Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2017September 30, 2021
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Periodtransition period from   to
Commission File No. 000-17948
ELECTRONIC ARTS INC.
(Exact name of registrant as specified in its charter)
Delaware94-2838567
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Delaware94-2838567
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
209 Redwood Shores Parkway
Redwood City, California

94065
Redwood CityCalifornia
(Address of principal executive offices)(Zip Code)
(650) 628-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par valueEANASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  þ    NO  ¨Yes  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  þ    NO  ¨Yes  ☑    No  ☐
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 filerþ☑Accelerated filer¨☐
Non-accelerated filer¨☐Smaller reporting company¨☐
Emerging growth company
¨

☐		(Do not check if a smaller reporting 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þYes  ☐  No  ☑
As of February 2, 2018,November 5, 2021, there were 306,727,995282,808,143 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

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ELECTRONIC ARTS INC.
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2017SEPTEMBER 30, 2021
Table of Contents
Page
Item 1.
Condensed Consolidated Balance Sheets as of December 31, 2017September 30, 2021 and March 31, 20172021
3
Condensed Consolidated Statements of Operations for the Three and NineSix Months Ended December 31, 2017September 30, 2021 and 20162020
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and NineSix Months Ended December 31, 2017September 30, 2021 and 20162020
5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2021 and 2020
6
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended December 31, 2017September 30, 2021 and 20162020
67
Notes to Condensed Consolidated Financial Statements
78
Report of Independent Registered Public Accounting Firm
2931
Item 2.
3032
Item 3.
4948
Item 4.
5150
Item 1.
5251
Item 1A.
5251
Item 2.
6164
Item 3.
6164
Item 4.
6164
Item 6.
6164
6265
6266


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PART I – FINANCIAL INFORMATION


Item 1.Condensed Consolidated Financial Statements (Unaudited)
Item 1.Condensed Consolidated Financial Statements (Unaudited)

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value data)		September 30, 2021
March 31, 2021 (a)
ASSETS
Current assets:
Cash and cash equivalents$1,630 $5,260 
Short-term investments342 1,106 
Receivables, net1,031 521 
Other current assets387 326 
Total current assets3,390 7,213 
Property and equipment, net516 491 
Goodwill5,459 2,868 
Acquisition-related intangibles, net1,080 309 
Deferred income taxes, net2,139 2,045 
Other assets435 362 
TOTAL ASSETS$13,019 $13,288 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$136 $96 
Accrued and other current liabilities1,119 1,341 
Deferred net revenue (online-enabled games)1,322 1,527 
Total current liabilities2,577 2,964 
Senior notes, net1,877 1,876 
Income tax obligations318 315 
Deferred income taxes, net68 43 
Other liabilities323 250 
Total liabilities5,163 5,448 
Commitments and contingencies (See Note 12)
00
Stockholders’ equity:
Common stock, $0.01 par value. 1,000 shares authorized; 284 and 286 shares issued and outstanding, respectively3 3 
Additional paid-in capital— — 
Retained earnings7,855 7,887 
Accumulated other comprehensive loss(2)(50)
Total stockholders’ equity7,856 7,840 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$13,019 $13,288 
(Unaudited)
(In millions, except par value data)
December 31, 2017 
March 31, 2017 (a)
ASSETS   
Current assets:   
Cash and cash equivalents$2,566
 $2,565
Short-term investments2,318
 1,967
Receivables, net of allowances of $231 and $145, respectively886
 359
Other current assets196
 308
Total current assets5,966
 5,199
Property and equipment, net447
 434
Goodwill1,879
 1,707
Acquisition-related intangibles, net81
 8
Deferred income taxes, net159
 286
Other assets110
 84
TOTAL ASSETS$8,642
 $7,718
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$91
 $87
Accrued and other current liabilities1,070
 789
Deferred net revenue (online-enabled games)1,946
 1,539
Total current liabilities3,107
 2,415
Senior notes, net992
 990
Income tax obligations194
 104
Deferred income taxes, net2
 1
Other liabilities261
 148
Total liabilities4,556
 3,658
Commitments and contingencies (See Note 12)
 
Stockholders’ equity:   
Common stock, $0.01 par value. 1,000 shares authorized; 307 and 308 shares issued and outstanding, respectively3
 3
Additional paid-in capital723
 1,049
Retained earnings3,455
 3,027
Accumulated other comprehensive loss(95) (19)
Total stockholders’ equity4,086
 4,060
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$8,642
 $7,718

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
(a) Derived from audited Consolidated Financial Statements.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)Three Months Ended
September 30,		Six Months Ended
September 30,
(In millions, except per share data)2021202020212020
Net revenue$1,826 $1,151 $3,377 $2,610 
Cost of revenue494 286 809 574 
Gross profit1,332 865 2,568 2,036 
Operating expenses:
Research and development553 421 1,068 859 
Marketing and sales233 156 423 277 
General and administrative176 133 345 269 
Amortization of intangibles30 6 70 11 
Total operating expenses992 716 1,906 1,416 
Operating income340 149 662 620 
Interest and other income (expense), net(14)(10)(28)(13)
Income before provision for (benefit from) income taxes326 139 634 607 
Provision for (benefit from) income taxes32 (46)136 57 
Net income$294 $185 $498 $550 
Earnings per share:
Basic$1.03 $0.64 $1.75 $1.90 
Diluted$1.02 $0.63 $1.73 $1.88 
Number of shares used in computation:
Basic285 289 285 289 
Diluted287 293 288 292 
(Unaudited)Three Months Ended
December 31,		 Nine Months Ended
December 31,
(In millions, except per share data)2017
2016 2017 2016
Net revenue:       
Product$547
 $649
 $1,829
 $1,753
Service and other613
 500
 1,739
 1,565
Total net revenue1,160
 1,149
 3,568
 3,318
Cost of revenue:       
Product352
 389
 716
 796
Service and other149
 127
 328
 300
Total cost of revenue501
 516
 1,044
 1,096
Gross profit659
 633
 2,524
 2,222
Operating expenses:       
Research and development329
 285
 985
 870
Marketing and sales230
 240
 511
 511
General and administrative120
 110
 343
 329
Amortization of intangibles1
 2
 4
 5
Total operating expenses680
 637
 1,843
 1,715
Operating income (loss)(21) (4) 681
 507
Interest and other income (expense), net5
 (2) 14
 (13)
Income (loss) before provision for (benefit from) income taxes(16) (6) 695
 494
Provision for (benefit from) income taxes170
 (5) 259
 93
Net income (loss)$(186) $(1) $436
 $401
Earnings (loss) per share:       
Basic$(0.60) $ (0.00)
 $1.41
 $1.33
Diluted$(0.60) $ (0.00)
 $1.40
 $1.28
Number of shares used in computation:       
Basic308
 303
 309
 302
Diluted308
 303
 312
 314

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).



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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)Three Months Ended
September 30,		Six Months Ended
September 30,
(In millions)2021202020212020
Net income$294 $185 $498 $550 
Other comprehensive income (loss), net of tax:
Net gains (losses) on available-for-sale securities— (3)— 8 
Net gains (losses) on derivative instruments50 (43)56 (80)
Foreign currency translation adjustments(17)9 (8)33 
Total other comprehensive income (loss), net of tax33 (37)48 (39)
Total comprehensive income$327 $148 $546 $511 
(Unaudited)Three Months Ended
December 31,		 Nine Months Ended
December 31,
(In millions)2017 2016 2017 2016
Net income (loss)$(186) $(1) $436
 $401
Other comprehensive income (loss), net of tax:       
Net losses on available-for-sale securities(4) (5) (4) (5)
Net gains (losses) on derivative instruments(6) 31
 (96) 48
Foreign currency translation adjustments(12) (17) 24
 (28)
Total other comprehensive income (loss), net of tax(22) 9
 (76) 15
Total comprehensive income (loss)$(208) $8
 $360
 $416


See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
STOCKHOLDERS’ EQUITY
(Unaudited)Nine Months Ended
December 31,
(In millions)2017 2016
OPERATING ACTIVITIES   
Net income$436
 $401
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization and accretion97
 140
Stock-based compensation173
 144
Change in assets and liabilities:   
Receivables, net(527) (367)
Other assets79
 40
Accounts payable16
 (6)
Accrued and other liabilities265
 276
Deferred income taxes, net130
 —
Deferred net revenue (online-enabled games)408
 513
Net cash provided by operating activities1,077
 1,141
INVESTING ACTIVITIES   
Capital expenditures(87) (94)
Proceeds from maturities and sales of short-term investments1,656
 968
Purchase of short-term investments(2,012) (1,372)
Acquisition, net of cash acquired(150) —
Net cash used in investing activities(593) (498)
FINANCING ACTIVITIES   
Payment of convertible notes—
 (163)
Proceeds from issuance of common stock57
 33
Cash paid to taxing authorities for shares withheld from employees(112) (112)
Repurchase and retirement of common stock(453) (383)
Net cash used in financing activities(508) (625)
Effect of foreign exchange on cash and cash equivalents25
 (28)
Increase (decrease) in cash and cash equivalents1
 (10)
Beginning cash and cash equivalents2,565
 2,493
Ending cash and cash equivalents$2,566
 $2,483
Supplemental cash flow information:   
Cash paid during the period for income taxes, net$46
 $51
Cash paid during the period for interest21
 23
Non-cash investing activities:   
Change in accrued capital expenditures$(13) $(16)
(Unaudited)
 Common Stock
Additional Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (loss)		Total
Stockholders’
Equity
(In millions, except per share data)SharesAmount
Balances as of March 31, 2021286,465 $3 $— $7,887 $(50)$7,840 
Total comprehensive income— — — 204 15 219 
Stock-based compensation— — 125 — — 125 
Awards assumed upon acquisition— — 23 — — 23 
Issuance of common stock1,209 — (105)— — (105)
Repurchase and retirement of common stock(2,292)— (43)(282)— (325)
Cash dividends declared ($0.17 per common share)— — — (49)— (49)
Balances as of June 30, 2021285,382 $3 $— $7,760 $(35)$7,728 
Total comprehensive income— — — 294 33 327 
Stock-based compensation— — 149 — — 149 
Issuance of common stock602 — 25 — — 25 
Repurchase and retirement of common stock(2,318)— (174)(151)— (325)
Cash dividends declared ($0.17 per common share)— — — (48)— (48)
Balances as of September 30, 2021283,666 $3 $— $7,855 $(2)$7,856 
(Unaudited)
 Common Stock
Additional Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (loss)		Total
Stockholders’
Equity
(In millions, except per share data)SharesAmount
Balances as of March 31, 2020288,413 $3 $— $7,508 $(50)$7,461 
Total comprehensive income— — — 365 (2)363 
Stock-based compensation— — 102 —��— 102 
Issuance of common stock1,088 — (66)— — (66)
Repurchase and retirement of common stock(747)— (36)(42)— (78)
Balances as of June 30, 2020288,754 $3 $— $7,831 $(52)$7,782 
Total comprehensive income— — — 185 (37)148 
Stock-based compensation— — 113 — — 113 
Issuance of common stock868 — 32 — — 32 
Repurchase and retirement of common stock— — — — — — 
Balances as of September 30, 2020289,622 $3 $145 $8,016 $(89)$8,075 



See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).


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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)Six Months Ended
September 30,
(In millions)20212020
OPERATING ACTIVITIES
Net income$498 $550 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion199 77 
Stock-based compensation274 215 
Change in assets and liabilities:
Receivables, net(446)39 
Other assets(51)(113)
Accounts payable42 106 
Accrued and other liabilities(250)(96)
Deferred income taxes, net(140)(32)
Deferred net revenue (online-enabled games)(205)(307)
Net cash provided by (used in) operating activities(79)439 
INVESTING ACTIVITIES
Capital expenditures(87)(63)
Proceeds from maturities and sales of short-term investments1,128 1,418 
Purchase of short-term investments(369)(1,416)
Acquisitions, net of cash acquired(3,394)— 
Net cash used in investing activities(2,722)(61)
FINANCING ACTIVITIES
Proceeds from issuance of common stock41 43 
Cash dividends paid(97)— 
Cash paid to taxing authorities for shares withheld from employees(121)(77)
Repurchase and retirement of common stock(650)(78)
Net cash used in financing activities(827)(112)
Effect of foreign exchange on cash and cash equivalents(2)25 
Increase (decrease) in cash and cash equivalents(3,630)291 
Beginning cash and cash equivalents5,260 3,768 
Ending cash and cash equivalents$1,630 $4,059 
Supplemental cash flow information:
Cash paid during the period for income taxes, net$303 $173 
Cash paid during the period for interest28 21 

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
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ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
We areElectronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and online services that can be played by consumersand watched on a variety of platforms, which include game consoles, PCs, mobile phones and tablets. InWe believe that the breadth and depth of our portfolio, live services offerings, and our use of multiple business models and distribution channels provide us with strategic advantages. Our foundation is a collection of intellectual property from which we create innovative games we use establishedand content that enables us to build on-going and meaningful relationships with a community of players, creators and viewers. Our portfolio includes brands that we either wholly own (such as Battlefield, Mass Effect,The Sims, Apex Legends, Need for Speed The Sims and Plants v.vs. Zombies) or license from others (such as FIFA, Madden NFL, UFC, NHL, Formula 1 and Star Wars). 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 and free-to-play games. In addition, we are focused on reaching more players whenever and wherever they want to play. We also publishbelieve that we can add value to our network by making it easier for players to connect to a world of play by offering choice of business model, distribution channel and distribute games developed by third parties.device.
Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal year ending March 31, 20182022 contains 52 weeks and ends on March 31, 2018.April 2, 2022. Our results of operations for the fiscal year ended March 31, 20172021 contained 5253 weeks and ended on April 1, 2017.3, 2021. Our results of operations for the three and six months ended December 31, 2017 and 2016September 30, 2021 contained 13 weeks eachand 26 weeks, respectively, and ended on December 30, 2017 and December 31, 2016, respectively.October 2, 2021. Our results of operations for the ninethree and six months ended December 31, 2017September 30, 2020 contained 13 weeks and 2016 contained 3927 weeks, eachrespectively, and ended on December 30, 2017 and December 31, 2016, respectively.October 3, 2020. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end.
The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals unless otherwise indicated) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period.
These Condensed Consolidated Financial Statements should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2021, as filed with the United States Securities and Exchange Commission (“SEC”) on May 24, 2017.26, 2021.
ReclassificationsChange in Estimated Offering Period
CertainThe offering period is the period in which we offer to provide the future update rights and/or online hosting for the game and 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). For sales prior year amountsto July 1, 2020, revenues for service related performance obligations were reclassifiedgenerally recognized over an estimated nine-month period beginning in the month after shipment for games and extra content sold through retail, and an estimated six-month period for digitally-distributed games and extra content beginning in the month of sale. During the three months ended September 30, 2020, we completed our annual evaluation of the Estimated Offering Period and as a result, for sales after July 1, 2020, 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, and 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. During the three months ended September 30, 2021, this change to conformour Estimated Offering Period resulted in an increase in net revenue of $125 million and net income of $95 million, and an increase of $0.33 diluted earnings per share. During the six months ended September 30, 2021, this change to current year presentation.our Estimated Offering Period resulted in an increase in net revenue of $102 million and net income of $77 million, and an increase of $0.27 diluted earnings per share.
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During the three months ended September 30, 2021, we completed our annual evaluation of the Estimated Offering Period. We have noted consumers are playing certain of our Online Hosted Service Games, such as PC and Console Free-to-Play games, for longer periods of time than in prior years as players engage with services we provide that are designed to enhance and extend gameplay, and as such, have concluded that the Estimated Offering Period for such games should be lengthened. As a result, for all new sales after July 1, 2021, the revenue that we recognize for service-related performance obligation related to our PC and Console Free-to-Play games is recognized generally over a twelve-month period. During the three months ended September 30, 2021, this change to our Estimated Offering Period resulted in an estimated decrease in net revenue of $17 million and net income of $13 million, and a decrease of $0.05 diluted earnings per share.
Recently Adopted Accounting Standards
We adopted Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, at the beginning of fiscal year 2018. We reflectedexcess tax benefits of $40 million for the nine months endedIn December 31, 2017 in the Condensed Consolidated Statement of Income as a component of the provision for income taxes, whereas for the three and nine months ended December 31, 2016 they were recognized in additional paid-in-capital in the Condensed Consolidated Balance Sheets. The impact was immaterial for the three months ended December 31, 2017.

