Electronic Arts 2008 Annual Report Download - page 106

As of March 31, 2008, we had an accumulated balance of $387 million of deferred net revenue related to
online-enabled packaged goods and digital content, substantially all of which was driven by sales made during
the six months ended March 31, 2008. As of March 31, 2007, we had an accumulated balance of $32 million
of deferred net revenue related to online-enabled packaged goods and digital content.
Financial Results
Total net revenue for the fiscal year ended March 31, 2008 was $3.665 billion, up 19 percent as compared to
the fiscal year ended March 31, 2007. The impact of deferrals related to packaged goods and digital content
for the fiscal year ended March 31, 2008 decreased our reported net revenue and operating income by
$355 million. Net revenue was driven by sales of Rock Band, Madden NFL 08,FIFA 08,Need for Speed
ProStreet, and The Simpsons
TM
Game.
Net loss for the fiscal year ended March 31, 2008 was $454 million as compared to net income of $76 million
for the fiscal year ended March 31, 2007. Diluted loss per share for the fiscal year ended March 31, 2008 was
$1.45 as compared to diluted income per share of $0.24 for the fiscal year ended March 31, 2007. Net income
decreased during fiscal 2008 as compared to fiscal 2007 primarily due to (1) an increase in cost of goods sold
of $593 million, (2) an increase in sales of online-enabled titles for which we were unable to establish VSOE
that resulted in the net deferral of $355 million of net revenue out of fiscal 2008 and into future periods,
(3) an increase of $135 million in acquired in-process technology primarily due to our acquisition of
VG Holding Corp., (4) losses on strategic investments of $118 million, (5) an increase of $108 million in
personnel-related costs, (6) an increase of $90 million in marketing, advertising and promotional expenses
primarily to support our launch of new franchises and incremental spending on recurring franchises, and (7) an
increase of $88 million in restructuring charges primarily as a result of our fiscal 2008 reorganization. These
items were partially offset by (1) an increase in $574 million in net revenue and (2) $119 million lower
income tax expense.
We generated $338 million of cash from operating activities during the year ended March 31, 2008, as
compared to $397 million for fiscal 2007. The decrease in cash provided by operating activities for fiscal 2008
as compared to fiscal 2007 was primarily due to (1) an increase in operating expenses paid resulting from an
increase in advertising and marketing costs, external development expenses and personnel-related expenses,
and (2) a $90 million increase in incentive-based cash compensation paid in fiscal 2008 which were earned
with respect to fiscal 2007 performance. These decreases were significantly offset by higher net revenue
collected during fiscal 2008 as compared to fiscal 2007.
Management’s Overview of Historical and Prospective Business Trends
Fiscal 2008 Reorganization. In fiscal 2008, we reorganized our business into four operating “labels” —
EA Games, EA SPORTS, The Sims and EA Casual Entertainment — and an additional group that works
closely with the labels — Global Publishing. Each label is structured to operate globally and includes several
key functions including development studios, product marketing, and planning for products and services.
Global Publishing operates in three regions, North America, Europe and Asia, and is responsible for strategic
planning, field marketing, sales, distribution, operations, product certification, quality assurance, motion
capture, art outsourcing and localization.
In October 2007, our Board of Directors approved a plan of reorganization (“fiscal 2008 reorganization plan”).
Since the inception of the fiscal 2008 reorganization plan through March 31, 2008, we incurred charges
associated with (1) the closure of our Chertsey, England and Chicago, Illinois facilities, which included asset
impairment and lease termination costs, (2) employee-related expenses, and (3) other costs including other
contract terminations as well as IT and consulting costs to assist in the reorganization of our business support
functions. During the fourth quarter of fiscal 2008, we completed the closure of our Chertsey facility and
consolidated our local operations and employees into our Guildford, England facility. Over the next 18 months,
we expect to continue to incur IT and consulting costs to assist in the reorganization of our business support
functions.
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