Electronic Arts 2014 Annual Report Download - page 67

Proxy Statement
for no additional fee as a “bundled” sale, or multiple-element arrangement. Electronic Arts is not able to
objectively determine the fair value of these unspecified updates or online service included in certain of its
online-enabled games. As a result, the Company recognizes the revenue from the sale of these online-enabled
games on a straight-line basis over the estimated offering period. Electronic Arts’ management excludes the
impact of the change in deferred net revenue related to online-enabled games in its non-GAAP financial
measures for the reasons stated above and also to facilitate an understanding of our operations because all related
costs of revenue are expensed as incurred instead of deferred and recognized ratably.
College Football Settlement Expenses. During fiscal 2014, Electronic Arts recognized a $48 million charge for
expected litigation settlement and license expenses related to our college football business. This expense is
excluded from our non-GAAP financial measures.
Restructuring Charges. Although Electronic Arts has engaged in various restructuring activities in the past,
each has been a discrete event based on a unique set of business objectives. Each of these restructurings has been
unlike its predecessors in terms of its operational implementation, business impact and scope. As such, the
Company believes it is appropriate to exclude restructuring charges from its non-GAAP financial measures.
Stock-Based Compensation. When evaluating the performance of its individual business units, the Company
does not consider stock-based compensation charges. Likewise, the Company’s management teams exclude
stock-based compensation expense from their short and long-term operating plans. In contrast, the Company’s
management teams are held accountable for cash-based compensation and such amounts are included in their
operating plans. Further, when considering the impact of equity award grants, Electronic Arts places a greater
emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.
Income Tax Adjustments. The Company uses a fixed, long-term projected tax rate internally to evaluate its
operating performance, to forecast, plan and analyze future periods, and to assess the performance of its
management team. Prior to April 1, 2013, a 28% tax rate was applied to its non-GAAP financial results. Based on
a re-evaluation of its fixed, long-term projected tax rate, beginning in fiscal 2014, the Company has applied a tax
rate of 25% to its non-GAAP financial results.
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