The pronouncement also resulted in two changes to our cash flow presentation, which we applied retrospectively for comparability. Excess tax benefits are now presented as operating activities rather than financing activities, and cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements are now presented as a financing activity instead of an operating activity. The net increase to our reported net cash provided by operating activities and corresponding increase to cash used in financing activities resulting from the adoption of ASU 2016-09 for the nine months ended December 31, 2017 and 2016 are as follows:
 Nine months ended December 31,
(In millions):2017 2016
Excess tax benefits from stock-based compensation$40
 $53
Cash paid to taxing authorities for shares withheld from employees112
 112
Increase to net cash provided by operating activities and net cash used in financing activities$152
 $165

Impact of Recently Issued Accounting Standards
In May 2014,2019, the FASB issued ASU 2014-09, Revenue from Contracts with Customers2019-12, Simplifying the Accounting for Income Taxes (Topic 606), (the “New Revenue Standard”), which will replace existing guidance under U.S. GAAP, including industry-specific requirements, and will provide companies with a single principles-based revenue recognition model740). The amendments in this update simplify the accounting for recognizing revenue from contracts with customers. The core principle of the New Revenue Standard is that a company should recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In addition, the FASB has issued several amendmentsincome taxes by removing certain exceptions to the New Revenue Standard, including principal versus agent considerations, clarifications on identification of performance obligations, and accounting for licenses of intellectual property.general principles in Topic 740. The amendments are intended to address implementation issues that were raisedalso improve consistent application of and simplify GAAP for other areas of Topic 740 by stakeholdersclarifying and provide additional practical expedients to reduce the cost and complexity of adoption.
The New Revenue Standard is effective for us beginningamending existing guidance. We adopted ASU 2019-12 in the first quarter of fiscal year 2019 and permits the use of either the full retrospective or modified retrospective transition methods. We anticipate adopting the New Revenue Standard on April 1, 2018 using the modified retrospective method, which recognizes the cumulative effect of initially applying the New Revenue Standard as an adjustment to retained earnings at the adoption date. We have reached conclusions on several key accounting assessments related to the New Revenue Standard and have identified certain impacts to our Condensed Consolidated Financial Statements.
2022. The New Revenue Standard will have a significant impact on our Condensed Consolidated Financial Statements and related disclosures as it relates to the accounting for substantially all of our transactions with multiple elements or “bundled” arrangements. For example, for sales of online-enabled games, as currently reported we doamendments did not have vendor-specific objective evidence of fair value (“VSOE”) for unspecified future updates, and thus, revenue from the entire sales price is recognized ratably over the estimated offering period. However, under the New Revenue Standard, the VSOE requirement for undelivered elements is eliminated, allowing us to essentially “break-apart” our online-enabled games and account for the various promised goods or services identified as separate performance obligations.
For example, for the sale of an online-enabled game, we usually have multiple distinct performance obligations such as software, future update rights, and an online service. The software performance obligation represents the initial game delivered digitally or via physical disc. The future update rights performance obligation may include software patches or updates, maintenance, and/or additional free content to be delivered in the future. And lastly, the online service performance obligation consists of providing the customer with a service of online activities (e.g., online playability). Under current software revenue recognition rules, we recognize as revenue the entire sales price over the estimated offering period. However, under the New Revenue Standard, we currently estimate that a significant portion of the sales price will be allocated to the software performance obligation and recognized upon delivery, and the remaining portion will be allocated to the future update rights and the online service performance obligations and recognized ratably over the estimated offering period. As a result, we expect a significant portion of our annual revenue, and thereby annual profit, will shift from the first and fourth fiscal quarters to the second and third fiscal quarters which is historically when a significant portion of our annual bookings and software deliveries have been made. Further, we expect the net cumulative effect adjustment upon adoption to result in a pre-tax increase to retained earnings in the range of $600 million to $800 million. The range is based on our actual results through the third quarter of fiscal 2018 and our forecast of sales activity during the fourth quarter of fiscal 2018. These initial estimates will continue to be refined as we approach the adoption of the New Revenue Standard.
In addition, both portions of sales price allocated to future update rights and online services will be classified as service revenue under the New Revenue Standard (currently, future update rights are generally presented as product revenue). Therefore, upon adoption, an increased portion of our sales from online-enabled games will be presented as service revenue than is currently reported today. Also, upon adoption of the New Revenue Standard, a substantial majority of our sales returns and price protection reserves will be classified as liabilities (currently, these allowances are classified as contra-assets within receivables on our Condensed Consolidated Balance Sheets).

We expect to further refine our estimate of the impact to our consolidated financial statements during the fourth quarter of fiscal year 2018. We will continue to monitor additional changes, modifications, clarifications or interpretations by the SEC, which may impact current expectations. It is possible that during the fourth quarter of fiscal year 2018, we could identify items that result in additional material changes to our Condensed Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Topic 825-10), which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The ASU also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The requirements will be effective for us beginning in the first quarter of fiscal year 2019. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.Statements upon adoption.

The standard clarified and amended existing guidance with respect to transactions in which a taxpayer realizes a step-up in tax basis of goodwill. As we integrate acquired intellectual property into our global operating structure, we may realize a tax basis step-up in goodwill. In such situations, we are required to assess whether the integration relates to the acquisition or is a separate transaction. When the integration is a separate transaction, we may be required to recognize deferred tax assets to the extent the stepped-up tax basis exceeds the associated U.S. GAAP basis. This assessment requires judgment around key indicators such as whether the tax basis step-up was contemplated as part of the original acquisition to which the intellectual property relates, whether the integration results in cash taxes, and whether the integration is achieved through a simple tax election. See Note 10 — Income Taxes for a discussion of the prospective application of this standard to our intra-entity transfer of Codemasters intellectual property (the “Codemasters intra-entity sale”) during the three months ended September 30, 2021.
Other Recently Issued Accounting Standards
In March 2016,October 2021, the FASB issued ASU 2016-04, 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Productsfrom Contracts with Customers (Topic 805). The amendments in the ASU are designed to provide guidancethis update require that an acquirer recognize and eliminate diversitymeasure contract assets and contract liabilities acquired in the accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendmentsbusiness combination in this ASU are effective for us beginning in the first quarter of fiscal year 2019. Early adoption is permitted. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (accordance with Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update is intended to reduce the existing diversity in practice in how certain transactions are classified in the statement of cash flows.606. This update is effective for us beginning in the first quarter of fiscal year 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. This update is effective for us beginning in the first quarter of fiscal year 2019. Early adoption is permitted. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this standard to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. We anticipate adopting this standard beginning in the first quarter of fiscal year 2020, when the updated guidance is effective for us. We are currently evaluating the impact of this new standard on our Condensed Consolidated Financial Statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update is intended to make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This update is effective for us beginning in the first quarter of fiscal year 2020.2024. Early adoption is permitted. We are currently evaluating the timing of adoption and impact of this new standard on our Condensed Consolidated Financial Statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes the methodology for measuring credit losses on financial instruments and the timing


9

Table of when such losses are recorded. ASU 2016-13 is effective for us beginning in the first quarter of fiscal year 2021. Early adoption is permitted beginning in the first quarter of fiscal year 2020. We are currently evaluating the timing of adoption and impact of this new standard on our Condensed Consolidated Financial Statements and related disclosures.Contents

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). The standard simplifies the goodwill impairment test. This update removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This update is effective for us beginning in the first quarter of fiscal year 2021. Early adoption is permitted for any impairment tests performed after January 1, 2017. We anticipate early adopting ASU 2017-04 during the fourth quarter of fiscal year 2018. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.


(2) FAIR VALUE MEASUREMENTS
There are various valuation techniques used to estimate fair value, the primary one being the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
•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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of December 31, 2017September 30, 2021 and March 31, 2017,2021, 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
September 30, 2021
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs		Balance Sheet 
Classification
 (Level 1)(Level 2)(Level 3)
Assets
Bank and time deposits$25 $25 $— $— Cash equivalents
Money market funds112 112 — — Cash equivalents
Available-for-sale securities:
Corporate bonds152 — 152 — Short-term investments
U.S. Treasury securities65 65 — — Short-term investments
Commercial paper35 — 35 — Short-term investments
Foreign government securities32 — 32 — Short-term investments
Asset-backed securities40 — 40 — Short-term investments
Certificates of deposit18 — 18 — Short-term investments
Foreign currency derivatives49 — 49 — Other current assets and other assets
Deferred compensation plan assets (a)
23 23 — — Other assets
Total assets at fair value$551 $225 $326 $— 
Liabilities
Foreign currency derivatives$12 $— $12 $— Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)
23 23 — — Other liabilities
Total liabilities at fair value$35 $23 $12 $— 
10

Table of Contents
  Fair Value Measurements at Reporting Date Using 
  
  Fair Value Measurements at Reporting Date Using 
  
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
  
As of
March 31, 2021
Quoted Prices in
Active Markets for Identical
Financial Instruments		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs		Balance Sheet 
Classification
As of
December 31,
2017		 (Level 1) (Level 2) (Level 3) Balance Sheet Classification (Level 1)(Level 2)(Level 3)
Assets        Assets
Bank and time deposits$299
 $299
 $—
 $—
 Cash equivalentsBank and time deposits$157 $157 $— $— Cash equivalents
Money market funds563
 563
 —
 —
 Cash equivalentsMoney market funds2,100 2,100 — — Cash equivalents
Available-for-sale securities:        Available-for-sale securities:
Corporate bonds1,258
 —
 1,258
 —
 Short-term investments and cash equivalentsCorporate bonds380 — 380 — Short-term investments and cash equivalents
U.S. Treasury securities446
 446
 —
 —
 Short-term investmentsU.S. Treasury securities437 437 — — Short-term investments and cash equivalents
U.S. agency securities118
 —
 118
 —
 Short-term investments and cash equivalentsU.S. agency securities3 — 3 — Short-term investments
Commercial paper341
 —
 341
 —
 Short-term investments and cash equivalentsCommercial paper142 — 142 — Short-term investments and cash equivalents
Foreign government securities100
 —
 100
 —
 Short-term investments and cash equivalentsForeign government securities67 — 67 — Short-term investments
Asset-backed securities134
 —
 134
 —
 Short-term investmentsAsset-backed securities112 — 112 — Short-term investments
Certificates of deposit22
 —
 22
 —
 Short-term investmentsCertificates of deposit41 — 41 — Short-term investments
Foreign currency derivatives8
 —
 8
 —
 Other current assets and other assetsForeign currency derivatives33 — 33 — Other current assets and other assets
Deferred compensation plan assets (a)
10
 10
 —
 —
 Other assets
Deferred compensation plan assets (a)
18 18 — — Other assets
Total assets at fair value$3,299
 $1,318
 $1,981
 $—
 Total assets at fair value$3,490 $2,712 $778 $— 
Liabilities        Liabilities
Contingent consideration (b)
$122
 $—
 $—
 $122
 Other liabilities
Foreign currency derivatives41
 —
 41
 —
 Accrued and other current liabilities and other liabilitiesForeign currency derivatives$40 $— $40 $— Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)
11
 11
 —
 —
 Other liabilities
Deferred compensation plan liabilities (a)
19 19 — — Other liabilities
Total liabilities at fair value$174
 $11
 $41
 $122
 Total liabilities at fair value$59 $19 $40 $— 


(a)The Deferred Compensation Plan assets consist of various mutual funds. See Note 15 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, for additional information regarding our Deferred Compensation Plan.

11

   
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
  
       
Contingent
Consideration
  
Balance as of March 31, 2017      $—
  
Additions      122
  
Balance as of December 31, 2017      $122
  

Table of Contents
   Fair Value Measurements at Reporting Date Using 
  
   
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
  
 As of
March 31,
2017		 (Level 1) (Level 2) (Level 3) Balance Sheet Classification
Assets         
Bank and time deposits$233
 $233
 $—
 $—
 Cash equivalents
Money market funds405
 405
 —
 —
 Cash equivalents
Available-for-sale securities:         
Corporate bonds963
 —
 963
 —
 Short-term investments and cash equivalents
U.S. Treasury securities460
 460
 —
 —
 Short-term investments and cash equivalents
U.S. agency securities172
 —
 172
 —
 Short-term investments and cash equivalents
Commercial paper270
 —
 270
 —
 Short-term investments and cash equivalents
Foreign government securities113
 —
 113
 —
 Short-term investments
Asset-backed securities135
 —
 135
 —
 Short-term investments
Foreign currency derivatives19
 —
 19
 —
 Other current assets and other assets
Deferred compensation plan assets (a)
8
 8
 —
 —
 Other assets
Total assets at fair value$2,778
 $1,106
 $1,672
 $—
  
Liabilities         
Foreign currency derivatives$8
 $—
 $8
 $—
 Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)
9
 9
 —
 —
 Other liabilities
Total liabilities at fair value$17
 $9
 $8
 $—
  

(a)
The Deferred Compensation Plan assets consist of various mutual funds. See Note 13 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, for additional information regarding our Deferred Compensation Plan.

(b)The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisition of Respawn Entertainment, LLC (“Respawn”) that is contingent upon the achievement of certain performance milestones. We estimated the fair value using a probability-weighted income approach combined with a real options methodology, and applied a discount rate that appropriately captures the risk associated with the obligation. The discount rates used ranged from 2.7 percent to 3.3 percent. See Note 6 for additional information regarding the Respawn acquisition.

(3) FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
As of December 31, 2017September 30, 2021 and March 31, 2017,2021, our cash and cash equivalents were $2,566$1,630 million and $2,565$5,260 million, respectively. Cash equivalents were valued using quoted market prices or other readily available market information.

Short-Term Investments
Short-term investments consisted of the following as of December 31, 2017September 30, 2021 and March 31, 20172021 (in millions):
 As of September 30, 2021As of March 31, 2021
 Cost or
Amortized
Cost		Gross UnrealizedFair
Value		Cost or
Amortized
Cost		Gross UnrealizedFair
Value
 GainsLossesGainsLosses
Corporate bonds$152 $— $— $152 $372 $— $— $372 
U.S. Treasury securities65 — — 65 374 1 — 375 
U.S. agency securities— — — — 3 — — 3 
Commercial paper35 — — 35 136 — — 136 
Foreign government securities
32 — — 32 67 — — 67 
Asset-backed securities40 — — 40 112 — — 112 
Certificates of deposit18 — — 18 41 — — 41 
Short-term investments$342 $— $— $342 $1,105 $1 $— $1,106 
 As of December 31, 2017 As of March 31, 2017
 
Cost or
Amortized
Cost
 Gross Unrealized 
Fair
Value
 
Cost or
Amortized
Cost
 Gross Unrealized 
Fair
Value
 Gains Losses Gains Losses 
Corporate bonds$1,212
 $—
 $(3) $1,209
 $944
 $—
 $(1) $943
U.S. Treasury securities448
 —
 (2) 446
 414
 —
 (1) 413
U.S. agency securities117
 —
 (2) 115
 152
 —
 (1) 151
Commercial paper294
 —
 —
 294
 212
 —
 —
 212
Foreign government securities

98
 —
 —
 98
 113
 —
 —
 113
Asset-backed securities135
 —
 (1) 134
 135
 —
 —
 135
Certificates of deposit22
 —
 —
 22
 —
 —
 —
 —
Short-term investments$2,326
 $—
 $(8) $2,318
 $1,970
 $—
 $(3) $1,967
The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of December 31, 2017September 30, 2021 and March 31, 20172021 (in millions):
 As of September 30, 2021As of March 31, 2021
 Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Short-term investments
Due within 1 year$242 $242 $895 $896 
Due 1 year through 5 years94 94 203 203 
Due after 5 years6 6 7 7 
Short-term investments$342 $342 $1,105 $1,106 

 As of December 31, 2017 As of March 31, 2017
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Short-term investments       
Due within 1 year$1,598
 $1,596
 $1,237
 $1,236
Due 1 year through 5 years725
 719
 721
 719
Due after 5 years3
 3
 12
 12
Short-term investments$2,326
 $2,318
 $1,970
 $1,967

(4) DERIVATIVE FINANCIAL INSTRUMENTS
The assetsAssets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed Consolidated Balance Sheets. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative instrument and whether it is designated and qualifies for hedge accounting.
We transact business in various foreign currencies and have significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency forward contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in certain foreign currencies. Our cash flow risks are primarily related to fluctuations in the Euro, British pound sterling, Canadian dollar, Swedish krona, Australian dollar, Japanese yen, Chinese yuan, and South Korean won.won and Polish zloty. In addition, we utilize foreign currency forward contracts to mitigate foreign currency exchange risk associated with foreign-currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts not designated as hedging instruments generally have a contractual term of approximately three months or less and are transacted near month-end. We do not use foreign currency forward contracts for speculative trading purposes.

