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Form 10-K

			☑			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

(Exact name of registrant as specified in its charter)

Delaware

94-2838567

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

209 Redwood Shores Parkway

94065

Redwood City

California

(Zip Code)

(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

EA

Nasdaq Global Select Market

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

þ

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

¨

Emerging growth company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐        No þ

 

						Page
			PART I
Item 1			Business			3
Item 1A			Risk Factors			8
Item 1B			Unresolved Staff Comments			18
Item 2			Properties			18
Item 3			Legal Proceedings			18
Item 4			Mine Safety Disclosures			18
			PART II
Item 5			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			19
Item 6			[Reserved]			20
Item 7			Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 7A			Quantitative and Qualitative Disclosures About Market Risk			34
Item 8			Financial Statements and Supplementary Data			36
Item 9			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			83
Item 9A			Controls and Procedures			83
Item 9B			Other Information			84
			PART III
Item 10			Directors, Executive Officers and Corporate Governance			85
Item 11			Executive Compensation			85
Item 12			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			85
Item 13			Certain Relationships and Related Transactions, and Director Independence			85
Item 14			Principal Accounting Fees and Services			85
			PART IV
Item 15			Exhibits and Financial Statements			85
Exhibit Index						86
Signatures						89

At our core is a portfolio of intellectual property from which we create innovative games and experiences that deliver high-quality entertainment and drive engagement across our network of hundreds of millions of unique active accounts. Our portfolio includes brands that we either wholly own (such as Apex Legends, Battlefield, and The Sims) or license from others (such as Madden NFL, Star Wars, and the 300+ licenses within our global football ecosystem). We are focusing on building games and experiences that grow the global online communities around our key franchises; reaching more players through connecting interactive storytelling to key intellectual property; and building re-occurring revenue from our annualized sports franchises, our console, PC and mobile catalog titles, and our live services. We develop and publish games and services across diverse genres, such as sports, racing, first-person shooter, action, role-playing and simulation. We believe that our portfolio, talent, live services offerings, use of multiple business models and distribution channels, and network of hundreds of millions of unique active accounts provide us with strategic advantages.

Revenue from our global football franchise, which is consistently one of the top franchises in the marketplace and includes the annualized console, PC and mobile games, as well as FIFA Ultimate Team, is material to our business and will continue to be so. Starting in fiscal year 2024, our global football franchise will transition to a new EA SPORTS FC brand. Our vision for the future of interactive football with EA SPORTS FC is to create the largest football club in the world, and we believe this is the right opportunity for us so that we can continue delivering innovation and growing to connect more fans on a global scale.

Live services net revenue, particularly extra content net revenue, has been material to our business, and we expect it to continue to be so. Through our live services offerings, we offer our players high-quality experiences designed to provide value to players and extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated outside of the sale of our base games. Our digital live services and other net revenue represented 74 percent of our total net revenue during fiscal year 2023. Our most popular live services are the extra content purchased for the Ultimate Team mode associated with our sports franchises and extra content purchased for our Apex Legends franchise. Ultimate Team allows players to collect current and former professional players in order to build and compete as a personalized team. Live services net revenue generated from extra content purchased within Ultimate Team, a substantial portion of which was derived from FIFA Ultimate Team, and for our Apex Legends franchise, is material to our business.

Digitally, our console games and live services can be purchased through third-party storefronts, such as the digital stores of our console partners. Our direct sales to Sony and Microsoft represented approximately 32 percent and 16 percent of total net revenue, respectively, in fiscal year 2023. Our mobile and tablet games and services are available through third-party application storefronts such as the Apple App Store and Google Play. Our PC games and services can be downloaded directly through the EA app, EA’s digital storefront, as well as through third-party online download stores, such as Steam. We also partner with third parties to publish our mobile and PC games and services in certain Asian territories, such as our partnerships with Tencent Holdings Limited for FIFA Online in China and Nexon Co. Ltd. for FIFA Online in Korea. From time to time, third parties will publish games and services under a license to certain of our intellectual property assets.

We believe that the future of entertainment is interactive and that the consumption of entertainment and sports is deeply social. We are investing towards a future of accelerated content generation and increased player engagement - with players across our network using games to stay connected to friends, and to express themselves. While we continue to anchor our business on delivering amazing content and services to more players, our goal is to build from our core and invest in new areas of opportunity.

Apple, Google and Other App Stores. We have agreements to distribute our mobile applications and additional content through distributors such as Apple and Google. Our applications are downloaded for mobile devices from third party application storefronts. The distributor collects payment from consumers for content purchased within the application or charges consumers a one-time fee to download the application. Our distribution agreements establish the amounts that are retained by the distributor and the amounts passed through to us. These arrangements are typically terminable on short notice. The agreements generally do not obligate the distributors to market or distribute any of our applications. Application storefront policies are determined unilaterally by the distributors and are subject to change.

Our most recently published Company-wide gender and racial/ethnic representation, as well as our EEO-1 report (U.S. government reporting), are available on our website. Our commitments to diversity, equity and inclusion extend to compensating our employees fairly based on the work that they perform. We consider our pay equity philosophy at each stage at which compensation decisions are made, including when hiring and promoting employees and through our annual review cycle. In addition, we annually partner with an independent outside firm to review employees’ pay and promote fairness in our compensation philosophy and practices.

We aim to create a work environment and culture in which our people can do their best work. We aim to build a reciprocal relationship in which we engage, listen, respond, and work together to create a culture that supports our people and delivers on our business goals. All regular, full-time employees are asked to complete an Engagement Survey twice per year. 77 percent of employees participated in our most recent Engagement Survey, conducted in December 2022. We also conduct regular manager surveys. Results of all employee surveys are evaluated and inform opportunities for further improvement in our people practices.

We invest in developing and retaining employees through access to professional growth resources, skills learning, and other job-specific and general training. We also build technical onboarding and job-specific programs to help our employees onboard to technical roles and grow in their specific domains. We maintain resources, programs and services to support employees' physical, mental, familial and financial health. We offer a wide range of benefits, such as comprehensive health insurance and time-off and leave programs, including specialized programs around key life events.

