Cash Flow

Recognition Change Leaves Company at a Loss

Electronic Arts says good-bye to a big quarterly profit after it decides to change its accounting for sales of online games.
Stephen TaubNovember 2, 2007

Video-game maker Electronic Arts says a revenue-recognition change caused it to report a large loss rather than a profit for its second fiscal quarter ended September 30.

The company adjusted its accounting for revenue from games that can be updated online, spreading out the revenue over multiple periods. “Electronic Arts is no longer able to objectively determine the fair value of the online service included in certain of its games and online content,” the company says.

The change resulted in a $296 million net increase in deferred net revenue. The quarterly diluted loss per share was 62 cents, compared with earnings of 7 cents in last year’s second quarter.

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Without factoring in the accounting change, shares earned 27 cents, up from 21 cents a year ago. Excluding the impact of the change in deferred net revenue from operating results is important for comparisons to prior periods, as well as for forecasting and planning for future periods.

Net revenue for the quarter was $640 million, down 18 percent from $784 million for the previous year. The significant deferral of revenue will not adversely affect the company’s operating cash flow, Electronic Arts says.