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Table of Contents
Cash Flow Hedging Activities
Certain of our forward contracts are designated and qualify as cash flow hedges. The effectiveness of the cash flow hedge contracts, including time value, is assessed monthly using regression analysis, as well as other timing and probability criteria. To qualify for hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions. The derivative assets or liabilities associated with our hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed Consolidated Balance Sheets. The effective portion of gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive income (loss) in stockholders’ equity. The gross amount of the effective portion of gains or losses resulting from changes in the fair value of these hedges is subsequently reclassified into net revenue or research and development expenses, as appropriate, in the period when the forecasted transaction is recognized in our Condensed Consolidated Statements of Operations. In the event that the gains or losses in accumulated other comprehensive income (loss) are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to interest and other income (expense), net, in our Condensed Consolidated Statements of Operations. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges are reclassified from accumulated other comprehensive income (loss) to interestnet revenue or research and other income (expense), net,development expenses, in our Condensed Consolidated Statements of Operations.
Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation are as follows (in millions):
As of September 30, 2021As of March 31, 2021
Notional AmountFair ValueNotional AmountFair Value
AssetLiabilityAssetLiability
Forward contracts to purchase$264 $2 $3 $370 $14 $1 
Forward contracts to sell$1,649 $38 $4 $1,840 $15 $35 
 As of December 31, 2017 As of March 31, 2017
 Notional Amount Fair Value Notional Amount Fair Value
  Asset Liability  Asset Liability
Forward contracts to purchase$209
 $5
 $1
 $185
 $—
 $5
Forward contracts to sell$985
 $1
 $33
 $840
 $19
 $3
The net impacteffects of the effective portion of gains and losses from our cash flow hedging activitieshedge accounting in our Condensed Consolidated Statements of Operations was a loss of $8 million for the three and six months ended December 31, 2017September 30, 2021 and a gain of $8 million for the three months ended December 31, 2016.
The net impact of the effective portion of gains and losses from our cash flow hedging activities in our Condensed Consolidated Statements of Operations was a gain of $14 million for the nine months ended December 31, 2017 and a gain of $18 million for the nine months ended December 31, 2016.

The amount excluded from the assessment of hedge effectiveness during the three months ended December 31, 2017 and 2016 and recognized in interest and other income (expense), net, was immaterial.
The amount excluded from the assessment of hedge effectiveness was a gain of $7 million for the nine months ended December 31, 2017 and recognized in interest and other income (expense), net. The amount excluded from the assessment of hedge effectiveness was immaterial for the nine months ended December 31, 2016.2020 are as follows (in millions):
Three Months Ended September 30,Six Months Ended September 30,
2021202020212020
Net revenueResearch and developmentNet revenueResearch and developmentNet revenueResearch and developmentNet revenueResearch and development
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded$1,826 $553 $1,151 $421 $3,377 $1,068 $2,610 $859 
Gains (losses) on foreign currency forward contracts designated as cash flow hedges$(18)$4 $1 $— $(37)$12 $12 $(6)
Balance Sheet Hedging Activities
Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or accrued and other current liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations. The gains and losses on these foreign currency forward contracts generally offset the gains and losses in the underlying foreign-currency-denominated monetary assets and liabilities, which are also reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations.

Total gross notional amounts and fair values for currency derivatives that are not designated as hedging instruments are accounted for as follows (in millions):
As of September 30, 2021As of March 31, 2021
Notional AmountFair ValueNotional AmountFair Value
AssetLiabilityAssetLiability
Forward contracts to purchase$364 $— $5 $599 $— $4 
Forward contracts to sell$686 $9 $— $450 $4 $— 
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Table of Contents
 As of December 31, 2017 As of March 31, 2017
 Notional Amount Fair Value Notional Amount Fair Value
  Asset Liability  Asset Liability
Forward contracts to purchase$354
 $1
 $—
 $87
 $—
 $—
Forward contracts to sell$785
 $1
 $7
 $166
 $—
 $—

The effect of foreign currency forward contracts not designated as hedging instruments in our Condensed Consolidated Statements of Operations for the three and ninesix months ended December 31, 2017September 30, 2021 and 2016,2020 was as follows (in millions):
 Three Months Ended
September 30,		Six Months Ended
September 30,
 2021202020212020
Interest and other income (expense), net
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of balance sheet hedges are recorded$(14)$(10)$(28)$(13)
Gain (losses) on foreign currency forward contracts not designated as hedging instruments$4 $(3)$(3)$(7)

 Statement of Operations Classification Amount of Gain (Loss) Recognized in the Statement of Operations
 Three Months Ended
December 31,		 Nine Months Ended
December 31,
 2017 2016 2017 2016
Foreign currency forward contracts not designated as hedging instrumentsInterest and other income (expense), net $(4) $49
 $(13) $50


(5) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended December 31, 2017September 30, 2021 and 20162020 are as follows (in millions):
Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotal
Balances as of June 30, 2021$— $(23)$(12)$(35)
Other comprehensive income (loss) before reclassifications— 36 (17)19 
Amounts reclassified from accumulated other comprehensive income (loss)— 14 — 14 
Total other comprehensive income (loss), net of tax
— 50 (17)33 
Balances as of September 30, 2021$— $27 $(29)$(2)
Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotal
Balances as of June 30, 2020$7 $2 $(61)$(52)
Other comprehensive income (loss) before reclassifications(3)(42)9 (36)
Amounts reclassified from accumulated other comprehensive income (loss)— (1)— (1)
Total other comprehensive income (loss), net of tax
(3)(43)9 (37)
Balances as of September 30, 2020$4 $(41)$(52)$(89)
 Unrealized Net Gains (Losses) on Available-for-Sale Securities Unrealized Net Gains (Losses) on Derivative Instruments Foreign Currency Translation Adjustments Total
Balances as of September 30, 2017$(3) $(58) $(12) $(73)
Other comprehensive income (loss) before reclassifications(4) (14) (12) (30)
Amounts reclassified from accumulated other comprehensive income (loss)—
 8
 —
 8
Total other comprehensive income (loss), net of tax

(4) (6) (12) (22)
Balance as of December 31, 2017$(7) $(64) $(24) $(95)
 Unrealized Net Gains (Losses) on Available-for-Sale Securities Unrealized Net Gains (Losses) on Derivative Instruments Foreign Currency Translation Adjustments Total
Balances as of September 30, 2016$1
 $31
 $(42) $(10)
Other comprehensive income (loss) before reclassifications(5) 39
 (17) 17
Amounts reclassified from accumulated other comprehensive income (loss)—
 (8) —
 (8)
Total other comprehensive income (loss), net of tax

(5) 31
 (17) 9
Balance as of December 31, 2016$(4) $62
 $(59) $(1)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the ninesix months ended December 31, 2017September 30, 2021 and 20162020 are as follows (in millions):
Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotal
Balances as of March 31, 2021$— $(29)$(21)$(50)
Other comprehensive income (loss) before reclassifications— 31 (8)23 
Amounts reclassified from accumulated other comprehensive income (loss)— 25 — 25 
Total other comprehensive income (loss), net of tax
— 56 (8)48 
Balances as of September 30, 2021$— $27 $(29)$(2)
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Unrealized Net Gains (Losses) on Available-for-Sale SecuritiesUnrealized Net Gains (Losses) on Derivative InstrumentsForeign Currency Translation AdjustmentsTotal
Unrealized Net Gains (Losses) on Available-for-Sale Securities Unrealized Net Gains (Losses) on Derivative Instruments Foreign Currency Translation Adjustments Total
Balances as of March 31, 2017$(3) $32
 $(48) $(19)
Balances as of March 31, 2020Balances as of March 31, 2020$(4)$39 $(85)$(50)
Other comprehensive income (loss) before reclassifications(4) (82) 34
 (52)Other comprehensive income (loss) before reclassifications8 (74)33 (33)
Amounts reclassified from accumulated other comprehensive income (loss)—
 (14) (10) (24)Amounts reclassified from accumulated other comprehensive income (loss)— (6)— (6)
Total other comprehensive income (loss), net of tax

(4) (96) 24
 (76)Total other comprehensive income (loss), net of tax
8 (80)33 (39)
Balance as of December 31, 2017$(7) $(64) $(24) $(95)
Balances as of September 30, 2020Balances as of September 30, 2020$4 $(41)$(52)$(89)
 Unrealized Net Gains (Losses) on Available-for-Sale Securities Unrealized Net Gains (Losses) on Derivative Instruments Foreign Currency Translation Adjustments Total
Balances as of March 31, 2016$1
 $14
 $(31) $(16)
Other comprehensive income (loss) before reclassifications(4) 66
 (28) 34
Amounts reclassified from accumulated other comprehensive income (loss)(1) (18) —
 (19)
Total other comprehensive income (loss), net of tax

(5) 48
 (28) 15
Balance as of December 31, 2016$(4) $62
 $(59) $(1)


The effects on net income of amounts reclassified from accumulated other comprehensive income (loss) for the three and ninesix months ended December 31, 2017September 30, 2021 were as follows (in millions):
 Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
Statement of Operations Classification
Three Months Ended
September 30, 2021
Six Months Ended
September 30, 2021
(Gains) losses on foreign currency forward contracts designated as cash flow hedges
Net revenue$18 $37 
Research and development(4)(12)
Total net (gain) loss reclassified, net of tax$14 $25 
 
Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
Statement of Operations Classification
Three Months Ended
December 31, 2017
Nine Months Ended
December 31, 2017
(Gains) losses on cash flow hedges from forward contracts    
Net revenue
$9

$(13)
Research and development
(1)
(1)
Total, net of tax $8
 $(14)
     
(Gains) losses on foreign currency translation    
Interest and other income (expense), net $—
 $(10)
Total, net of tax $—
 $(10)
     
Total net (gain) loss reclassified, net of tax $8
 $(24)

The effects on net income of amounts reclassified from accumulated other comprehensive income (loss) for the three and ninesix months ended December 31, 2016September 30, 2020 were as follows (in millions):
 Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
Statement of Operations Classification
Three Months Ended
September 30, 2020
Six Months Ended
September 30, 2020
(Gains) losses on foreign currency forward contracts designated as cash flow hedges
Net revenue$(1)$(12)
Research and development— 6 
Total net (gain) loss reclassified, net of tax$(1)$(6)
  Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
Statement of Operations Classification Three Months Ended
December 31, 2016		 Nine Months Ended
December 31, 2016
(Gains) losses on available-for-sale securities    
Interest and other income (expense), net $—
 $(1)
Total, net of tax $—
 $(1)
     
(Gains) losses on cash flow hedges from forward contracts    
Net revenue $(9) $(18)
Research and development 1
 —
Total, net of tax $(8) $(18)
     
Total net (gain) loss reclassified, net of tax $(8) $(19)



(6) BUSINESS COMBINATIONS
Respawn Entertainment, LLCCodemasters Group Holdings plc
On December 1, 2017,February 18, 2021, we completed our acquisition of Respawn Entertainment, LLC100% of the equity interests of Codemasters Group Holdings plc, a public limited company registered in England and Wales (“Respawn”Codemasters”), for a leading game development studio and creators of games including the critically-acclaimed Titanfall franchise. The total purchase price was $273 million, which consisted of $151 million in$1.2 billion, net of cash and the acquisition date fair value of contingent consideration of $122 million. The purchase price was preliminarily allocated to Respawn’s net tangible and intangible assets based upon their estimated fair values as of December 1, 2017, resulting in $167 million being preliminarily allocated to goodwill that consists largely of workforce and synergies with our existing business, all of which is expected to be deductible for tax purposes. $78 million was preliminarily allocated to intangible assets acquired; and $28 million was preliminarily allocated to net tangible assets acquired. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions, and are considered preliminary as of the reporting date and are considered preliminary pending finalization of the valuation analyses pertaining to assets acquired and liabilities assumed, valuation of the contingent consideration as well as the calculation of any deferred tax assets, tax liabilities, and payroll tax liabilities. The Company expectsWe expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. During the three months ended September 30, 2021, we recorded a $5 million net tax liability, which resulted in an increase to goodwill.
The payment
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Glu Mobile Inc.
On April 29, 2021, we completed the acquisition of 100% of the contingent considerationequity interests of Glu Mobile Inc., a leading global developer and publisher of mobile games (“Glu” and the “Glu acquisition”) for a total purchase price of $2.0 billion, net of cash acquired of $332 million. The acquisition of Glu is expected to accelerate our mobile growth by creating a combined organization with ongoing live services across multiple games and genres. We also believe that the acquisition will create value by adding Glu’s expertise in casual sports and lifestyle genres to new titles based on our intellectual property. The transaction costs associated with the achievementacquisition totaled approximately $15 million and were recognized in general and administrative expense, of certain performance milestones throughwhich $11 million were recognized during fiscal 2022, all within the endthree months ended June 30, 2021.
In addition, upon the closing of calendar year 2022 at the latest.Glu acquisition, we assumed all outstanding unvested options and unvested restricted stock units relating to Glu common stock and such awards were converted into corresponding awards relating to a number of shares of our common stock using an exchange ratio equal to 0.0880, with substantially identical terms and conditions as were applicable to the corresponding Glu awards immediately prior to the closing of the acquisition, except as such terms and conditions were modified in the acquisition agreements (“Replacement Awards”). The maximum amount of contingent consideration we may be required to pay is $140 million. Theestimated fair value of the contingentReplacement Awards was $133 million, of which $23 million related to awards for which services were rendered prior to the Glu acquisition and represented part of the purchase consideration transferred in the Glu acquisition. The remaining $110 million is includedattributable to services to be rendered after the Glu acquisition and will be recognized as stock-based compensation expense over their remaining vesting periods.
During the three months ended September 30, 2021, we finalized the fair values assigned to the Glu assets acquired and liabilities assumed. The differences between the preliminary estimates recognized during the first quarter of fiscal 2022 and the final amounts are presented in other liabilitiesthe table below:
(In millions)Previously Reported
at June 30, 2021		Measurement Period AdjustmentsAs Adjusted
at September 30, 2021
Current assets$63 $— $63 
Property and equipment, net14 — 14 
Other assets48 — 48 
Intangible assets657 (131)526 
Goodwill1,406 100 1,506 
Deferred tax liabilities(69)31 (38)
Current liabilities(78)— (78)
Other liabilities(39)— (39)
Purchase price, net of cash acquired$2,002 $— $2,002 
Intangibles assets by asset category(a)
Developed and core technology$305 $(73)$232 
Trade names and trademarks252 (43)209 
Registered user base and other intangibles12 — 12 
In-process research and development88 (15)73 
Total$657 $(131)$526 
(a) In-process research and development assets are considered indefinite-lived until complete. Excluding the in-process research and development assets, the weighted-average useful life of the Glu’s acquired intangible assets is currently estimated to be approximately 5.5 years.
The measurement period adjustments would not have had a material impact on ourthe Condensed Consolidated Balance Sheet. As

Statements of December 31, 2017, there were no significant changesOperations in the rangefirst quarter of expected outcomes forfiscal 2022 had the contingent consideration fromadjustments to the provisional amounts been recognized as of the acquisition date.
Subsequent to the acquisition, we also granted an aggregateGoodwill consists largely of $167 millionworkforce and synergies with our existing business. The goodwill is not deductible for tax purposes.
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Table of restricted stock unit awards of our common stock to Respawn employees that will be recognized over a four year period as stock-based compensation expense. The fair value of these equity awards was based on the quoted market price of our common stock on the date of grant.Contents
The results of operations of RespawnGlu and the preliminary fair value of the assets acquired and liabilities assumed have been included in our Condensed Consolidated Financial Statements since the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to our Condensed Consolidated Statements of Operations.

Playdemic Limited
DuringOn September 20, 2021, we completed the three and nine months ended December 31, 2016, there were no acquisitions.

(7) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET
The changes in the carrying amountacquisition of goodwill for the nine months ended December 31, 2017 are as follows (in millions):
 As of
March 31, 2017		 Activity Effects of Foreign Currency Translation As of
December 31, 2017
Goodwill$2,075
 $167
 $5
 $2,247
Accumulated impairment(368) —
 —
 (368)
Total$1,707
 $167
 $5
 $1,879
Goodwill represents the excess100% of the equity interests of Playdemic Limited, a private limited company incorporated in England and Wales (“Playdemic” and the “Playdemic acquisition”) for a total purchase price overof $1.4 billion, net of cash acquired. The Playdemic acquisition is intended to be another step in our strategy of continued leadership in sports and mobile expansion. The transaction costs associated with the fair valueacquisition totaled approximately $11 million and were recognized in general and administrative expense, of the underlying acquired net tangible and intangible assets.
Duringwhich $8 million were recognized during the three months ended December 31, 2017, we estimated, on a preliminary basis, goodwill acquiredSeptember 30, 2021.
Due to the proximity of the closing date of the Playdemic acquisition to the balance sheet date of September 30, 2021, the initial purchase accounting is incomplete and subject to change during the measurement period, which may result in material changes to our acquisition of Respawn. The Company expectspurchase price allocation. We expect to finalize the valuation of the Respawn acquisitionpurchase accounting as soon as practicable, but not later than one year from the acquisition date. Once
The following table summarizes the provisional allocation of the purchase price to the fair value of assets acquired and liabilities assumed based on management’s best estimates as of the reporting date:
(In millions)
Current assets$22 
Property and equipment, net2 
Other assets2 
Intangible assets354 
Goodwill1,100 
Deferred tax liabilities(67)
Current liabilities(6)
Other liabilities(2)
Purchase price, net of cash acquired$1,405 
To develop our provisional fair values of assets acquired and liabilities assumed, we utilized currently available information and fair value allocation benchmarks from similar completed there may betransactions. We are currently in the process of completing our purchase accounting; including, but not limited to, completing a valuation of acquired intangible assets and valuation of deferred tax assets, tax liabilities, and payroll tax liabilities.
Goodwill consists largely of workforce and synergies with our existing business. The goodwill is not deductible for local tax purposes.
The results of operations during the three months ended September 30, 2021 for Playdemic are not material adjustments to our Condensed Consolidated Financial Statements. Pro forma results of operations have not been presented because the effect of the acquisition was not material to our Condensed Consolidated Statements of Operations.
During the six months ended September 30, 2021, we completed one other acquisition that was not material to our Condensed Consolidated Financial Statements.