Our website address is www.ea.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as amended, are available free of charge on the Investor Relations section of our website at http://ir.ea.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding

Name

Age

Position

Andrew Wilson

48

Chief Executive Officer, Chair of the Board

Christopher Suh

52

Chief Financial Officer

Laura Miele

53

Chief Operating Officer

Mala Singh

52

Chief People Officer

Jacob Schatz

54

Chief Legal Officer & Corporate Secretary

Eric Kelly

51

Senior Vice President, Chief Accounting Officer

Mr. Wilson has served as EA’s Chief Executive Officer and as a director of EA since September 2013 and was appointed Chair of the Board of Directors in August 2021. Prior to his appointment as our Chief Executive Officer, Mr. Wilson held several positions within the Company since joining EA in May 2000, including Executive Vice President, EA SPORTS from August 2011 to September 2013. Mr. Wilson also serves as chairman of the board of the privately-held World Surf League and is a member of the Board of Trustees of the Paley Center for Media. Mr. Wilson has served on the board of directors of Intel Corporation within the last five years.

Mr. Suh has served as EA's Chief Financial Officer since March 2022. Prior to joining EA, Mr. Suh had a 25-year career at Microsoft Corporation, a technology company, serving most recently as Corporate Vice President and Chief Financial Officer of its Cloud & AI division from January 2018 to February 2022 and as General Manager, Investor Relations from January 2013 to January 2018. Mr. Suh received both his MBA and undergraduate degrees from the University of Washington. Mr. Suh also serves on the Board of Directors of Cardlytics, Inc.

Ms. Miele has served as EA's Chief Operating Officer since October 2021. Ms. Miele joined the Company in March 1996 and has held several positions at the Company, including Chief Studios Officer from April 2018 to October 2021, Executive Vice President, Global Publishing from April 2016 to April 2018, and several senior roles in the Company's marketing organization.

Ms. Singh has served as EA's Chief People Officer since October 2016. Ms. Singh was previously employed by EA from 2009 to 2013, serving as Vice President, Human Resources, EA Labels from 2011 to 2013. Prior to rejoining EA, Ms. Singh served as the Chief People Officer of Minted, LLC from January 2014 to October 2016. Ms. Singh earned both her undergraduate and graduate degrees from Rutgers University - New Brunswick. Ms. Singh also serves on the Board of Directors of Sovos Brands.

Mr. Schatz, EA’s Chief Legal Officer, has led EA's legal function and served as Corporate Secretary since June 2014. Mr. Schatz joined EA in 1999, holding several roles within EA's legal department until his appointment as General Counsel in 2014. Mr. Schatz earned his J.D. from Georgetown University Law Center, and received his undergraduate degree from Pomona College. Mr. Schatz is a member of the Bar of the State of California and is admitted to practice in the United States Supreme Court, the Ninth Circuit Court of Appeals and several United States District Courts.

Mr. Kelly has served as EA's Chief Accounting Officer since August 2021. Since joining EA in 2003, Mr. Kelly has held several positions within EA's finance organization, including Vice President and Worldwide Controller from January 2014 to August 2021 and finance leadership roles such as CFO of Asia and European Financial Controller. Mr. Kelly holds a B.S. in Accounting from Villanova University and is a licensed Certified Public Accountant.

We strive to create innovative and high-quality products and services that allow us to grow the global online communities around our key franchises and reach more players. However, innovative and high-quality titles, even if highly-reviewed, may not meet our expectations or the expectations of our players. Many financially successful products and services within our industry are iterations of prior titles with large established consumer bases and significant brand recognition, which makes competing in certain categories challenging. In addition, products or services of our direct competitors or other entertainment companies may take a larger portion of consumer spending or time than we anticipate, which could cause our products and services to underperform relative to our expectations. A significant portion of our revenue historically has been derived from products and services based on a few popular franchises, and the underperformance of a single major title has had, and could in the future have, a material adverse impact on our financial results. For example, we have historically derived a significant portion of our net revenue from sales related to our global football franchise, annualized versions of which are consistently one of the best-selling games in the marketplace. Any events or circumstances that negatively impact our global football franchise, including Ultimate Team, such as product or service quality, our transition to a new EA SPORTS FC brand, other products that take a portion of consumer spending and time, the delay or cancellation of a product or service launch, increased competition for key licenses, or real or perceived security risks, could negatively impact our financial results to a disproportionate extent.

We are subject to unforeseen events such as the COVID-19 pandemic, which has significantly impacted, and may in the future impact, our business and results of operations. The COVID-19 pandemic and the various responses to it have affected how we and our partners are operating our businesses. As we have re-opened our offices, employees are offered more flexibility in the amount of time they work in an office. Further, the increased availability of hybrid or remote working arrangements has expanded the pool of companies that can compete for our employees and employment candidates. The long-term effects of the COVID-19 pandemic on the future of work may present operational challenges and impact our ability to attract and retain talent, and our teams’ ability to collaborate creatively, each of which may adversely affect our business.

Item 2:     Properties

Refer to Note 14 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for disclosures regarding our legal proceedings.

Item 4:     Mine Safety Disclosures

Item 5:     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

In August 2022, our Board of Directors authorized a program to repurchase up to $2.6 billion of our common stock. This stock repurchase program expires on November 4, 2024. Under this program, we may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase a specific number of shares under this program and it may be modified, suspended or discontinued at any time. We repurchased approximately 5.3 million shares for approximately $645 million under this program during the fiscal year ended March 31, 2023. We are actively repurchasing shares under this program.

The following table summarizes the number of shares repurchased in the fourth quarter of the fiscal year ended March 31, 2023:

Fiscal Month						Total Number of Shares Purchased						Average Price Paid per Share						Total Number of Shares Purchased as part of Publicly Announced Programs						Maximum Dollar Value that May Still Be Purchased Under the Programs (in millions)
January 1, 2023 - January 28, 2023						756,877						$	124.67					756,877						$	2,185
January 29, 2023 - February 25, 2023						859,389						$	115.90					859,389						$	2,086
February 26, 2023 - April 1, 2023						1,158,552						$	113.11					1,158,552						$	1,955
						2,774,818						$	117.13					2,774,818

*			Based on $100 invested on March 31, 2018 in stock or index, including reinvestment of dividends.

