Electronic Arts, Inc. Form 10-K (3/31/2003)


x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x NO o

The aggregate market value of the Registrant’s Class A common stock, $.01 par value, held by non-affiliates of the Registrant as of September 27, 2002, the last business day of the second fiscal quarter, was $7,678,525,243.

As of June 4, 2003 there were 145,608,716 shares of Registrant’s Class A common stock, $.01 par value, outstanding, and 225,130 shares of Registrant’s Class B common stock, $.01 par value, outstanding.

Portions of Registrant’s definitive proxy statement for its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Report are forward looking. We use words such as “anticipate”, “believe”, “expect”, “intend”, “estimate” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management’s current expectations, and are inherently uncertain and difficult to predict. Our actual results could differ materially. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors” on pages 55 to 58.

Electronic Arts develops, markets, publishes and distributes interactive software games that are playable by consumers on the following platforms:


•	home videogame machines (such as the PlayStation 2, Microsoft Xbox, Nintendo GameCube and PlayStation consoles),
•	personal computers,
•	hand-held game machines (such as the Game Boy Advance) and
•	online, over the Internet.

One of our strengths is our ability to publish interactive software games for multiple platforms, which provides cost efficiencies in developing and marketing our products. Our products designed to play on consoles and handhelds are published under license from the manufacturers of these platforms (for example, Sony for the PlayStation and PlayStation 2, Microsoft for the Xbox and Nintendo for the GameCube and Game Boy Advance) and we pay a fee to these console manufacturers for the right to publish products on their platforms. Since our inception, we have published games for over 42 different platforms.


•	EA SPORTS – examples of some of our recent products published under the EA SPORTS brand are Madden NFL™ 2003 (professional football), NCAA® Football 2003, FIFA Soccer 2003, NBA Live 2003 (professional basketball), NHL® 2003 (hockey), MVP Baseball™ 2003 and NASCAR Thunder™ 2003
•	EA GAMES – examples of some of our recent products published under the EA GAMES brand are Harry Potter and the Chamber of Secrets™, The Lord of the Rings™, The Two Towers™, James Bond 007™: Nightfire™, The Sims™ Superstar, SimCity™ 4, Need for Speed™ Hot Pursuit 2 and Command & Conquer™ Generals
•	EA SPORTS BIG — examples of some of our recent products published under the EA SPORTS BIG brand are Def Jam Vendetta (wrestling) and NBA Street Volume 2 (basketball).

Another strength of our business is that we have developed many of our products to become franchise titles that can be regularly iterated. For example, every year we release new versions of most of our EA SPORTS titles. Likewise, several of the EA GAMES products listed above are part of new or continuing product franchises. We also release products called “expansion packs” that provide additional content (characters, storylines, settings, missions) for games that we have previously published. For example, we have published several expansion packs for The Sims, including The Sims Unleashed Expansion Pack and The Sims Vacation Expansion Pack, each of which expands the characters, settings and gameplay of the original The Sims game. We consider titles that iterate, sequel or spawn expansion packs to be franchise titles.

Our product development methods and organization are modeled on those used in other sectors of the entertainment industry. Employees whom we call “producers” are responsible for overseeing the development of one or more products. The interactive software games that we publish under our brands are developed by:


•	EA Studios, our own development and production studios located near San Francisco, Los Angeles, Orlando (Florida), Vancouver, London and Tokyo, which develop games internally and also engage third-parties to develop games on our behalf,
•	other game developers who develop their own interactive software games with our assistance, which products we then publish, market and distribute, referred to as “co-publishing products”. An example of a recent co-publishing product is Battlefield 1942™, which was developed by Digital Illusions, C.E.

We invest in the creation of state-of-the-art software tools that we use in product development. These tools allow for more cost-effective product development and the ability to more efficiently convert products from one platform to another. We have also made investments in facilities and equipment that allow us to create and edit video and audio recordings that are used in our games.

We also distribute interactive software games that are published by other companies, which we refer to as “distribution products”. An example of a recent distribution product is Kingdom Hearts, which is published by Square Co. Ltd.

The console, PC and hand-held games that we publish are made available to consumers on a disk (usually a CD or DVD format) or a cartridge that is packaged and typically sold in retail stores and through our own online store. We refer to these as packaged goods products. In North America and Europe, our largest markets, these packaged goods products are sold primarily to retailers that may be mass market retailers (such as Wal-Mart), electronics specialty stores (such as Best Buy) or game software specialty stores (such as Electronics Boutique). In Japan, we also sell a significant volume of our products through a distributor, who in turn sells them to retailers. Our products are available in approximately 80,000 retail locations worldwide. We also maintain a smaller business in which we license to manufacturers of products in related industries (for example, makers of personal computers or computer accessories) rights to include certain of our products with the manufacturer’s product, or offer our products to consumers who have purchased the manufacturer’s product. We call these combined products “OEM bundles”.

There are three ways in which we publish games that are playable online by consumers. First, we include online features in our PC and PlayStation 2 products, for example by enabling consumers to play against one another over the Internet. We also publish games that are playable only online. One type of these online-only games is called “persistent state worlds” or massively multiplayer games. Consumers experience these games as interactive virtual worlds where thousands of other consumers can interact with one another. Examples of our persistent state world products are Ultima Online, Earth & Beyond and The Sims Online. These persistent state world games are often sold to consumers in the form of a CD or DVD that contains much of the software necessary to play the game online. The other type of online-only games that we publish are electronic card games, puzzle games and word games (marketed under the “Pogo” brand) that we make available to consumers on our website, www.ea.com, and on certain online services provided by America Online, Inc.


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

As of April 1, 2003, we are no longer managing these segments separately. We consider online functionality to be integral to our existing and future products.


•	Publishing approximately 70 titles that we developed and/or published under one of our brands in North America, including older titles marketed as Classics.
•	Publishing localized versions of our products in the rest of the world.
•	Distribution of co-publishing and distribution titles. In North America, we distributed approximately 34 co-publishing and distribution titles.

Of the titles shipped in fiscal 2003, there were 22 titles that sold over one million units (aggregated across all platforms). In fiscal 2003, approximately 42 percent of our net revenue was generated by international operations, compared to approximately 37 percent in both fiscal 2002 and 2001.

We were initially incorporated in California in 1982. In September 1991, we were reincorporated under the laws of Delaware. Our principal executive offices are located at 209 Redwood Shores Parkway, Redwood City, California 94065 and our telephone number is (650) 628-1500. We file various reports with, or furnish them to, the SEC. These reports are available free of charge on our website, www.ea.com, as soon as reasonably practicable after we electronically file the reports with, or furnish them to, the SEC.

Like other entertainment companies, our business is based on the creation, acquisition, exploitation and protection of intellectual property. Each of our products embodies a number of separately protected intellectual properties: our products are copyrighted both as software and as audiovisual works; our product names are trademarks of ours or others; our products may contain voices and likenesses of third parties and the musical compositions and performances of third parties. Our products may also contain other content licensed from third parties, such as trademarks, fictional characters, storylines and software code.

We acquire intellectual property rights to include in our products through license agreements such as those with the sports leagues and player associations, with movie studios and performing talent, with music labels and musicians. These licenses are typically limited to use of the licensed rights in specific products for specific time periods. In addition, our products for play on videogame platforms such as the Sony PlayStation 2 console include intellectual properties owned by the platform company and licensed non-exclusively to us for use. While we may have renewal rights for some licenses, our business is significantly dependent on our ability to continue to obtain the intellectual property rights from third parties needed for many of our products.

Our products are susceptible to unauthorized copying. Our primary protection against unauthorized use, duplication and distribution of our products is copyright and trademark. We typically own the copyright to the software code as well as the brand or title name trademark under which our products are marketed. We register our copyrights in the United States, and register our significant trademarks in multiple countries including the United States. In addition, console manufacturers such as Sony typically incorporate security devices in their consoles in an effort to prevent unlicensed use of products.


•	In Japan, the companies had established Electronic Arts Square KK (“EA Square KK”), which localized and published in Japan our games that were originally created in North America and Europe, as well as original video games developed specifically for the Japanese market. We owned a 70 percent majority interest in EA Square KK, while Square owned the remaining 30 percent.
•	In North America, the companies formed Square Electronic Arts, LLC (“Square EA”), which had exclusive publishing rights in North America for future interactive entertainment titles created by Square. Additionally, we obtained the exclusive right to distribute in North America products published by this joint venture. We owned a 30 percent minority interest in Square EA while


	Square owned the remaining 70 percent. This joint venture was accounted for under the equity method.

Our joint venture agreements with Square expired as of March 31, 2003. As provided in the EA Square KK joint venture agreement, we have purchased Square’s 30 percent interest in EA Square KK for $2.5 million representing the return of their capital contribution and renamed the entity Electronic Arts KK. Electronic Arts KK is now a wholly owned subsidiary of Electronic Arts. See Note 13 of the Notes to Consolidated Financial Statements, included in Item 8 hereof. As a further result of the termination of the joint venture agreements, our distribution of Square products in North America will terminate on June 30, 2003. We generated $84.5 million, $80.8 million and $106.6 million in net revenue from sales of Square products in North America during fiscal 2003, 2002 and 2001, respectively.

Historically, there have been multiple consoles available in the market and vigorous competition between console manufacturers. While Sony has for the past several years been the clear market leader (with its PlayStation and PlayStation 2 consoles), Microsoft and Nintendo are large and viable competitors, and PCs continue to be strong interactive game platform. We develop and publish products for multiple platforms, and this diversification continues to be a cornerstone of our strategy.

The following table details select information on a sample of the console platforms for which we have published titles:

Our early investment in products designed for play on 32-bit PCs and consoles (such as the PlayStation), has been strategically important in positioning us for the current generation of 128-bit machines. We believe that such investment continues to be important. During fiscal years 2003, 2002 and 2001, the video and computer games industry has experienced a platform transition from 32-bit CD-based and 64-bit cartridge-based consoles to the current generation of 128-bit, DVD-based game consoles and related software. The transition to the current generation systems was initiated by the launch of Sony’s PlayStation 2 in fiscal 2001, and continued with the launches of the Nintendo GameCube and Microsoft’s Xbox in fiscal 2002. As the market continues to shift to the current generation systems, our sales of 32-bit and 64-bit products have been declining and we expect a continued significant decline in fiscal 2004.

The market for online games is still in its early stages. To date, we have had limited success in finding ways of generating revenue and profits from online games, including subscription fees, “pay-to-play fees” and advertising. In addition, we have had limited experience with developing optimal pricing strategies or predicting usage patterns for our online games. In our history, we have launched five persistent state world products with mixed results. While we have achieved success with Ultima Online, the launch of our other persistent state world products, most notably The Sims Online and Earth & Beyond, have been below our expectations. In fiscal 2003, we also launched a free EA SPORTS online offering in connection with seven of our PC sports titles. Despite our limited success to date, we believe that online functionality is integral to our existing and future products. The continued growth of the online sector of our industry will depend on the following key factors:


•	Increasing popularity of PC games;
•	Growing interest in multiplayer games;
•	Willingness by consumers to pay for online content;
•	Rapid innovation of new online entertainment experiences;
•	Mass market adoption of broadband technologies; and
•	Convergence of online capabilities in next-generation consoles.

The interactive entertainment software business is highly competitive. It is characterized by the continuous introduction of new titles and the development of new technologies. Our competitors vary in size from very small companies with limited resources to very large, diversified corporations with greater financial and marketing resources than ours. Our business is driven by hit titles, which require ever-increasing budgets for development and marketing. Therefore, the availability of significant financial resources has become a major competitive factor in our industry, primarily as a result of the costs associated with the development and marketing of game software. Competition in our industry is also based on product quality and features, timing of product releases, brand-name recognition, access to distribution channels, effectiveness of marketing, and price.

We compete with Sony, Microsoft and Nintendo, which each publish software for their respective console platforms. We also compete with numerous companies which are, like us, licensed by the console manufacturers to develop and publish software games that operate on their consoles. These competitors include Acclaim Entertainment, Activision, Capcom, Eidos, Infogrames, Konami, Lucas Arts, Midway, Namco, Sega, Take-Two Interactive, THQ, 3DO, Ubi Soft and Vivendi Universal Games, among others. In addition, we believe that large software companies and media companies are increasing their focus in the interactive entertainment software market. Our titles also compete with other forms of entertainment, such as motion pictures, television and music for the leisure time and discretionary spending of consumers.