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(7) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET
The changes in the carrying amount of goodwill amounts.for the six months ended September 30, 2021 are as follows (in millions):
As of
March 31, 2021
ActivityEffects of Foreign Currency Translation
As of
September 30, 2021
Goodwill$3,236 $2,591 $— $5,827 
Accumulated impairment(368)— — (368)
Total$2,868 $2,591 $— $5,459 
Acquisition-related intangibles consisted of the following (in millions):
 As of September 30, 2021As of March 31, 2021
 Gross
Carrying
Amount		Accumulated
Amortization		Acquisition-
Related
Intangibles, Net		Gross
Carrying
Amount		Accumulated
Amortization		Acquisition-
Related
Intangibles, Net
Finite-lived acquisition-related intangibles
Developed and core technology$939 $(542)$397 $691 $(472)$219 
Trade names and trademarks393 (169)224 188 (144)44 
Registered user base and other intangibles18 (10)8 5 (5)— 
Carrier contracts and related85 (85)— 85 (85)— 
Playdemic acquired intangibles354 — $354 — — — 
Total finite-lived acquisition-related intangibles$1,789 $(806)$983 $969 $(706)$263 
Indefinite-lived acquisition-related intangibles
In-process research and development$97 $— $97 $46 $— $46 
Total acquisition-related intangibles, net$1,886 $(806)$1,080 $1,015 $(706)$309 
 As of December 31, 2017 As of March 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
Developed and core technology$419
 $(412) $7
 $412
 $(412) $—
Trade names and trademarks153
 (103) 50
 106
 (98) 8
Registered user base and other intangibles5
 (5) —
 5
 (5) —
Carrier contracts and related85
 (85) —
 85
 (85) —
In-process research and development24
 —
 24
 —
 —
 —
Total$686
 $(605) $81
 $608
 $(600) $8
DuringDue to the three months ended December 31, 2017,proximity of the closing date of the Playdemic acquisition to the balance sheet date of September 30, 2021, we estimated, onincluded a preliminary basis,provisional estimate of acquired intangibles as a separate line item in the fair value of acquisition-related intangible assets of $78 million in connection with the Respawn acquisition, of which $47 million was allocated to trade names and trademarks, $24 million are allocated to in-process research and development, and $7 million was allocated to developed and core technology. Excluding the in-process research and development assets,above table. We currently estimate the weighted-average useful life of the RespawnPlaydemic’s acquired intangible assets wasto be approximately 7.1 years. 7 years. See Note 6 for additional information on our acquisition of Playdemic.

Amortization of intangibles for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 are classified in the Condensed Consolidated StatementStatements of Operations as follows (in millions):
 Three Months Ended
December 31,		 Nine Months Ended
December 31,
 2017 2016 2017 2016
Cost of service and other$—
 $—
 $—
 $16
Cost of product1
 18
 1
 27
Operating expenses1
 2
 4
 5
Total$2
 $20
 $5
 $48
Three Months Ended
September 30,		Six Months Ended
September 30,
2021202020212020
Cost of revenue$22 $— $44 $— 
Operating expenses30 6 70 11 
Total$52 $6 $114 $11 
Acquisition-related intangible assets are generally amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, rangingcurrently from 1 to 147 years. As of December 31, 2017September 30, 2021 and March 31, 2017,2021, the weighted-average remaining useful life for acquisition-related intangible assets was approximately 6.7 years5.4 and 1.43.5 years, respectively.
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As of December 31, 2017,September 30, 2021, future amortization of finite-lived acquisition-related intangibles that will be recorded in the Condensed Consolidated StatementStatements of Operations is estimated as follows (in millions):
Fiscal Year Ending March 31, 
2022 (remaining six months)$149 
2023216 
2024165 
2025121 
2026115 
202796 
2028 and thereafter121 
Total$983 

Fiscal Year Ending March 31, 
2018 (remaining three months)$5
201913
20206
20216
20226
20236
Thereafter15
Total$57

(8) ROYALTIES AND LICENSES
Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers, and (3) co-publishing and distribution affiliates. License royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related to our games. Co-publishing and distribution royalties are payments made to third parties for the delivery of products.
Royalty-based obligations with content licensors and distribution affiliates are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations are generally expensed to cost of revenue at the greater of the contractual rate or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums. Prepayments made to thinly capitalized independent software developers and co-publishing affiliates are generally made in connection with the development of a particular product, and therefore, we are generally subject to development risk prior to the release of the product. Accordingly, payments that are due prior to completion of a product are generally expensed to research and development over the development period as the services are incurred. Payments due after completion of the product (primarily royalty-based in nature) are generally expensed as cost of revenue.

Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract.
Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product and service sales. Any impairments or losses determined before the launch of a product are generally charged to research and development expense. Impairments or losses determined post-launch are charged to cost of revenue. We evaluate long-lived royalty-based assets for impairment using undiscounted cash flows when impairment indicators exist. If an impairment exists, then the assets are written down to fair value. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated.

During the three and ninesix months ended December 31, 2017,September 30, 2021 and 2020, we did not recognize any material losses or impairment charges on royalty-based commitments.

During the three and nine months ended December 31, 2016, we determined that the carrying value of one of our royalty-based assets and previously unrecognized minimum royalty-based commitments were not recoverable. We recognized an impairment charge of $12 million on the asset and a loss of $10 million on the previously unrecognized minimum royalty-based commitment. Of the total $22 million loss, $10 million was included in cost of service revenue and $12 million was included in research and development expenses in our Condensed Consolidated Statements of Operations.

The current and long-term portions of prepaid royalties and minimum guaranteed royalty-related assets, included in other current assets and other assets, consisted of (in millions):
As of
September 30, 2021
As of
March 31, 2021
Other current assets$76 $24 
Other assets22 20 
Royalty-related assets$98 $44 
 As of
December 31, 2017		 As of
March 31, 2017
Other current assets$20
 $79
Other assets34
 39
Royalty-related assets$54
 $118
At any given time, depending on the timing of our payments to our co-publishing and/or distribution affiliates, content licensors, and/or independent software developers, we classify any recognized unpaid royalty amounts due to these parties as accrued liabilities. The currentAs of September 30, 2021 and long-term portions of accrued royalties,March 31, 2021, royalty-related liabilities were $172 million and $210 million, respectively, which were included in accrued and other current liabilities and other liabilities, consisted of (in millions):liabilities.
 As of
December 31, 2017		 As of
March 31, 2017
Accrued royalties$260
 $165
Other liabilities80
 97
Royalty-related liabilities$340
 $262
As of December 31, 2017,September 30, 2021, we were committed to pay approximately $987$1,961 million to content licensors, independent software developers, and co-publishing and/or distribution affiliates, but performance remained with the counterparty (i.e.(i.e., delivery of the product or content or other factors) and such commitments were therefore not recorded in our Condensed Consolidated Financial Statements. See Note 12 for further information on our developer and licensor commitments.


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(9) BALANCE SHEET DETAILS
Property and Equipment, Net
Property and equipment, net, as of December 31, 2017September 30, 2021 and March 31, 20172021 consisted of (in millions):
As of
September 30, 2021
As of
March 31, 2021
Computer, equipment and software$821 $808 
Buildings369 370 
Leasehold improvements186 172 
Equipment, furniture and fixtures, and other93 93 
Land66 66 
Construction in progress46 12 
1,581 1,521 
Less: accumulated depreciation(1,065)(1,030)
Property and equipment, net$516 $491 
 As of
December 31, 2017		 As of
March 31, 2017
Computer, equipment and software$724
 $723
Buildings336
 316
Leasehold improvements137
 126
Equipment, furniture and fixtures, and other81
 82
Land66
 61
Construction in progress7
 7
 1,351
 1,315
Less: accumulated depreciation(904) (881)
Property and equipment, net$447
 $434
During the three and nine months ended December 31, 2017, depreciationDepreciation expense associated with property and equipment was $30$39 million and $89$79 million respectively.

Duringfor the three and ninesix months ended December 31, 2016, depreciationSeptember 30, 2021, respectively.
Depreciation expense associated with property and equipment was $29$32 million and $86$63 million for the three and six months ended September 30, 2020, respectively.
Accrued and Other Current Liabilities
Accrued and other current liabilities as of December 31, 2017September 30, 2021 and March 31, 20172021 consisted of (in millions):
 As of
December 31, 2017		 As of
March 31, 2017
Other accrued expenses$346
 $210
Accrued compensation and benefits249
 267
Accrued royalties260
 165
Deferred net revenue (other)215
 147
Accrued and other current liabilities$1,070
 $789
As of
September 30, 2021
As of
March 31, 2021
Other accrued expenses$343 $351 
Accrued compensation and benefits338 494 
Accrued royalties172 210 
Sales returns and price protection reserves99 115 
Deferred net revenue (other)99 95 
Operating lease liabilities68 76 
Accrued and other current liabilities$1,119 $1,341 
Deferred net revenue (other) includes the deferral of subscription revenue, licensing arrangements, advertising revenue, licensing arrangements, and other revenue for which revenue recognition criteria has not been met.
Deferred Net Revenue (Online-Enabled Games)net revenue
Deferred net revenue (online-enabled games) was $1,946 million and $1,539 million as of December 31, 2017September 30, 2021 and March 31, 2017, respectively. Deferred2021 consisted of (in millions):
As of
September 30, 2021
As of
March 31, 2021
Deferred net revenue (online-enabled games)$1,322 $1,527 
Deferred net revenue (other)99 95 
Deferred net revenue (noncurrent)23 14 
Total deferred net revenue$1,444 $1,636 
During the six months ended September 30, 2021 and 2020, we recognized $1,504 million and $985 million of revenue, respectively, that were included in the deferred net revenue (online-enabled games) generally includesbalance at the unrecognizedbeginning of the period.
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Remaining Performance Obligations
As of September 30, 2021, revenue from bundled salesallocated to remaining performance obligations consists of online-enabled gamesour deferred revenue balance of $1,444 million and amounts to be invoiced and recognized as revenue in future periods of $89 million. These balances exclude any estimates for whichfuture variable consideration as we do not have VSOE forelected the obligationoptional exemption to provide unspecified updates.exclude sales-based royalty revenue. We expect to recognize substantially all of these balances as revenue fromover the sale of online-enabled games for which we do not have vendor-specific objective evidence of fair value (“VSOE”) for the unspecified updates on a straight-line basis, generally over an estimated nine-month period beginning in the month after shipment for physical games sold through retail and an estimated six-month period for digitally-distributed games. However, we expense the cost of revenue related to these transactions generally during the period in which the product is delivered (rather than on a deferred basis).next 12 months.


(10) INCOME TAXES
The provision for income taxes for the three and ninesix months ended December 31, 2017September 30, 2021 is based on our projected annual effective tax rate for fiscal year 2018,2022, adjusted for specific items that are required to be recognized in the period in which they are incurred. Our effective tax rate and resulting provision for income taxes for the three and ninesix months ended December 31, 2017September 30, 2021 was significantly impacted by10 percent and 21 percent, respectively, as compared to negative 33 percent and 9 percent, respectively, for the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”), enacted on December 22, 2017. The U.S. Tax Act significantly revised the U.S. corporate income tax system by, among other things, lowering the U.S. corporate income tax rates, generally implementing a territorial tax system and imposing a one-time transition tax on the deemed repatriation of undistributed earnings of foreign subsidiaries (the “Transition Tax”).
same period in fiscal year 2021. Our effective tax rate for the three and ninesix months ended December 31, 2017September 30, 2021 was negative 1,062.5 percent and positive 37.3 percent, respectively, as comparedhigher than prior year due to 83.3 percent and 18.8 percent, respectivelyour decision to capitalize for income tax purposes certain foreign expenses which increased the same periodstaxable income in fiscalour foreign entities that is subject to U.S. tax. In accordance with our existing accounting policy, we do not establish deferred tax assets to offset this charge, but we expect future deductions of the capitalized amounts. The prior year 2017. The effective tax rate forrates included a tax benefit, net of valuation allowance, resulting from the three and nine months ended December 31, 2017 was negatively impacted by the provisional income tax effectsSupreme Court of the U.S. Tax Act, offset by earnings realized in countries that have lower statutory tax rates and the recognitionUnited States denial of excess tax benefits from stock-based compensation. Without the provisional tax chargeAltera’s appeal of the U.S. Tax Act, our effective tax rate forAltera opinion (the “Altera opinion”). Excluding the three and nine months ended December 31, 2017 would have been 37.5 percent and 11.9 percent, respectively.
We have a March 31 fiscal year-end; therefore, the lower corporate tax rate enacted by the U.S. Tax Act will be phased in, resulting in a U.S. statutory federal rate of 31.6 percent for our fiscal year ending March 31, 2018, and 21.0 percent for subsequent fiscal years. When compared to the statutory rate of 31.6 percent,Altera opinion, the effective tax rate for three and six months ended September 30, 2020 would have been 13 percent and 20 percent, respectively.
In addition, during the three and nine months ended December 31, 2017 was higher primarily dueSeptember 30, 2021, we completed the Codemasters intra-entity sale of intellectual property rights to our U.S. and Swiss intellectual property owners. The transaction resulted in a taxable gain. Under U.S. GAAP, any profit resulting from this intercompany transaction will be eliminated upon consolidation. However, the incometransaction resulted in a step-up of the U.S. and Swiss tax-deductible basis in the transferred intellectual property rights and, accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights. As a result, we recognized a $60 million net tax benefit for the current and deferred tax impacts of the U.S. Tax Act, offset by earnings realized in countries that have lower statutory tax rates andsale. Excluding the recognition of excess tax benefits from stock-based compensation. We anticipate thatCodemasters intra-entity sale, the impact of excess tax benefits and tax deficiencies may result in significant fluctuations to our effective tax rate in the future. Excluding excess tax benefits, our effective tax ratefor three and six months ended September 30, 2021 would have been negative 1,075.028 percent and positive 43.631 percent, respectively, for the three and nine months ended December 31, 2017.respectively.
We recorded a provision for income taxes of $170 million and $259 million for the three and nine months ended December 31, 2017, respectively, including $176 million which is a reasonable estimate of the impacts of the U.S. Tax Act. We recorded a reasonable estimate of $151 million related to the Transition Tax. The final calculations of the Transition Tax may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the U.S. Tax Act, our analysis of the U.S. Tax Act, or any updates or changes to estimates that we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions.

In addition, we provisionally recorded a tax charge related to the remeasurement of U.S. deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate and a tax benefit related to the deferred tax impacts of global intangible income. The impact of these, as well as certain other charges and benefits, were not material individually, or in the aggregate, and are provisional for the same reasons as stated above.
Reasonable estimates of the impacts of the U.S. Tax Act are provided in accordance with SEC guidance that allows for a measurement period of up to one year after the enactment date of the U.S. Tax Act to finalize the recording of the related tax impacts. We expect to complete the accounting under the U.S. Tax Act as soon as practicable, but in no event later than one year from the enactment date of the U.S. Tax Act.
We file income tax returns and are subject to income tax examinations in various jurisdictions with respect to fiscal years after 2008.2011. The timing and potential resolution of income tax examinations is highly uncertain. The total unrecognized tax benefits as of September 30, 2021 were $587 million.
While we continue to measure our uncertain tax positions, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued. ItFor example, in the period ended June 30, 2020, the Altera opinion resulted in a partial decrease of our unrecognized tax benefits. A complete resolution and settlement of the matters underlying the Altera opinion is reasonably possible within the next 12 months, which would result in an additional reduction of our gross unrecognized tax benefits. However, it is uncertain whether a complete resolution and settlement of such matters would also result in resolution of all related and unrelated U.S. positions for all applicable years. Therefore, it is not possible to provide a range of potential outcomes associated with a reversal of our gross unrecognized tax benefits.
It is also reasonably possible that aan additional reduction of up to $45$5 million of unrecognized tax benefits may occur within the next 12 months, unrelated to the Altera opinion, a portion of which would impact our effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.settlements and tax interpretations.