			March 31,
			2018						2019						2020						2021						2022						2023
Electronic Arts Inc.			$	100					$	84					$	83					$	112					$	105					$	101
S&P 500 Index			100						110						102						159						184						170
Nasdaq Composite Index			100						111						111						193						209						181
RDG Technology Composite Index			100						113						124						211						227						205

Electronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and services that can be experienced on game consoles, PCs, mobile phones and tablets. At our core is a portfolio of intellectual property from which we create innovative games and experiences that deliver high-quality entertainment and drive engagement across our network of hundreds of millions of unique active accounts. Our portfolio includes brands that we either wholly own (such as Apex Legends, Battlefield, and The Sims) or license from others (such as Madden NFL, Star Wars, and the 300+ licenses within our global football ecosystem). Through our live services offerings, we offer our players high-quality experiences designed to provide value to players, and extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated in addition to the sale of our base games. We are focusing on building games and experiences that grow the global online communities around our key franchises; reaching more players through connecting interactive storytelling to key intellectual property; and building re-occurring revenue from our annualized sports franchises, our console, PC and mobile catalog titles, and our live services.

Live Services Business. We offer our players high-quality experiences designed to provide value to players and to extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated in addition to the sale of our base games and free-to-play games. Our net revenue attributable to live services and other was $5,489 million, $4,998 million, and $4,016 million for fiscal years 2023, 2022, and 2021, respectively, and we expect that live services net revenue will continue to be material to our business. Within live services and other, net revenue attributable to extra content was $4,277 million, $3,910 million, and $3,068 million for fiscal years 2023, 2022, and 2021, respectively. Extra content net revenue has increased as more players engage with our games and services, and purchase additional content designed to provide value to players and extend and enhance gameplay. Our most popular live services are the extra content purchased for the Ultimate Team mode associated with our sports franchises and extra content purchased for our Apex Legends franchise. Ultimate Team allows players to collect current and former professional players in order to build and compete as a personalized team. Live services net revenue generated from extra content purchased within the Ultimate Team mode associated with our sports franchises, a substantial portion of which was derived from FIFA Ultimate Team, and from our Apex Legends franchise, is material to our business.

Digital Delivery of Games. In our industry, players increasingly purchase games digitally as opposed to purchasing physical discs. While this trend, as applied to our business, may not be linear due to a mix of products during a fiscal year, consumer buying patterns and other factors, over time we expect players to purchase an increasingly higher proportion of our games digitally. As a result, we expect net revenue attributable to digital full game downloads to increase over time and net revenue attributable to sales of packaged goods to decrease.

Increased Competition. Competition in our business is intense. Our competitors range from established interactive entertainment companies to emerging start-ups. In addition, the gaming, technology/internet, and entertainment industries have converged in recent years and larger, well-funded technology companies have strengthened their interactive entertainment capabilities resulting in more direct competition with us. Their greater financial or other resources may provide larger budgets to develop and market tools, technologies, products and services that gain consumer success and shift player time and engagement away from our products and services. In addition, our leading position within the interactive entertainment industry makes us a prime target for recruiting our executives, as well as key creative and technical talent, resulting in retention challenges and increased cost to retain and incentivize our key people.

Re-occurring Revenue Sources. Our business model includes revenue that we deem re-occurring in nature, such as revenue from our live services, annualized sports franchises (e.g., global football, Madden NFL), and our console, PC and mobile catalog titles (i.e., titles that did not launch in the current fiscal year). We have been able to forecast revenue from these areas of our business with greater relative confidence than for new games, services and business models. As we continue to incorporate new business models and modalities of play into our games, our goal is to continue to look for opportunities to expand the re-occurring portion of our business.

Free-to-Play and Free-to-Enter Games. We offer games in some of our largest franchises, including the PC version of our global football franchise, The Sims 4, and Apex Legends, through business models that allow consumers to access games with no-upfront cost. These games are then monetized through a live service associated with the game, particularly extra content sales. These business models are dominant in the mobile gaming industry and are becoming increasingly accepted in the online PC and console market. We expect to continue offering games through these business models across console, PC and mobile and expect extra content revenue generated through these business models to continue to be an important part of our business.

Restructuring. In March 2023, our Board of Directors approved a restructuring plan (the "2023 Restructuring Plan" or the “Plan”) focused on prioritizing investments to the Company's growth opportunities and optimizing its real estate portfolio. The Plan includes actions driven by portfolio rationalization, including intellectual property impairment charges and headcount reductions, in addition to office space reductions. The actions associated with the Plan are expected to be substantially complete by September 30, 2023.

The following is a calculation of our total net bookings for the periods presented:

			Year Ended March 31,
(In millions)			2023						2022
Total net revenue			$	7,426					$	6,991
Change in deferred net revenue (online-enabled games)			(85)						524
Net bookings			$	7,341					$	7,515

Net bookings were $7,341 million for fiscal year 2023 primarily driven by sales related to our FIFA and Madden franchises, Apex Legends, and The Sims 4. Net bookings decreased $174 million or 2 percent as compared to fiscal year 2022 primarily due to the prior year release of Battlefield 2042, and a $244 million impact related to fluctuations in foreign exchange rates, net of hedging activities, partially offset by strength in our FIFA franchise. Live services and other net bookings were $5,530 million for fiscal year 2023, and increased $160 million or 3 percent as compared to fiscal year 2022. The increase in live services and other net bookings was due primarily to strength in our FIFA franchise across all platforms (console, PC, and mobile), and the addition of Golf Clash. This strength was partially offset by fluctuations in foreign exchange rates, net of hedging activities, and softness in sales of extra content within the rest of our mobile catalog portfolio. Full game net bookings were $1,811 million for fiscal year 2023, and decreased $334 million or 16 percent as compared to fiscal year 2022 primarily due to the prior year releases of Battlefield 2042 and Mass Effect Trilogy Remaster, partially offset by the release of Dead Space Remake and sales related to our FIFA franchise.