In addition, the market for our products is characterized by significant price competition, and we face increasing pricing pressures from our competitors. These pressures have, from time to time, required us to reduce our prices on certain products. The experience of our industry is that software game prices decline once a generation of consoles have been in the market for a significant period of time, because of the increasing number of software titles competing for acceptance by consumers. Accordingly, we expect lower overall pricing of games for the PlayStation 2, Xbox and Nintendo GameCube during fiscal 2004, in comparison to fiscal 2003. However, we believe that highly-anticipated “hit” titles, based on popular sports and entertainment properties, will maintain premium pricing in the market in fiscal 2004, as they have done in fiscal 2003.

During calendar 2002, we were a market leader in sales of interactive entertainment software products for the Sony PlayStation 2, the Nintendo GameCube, the Microsoft Xbox and personal computers (in the aggregate), in the U.S. and European markets. In the U.S., together with our affiliates, we published three of the top-10-selling titles for play on videogame consoles, and five of the top-10 PC titles (according to NPDFunworld and NPD Techworld). Our nearest competitors had two of the top-10 videogame and PC titles for the same period (according to NPDFunworld and NPD Techworld). While similar comprehensive data are not available for Europe, we believe that our titles had similar chart strength for the PlayStation 2 and PC in that territory in calendar year 2002.

In fiscal 2003, approximately 37 percent of our net revenue was derived from sales of EA Studio software for the PlayStation 2, compared to 28 percent in fiscal 2002. We released 19 titles worldwide in fiscal 2003 for the PlayStation 2, compared to 18 titles in fiscal 2002. Key releases for the year included Medal of Honor Frontline™, The Lord of the Rings™, The Two Towers™, Harry Potter and the Chamber of Secrets™ and The Sims. PlayStation 2 product revenue increased for fiscal 2003 due to the higher installed base of PlayStation 2 hardware, net revenue on key titles released in multiple territories during the current fiscal year and higher net revenue on current year franchise title releases versus prior year releases of these titles. We expect revenue from PlayStation 2 products to continue to grow in fiscal 2004, but as revenue for these products increase, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however, we expect lower price points for other titles. Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America as of April 2000, as amended, we are authorized to develop and distribute DVD-based software products compatible with the PlayStation 2. Pursuant to this agreement, we engage Sony to supply PlayStation 2 DVDs for our products.

We also announced in May 2003 that we would make many of our sports games available for the PlayStation 2 online service. Through that service, customers who have any online adaptor for their PlayStation 2 consoles will be able to play our PlayStation 2 sports products online.

In fiscal 2003, approximately four percent of our net revenue was derived from sales of EA Studio software for the PlayStation, compared to 11 percent in fiscal 2002. During fiscal 2003, we released six PlayStation games, compared to five in fiscal 2002. As expected, PlayStation product sales decreased for fiscal 2003 compared to the prior year primarily attributable to the market transition to next generation console systems. Although our PlayStation products are playable on the PlayStation 2 console, we expect sales of current PlayStation products to continue to decline in fiscal 2004. Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America in July 1994, as amended, we are authorized to develop and distribute CD-based software products compatible with the PlayStation. Pursuant to this agreement, we engage Sony to supply PlayStation CDs for our products.

for the year included Harry Potter and the Chamber of Secrets, Medal of Honor Frontline, Need for Speed: Hot Pursuit 2, and The Lord of the Rings, The Two Towers. Revenue from Nintendo GameCube products increased for fiscal 2003 due to the higher installed base of the Nintendo GameCube platform, which is now available in every major market in which we operate. In the prior fiscal year, the Nintendo GameCube platform was only available in North America beginning in November 2001 and in Japan beginning in September 2001. We expect revenue from Nintendo GameCube products to continue to grow in fiscal 2004, but as revenue for these products increases, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however, we expect lower price points for other titles.

Under the terms of a licensing agreement entered into with Nintendo of America (effective as of November 1, 2001), we are authorized to develop and distribute proprietary optical format disk products compatible with the Nintendo GameCube. Pursuant to this agreement, we engage Nintendo to supply Nintendo GameCube proprietary optical format disk products for our products.

In fiscal 2003, approximately nine percent of our net revenue was derived from sales of EA Studio software for the Xbox, compared to five percent in fiscal 2002. We released 16 titles worldwide in fiscal 2003 for the Xbox, compared to ten titles in fiscal 2002. Key releases for the year included Medal of Honor Frontline, NCAA Football 2003, The Lord of the Rings, The Two Towers and FIFA 2003. Revenue from Xbox products increased for fiscal 2003 due to the higher installed base of the Xbox platform, which was available for a full twelve months versus five months in fiscal 2002. We expect net revenue from Xbox products to continue to grow in fiscal 2004, but as net revenue for these products increases, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however we expect lower price points for other titles.

Under the terms of a licensing agreement entered into with Microsoft as of December 8, 2000, as amended, we are authorized to develop and distribute DVD-based software products compatible with the Xbox.

In May 2003, we announced that we have no plans to support the online service for Xbox. It is unclear whether the absence of online functionality in our Xbox products will be important enough to consumers to affect sales of our Xbox products.

Our carriage agreement with AOL establishes the basis for our creation and distribution of game sites on the world wide web that are available to AOL subscribers via the Games Channel on AOL’s flagship ISP service and to other consumers who use other AOL portals (AOL.com, CompuServe, Netscape/ Netcenter and ICQ). Users can also access our online games website directly from the world wide web at www.ea.com. We are AOL’s exclusive provider of a broad aggregation of online games and programs and we manage all of the Games Channel content within AOL’s flagship ISP service and other AOL portals in the United States. Within any of these AOL properties, users will be able to find a games channel or area which will provide the user access to our online games. See Note 5 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the significant terms of our relationship with AOL.

In fiscal 2003, we generated approximately 68 percent of our revenue from EA Studio-produced products released during the year. As of March 31, 2003, we were actively marketing approximately 70 titles, comprising over 135 stock keeping units, or SKUs, that were produced by EA Studios. During fiscal 2003, we introduced 31 EA Studios titles, representing 86 SKUs, compared to 32 EA Studios titles, comprising 64 SKUs, in fiscal 2002. In fiscal 2003, we had 22 titles that sold over one million units (aggregated across all platforms). In fiscal 2002, we had 16 titles and in fiscal 2001, we had 14 titles that

The products produced by EA Studios are designed and created by our employee designers and artists and by non-employee software developers (“independent artists”). We typically advance development funds to the independent artists during development of our games, which payments are considered advances against subsequent royalties based on the sales of the products. These terms are typically set forth in written agreements entered into with the independent artists.

For fiscal 2003, we had one title, Harry Potter and the Chamber of Secrets, published on seven different platforms, which represented approximately 10 percent of our total fiscal 2003 net revenue. For fiscal 2002, Harry Potter and the Sorcerer’s Stone™, published on four different platforms, represented approximately 12 percent of our total fiscal 2002 net revenue. For fiscal 2001, no title represented more than 10 percent of our total fiscal 2001 net revenue.

We publish products in a number of categories such as sports, action, strategy, simulations, role playing and adventure, each of which is becoming increasingly competitive. Our sports-related products, marketed under the EA SPORTS™ brand name, accounted for a significant percentage of net revenue in fiscal years 2003, 2002 and 2001. There can be no assurance that we will be able to maintain our market share in the sports category.

The front-line retail selling prices in North America of our products, excluding older titles marketed as “Classics”, typically range from $30.00 to $50.00. “Classics” titles have retail selling prices that range from $10.00 to $30.00. The retail selling prices of our titles outside of North America vary widely based on local market conditions.

We currently develop or publish products for six different hardware platforms. In fiscal 2003, our product releases were for PlayStation 2, PC, Xbox, PlayStation, Nintendo GameCube, Game Boy Advance, Game Boy Color and online Internet play. Our planned product introductions for fiscal 2004 are for the PlayStation 2, PC, Nintendo GameCube, Xbox, PlayStation and Game Boy Advance.

Our goal is to be the market leader of games played on the current generation of 128-bit video game consoles. We are investing in the development of tools and technologies designed to facilitate development of our products for these platforms. We had research and development expenditures of $401.0 million in fiscal 2003, $380.6 million in fiscal 2002 and $376.2 million in fiscal 2001.


•	Pogo. We currently offer approximately 37 free online games under this brand. The games offering, geared towards family entertainment, includes card games, board games, casino games, word games, trivia games, puzzles and Bingo. This category leverages prizes, tournaments, community and Pogo’s strength and popularity in free, familiar games to significantly increase the appeal of our online games service to the broad consumer market.
•	EA GAMES. We currently offer 17 free online games under this brand. The EA Games offering consists of original arcade-style games and other original games designed solely for online play, such as Hammerhead Pool, Tank Hunter and Need for Speed.
•	EA SPORTS and EA SPORTS BIG. We currently offer eight free online games under this brand. In this category, SSX Snowdreams leverages the EA SPORTS BIG franchise to form a community of sports gamers. In addition, there are original games designed solely for online play such as Pebble Beach, 3-Point Showdown and It’s Outta Here 2!.

Paid Content. In addition to free online games, we offer premium pay-to-play persistent state world games. In order to access these premium games, the player must purchase a CD-ROM through retail stores or through our online store. After an initial free trial period, the player must pay a subscription fee in order to continue playing. These persistent state world games are designed to appeal to avid gamers: teens and adults looking to participate in multi-player online games made up of fantastic worlds, characters, adventures or activities – big or small, real or imagined – as well as new forms of cutting-edge online entertainment targeted to mass market gamers. Current persistent state world game offerings include Ultima Online, The Sims Online and Earth & Beyond.

We launched both Earth & Beyond and The Sims Online in fiscal 2003. The Sims Online was expected to be our flagship online subscription offering. Through March 31, 2003, however, the number of units sold and number of subscribers for The Sims Online and Earth & Beyond have been below our expectations. See Note 19 of the Notes to Consolidated Financial Statements for a discussion of the restructuring and asset impairment charges, included in Item 8 hereof.

Each of the categories above focuses on targeting and serving its specific consumer group by:


•	Offering engaging and accessible online games;
•	Building a community in which consumers can interact with one another via chat, bulletin boards, events and match-making services for multi-player games and other contests;
•	Delivering innovative content that continually entertains; and
•	Establishing a direct relationship with each audience member through personalization and customization of user experiences.

Co-Publishing and Distribution Products. Co-publishing products are games that are conceived and developed by independent developers and for which we provide production assistance and marketing and distribution services. We publish some of these products under an EA brand. Distribution products are titles that are published by another publisher and delivered to us as completed products, for which we provide distribution services. As of March 31, 2003, we distributed approximately 34 co-publishing and distribution titles in North America.

Our largest relationship relating to distribution products is with Square. In May 1998, Electronic Arts and Square formed a joint venture in North America, creating Square EA, as discussed in Note 13 of the Notes to Consolidated Financial Statements, included in Item 8 hereof. In conjunction with the formation of this joint venture, we have since that time had the exclusive right in North America to distribute products published by this joint venture. Our joint venture agreements with Square expired as of March 31, 2003, and our distribution of Square products in North America will cease on June 30, 2003. In fiscal 2003, Square EA published Kingdom Hearts for the PlayStation 2, which was a top-ten selling SKU, selling over one million units.

The interactive software game business has become increasingly “hits” driven, requiring significantly greater expenditures for marketing and advertising of our products, particularly for television advertising. There can be no assurance that we will continue to produce “hit” titles, or that advertising for any product will increase sales sufficiently to recoup those advertising expenses.

We generated approximately 95 percent of our North American net revenue from direct sales to retailers through a field sales organization of professionals and a group of telephone sales representatives. The remaining 5 percent of our North American sales were made through a limited number of specialized

Outside of North America, we derive revenues primarily from direct sales to retailers. Our largest distributor relationship is with Sony in Japan. Sales of our PlayStation and PlayStation 2 products through Sony make up approximately 60 percent of our net revenue in Japan. Under the terms of our distribution agreement with Sony, we are not required to accept returns or grant price protection. In a few of our smaller markets we also sell our products through distributors with whom we have written agreements or informal arrangements, depending on the business customs of the territories.