Each quarter, we perform a realizability analysis to evaluate whether it is more likely than not that all or a portion of our deferred tax assets will not be realized. During the three and six months ended September 30, 2021, we recognized a decrease of $6 million and an increase of $7 million of valuation allowance against our deferred tax assets primarily due to the expected alignment of the recently acquired businesses with our global operating structure.

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(11) FINANCING ARRANGEMENTS
Senior Notes
In February 2016,2021, we issued $600$750 million aggregate principal amount of 3.70%1.85% Senior Notes due March 1, 2021February 15, 2031 (the “2021“2031 Notes”) and $400$750 million aggregate principal amount of 4.80%2.95% Senior Notes due March 1, 2026February 15, 2051 (the “2026 Notes,” and together with the 2021 Notes, the “Senior“2051 Notes”). Our proceeds were $989$1,478 million, net of discount of $2$6 million and issuance costs of $9$16 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 20212031 Notes and the 2051 Notes using the effective interest rate method. The effective interest rate is 1.98% for the 2031 Notes and 3.04% for the 2051 Notes. Interest is payable semiannually in arrears, on February 15 and August 15 of each year.
In February 2016, we issued $400 million aggregate principal amount of 4.80% Senior Notes due March 1, 2026 (the “2026 Notes”). Our proceeds were $395 million, net of discount of $1 million and issuance costs of $4 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2026 Notes using the effective interest rate method. The effective interest rate is 3.94% for the 2021 Notes andwas 4.97% for the 2026 Notes.. Interest is payable semiannually in arrears, on March 1 and September 1 of each year.
The carrying and fair values of the Senior Notes are as follows (in millions):
As of
December 31, 2017		 As of
March 31, 2017
As of
September 30, 2021
As of
March 31, 2021
Senior Notes:   Senior Notes:
3.70% Senior Notes due 2021$600
 $600
4.80% Senior Notes due 2026400
 400
4.80% Senior Notes due 2026$400 $400 
1.85% Senior Notes due 20311.85% Senior Notes due 2031750 750 
2.95% Senior Notes due 20512.95% Senior Notes due 2051750 750 
Total principal amount$1,000
 $1,000
Total principal amount$1,900 $1,900 
Unaccreted discount(2) (2)Unaccreted discount(7)(7)
Unamortized debt issuance costs(6) (8)Unamortized debt issuance costs(16)(17)
Net carrying value of Senior Notes$992
 $990
Net carrying value of Senior Notes$1,877 $1,876 
   
Fair value of Senior Notes (Level 2)$1,059
 $1,054
Fair value of Senior Notes (Level 2)$1,911 $1,873 
As of December 31, 2017,September 30, 2021, the remaining life of the 20212026 Notes, 2031 Notes and 20262051 Notes is approximately 3.24.4 years, 9.4 years, and 8.229.4 years, respectively.

The Senior Notes are senior unsecured obligations and rank equally with all our other existing and future unsubordinated obligations and any indebtedness that we may incur from time to time under our Credit Facility.

The 20212026 Notes, 2031 Notes and the 20262051 Notes are redeemable at our option at any time prior to February 1, 2021 or December 1, 2025, November 15, 2030, and August 15, 2050, respectively, subject to a make-whole premium. Within one and three months of maturity,After such dates, we may redeem the 2021 Notes or the 2026each such series of Notes, respectively, at a redemption price equal to 100% of the aggregate principal amount plus accrued and unpaid interest. In addition, upon the occurrence of a change of control repurchase event, the holders of the Senioreach such series of Notes may require us to repurchase all or a portion of the Seniorthese Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The SeniorEach such series of Notes also include covenants that limit our ability to incur liens on assets and to enter into sale and leaseback transactions, subject to certain allowances.
Credit Facility
In March 2015,On August 29, 2019, we entered into a $500 million senior unsecured revolving credit facility (“Credit Facility”) with a syndicate of banks. The Credit Facility terminates on March 19, 2020.August 29, 2024 unless the maturity is extended in accordance with its terms. The Credit Facility contains an option to arrange with existing lenders and/or new lenders to provide up to an aggregate of $250$500 million in additional commitments for revolving loans. Proceeds of loans made under the Credit Facility may be used for general corporate purposes.

22
The loans bear interest, at our option, at the base rate plus an applicable spread or an adjusted LIBOR rate plus an applicable spread, in each case with such spread being determined based on our consolidated leverage ratio for the preceding fiscal quarter. We are also obligated to pay other customary fees for a credit facility
Table of this size and type. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted LIBOR rate. Principal, together with all accrued and unpaid interest, is due and payable on March 19, 2020.Contents

The credit agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur subsidiary indebtedness, grant liens, and dispose of all or substantially all assets, and pay dividends or make distributions, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a capitalization ratio and maintain a minimum leveldebt to EBITDA ratio. As of total liquidity.

The credit agreement contains customary events of default, including among others, non-payment defaults, covenant defaults, cross-defaultsSeptember 30, 2021, we were in compliance with the debt to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults and a change of control default, in each case, subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in the acceleration of the obligations under the credit facility, an obligation by any guarantors to repay the obligations in full and an increase in the applicable interest rate.

EBITDA ratio.
As of December 31, 2017,September 30, 2021, no amounts were outstanding under the Credit Facility. $2 million of debt issuance costs that were paid in connection with obtaining this credit facility are being amortized to interest expense over the 5-year term of the Credit Facility.
Interest Expense
The following table summarizes our interest expense recognized for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 that is included in interest and other income (expense), net on our Condensed Consolidated Statements of Operations (in millions):
Three Months Ended
September 30,		Six Months Ended
September 30,
2021202020212020
Amortization of debt issuance costs$(1)$— $(1)$(1)
Coupon interest expense(14)(11)(28)(21)
Total interest expense$(15)$(11)$(29)$(22)

 Three Months Ended
December 31,		 Nine Months Ended
December 31,
 2017 2016 2017 2016
Amortization of debt discount$—
 $—
 $—
 $(2)
Amortization of debt issuance costs—
 (1) (1) (2)
Coupon interest expense(10) (10) (31) (31)
Other interest expense—
 (1) —
 (1)
Total interest expense$(10) $(12) $(32) $(36)


(12) COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of December 31, 2017, we leased certain facilities, furniture and equipment under non-cancelable operating lease agreements. We were required to pay property taxes, insurance and normal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products we produce in our studios are designed and created by our employee designers, artists, software programmers and by non-employee software developers (“independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, usually in installment payments made upon the completion of specified development milestones. Contractually, these payments are generally considered advances against subsequent royalties on the sales of the products. These terms are set forth in written agreements entered into with the independent artists and third-party developers.
In addition, we have certain celebrity, league and content license contracts that contain minimum guarantee payments and marketing commitments that may not be dependent on any deliverables. Celebrities and organizations with whom we have contracts include, but are not limited to: CONMEBOL (Confederación Sudamericana de Fútbol),DFL Deutsche Fußball Liga E.V. (German Soccer League), FAPL (Football Association Premier League Limited), FIFA (Fédération Internationale de Football Association), FIFPRO Foundation, FAPL (FootballLa Liga (Liga Nacional De Futbol Profesional), LFP (Ligue de Football Professionnel), Major League Soccer, Major League Soccer Players Association Premier League Limited)on behalf of OneTeam Partners, LLC, Serie A (Lega Nazionale Professionisti Serie A), and DFL Deutsche Fußball Liga E.V. (German Soccer League)UEFA (Union des Associations Européennes de Football) (professional soccer); Dr. Ing. h.c. F. Porsche AG, Ferrari S.p.A.National Basketball Association and Automobili Lamborghini S.p.A (Need For Speed and Real Racing games); National Basketball Players Association (professional basketball); National Hockey League and NHL Players’ Association (professional hockey); National Football LeagueNFL Properties LLC, NFL Players Association and PLAYERSNFL Players Inc. on behalf of OneTeam Partners, LLC (professional football); William Morris Endeavor Entertainment LLC (professional mixed martial arts); ESPN (content in EA SPORTS games); Disney Interactive (Star Wars)Wars and Disney Sorcerer’s Arena); Formula One Digital Media Limited and Formula Motorsport Limited (professional racing); PGA Tour, Inc. (professional golf); Major League Baseball and MLB Players Association (professional baseball); and Fox Digital Entertainment,Kimsaprincess, Inc. (The Simpsons)(Kim Kardashian: Hollywood). These developer and content license commitments represent the sum of (1) the cash payments due under non-royalty-bearing licenses and services agreements and (2) the minimum guaranteed payments and advances against royalties due under royalty-bearing licenses and services agreements, the majority of which are conditional upon performance by the counterparty. These minimum guarantee payments and any related marketing commitments are included in the table below.

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The following table summarizes our minimum contractual obligations as of December 31, 2017September 30, 2021 (in millions):
Fiscal Years Ending March 31,
2022
(Remaining
Totalsix mos.)20232024202520262027Thereafter
Unrecognized commitments
Developer/licensor commitments$1,961 $109 $392 $427 $421 $330 $79 $203 
Marketing commitments649 84 150 144 130 92 19 30 
Senior Notes interest863 21 55 55 55 54 36 587 
Operating lease imputed interest31 4 6 5 4 3 2 7 
Operating leases not yet commenced (a)
160 3 7 8 11 12 12 107 
Other purchase obligations215 12 66 128 7 2 — — 
Total unrecognized commitments3,879 233 676 767 628 493 148 934 
Recognized commitments
Senior Notes principal and interest1,906 6 — — — 400 — 1,500 
Operating leases318 34 59 53 43 38 26 65 
Transition Tax and other taxes31 11 3 4 6 7 — — 
Licensing commitments15 15 — — — — — — 
Total recognized commitments2,270 66 62 57 49 445 26 1,565 
Total Commitments$6,149 $299 $738 $824 $677 $938 $174 $2,499 
   Fiscal Years Ending March 31,
   2018            
   (Remaining            
 Total three mos.) 2019 2020 2021 2022 2023 Thereafter
Unrecognized commitments               
Developer/licensor commitments$987
 $26
 $224
 $229
 $205
 $222
 $80
 $1
Marketing commitments355
 9
 86
 83
 77
 73
 27
 —
Operating leases249
 8
 43
 39
 39
 32
 25
 63
Senior Notes interest227
 7
 41
 41
 41
 20
 19
 58
Other purchase obligations109
 9
 30
 27
 14
 9
 6
 14
Total unrecognized commitments1,927
 59
 424
 419
 376
 356
 157
 136
                
Recognized commitments               
Senior Notes principal and interest1,013
 13
 —
 —
 600
 —
 —
 400
Licensing obligations107
 6
 23
 25
 26
 27
 —
 —
Total recognized commitments1,120
 19
 23
 25
 626
 27
 —
 400
                
Total commitments$3,047
 $78
 $447
 $444
 $1,002
 $383
 $157
 $536
(a)As of September 30, 2021, we have entered into three office leases and one equipment lease that have not yet commenced with aggregate future lease payments of approximately $160 million. These leases are expected to commence between fiscal year 2022 and fiscal year 2025, and will have lease terms ranging from 3 to 12 years.
The unrecognized amounts represented in the table above reflect our minimum cash obligations for the respective fiscal years, but do not necessarily represent the periods in which they will be recognized and expensed in our Condensed Consolidated Financial Statements.
In addition, the amounts in the table above are presented based on the dates the amounts are contractually due as of December 31, 2017;September 30, 2021; however, certain payment obligations may be accelerated depending on the performance of our operating results. Furthermore, up to $32 million of the unrecognized amounts in the table above may be payable, at the licensor’s

election, in shares of our common stock, subject to a $10 million maximum during any fiscal year. The number of shares to be issued will be based on their fair market value at the time of issuance.
In addition to what is included in the table above, as of December 31, 2017,September 30, 2021, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $98$298 million, of which we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur. Furthermore, we had a $104 million income tax payable recorded during
Legal Proceedings
The Netherlands Gambling Authority (“NGA”) has asserted that the three months ended December 31, 2017 related torandomized selection of virtual items in the provisional Transition Tax, which we expect to pay in installments overFIFA Ultimate Team mode of our FIFA franchise contravenes the next 8 years. OfDutch Betting and Gaming Act. On October 15, 2020, the $104 million, $8 million is included in accrued and other current liabilitiesDistrict Court of the Hague affirmed the NGA’s decision. We have appealed the District Court’s order, and the remaining $96 millionNGA’s decision is included in income tax obligationssuspended through the appeals process. We do not believe that the operational or financial consequences from these proceedings will have a material adverse effect on our Condensed Consolidated Balance Sheet.
In addition to what is included in the table above, as of December 31, 2017, we may be required to pay up to $140 million of cash consideration in connection with the Respawn acquisition based on the achievement of certain performance milestones through the end of calendar year 2022 at the latest. As of December 31, 2017, we have recorded $122 million of contingent consideration onFinancial Statements. We do not believe that our Condensed Consolidated Balance Sheet representing the estimated fair value.
Legal Proceedings
On July 29, 2010, Michael Davis, a former NFL running back, filed a putative class action in the United States District Court for the Northern District of California against the Company, alleging that certain past versions of Madden NFL included the images of certain retired NFL players without their permission. In March 2012, the trial court denied the Company’s request to dismiss the complaint on First Amendment grounds. In January 2015, that trial court decision was affirmed by the Ninth Circuit Court of Appealsproducts and the case was remanded back to the United States District Court for the Northern District of California, where the case is pending.services violate applicable gambling laws.
We are also subject to claims and litigation arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our Condensed Consolidated Financial Statements.

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(13)  STOCK-BASED COMPENSATION
Valuation Assumptions
We estimate the fair value of stock-based awards on the date of grant. We recognize compensation costscost for stock-based awards to employees based on the awards’ estimated grant-date fair value using a straight-line approach over the service period for which such awards are expected to vest.

We account for forfeitures as they occur.
The determinationestimation of the fair value of market-based restricted stock units, stock options and ESPP purchase rights is affected by assumptions regarding subjective and complex variables. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes. We determineestimate the fair value of our stock-based awards as follows:

•Restricted Stock Units and Performance-Based Restricted Stock Units. The fair value of restricted stock units and performance-based restricted stock units (other than market-based restricted stock units) is determined based on the quoted market price of our common stock on the date of grant.

•Market-Based Restricted Stock Units. Market-based restricted stock units consist of grants of performance-based restricted stock units to certain members of executive management that vest contingent upon the achievement of pre-determined market and service conditions (referred to herein as “market-based restricted stock units”). The fair value of our market-based restricted stock units is determinedestimated using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient.

•Stock Options and Employee Stock Purchase Plan. The fair value of stock options and stock purchase rights granted pursuant to our equity incentive plans and our 2000 Employee Stock Purchase Plan, as amended (“ESPP”), respectively, is determinedestimated using the Black-Scholes valuation model based on the multiple-award valuation method. Key assumptions of the Black-Scholes valuation model are the risk-free interest rate, expected volatility, expected term and expected dividends. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option. Expected volatility is based on a combination of historical stock price volatility and implied volatility of publicly-traded options on our common stock. ExpectedAn expected term is determinedestimated based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior.

There were an insignificant number of stock options granted during the three and ninesix months ended December 31, 2017September 30, 2021 and 2016.2020.

The estimated assumptions used in the Black-Scholes valuation model to value our ESPP purchase rights were as follows:
  ESPP Purchase Rights
  Three Months Ended
December 31,
  2017 2016
Risk-free interest rate 1.13 - 1.24%
 0.5 - 0.6%
Expected volatility 28% 29 - 32%
Weighted-average volatility 28% 31%
Expected term 6 - 12 months

 6 - 12 months
Expected dividends None
 None


There were no market-based restricted stock units granted during the three months ended December 31, 2017 and 2016.

Stock-Based Compensation Expense
Employee stock-based compensation expense recognized during the three and nine months ended December 31, 2016 was calculated based on awards ultimately expected to vest and was reduced for estimated forfeitures. We adopted ASU 2016-09 at the beginning of fiscal year 2018 and elected to account for forfeitures as they occur. The adoption resulted in a cumulative-effect adjustment of $8 million, net of tax, decrease to retained earnings.

