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net revenue of approximately $95 million during the twelve months ended March 31, 2005. Although we
intend to continue to utilize foreign exchange forward and option contracts to either mitigate or hedge against
some foreign currency exposures, we cannot predict the eÅect foreign currency Öuctuations will have on us
during Ñscal 2006.
Expansion of Studio Resources and Technology. In Ñscal 2005, we devoted signiÑcant resources to the
overall expansion of our studio facilities in North America and Europe. We expect to continue to make
signiÑcant investments in our studio facilities in North America in Ñscal 2006. As we move through the life
cycle of current-generation consoles, we will continue to devote signiÑcant resources to the development of
current-generation titles while at the same time we continue to invest heavily in tools and technologies for the
next-generation of platforms and technology.
Leader in Interactive Sports Entertainment. We are a leading developer and publisher of interactive sports
entertainment. We generate a signiÑcant portion of our revenue from sports-related product franchises such as
FIFA Soccer, Madden NFL Football, NCAA Football, Tiger Woods Golf, NASCAR, NBA Basketball, and
NCAA Basketball. We recently have taken a number of steps to enhance our products in the interactive sports
category by entering into exclusive license agreements with ESPN, the NFL, PLAYERS, Inc. (the NFL
players' association), Collegiate Licensing Company (NCAA football), and the Arena Football League. In
addition, we have long-standing, exclusive relationships with various sports organizations and celebrities,
including FIFA (the worldwide soccer governing body and sponsor of the soccer World Cup), UEFA (the
European soccer governing body and sponsor of the soccer Euro Cup), NASCAR, Tiger Woods and the PGA
TOUR, and, in the future, we may enter into other exclusive relationships with other sports partners. While we
expect to generate increased revenue as a result of these agreements, it may not be enough to oÅset the impact
of the associated costs on our gross proÑt, which could negatively aÅect our gross margin on these products.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated Ñnancial statements have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated Ñnancial statements requires manage-
ment 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 periods. The policies discussed below are
considered by management to be critical because they are not only important to the portrayal of our Ñnancial
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 diÅer materially from our estimates.
Revenue Recognition, Sales Returns, Allowances and Bad Debt Reserves
Annual Report
We principally derive revenue from sales of packaged interactive software games designed for play on video
game consoles (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and mobile platforms
including hand-held game players (such as the Nintendo Game Boy Advance, Nintendo DS and Sony PSP)
and cellular handsets. We evaluate the recognition of revenue based on the criteria set forth in Statement of
Position (""SOP'') 97-2, ""Software Revenue Recognition'', as amended by SOP 98-9, ""ModiÑcation of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions'' and StaÅ Accounting
Bulletin (""SAB'') No. 101, ""Revenue Recognition in Financial Statements'', as revised by SAB No. 104,
""Revenue Recognition''. We evaluate revenue recognition using the following basic criteria and recognize
revenue when all four criteria are met:
‚ Evidence of an arrangement: We recognize revenue when we have evidence of an agreement with the
customer reÖecting the terms and conditions to deliver products.
‚ Delivery: Delivery is considered to occur when the products are shipped and risk of loss has been
transferred to the customer. For online games and services, revenue is recognized as the service is
provided.
‚ Fixed or determinable fee: If a portion of the arrangement fee is not Ñxed or determinable, we
recognize that amount as revenue when the amount becomes Ñxed or determinable.
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