In North America, we have stock-balancing programs for our PC products, which allow for the exchange of PC products by resellers under certain circumstances. In all of our major geographical markets (other than Japan), we may decide to provide price protection under certain circumstances for both our PC and console products after we analyze: inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds. Moreover, the risk of product returns for our products on mature platforms (such as the PlayStation) may increase as newer hardware platforms, such as the Xbox, Nintendo GameCube and PlayStation 2, become more popular. We monitor and manage the volume of our 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. We believe that we provide adequate reserves for returns and price protection which are based on estimated future returns of products, taking into account historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the interactive game market and the overall economy, changes in customer demand and acceptance of our products and other related factors. We believe our current reserves will be sufficient to meet return and price protection requirements for current in-channel inventory. However, we cannot be certain that actual returns or price protection will not exceed our reserves.

The distribution channels through which our games are sold have been characterized by change, including consolidations and financial difficulties of certain distributors and retailers. The bankruptcy or other business difficulties of a distributor or retailer could render our accounts receivable from such entity uncollectible, which could have an adverse effect on our operating results and financial condition. In January 2002, one of our retail customers, Kmart, declared bankruptcy. We believe we have adequately reserved for our exposure to Kmart. In addition, an increasing number of companies are competing for access to our distribution channels. Our arrangements with our distributors and retailers may be terminated by either party at any time without cause. Distributors and retailers often carry products that compete with ours. Retailers of our products typically have a limited amount of shelf space and promotional resources that they are willing to devote to the software games category, and there is intense competition for these resources. There can be no assurance that distributors and retailers will continue to purchase our products or provide our products with adequate levels of shelf space and promotional support.

Within our website, we offer visitors the opportunity to purchase our packaged goods software products directly from us. We use our existing distribution network to fulfill consumers’ online orders. We also have a fulfillment group that sells product directly to consumers through a toll-free number and through our websites listed in advertising by us and our co-publishing and distribution affiliates. This group is also responsible for targeted direct-mail marketing and sells product backups and accessories to registered customers.

Our management focuses considerable attention to managing our inventories and other working-capital-related items. We manage inventories by communicating with our customers prior to the release of our products, and then using our industry experience to forecast demand on a product-by-product and territory-by-territory basis. We then place manufacturing orders for our products that match this forecasted

demand. We do not maintain substantial inventories of our products because (1) historically, most of the sales of a particular product occur within the first 60 – 90 days after the product’s release, and (2) the lead times on re-orders of our products are generally short, approximately two to three weeks. Further, as discussed in “Marketing and Distribution”, we have practices in place with our customers (such as stock balancing and price protection) that reduce product returns.

As shown in our Consolidated Balance Sheets included in this Report, we had approximately $950.0 million in cash and cash equivalents and $637.6 million in short-term investments as of March 31, 2003. We believe that this amount is sufficient to meet our working capital needs for the coming year.


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

As of April 1, 2003, we are no longer managing these segments separately. We consider online functionality to be integral to our existing and future products. Please see the discussion regarding segment reporting in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 of the Notes to Consolidated Financial Statements, included in Items 7 and 8 hereof.

We have wholly-owned subsidiaries throughout the world, including offices in the United Kingdom, France, Spain, Germany, Australia, Canada, South Africa, Singapore, Sweden, Japan, Malaysia, Brazil and Holland. Our joint venture in Japan has recently been converted to a wholly owned subsidiary as a result of our buy-out of our joint venture partner (see the discussion under “Joint Ventures and Investments” included above). The amounts of net revenue, operating profit and identifiable assets attributable to each of our geographic regions for each of the last three fiscal years are set forth in Note 18 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

International net revenue increased by 66 percent to $1,046.5 million, or 42 percent of consolidated fiscal 2003 net revenue, compared to $631.4 million, or 37 percent of consolidated fiscal 2002 net revenue due to the following:


•	Net revenue from sales in Europe increased by 69 percent compared to the prior year due to higher PlayStation 2, Nintendo GameCube, Xbox and PC net revenue, partially offset by the expected decrease of net revenue from Sony PlayStation. PlayStation 2 net revenue increased by 181 percent due to strong sales of titles released in the current year, most notably Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims, as well as a higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August 2002. Nintendo GameCube and Xbox net revenue increased due to a higher installed base of the platforms, which both launched in Europe in the spring of 2002. PC net revenue increased due to higher net revenue for The Sims franchise titles. Net revenue from sales in Europe comprised 35 percent, 30 percent and 29 percent of our total net revenue for fiscal 2003, 2002 and 2001, respectively, and has been a significant region in our business.
•	Net revenue from sales in the Asia Pacific region increased by 64 percent compared to the prior year due to higher PlayStation 2, co-publishing and distribution and Xbox net revenue. PlayStation 2 net revenue increased by 244 percent due to strong current year releases including The Lord of the Rings, The Two Towers, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets. Co-publishing and distribution net revenue increased due to net revenue from Final Fantasy X and Battlefield 1942. Xbox net revenue increased due to a higher installed base of the platform


	with 20 titles available in fiscal 2003 versus three titles in fiscal 2002. Net revenue from sales in Asia Pacific comprised four percent, three percent and four percent of our total net revenue for fiscal 2003, 2002 and 2001, respectively.
•	Net revenue from sales in Japan increased by 37 percent compared to the prior year due to a higher installed base and strong sales of titles associated with the PlayStation 2, most notably Medal of Honor Frontline, 2002 FIFA World Cup and Project FIFA World Cup, and also due to an increase in co-publishing and distribution titles, partially offset by the expected decrease in PlayStation net revenue. Net revenue from sales in Japan comprised three percent of our total net revenue for fiscal 2003, and four percent of our total net revenue for each of fiscal 2002 and 2001.

Although we expect international revenue to grow in fiscal 2004, we do not believe it will continue to grow at the same rate as in the prior year.

The suppliers we use for manufacture of our games can be characterized in three types:


•	the manufacturing entities that press our game disks,
•	the entities that print our game instruction booklets, and
•	the entities that package the disks and printed game instruction booklets into the jewel cases and boxes for shipping to customers.

In many instances, we are able to acquire materials on a volume-discount basis. We have multiple potential sources of supply for most materials, except with respect to our PlayStation, PlayStation 2, Xbox and Nintendo GameCube products, as discussed in “Relationships with Significant Hardware Platform Companies” above. We also have alternate sources for the manufacture and assembly of most of our products. To date, we have not experienced any material difficulties or delays in production of our software and related documentation and packaging. However, a shortage of components or other factors beyond our control could impair our ability to manufacture, or have manufactured, our products.

We typically ship orders immediately upon receipt. To the extent that any backlog may or may not exist at the end of a reporting period, it would be both coincidental and an unreliable indicator of future results of any period.

Our business is highly seasonal. We typically experience our highest revenue and profits in the calendar year-end holiday season and a seasonal low in revenue and profits in the quarter ending in June.

As of March 31, 2003, we employed approximately 4,000 people, of whom over 1,700 were outside the United States. We believe that our ability to attract and retain qualified employees is an important factor in our growth and development and that our future success will depend, in large measure, on our ability to continue to attract and retain qualified employees. To date, we have been successful in recruiting and retaining sufficient numbers of qualified personnel to conduct our business successfully. We believe that our relationships with our employees are good. None of our employees are represented by a union, guild or other collective bargaining organization.

On March 22, 2000, the stockholders of Electronic Arts authorized the issuance of a new series of common stock, designated as Class B Common Stock (“Tracking Stock”). The Tracking Stock was intended to reflect the performance of our online and e-Commerce business segment. When we adopted the Tracking Stock, our intention was to provide liquidity for our online business through access to the

public markets. However, as a result of the disappointing performance of our online business, we have no plans, nor do we see meaningful prospects, for the creation of a public market for our Class B Common Stock. Therefore, we will discontinue separate reporting of our Tracking Stock in future reporting periods. We expect this decision to simplify our reporting and enable us to provide our online products and services more efficiently. Maintaining separate reporting for the Tracking Stock and managing our online business as a separate reporting business segment required a complex organization and management structure. In addition, a variety of intercompany agreements between Electronic Arts Inc. and EA.com Inc. (a wholly owned subsidiary of Electronic Arts Inc. that is the holder of all of our online business related assets) have required us to maintain duplicate functions, to routinely charge each organization for goods and services that it provided to the other organization, and to manage our online business in a manner that is generally unlike the way in which we manage our other businesses. We now consider online functionality to be integral to our existing and future products. Accordingly, as of April 1, 2003, we have consolidated the reporting related to our online products and services into that of our core business and now manage these online products and services as part of the overall development and publication of our other products. We believe that this better reflects the way in which our chief operating decision maker reviews and manages our business and the importance of our online products and services relative to the rest of our business. At the same time, in light of the disappointing launch of The Sims Online, we evaluated our online products and services, and the assets associated with EA.com, for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144. In the fourth quarter of fiscal 2003 we recorded a restructuring and asset impairment charge of $72.1 million, (which included charges related to studio consolidation that were unrelated to our online business). See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the restructuring charges.

The following table sets forth information regarding our executive officers, who are appointed by and serve at the discretion of the Board of Directors:

Mr. Probst has been a director of Electronic Arts since January 1991 and currently serves as Chairman and Chief Executive Officer. He was elected as Chairman in July 1994. Mr. Probst has previously served as President of Electronic Arts; as Senior Vice President of EA Distribution, Electronic Arts’ distribution division, from January 1987 to January 1991; and from September 1984, when he joined

Mr. Mattrick has served as President of worldwide EA Studios since September 1997. Prior to this, he served as Executive Vice President, North American Studios, since October 1996. From July 1991 to October 1996, he served as Senior Vice President, North American Studios, Vice President of Electronic Arts and Executive Vice President/ General Manager for EA Canada. Mr. Mattrick was founder and former chairman of Distinctive Software Inc. from 1982 until it was acquired by us in 1991.

Mr. Riccitiello has served as President and Chief Operating Officer since October 1997. Prior to joining Electronic Arts, Mr. Riccitiello served as President and Chief Executive Officer of the worldwide bakery division at Sara Lee Corporation. Before joining Sara Lee, he served as President and CEO of Wilson Sporting Goods Co. and has also held executive management positions at Haagen-Dazs, PepsiCo, Inc. and The Clorox Company. Mr. Riccitiello holds a B.S. degree from the University of California, Berkeley.

Mr. Gordon has served as Executive Vice President and Chief Creative Officer since March 1998. Prior to this, he served as Executive Vice President, Marketing since October 1995. From August 1993 to October 1995, he served as Executive Vice President of EA Studios and as Senior Vice President of Entertainment Production since February 1992. He also served as Senior Vice President of Marketing, as General Manager of EA Studios, as Vice President of Marketing, as Director of Advertising and as Vice President of our former entertainment division while employed by us. Mr. Gordon holds a B.A. degree from Yale University and an M.B.A. degree from Stanford University.

Mr. Jenson joined Electronic Arts in June 2002 as Executive Vice President and Chief Financial and Administrative Officer. Before joining Electronic Arts, he was the Senior Vice President and Chief Financial Officer for Amazon.com from 1999 to 2002. From 1998 to 1999, he was the Chief Financial Officer and Executive Vice President for Delta Air Lines. Prior to that, he worked in several positions as part of the General Electric Company. Most notably, he served as Chief Financial Officer and Senior Vice President for the National Broadcasting Company, a subsidiary of General Electric. Mr. Jenson earned his Masters of Accountancy-Business Taxation, and B.S. in Accounting from Brigham Young University.

Ms. Kennedy has been employed by Electronic Arts since February 1990. She served as Corporate Counsel until March 1991 and is currently Executive Vice President, General Counsel and Secretary. From October 1996 to August 2002, she was Senior Vice President, General Counsel and Secretary. Prior to October 1996, she served as Vice President, General Counsel and Secretary. Ms. Kennedy was elected Secretary in September 1994. Ms. Kennedy is a member of the State Bars of California and New York and received her B.A. degree from William Smith College and her Juris Doctor from the State University of New York.

Mr. Lee has served as Executive Vice President and Chief Operating Officer, Worldwide Studios since August 2002. From 1998 to August 2002, he was Senior Vice President and Chief Operating Officer, Worldwide Studios. Prior to this, he served as General Manager of EA Canada, Chief Operating Officer of EA Canada, Chief Financial Officer of EA Sports and Vice President, Finance and Administration of EA Canada. Mr. Lee was a principal of Distinctive Software Inc. until it was acquired by EA in 1991. Mr. Lee holds a Bachelor of Commerce degree from the University of British Columbia and is a Chartered Financial Analyst.