The following table summarizes stock-based compensation expense resulting from stock options, restricted stock units, market-based restricted stock units, performance-based restricted stock units, and the ESPP purchase rights included in our Condensed Consolidated Statements of Operations (in millions):
ESPP Purchase Rights
 Three Months Ended
September 30,
20212020
Risk-free interest rate0.1%0.1%
Expected volatility25 - 28%34 - 39%
Weighted-average volatility27%37%
Expected term6 - 12 months6 - 12 months
Expected dividends0.6%NaN
25

 Three Months Ended
December 31,		 Nine Months Ended
December 31,
 2017 2016 2017 2016
Cost of revenue$—
 $—
 $2
 $2
Research and development38
 27
 102
 81
Marketing and sales8
 8
 24
 23
General and administrative17
 13
 45
 38
Stock-based compensation expense$63
 $48
 $173
 $144

During the three months ended December 31, 2017, we recognized a $4 million deferred income tax benefit related to our stock-based compensation expense. During the three months ended December 31, 2016, we recognized a $10 million deferred income tax benefit related to our stock-based compensation expense.

During the nine months ended December 31, 2017, we recognized a $26 million deferred income tax benefit related to our stock-based compensation expense. During the nine months ended December 31, 2016, we recognized a $28 million deferred income tax benefit related to our stock-based compensation expense.
AsTable of December 31, 2017, our total unrecognized compensation cost related to restricted stock units, market-based restricted stock units, performance-based restricted stock units, and stock options was $556 million and is expected to be recognized over a weighted-average service period of 2.3 years. Of the $556 million of unrecognized compensation cost, $459 million relates to restricted stock units, $58 million relates to market-based restricted stock units, and $39 million relates to performance-based restricted stock units at 103 percent average vesting target.Contents

Stock Options
The following table summarizes our stock option activity for the ninesix months ended December 31, 2017:
  
Options
(in thousands)
 
Weighted-
Average
Exercise Prices
 
Weighted-
Average
Remaining
Contractual
Term  (in years)
 
Aggregate
Intrinsic Value
(in millions)
Outstanding as of March 31, 2017 2,377
 $33.35
    
Granted 3
 108.88
    
Exercised (746) 40.58
    
Forfeited, cancelled or expired (2) 45.15
    
Outstanding as of December 31, 2017 1,632
 $30.20
 5.67 $122
Vested and expected to vest 1,632
 $30.20
 5.67 $122
Exercisable as of December 31, 2017 1,612
 $30.24
 5.66 $121
September 30, 2021:
Options
(in thousands)		Weighted-
Average
Exercise Prices		Weighted-
Average
Remaining
Contractual
Term  (in years)		Aggregate
Intrinsic Value
(in millions)
Outstanding as of March 31, 2021267 $35.71 
Assumed via acquisition150 60.87 
Granted2 142.78 
Exercised(34)46.29 
Forfeited, cancelled or expired(35)66.29 
Outstanding as of September 30, 2021350 $42.86 3.18$35 
Vested and expected to vest350 $42.86 3.18$35 
Exercisable as of September 30, 2021309 $40.24 2.70$32 
The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price as of December 31, 2017,September 30, 2021, which would have been received by the option holders had all the option holders exercised their options as of that date. We issue new common stock from our authorized shares upon the exercise of stock options.
Restricted Stock Units
The following table summarizes our restricted stock unit activity for the ninesix months ended December 31, 2017:
  
Restricted
Stock Rights
(in thousands)
 
Weighted-
Average Grant
Date Fair Values
Outstanding as of March 31, 2017 5,153
 $65.03
Granted 3,661
 109.33
Vested (2,370) 111.14
Forfeited or cancelled (330) 77.44
Outstanding as of December 31, 2017 6,114
 $73.01

September 30, 2021:
Restricted
Stock Rights
(in thousands)		Weighted-
Average Grant
Date Fair Values
Outstanding as of March 31, 20215,764 $113.25 
Assumed via acquisition816 120.54 
Granted3,486 142.04 
Vested(1,860)117.02 
Forfeited or cancelled(552)121.42 
Outstanding as of September 30, 20217,654 $125.63 
Performance-Based Restricted Stock Units
Our performance-based restricted stock units cliff vest after a four-year performance period contingent upon the achievement of pre-determined performance-based milestones andas well as service conditions. If these performance-based milestones are not met but service conditions are met, the performance-based restricted stock units will not vest, in which case any compensation expense we have recognized to date will be reversed.
Each quarter, we update our assessment of the probability that the specified performance criteriamilestones will be achieved. We amortize the fair values of performance-based restricted stock units over the requisite service period. The performance-based restricted stock units contain threshold, target and maximum milestones for each performance-based milestone. The number of shares of common stock to be issued at vesting will range from zero percent to 200 percent of the target number of performance-based restricted stock units attributable to each performance-based milestone.milestone based on the company’s performance as compared to these threshold, target and maximum performance-based milestones. Each performance-based milestone is weighted evenly and the number of shares that vest based on each performance-based milestone is independent from the other.
In June 2017, performance-based restricted stock units were granted contingent upon the achievement of the non-GAAP net revenue and free cash flow performance milestones over a four-year performance period. During the three months ended June 30, 2021, approximately 266,000 of the 579,000 outstanding performance-based restricted stock units were earned and vested on May 26, 2021 and the remaining outstanding units were cancelled.
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In June 2021, performance-based restricted stock units were granted contingent upon the achievement of net bookings and operating income performance milestones over three annual measurement periods, with awards either vesting after each annual measurement period or cliff vesting after the completion of the three-year period.
The following table summarizes our performance-based restricted stock unit activity, presented with the maximum number of shares that could potentially vest, for the ninesix months ended December 31, 2017:
 Performance-
Based Restricted
Stock Units
(in thousands)		 
Weighted-
Average Grant
Date Fair Value
Outstanding as of March 31, 2017—
 $—
Granted796
 110.51
Forfeited or cancelled—
 —
Outstanding as of December 31, 2017796
 $110.51

September 30, 2021:
Performance-
Based Restricted
Stock Units
(in thousands)		Weighted-
Average Grant
Date Fair Value
Outstanding as of March 31, 2021579 $110.51 
Granted219 142.60 
Vested(266)110.51 
Forfeited or cancelled(317)110.98 
Outstanding as of September 30, 2021215 $142.60 
Market-Based Restricted Stock Units

Our market-based restricted stock units vest contingent upon the achievement of pre-determined market and service conditions. If these market conditions are not met but service conditions are met, the market-based restricted stock units will not vest;

however, any compensation expense we have recognized to date will not be reversed. The number of shares of common stock to be issued at vesting will range from zero percentto 200 percent of the target number of market-based restricted stock units based on our total stockholder return (“TSR”) relative to the performance of companies in the NASDAQ-100 Index for each measurement period, generally over either a one-year, two-year cumulative, and three-year cumulative period, or over a two-year and four-year cumulative period or a three-year period.
The following table summarizes our market-based restricted stock unit activity, presented with the maximum number of shares that could potentially vest, for the ninesix months ended December 31, 2017:September 30, 2021:
Market-Based
Restricted  Stock
Units
(in thousands)		Weighted-
Average  Grant
Date Fair Value
Outstanding as of March 31, 20212,195 $134.60 
Granted159 173.25 
Vested(176)128.62 
Forfeited or cancelled(614)153.69 
Outstanding as of September 30, 20211,564 $131.71 
Stock-Based Compensation Expense
The following table summarizes stock-based compensation expense resulting from stock options, restricted stock units, market-based restricted stock units, performance-based restricted stock units, and the ESPP purchase rights included in our Condensed Consolidated Statements of Operations (in millions):
 Three Months Ended
September 30,		Six Months Ended
September 30,
 2021202020212020
Cost of revenue$2 $2 $3 $3 
Research and development101 74 186 140 
Marketing and sales15 12 27 23 
General and administrative31 25 58 49 
Stock-based compensation expense$149 $113 $274 $215 
During the three and six months ended September 30, 2021, we recognized $27 million and $51 million, respectively, of deferred income tax benefit related to our stock-based compensation expense. During the three and six months ended September 30, 2020, we recognized $15 million and $38 million, respectively, of deferred income tax benefit related to our stock-based compensation expense.
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Market-Based
Restricted  Stock
Units
(in thousands)
 
Weighted-
Average  Grant
Date Fair Value
Outstanding as of March 31, 2017 1,282
 $87.37
Granted 706
 140.93
Vested (430) 76.27
Forfeited or cancelled (216) 91.88
Outstanding as of December 31, 2017 1,342
 $118.35
As of September 30, 2021, our total unrecognized compensation cost related to stock options, restricted stock units, market-based restricted stock units, and performance-based restricted stock units was $866 million and is expected to be recognized over a weighted-average service period of 1.9 years. Of the $866 million of unrecognized compensation cost, $779 million relates to restricted stock units, $68 million relates to market-based restricted stock units, $16 million relates to performance-based restricted stock units at an 134 percent average payout, and $3 million relates to stock options.
Stock Repurchase Program
In May 2015, our Board of Directors authorized a program to repurchase up to $1 billion of our common stock. We repurchased approximately 0.3 million shares for approximately $31 million under this program during the three months ended June 30, 2017. We completed repurchases under the May 2015 program in April 2017.
In May 2017,2018, a Special Committee of our Board of Directors, on behalf of the full Board of Directors, authorized a program to repurchase up to $1.2$2.4 billion of our common stock. We completed repurchases under the May 2018 program in April 2020.
In November 2020, our Board of Directors authorized a program to repurchase up to $2.6 billion of our common stock. This stock repurchase program expires on May 31, 2019.November 4, 2022. Under this program, we may purchase stock in the open market or through privately-negotiatedprivately 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. During the three and nine months ended December 31, 2017, we repurchased approximately 1.4 million and 3.8 million shares for approximately $150 million and $422 million, respectively, under this program. We are actively repurchasing shares under this program.

The following table summarizes total shares repurchased during the three and ninesix months ended December 31, 2017September 30, 2021 and 2016:2020:
May 2018 ProgramNovember 2020 ProgramTotal
(In millions)SharesAmountSharesAmountSharesAmount
Three months ended September 30, 2021—$— 2.3$325 2.3$325 
Six months ended September 30, 2021—$— 4.6$650 4.6$650 
Three months ended September 30, 2020—$— — $— —$— 
Six months ended September 30, 20200.7 $78 — $— 0.7 $78 

 May 2015 Program May 2017 ProgramTotal
(in millions)Shares Amount Shares AmountShares Amount
Three months ended December 31, 2017—
 $—
 1.4 $150
1.4 $150
Nine months ended December 31, 20170.3
 $31
 3.8
 $422
4.1 $453
Three months ended December 31, 20161.5
 $127
 —
 $—
1.5 $127
Nine months ended December 31, 20165.0
 $383
 —
 $—
5.0 $383


(14) EARNINGS (LOSS) PER SHARE
The following table summarizes the computations of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS is computed as net income divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, restricted stock, restricted stock units, and ESPP purchase rights warrants, and other convertible securities using the treasury stock method.
 Three Months Ended December 31, Nine Months Ended December 31,
(In millions, except per share amounts)2017 2016 2017 2016
Net income (loss)$(186) $(1) $436
 $401
Shares used to compute earnings (loss) per share:       
Weighted-average common stock outstanding — basic308
 303
 309
 302
Dilutive potential common shares related to stock award plans and from assumed exercise of stock options—
 —
 3
 3
Dilutive potential common shares related to the Convertible Notes (a)
—
 —
 —
 1
Dilutive potential common shares related to the Warrants (a)
—
 —
 —
 8
Weighted-average common stock outstanding — diluted308
 303
 312
 314
Earnings (loss) per share:       
Basic$(0.60) $ (0.00)
 $1.41
 $1.33
Diluted$(0.60) $ (0.00)
 $1.40
 $1.28

As a result of our net loss for the three months ended December 31, 2017, we have excluded all potentially dilutive common shares from the diluted loss per share calculation as their inclusion would have had an antidilutive effect. Had we reported net income for this period, an additional 3 million shares of common stock related to our outstanding equity-based instruments would have been included in the number of shares used to calculate Diluted EPS for the three months ended December 31, 2017.

As a result of our net loss for the three months ended December 31, 2016, we have excluded all potentially dilutive common shares from the diluted loss per share calculation as their inclusion would have had an antidilutive effect. Had we reported net income for this period, an additional 3 million shares of common stock related to our outstanding equity-based instruments and an additional 7 million shares related to the Warrants would have been included in the number of shares used to calculate Diluted EPS for the three months ended December 31, 2016.

 Three Months Ended
September 30,		Six Months Ended
September 30,
(In millions, except per share amounts)2021202020212020
Net income$294 $185 $498 $550 
Shares used to compute earnings per share:
Weighted-average common stock outstanding — basic285 289 285 289 
Dilutive potential common shares related to stock award plans and from assumed exercise of stock options2 4 3 3 
Weighted-average common stock outstanding — diluted287 293 288 292 
Earnings per share:
Basic$1.03 $0.64 $1.75 $1.90 
Diluted$1.02 $0.63 $1.73 $1.88 
For the ninethree and six months ended December 31, 2017September 30, 2021 and 2016, an immaterial amount2020, 1 million of stock options, restricted stock units and market-based restricted stock units were excluded from the treasury stock method computation of diluted shares, respectively, as their inclusion would have had an antidilutive effect.
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Our performance-based restricted stock units, which are considered contingently issuable shares, are also excluded from the treasury stock method computation because the related performance-based milestones were not achieved as of the end of the three and six months ended September 30, 2021 and 2020.

(15) SEGMENT AND REVENUE INFORMATION
Our reporting period.segment is based upon: our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, our Chief Operating Decision Maker (“CODM”), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Our CODM currently reviews total company operating results to assess overall performance and allocate resources. As of September 30, 2021, we have only one reportable segment, which represents our only operating segment.

(a)See Note 10 - Financing Arrangements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, for additional information regarding the potential dilutive shares related to our Convertible Notes and Warrants.

Information about our total net revenue by timing of recognition for the three and six months ended September 30, 2021 and 2020 is presented below (in millions):

Three Months Ended
September 30,		Six Months Ended
September 30,
2021202020212020
Net revenue by timing of recognition
Revenue recognized at a point in time$770 $337 $1,175 $779 
Revenue recognized over time1,056 814 2,202 1,831 
Net revenue$1,826 $1,151 $3,377 $2,610 

Generally, performance obligations that are recognized upfront upon transfer of control are classified as revenue recognized at a point in time, while performance obligations that are recognized over the estimated offering period or subscription period as the services are provided are classified as revenue recognized over time.

Revenue recognized at a point in time includes revenue allocated to the software license performance obligation. This also includes revenue from the licensing of software to third-parties.
Revenue recognized over time includes service revenue allocated to the future update rights and the online hosting performance obligations. This also includes service revenue allocated to the future update rights from the licensing of software to third-parties, online-only software services such as our Ultimate Team game mode, and subscription services.
Information about our total net revenue by composition for the three and six months ended September 30, 2021 and 2020 is presented below (in millions):
Three Months Ended
September 30,		Six Months Ended
September 30,
2021202020212020
Net revenue by composition
Full game downloads$337 $163 $570 $386 
Packaged goods280 119 369 255 
Full game617 282 939 641 
Live services and other1,209 869 2,438 1,969 
Net revenue$1,826 $1,151 $3,377 $2,610 
Full game net revenue includes full game downloads and packaged goods. Full game downloads includes revenue from digital sales of full games on console, PC, and mobile phones and tablets. Packaged goods includes revenue from software that is sold physically. This includes (1) net revenue from game software sold physically through traditional channels such as brick and mortar retailers, and (2) software licensing revenue from third parties (for example, makers of console platforms, personal computers or computer accessories) who include certain of our full games for sale with their products (for example, OEM bundles).
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Live services and other net revenue includes revenue from sales of extra content for console, PC and mobile games, licensing revenue from third-party publishing partners who distribute our games digitally, subscriptions, advertising, and non-software licensing.
Information about our total net revenue by platform for the three and six months ended September 30, 2021 and 2020 is presented below (in millions):
Three Months Ended
September 30,		Six Months Ended
September 30,
 2021202020212020
Platform net revenue
Console$1,198 $714 $2,170 $1,646 
PC and other377 249 738 574 
Mobile251 188 469 390 
Net revenue$1,826 $1,151 $3,377 $2,610 
Information about our operations in North America and internationally for the three and six months ended September 30, 2021 and 2020 is presented below (in millions):
Three Months Ended
September 30,		Six Months Ended
September 30,
 2021202020212020
Net revenue from unaffiliated customers
North America$778 $578 $1,460 $1,205 
International1,048 573 1,917 1,405 
Net revenue$1,826 $1,151 $3,377 $2,610 

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Report of Independent Registered Public Accounting Firm


TheTo the Stockholders and Board of Directors and Stockholders
Electronic Arts Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of Electronic Arts, Inc. andsubsidiaries (the Company) as of December 31, 2017, andOctober 2, 2021, the related condensed consolidated statements of operations, and comprehensive income (loss)and stockholders’ equity for the three‑monththree-month and nine-monthsix-month periods ended December 31, 2017October 2, 2021 and December 31, 2016,October 3, 2020, and the related condensed consolidated statements of cash flows for the nine-monthsix-month periods ended December 31, 2017October 2, 2021 and December 31, 2016. These condensedOctober 3, 2020, and the related notes (collectively, the consolidated interim financial statementsinformation). Based on our reviews, we are not aware of any material modifications that should be made to the responsibility of the Company’s management.consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of April 3, 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 3, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Electronic Arts Inc. and subsidiaries as of April 1, 2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 24, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 1, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/(Signed) KPMG LLP

Santa Clara, California
November 9, 2021

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Santa Clara, California
February 6, 2018

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, made in this Quarterly Report are forward looking. Examples of forward-looking statements include statements related to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie the forward-looking statements. We use words such as “anticipate,” “believe,” “expect,” “intend,” “estimate”, “plan”, “predict”, “seek”, “goal”, “will”, “may”, “likely”, “should”, “could” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our business, projections of markets relevant to our business, uncertain events and assumptions and other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements consist of, among other things, statements related to the impact of the COVID-19 pandemic to our business, operations and financial results, industry prospects, our future financial performance, and our business plans and objectives, and may include certain assumptions that underlie the forward-looking statements. These forward-looking statements are subject to business and economic risknot guarantees of future performance and reflect management’s current expectations, and involve subjects that are inherently uncertain and difficult to predict.expectations. Our actual results could differ materially from those discussed in the forward-looking statements. We will not necessarily update information if any forward-looking statement later turns outFactors that might cause or contribute to be inaccurate. Risks and uncertainties that may affect our future resultssuch differences include but are not limited to, those discussed in Part II, Item 1A of this reportQuarterly Report under the heading “Risk Factors” in, Part II, Item 1A, as well as in other documents we have filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the fiscal year ended March 31, 20172021. We assume no obligation to revise or update any forward-looking statement for any reason, except as filed with the Securities and Exchange Commission (“SEC”) on May 24, 2017 and in other documents we have filed with the SEC.required by law.



