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ELECTRONIC ARTS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Electronic Arts develops, markets, publishes and distributes interactive software games that are playable by
consumers on home videogame machines (such as the Sony PlayStation 2», Microsoft Xbox», Nintendo
GameCube
TM
consoles), personal computers, hand-held game machines (such as the Game Boy» Advance)
and online, over the Internet and other proprietary online networks. Many of our games are based on content
that we license from others (e.g., Madden NFL Football, Harry Potter and FIFA Soccer), and many of our
games are based on intellectual property that is wholly-owned by EA (e.g., The Sims
TM
, Medal of Honor
TM
).
Our goal is to develop titles which appeal to the mass markets and as a result, we develop, market, publish
and distribute our games in over 100 countries, often translating and localizing them for sale in non-English
speaking countries. Our goal is to create software game ""franchises'' that allow us to publish new titles on a
recurring basis that are based on the same property. Examples of this are our annual iterations of our
sports-based franchises (e.g., NCAA Football and FIFA Soccer), titles based on long-lived movie properties
(e.g., James Bond
TM
) and wholly-owned properties that can be successfully sequeled (e.g., SimCity
TM
).
A summary of our signiÑcant accounting policies applied in the preparation of our consolidated Ñnancial
statements follows:
(a) Consolidation
The accompanying Consolidated Financial Statements include the accounts of Electronic Arts Inc. and its
wholly-owned and majority-owned subsidiaries. All signiÑcant intercompany balances and transactions have
been eliminated in consolidation.
(b) Fiscal Year
Our Ñscal year is reported on a 52/53-week period that ends on the Ñnal Saturday of March in each year. The
results of operations for the Ñscal years ended March 31, 2004, 2003 and 2002 each contain 52 weeks and
ended on March 27, 2004, March 29, 2003 and March 30, 2002, respectively. For simplicity of presentation,
all Ñscal periods are treated as ending on a calendar month end.
(c) Stock Split
On October 20, 2003, our Board of Directors authorized a two-for-one stock split of our Class A common
stock which was distributed on November 17, 2003 in the form of a stock dividend for shareholders of record
at the close of business on November 3, 2003. All issued and outstanding share and per-share amounts related
to the Class A common stock in the accompanying Consolidated Financial Statements and Notes thereto
have been restated to reÖect the stock split for all periods presented.
(d) ReclassiÑcations
Certain prior-year amounts have been reclassiÑed to conform to the Ñscal 2004 presentation.
(e) Use of Estimates
The preparation of Ñnancial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that aÅect the reported amounts of
assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting period.
Such estimates include provisions for doubtful accounts, sales returns and allowances and accrued liabilities,
and estimates regarding the recoverability of prepaid royalties, inventories, long-lived assets and deferred
income taxes. These estimates generally involve complex issues and require us to make judgments, involve
analysis of historical and future trends, can require extended periods of time to resolve, and are subject to
change from period to period. In all cases, actual results could diÅer materially from management's estimates.
(f) Cash, Cash Equivalents, Short-Term Investments, Marketable Equity Securities and Other Investments
Cash equivalents consist of highly liquid investments with insigniÑcant rate risk and with maturities of three
months or less at the date of purchase. Short-term investments include securities with maturities greater than
60