Electronic Arts 2005 Annual Report Download - page 68

Inventory and Working Capital
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. Historically, we have
experienced high turnover of our products, and the lead times on re-orders of our products are generally short,
approximately two to three weeks. Further, as discussed in ""Marketing and Distribution'' and in ""Manage-
ment's Discussion and Analysis of Financial Condition and Results of Operations'', we have practices in place
with our customers (such as stock balancing and price protection) that reduce product returns.
International Operations
We conduct business and have wholly-owned subsidiaries throughout the world, including oÇces in Australia,
Austria, Belgium, Brazil, Canada, China, the Czech Republic, Denmark, England, Finland, France, Germany,
Greece, Hungary, Italy, Japan, the Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South
Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, and Thailand. International net revenue increased
by nine percent to $1.464 billion, or 47 percent of total net revenue in Ñscal 2005, compared to $1.347 billion,
or 46 percent of total net revenue in Ñscal 2004. Our increase in international net revenue was primarily driven
by sales in Europe and Asia PaciÑc, including the beneÑt of foreign exchange.
We believe that in order to increase our sales in Asia, we will need to devote signiÑcant resources to hire local
development talent and expand our infrastructure, most notably, the expansion and creation of studio facilities
to develop content locally for each market. In addition, we may establish online game marketing, publishing
and distribution functions in China. As part of this strategy, we may seek to partner with established local
companies through acquisitions, joint ventures or other similar arrangements.
The amounts of net revenue and identiÑable assets attributable to each of our geographic regions for each of
the last three Ñscal years are set forth in Note 17 of the Notes to Consolidated Financial Statements, included
in Item 8 of this report.
Manufacturing and Suppliers
The suppliers we use to manufacture our games can be characterized in three types:
‚ Manufacturing entities that press our game disks,
‚ Entities that print our game instruction booklets, and
‚ 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 for the disk component of our PlayStation 2, PSP and Nintendo
GameCube disk products, as discussed in ""SigniÑcant Relationships''. We also have alternate sources for the
manufacture and assembly of most of our products. To date, we have not experienced any material diÇculties
or delays in production of our software and related documentation and packaging. However, a shortage of
components, manufacturing delays by Sony or Nintendo, or other factors beyond our control could impair our
ability to manufacture, or have manufactured, our products.
Backlog
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.
Seasonality
Our business is highly seasonal. We typically experience our highest revenue and proÑts in the holiday season
quarter ending in December and a seasonal low in revenue and proÑts in the quarter ending in June. Our
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