OVERVIEW
The following overview is a high-level discussion of our operating results, as well as some of the trends and drivers that affect our business. Management believes that an understanding of these trends and drivers provides important context for our results for the three and nine months ended December 31, 2017,September 30, 2021, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Form 10-Q, including in the remainder of “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),” “Risk Factors,” and the Condensed Consolidated Financial Statements and related Notes. Additional information can be found in the “Business” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 20172021 as filed with the SEC on May 24, 201726, 2021 and in other documents we have filed with the SEC.
About Electronic Arts
We areElectronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and online services that can be played by consumersand watched on a variety of platforms, which include game consoles, PCs, mobile phones and tablets. InWe believe that the breadth and depth of our portfolio, live services offerings, and our use of multiple business models and distribution channels provide us with strategic advantages. Our foundation is a collection of intellectual property from which we create innovative games we use establishedand content that enables us to build on-going and meaningful relationships with a community of players, creators and viewers. Our portfolio includes brands that we either wholly own (such as Battlefield, Mass Effect,The Sims, Apex Legends, Need for Speed The Sims and Plants v.vs. Zombies), or license from others (such as FIFA, Madden NFL, UFC, NHL, Formula 1 and Star Wars). 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 and free-to-play games. In addition, we are focused on reaching more players whenever and wherever they want to play. We also publishbelieve that we can add value to our network by making it easier for players to connect to a world of play by offering choice of business model, distribution channel and distribute games developed by third parties.device.
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Financial Results
Our key financial results for our fiscal quarter ended December 31, 2017September 30, 2021 were as follows:

•Total net revenue was $1,160$1,826 million, up 159 percent year-over-year. On a constant currency basis, we estimate that total net revenue would have been $1,165$1,802 million, up 157 percent year over year.year-over-year.
Digital•Live services and other net revenue was $780$1,209 million, up 1439 percent year-over-year.
International net revenue•Gross margin was $70872.9 percent, down 2 percentage points year-over-year.
•Operating expenses were $992 million, up 2039 percent year-over-year. On a constant currency basis, we estimate that international net revenue would have been $713 million, up 21 percent year over year.
Gross margin was 56.8 percent, up 1.7 percentage points year-over-year.
Operating expenses were $680 million, up 7 percent year-over-year. On a constant currency basis, we estimate that operating expenses would have been $669$983 million, up 37 percent year-over-year.
•Operating income was $340 million, up 128 percent year-over-year.
•Net income was $294 million with diluted earnings per share of $1.02.
•Operating cash flow was $64 million, up 5 percent year over year.year-over-year.
Net loss was $186 million with diluted loss per share of $0.60. $176 million of the net loss, or approximately $0.57 per share resulted from the application of the U.S. Tax Act.
•Total cash, cash equivalents and short-term investments were $4,884$1,972 million.

•We repurchased 2.3 million shares of our common stock for $325 million.
•We paid cash dividends of $48 million during the quarter ended September 30, 2021.
From time to time, we make comparisons of current periods to prior periods with reference to constant currency. Constant
currency comparisons are based on translating local currency amounts in the current period at actual foreign exchange rates
from the prior comparable period. We evaluate our financial performance on a constant currency basis in order to facilitate
period-to-period comparisons without regard to the impact of changing foreign currency exchange rates.


Trends in Our Business

COVID-19 Impact. We are closely monitoring the impact of the COVID-19 pandemic to our people and our business. Since the outbreak of COVID-19, we have focused on actions to support our people, our players, and communities around the world that have been affected by the COVID-19 pandemic.
DigitalOur People: The well-being of our people is our top priority, and to keep everyone as safe as possible, the vast majority of our workforce is expected to work from home at least through January 2022. We are offering support to our people to assist with work from home and care needs, a pandemic care leave program, and additional services for mental and physical health. We have developed a detailed protocol for how we evaluate the readiness to return to work for each of our offices around the world, accounting for guidance from health authorities and government, vaccine availability and effectiveness, the comfort level of our employees, and preparation of our facilities for continued physical distancing.
Our Business. Players increasingly purchase: Execution against our strategic pillars and increased engagement with our products and services led to growth in our business, aided by consumers spending more time at home because of social restrictions and local government mandates related to the COVID-19 pandemic. In addition, longer-term trends that benefit our business accelerated. Live services and other net revenue for fiscal year 2021 increased more than 10 percent year-over-year. We have also experienced a significant increase in the percentage of our games digitallypurchased digitally.
Future Outlook: The full extent of the impact of the COVID-19 pandemic to our business, operations and financial results will depend on numerous evolving factors that cannot be accurately predicted at this time, such as the duration and spread of the pandemic, the extent, speed and effectiveness of worldwide containment and vaccination efforts and the impact of these and other factors on our employees, customers, partners and vendors. Trends from fiscal year 2021 that benefited our industry and business may not be indicative of results for future periods, particularly as factors related to the COVID-19 pandemic lessen and consumers can engage with other forms of entertainment, if the trend towards digital adoption decelerates, or if global macroeconomic effects of the COVID-19 pandemic persist even after the pandemic has subsided. Additional factors that could impact our business include: our ability to timely deliver high quality and technically stable games and services while our teams, including our development teams, work in a distributed environment, our ability to safely reintroduce our employees to our offices when it is appropriate to do so, and other factors included in Part II, Item 1A of this Quarterly Report under the heading “Risk Factors”.
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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 $4,485 million, $3,904 million and $3,358 million for the trailing twelve months ended September 30, 2021, 2020 and 2019, 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 $3,382 million, $3,090 million and $2,599 million for the trailing twelve months ended September 30, 2021, 2020 and 2019, respectively. Extra content net revenue has increased as players engage with our games and services over longer periods of time, and purchase additional content designed to provide value to players and extend and enhance gameplay. Our most popular live service is the extra content purchased for the Ultimate Team mode associated with our portfolio of games. For example, thesports franchises. Ultimate Team allows players to collect current and former professional players in order to build and compete as a personalized team. Net revenue from extra content sales for Ultimate Team mode incorporated into iterationswas $1,623 million, $1,491 million and $1,369 million during fiscal years 2021, 2020 and 2019, respectively, a substantial portion of which was derived from FIFA Ultimate Team.
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 because of product mix during a fiscal year, consumer buying patterns and other factors, over time we expect players to purchase an increasingly higher proportion of our FIFA, Madden NFLgames digitally; therefore we expect net revenue attributable to digital full game downloads to increase over time and NHL franchises and live services available digitally for our Star Wars, Battlefield and The Sims franchises have extended the lifenet revenue attributable to sales of those games by engaging players for longer periods of time. Our digital transformation is also creating opportunities in platforms, content models and modalities of play. For example, we have leveraged franchises typically associated with consoles and traditional PC gaming, such as FIFA, Madden NFL, The Sims, SimCity and Star Wars,packaged goods to create mobile and PC free-to-download games that are monetized through a business model in which we sell incremental content and/or features in discrete transactions. We also provide our EA Access service on Xbox One and Origin Access service on PC which offer players access to a selection of EA games and other benefits for a monthly or annual fee.

decrease.
Our digital transformation also gives us the opportunity to strengthen our player network. We are investing in a technology foundation to enable us to build personalized player relationships that can last for years instead of days or weeks by connecting our players to us and to each other. This connection allows us to market and deliver content and services for popular franchises like FIFA, Battlefield and Star Wars to our players more efficiently. That same foundation also enables new player-centric ways to discover and try new experiences, such as our subscription-based EA Access and Origin Access services.

We significantly increased our digital net revenue attributable to digital full game downloads was $918 million, $811 million and $681 million during fiscal years 2021, 2020 and 2019, respectively; while our net revenue attributable to packaged goods sales decreased from $2,199$1,112 million in fiscal year 20152019 to $2,409$1,076 million in fiscal year 20162020 and $2,874$695 million in fiscal year 2021. In addition, as measured based on total units sold on Microsoft’s Xbox One and Xbox Series X and Sony’s PlayStation 4 and 5 rather than by net revenue, we estimate that 62 percent, 49 percent, and 49 percent of our total units sold during fiscal years 2021, 2020 and 2019 were sold digitally. Digital full game units are based on sales information provided by Microsoft and Sony; packaged goods units sold through are estimated by obtaining data from significant retail partners in North America, Europe and Asia, and applying internal sales estimates with respect to retail partners from which we do not obtain data. We believe that these percentages are reasonable estimates of the proportion of our games that are digitally downloaded in relation to our total number of units sold for the applicable period of measurement.
During fiscal year 2017. We expect this2021, the percentage of our full games purchased digitally accelerated, likely aided by factors associated with the COVID-19 pandemic, including store closures of our key retail partners for a portion of our business to continue to grow through fiscal year 2018 and beyond2021. While digital adoption may decelerate in fiscal year 2022, as we continue to focus on developing and monetizing products and services that can be delivered digitally.

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, Chinese yuan and South Korean won) 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 Canadian dollar) because these amounts are translated at lower rates as compared to periods in which the U.S. dollar is weaker. Volatility in exchange rates remains elevated as compared to historical standards, and macroeconomic factors such as events related to the United Kingdom’s vote to leaveCOVID-19 pandemic lessen or if global macroeconomic effects of the European Union inject uncertainty. WhileCOVID-19 pandemic persist even after the pandemic has subsided, we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these activities are limitedbelieve that the significant increase in digital adoption we experienced in fiscal year 2021 is likely a permanent structural change. Increases in consumer adoption of digital purchase of games combined with increases in our live services revenue generally results in expansion of our gross margin, as costs associated with selling a game digitally is generally less than selling the protection that they provide ussame game through traditional retail and can themselves result in losses.distribution channels.

Mobile and PC Free-to-Download Games.Free-to-Play Games. The global adoption of mobile devices and a business model for those devices that allows consumers to try new games with no up-front cost, and pay for additionalthat are monetized through a live service associated with the game, particularly extra content or in-game items,sales, has led to significant sales growth in the mobile gaming industry. Similarly, sales of extra content are the primary driver of our mobile business. We expect thisare investing resources in our mobile business, seeking to maximize our mobile live services, innovate on mobile with our franchises, and have added additional growth to continue during our 2018 fiscal year.opportunities through mergers and acquisitions activity. Likewise, the wide consumer acceptance of free-to-download, microtransaction-basedfree-to-play, live service-based, online PC games played over the Internet has broadened our consumer base.base and has begun to expand into the console market. For example, within our business, we offer Apex Legends as a free-to-play, live service-based PC and console game. We expect extra content revenue generated from mobile, PC and PC free-to-downloadconsole free-to-play games to remaincontinue to be an important part of our business.

Concentration of Sales Among the Most Popular Games. In all major segments of our industry, we see a large portion of games sales concentrated on the most popular titles. Similarly, a significant portion of our revenue historically has been derived from games based on a few popular franchises, several of which we have released on an annual or bi-annual basis. The increased importance to our business of revenue attributable to our live services, has accelerated this trend. For example,In particular, we derivehave historically derived a materialsignificant portion of our net revenue from our largest and most popular game, FIFA, the Ultimate Team game modeannualized version of which is availableconsistently one of the best-selling games in the marketplace. We have invested in over 300 individual partnerships and licenses to create our annualizedglobal football ecosystem and are currently reviewing our naming rights agreement with FIFA Madden NFLwhich is separate from our other official partnerships and NHL games.licenses with the players, clubs, and leagues included in the game.

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Recurring Revenue Sources. Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized titles (such assports franchises (e.g., FIFA, and Madden NFL), our console, PC and associatedmobile catalog titles (i.e., titles that did not launch in the current fiscal year), and our live services, our ongoing mobile business and subscription programs.services. We have been able to forecast revenue from these areas of our business with greater relative confidence than for new offerings.games, services and business models. As we continue to leverage the digital transformation in our industry and incorporate new contentbusiness models and modalities of play into our games, our goal is to continue to look for opportunities to expand the recurring portion of our business.

Net Bookings. In order to improve transparency into our business, we disclose an operating performance metric, net bookings. Net bookings is defined as the net amount of products and services sold digitally or sold-in physically in the period. Net bookings is calculated by adding total net revenue to the change in deferred net revenue for online-enabled games.


The following is a calculation of our total net bookings for the periods presented:
Three Months Ended
September 30,		Six Months Ended
September 30,
(In millions)
2021202020212020
Total net revenue$1,826 $1,151 $3,377 $2,610 
Change in deferred net revenue (online-enabled games)25 (241)(190)(310)
Net bookings$1,851 $910 $3,187 $2,300 
 Three Months Ended
December 31,		 Nine Months Ended
December 31,
(In millions)

2017 2016 2017 2016
Total net revenue$1,160
 $1,149
 $3,568
 $3,318
Change in deferred net revenue (online-enabled games)811
 921
 357
 532
Net bookings$1,971
 $2,070
 $3,925
 $3,850

Net bookings were $1,971$1,851 million for the three months ended December 31, 2017,September 30, 2021 primarily driven by sales related to our FIFA Ultimate Team, Star Wars Battlefront II, franchise, Apex Legends, Madden NFL 22, andThe Sims 4. Net bookings decreased $99increased $941 million, or 5103 percent, as compared to the three months ended December 31, 2016September 30, 2020 primarily due primarily to lower salesyear-over-year change in the launch date of Star Wars Battlefront II, which launched duringour FIFA console title from the three months ended December 31, 2017, as comparedthird quarter in fiscal year 2021 to Battlefield 1, which launched during the three months ended December 31, 2016,second quarter in fiscal year 2022, and Apex Legends, partially offset by an increase in net bookings associated with our liveUFC 4 and the Star Wars franchise. Live services business. Digitaland other net bookings were $1,230$1,155 million for the three months ended December 31, 2017, an increase of $135September 30, 2021, and increased $511 million, or 1279 percent, as compared to three months ended December 31, 2016. The increase in digital net bookings was driven by live services which grew $221 million or 39 percent year-over-year, primarily due to our Ultimate Team game mode and The Sims 4;and our mobile business which grew $9 million or 5 percent year-over-year, primarily due to FIFA Mobile. These increases were offset by a decrease of $95 million or 27 percent in our full game PC and console downloads due tolower net bookings associated with Star Wars Battlefront II as compared to Battlefield 1, which launched during the three months ended December 31, 2016.