Mr. McMillan was named Executive Vice President of EA’s worldwide studios in June 2002. From September 1999, he served as Senior Vice President, Worldwide Studios. From 1991 to 1999, he held various senior positions within EA’s Studios. Mr. McMillan was an employee of Distinctive Software Inc. until it was acquired by EA in 1991.

Mr. Rueff has served as Executive Vice President of Human Resources since August 2002. From October 1998 to August 2002, he served as Senior Vice President of Human Resources. Prior to joining Electronic Arts, Mr. Rueff held various positions with the PepsiCo companies for over 10 years, including: Vice President, International Human Resources; Vice President, Staffing and Resourcing at Pepsi-Cola

Ms. Smith has served as Executive Vice President and General Manager, North American Publishing since March 1998. Prior to this, she served as Executive Vice President, North American Sales since October 1996. She previously held the position of Senior Vice President of North American Sales and Distribution from July 1993 to October 1996 and as Vice President of Sales from 1988 to 1993. Ms. Smith has also served as Western Regional Sales Manager and National Sales Manager since she joined Electronic Arts in 1984. Ms. Smith holds a B.S. degree in management and organizational behavior from the University of San Francisco.

Mr. Carbone has served as Senior Vice President, Finance since December 2000. Prior to this, he served as Vice President, Finance since February 1991. He was elected Assistant Secretary of the Company in March 1991. Mr. Carbone holds a B.S. degree in accounting from King’s College and is a Certified Public Accountant.

Dr. Florin has served as Senior Vice President and Managing Director, European Publishing since April 2003. Prior to this, he served as Vice President, Managing Director for European countries since 2001. From the time he joined Electronic Arts in 1996 to 2001, he was the Managing Director for German speaking countries. Prior to joining Electronic Arts, Dr. Florin held various positions at BMG, the global music division of Bertelsmann AG, and worked as a consultant with McKinsey. Dr. Florin holds Masters and Ph.D. degrees in Economics from the University of Augsburg, Germany.

We own or lease the following facilities. We believe that these facilities are adequate for our current needs. We believe that suitable additional or substitute space will be available as needed to accommodate our future needs.

In February 1995, we entered into a build-to-suit lease with Keybank National Association on our headquarters facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property (land and facilities) for $145.0 million, or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128.9 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

In December 2000, we entered into a second build-to-suit lease with Keybank National Association for a five-year term beginning December 2000 to expand our Redwood Shores, California headquarters facilities and develop adjacent property adding approximately 310,000 square feet to our campus. Construction was completed in June 2002. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development. We have an option to purchase the property for $127.0 million or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $118.8 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

Lease rates are based upon the Commercial Paper Rate. The two lease agreements described above require us to maintain certain financial covenants related to consolidated net worth, fixed charge coverage ratio, total consolidated debt to total consolidated capital and quick ratio, all of which we were in compliance with as of March 31, 2003.


•	we own a 206,000 sq. ft. product development studio facility in Burnaby, British Columbia, Canada,
•	we own a 173,500 sq. ft. development facility in Austin, Texas and
•	we lease product development studio facilities in Walnut Creek, California, Los Angeles, California, Maitland, Florida and Vancouver, British Columbia.

We are subject to pending claims and litigation. Management, after review and consultation with legal counsel, considers that any liability from the disposition of such lawsuits would not have a material adverse effect on our consolidated financial condition or results of operations.

There were no matters submitted to a vote of security holders during the quarter ended March 31, 2003.

Item 5: Market for Registrant’s Common Equity and Related Stockholder Matters

Our Class A Common Stock is traded on the Nasdaq National Market under the symbol “ERTS”. The following table sets forth the quarterly high and low price per share of our Class A Common Stock from April 1, 2001 through March 31, 2003. Such prices represent prices between dealers and does not include retail mark-ups, mark-downs or commissions and may not represent actual transactions.



	Prices

	High		Low

Fiscal Year Ended March 31, 2002:

First Quarter	$	63.73	$	45.38
Second Quarter		61.06		40.99
Third Quarter		66.90		41.20
Fourth Quarter		63.65		50.51

Fiscal Year Ended March 31, 2003:

First Quarter	$	66.96	$	53.50
Second Quarter		68.96		52.45
Third Quarter		72.43		49.49
Fourth Quarter		60.41		47.50

There were approximately 1,787 holders of record of our Common Stock as of June 4, 2003. In addition, we believe that a significant number of beneficial owners of our Class A Common Stock hold their shares in street name.

We have not paid any cash dividends and do not anticipate paying cash dividends in the foreseeable future.

ELECTRONIC ARTS AND SUBSIDIARIES
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
Years Ended March 31, (In thousands, except per share data)

ELECTRONIC ARTS AND SUBSIDIARIES
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA (Continued)
Years Ended March 31, (In thousands)


(1)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. See Note 1(l), included in Item 8 hereof.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting period. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.

We principally derive revenue from sales of packaged interactive software games designed for play on videogame consoles (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and hand-held game machines (such as the Nintendo Game Boy Advance). Product revenue is recognized net of sales allowances. We also have stock-balancing programs for our personal computer products, which allow for the exchange of personal computer products by resellers under certain circumstances. We may decide to provide price protection for both our personal computer and video game system products. In making this determination we evaluate: inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds.

We estimate potential future product returns, price protection and stock-balancing programs related to current period product revenue. We analyze historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the video game market and the overall economy, changes in customer demand and acceptance of our products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, management monitors and manages the volume of our 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. In the past, actual returns have not generally exceeded our reserves. However, actual returns and price protections may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. For example, the risk of product returns for our products may increase as the Xbox, Nintendo GameCube and PlayStation 2 consoles pass the midpoint of their lifecycle and an increasing number and aggregate amount of competitive products heighten pricing and competitive pressures. While management believes it can make reliable estimates for these matters, if we changed our assumptions and estimates, our returns reserves would change, which would impact the net revenue we report. For example, if actual returns were significantly greater than the reserves we have established, the actual results would decrease our reported revenue. Conversely, if actual returns were significantly less than our reserves, this would increase our reported revenue.

Similarly, significant judgment is required to estimate our allowance for doubtful accounts in any accounting period. We determine our allowance for doubtful accounts by evaluating customer creditworthiness in the context of current economic trends. Depending upon the overall economic climate and the financial condition of our customers, the amount and timing of our bad debt expense could change significantly.

We cannot predict customer bankruptcies or an inability of any of our customers to meet their financial obligations to us. Therefore, our estimates could differ materially from actual results.

Our gross accounts receivable balance was $246.7 million and our allowance for product returns, pricing allowances and doubtful accounts was $164.6 million as of March 31, 2003. As of March 31, 2002, our gross accounts receivable balance was $306.4 million and our allowance for product returns, pricing

allowances and doubtful accounts was $115.9 million. Reserves for bad debts and sales allowances increased 42 percent from $115.9 million at March 31, 2002 to $164.6 million at March 31, 2003. The increase in the overall reserves as of March 31, 2003 is due to the increase in gross revenue in the six and 12 months ended March 31, 2003 compared to the same periods in the prior fiscal year. Net revenue increased 44 percent during fiscal 2003 due to the higher installed base of PlayStation 2 consoles and having a full year of sales of games for the Xbox and Nintendo GameCube. The increase in price protection and sales returns is directly attributable to the increase in sales that occurred during fiscal 2003. Sales return and price protection requirements as a percentage of gross revenue in the six and 12 months ended March 31, 2003 have remained relatively constant compared to the same periods in the prior fiscal year. We have recorded reserves for returns of product and price protection credits issued for products sold in prior periods. We believe these reserves are adequate based on historical experience and our current estimate of potential returns and allowances.

Prepaid royalties consist primarily of prepayments we make for manufacturing royalties, advances paid to our co-publishing and/or distribution affiliates and license fees paid to celebrities, professional sports organizations and other organizations for our use of their trade name and content. 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 or effective royalty rate as cost of goods sold based on actual net product sales. We evaluate the future realization of prepaid royalties quarterly and charge to cost of goods sold any product post-launch amounts we deem unlikely to be realized through product sales. Any impairments on pre-launch advances are charged to research and development expense. We rely on forecasted revenue to evaluate the future realization of prepaid royalties. If actual revenue, or revised sales forecasts, fall below the initial forecasted sales, the charge may be larger than anticipated in any given quarter. Once the charge has been taken, that amount will not be expensed in future quarters when the product has shipped. The current portion of prepaid royalties, included in other current assets, was $39.9 million at March 31, 2003 and $65.5 million at March 31, 2002. The long-term portion of prepaid royalties, included in other assets, was $7.4 million at March 31, 2003 and $1.2 million at March 31, 2002.

Valuation of long-lived assets, including goodwill and other intangible assets

Under current accounting standards, we make judgments about the remaining useful lives of purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate an other-than-temporary impairment in the remaining value of the assets recorded on our balance sheet. In order to determine if an other-than-temporary impairment has occurred, management makes various assumptions about the future value of the asset, by evaluating future business prospects and estimated cash flows. Our future net cash flows are primarily dependent on the sale of products for play on proprietary video game platforms. The success of our products is affected by our ability to accurately predict which platforms and which products we develop will be successful. Also, our revenue and earnings are dependent on our ability to meet our product release schedules. Due to product sales shortfalls, we may not realize the future net cash flows necessary to recover our long-lived assets, which may result in an impairment charge recorded in the future. We recorded asset impairment charges of $66.3 million during fiscal 2003 and $12.8 million during fiscal 2002. See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the asset impairment charges recorded.

On April 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. As a result of adopting this standard, we will continue to amortize finite-lived intangibles, but no longer amortize certain other intangible assets, most notably goodwill. In

lieu of amortization, SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step, which was required to be completed by September 30, 2002, tests for impairment by applying fair value-based tests at the Company’s reporting unit level. The second step (if necessary), required to be completed by March 31, 2003, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. We completed the first step of transitional goodwill impairment testing during the first quarter of fiscal 2003 and found no indicators of impairment of our recorded goodwill. As a result, we have recognized no transitional impairment loss in fiscal 2003 in connection with the adoption of SFAS No. 142. We completed the annual impairment test in the fourth quarter of fiscal 2003 with a measurement date of January 1, 2003 and found no indicators of impairment of our recorded goodwill. Future impairment tests may result in a charge to earnings and there is a potential for a write down of goodwill in connection with the annual impairment test. Following adoption of SFAS No. 142, we continue to evaluate whether any event has occurred which might indicate that the carrying value of an intangible asset is not recoverable.

In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposures in each jurisdiction including the impact, if any, of additional taxes resulting from tax examinations and making judgments regarding the recoverability of deferred tax assets. A valuation allowance is established to the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction. Tax exposures can involve complex issues and may require an extended period to resolve. To determine the quarterly tax rate, we are required to estimate full-year income and the related income tax expense in each jurisdiction. The estimated effective tax rate is adjusted for the tax related to significant unusual items. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate.

Geographically, our net revenue for the fiscal years ended March 31, 2003 and 2002 break down as follows (in thousands):

Net Revenue for fiscal 2003 increased by 44 percent as compared to fiscal 2002. The increase in net revenue was driven by the following:


•	Increase in PlayStation 2 net revenue of $427.8 million driven by strong sales of key titles released in multiple territories including Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims.
•	Higher installed base of game consoles, most notably the PlayStation 2. Net revenue from sales associated with the PlayStation 2 platform increased 89 percent to $910.7 million versus $482.9 million in the prior fiscal year.
•	Higher installed base of the Xbox console, which is now available in every major market in which we operate. Fiscal 2003 contains 12 months of revenue from Xbox titles versus five months in fiscal 2002 due to the launch of this platform in November 2001. In fiscal 2003, we generated $219.4 million in net revenue from Xbox titles versus $78.4 million a year ago.
•	Higher installed base of the Nintendo GameCube console, which is now available in every major market in which we operate. In fiscal 2002, Nintendo GameCube was only available in North America and Japan. In addition, fiscal 2003 contains 12 months of revenue from GameCube titles versus seven months in fiscal 2002 due to the launch of this platform in September 2001 in Japan and November 2001 in North America. In fiscal 2003, we generated $176.7 million in net revenue from Nintendo GameCube titles versus approximately $51.7 million a year ago.
•	Net revenue from co-publishing and distribution products increased by 40 percent to $375.8 million versus $269.0 million in the prior fiscal year. The increase was due in large part to sales of Kingdom Hearts, 1503 A.D. The New World and higher Battlefield 1942 franchise net revenue for an aggregate increase of $105.0 million in fiscal 2003.
•	Net revenue from PC products increased by nine percent, mainly due to an increase in sales of The Sims franchise titles and new net revenue from SimCity 4, released in the fourth quarter of fiscal


	2003, for an aggregate increase of $71.0 million in net revenue. This increase was partially offset by lower net revenue on prior year releases Black and White and Dune Emperor totaling $32.2 million.
•	Net revenue for the older generation PlayStation declined year over year as customers migrated to newer consoles.

