Electronic Arts 2011 Annual Report Download - page 116

Revenue Deferral for fiscal year 2011 increased $16 million, or 13 percent, as compared to fiscal year 2010. This
increase was driven by a $24 million increase from the Medal of Honor and FIFA World Cup franchises. This
increase was partially offset by a $12 million decrease from the Battlefield franchise and Dante’s Inferno.
The Recognition of Revenue Deferral for fiscal year 2011 increased $33 million, or 34 percent, as compared to
fiscal year 2010. This increase was driven by a $40 million increase from the Battlefield, FIFA World Cup, and
Medal of Honor franchises. This increase was partially offset by $10 million decrease from the Need For Speed
and Fight Night franchises.
For fiscal year 2011, Net Revenue in Asia was $190 million, driven by Battlefield: Bad Company 2, FIFA 11,
and EA SPORTS FIFA Online 2. Net Revenue for fiscal year 2011 decreased by $6 million, or 3 percent, as
compared to fiscal year 2010. This decrease was driven by a $33 million decrease from the Need for Speed, Rock
Band, Left 4 Dead, EA SPORTS Active, and Fight Night franchises. This decrease was partially offset by a $30
million increase from the Battlefield and FIFA World Cup franchises. We estimate that foreign exchange rates
(primarily the Australian dollar) increased reported Net Revenue by approximately $24 million, or 12 percent, in
fiscal year 2011 as compared to fiscal year 2010. Excluding the effect of foreign exchange rates from Net
Revenue, we estimate that Net Revenue decreased by approximately $30 million, or 15 percent, in fiscal year
2011 as compared to fiscal year 2010.
Non-GAAP Financial Measures
Net Revenue before Revenue Deferral is a non-GAAP financial measure that excludes the impact of Revenue
Deferral and the Recognition of Revenue Deferral on Net Revenue related to packaged goods games and digital
content. We defer Net Revenue from sales of certain online-enabled packaged goods and digital content for
which we are not able to objectively determine the fair value (as defined by accounting principles generally
accepted in the United States for software sales) of the online service that we provide in connection with the sale.
We recognize the revenue from these games over the estimated online service period. We also defer Net Revenue
from sales of certain online-enabled packaged goods and digital content for which we had an obligation to deliver
incremental unspecified digital content in the future without an additional fee. We recognize the revenue for
these games on a straight-line basis over the estimated period of game play.
We believe that excluding the impact of Revenue Deferral and the Recognition of Revenue Deferral related to
packaged goods games and digital content from our operating results is important to facilitate comparisons
between periods in understanding our underlying sales performance for the period. We use this non-GAAP
measure internally to evaluate our operating performance, when planning, forecasting and analyzing future
periods, and when assessing the performance of our management team. While we believe that this non-GAAP
financial measure is useful in evaluating our business, this information should be considered as supplemental in
nature and is not meant to be considered in isolation from or as a substitute for the related financial information
prepared in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same as
non-GAAP measures presented by other companies.
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) warehousing and 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 websites, credit card fees and royalties for use of third-party properties. Cost of goods sold for our website
advertising business primarily consists of server costs.
40