Electronic Arts 2001 Annual Report Download - page 42

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2001 AR
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated
financial statements of Electronic Arts Inc. and its wholly-owned and majority-owned subsidiaries (the “Company”)
follows:
(a) Consolidation The accompanying consolidated financial statements include the accounts of the Company. All
significant intercompany balances and transactions have been eliminated in consolidation.
(b) Fiscal Year The Company’s fiscal year is reported on a 52/53-week period that ends on the Saturday nearest to
March 31 in each year. The results of operations for fiscal 2001 contain 53 weeks. The results of operations for fis-
cal 2000 and 1999 contain 52 weeks. For clarity of presentation herein, all fiscal periods are treated as ending on a
calendar month end.
(c) Revenue Recognition The Company’s revenue recognition policies are in compliance with American Institute of
Certified Public Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, and SOP 98-9,
“Modification of SOP 97-2, With Respect to Certain Transactions”,which provide guidance on generally accepted
accounting principles for recognizing revenue on software transactions. SOP 97-2 requires that revenue recog-
nized from software arrangements be allocated to each element of the arrangement based on the relative fair values
of the elements. The Company has adopted the provisions of these SOPs as of April 1, 1998. The adoption has, in
certain circumstances, resulted in the deferral of certain revenues associated with the Company’s sales promo-
tions and products with multiple deliverable elements. Neither the changes in certain business practices nor the
deferral of certain revenues have resulted in a material impact on the Company’s operating results, financial posi-
tion or cash flows for the fiscal year ended March 31, 2001. Total deferred revenue at March 31, 2001 and 2000
was $16,967,000, and $1,847,000, respectively.
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No.
101(“SAB 101”), “Revenue Recognition”, which outlines the basic criteria that must be met to recognize revenue and
provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial
statements filed with the SEC. The adoption of SAB 101 did not have a material impact on the Company’s financial
position and results of operations.
PRODUCT SALES The Company recognizes revenue upon shipment of its packaged goods products based on
“FOB Shipping” terms. Under FOB Shipping terms, title and risk of loss are transferred when the products are deliv-
ered to the customer. In order to recognize revenue, the Company must not have any continuing obligations and it
must also be probable that the Company will collect the accounts receivable. Subject to certain limitations, the
Company permits customers to obtain exchanges within certain specified periods and provides price protection
on certain unsold merchandise. Revenue is recognized net of an allowance for returns and price protection.
ONLINE SUBSCRIPTION REVENUES Online subscription revenues are derived principally from subscription rev-
enues collected from customers for online play, who are only contractually obligated for pay on a month-to-month
basis. Prepaid monthly subscription revenues, including revenues collected from credit card sales as well as sales
of Gametime subscription cards, are deferred and subsequently recognized ratably over the period for which the
hosting services are provided.
ELECTRONIC ARTS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001, 2000 and 1999