
December 31, 1994 compared to the same period last year due to the rapid market
shift from floppy-disk based personal computer products to CD based products.
North American net revenues increased 10.4% for the nine months ended December
31, 1994 compared to the same period last year primarily due to the significant
increase in CD based products and a higher volume of 16-bit videogame cartridge
products. International net revenues increased 144.5% for the three months and
60.8% for the nine months ended December 31, 1994 primarily due to an increase
in revenues on the Sega Megadrive in Europe resulting from the Company's hit
products, particularly FIFA INTERNATIONAL SOCCER, and the relative clearing from
the channel of overstocked cartridge inventory; higher CD based net revenues in
Europe reflecting the overall market shift to CD based products; and fiscal 1995
releases in Japan on the 3DO platform.
11
EA STUDIO NET REVENUES:
December 31, December 31,
1994 1993 % change
-----------------------------------------
VIDEOGAME PRODUCT NET REVENUES
Three Months Ended $153,304,000 $118,679,000 29.2%
as a percent of net revenues 70.8% 79.4%
Nine Months Ended $248,579,000 $233,953,000 6.3%
as a percent of net revenues 65.9% 75.2%
The Company released fourteen new videogame products during the third quarter of
fiscal 1995 including MADDEN FOOTBALL '95, FIFA INTERNATIONAL SOCCER '95, NBA
LIVE '95, and PGA TOUR III for the Sega Genesis and MADDEN FOOTBALL '95, NBA
LIVE '95, and NHL HOCKEY '95 on the SNES. Sega cartridge sales were $99,152,000
for the three months ended December 31, 1994 compared to $75,357,000 for the
same period last year. SNES sales were $50,193,000 for the three months ended
December 31, 1994 compared to $43,314,000 for the same period last year.
Gamegear sales were $3,878,000 for the three months ended December 31, 1994
compared to none for the same period last year. Sega sales were $178,351,000
for the nine months ended December 31, 1994 compared to $172,277,000 for the
same period last year. SNES sales were $62,349,000 for the nine months ended
December 31, 1994 compared to $60,892,000 for the same period last year.
Gameboy sales (which were immaterial for the three months ended December 31,
1994 and 1993) were $4,001,000 for the nine months ended December 31, 1994
compared to $784,000 for the same period last year. Gamegear sales were
$3,878,000 for the nine months ended December 31, 1994 compared to none for the
same period last year. The increase in 16-bit videogame cartridge net revenues
for the three months ended December 31, 1994 reflects, in part, the Company's
strategy of releasing a higher percentage of cartridge product in the third
quarter compared to other quarters in the year in order to derive full benefit
from the holiday season. Accordingly, the increase in videogame cartridge net
revenues is not necessarily indicative of results to be expected in future
quarters.
In the past, the 16-bit videogame hardware and software markets have experienced
very rapid rates of growth. As these markets have matured, hardware sales
declined in 1994 and the growth in software sales slowed. The Company expects
fewer hardware systems to be sold in calendar 1995 than in calendar 1994 and the
software videogame cartridge market is expected to decline as well. The growth
rate of the Company's net revenues derived from 16-bit videogames is expected to
slow or decline in future quarters, and the percentage of the Company's total
net revenues derived from 16-bit videogames is expected to decline during the
transition to new generation 32-bit and 64-bit systems. In addition, as the 16-
bit cartridge market is becoming more "hits-driven", the Company will ship fewer
cartridge products in calendar 1995 than in calendar 1994.
Under the terms of a licensing agreement entered into with Sega Enterprises,
Ltd., ("Sega") in July 1992 ("the Sega Agreement"), the Company is authorized to
develop and distribute ROM-cartridge software products compatible with the Sega
Genesis system through December 1995. Genesis cartridges are manufactured by
the Company in Puerto Rico and by a third party manufacturer under terms of the
Sega Agreement. A shortage of components, or other factors outside the control
of the Company could impair the Company's ability to obtain an adequate supply
of cartridges.
