Electronic Arts 2007 Annual Report Download - page 83

Significant Relationships
Hardware Platform Companies
Sony. Under the terms of agreements we have entered into with Sony Computer Entertainment Inc. and its
affiliates, we are authorized to develop and distribute disk-based software products and online content
compatible with the PlayStation 2, PLAYSTATION 3 and PSP. Pursuant to these agreements, we engage Sony
to supply PlayStation 2, PLAYSTATION 3 and PSP disks for our products.
Microsoft. Under the terms of agreements we have entered into with Microsoft Corporation and its affiliates,
we are authorized to develop and distribute DVD-based software products and online content compatible with
the Xbox and Xbox 360.
Nintendo. Under the terms of agreements we have entered into with Nintendo Co., Ltd. and its affiliates, we
are authorized to develop and distribute proprietary optical format disk products and cartridges compatible
with the Nintendo GameCube, the Wii, the Nintendo DS and Game Boy Advance. Pursuant to these
agreements, we engage Nintendo to supply Wii proprietary optical format disk products and Nintendo DS
cartridges for our products.
Cellular Handsets
We have agreements to distribute our wireless applications through more than 110 carriers in over 40 countries.
Our customers download our applications to their cellular handsets and their wireless carrier invoices them a
one-time fee or monthly subscription fee. Our carrier distribution agreements establish the fees to be retained
by the carrier for distributing our applications. These arrangements are typically terminable on short notice.
The agreements generally do not obligate the carriers to market or distribute any of our applications.
Content Licensors
Many of our products are based on or incorporate content and trademarks owned by others. For example, our
EA, EA SPORTS and EA SPORTS BIG products include rights licensed from third parties, including major
studios, publishers, artists, authors, celebrities, athletes and the major sports leagues and players associations.
Inventory, Working Capital, Backlog, Manufacturing and Suppliers
We manage inventory 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 “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.
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.
The suppliers we use to manufacture our games and related materials include independent third parties, Sony
and Nintendo.
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 3, PlayStation 2,
PSP and Wii and Nintendo DS cartridges.
Our online games and cellular handset applications are delivered digitally, and therefore, are not manufactured.
International Operations
We conduct business and have wholly-owned subsidiaries throughout the world, including offices in Europe,
Australia, Asia and Latin America. International net revenue increased by 4 percent to $1.425 billion, or
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