Electronic Arts 2008 Annual Report Download - page 108

• In May 2007, we entered into a licensing agreement with and made a strategic equity investment in
The9 Limited, a leading online game operator in China. The licensing agreement gives The9 exclusive
publishing rights for EA SPORTS
TM
FIFA Online in mainland China.
• In April 2007, we expanded our commercial agreements with and made strategic equity investments in
Neowiz Corporation and a related online gaming company, Neowiz Games (we refer to Neowiz
Corporation and Neowiz Games collectively as “Neowiz”). Based in Korea, Neowiz is an online media
and gaming company with which we partnered in 2006 to launch EA SPORTS FIFA Online in Korea.
• In October 2006, the remaining outstanding shares of Digital Illusions C.E. (“DICE”) located in
Sweden, were purchased, thereby completing the acquisition of the remaining minority interest of
DICE.
• In July 2006, we acquired Mythic Entertainment, Inc., located in Virginia, as part of our efforts to
accelerate our growth in the massively multiplayer online role-playing market.
In the fourth quarter of fiscal 2008, we announced a proposal to acquire all of the issued and outstanding
shares of common stock of Take-Two Interactive Software, Inc.(“Take-Two”), for a total purchase price of
approximately $2.1 billion (including fees and expenses). Take-Two’s Board of Directors has stated that our
offer undervalues the company and is not in the best interests of stockholders. If we were to acquire Take-
Two, we expect the acquisition would have a material impact on our future financial position and results of
operations and cash flows. Although the offer is not conditional upon any financing arrangements, our Board
of Directors has authorized us to obtain additional financing, a portion of which may be used in part to fund
the acquisition. There can be no assurance that we will acquire Take-Two.
International Operations and Foreign Currency Exchange Impact. International sales are a fundamental part
of our business. Net revenue from international sales accounted for approximately 47 percent of our total net
revenue during fiscal 2008 and approximately 46 percent of our total net revenue during fiscal 2007. Our
international net revenue was primarily driven by sales in Europe and, to a much lesser extent, in Asia. Year-
over-year, we estimate that foreign exchange rates had a favorable impact on our net revenue of $125 million,
or 4 percent, for the year ended March 31, 2008. We believe that in order to succeed internationally, it is
important to locally develop content that is specifically directed toward local cultures and consumers.
Stock-Based Compensation. Beginning on April 1, 2006, we adopted Statement of Financial Accounting
Standard No. 123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment”, and applied the provisions of
Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment”, to our adoption of SFAS No. 123(R).
During fiscal 2008, we recognized stock-based compensation of $150 million, pre-tax, and $123 million, net
of tax. During fiscal 2007, we recognized stock-based compensation of $133 million, pre-tax, and $107 million,
net of tax. Stock-based compensation expense has been reflected in the respective functional line items on our
Consolidated Statements of Operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these Consolidated Financial Statements requires manage-
ment to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent
assets and liabilities, and revenue and expenses during the reporting periods. The policies discussed below are
considered by management to be critical because they are not only important to the portrayal of our financial
condition and results of operations, but also because application and interpretation of these policies requires
both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results
may differ materially from our estimates.
Revenue Recognition, Sales Returns, Allowances and Bad Debt Reserves
We derive revenue principally from sales of interactive software games designed for play on video game
consoles (such as the PlayStation 2, PLAYSTATION 3, Xbox 360 and Wii), PCs and mobile platforms
including handheld game players (such as the PSP and Nintendo DS), and cellular handsets. We evaluate the
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