12
Under the terms of its licensing agreement with Nintendo, the Company engages
Nintendo to manufacture its SNES cartridges for distribution. The Company has
little ability to control its supply of cartridges or the timing of their
delivery. A shortage of microchips, or other factors outside the control of the
Company, could impair the Company's ability to obtain an adequate supply of
cartridges. Nintendo maintains a policy of not accepting returns. Considering
these and other factors, the carrying of an inventory of cartridges entails
additional investments and risks. Videogame cartridges, particularly SNES, are
more expensive to produce than floppy disks and CD-ROMs and are produced in
higher volumes. Accordingly, if Electronic Arts' sales mix of SNES videogame
products increases, it will be exposed to greater inventory costs and increased
risks of unexpected returns of unsold products.
CD PRODUCT NET REVENUES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $36,499,000 $4,210,000 767.0%
as a percentage of net revenues 16.8% 2.8%
Nine Months Ended $64,772,000 $5,328,000 1115.7%
as a percentage of net revenues 17.2% 1.7%
The Company released seven new CD based products in the third quarter of the
current fiscal year including five for the IBM personal computer and two for the
3DO Interactive Multiplayer compared to three for the IBM personal computer, one
for the Macintosh, one for the 3DO Interactive Multiplayer and one for the Sega
CD in the same period last year. As mentioned above and elsewhere in this
report, this increase in both absolute dollars and as a percentage of total net
revenues reflects the beginning of a market transition from 16-bit cartridge
systems to CD platforms and the Company's strategy to focus its development
efforts on CD based platforms. The Company expects revenues from CD products to
grow but as the revenues from CD products increases, the Company does not expect
these percentage growth rates to continue.
Under the terms of the Sega Agreement, the Company is authorized to develop and
distribute CD-ROM software products compatible with the Sega CD peripheral
through December 1996. Genesis CD-ROM products are manufactured by third party
manufacturers. A shortage of components, or other factors outside the control
of the Company, could impair the Company's ability to obtain an adequate supply
of CD-ROMs.
13
FLOPPY-DISK PRODUCT NET REVENUES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $5,611,000 $12,382,000 (54.7)%
as a percentage of net revenues 2.6% 8.3%
Nine Months Ended $21,992,000 $41,186,000 (46.6)%
as a percentage of net revenues 5.8% 13.2%
The Company released one new floppy-disk based personal computer product in the
third quarter of the current fiscal year compared to twelve for the same period
last year. The decrease in net revenues derived from shipments of EA Studio
floppy-disk based personal computer products was due to the decrease in the
number of titles released and the market shift toward CD based products. The
Company expects a continued decrease in net revenues derived from floppy-disk
based personal computer products resulting from the rapid market shift toward CD
based personal computer products.
LICENSE/OEM NET REVENUES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $4,637,000 $1,981,000 134.1%
as a percentage of net revenues 2.1% 1.3%
Nine Months Ended $11,331,000 $4,557,000 148.7%
as a percentage of net revenues 3.0% 1.5%
The increase in license/OEM net revenues for the three months and nine months
ended December 31, 1994 compared to the same periods last year was primarily a
result of the licensing of the Company's SNES products to a third party in
Europe.
AFFILIATED LABEL NET REVENUES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $16,601,000 $12,289,000 35.1%
as a percentage of net revenues 7.7% 8.2%
Nine Months Ended $30,508,000 $26,107,000 16.9%
as a percentage of net revenues 8.1% 8.4%
The increase in Affiliated Label net revenues for the three months and nine
months ended December 31, 1994 compared to the same periods last year was due to
net revenues derived from a higher volume of CD based products. This was
partially offset by a decrease in net revenues derived from floppy-disk based
personal computer products. The shift in product mix for the Affiliated Label
business to primarily CD based products reflects the Company's continued effort
in developing relationships with smaller affiliated labels focusing on CD based
platforms. Affiliated Label CD based net revenues represented approximately 73%
and 68% of total Affiliated Label net revenues for the three months and nine
months ended December 31, 1994, respectively, compared to 36% and 26%,
respectively, for the same periods last year.