•full games with both online and offline functionality (“Games with Services”), which generally includes (1) the initial game delivered digitally or via physical disc at the time of sale and typically provide access to offline core game content (“software license”); (2) updates on a when-and-if-available basis, such as software patches or updates, and/or additional free content to be delivered in the future (“future update rights”); and (3) a hosted connection for online playability (“online hosting”);

•full games with online-only functionality which require an Internet connection to access all gameplay and functionality (“Online-Hosted Service Games”);

•extra content related to Games with Services and Online-Hosted Service Games which provides access to additional in-game content;

•subscriptions, such as EA Play and EA Play Pro, that generally offer access to a selection of full games, in-game content, online services and other benefits typically for a recurring monthly or annual fee; and

•licensing to third parties to distribute and host our games and content.

•identifying the contract(s) with the customer;

•identifying the performance obligations in the contract;

•determining the transaction price;

•allocating the transaction price to performance obligations in the contract; and

•recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

Games with Services. Our sales of Games with Services are evaluated to determine whether the software license, future update rights and the online hosting are distinct and separable. Sales of Games with Services are generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting.

Online-Hosted Service Games. Sales of our Online-Hosted Service Games are determined to have one distinct performance obligation: the online hosting. We recognize revenue from these arrangements as the service is provided.

Extra Content. Revenue received from sales of downloadable content are derived primarily from the sale of virtual currencies and digital in-game content that are designed to extend and enhance players’ game experience. Sales of extra content are accounted for in a manner consistent with the treatment for our Games with Services and Online-Hosted Service Games as discussed above, depending upon whether or not the extra content has offline functionality. That is, if the extra content has offline functionality, then the extra content is accounted for similarly to Games with Services (generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting). If the extra content does not have offline functionality, then the extra content is determined to have one distinct performance obligation: the online-hosted service.

Identifying performance obligations. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, we must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.

Determining the transaction price. The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our goods and services to the customer. Determining the transaction price often requires judgment, based on an assessment of contractual terms and business practices. It further includes review of variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. In addition, the transaction price does not include an estimate of the variable consideration related to sales-based royalties. Sales-based royalties are recognized as the sales occur.

Allocating the transaction price. Allocating the transaction price requires that we determine an estimate of the relative stand-alone selling price for each distinct performance obligation. Determining the relative stand-alone selling price is inherently subjective, especially in situations where we do not sell the performance obligation on a stand-alone basis (which occurs in the majority of our transactions). In those situations, we determine the relative stand-alone selling price based on various observable inputs using all information that is reasonably available. Examples of observable inputs and information include: historical internal pricing data, cost plus margin analysis, pre-release versus post-release costs, and pricing data from competitors to the extent the data is available. The results of our analysis resulted in a specific percentage of the transaction price being allocated to each performance obligation.

Determining the Estimated Offering Period. The offering period is the period in which we offer to provide the future update rights and/or online hosting for the game and related extra content sold. Because the offering period is not an explicitly defined period, we must make an estimate of the offering period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the Estimated Offering Period is inherently subjective and is subject to regular revision. Generally, we consider the average period of time customers are online when estimating the offering period. We also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to the customer (i.e., time in channel). Based on these two factors, we then consider the method of distribution. For example, games and extra content sold at retail would have a composite offering period equal to the online gameplay period plus time in channel as opposed to digitally-distributed games and extra content which are delivered immediately via digital download and therefore, the offering period is estimated to be only the online gameplay period.

Additionally, we consider results from prior analyses, known and expected online gameplay trends, as well as disclosed service periods for competitors’ games in determining the Estimated Offering Period for future sales. We believe this provides a reasonable depiction of the transfer of future update rights and online hosting to our customers, as it is the best representation of the time period during which our games and extra content are experienced. We recognize revenue for future update rights and online hosting performance obligations ratably on a straight-line basis over this period as there is a consistent pattern of delivery for these performance obligations. Revenue for service-related performance obligations for games and extra content sold through retail is recognized over an estimated ten-month period beginning in the month of sale, revenue for service-related performance obligations for digitally-distributed games and extra content is recognized over an estimated eight-month period beginning in the month of sale.

•the underlying contract terms and conditions between the various parties to the transaction;

•which party is primarily responsible for fulfilling the promise to provide the specified good or service to the end customer;

•which party has discretion in establishing the price for the specified good or service; and

•which party has inventory risk before the specified good or service has been transferred to the end customer.

The information under the subheading “Impact of Recently Issued Accounting Standards” in Note 1 — Description of Business and Basis of Presentation to the Consolidated Financial Statements in this Form 10-K is incorporated by reference into this Item 7.

Net revenue for fiscal year 2023 was $7,426 million, primarily driven by sales related to FIFA 23, FIFA 22, Apex Legends, The Sims 4, and Madden NFL 23. Net revenue for fiscal year 2023 increased $435 million, as compared to fiscal year 2022. This increase was driven by an $868 million increase in net revenue primarily driven by year-over-year growth in the FIFA franchise and sales of extra content for Apex Legends, and the addition of Golf Clash, partially offset by a $433 million decrease in net revenue primarily due to the prior year release of Mass Effect Trilogy Remaster, the Star Wars franchise, and The Sims 4.

Our net revenue by composition for fiscal years 2023 and 2022 was as follows (in millions):

			Year Ended March 31,
			2023						2022						$ Change						% Change
Net revenue:
Full game downloads			$	1,262					$	1,282					$	(20)					(2)		%
Packaged goods			675						711						(36)						(5)		%
Full game			$	1,937					$	1,993					$	(56)					(3)		%
Live services and other			$	5,489					$	4,998					$	491					10		%
Total net revenue			$	7,426					$	6,991					$	435					6		%

Full game net revenue for fiscal year 2023 was $1,937 million, primarily driven by FIFA 23, Madden NFL 23, Battlefield 2042, and FIFA 22. Full game net revenue for fiscal year 2023 decreased $56 million, or 3 percent, as compared to fiscal year 2022. This decrease was primarily due to the prior year releases of Mass Effect Trilogy Remaster and It Takes Two, and The Sims 4, partially offset by the release of Dead Space Remake and growth in the FIFA franchise.

Live services and other net revenue for fiscal year 2023 was $5,489 million, primarily driven by sales of extra content for FIFA Ultimate Team, Apex Legends, The Sims 4, and Madden Ultimate Team. Live services and other net revenue for fiscal year 2023 increased $491 million, or 10 percent, as compared to fiscal year 2022. This increase was primarily driven by sales of

extra content for Apex Legends, extra content and licensing for our FIFA franchise, and the addition of Golf Clash, partially offset by the Star Wars franchise.

