Electronic Arts 2007 Annual Report Download - page 102

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following overview is a top-level discussion of our operating results as well as some of the trends and
drivers that affect our business. Management believes that an understanding of these trends and drivers is
important in order to understand our results for the fiscal year ended March 31, 2007, as well as our future
prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed
discussion and analysis provided elsewhere in this Form 10-K, including in the “Business” section and the
“Risk Factors” above, the remainder of “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, or the Consolidated Financial Statements and related notes.
About Electronic Arts
We develop, market, publish and distribute interactive software games that are playable by consumers on video
game consoles (such as the Sony PlayStation 2 and PLAYSTATION 3, Microsoft Xbox 360 and Nintendo
Wii), personal computers, mobile platforms (including cellular handsets and handheld game players such as
the PlayStation Portable (“PSP”) and the Nintendo DS) and online (over the Internet and other proprietary
online networks). Some of our games are based on content that we license from others (e.g., Madden NFL
Football, The Godfather and FIFA Soccer), and some of our games are based on our own wholly-owned
intellectual property (e.g., The Sims and Need for Speed). Our goal is to publish titles with mass-market
appeal, which often means translating and localizing them for sale in non-English speaking countries. In
addition, we also attempt 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 franchise approach are the annual
iterations of our sports-based products (e.g., Madden NFL Football, NCAA»Football and FIFA Soccer),
wholly-owned properties that can be successfully sequeled (e.g., The Sims, Need for Speed and Battlefield)
and titles based on long-lived literary and/or movie properties (e.g., Lord of the Rings and Harry Potter).
Overview of Financial Results
Total net revenue for the fiscal year ended March 31, 2007 was $3.091 billion, up 5 percent as compared to
the fiscal year ended March 31, 2006. Total net revenue for the fiscal year ended March 31, 2007 was driven
by sales of Madden NFL 07,Need for Speed Carbon,FIFA 07,The Sims 2 Pets, and NCAA»Football 07.
Four titles sold more than five million units in the fiscal year ended March 31, 2007 — Madden NFL 07,Need
for Speed Carbon,FIFA 07, and The Sims 2 Pets.
Net income for the fiscal year ended March 31, 2007 was $76 million as compared to $236 million for the
fiscal year ended March 31, 2006. Diluted net income per share for the fiscal year ended March 31, 2007 was
$0.24 as compared to $0.75 for the fiscal year ended March 31, 2006. Although net revenue increased in fiscal
2007 as compared to fiscal 2006, net income decreased due to an increase in our operating expenses as a
result of our adoption of SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”), “Share Based Payment”, an
increase in our annual bonus expense and an increase in additional personnel-related costs due to an increase
in headcount. These increases were further mitigated by a decrease in our income tax provision.
We generated $397 million of cash from operating activities during the year ended March 31, 2007, as
compared to $596 million for fiscal 2006. The decrease in cash generated from operating activities was
primarily due to the timing of the collection of our receivables as a result of collecting a greater amount of
our receivables during fiscal 2006 as compared to fiscal 2007.
Stock-Based Compensation. Beginning in fiscal 2007, we adopted SFAS No. 123(R) which requires us to
recognize the cost resulting from all share-based payment transactions in our financial statements using a fair-
value-based method. See Note 12 of the Notes to Consolidated Financial Statements. The following table
summarizes our stock-based compensation expense resulting from stock options, restricted stock, restricted
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