Electronic Arts 2009 Annual Report Download - page 110

significant investments in electronically delivered content and services, and we believe that this will become an
increasingly important part of our business over time.
Mobile Platforms. Advances in mobile technology have resulted in a variety of new and evolving platforms for
on-the-go interactive entertainment that appeal to a broad consumer base. Our efforts in mobile interactive
entertainment are focused in two areas – packaged goods games for handheld game systems and downloadable
games for wireless devices. We expect sales of games for wireless devices to continue to be an important part of
our business worldwide.
Recent Developments
Fiscal 2009 Cost Reduction Plan. In fiscal year 2009, we announced details of a cost reduction plan. This plan
includes a narrowing of our product portfolio, a reduction in our worldwide workforce of approximately 11
percent, or 1,100 employees, the closure of 10 facilities, and reductions in other variable costs and capital
expenditures. We consolidated and reorganized two of our Labels, The Sims and EA Casual Entertainment into
the EA Play Label in order to capture synergies and generate greater efficiencies between the two Labels. We
now have three Labels — EA Games, EA SPORTS and EA Play. We believe a more focused product portfolio
and a reduction in total operating expenses are better strategies for operating in the current environment.
International Operations and Foreign Currency Exchange Impact. International sales are a fundamental part of
our business. Net revenue from international sales accounted for approximately 43 percent of our total net
revenue during fiscal year 2009 and approximately 47 percent of our total net revenue during fiscal year 2008.
Our international net revenue was primarily driven by sales in Europe and, to a much lesser extent, in Asia. We
believe that in order to succeed internationally, it is important to locally develop content that is specifically
directed toward local cultures and customs. Year-over-year, we estimate that foreign exchange rates had an
unfavorable impact on our net revenue of approximately $30 million, or 1 percent, for the fiscal year ended
March 31, 2009. During the fiscal year ended March 31, 2009, the U.S. dollar strengthened against other
currencies, including the Euro and the British pound sterling. In addition, our international investments and our
cash and cash equivalents denominated in foreign currencies are subject to fluctuations in foreign currency. If the
U.S. dollar continues to strengthen against these currencies, then foreign exchange rates may continue to have an
unfavorable impact on our results of operations and our financial condition.
Goodwill Impairment. Adverse economic conditions, including the decline in our market capitalization and our
expected financial performance, indicated that a potential impairment of goodwill existed during the fiscal year
ended March 31, 2009. As a result, we performed goodwill impairment tests for our reporting units in accordance
with SFAS No. 142, and concluded the EA Mobile reporting unit’s goodwill was impaired. During the fiscal year
ended March 31, 2009, we recorded a goodwill impairment charge of $368 million related to our EA Mobile
reporting unit. Substantially all of our goodwill associated with our EA Mobile reporting unit was derived from
our acquisition of JAMDAT Mobile Inc. in February 2006.
Deferred Income Tax Valuation Allowance. We account for income taxes under SFAS No. 109, Accounting for
Income Taxes, which requires the recognition of deferred tax assets and liabilities for both the expected impact of
differences between the financial statements and tax basis of assets and liabilities and for the expected future tax
benefit to be derived from tax loss and tax credit carry forwards. SFAS No. 109 additionally requires that a
valuation allowance must be established against deferred tax assets when, for purposes of SFAS No. 109, it is
considered more likely than not that all or a portion of deferred tax assets will not be realized. In making this
determination, we are required under SFAS No. 109 to give significant weight to evidence that can be objectively
verified. SFAS No. 109 provides that it is difficult to conclude that a valuation allowance is not needed when
there is negative evidence such as cumulative losses in recent years. Forecasts of future taxable income are
considered to be less objective than past results, particularly in light of the recent deterioration of the economic
environment. Therefore, cumulative losses weigh heavily in the overall assessment. In making our assessment,
we are also required to consider the scheduled reversal of existing deferred tax liabilities, carry back of future
deductible amounts allowed under current tax law, and tax planning strategies. Based on these requirements, we
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