March 31, 2023						% of Net Revenue						March 31, 2022						% of Net Revenue						% Change						Change as a % of Net Revenue
$	1,792					24		%				$	1,859					27		%				(4)		%				(3)		%

Cost of revenue decreased by $67 million during fiscal year 2023, as compared to fiscal year 2022. The decrease was primarily due to a decrease in inventory costs driven by the prior year releases of Battlefield 2042 and Mass Effect Trilogy Remaster and the FIFA franchise, and lower royalty costs due to the mix in sales from royalty bearing titles, partially offset by an increase in platform and hosting fees.

Cost of revenue as a percentage of total net revenue decreased by 3 percent during fiscal year 2023, as compared to fiscal year 2022. This decrease was primarily due to a decrease in inventory costs driven by the prior year releases of Battlefield 2042 and Mass Effect Trilogy Remaster, lower royalty costs due to the mix in sales form royalty bearing titles, and a decrease in the proportion of sales derived from packaged goods, partially offset by an increase in platform and hosting fees.

March 31, 2023						% of Net Revenue						March 31, 2022						% of Net Revenue						$ Change						% Change
$	2,328					31		%				$	2,186					31		%				$	142					6		%

March 31, 2023						% of Net Revenue						March 31, 2022						% of Net Revenue						$ Change						% Change
$	978					13		%				$	961					14		%				$	17					2		%

Marketing and sales expenses increased by $17 million, or 2 percent, in fiscal year 2023, as compared to fiscal year 2022. This increase was primarily due to an increase in advertising and promotional spending related to the release of our Apex Legends Mobile title in the first quarter of fiscal year 2023 and our FIFA franchise, partially offset by a decrease in advertising and promotional spending primarily related to our mobile portfolio, and Battlefield 2042, Mass Effect Trilogy Remaster and It Takes Two, which were released in prior fiscal years.

March 31, 2023						% of Net Revenue						March 31, 2022						% of Net Revenue						$ Change						% Change
$	727					10		%				$	673					10		%				$	54					8		%

March 31, 2023						% of Net Revenue						March 31, 2022						% of Net Revenue						$ Change						% Change
$	111					1		%				$	—					—		%				$	111					—		%

March 31, 2023						Effective Tax Rate						March 31, 2022						Effective Tax Rate
$	524					39.5		%				$	292					27.0		%

LIQUIDITY AND CAPITAL RESOURCES

			As of March 31,
(In millions)			2023						2022						Increase/(Decrease)
Cash and cash equivalents			$	2,424					$	2,732					$	(308)
Short-term investments			343						330						13
Total			$	2,767					$	3,062					$	(295)
Percentage of total assets			21		%				22		%
			Year Ended March 31,
(In millions)			2023						2022						Change
Net cash provided by operating activities			$	1,550					$	1,899					$	(349)
Net cash used in investing activities			(217)						(2,804)						2,587
Net cash used in financing activities			(1,600)						(1,620)						20
Effect of foreign exchange on cash and cash equivalents			(41)						(3)						(38)
Net increase (decrease) in cash and cash equivalents			$	(308)					$	(2,528)					$	2,220

Operating Activities. Net cash provided by operating activities decreased by $349 million during fiscal year 2023, as compared to fiscal year 2022, primarily driven by lower cash receipts and higher personnel-related payments primarily from continued investment in our studios, partially offset by cash inflows from hedging activities and a decrease in prepayments for contracted services.

Investing Activities. Net cash used in investing activities decreased by $2,587 million during fiscal year 2023, as compared to fiscal year 2022, primarily driven by payments of $3,391 million in connection with acquisitions completed in prior year, and a $149 million decrease in the purchase of short-term investments, partially offset by a $934 million increase in proceeds from maturities and sales of short-term investments.

Financing Activities. Net cash used in financing activities decreased by $20 million during fiscal year 2023, as compared to fiscal year 2022, primarily due to a $29 million reduction in cash paid to taxing authorities in connection with withholding taxes for stock-based compensation, partially offset by a $17 million increase in cash dividend payments.

See Note 12 — Financing Arrangements to the Consolidated Financial Statements in this Form 10-K as it relates to our Senior Notes, which is incorporated by reference into this Item 7.

On March 22, 2023, we entered into a $500 million unsecured revolving credit facility (the "Credit Facility") with a syndicate of banks. The Credit Facility terminates on March 22, 2028 unless the maturity is extended in accordance with its terms. As of March 31, 2023, no amounts were outstanding. The Credit Facility contains an option to arrange with existing lenders and/or new lenders to provide up to an aggregate of $500 million in additional commitments for revolving loans. Proceeds of loans made under the Credit Facility may be used for general corporate purposes. See Note 12 — Financing Arrangements to the Consolidated Financial Statements in this Form 10-K as it relates to our Credit Facility, which is incorporated by reference into this Item 7.

Our material cash requirements, including commitments for capital expenditure, as of March 31, 2023 are set forth in our Note 14 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K, which is incorporated by reference into this Item 7. We expect capital expenditures to be approximately $275 million in fiscal year 2024 primarily due to facility buildouts. We believe that our cash, cash equivalents, short-term investments, cash generated from operations and available financing facilities will be sufficient to meet these material cash requirements, which include licensing intellectual property from professional sports organizations and players associations used in our EA SPORTS titles (e.g., the 300+ licenses within our global football ecosystem, NFL Properties LLC, NFL Players Association and NFL Players Inc.) and third-party content and celebrities (e.g., Disney Interactive), debt repayment obligations of $1.9 billion, and to fund our operating requirements for the next 12 months and beyond. Our operating requirements include working capital requirements, capital expenditures, the remaining portion of our $2.6 billion share repurchase program, quarterly cash dividend, which is currently $0.19 per share, subject to declaration by our Board of Directors or a designated Committee of the Board of Directors, and potentially, future acquisitions or strategic investments. We may choose at any time to raise additional capital to repay debt, strengthen our financial position, facilitate expansion, repurchase our stock, pursue strategic acquisitions and investments, and/or to take advantage of business opportunities as they arise. There can be no assurance, however, that such additional capital will be available to us on favorable terms, if at all, or that it will not result in substantial dilution to our existing stockholders.

