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Annual
Report
other market conditions. We are not obligated to repurchase any specific number of shares under this program
and it may be modified, suspended or discontinued at any time. During fiscal year 2013, we repurchased and
retired approximately 22 million shares of our common stock for approximately $278 million under this new
program.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"). The preparation of these Consolidated Financial Statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
contingent assets and liabilities, and revenue and expenses during the reporting periods. The policies discussed
below are considered by management to be critical because they are not only important to the portrayal of our
financial condition and results of operations, but also because application and interpretation of these policies
requires both management judgment and estimates of matters that are inherently uncertain and unknown. As a
result, actual results may differ materially from our estimates.
Revenue Recognition, Sales Returns and Allowances, and Bad Debt Reserves
We derive revenue principally from sales of interactive software games, and related content and services on
(1) video game consoles (such as the PLAYSTATION 3, Xbox 360 and WiiU) and PCs, (2) mobile devices (such
as the Apple iPhone and Google Android compatible phones), and (3) tablets and electronic readers (such as the
Apple iPad and Amazon Kindle). We evaluate revenue recognition based on the criteria set forth in FASB
Accounting Standards Codification ("ASC") 605, Revenue Recognition and ASC 985-605, Software: Revenue
Recognition
. We classify our revenue as either product revenue or service and other revenue.
Product revenue.
Our product revenue includes revenue associated with the sale of software games or related
content, whether delivered via a physical disc (e.g., packaged goods) or via the Internet (e.g., full-game
downloads, micro-transactions), and licensing of game software to third-parties. Product revenue also includes
revenue from mobile full game downloads that do not require our hosting support, and sales of tangible products
such as hardware, peripherals, or collectors' items.
Service and other revenue.
Our service revenue includes revenue recognized from time-based subscriptions
and games or related content that requires our hosting support in order to utilize the game or related content (i.e.,
cannot be played without an Internet connection). This includes (1) entitlements to content that are accessed
through hosting services (e.g., micro-transactions for Internet-based, social network and mobile games),
(2) massively multi-player online ("MMO") games (both software game and subscription sales), (3) subscriptions
for our Pogo-branded online game services, and (4) allocated service revenue from sales of software games with
an online service element (i.e., "matchmaking" service). Our other revenue includes advertising and non-
software licensing revenue.
With respect to the allocated service revenue from sales of software games with a matchmaking service
mentioned above, our allocation of proceeds between product and service revenue for presentation purposes is
based on management's best estimate of the selling price of the matchmaking service with the residual value
allocated to product revenue. Our estimate of the selling price of the matchmaking service is comprised of
several factors including, but not limited to, prior selling prices for the matchmaking service, prices charged
separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. We review
the estimated selling price of the online matchmaking service on a regular basis and use this methodology
consistently to allocate revenue between product and service for software game sales with a matchmaking
service.
We evaluate and recognize revenue when all four of the following criteria are met:
Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and
conditions to deliver the related products or services must be present.
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