For fiscal 2003, net revenue from sales in North America increased by 31 percent to $1.4 billion versus $1.1 billion in fiscal 2002. Growth in North American net revenue was driven by:


•	Higher installed base of the PlayStation 2, resulting in an increase of $208.0 million in revenue from PlayStation 2 products, due in part to Sony’s price cut of the hardware in North America in May 2002. This was reflected in strong sales of Medal of Honor Frontline, The Lord of the Rings, The Two Towers, The Sims, Harry Potter and the Chamber of Secrets and Need for Speed: Hot Pursuit 2 which generated a total of $201.2 million in net revenue in North America.
•	Higher installed base of Xbox consoles resulting in an increase in revenue from Xbox titles of $89.2 million. The launch of the Xbox platform in North America occurred in November 2001. Consequently, fiscal 2002 contained only five months of Xbox revenue versus 12 months of revenue in fiscal 2003.
•	Higher installed base of Nintendo GameCube consoles resulting in increased revenue from Nintendo GameCube titles of $64.7 million. Fiscal 2003 contains 12 months of revenue from Nintendo GameCube titles versus five months in fiscal 2002 due to the launch of this platform in November 2001. Additionally, in 2003 we released 17 games on the Nintendo GameCube platform compared to five releases in the prior year.
•	Revenue from co-publishing and distribution revenue increased by $37.3 million in fiscal 2003. The increase was primarily due to sales of Kingdom Hearts, Ty the Tasmanian Tiger and higher current year net revenue for the Battlefield 1942 franchise titles, for an aggregate increase of $89.8 million, partially offset by a decrease in revenue on Final Fantasy franchise titles, $59.8 million.
•	Net revenue from titles associated with PlayStation declined $49.4 million year over year as customers migrated to newer consoles.

Our agreement to distribute Square products in North America will terminate on June 30, 2003 (see Joint Ventures and Investments, included in Item 1 hereof). We recorded $84.5 million in net revenue in fiscal 2003 and $80.8 million in net revenue in fiscal 2002 from sales of Square products in North America.

For fiscal 2003, net revenue from sales in Europe increased by 69 percent to $878.9 million versus $519.5 million in fiscal 2002. Net revenue growth in Europe was driven by:


•	Increase of $185.8 million from sales of titles for the PlayStation 2, most notably Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims for an aggregate of $145.3 million in net revenue, as well as a higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August 2002.
•	Revenue from sales of titles designed for the Nintendo GameCube and Xbox platforms. We released 17 titles worldwide for the Nintendo GameCube, which launched in May 2002 in Europe, resulting in revenues of $57.7 million. Revenue from sales of Xbox products increased by $46.5 million with 19 Xbox titles available in Europe in fiscal 2003 versus three in 2002. The launch of Xbox in Europe occurred in March 2002. Consequently, our fiscal 2002 results contained only one month of revenue from sales of Xbox products versus 12 months in fiscal 2003.


•	Increase of $52.4 million in sales of PC titles primarily due to higher current year net revenue for The Sims franchise titles, and current year sales of SimCity 4 and 2002 FIFA World Cup for an aggregate increase of $47.9 million.

For fiscal 2003, net revenue from sales in the Asia Pacific region, excluding Japan, increased by 64 percent to $87.6 million versus $53.4 million in fiscal 2002. Growth in net revenue in Asia Pacific was driven by:


•	Sales of PlayStation 2 titles increased by $15.7 million, due to strong sales of The Lord of the Rings, The Two Towers, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets totaling $10.9 million in net revenue.
•	Sales of co-publishing and distribution titles increased $11.1 million mainly due to sales of Final Fantasy X and Battlefield 1942 totaling $4.2 million in the current fiscal year.
•	Additionally, revenue from sales of Xbox titles increased $6.3 million due to higher installed base and 20 Xbox titles available in the Asia Pacific region in 2003 versus three in 2002. Significant Xbox titles released in fiscal 2003 included Medal of Honor Frontline, Harry Potter and the Chamber of Secrets, Need for Speed: Hot Pursuit 2 and FIFA 2003 which generated a total of $3.2 million in net revenue.

For fiscal 2003, net revenue from sales in Japan increased by 37 percent to $80.1 million versus $58.6 million in fiscal 2002. Growth in net revenue in Japan was driven by:


•	Higher PlayStation 2 installed base and strong sales of PlayStation 2 titles, most notably Medal of Honor Frontline, 2002 FIFA World Cup and Project FIFA World Cup, which generated a total of $15.7 million in net revenue in fiscal 2003.
•	Increase in revenues from co-publishing and distribution products of $11.0 million due in large part to sales of Final Fantasy 11.
•	These increases were offset by the expected decrease in PlayStation revenue of $5.7 million.

Information about our worldwide net revenue by product line for fiscal 2003 and 2002 is presented below (in thousands):

Net revenue from PlayStation 2 titles increased in fiscal 2003 by 89 percent to $910.7 million versus $482.9 million in the prior fiscal year. The increase was primarily due to the following:


•	Strong consumer acceptance of the PlayStation 2 game console in every major market in which we operate.
•	Higher installed base of the PlayStation 2 console due in part to Sony’s hardware price cut in North America in May 2002 and in Europe in August 2002.
•	Sales of Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims which generated a total of $343.7 million of net revenue in multiple territories.
•	Strength of other PlayStation 2 franchise titles with higher net revenue on current year releases versus prior year releases including: James Bond 007, FIFA, Madden NFL, Tiger PGA Tour and NCAA Football for an aggregate increase of $96.0 million.

We expect revenue from PlayStation 2 products to continue to grow in fiscal 2004, but not at the same rate as in fiscal 2003.

Net revenue from sales of titles for the PC increased in fiscal 2003 by nine percent to $499.6 million versus $456.3 million in the prior fiscal year. The increase was primarily due to strong sales of The Sims franchise titles, and the release of SimCity 4, for a combined increase of $71.0 million, partially offset by lower net revenue on prior year releases Black and White and Dune Emperor totaling $32.2 million. We expect revenue from PC products to be relatively flat in fiscal 2004.

Net revenue from sales of Xbox products increased in fiscal 2003 by 180 percent to $219.4 million versus $78.4 million in the prior fiscal period. The increase was primarily due to the following:


•	The Xbox was launched in the United States in November 2001 and in Europe in March 2002. Therefore, in fiscal 2002, there was only a short period (five months in the United States and one month in Europe) during which we were able to release Xbox titles. We released fewer Xbox titles (10 in fiscal 2002 versus 16 in fiscal 2003) and the installed base of Xbox hardware was significantly smaller in fiscal 2002 than in fiscal 2003.
•	Sales of Medal of Honor Frontline, NCAA Football 2003 and The Lord of the Rings, The Two Towers, which generated an aggregate of $41.2 million of net revenue in North America.
•	Sales of FIFA 2003, James Bond 007: Nightfire, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets, which generated an aggregate of $27.4 million of net revenue in Europe.

We expect net revenue from Xbox products to continue to grow in fiscal 2004, but for the rate of growth to decrease.

Net revenue from sales of Nintendo GameCube titles increased in fiscal 2003 by 241 percent to $176.7 million versus $51.7 million in the prior fiscal year. The increase was primarily due to the following:


•	Higher installed base of the Nintendo GameCube platform, which is now available in every major market in which we operate. The Nintendo GameCube was launched in North America in November 2001 and in Japan in September 2001. The Nintendo GameCube was not launched in Europe until May 2002.
•	In total, we released 17 Nintendo GameCube titles during fiscal 2003 versus five Nintendo GameCube titles a year ago. Significant titles released in fiscal 2003 were Harry Potter and the Chamber of Secrets, Medal of Honor Frontline, Need for Speed: Hot Pursuit 2 and Lord of the Rings, The Two Towers which generated an aggregate of $68.7 million in net revenue. Significant titles in the prior year were Madden NFL 2002 and James Bond 007 in . . . Agent Under Fire^TM.

We expect net revenue from Nintendo GameCube products to continue to grow in fiscal 2004, but for the rate of growth to decrease.

As we expected, the decrease in revenue from sales of PlayStation titles in fiscal 2003 compared to fiscal 2002 was attributable to the market transition to newer generation console systems. Although our PlayStation products are playable on the PlayStation 2 console, we expect sales of current PlayStation products to continue to decline in fiscal 2004.


•	Net revenue from sales of Game Boy Advance titles increased in fiscal 2003 by 81 percent to $79.1 million versus $43.7 million in the prior fiscal year primarily due to an increased number of Game Boy Advance titles available in fiscal 2003. In fiscal 2003, seven titles were released on the Game Boy Advance platform compared to three in 2002. Also due to strong current year sales of The Lord of the Rings, The Two Towers and higher net revenue on the fiscal 2003 release of the Harry Potter franchise title, generating an aggregate increase of $30.8 million.
•	Net revenue from sales of Game Boy Color titles decreased 31 percent in fiscal 2003 compared to the prior fiscal year primarily due to the release of the hit title last year, Harry Potter and the Sorceror’s Stone, as well as revenues from The World is Not Enough and Madden NFL 2002, versus only one new title released in the current year, Harry Potter and the Chamber of Secrets. Additionally, the decrease in Game Boy Color net revenue for fiscal year ended March 31, 2003 compared to the prior year was attributable to the market transition to next generation console systems. We expect sales of current Game Boy Color products to continue to decline in fiscal 2004.


•	Net revenue from subscription fees for our online games increased 22 percent in fiscal 2003 compared to the prior fiscal year primarily due to the launch in fiscal 2003 of Earth & Beyond, and The Sims Online, and higher subscription revenue from Motor City Online, generating an aggregate increase of $8.6 million. These increases were partially offset by $1.1 million in Platinum and Sports subscription offerings, which we discontinued in November 2001.
•	Revenue derived from advertising on our online games sites decreased 16 percent in fiscal 2003 compared to the prior fiscal year primarily due to $3.8 million in lower advertising revenue generated from AOL and co-branded AOL online properties, and a $1.8 million decrease in online advertising purchased by online game companies who link their games sites to ours. We expect advertising revenue to decline in fiscal 2004 as we have been advised by AOL to expect significant declines in future advertising-related revenue.

We expected The Sims Online to be our flagship online subscription offering. Through March 31, 2003, however, the number of units sold and number of subscribers for The Sims Online and Earth & Beyond have been below our expectations. As a result, we canceled most of our plans to develop similar online products and have consolidated the operations of our online games business into our core business. See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

Net revenue from co-publishing products and distribution products increased 40 percent to $375.8 million in fiscal 2003 compared to $269.0 million in the prior fiscal year primarily due to strong sales of hit titles including Kingdom Hearts, 1503 A.D. The New World and higher Battlefield 1942 franchise net revenue, for an aggregate increase of $105.0 million in fiscal 2003.

In fiscal 2003 and 2002, we operated and reported our business in two business segments:


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

The EA.com business segment represented our online and e-Commerce businesses. The EA.com business segment included subscription revenue collected for Internet game play on our websites, website advertising, sales of packaged goods for Internet-only games and sales of our packaged goods games sold through the our web store. The Consolidated Statements of Operations includes all revenue and costs directly and indirectly attributable to the EA.com business segment, including charges for shared facilities, functions and services. Certain costs and expenses are subjective and allocations were based on management’s estimates. See Note 18 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

In March 2003, we consolidated the operations of the EA.com business segment into our core business. We now consider online functionality to be integral to our existing and future products. Accordingly,

beginning April 1, 2003, we no longer manage our online products and services as a separate business segment, and we will consolidate the reporting related to our online products and services into reporting for the overall development and publication of our core products for all reporting periods ending after that date. We believe that this will better reflect the way in which our Chief Operating Decision Maker reviews and manages our business and reflects the importance of our online products and services relative to the rest of our business. We believe we will only have one reportable segment in fiscal 2004 as a result of restructuring the EA.com business. Concurrently, we will also eliminate separate reporting for our Class B Common Stock for all reporting periods ending after April 1, 2003.

