Electronic Arts 2010 Annual Report Download - page 129

Annual Report
million increase from sales of FIFA Soccer, (2) a $7 million increase from sales of Battlefield, and (3) a $6
million increase from sales of Rock Band. We estimate that foreign exchange rates (particularly the Australian
dollar) decreased reported Net Revenue by approximately $10 million, or 5 percent, for the fiscal year ended
March 31, 2009 as compared to the fiscal year ended March 31, 2008. Excluding the effect of foreign exchange
rates from Net Revenue, we estimate that Net Revenue increased by approximately $39 million, or 21 percent,
for the fiscal year ended March 31, 2009 as compared to the fiscal year ended March 31, 2008.
Non-GAAP Financial Measures
See “Non-GAAP Financial Measures” above for more information on our use of Net Revenue before Revenue
Deferral as a measure of our operating results.
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) manufacturing
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 2009 and 2008 were as follows (in millions):
March 31,
2009
% of Net
Revenue
March 31,
2008
% of Net
Revenue % Change
Change as a
% of Net
Revenue
$2,127 50.5% $1,805 49.3% 17.8% 1.2%
For fiscal year 2009, cost of goods sold increased by 1.2 percent as a percentage of total net revenue as compared
to fiscal year 2008. This increase was primarily due to:
• A greater percentage of net revenue from co-publishing and distribution products, which have a lower
margin, as compared to our EA studio products,
• An increase in price protection taken or expected to be taken for products already sold,
• An increase in our inventory write-downs as a result of future expected demand for our products, and
• Losses on intellectual property licensor agreements.
The overall increase in cost of goods sold as a percentage of net revenue was mitigated by an increase of $372
million in the Recognition of Revenue Deferral and a $109 million decrease in the Revenue Deferral, as
discussed in the “Net Revenue” section above, which decreased the cost of goods sold as a percent of total net
revenue by approximately 6 percent.
Marketing and Sales
Marketing and sales expenses consist of personnel-related costs, related overhead costs and advertising,
marketing and promotional expenses, net of qualified advertising cost reimbursements from third parties.
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