Electronic Arts 2002 Annual Report Download - page 51

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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consoli-
dated 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 2002 contain 52 weeks.The results of operations for fiscal
2001 and 2000 contain 53 and 52 weeks, respectively. 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”
,as amended by SOP 98-
9,
“Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”
,which
provide guidance on generally accepted accounting principles for recognizing revenue on software transactions.
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin
No. 101(“SAB 101”),
“Revenue Recognition in Financial Statements”
,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 consolidated 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 delivered 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 Com-
pany 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 revenues collected from customers
for online play, who are only contractually obligated to pay on a month-to-month basis. Prepaid monthly
subscription revenues, including revenues collected from credit card sales as well as sales of
Gametime
sub-
scription cards, are deferred and subsequently recognized ratably over the period for which the hosting
services are provided.
ADVERTISING REVENUES:
Advertising revenues are derived principally from the sale of banner and in-game advertisements. Banner
and in-game advertising is typically generated from contracts in which either the Company or AOL provides
a minimum number of impressions over the term of the agreed upon commitment. Revenue is recognized as
the impressions are delivered, provided that no significant obligations remain and collection of the related
receivable is probable. Advertising revenue generated on the AOL Games Channel is recorded net of the
applicable revenue share owed to AOL under the AOL agreement (see Note 5 of the Notes to Consolidated
Financial Statements).
SOFTWARE LICENSES:
For those agreements which provide the customers the right to multiple copies in exchange for guaranteed
minimum royalty amounts, revenue is recognized at delivery of the product master or the first copy. Per
copy royalties on sales that exceed the guarantee are recognized as earned.
Revenue from the licensing of software was $23,291,000, $18,944,000 and $21,704,000 for the fiscal
years ended March 31, 2002, 2001 and 2000, respectively.
EA 2002 AR 47
ELECTRONIC ARTS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002, 2001 and 2000