14
COST OF GOODS SOLD
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $126,941,000 $84,562,000 50.1%
as a percentage of net revenues 58.6% 56.5%
Nine Months Ended $209,435,000 $167,963,000 24.7%
as a percentage of net revenues 55.5% 54.0%
The increase in cost of goods sold, as a percentage of net revenues, for the
three months and nine months ended December 31, 1994 compared to the same
periods last year was primarily due to higher cartridge costs on Sega and SNES
cartridge products resulting from larger cartridge configurations, higher
professional and celebrity royalties and higher accrued reserves in the third
quarter of fiscal 1995 for sales returns and allowances, as a percentage of
revenue, on cartridge products as a result of the maturing 16-bit videogame
cartridge market. This was partially offset by an increase in higher margin EA
Studio CD net revenues and license/OEM net revenues, as a percentage of total
net revenues.
MARKETING AND SALES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $25,886,000 $15,580,000 66.1%
as a percentage of net revenues 11.9% 10.4%
Nine Months Ended $46,862,000 $35,508,000 32.0%
as a percentage of net revenues 12.4% 11.4%
The increase in marketing and sales expenses was primarily attributable to an
increase in television advertising in the current quarter compared to the same
periods last year and an increase in variable sales expenditures which is a
function of higher net revenues.
GENERAL AND ADMINISTRATIVE
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $9,680,000 $7,475,000 29.5%
as a percentage of net revenues 4.5% 5.0%
Nine Months Ended $22,849,000 $18,523,000 23.4%
as a percentage of net revenues 6.1% 6.0%
The increase in general and administrative expenses for the three months and
nine months ended December 31, 1994 resulted primarily from increased bad debt
reserves recorded in Japan and legal costs associated with business development
activities in the U.S. and Europe in the current quarter.
15
RESEARCH AND DEVELOPMENT
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $20,818,000 $17,488,000 19.0%
as a percentage of net revenues 9.6% 11.7%
Nine Months Ended $50,588,000 $44,756,000 13.0%
as a percentage of net revenues 13.4% 14.4%
The increase in research and development expenses was primarily due to an
increase in the number of products under development, higher average development
costs for CD based products versus cartridge products and a continued investment
in new technologies for new generation systems.
OPERATING INCOME
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $33,327,000 $24,436,000 36.4%
as a percentage of net revenues 15.4% 16.3%
Nine Months Ended $47,448,000 $44,381,000 6.9%
as a percentage of net revenues 12.6% 14.3%
Operating income increased for the three months and nine months ended December
31, 1994 compared to the same periods last year due to higher revenues; this was
partially offset by lower gross profit margins and an increase in operating
expenses.
INTEREST AND OTHER INCOME, NET
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $ 769,000 $ 761,000 1.1%
as a percentage of net revenues 0.4% 0.5%
Nine Months Ended $11,458,000 $2,645,000 333.2%
as a percentage of net revenues 3.0% 0.9%
Interest and other income, net increased for the three months ended December 31,
1994 compared to the same period last year primarily due to higher interest
rates; this was partially offset by amortization of intangibles. Interest and
other income, net increased for the nine months ended December 31, 1994
primarily due to a one time payment in the first quarter of the current fiscal
year from Broderbund Software, Inc. ("Broderbund") of $8,600,000, which is net
of costs incurred by the Company of $1,400,000, associated with the termination
of the merger agreement between the Company and Broderbund.
16
INCOME TAXES
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $10,979,000 $ 7,559,000 45.2%
effective tax rate 32.2% 30.0%
Nine Months Ended $18,671,000 $14,327,000 30.3%
effective tax rate 31.7% 30.5%
The Company's effective tax rate increased for the three months and nine months
ended December 31, 1994 compared to the same periods last year primarily due to
the current quarter and current year net operating loss reported by EAV.
MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $ 726,000 $470,000 54.5%
as a percentage of net revenue 0.3% 0.3%
Nine Months Ended $2,110,000 $762,000 176.9%
as a percentage of net revenue 0.6% 0.2%
The Company has a majority interest in a joint venture corporation, Electronic
Arts Victor, Inc. ("EAV"), in Japan for the development and distribution of
entertainment software products in Japan as well as certain Asian countries.
EAV is sixty-five percent owned by the Company and thirty-five percent owned by
Victor Entertainment Industries, Inc. ("VEI"), a wholly owned subsidiary of
Victor Company of Japan, Limited. The minority interest represents VEI's 35%
interest in EAV. The increase in minority interest for the three months and
nine months ended December 31, 1994 is due to a higher reported loss for EAV
compared to the same periods last year.
NET INCOME
December 31, December 31,
1994 1993 % change
-----------------------------------------
Three Months Ended $23,843,000 $18,108,000 31.7%
as a percentage of net revenue 11.0% 12.1%
Nine Months Ended $42,345,000 $33,461,000 26.6%
as a percentage of net revenue 11.2% 10.8%
The increase in net income for the three months ended December 31, 1994 was due
to higher net revenues; this was partially offset by lower gross profit margins,
higher operating expenses and a higher effective tax rate. The increase for the
nine months ended December 31, 1994 was due to the after-tax net gain of
approximately $6,000,000 from a one time payment of a merger termination fee in
the first quarter of the current fiscal year as well as higher net revenues;
this was partially offset by lower gross profit margins, higher operating
expenses and a higher effective tax rate.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $29.6 million from March 31, 1994 to a
balance of $165.3 million at December 31, 1994. Cash and short-term investments
decreased by $26.1 million to $104.2 million and receivables increased by $80.0
million to $145.1 million primarily due to a higher proportion of the quarter's
sales occurring in the second half of the quarter and an increased investment in
inventories during the seasonally high holiday season.
The Company has increased its reserve accrual rate for sales returns and
allowances as a percentage of revenue on cartridge products as a result of the
maturing 16-bit videogame cartridge market. Reserves have been charged for
returns of product and price protection credits issued for products sold in
prior periods. Reserves for bad debts and sales returns increased $15.8 million
to $44.9 million from March 31, 1994 due to the increased reserve accrual rate
and higher revenues. Management believes these reserves are adequate based on
historical experience and its current estimate of potential returns and
allowances.
Property and equipment were higher at December 31, 1994 compared to March 31,
1994 primarily due to computer hardware and software purchases required to
support the Company's development efforts for existing and new generation
systems.
Inventory levels increased $7.5 million from March 31, 1994 to $17.2 million at
December 31, 1994 due to increased finished good cartridge product primarily
resulting from higher levels of sales and a higher concentration of cartridge
product in the December quarter.
In connection with the Company's purchases of cartridges to be distributed in
North America, Nintendo of America, Inc. requires irrevocable letters of credit
("LC") prior to accepting purchase orders from the Company. At December 31,
1994, the Company had three LC's totaling $2,855,000, issued and outstanding.
For purchases of cartridges for distribution in Japan, Nintendo of Japan
requires cash deposits in lieu of LC's. At December 31, 1994, EAV did not have
any outstanding cash deposits for purchase of Nintendo cartridges. Also in lieu
of LC's, EAV utilizes a line of credit to fund these deposits and purchases of
Nintendo cartridges. At December 31, 1994, EAV had an outstanding balance on
this line of approximately $6,000,000.
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 for the foreseeable future.
18
RISK FACTORS
The Company's business is subject to a number of risks. Some of those
risks are described below. Other risks are presented elsewhere in this report.
