Electronic Arts 2008 Annual Report Download - page 115

Wii (which does not include an additional $8 million of deferred net revenue that will be recognized in future
periods), and (3) a $77 million increase in net revenue from sales of titles for the Nintendo DS.
We continue to expect net revenue in Europe to increase during fiscal 2009 as compared to fiscal 2008.
Asia
For fiscal 2008, net revenue in Asia was $182 million, driven by sales of Need for Speed ProStreet,The
Simpsons Game, and FIFA 08. Net revenue for fiscal 2008 increased 11 percent as compared to fiscal 2007.
We estimate that foreign exchange increased reported net revenue by approximately $12 million, or 7 percent,
for fiscal 2008 as compared to fiscal 2007. Excluding the effect of foreign exchange rates, we estimate that
net revenue increased by $6 million, or 4 percent during fiscal 2008 as compared to fiscal 2007.
The deferral of net revenue related to certain of our packaged goods and digital content sales, which will be
recognized in future periods, decreased our reported net revenue by $28 million during fiscal 2008. From an
operational perspective, the increase in net revenue was driven by (1) a $12 million increase in sales of titles
for the PLAYSTATION 3 (which does not include an additional $14 million of deferred net revenue that will
be recognized in future periods), (2) $12 million increase in net revenue from sales of titles for the Wii (which
does not include an additional $1 million of deferred net revenue that will be recognized in future periods),
and (3) an $11 million increase in net revenue from sales of titles for the Nintendo DS. These increases were
partially offset by (1) a $9 million decrease in net revenue from sales of titles for the PC (this decrease will be
offset, however, by $3 million of deferred net revenue that will be recognized in future periods), (2) a
$6 million decrease in net revenue from sales of titles for the Xbox, and (3) a $6 million decrease in net
revenue from sales of titles for the PSP (this decrease will be offset, however, by $4 million of deferred net
revenue that will be recognized in future periods).
Cost of Goods Sold
Cost of goods sold for our packaged-goods business consists of (1) product costs, (2) certain royalty expenses
for celebrities, professional sports and other organizations and independent software developers, (3) manufac-
turing royalties, net of volume discounts and other vendor reimbursements, (4) expenses for defective products,
(5) write-offs of post-launch prepaid royalty costs, (6) amortization of certain intangible assets, (7) personnel-
related costs, and (8) distribution costs. We generally recognize volume discounts when they are earned from
the manufacturer (typically in connection with the achievement of unit-based milestones), whereas other
vendor reimbursements are generally recognized as the related revenue is recognized. Cost of goods sold for
our online products consists primarily of data center and bandwidth costs associated with hosting our web
sites, credit card fees and royalties for use of third-party properties. Cost of goods sold for our web site
advertising business primarily consists of server costs.
Cost of goods sold for fiscal years 2008 and 2007 were as follows (in millions):
March 31,
2008
% of Net
Revenue
March 31,
2007
%ofNet
Revenue % Change
Change as a
% of Net
Revenue
$1,805 49.3% $1,212 39.2% 48.9% 10.1%
For fiscal 2008, cost of goods sold increased by 10.1 percent as a percentage of total net revenue as compared
to fiscal 2007. This increase was primarily due to:
• Higher co-publishing and distribution royalty costs of approximately 8 percent as a percentage of total
net revenue primarily driven by sales of Rock Band, and, to a lesser extend, other co-publishing and
distribution titles that have a lower gross margin, and
• The increase in net revenue deferrals of $355 million related to certain online-enabled packaged goods
and digital content. Overall, we estimate the deferral of net revenue negatively impacted cost of goods
sold as a percent of total net revenue by 4 percent.
As a percentage of total net revenue, the overall increase in cost of goods sold was partially offset by lower
license royalty rates of approximately 1 percent as a percentage of total net revenue primarily due to a higher
Annual Report
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