Foreign Currency Exchange Rates. International sales are a fundamental part of our business, and the strengthening of the U.S. dollar (particularly relative to the Euro, British pound sterling, Australian dollar, Japanese yen, Chinese yuan, South Korean won and Polish zloty) has a negative impact on our reported international net revenue, but a positive impact on our reported international operating expenses (particularly the Swedish krona and the Canadian dollar) because these amounts are translated at lower rates as compared to periods in which the U.S. dollar is weaker. While we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these activities are limited in the protection that they provide us and can themselves result in losses.

Cash Flow Hedging Activities. We hedge a portion of our foreign currency risk related to forecasted foreign currency-denominated sales and expense transactions by purchasing foreign currency forward contracts that generally have maturities of 18 months or less. These transactions are designated and qualify as cash flow hedges. Our hedging programs are designed to reduce, but do not entirely eliminate, the impact of currency exchange rate movements in net revenue and research and development expenses.

Notwithstanding our efforts to mitigate some foreign currency exchange risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. As of March 31, 2023, a hypothetical adverse foreign currency exchange rate movement of 10 percent or 20 percent would have resulted in potential declines in the fair value on our foreign currency forward contracts used in cash flow hedging of $262 million or $523 million, respectively. As of March 31, 2023, a hypothetical adverse foreign currency exchange rate movement of 10 percent or 20 percent would have resulted in potential losses in the Consolidated Statements of Operations on our foreign currency forward contracts used in balance sheet hedging of $100 million or $199 million, respectively. This sensitivity analysis assumes an adverse shift of all foreign currency exchange rates; however, all foreign currency exchange rates do not always move in the same manner and actual results may differ materially. See Note 5 — Derivative Financial Instruments to the Consolidated Financial Statements in this Form 10-K as it relates to our derivative financial instruments, which is incorporated by reference into this Item 7A.

			Page
Consolidated Financial Statements of Electronic Arts Inc. and Subsidiaries:
Consolidated Balance Sheets as of March 31, 2023 and 2022			37
Consolidated Statements of Operations for the Years Ended March 31, 2023, 2022 and 2021			38
Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2023, 2022 and 2021			39
Consolidated Statements of Stockholders’ Equity for the Years Ended March 31, 2023, 2022 and 2021			40
Consolidated Statements of Cash Flows for the Years Ended March 31, 2023, 2022 and 2021			41
Notes to Consolidated Financial Statements			42
Report of Independent Registered Public Accounting Firm (KPMG LLP, Santa Clara, CA, Auditor Firm ID: 185)			81

 

(In millions, except par value data)			March 31, 2023						March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	2,424					$	2,732
Short-term investments			343						330
Receivables, net			684						650
Other current assets			518						439
Total current assets			3,969						4,151
Property and equipment, net			549						550
Goodwill			5,380						5,387
Acquisition-related intangibles, net			618						962
Deferred income taxes, net			2,462						2,243
Other assets			481						507
TOTAL ASSETS			$	13,459					$	13,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	99					$	101
Accrued and other current liabilities			1,285						1,388
Deferred net revenue (online-enabled games)			1,901						2,024
Total current liabilities			3,285						3,513
Senior notes, net			1,880						1,878
Income tax obligations			607						386
Deferred income taxes, net			1						1
Other liabilities			393						397
Total liabilities			6,166						6,175
Commitments and contingencies (See Note 14)
Stockholders’ equity:
Preferred stock, $0.01 par value. 10 shares authorized			—						—
Common stock, $0.01 par value. 1,000 shares authorized; 273 and 280 shares issued and outstanding, respectively			3						3
Additional paid-in capital			—						—
Retained earnings			7,357						7,607
Accumulated other comprehensive income (loss)			(67)						15
Total stockholders’ equity			7,293						7,625
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	13,459					$	13,800

 

			Year Ended March 31,
(In millions, except per share data)			2023						2022						2021
Net revenue			$	7,426					$	6,991					$	5,629
Cost of revenue			1,792						1,859						1,494
Gross profit			5,634						5,132						4,135
Operating expenses:
Research and development			2,328						2,186						1,778
Marketing and sales			978						961						689
General and administrative			727						673						592
Amortization and impairment of intangibles			158						183						30
Restructuring (See Note 8)			111						—						—
Total operating expenses			4,302						4,003						3,089
Operating income			1,332						1,129						1,046
Interest and other income (expense), net			(6)						(48)						(29)
Income before provision for income taxes			1,326						1,081						1,017
Provision for income taxes			524						292						180
Net income			$	802					$	789					$	837
Earnings per share:
Basic			$	2.90					$	2.78					$	2.90
Diluted			$	2.88					$	2.76					$	2.87
Number of shares used in computation:
Basic			277						284						289
Diluted			278						286						292

			Year Ended March 31,
(In millions)			2023						2022						2021
Net income			$	802					$	789					$	837
Other comprehensive income (loss), net of tax:
Net gains (losses) on available-for-sale securities			2						(3)						4
Net gains (losses) on derivative instruments			(34)						76						(68)
Foreign currency translation adjustments			(50)						(8)						64
Total other comprehensive income (loss), net of tax			(82)						65						—
Total comprehensive income			$	720					$	854					$	837

(In millions, except share data in thousands)

			Common Stock												Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Total Stockholders’ Equity
			Shares						Amount
Balances as of March 31, 2020			288,413						$	3					$	—					$	7,508					$	(50)					$	7,461
Total comprehensive income (loss)			—						—						—						837						—						837
Stock-based compensation			—						—						435						—						—						435
Issuance of common stock			3,685						—						(66)						—						—						(66)
Repurchase and retirement of common stock			(5,633)						—						(369)						(360)						—						(729)
Cash dividends declared ($0.34 per common share)			—						—						—						(98)						—						(98)
Balances as of March 31, 2021			286,465						$	3					$	—					$	7,887					$	(50)					$	7,840
Total comprehensive income (loss)			—						—						—						789						65						854
Stock-based compensation			—						—						528						—						—						528
Awards assumed upon acquisition			—						—						23						—						—						23
Issuance of common stock			3,108						—						(127)						—						—						(127)
Repurchase and retirement of common stock			(9,522)						—						(424)						(876)						—						(1,300)
Cash dividends declared ($0.68 per common share)			—						—						—						(193)						—						(193)
Balances as of March 31, 2022			280,051						$	3					$	—					$	7,607					$	15					$	7,625
Total comprehensive income (loss)			—						—						—						802						(82)						720
Stock-based compensation			—						—						548						—						—						548
Issuance of common stock			3,311						—						(95)						—						—						(95)
Repurchase and retirement of common stock			(10,448)						—						(453)						(842)						—						(1,295)
Cash dividends declared ($0.76 per common share)			—						—						—						(210)						—						(210)
Balances as of March 31, 2023			272,914						$	3					$	—					$	7,357					$	(67)					$	7,293