RAPID TECHNOLOGICAL CHANGE
The interactive software industry is expected to undergo significant change
in part due to the introduction or planned introduction of numerous new hardware
platforms and remote and electronic delivery systems and the entry and
participation of new industries and companies in interactive media. The
difficulties in predicting which new platforms and delivery systems will be
successful, and the timing of such, and which new companies entering the
interactive arena will have a material impact on the industry, cause additional
uncertainty in predicting the financial results of the Company.
The new generation of systems are based on 32-bit or 64-bit microprocessors
that incorporate dedicated graphic chipsets. Many of these systems utilize CD-
ROM drives. The Company began development of 32-bit products over two years ago
by creating the original software development system for the 3DO Interactive
Multiplayer - the first new generation product, shipment of which began during
calendar 1993. Sega, Sony Corporation, and the team of Nintendo and Silicon
Graphics all have announced plans to manufacture and distribute new generation
systems. Sega and Sony have distributed their new generation hardware systems
in Japan during the December 1994 quarter and expect to ship these systems in
North America later in calendar 1995.
The transition from 16-bit cartridge-based game machines to more
sophisticated new generation systems can be expected to continue to adversely
affect the near term financial results of the Company. In preparation for this
industry transition, an increasing portion of the Company's new product releases
in the near term are expected to be for new platforms including IBM PC-CD and
compatibles and Macintosh CD. While the Company expects to release more titles
during fiscal 1995 than during fiscal 1994, the installed base of new platforms
is, and will continue to be, substantially smaller for the near term than the
installed base of 16-bit cartridge machines at this time. While the Company
believes that obtaining an early position in advanced entertainment products is
strategically important, the Company does not expect its historical growth rate
to continue during this transition period.
In addition, as the 16-bit cartridge market matures, hardware sales have
declined and will continue to decline. Accordingly, the growth rate of software
sales for the 16-bit cartridge systems slowed in 1994 and is expected to decline
in 1995. In addition, the software market is becoming more "hits" driven.
Fewer products in that market generally are successful and additional marketing
and sales expenses can be expected to be incurred to promote retailers' sales of
16-bit cartridge products.
19
COMPETITION
The market for the Company's products is highly competitive. Important
factors in marketing both entertainment and educational software include product
features, quality and reliability, brand recognition, hardware compatibility,
ease of understanding and operation, dealer merchandising, access to existing
distribution channels and retail shelf space, advertising, pricing, and
availability and quality of support services. A variety of companies offer
products that compete directly with one or more of Electronic Arts' products.
These direct competitors vary in size from very small companies with limited
resources to companies with financial, managerial and technical resources
comparable to or greater than those of Electronic Arts. Manufacturers of
videogame cartridges such as Nintendo and Sega, together with their licensees,
and publishers of personal computer software such as Microsoft Corporation, also
compete with Electronic Arts for consumers' interactive entertainment software
purchases. The markets in which Electronic Arts' products compete are expected
to undergo significant changes, due in part to the introduction or planned
introduction of numerous new hardware platforms and electronic delivery systems,
and the entry and participation of new industries and companies, including
diversified entertainment companies which may become significant competitors.
PRODUCTS AND PRODUCT DEVELOPMENT
One of the new platforms supported by the Company is the 3DO Interactive
Multiplayer developed by The 3DO Company ("3DO"). The 3DO Interactive
Multiplayer was introduced in October 1993 and has not yet achieved significant
sales volumes. There can be no assurance that the 3DO platform or 3DO as a
company will ever be successful. The Company has recently introduced several
titles for the 3DO platform and expects to release additional titles in calendar
1995. The Company also has a substantial number of additional titles under
development for new generation platforms, such as 3DO. The Company believes
that its development activities for the 3DO platform are not materially
different from those for other new generation CD-based platforms and, in
accordance with the Company's general development practices, a substantial
portion of the 3DO development will be portable to other platforms. However,
because of the Company's association with 3DO, a material adverse effect on the
business or prospects of 3DO or a substantial adverse change in the stock price
of 3DO could have a material adverse effect on the Company's stock price.
