Electronic Arts 2006 Annual Report Download - page 86

customer, Wal-Mart Stores, Inc., which represented approximately 13 percent of total net revenue in both
Ñscal 2006 and 2004 and approximately 14 percent of total net revenue in Ñscal 2005.
In North America, we have stock-balancing programs for our PC products, which allow for the exchange
of PC products by resellers under certain circumstances. We may also decide to provide price protection
for our PC products under certain circumstances in North America. In most of our major geographical
markets, we accept product returns on our PC products and we may decide to accept product returns or
provide price protection under certain circumstances for our console products after we analyze inventory
remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on
hand. It is our policy to exchange products or give credits, rather than give cash refunds. We actively
monitor the volume of our sales to our channel partners and their inventories, as substantial overstocking
in the distribution channel could result in high returns or higher price protection costs in subsequent
periods.
The distribution channels through which our games are sold have been characterized by change, including
consolidations and Ñnancial diÇculties of certain distributors and retailers. The bankruptcy or other
business diÇculties of a distributor or retailer could render our accounts receivable from such entity
uncollectible, which could have an adverse eÅect on our operating results and Ñnancial condition. In
addition, an increasing number of companies are competing for access to our distribution channels. Our
arrangements with our distributors and retailers may be terminated by either party at any time without
cause. Distributors and retailers often carry products that compete with ours. Retailers of our products
typically have a limited amount of shelf space and promotional resources that they are willing to devote to
the software games category, and there is intense competition for these resources. There can be no
assurance that distributors and retailers will continue to purchase our products or provide our products with
adequate levels of shelf space and promotional support.
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. 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 ""Management'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, Barbados, Belgium, Bermuda, Brazil, Canada, China, the Czech Republic, Denmark,
England, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Italy, Japan, Mexico, the
Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, South Africa, South Korea,
Spain, Sweden, Switzerland, Taiwan, and Thailand. International net revenue decreased by 7 percent to
$1.367 billion, or 46 percent of total net revenue in Ñscal 2006, compared to $1.464 billion, or 47 percent
of total net revenue in Ñscal 2005. Our decrease in international net revenue was primarily driven by lower
sales in Europe and the negative impact of foreign exchange rates.
We believe that in order to increase our online 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. In addition, we are establishing 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 long-lived 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.
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