Electronic Arts 2011 Annual Report Download - page 113

Annual Report
our actually preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of
these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations.
In addition, changes in our business, including acquisitions, changes in our international corporate structure,
changes in the geographic location of business functions or assets, changes in the geographic mix and amount of
income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting
rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and other
matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective
income tax rate.
We historically have considered undistributed earnings of our foreign subsidiaries to be indefinitely reinvested
outside of the United States and, accordingly, no U.S. taxes have been provided thereon. We currently intend to
continue to indefinitely reinvest the undistributed earnings of our foreign subsidiaries outside of the United
States.
RESULTS OF OPERATIONS
Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of
operations for the fiscal years ended March 31, 2011 and 2009 each contained 52 weeks and ended on April 2,
2011 and March 28, 2009, respectively. Our results of operations for the fiscal year ended March 31, 2010
contained 53 weeks and ended on April 3, 2010. For simplicity of disclosure, all fiscal periods are referred to as
ending on a calendar month-end.
Comparison of Fiscal Year 2011 to Fiscal Year 2010
Net Revenue
Net revenue consists of sales generated from (1) video games sold as packaged goods and designed for play on
hardware consoles (such as the PLAYSTATION 3, Xbox 360 and Wii), PCs, and handheld game players (such as
the Sony PSP and Nintendo DS and 3DS), (2) video games for mobile devices (such as cellular and smart phones
including the Apple iPhone), (3) video games for tablets such as the Apple iPad, (4) software products and
content and online services associated with these products, (5) programming third-party websites with our game
content, (6) allowing other companies to manufacture and sell our products in conjunction with other products,
and (7) advertisements on our online web pages and in our games.
Net Revenue before Revenue Deferral, a non-GAAP financial measure, is provided in this section of
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). See
“Non-GAAP Financial Measures” below for an explanation of our use of this non-GAAP measure. A
reconciliation to the corresponding measure calculated in accordance with accounting principles generally
accepted in the United States is provided in the discussion below.
“Revenue Deferral” in this “Net Revenue” section includes the unrecognized revenue from (1) bundled sales of
certain online-enabled packaged goods and PC digital downloads for which either we do not have VSOE for the
online service that we provide in connection with the sale of the software or we have an obligation to provide
future incremental unspecified digital content, (2) certain packaged goods sales of massively-multiplayer online
role-playing games, and (3) sales of certain incremental digital content associated with our games, which are
types of “micro-transactions.” Fluctuations in the Revenue Deferral are largely dependent upon the amounts of
products that we sell with the online features and services previously discussed, while the Recognition of
Revenue Deferral for a period is also dependent upon (1) the period of time the online features and services are to
be provided and (2) the timing of the sale. For example, most Revenue Deferrals incurred in the first half of a
fiscal year are recognized within the same fiscal year; however, substantially all of the Revenue Deferrals
incurred in the last month of a fiscal year will be recognized in the subsequent fiscal year.
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