Our view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of our reporting to our Chief Operating Decision Maker.

Information about our operations by segment for fiscal 2003 and 2002 is presented below (in thousands):


(a)	EA.com Marketing and Sales includes $17.9 million of Carriage Fee in fiscal 2003 and fiscal 2002.

(b)	EA.com Research and Development includes $43.0 million of Network Development and Support for fiscal 2003 and $59.5 million in fiscal 2002; and includes $10.0 million of Customer Relationship Management for fiscal 2003 and $10.6 million in fiscal 2002.

(c)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. Amortization of intangibles for fiscal 2002 includes goodwill amortization of $7.4 million for EA Core and $5.7 million for EA.com.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income (Loss) for both EA Core and EA.com Segments

Cost of Goods Sold. Cost of goods sold for our disk-based and cartridge-based products consists of actual product costs, royalties expense for celebrities, professional sports and other organizations and independent software developers, manufacturing royalties, net of volume discounts, expense for defective products, write-off of post-launch prepaid royalty costs, and operations expense. Cost of goods sold for our online product subscription business consists primarily of data center and bandwidth costs associated with hosting our websites, credit card fees and royalties for use of EA and third party properties. Cost of goods sold for our website advertising business consists primarily of ad serving costs.

Marketing and Sales. Marketing and sales expenses consist of personnel-related costs, advertising and marketing and promotional expenses, net of coop advertising expense reimbursements. In addition, marketing and sales includes the amortization of the fees payable under our agreement with AOL for the distribution, or “carriage”, of our online games on their network, which began with the launch of our online games service in October 2000. See Note 5 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

General and Administrative. General and administrative expenses consist of personnel and related expenses of executive and administrative staff, fees for professional services such as legal and accounting, and allowances for bad debts.

Research and Development. Research and development expenses consist of personnel-related costs, consulting, equipment depreciation, customer relationship management expenses associated with our products and write-offs of pre-launch prepaid royalties. Research and development expenses for the EA.com business segment include expenses incurred by EA Studios consisting of direct development costs and related overhead costs in connection with the development and production of our online games. Research and development expenses also include network development and support costs directly incurred by the EA.com business segment. Network development and support costs consist of expenses associated with development of website content, depreciation on server equipment to support online games, network infrastructure direct expenses, software licenses and maintenance, and network and management overhead.

Cost of goods sold as a percentage of revenue decreased by 4 percentage points to 43.2 percent in fiscal 2003 from 47.2 percent in fiscal 2002 primarily due to:


•	Higher PC margins contributing a 1.7 percentage point increase to the total gross margins, due to higher sales of wholly-owned intellectual properties such as SimCity 4 and Command & Conquer Generals, lower developer royalties in general and higher average sales prices.
•	Higher margins on co-publishing and distribution products contributing 0.9 percent to the total gross margins, due to higher volume of co-publishing products, which have a higher gross margin than distribution products, released in fiscal 2003, such as Battlefield 1942, Ty the Tasmanian Tiger and The Simpsons Road Rage.
•	Higher margins on PlayStation 2 products contributing 0.8 percent to the total gross margins due to volume discounts received from Sony and lower average manufacturing royalty rates.

Marketing and sales expenses increased by 37.9 percent in fiscal 2003 compared to fiscal 2002 primarily due to:


•	The release of 86 SKUs in fiscal 2003 versus 64 SKUs last year. The primary increase in marketing and sales expense in fiscal 2003 related to higher advertising spending of $46.1 million to support product releases on multiple platforms and across multiple territories including Madden NFL 2003, NBA Live 2003, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets, The Sims franchise titles and The Sims Online.
•	Increase in headcount and related expenses of $20.5 million to support the growth of our marketing and sales functions worldwide.

As a percentage of net revenue, marketing and sales expenses declined from 14.0 percent of net revenue in fiscal 2002 to 13.4 percent of revenue in fiscal 2003. Marketing and sales includes vendor reimbursements for advertising expenses of $28.2 million in fiscal 2003 and $8.9 million in fiscal 2002 to support key titles.

General and administrative expenses increased by 22.2 percent in fiscal 2003 compared to fiscal 2002 primarily due to an increase in payroll costs of $26.9 million to support the increased growth of these functions worldwide.

As a percentage of net revenue, general and administrative expenses declined from 6.2 percent of net revenue in fiscal 2002 to 5.3 percent of net revenue.

Research and development expenses increased by 5.4 percent in fiscal 2003 compared to fiscal 2002 primarily due to:


•	Higher EA Core business segment expenses, which increased by $48.7 million, or 19 percent, due to additional headcount-related expenses, offset by lower advance write-offs of $27.2 million in fiscal 2003.
•	Partially offset by lower EA.com business segment spending, which decreased by $28.3 million, or 22 percent, as a result of lower salary expense and development spending on discontinued products. The decrease in spending was partially offset by higher development spending associated with The Sims Online.

As a percentage of revenue, research and development expenses declined from 22.0 percent of net revenue in fiscal 2002 to 16.1 percent of net revenue in fiscal 2003. Research and development includes vendor reimbursements for development expenses of $15.0 million in fiscal 2003 and $17.0 million in fiscal 2002 to support key titles.

We expect research and development spending to increase in fiscal 2004 due to an increase in development spending for next generation console products including the PlayStation 2, Xbox and Nintendo GameCube, as well as extending our investment in the PC platform.

Amortization of intangibles results primarily from our acquisitions of Westwood, Kesmai, DreamWorks Interactive, ABC Software, Pogo and other acquisitions. Amortization of intangibles was $3.5 million for the EA Core business segment and $4.0 million for the EA.com business segment for fiscal 2003. Amortization of intangibles was $12.9 million for the EA Core business segment and $12.5 million for the EA.com business segment for fiscal 2002.


•	Adoption of SFAS No. 142 in fiscal 2003. For fiscal 2002, amortization of goodwill totaled $13.1 million.


•	Certain identifiable intangible assets related to Westwood and DreamWorks were amortized in fiscal 2002 resulting in a decrease of $3.5 million.
•	Impairment of Pogo and Kesmai finite-lived intangible assets as a result of the restructuring of the EA.com segment in fiscal 2003 and 2002 resulting in a decrease of $2.9 million.

In addition, we recorded intangible impairment charges relating to our restructuring of the EA.com business segment of $12.4 million in fiscal 2003 and $1.6 million in fiscal 2002 (see our discussion under “Restructuring and Asset Impairment Charges” below).



*Restructuring and Asset Impairment Charges* (in thousands)

			% of net				% of net
	2003		revenue		2002		revenue		% change


Restructuring Charges		$15,102		0.6%		$7,485		0.4%		101.8%

Asset Impairment Charges		$66,329		2.7%		$12,818		0.8%		417.5%

During fiscal 2003, we closed our office located in San Francisco, California and our studio located in Seattle, Washington. The office and studio closures were a result of our strategic decision to consolidate local development efforts in Redwood City, California and Vancouver, Canada. We recorded total pre-tax restructuring charges of $7.9 million and asset impairment charges of $1.5 million. This charge consists of $7.3 million for consolidation of facilities, $1.5 million for the write-off of non-current assets and $0.6 million for workforce reductions. The facilities charge was net of a reduction in deferred rent of $0.5 million.

The exit plans resulted in a workforce reduction of approximately 33 personnel in development and administrative departments. The estimated costs for consolidation of facilities included contractual rental commitments under the real estate lease for vacated office space, offset by estimated future sub-lease income. In addition, the exit plans resulted in the write-off of certain non-current fixed assets, primarily leasehold improvements.

Additionally, during fiscal 2003, we consolidated our Los Angeles, Irvine and Las Vegas studios into one major game development studio in Los Angeles. These measures were taken in order to maximize efficiencies and streamline the creative development process and operations of our studios. In connection with these consolidation activities, we recorded a total pre-tax restructuring charge of $3.1 million and asset impairment charges of $2.0 million. This charge includes $1.6 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, $2.0 million for the write-off of abandoned equipment and leasehold improvements at facilities that were permanently vacated and $1.5 million for employee severance expenses related to involuntary terminations.

During fiscal 2003, we consolidated the operations of the EA.com business segment into our core business, and have eliminated separate reporting for our Class B common stock for all future reporting periods after fiscal 2003. As a result of this restructuring, we recorded a pre-tax charge of $67.0 million in fiscal 2003, consisting of $1.8 million for workforce reductions, $2.3 million for consolidation of facilities and other administrative charges, and $62.9 million for the write-off of non-current assets. We will make adjustments to the restructuring reserves in future periods, if necessary, based upon the then-current events and circumstances.

The restructuring plan resulted in the termination of approximately 50 employees, mostly in research and development. The estimated costs for consolidation of facilities and other administrative charges included contractual rental commitments under real estate leases for unutilized office space offset by estimated future sub-lease income and costs to close the facilities.

We performed an evaluation of asset impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to adjust the depreciable assets and remaining finite-lived identifiable intangibles utilized in the EA.com business segment to their estimated fair value. This test was performed in the fourth quarter of fiscal 2003 and the measurement date was January 1, 2003. In February 2003, our only outside holder of Class B common stock, AOL, exercised its right to exchange its Class B shares for shares of Class A common stock. In late December 2002, we launched The Sims Online, an online game based on our very popular The Sims line of PC games, which have sold over 20 million units worldwide. The Sims Online was expected to be our flagship online subscription offering. Through March 31, 2003, the number of units sold and number of subscribers for The Sims Online, along with other EA.com business segment revenue, were significantly below our expectations. As a result of these triggering events in the fourth quarter of fiscal 2003, we canceled most of our plans to develop similar online products and substantially reduced our expected future undiscounted cash flows related to these long-lived assets. We recorded impairment charges on long-lived assets of $62.9 million, including $24.9 million relating to impaired customized internal-use software systems for our online games and website infrastructure, $25.6 million for other long-lived assets and $12.4 million of finite-lived intangibles impairment charges relating to our Kesmai and Pogo online game studios. There are no assurances that the impairment factors evaluated by management will not change in subsequent periods and accordingly, we may record additional impairment charges in future periods.

In conjunction with our annual policy to reassess the remaining useful lives of goodwill and certain indefinite-lived intangibles and to test the recoverability of these long-lived assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, as of January 1, 2003, we also performed fair-value-based tests to evaluate impairment of assets included in the EA.com reporting unit. Under this test, the fair-value-based tests did not indicate an impairment of our recorded goodwill and certain indefinite-lived intangibles at the EA.com reporting unit level. However, future impairment tests could result in a charge to earnings and a corresponding write down of goodwill and certain indefinite-lived intangibles.

The following table reflects our unaudited pro forma consolidated basic earnings (loss) per share for the years ended 2003, 2002 and 2001 as if the consolidation of the operations of our EA.com business segment into our core business had occurred at the beginning of each of the periods presented (in thousands, except per share data):



*Consolidated*

	2003		2002		2001


Net income (loss):
As reported		$317,097		$101,509	$	(11,082	)
Pro forma		$317,097		$101,509	$	(11,082	)
Earnings (loss) per share:
As reported — basic		$2.34		$0.91	$	0.09
Pro forma — basic		$2.24		$0.74	$	(0.08	)
Number of shares used in computation:
As reported		140,989		136,832		131,404
Add: conversion of AOL and News Corp Class B		514		684		684
Pro forma		141,503		137,516		132,088

During fiscal 2002, we announced a restructuring plan for our EA.com business segment to reduce its workforce and consolidate facilities. These restructuring and resulting asset impairment charges were necessary in order to focus on key online priorities and reduce the EA.com business segment’s operating cost structure. As a result of this restructuring, we recorded a pre-tax charge of $20.3 million in fiscal 2002, consisting of $4.2 million for workforce reductions, $3.3 million for consolidation of facilities and other administrative charges and $12.8 million for the write-off of non-current assets. We will make

The restructuring plan resulted in the termination of approximately 270 employees, or one-third of the EA.com business segment workforce, which affected all departments across the organization. The estimated costs for consolidation of facilities are comprised of contractual rental commitments under real estate leases for vacated office space offset by estimated future sub-lease income. Included in these costs are estimated costs to close offices or consolidate facilities in various locations and costs to write off a portion of the assets from these facilities.