Typically, the majority of the Company's revenues in any quarter are
derived from products first released during that quarter. In the third quarter
of fiscal 1995, the Company generated approximately three-quarters of its
revenues from products released during the quarter. Interactive entertainment
software products typically have life spans of 3 to 12 months. Accordingly,
the Company must constantly develop and bring to market new products that
achieve market acceptance quickly. The Company's future success will depend in
large part on its ability to develop and introduce new products on a timely
basis. New products must keep pace with competitive offerings, adapt to new
hardware platforms and emerging industry standards and provide additional
functionality. If the Company were unable, due to resource constraints or
technological or other reasons, to develop and introduce such products in a
timely manner, this inability would have a material adverse effect on its
operating results and financial condition.
20
Historically, no hardware platform or system has achieved long term
dominance for interactive entertainment software. The Company currently
develops or publishes products for 17 different hardware platforms and has
developed and marketed products on 30 different and incompatible platforms in
the past. The Company makes substantial investments in research and development
of products for operation on the new hardware platforms which the Company
anticipates will become more popular. Such investment occurs one to two years
in advance of shipment of products on such platforms. If the Company invests in
a platform that does not achieve significant market penetration, the Company's
planned revenues from those products will not be achieved and the Company may
not recover its development investment. Conversely, if the Company does not
choose to develop for a platform that achieves significant market success, its
revenue growth may also be adversely affected. There can be no assurance that
the Company will correctly make such platform choices. The Company's current
and planned fiscal 1995 product introductions are predominantly for 16-bit
platforms such as the SNES and the Genesis videogame systems and the Sega CD,
and 32-bit platforms including, but not limited to, the IBM PC and compatibles,
the Apple Macintosh, the Commodore Amiga, and the 3DO Interactive Multiplayer.
The Company anticipates that compact discs will emerge as the preferred
medium for interactive entertainment, education, and information software. The
Company continued its investment in the development of CD-ROM tools and
technologies in fiscal 1995 and at December 31, 1994 had approximately 57
products in development for new CD-ROM platforms including, but not limited to,
the Sega CD, the IBM PC and compatibles, the Apple Macintosh and the 3DO
Interactive Multiplayer.
Product development schedules, particularly for new hardware platforms, are
difficult to predict due to the difficulty of scheduling the creative processes,
the use of new development tools for new platforms and the learning process
associated with development for new technologies, as well as other factors.
Floppy-disk and CD-ROM products frequently include more content and are more
complex to develop than cartridge products and, accordingly, cause additional
development and scheduling risk. In addition, the product development risk for
floppy-disk and CD-ROM products can cause particular difficulties in predicting
quarterly results because brief manufacturing lead times allow finalization of
products and projected release dates late in a quarter. Failure to meet product
development schedules may cause a shortfall in shipments in any quarter and may
cause the operating results for such quarter to fall significantly below
anticipated levels.
21
MARKETING AND DISTRIBUTION
The Company has stock-balancing programs for computer products (whether
provided on floppy-disk or CD-ROM) that, under certain circumstances and up to a
specified amount, allow for the exchange of personal computer products. The
Company also typically provides for price protection for its products that,
under certain conditions, allows for price reduction of unsold products. The
Company maintains a policy of exchanging products or giving credits and does not
give cash refunds. Moreover, the risk of product returns may increase as new
hardware platforms become more popular, or there are changes in the distribution
system. Additionally, risk of product returns for 16-bit cartridge products is
increasing as that market matures and becomes "hits" driven. The Company
monitors and manages the volume of its sales to retailers and distributors and
their inventories as substantial overstocking in the distribution channel can
result in high returns or the requirement for substantial price protection in
subsequent periods. The Company believes that it provides adequate reserves for
returns and price protection which are based on estimated future returns of
products, taking into account promotional activities, the timing of new product
introductions, distributor and retailer inventories of the Company's products
and other factors, and that its current reserves will be sufficient to meet
return and price protection requirements for the foreseeable future. However,
there can be no assurance that actual returns or price protection will not
exceed the Company's reserves.