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year Ended March 31,
(In millions)			2023						2022						2021
OPERATING ACTIVITIES
Net income			$	802					$	789					$	837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, accretion and impairment			536						486						181
Stock-based compensation			548						528						435
Change in assets and liabilities:
Receivables, net			(34)						(77)						(41)
Other assets			(103)						(157)						(70)
Accounts payable			10						(7)						18
Accrued and other liabilities			134						169						136
Deferred income taxes, net			(221)						(329)						(143)
Deferred net revenue (online-enabled games)			(122)						497						581
Net cash provided by operating activities			1,550						1,899						1,934
INVESTING ACTIVITIES
Capital expenditures			(207)						(188)						(124)
Proceeds from maturities and sales of short-term investments			395						1,329						3,686
Purchase of short-term investments			(405)						(554)						(2,828)
Acquisitions, net of cash acquired			—						(3,391)						(1,239)
Net cash used in investing activities			(217)						(2,804)						(505)
FINANCING ACTIVITIES
Proceeds from issuance of senior notes, net of issuance costs			—						—						1,478
Payment of senior notes			—						—						(600)
Proceeds from issuance of common stock			80						77						86
Cash dividends paid			(210)						(193)						(98)
Cash paid to taxing authorities for shares withheld from employees			(175)						(204)						(152)
Repurchase and retirement of common stock			(1,295)						(1,300)						(729)
Net cash used in financing activities			(1,600)						(1,620)						(15)
Effect of foreign exchange on cash and cash equivalents			(41)						(3)						78
Increase (decrease) in cash and cash equivalents			(308)						(2,528)						1,492
Beginning cash and cash equivalents			2,732						5,260						3,768
Ending cash and cash equivalents			$	2,424					$	2,732					$	5,260
Supplemental cash flow information:
Cash paid during the year for income taxes, net			$	583					$	629					$	340
Cash paid during the year for interest			56						56						$	40
Non-cash investing activities:
Change in accrued capital expenditures			$	(3)					$	19					$	17

Electronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and services that can be experienced on game consoles, PCs, mobile phones and tablets. At our core is a portfolio of intellectual property from which we create innovative games and experiences that deliver high-quality entertainment and drive engagement across our network of hundreds of millions of unique active accounts. Our portfolio includes brands that we either wholly own (such as Apex Legends, Battlefield, and The Sims) or license from others (such as Madden NFL, Star Wars, and the 300+ licenses within our global football ecosystem). Through our live services offerings, we offer our players high-quality experiences designed to provide value to players, and extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated in addition to the sale of our base games. We are focusing on building games and experiences that grow the global online communities around our key franchises; reaching more players through connecting interactive storytelling to key intellectual property; and building re-occurring revenue from our annualized sports franchises, our console, PC and mobile catalog titles, and our live services.

In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. For business combinations prior to fiscal year 2023, we recorded deferred net revenue related to contracts from acquired entities at fair value on the date of acquisition. As a result, we did not recognize certain revenues related to these contracts that the acquired entities would have otherwise recorded as an independent entity. We adopted ASU 2021-08 in the fourth quarter of fiscal year 2023, and the amendments apply retrospectively to all business combinations with an acquisition date in the fiscal year of adoption. The adoption did not have an impact on our Consolidated Financial Statements and related disclosures, since we did not have any acquisitions in fiscal year 2023.

In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance (Topic 832). The amendments in this update establish Topic 832 and require additional disclosures regarding government grants and money contributions when entities accounted for transactions with a government by analogizing to a grant or contribution accounting model. We adopted ASU 2021-10 in the first quarter of fiscal year 2023 and elected to apply the amendments prospectively to all transactions within the scope of the amendment that are reflected in the financial statements at the date of adoption. The adoption did not have a material impact on our Consolidated Financial Statements and related disclosures.

Buildings						20 to 25 years
Computer equipment and software						2 to 6 years
Equipment, furniture and fixtures, and other						3 to 5 years
Leasehold improvements						Lesser of the lease term or the estimated useful lives of the improvements, generally 1 to 15 years

•full games with both online and offline functionality (“Games with Services”), which generally includes (1) the initial game delivered digitally or via physical disc at the time of sale and typically provide access to offline core game content (“software license”); (2) updates on a when-and-if-available basis, such as software patches or updates, and/or additional free content to be delivered in the future (“future update rights”); and (3) a hosted connection for online playability (“online hosting”);

•full games with online-only functionality which require an Internet connection to access all gameplay and functionality (“Online-Hosted Service Games”);

•extra content related to Games with Services and Online-Hosted Service Games which provides access to additional in-game content;

•subscriptions, such as EA Play and EA Play Pro, that generally offer access to a selection of full games, in-game content, online services and other benefits typically for a recurring monthly or annual fee; and

•licensing to third parties to distribute and host our games and content.

•identifying the contract(s) with the customer;

•identifying the performance obligations in the contract;

•determining the transaction price;

•allocating the transaction price to performance obligations in the contract; and

•recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

Games with Services. Our sales of Games with Services are evaluated to determine whether the software license, future update rights and the online hosting are distinct and separable. Sales of Games with Services are generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting.

Online-Hosted Service Games. Sales of our Online-Hosted Service Games are determined to have one distinct performance obligation: the online hosting. We recognize revenue from these arrangements as the service is provided.

