Electronic Arts 2006 Annual Report Download - page 128

Receivables, net
Our gross accounts receivable balances were $431 million and $458 million as of March 31, 2006 and
2005, respectively. The decrease in our accounts receivable balance was primarily due to a higher
percentage of revenue recognized in the Ñrst two months of our fourth quarter of Ñscal 2006 as compared
to the fourth quarter of Ñscal 2005, which allowed us to collect a higher percentage of our net revenue
during the quarter. Reserves for sales returns, pricing allowances and doubtful accounts increased in
absolute dollars from $162 million as of March 31, 2005 to $232 million as of March 31, 2006. As a
percentage of trailing six and nine month net revenue, reserves increased from 8 percent and 6 percent,
respectively, as of March 31, 2005, to 12 percent and 9 percent, respectively, as of March 31, 2006. The
increase in these reserves was primarily the result of lower anticipated demand for our products and the
continued decline in the average prices of our titles for current-generation consoles due to the competitive
retail environment. We believe these reserves are adequate based on historical experience and our current
estimate of potential returns, pricing allowances and doubtful accounts.
Inventories
Inventories decreased slightly to $61 million as of March 31, 2006 from $62 million as of March 31, 2005.
No single title represented more than $7 million of inventory as of March 31, 2006.
Other current assets
Other current assets increased to $234 million as of March 31, 2006, from $164 million as of March 31,
2005, primarily due to an increase in prepaid royalties as we continue to invest in our product development
and content, as well as an increase in advertising credits owed to us by our vendors due to the timing of
our claims.
Accounts payable
Accounts payable increased to $163 million as of March 31, 2006, from $134 million as of March 31,
2005, primarily due to higher sales volumes and higher expenditures to support our business in the fourth
quarter of Ñscal 2006 as compared to the fourth quarter of Ñscal 2005.
Accrued and other liabilities
Our accrued and other liabilities increased to $706 million as of March 31, 2006 from $673 million as of
March 31, 2005. The increase was primarily due to liabilities related to our JAMDAT acquisition and an
increase in deferred revenue.
Deferred income taxes, net
Our long-term position of deferred income taxes changed by $48 million, from an asset position as of
March 31, 2005 to a liability position as of March 31, 2006 primarily due to (1) a long-term deferred tax
liability we recorded in connection with our JAMDAT acquisition purchase accounting, and (2) the
utilization of tax credits during Ñscal 2006.
Financial Condition
We believe that existing cash, cash equivalents, short-term investments, marketable equity securities and
cash generated from operations will be suÇcient to meet our operating requirements for at least the next
twelve months, including working capital requirements, capital expenditures, potential future acquisitions or
strategic investments. We may choose at any time to raise additional capital to strengthen our Ñnancial
position, facilitate expansion, pursue strategic acquisitions and investments or to take advantage of business
opportunities as they arise. There can be no assurance, however, that such additional capital will be
available to us on favorable terms, if at all, or that it will not result in substantial dilution to our existing
stockholders.
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