The interactive software market has historically been a volatile and highly
dynamic industry affected by seasonality, changing technology, limited platform
life cycles, hit products, competition, component supplies, consumer spending
and other economic trends. These factors may affect the predictability of the
operating results of the Company. In addition, the operating results of the
Company have in the past been influenced by the economic state of the
electronics industry generally, and this trend may continue in the future. In
particular, the Company believes that consumer spending trends are adversely
affecting the interactive software market at this time. In addition, retailers,
in reaction to the declining 16-bit cartridge market, are attempting to reduce
their levels of inventory by buying more cautiously. These factors may reduce
retailers' purchases of the Company's software products in the next several
periods and accordingly, may adversely affect the financial results of the
Company.
22
The distribution channels through which consumer software products are sold
have been characterized by rapid change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render Electronic Arts' accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. As mentioned
earlier, increased bad debt reserves were recorded in Japan in the current year.
In addition, an increasing number of companies are competing for access to these
channels. Electronic Arts' arrangements with its distributors and retailers may
be terminated by either party at any time without cause. Distributors and
retailers often carry competing products. Retailers of Electronic Arts'
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance
that distributors and retailers will continue to purchase Electronic Arts'
products or provide Electronic Arts' products with adequate levels of shelf
space and promotional support.
SEASONALITY
The Company's business is highly seasonal. The Company typically
experiences its highest revenues and operating profits in the calendar year-end
holiday season and a seasonal low in revenues and operating profits in the
quarter ending in June. Seasonal trends may also be magnified by general
economic or industry factors.
EMPLOYEES
The Company believes that its ability to attract and retain qualified
employees is an important factor in its growth and development and that its
future success will depend, in large measure, on its ability to continue to
attract and retain qualified employees. To date, the Company has been
successful in recruiting and retaining sufficient numbers of qualified personnel
to conduct its business successfully. However, competition for employees in the
interactive software business is intense, and there can be no assurance that the
Company will continue to be able to attract and retain enough qualified
employees in the future. None of the Company's employees is subject to a
collective bargaining agreement, and the Company believes that its employee
relations are excellent.
FLUCTUATIONS IN OPERATING RESULTS; VOLATILITY OF STOCK PRICE
A substantial majority of the total revenue of the Company in any quarter
typically results from orders received in that quarter and products introduced
in that quarter. As a result, the Company's quarterly results of operations are
difficult to predict, and small delays in product deliveries may cause quarterly
revenues, operating results and net income to fall significantly below
anticipated levels. The Company's revenues and net income could also be
materially and adversely affected by cancellation of orders, changes in customer
base or product mix, and increased competition.
23
Quarterly financial results are difficult to predict and quarterly
financial results may fall short of anticipated levels. The Company typically
receives orders shortly before shipments, making backlog, particularly early in
any quarter, an unreliable indicator of quarterly results. Quarterly results
may be difficult to predict until the end of the quarter. A shortfall in
shipments at the end of any particular quarter may cause the results of that
quarter to fall significantly short of anticipated levels. Due to analysts'
expectations of continued growth and other factors, any such shortfall in
earnings could have an immediate and significant adverse effect on the trading
price of the Company's Common Stock in any given period. As a result of the
foregoing factors and other factors that may arise in the future, the market
price of the Company's Common Stock may be subject to significant fluctuations
over a short period of time. These fluctuations may be due to factors specific
to the Company, to changes in analysts' earnings estimates, or to factors
affecting the computer, software, entertainment, media or electronics industries
or the securities markets in general.
Because of the foregoing factors, as well as other factors affecting the
Company's 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.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) No reports on Form 8-K were filed by the Registrant during the three
months ended December 31, 1994.
25
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
February 13, 1995 Senior Vice President and
Chief Financial and Administrative Officer
(Duly authorized officer)
26