In addition, our restructuring efforts required an evaluation of asset impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, to adjust these depreciable assets and certain intangibles to their estimated fair value. We evaluated the impact of consolidating or abandoning certain online technologies and processes and reviewed the effect of changes to our subscription online product offerings in relation to the asset base of the EA.com business segment. As a result, it was determined that certain long-lived assets would be abandoned or were related to products or services that had been discontinued and would therefore be written-down to their estimated net disposal value. Impairment charges on long-lived assets amounted to $12.8 million, including $11.2 million relating to abandoned technologies consisting of customized internal-use software systems for our online infrastructure, $1.0 million of intangibles impairment charges related to our Kesmai online development studio resulting from discontinuing associated products and services and $0.6 million of goodwill charges relating to our San Diego online game studio closure. We may change these impairment factors in subsequent periods and accordingly, we could record additional impairment charges in future periods.

Interest and other income, net, in fiscal 2003 decreased from fiscal 2002 primarily due to:


•	Other-than-temporary impairment of investments in affiliates of $10.6 million in fiscal 2003.
•	Partially offset by higher interest income in fiscal 2003 of $5.1 million, as a result of higher average cash balances in the current year.

Reported net income increased in fiscal 2003 compared to fiscal 2002 primarily related to:


•	Higher revenues and gross profits.
•	Partially offset by an increase in expenses compared to fiscal 2002. The increase in expenses was primarily due to increases in marketing and advertising costs to support a higher number of key releases in multiple territories and spending on our products for the Xbox and Nintendo GameCube consoles which, in fiscal 2003, have been available in all of our significant geographical markets. In


	addition, there was an increase in expenses due to higher charges for restructuring and asset impairment in fiscal 2003 as compared to fiscal 2002.

Although the dollar amount of expenses rose in fiscal 2003 versus fiscal 2002, net income as a percentage of sales increased to 12.8 percent versus 5.9 percent as expenses grew at a slower rate than did our revenues.

Geographically, our net revenue for the fiscal years ended March 31, 2002 and 2001 break down as follows: (in thousands):

The increase in North America net revenue for fiscal 2002 compared to fiscal 2001 was primarily attributable to:


•	A 111 percent increase in PlayStation 2 revenue for the year due to the shipment of key titles such as Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, NBA Street, NBA Live 2002 and SSX Tricky, a higher installed base of hardware and a strong catalogue business. PlayStation 2 launched in October 2000. Consequently, fiscal 2001 includes six months of PlayStation 2 product revenue as compared to 12 months of revenue for PlayStation 2 titles in fiscal 2002.
•	The launch of the Xbox platform in North America in November 2001, which generated $73.6 million in revenue from Xbox titles such as Madden NFL 2002, NBA Live 2002, James Bond 007 in . . . Agent Under Fire, NASCAR Thunder 2002, NHL 2002 and SSX Tricky.
•	The launch of Nintendo GameCube in North America in November 2001, which generated $48.7 million for the year from key GameCube titles such as Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, SSX Tricky, NBA Street and FIFA Soccer 2002.
•	Revenue was generated for the first time in fiscal 2002 by Game Boy Advance titles, amounting to $26.0 million for the year from key titles including Harry Potter and the Sorcerer’s Stone, Madden NFL and NHL 2002. Also, revenue was generated for the first time in fiscal 2002 by Game Boy Color titles, amounting to $16.9 million for the year from titles such as Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and The World Is Not Enough.
•	Advertising revenue increased by $31.8 million for fiscal 2002, because we had 12 months of advertising revenue in fiscal 2002 compared to only six months of advertising revenue in fiscal 2001. This was because we commenced generating advertising revenue immediately following the launch of our online games website in October 2000. In addition, subsequent to our February 2001 acquisition of Pogo Corporation, advertising revenue generated from Pogo websites was included in our revenues.
•	These increases were partially offset by the continued expected decreases in revenue for PlayStation and Nintendo 64 titles due to the declining markets for those platforms and fewer titles shipped in fiscal 2002 compared to fiscal 2001.

The increase in international net revenue for fiscal 2002 compared to fiscal 2001 was attributable to the following:


•	Net revenue from operations in Europe increased by 34 percent compared to fiscal 2001 primarily due to higher sales of PlayStation 2, PC, co-publishing and distribution products, partially offset by the expected decrease of revenue from Sony PlayStation products. PlayStation 2 launched in November 2000. Consequently, fiscal 2001 includes five months of revenue from PlayStation 2 titles as compared to 12 months of revenue from PlayStation 2 titles in fiscal 2002, resulting in an 80 percent increase in revenues from PlayStation 2 titles.
•	Net revenue in our Asia Pacific territory, excluding Japan, increased by five percent compared to fiscal 2001 primarily due to higher sales of PlayStation 2, Game Boy Color and PC titles, partially offset by the expected decrease in PlayStation and Nintendo 64 title sales, and an unfavorable exchange rate comparison of approximately 10 percent. Revenue from PlayStation 2 titles increased by 46 percent, partially offset by a 34 percent decrease in revenue from PlayStation titles in fiscal 2002 compared to fiscal 2001.
•	Net revenue from operations in Japan increased by 11 percent compared to fiscal 2001 primarily due to higher revenue from our co-publishing and distribution titles, and revenue generated from sales of PlayStation, Nintendo GameCube and Xbox products, offset by the strong sales of our first PlayStation 2 title, FIFA Soccer World Championship, in the prior year and weakness in the Yen currency during fiscal 2002 resulting in a rate decrease of approximately 14 percent from fiscal 2001. Also, our operations in Japan did not benefit from our primary PlayStation 2 releases during fiscal 2002, which had more appeal to the North American market. Revenue from PlayStation 2 titles decreased by 50 percent in fiscal 2002 as compared to fiscal 2001.

Information about our worldwide net revenue by product line for fiscal 2002 and 2001 is presented below (in thousands):

Net revenue increased in fiscal 2002 due to the higher installed base of PlayStation 2 consoles and more titles, including catalogue titles, available on the platform compared to fiscal 2001. Major releases in fiscal 2002 included Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, FIFA 2002, NBA Street, NBA

The increase in sales of PC products in fiscal 2002 compared to the prior fiscal year was primarily due to the continued strong sales of The Sims, which shipped in fiscal 2000. Key fiscal 2002 product releases were Harry Potter and the Sorcerer’s Stone, The Sims Hot Date Expansion Pack, Medal of Honor: Allied Assault™, Command & Conquer Renegade™ and Madden NFL 2002. We released 16 PC titles in the fiscal 2002 compared to 18 in the prior fiscal year.

We released five PlayStation titles in fiscal 2002 compared to 17 titles in the prior fiscal year. As expected, PlayStation sales decreased in fiscal 2002 compared to the prior year primarily due to the transition to 128-bit console systems (such as the PlayStation 2) and fewer titles released for the PlayStation during fiscal 2002.

Following the launch of the Xbox console in North America in November 2001, we released our first ten Xbox titles during fiscal 2002. Titles released included Madden NFL 2002, NBA Live 2002, James Bond 007 in . . . Agent Under Fire, NASCAR Thunder 2002, NHL 2002, Triple Play™ 2002, SSX Tricky, Knockout Kings 2002 and F1 2001.

We released our first five Nintendo GameCube titles, Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, SSX Tricky, NBA Street and FIFA Soccer 2002, during fiscal 2002 following the platform’s launch in Japan in September 2001 and in North America in November 2001.


•	We released our first three Game Boy Advance titles, Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and NHL 2002 during fiscal 2002.


•	We released three Game Boy Color titles, Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and The World is Not Enough during fiscal 2002.

Online Subscription and Advertising Net Revenue (in thousands)




			% of net				% of net
	2002		revenue		2001		revenue		% change


Online Subscription	$	30,940		2%	$	28,878		2%		7%

Advertising	$	38,024		2%	$	6,175		1%		516%


•	The increase in online subscription revenue in fiscal 2002 as compared to fiscal 2001 was primarily due to the continued strong sales of Ultima Online Third Dawn, the release of Ultima Online Lord Blackthorn’s Revenge in February 2002 and the launch of Motor City Online in October 2001, which contributed $1.5 million in subscription revenue for fiscal 2002. This increase was offset by a decrease in subscription revenue of $5.0 million for Gamestorm, Kesmai Corporation (“Kesmai”) and Worldplay online games (most of which were transferred to our free service when the EA/ AOL site went live in October 2000) in fiscal 2002 as compared to fiscal 2001.
•	We began generating advertising revenue in the third quarter of fiscal 2001 following the launch of our online games site on the world wide web and on the AOL Games Channel in October 2000. In addition, we generated advertising revenue from games websites operated by Pogo Corporation after our purchase of Pogo Corporation in February 2001. Because we launched our ad business in late fiscal 2001, we experienced significant revenue growth in fiscal 2002 as compared to fiscal 2001.

Co-publishing and Distribution Product Net Revenue (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	269,010		16%	$	222,278		17%		21%

Co-publishing and distribution product sales increased for fiscal 2002 compared to the prior fiscal year primarily due to strong sales in fiscal 2002 of hit titles including Devil May Cry, Resident Evil: Code Veronica and The Simpsons™ Road Rage. This was partially offset by lower revenue from shipment of Square EA products due to fewer titles released in fiscal 2002 compared to fiscal 2001.

In fiscal 2002 and 2001, we operated and reported our business in two business segments:


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

The Consolidated Statements of Operations break out all revenue and costs directly and indirectly attributable to the EA.com business segment, including charges for shared facilities, functions and services. Certain costs and expenses were determined on a subjective basis and allocations were based on our estimates. See Note 18 of Notes to Consolidated Financial Statements, included in Item 8 hereof

Information about our operations by segment for fiscal 2002 and 2001 is presented below (in thousands):


(a)	EA.com Marketing and Sales includes $17.9 million of Carriage Fee for fiscal 2002 and $8.9 million of Carriage Fee for fiscal 2001. “Carriage Fee” is the amount paid to AOL for the right to distribute our online games site on their online services and thereby reach AOL’s subscribers and users.

(b)	EA.com Research and Development includes $59.5 million of Network Development and Support for fiscal 2002 and $51.8 million in fiscal 2001; and includes $10.6 million of Customer Relationship Management for fiscal 2002 and $11.4 million in fiscal 2001.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income (Loss) for both
EA Core and EA.com Segments


Delaware		94-2838567
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

209 Redwood Shores Parkway Redwood City, California		94065
(Address of principal executive offices)		(Zip Code)


PART I
	Item 1: Business
	Item 2: Properties
	Item 3: Legal Proceedings
	Item 4: Submission of Matters to a Vote of Security Holders
PART II
	Item 5: Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6: Selected Financial Data
	Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A: Quantitative and Qualitative Disclosures About Market Risk
	Item 8: Financial Statements and Supplementary Data
	Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
	Item 10: Directors and Executive Officers of the Registrant
	Item 11: Executive Compensation
	Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13: Certain Relationships and Related Transactions
	Item 14: Controls and Procedures
PART IV
	Item 15: Exhibits, Financial Statement Schedule and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 10.02
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 21.01
EXHIBIT 23.01
EXHIBIT 99.1
EXHIBIT 99.2


		Page

PART I
Item 1.	Business		3
Item 2.	Properties		18
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		20
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		21
Item 6.	Selected Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		59
Item 8.	Financial Statements and Supplementary Data		61
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		105
PART III
Item 10.	Directors and Executive Officers of the Registrant		106
Item 11.	Executive Compensation		106
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		106
Item 13.	Certain Relationships and Related Transactions		106
Item 14.	Controls and Procedures		106
PART IV
Item 15.	Exhibits, Financial Statement Schedule, and Reports on Form 8-K		107
Signatures			110
Certifications			111
Exhibit Index			114




STATEMENTS OF OPERATIONS DATA			2003			2002			2001			2000			1999


Net revenue			$	2,482,244		$	1,724,675		$	1,322,273		$	1,420,011		$	1,221,863
Cost of goods sold				1,072,802			814,783			664,991			710,974			630,827

