Electronic Arts 2016 Annual Report Download - page 142

deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price
hierarchy described below. If the arrangement contains more than one software deliverable, the arrangement
consideration is allocated to the software deliverables as a group and then allocated to each software deliverable.
We determine the selling price for a tangible product deliverable based on the following selling price hierarchy:
VSOE (i.e., the price we charge when the tangible product is sold separately) if available, third-party evidence
(“TPE”) of fair value (i.e., the price charged by others for similar tangible products) if VSOE is not available, or
our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. Determining the BESP is a
subjective process that is based on multiple factors including, but not limited to, recent selling prices and related
discounts, market conditions, customer classes, sales channels and other factors. Provided the other three revenue
recognition criteria other than delivery have been met, we recognize revenue upon delivery to the customer as we
have no further obligations.
Principal Agent Considerations
We evaluate sales of our interactive software games via third party storefronts, including digital storefronts such
as Microsoft’s Xbox Games Store, Sony PSN, Apple App Store, and Google Play, in order to determine whether
or not we are acting as the primary obligor in the sale to the end consumer, which we consider in determining if
revenue should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in
determining gross versus net treatment include but are not limited to the following:
• The party responsible for delivery/fulfillment of the product or service to the end consumer
• The party responsible for the billing, collection of fees and refunds to the consumer
• The storefront and Terms of Sale that govern the consumer’s purchase of the product or service
• The party that sets the pricing with the consumer and has credit risk
Based on evaluation of the above indicators, we have determined that generally the third party is considered the
primary obligor to end consumers for the sale of our interactive software games. We therefore report revenue
related to these arrangements net of the fees retained by the storefront.
Sales Returns and Allowances and Bad Debt Reserves
We reduce revenue for estimated future returns and price protection which may occur with our distributors and
retailers (“channel partners”). Price protection represents our practice to provide our channel partners with a
credit allowance to lower their wholesale price on a particular product that they have not resold to end
consumers. The amount of the price protection is generally the difference between the old wholesale price and
the new reduced wholesale price. In certain countries for our PC and console packaged goods software products,
we also have a practice of allowing channel partners to return older software products in the channel in exchange
for a credit allowance. As a general practice, we do not give cash refunds.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a government authority that are both imposed on and concurrent with specific revenue
transactions between us and our customers are presented on a net basis in our Consolidated Statements of
Operations.
Concentration of Credit Risk, Significant Customers, Franchises and Channel Partners
We extend credit to various retailers and channel partners. Collection of trade receivables may be affected by
changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. Although
we generally do not require collateral, we perform ongoing credit evaluations of our customers and maintain
reserves for potential credit losses. Invoices are aged based on contractual terms with our customers. The
provision for doubtful accounts is recorded as a charge to general and administrative expense when a potential
56