Extra Content. Revenue received from sales of downloadable content are derived primarily from the sale of virtual currencies and digital in-game content that are designed to extend and enhance players’ game experience. Sales of extra content are accounted for in a manner consistent with the treatment for our Games with Services and Online-Hosted Service Games as discussed above, depending upon whether or not the extra content has offline functionality. That is, if the extra content has offline functionality, then the extra content is accounted for similarly to Games with Services (generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting). If the extra content does not have offline functionality, then the extra content is determined to have one distinct performance obligation: the online-hosted service.

Identifying performance obligations. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, we must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.

Determining the transaction price. The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our goods and services to the customer. Determining the transaction price often requires judgment, based on an assessment of contractual terms and business practices. It further includes review of variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. In addition, the transaction price does not include an estimate of the variable consideration related to sales-based royalties. Sales-based royalties are recognized as the sales occur.

Allocating the transaction price. Allocating the transaction price requires that we determine an estimate of the relative stand-alone selling price for each distinct performance obligation. Determining the relative stand-alone selling price is inherently subjective, especially in situations where we do not sell the performance obligation on a stand-alone basis (which occurs in the majority of our transactions). In those situations, we determine the relative stand-alone selling price based on various observable inputs using all information that is reasonably available. Examples of observable inputs and information include: historical internal pricing data, cost plus margin analysis, pre-release versus post-release costs, and pricing data from competitors to the extent the data is available. The results of our analysis resulted in a specific percentage of the transaction price being allocated to each performance obligation.

Determining the Estimated Offering Period. The offering period is the period in which we offer to provide the future update rights and/or online hosting for the game and related extra content sold. Because the offering period is not an explicitly defined period, we must make an estimate of the offering period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the Estimated Offering Period is inherently subjective and is subject to regular revision. Generally, we consider the average period of time customers are online when estimating the offering period. We also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to the customer (i.e., time in channel). Based on these two factors, we then consider the method of distribution. For example, games and extra content sold at retail would have a composite offering period equal to the online gameplay period plus time in channel as opposed to digitally-distributed games and extra content which are delivered immediately via digital download and therefore, the offering period is estimated to be only the online gameplay period.

Additionally, we consider results from prior analyses, known and expected online gameplay trends, as well as disclosed service periods for competitors’ games in determining the Estimated Offering Period for future sales. We believe this provides a reasonable depiction of the transfer of future update rights and online hosting to our customers, as it is the best representation of the time period during which our games and extra content are experienced. We recognize revenue for future update rights and online hosting performance obligations ratably on a straight-line basis over this period as there is a consistent pattern of delivery for these performance obligations. Revenue for service-related performance obligations for games and extra content sold through retail is recognized over an estimated ten-month period beginning in the month of sale, revenue for service-related performance obligations for digitally-distributed games and extra content is recognized over an estimated eight-month period beginning in the month of sale.

•the underlying contract terms and conditions between the various parties to the transaction;

•which party is primarily responsible for fulfilling the promise to provide the specified good or service to the end customer;

•which party has discretion in establishing the price for the specified good or service; and

•which party has inventory risk before the specified good or service has been transferred to the end customer.

Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Net gains (losses) on foreign currency transactions of $31 million, $(22) million, and $9 million for the fiscal years ended March 31, 2023, 2022, and 2021, respectively, are included in interest and other income (expense), net, in our Consolidated Statements of Operations. These net gains (losses) on foreign currency transactions are partially offset by net gains (losses) on our foreign currency forward contracts of $(29) million, $21 million, and $(19) million for the fiscal years ended March 31, 2023, 2022, and 2021, respectively. See Note 5 for additional information on our foreign currency forward contracts.

•Level 1. Quoted prices in active markets for identical assets or liabilities.

•Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

•Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

As of March 31, 2023 and 2022, our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):

									Fair Value Measurements at Reporting Date Using
			As of March 31, 2023						Quoted Prices in Active Markets for Identical Financial Instruments						Significant Other Observable Inputs						Significant Unobservable Inputs
									(Level 1)						(Level 2)						(Level 3)						Balance Sheet Classification
Assets
Bank and time deposits			$	56					$	56					$	—					$	—					Cash equivalents
Money market funds			956						956						—						—						Cash equivalents
Available-for-sale securities:
Corporate bonds			113						—						113						—						Short-term investments
U.S. Treasury securities			80						80						—						—						Short-term investments
U.S. agency securities			28						—						28						—						Short-term investments and cash equivalents
Commercial paper			66						—						66						—						Short-term investments and cash equivalents
Foreign government securities			11						—						11						—						Short-term investments
Asset-backed securities			37						—						37						—						Short-term investments
Certificates of deposit			14						—						14						—						Short-term investments
Foreign currency derivatives			29						—						29						—						Other current assets and other assets
Deferred compensation plan assets (a)			23						23						—						—						Other assets
Total assets at fair value			$	1,413					$	1,115					$	298					$	—
Liabilities
Foreign currency derivatives			$	65					$	—					$	65					$	—					Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)			24						24						—						—						Other liabilities
Total liabilities at fair value			$	89					$	24					$	65					$	—

									Fair Value Measurements at Reporting Date Using
			As of March 31, 2022						Quoted Prices in Active Markets for Identical Financial Instruments						Significant Other Observable Inputs						Significant Unobservable Inputs
									(Level 1)						(Level 2)						(Level 3)						Balance Sheet Classification
Assets
Bank and time deposits			$	55					$	55					$	—					$	—					Cash equivalents
Money market funds			257						257						—						—						Cash equivalents
Available-for-sale securities:
Corporate bonds			116						—						116						—						Short-term investments and cash equivalents
U.S. Treasury securities			104						104						—						—						Short-term investments and cash equivalents
Commercial paper			51						—						51						—						Short-term investments and cash equivalents
Foreign government securities			17						—						17						—						Short-term investments
Asset-backed securities			38						—						38						—						Short-term investments
Certificates of deposit			18						—						18						—						Short-term investments
Foreign currency derivatives			63						—						63						—						Other current assets and other assets
Deferred compensation plan assets (a)			21						21						—						—						Other assets
Total assets at fair value			$	740					$	437					$	303					$	—
Liabilities
Foreign currency derivatives			$	14					$	—					$	14					$	—					Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)			22						22						—						—						Other liabilities
Total liabilities at fair value			$	36					$	22					$	14					$	—