		Gross profit		1,409,442			909,892			657,282			709,037			591,036
Operating expenses:
	Marketing and sales			332,453			241,109			185,336			188,611			163,407
	General and administrative			130,859			107,059			104,041			92,418			76,219
	Research and development			400,990			380,564			376,179			255,694			196,137
	Amortization of intangibles⁽¹⁾			7,482			25,418			19,323			11,989			5,880
	Charge for acquired in-process technology			—			—			2,719			6,539			44,115
	Restructuring charges			15,102			7,485			—			—			—
	Asset impairment charges			66,329			12,818			—			—			—

		Total operating expenses		953,215			774,453			687,598			555,251			485,758

	Operating income (loss)			456,227			135,439			(30,316	)		153,786			105,278
Interest and other income, net				5,222			12,848			16,886			16,028			13,180

	Income (loss) before provision for (benefit from) income taxes and minority interest			461,449			148,287			(13,430	)		169,814			118,458
Provision for (benefit from) income taxes				143,049			45,969			(4,163	)		52,642			45,414

	Income (loss) before minority interest			318,400			102,318			(9,267	)		117,172			73,044
Minority interest in consolidated joint venture				(1,303	)		(809	)		(1,815	)		(421	)		(172	)

	Net income (loss)		$	317,097		$	101,509		$	(11,082	)	$	116,751		$	72,872

Net income per share:
		Basic		N/A			N/A			N/A		$	0.93		$	0.60
		Diluted		N/A			N/A			N/A		$	0.88		$	0.58
Number of shares used in computation:
		Basic		N/A			N/A			N/A			125,660			121,495
		Diluted		N/A			N/A			N/A			132,742			126,545
Class A common stock:
Net income (loss):
	Basic		$	329,212		$	124,256		$	11,944			N/A			N/A
	Diluted		$	317,097		$	101,509		$	(11,082	)		N/A			N/A
Net income (loss) per share:
	Basic		$	2.34		$	0.91		$	0.09			N/A			N/A
	Diluted		$	2.17		$	0.71		$	(0.08	)		N/A			N/A
Number of shares used in computation:
	Basic			140,989			136,832			131,404			N/A			N/A
	Diluted			146,446			143,142			132,056			N/A			N/A
Class B common stock:
Net loss, net of retained interest in EA.com			$	(12,115	)	$	(22,747	)	$	(23,026	)		N/A			N/A
Net loss per share:
	Basic		$	(2.77	)	$	(3.77	)	$	(3.83	)		N/A			N/A
	Diluted		$	(2.77	)	$	(3.77	)	$	(3.83	)		N/A			N/A
Number of shares used in computation:
	Basic			4,368			6,026			6,015			N/A			N/A
	Diluted			4,368			6,026			6,015			N/A			N/A




BALANCE SHEET DATA AT FISCAL
YEAR END	2003		2002		2001		2000		1999


Cash and cash equivalents	$	949,995	$	552,826	$	419,812	$	246,265	$	242,208
Short-term investments		637,623		244,110		46,680		93,539		70,614
Marketable securities		1,111		6,869		10,022		236		4,884
Working capital		1,340,261		699,561		478,701		440,021		333,256
Long-term investments		—		—		8,400		8,400		18,400
Total assets		2,359,533		1,699,374		1,378,918		1,192,312		901,873
Total liabilities		570,876		452,982		340,026		265,302		236,209
Minority interest		3,918		3,098		4,545		3,617		2,733
Total stockholders’ equity		1,784,739		1,243,294		1,034,347		923,393		662,931


Name	Age		Position

Lawrence F. Probst III		53	Chairman and Chief Executive Officer
Don A. Mattrick		39	President, Worldwide Studios
John S. Riccitiello		43	President and Chief Operating Officer
William B. Gordon		53	Executive Vice President and Chief Creative Officer
Warren C. Jenson		46	Executive Vice President and Chief Financial and Administrative Officer
Ruth A. Kennedy		48	Executive Vice President, General Counsel and Secretary
V. Paul Lee		38	Executive Vice President and Chief Operating Officer, Worldwide Studios
Bruce McMillan		40	Executive Vice President, Group Studio General Manager, Worldwide Studios
J. Russell (Rusty) Rueff, Jr.		41	Executive Vice President, Human Resources
Nancy L. Smith		50	Executive Vice President and General Manager, North American Publishing
David L. Carbone		52	Senior Vice President, Finance
Gerhard Florin		44	Senior Vice President and Managing Director, European Publishing


	2003		2002		Increase		% change


North America	$	1,435,718	$	1,093,244	$	342,474		31%
Europe		878,904		519,458		359,446		69%
Asia Pacific		87,569		53,376		34,193		64%
Japan		80,053		58,597		21,456		37%

International		1,046,526		631,431		415,095		66%

Consolidated Net Revenue	$	2,482,244	$	1,724,675	$	757,569		44%


					Increase/
	2003		2002		(Decrease)			% change


PlayStation 2	$	910,693	$	482,882		$427,811			89%
PC		499,634		456,292		43,342			9%
Xbox		219,378		78,363		141,015			180%
Nintendo GameCube		176,656		51,740		124,916			241%
PlayStation		99,951		189,535		(89,584	)		(47%	)
Game Boy Advance		79,093		43,653		35,440			81%
Online Subscriptions		37,851		30,940		6,911			22%
Advertising		31,988		38,024		(6,036	)		(16%	)
Game Boy Color		26,293		38,026		(11,733	)		(31%	)
License, OEM and Other		24,948		46,210		(21,262	)		(46%	)

		2,106,485		1,455,665		650,820			45%
Co-publishing and Distribution		375,759		269,010		106,749			40%

Consolidated Net Revenue	$	2,482,244	$	1,724,675		$757,569			44%



PlayStation 2 Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$910,693		37%	$	482,882		28%		89%



Personal Computer Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$499,634		20%	$	456,292		26%		9%



Xbox Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$219,378		9%	$	78,363		5%		180%



Nintendo GameCube Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$176,656		7%	$	51,740		3%		241%



PlayStation Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$99,951		4%	$	189,535		11%	(47%)



Game Boy Advance and Game Boy Color Net Revenue (in thousands)

		% of net				% of net
	2003	revenue		2002		revenue		% change


Game Boy Advance	$79,093		3%	$	43,653		3%		81%

Game Boy Color	$26,293		1%	$	38,026		2%		(31%)



Co-publishing and Distribution Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$375,759		15%	$	269,010		16%		40%





		Fiscal Year Ended March 31, 2003

		EA Core
		(excl. EA.com)			EA.com			Electronic Arts


Net revenue		$	2,400,669		$	81,575		$	2,482,244
Cost of goods sold			1,056,385			16,417			1,072,802

Gross profit			1,344,284			65,158			1,409,442
Operating expenses:
	Marketing and sales^(a)		289,933			42,520			332,453
	General and administrative		123,538			7,321			130,859
	Research and development^(b)		299,294			101,696			400,990
	Amortization of intangibles^(c)		3,526			3,956			7,482
	Restructuring charges		11,014			4,088			15,102
	Asset impairment charges		3,442			62,887			66,329

Total operating expenses			730,747			222,468			953,215

Operating income (loss)			613,537			(157,310	)		456,227
Interest and other income (expense), net			5,452			(230	)		5,222

Income (loss) before provision for income taxes and minority interest			618,989			(157,540	)		461,449
Provision for income taxes			143,049			—			143,049

Income (loss) before minority interest			475,940			(157,540	)		318,400
Minority interest in consolidated joint venture			(1,303	)		—			(1,303	)

Net income (loss) before retained interest in EA.com			474,637			(157,540	)		317,097
Net loss related to retained interest in EA.com			(145,425	)		145,425			—

Net income (loss)		$	329,212		$	(12,115	)	$	317,097





		Fiscal Year Ended March 31, 2002

		EA Core
		(excl. EA.com)			EA.com			Electronic Arts


Net revenue		$	1,647,502		$	77,173		$	1,724,675
Cost of goods sold			797,894			16,889			814,783

Gross profit			849,608			60,284			909,892
Operating expenses:
	Marketing and sales^(a)		202,749			38,360			241,109
	General and administrative		96,919			10,140			107,059
	Research and development^(b)		250,590			129,974			380,564
	Amortization of intangibles^(c)		12,888			12,530			25,418
	Restructuring charges		—			7,485			7,485
	Asset impairment charges		—			12,818			12,818

Total operating expenses			563,146			211,307			774,453

Operating income (loss)			286,462			(151,023	)		135,439
Interest and other income (expense), net			13,472			(624	)		12,848

Income (loss) before provision for income taxes and minority interest			299,934			(151,647	)		148,287
Provision for income taxes			45,969			—			45,969

Income (loss) before minority interest			253,965			(151,647	)		102,318
Minority interest in consolidated joint venture			(809	)		—			(809	)

Net income (loss) before retained interest in EA.com			253,156			(151,647	)		101,509
Net loss related to retained interest in EA.com			(128,900	)		128,900			—

Net income (loss)		$	124,256		$	(22,747	)	$	101,509



*Cost of Goods Sold* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$1,072,802		43.2%		$814,783		47.2%		31.7%



*Marketing and Sales* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$332,453		13.4%		$241,109		14.0%		37.9%



*General and Administrative* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$130,859		5.3%		$107,059		6.2%		22.2%



*Research and Development* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$400,990		16.1%		$380,564		22.0%		5.4%



*Amortization of Intangibles* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$7,482		0.3%		$25,418		1.5%		(70.6%)



*Interest and Other Income, Net* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$5,222		0.2%		$12,848		0.7%		(59.4%)



*Income Taxes* (in thousands)

	Effective				Effective
2003	tax rate		2002		tax rate		% change


$143,049		31.0%		$45,969		31.0%		211.2%



*Net Income* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$317,097		12.8%		$101,509		5.9%		212.4%





		Fiscal Year Ended March 31, 2002

		EA Core						Electronic
		(excl. EA.com)			EA.com			Arts


Net revenue		$	1,647,502		$	77,173		$	1,724,675
Cost of goods sold			797,894			16,889			814,783

Gross profit			849,608			60,284			909,892
Operating expenses:
	Marketing and sales^(a)		202,749			38,360			241,109
	General and administrative		96,919			10,140			107,059
	Research and development^(b)		250,590			129,974			380,564
	Amortization of intangibles		12,888			12,530			25,418
	Restructuring charges		—			7,485			7,485
	Asset impairment charges		—			12,818			12,818

Total operating expenses			563,146			211,307			774,453

Operating income (loss)			286,462			(151,023	)		135,439
Interest and other income (expense), net			13,472			(624	)		12,848

Income (loss) before provision for income taxes and minority interest			299,934			(151,647	)		148,287
Provision for income taxes			45,969			—			45,969

Income (loss) before minority interest			253,965			(151,647	)		102,318
Minority interest in consolidated joint venture			(809	)		—			(809	)

Net income (loss) before retained interest in EA.com			253,156			(151,647	)		101,509
Net loss related to retained interest in EA.com			(128,900	)		128,900			—

Net income (loss)		$	124,256		$	(22,747	)	$	101,509





		Fiscal Year Ended March 31, 2001

		EA Core						Electronic
		(excl. EA.com)			EA.com			Arts


Net revenue		$	1,280,172		$	42,101		$	1,322,273
Cost of goods sold			650,330			14,661			664,991

Gross profit			629,842			27,440			657,282
Operating expenses:
	Marketing and sales^(a)		163,928			21,408			185,336
	General and administrative		93,885			10,156			104,041
	Research and development^(b)		235,785			140,394			376,179
	Amortization of intangibles		12,829			6,494			19,323
	Charge for acquired in-process technology		—			2,719			2,719

Total operating expenses			506,427			181,171			687,598

Operating income (loss)			123,415			(153,731	)		(30,316	)
Interest and other income, net			16,659			227			16,886

Income (loss) before benefit from income taxes and minority interest			140,074			(153,504	)		(13,430	)
Benefit from income taxes			(4,163	)		—			(4,163	)

Income (loss) before minority interest			144,237			(153,504	)		(9,267	)
Minority interest in consolidated joint venture			(1,815	)		—			(1,815	)

Net income (loss) before retained interest in EA.com			142,422			(153,504	)		(11,082	)
Net loss related to retained interest in EA.com			(130,478	)		130,478			—

Net income (loss)		$	11,944		$	(23,026	)	$	(11,082	)