Recent Developments
Stock Repurchase Program. In May 2017, a Special CommitteeSeptember 30, 2020.The increase in live services and other net bookings was due primarily to an increase in sales of extra content for Apex Legends, FIFA Ultimate Team, new games added to our portfolio through acquisitions activity, and The Sims 4. Full game net bookings were $696 million for the three months ended September 30, 2021, and increased $430 million, or 162 percent, as compared to the three months ended September 30, 2020 primarily due to the year-over-year change in the launch date of our Board of Directors, on behalf ofFIFA console title,and F1 2021, partially offset by UFC 4 and the full Board of Directors, authorized a program to repurchase up to $1.2 billion of our common stock. This stock repurchase program expires on May 31, 2019. 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 timingStar Wars franchise.
Mergers 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. During the three and nine months ended December 31, 2017, we repurchased approximately 1.4 million and 3.8 million shares for approximately $150 million and $422 million, respectively, under this program. We are actively repurchasing shares under this program.Acquisitions

Acquisition of Respawn LLCCodemasters. On December 1, 2017February 18, 2021, we completed the acquisition of Respawn. RespawnCodemasters Group Holdings plc for total cash consideration of $1.2 billion, net of cash acquired. Codemasters is a leadingUK-based game development studiodeveloper and creatorspublisher of high-quality racing games includingacross console, PC and mobile. We expect the critically-acclaimed Titanfall franchise. In connection withCodemasters acquisition to grow our presence in racing, creating a global leader in racing entertainment. Codemasters was integrated into the Company for financial reporting purposes during the fourth quarter of fiscal year 2021.
Acquisition of Glu Mobile. On April 29, 2021, we completed the acquisition of 100% of the equity interests of Glu Mobile Inc., a leading global developer and publisher of mobile games for a total purchase price of $2.0 billion, net of cash acquired of $332 million. The acquisition of Glu is expected to accelerate our mobile growth by creating a combined organization with ongoing live services across multiple games and genres. We also believe that the acquisition will create value by adding Glu’s expertise in casual sports and lifestyle genres to new titles based on our intellectual property. Glu was integrated into the Company for financial reporting purposes during the first fiscal quarter of fiscal year 2022.
Acquisition of Playdemic. On September 20, 2021, we paid $151 millioncompleted the acquisition of 100% of the equity interests of Playdemic Limited, a private limited company incorporated in cash. In addition, we granted long-term equity awardsEngland and Wales for a total purchase price of $1.4 billion, net of cash acquired. The acquisition of Playdemic is intended to be another step in our strategy of continued leadership in sports and mobile expansion. Playdemic was integrated into the Company for financial reporting purposes during the second quarter of fiscal year 2022.
For more information about our acquisitions, see Part I, Item 1 of this Form 10-Q in the form of restricted stock units to employees with a grant date fair value of $167 million. Furthermore, we may be required to pay variable cash consideration that is contingent upon the achievement of certain performance milestones relatingNotes to the developmentCondensed Consolidated Financial Statements in Note 6 — Business Combinations.
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Table of future titles, through the end of calendar 2022. The additional consideration is limited to a maximum of $140 million.Contents

U.S. Tax Act. On December 22, 2017, the U.S. Tax Act was enacted which significantly revises the U.S. corporate income tax system by, among other things, lowering the U.S. corporate income tax rate, generally implementing a territorial tax system, and imposing the Transition Tax. We recorded a provisional $176 million tax charge during the three months ended December 31, 2017 as a result of the application of the U.S. Tax Act; $151 million of which relates to the Transition Tax.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these Condensed 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.unknown, including uncertainty in the current economic environment due to the COVID-19 pandemic. 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 softwareour games, and related extra content and services that can be played on game consoles, PCs, mobile phones and tablets. 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 product content or updates, whether delivered digitally (e.g., full-game downloads, extra-content) or via a physical disc (e.g., packaged goods), 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 (e.g., premium mobile games) in order to utilize the game or related content (i.e. can be played with or without an Internet connection), 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, games, content or updates that requires our hosting support in order to utilize the game or related content (i.e., can only be played with an Internet connection). This includes (1) entitlements to content that are accessed through hosting services (e.g., microtransactions for Internet-based, social network and free-to-download mobile games), (2) massively multi-player online (“MMO”) games (both software game and subscription sales), (3) subscriptions for our Battlefield Premium, EA and Origin Access, and Pogo-branded online game services, and (4) allocated service revenue from sales of software games with a service of online activities (e.g., online playability). Our other revenue includes advertising and non-software licensing revenue.

With respect to the allocated service revenue from sales of software games with a service of online activities (“online services”) 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 online services with the residual value allocated to product revenue. Our estimate of the selling price of the online servicesofferings include, but are comprised of several factors including, but not limited to, prior selling pricesthe following:
•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 theonline 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 offers access to a selection of full games, in-game content, online services prices charged separately byand other third-party vendorsbenefits typically for similar service offerings,a recurring monthly or annual fee; and a cost-plus-margin approach. We review the estimated selling price of the online services on a regular basis
•licensing to third parties to distribute and use this methodology consistently to allocate revenue between producthost our games and service for software game sales with online services.

content.
We evaluate and recognize revenue by:
•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”).
Certain of our full game and/or extra content are sold to resellers with a contingency that the full game and/or extra content cannot be resold prior to a specific date (“Street Date Contingency”). We recognize revenue for transactions that have a Street Date Contingency when all fourthe Street Date Contingency is removed and the full game and/or extra content can be resold by the reseller. For digital full game and/or extra content downloads sold to customers, we recognize revenue when the full game and/or extra content is made available for download to the customer.
Online-Enabled Games
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.
Since we do not sell the performance obligations on a stand-alone basis, we consider market conditions and other observable inputs to estimate the stand-alone selling price for each performance obligation. For Games with Services, generally 75 percent of the following criteriasales price is allocated to the software license performance obligation and recognized at a point in time when control of the license has been transferred to the customer (which is usually at or near the same time as the booking of the transaction). The remaining 25 percent is allocated to the future update rights and the online hosting performance obligations and recognized ratably as the service is provided (over the Estimated Offering Period).
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Online-Hosted Service Games. Sales of our Online-Hosted Service Games are met:determined to have one distinct performance obligation: the online hosting. We recognize revenue from these arrangements as the service is provided.

EvidenceExtra Content. Revenue received from sales of an arrangement. Evidencedownloadable content are derived primarily from the sale of an agreementvirtual 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 customer that reflectstreatment for our Games with Services and Online-Hosted Service Games as discussed above, depending upon whether or not the termsextra 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 conditionsthe online hosting). If the extra content does not have offline functionality, then the extra content is determined to deliverhave one distinct performance obligation: the related products online-hosted service offering.
Subscriptions
Sales of our subscriptions are deemed to be one performance obligation and we recognize revenue from these arrangements ratably over the subscription term as the performance obligation is satisfied.
Licensing Revenue
In certain countries, we utilize third-party licensees to distribute and host our games and content in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and/or services must be present.

Fixed or determinable fee. Ifsales-based royalties. These arrangements typically include multiple performance obligations, such as a time-based license of software and future update rights. We recognize as revenue a portion of the arrangement fee is not fixed or determinable,minimum guarantee when we recognize revenuetransfer control of the license of software (generally upon commercial launch) and the remaining portion ratably over the contractual term in which we provide the licensee with future update rights. Any sales-based royalties are generally recognized as the amount becomes fixed or determinable.
related sales occur by the licensee.

Significant Judgments around Revenue Arrangements
Collection is deemed probable. Collection is deemed probable if we expectIdentifying performance obligations. Performance obligations promised in a contract are identified based on the customer togoods and services that will be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable as the amounts become due, we generally conclude that collection becomes probable upon cash collection.

Delivery. For packaged goods, delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer. For digital downloads, delivery is considered to occur when the software is made available tocustomer 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 download. For services and other, delivery is generally considered to occur as a combined performance obligation.
Determining the service is delivered, whichtransaction price.The transaction price is determined based on the underlying serviceconsideration 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. If thereDetermining the relative stand-alone selling price is significant uncertainty of acceptance, revenue is recognized once acceptance is reasonably assured.

Online-Enabled Games

Theinherently 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 analyses, third-party external pricing of similar or same products and services such as software gameslicenses and maintenance support within the enterprise software industry. 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 have online connectivity whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis (“unspecified updates”) for use with the original game software. In addition, we may also offer a service of online activities (e.g., online playability) without a separate fee. U.S. GAAP requires us to account for the consumer’s right to receive unspecified updates or the service of online activities for no additional fee as a “bundled” sale, or multiple-element arrangement.

We have an established historical pattern of providing unspecified updates (e.g., player roster updates to Madden NFL 18) to online-enabled games and related content at no additional charge to the consumer. Because we do not have vendor-specific objective evidence of fair value (“VSOE”) for these unspecified updates, we are required by current U.S. GAAP to recognize as

revenue the entire sales price of these online-enabled games and related content over the period we expect to offer the unspecified updates to the consumer (“estimated offering period”).

Estimated Offering Period

sold. Because the offering period is not an explicitly defined period, we must make an estimate of the offering period.period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the estimated offering periodEstimated Offering Period is inherently subjective and is subject to regular revision based on historical online usage. For example, in determining the estimated offering period for unspecified updates associated with our online-enabled games,revision. Generally, we consider the average period of time consumerscustomers are online as online connectivity is required. On an annual basis, we review consumers’ online gameplay of all online-enabled games that have been released 12 to 24 months prior towhen estimating the evaluation date. For example, if our evaluation date is April 1, 2017, we evaluate all online-enabled games released between April 1, 2015 and March 31, 2016. Based on this population of games, for all players that register the game online within the first six months of release of the game to the general public, we compute the weighted-average number of days for each online-enabled game, based on when a player initially registers the game online to when that player last plays the game online.offering period. We then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games (i.e., a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold). Under a similar computation, 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 an end consumer (i.e.the customer (i.e., time in channel). Based on these two calculationsfactors, we then consider the method of distribution. For example,, physical software games
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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 softwaredigitally-distributed games and extra content which are delivered immediately via digital download and thus have no concept of channel. 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 periodEstimated Offering Period for future sales.

While we consistently applyWe believe this methodology, inherent assumptions used in this methodology includeprovides 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 online-enabledour games to sample, whether to use only units that have registered online, whether to weight the number of days for each game, whether to weight the days based on the units sold of each game, determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends.

extra content are played. We recognize revenue from the sale of online-enabled games for which we do not have VSOE for the unspecified updatesfuture 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. Prior to July 1, 2020, these performance obligations were generally recognized over an estimated nine-month period beginning in the month after shipment for physical games and extra content sold through retail and an estimated six-month period for digitally-distributed games.games and extra content beginning in the month of sale.

During the three months ended September 30, 2020, we completed our annual evaluation of the Estimated Offering Period and as a result, for sales after July 1, 2020, revenue for service related performance obligations for games and extra content sold through retail are recognized over an estimated ten-month period beginning in the month of sale, and 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 fiscal year 2021 change in Estimated Offering period did not impact the amount of net bookings or the operating cash flows that we report. During the three months ended September 30, 2021, this change to our Estimated Offering Period resulted in an increase in net revenue of $125 million and net income of $95 million, and an increase of $0.33 diluted earnings per share. During the six months ended September 30, 2021, this change to our Estimated Offering Period resulted in an increase in net revenue of $102 million and net income of $77 million, and an increase of $0.27 diluted earnings per share.
Deferred Net Revenue (online-enabled games)

BecauseDuring the majoritythree months ended September 30, 2021, we completed our annual evaluation of the Estimated Offering Period. We have noted consumers are playing certain of our Online Hosted Service Games, such as PC and Console Free-to-Play games, for longer periods of time than in prior years as players engage with services we provide that are designed to enhance and extend gameplay, and as such, have concluded that the Estimated Offering Period for such games should be lengthened. As a result, for all new sales are subject to a deferral period of generally six to nine months, our deferred net revenue (online-enabled games) balance is material. This balance increases from period to period byafter July 1, 2021, the revenue being deferredthat we recognize for current salesservice-related performance obligation related to our PC and Console Free-to-Play games is reduced byrecognized generally over a twelve-month period. This change in Estimated Offering Period did not impact the amount of net bookings or the operating cash flows that we report. We expect that this change will move the recognition of approximately $135 million in net revenue from prior sales that were deferred (i.e.,fiscal year 2022 into fiscal year 2023. During the “net change”three months ended September 30, 2021, this change to our Estimated Offering Period resulted in the deferred balance). However, given the seasonal sales nature of our business, the net changean estimated decrease in the deferred balance may be material from period to period. For example, because our sales have historically been highest in the fiscal third quarter, the deferred net revenue (online-enabled games) balance generally increases significantly in the third fiscal quarter. Similarly, because sales have historically been lowest in the first fiscal quarter, the deferredof $17 million and net revenue (online-enabled games) balance generally decreases significantly in the first fiscal quarterincome of $13 million, and a fiscal year.
Other Multiple-Element Arrangements
In somedecrease of our multiple-element arrangements, we sell non-software products with software and/or software-related offerings. These non-software products are generally music soundtracks, peripherals or ancillary collectors’ items, such as figurines and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each 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 non-software product deliverable based on the following selling price hierarchy: VSOE (i.e., the price we charge when the non-software product is sold separately) if available, third-party evidence (“TPE”) of fair value (i.e., the price charged by others for similar non-software 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.

We must make assumptions and judgments in order to (1) determine whether and when each element is delivered, (2) determine whether VSOE exists for each undelivered element, and (3) allocate the total price among the various elements, as applicable. Changes to any of these assumptions and judgments, or changes to the elements in the arrangement, could cause a material increase or decrease in the amount of revenue that we report in a particular period.$0.05 diluted earnings per share.
Principal Agent Considerations
We evaluate sales to end customers of our interactive softwarefull games extra-content, and services from our subscription offeringsrelated content via third partythird-party storefronts, including digital channel storefronts such as Microsoft’s Xbox Store, Sony’s PlayStation Store, Apple App Store, and Google Play Store, in order to determine whether or not we are acting as the primary obligorprincipal in the sale to the end consumer,customer, which we consider in determining if revenue should be reported gross or net of fees retained by the third-party storefront. An entity is the principal if it controls a good or service before it is transferred to the end customer. Key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following:

•the underlying contract terms and conditions between the various parties to the transaction;
The•which party is primarily responsible for delivery/fulfillment offulfilling the productpromise to provide the specified good or service to the end consumercustomer;
The•which party responsible forhas inventory risk before the billing, collection of fees and refundsspecified good or service has been transferred to the end consumercustomer; and
The storefront and Terms of Sale that govern•which party has discretion in establishing the end consumer’s purchase ofprice for the productspecified good or service
The party that sets the pricing with the end consumer and has credit riskservice.
Based on an evaluation of the above indicators, except as discussed below, we have determined that generally the third party is considered the primary obligorprincipal to end consumerscustomers for the sale of our interactive software games.full games and related content. We therefore report revenue related to these arrangements net of the fees retained by the storefront.

Sales Returns However, as an example, for sales arrangements via Apple App Store and AllowancesGoogle Play Store, EA is considered the principal to the end customer and Bad Debt Reserves

We reducethus, we report 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 amountgross basis and mobile platform fees are reported within cost 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 practicerevenue.
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Table 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.Contents

When evaluating the adequacy of sales returns and price protection allowances, we analyze the following: historical credit allowances, current sell-through of our channel partners’ inventory of our software products, current trends in retail and the video game industry, changes in customer demand, acceptance of our software products, and other related factors. In addition, we monitor the volume of sales to our channel partners and their inventories, as substantial overstocking in the distribution channel could result in high returns or higher price protection in subsequent periods.

In the future, actual returns and price protections may materially exceed our estimates as unsold software products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing software products. While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates change, our returns and price protection allowances would change and would impact the total net revenue, accounts receivable and deferred net revenue that we report.

We determine our allowance for doubtful accounts by evaluating the following: customer creditworthiness, current economic trends, historical experience, age of current accounts receivable balances, and changes in financial condition or payment terms of our customers. Significant management judgment is required to estimate our allowance for doubtful accounts in any accounting period. The amount and timing of our bad debt expense and cash collection could change significantly as a result of a change in any of the evaluation factors mentioned above.
Fair Value Estimates
Business Combinations.Combinations. We must estimate the fair value of assets acquired, liabilities assumed, and contingencies assumed, acquired in-process technology and contingent consideration issued in a business combination. Our assessment of the estimated fair value of each of these can have a material effect on our reported results as intangible assets are amortized over various estimated useful lives. Furthermore, the estimated fair value assigned to an acquired asset or liability has a direct impact on the amount

we recognize as goodwill, which is an asset that is not amortized. Determining the fair value of assets acquired requires an assessment of the highest and best use of the asset or group of assets that maximizes the value from a market participant perspective or the expected price to sell the asset and the related expected future cash flows. Determining the fair value of acquired in-process technology also requires an assessment of our expectations related to the use of that technology. Determining the fair value of an assumed liability requires an assessment of the expected cost to transfer the liability. Determining the fair value of contingent consideration requires an assessment of the probability-weighted expected future cash flows over the period in which the obligation is expected to be settled, and applying a discount rate that appropriately captures the risk associated with the obligation. The significant unobservable inputs used in the fair value measurement of the contingent consideration payable are forecasted earnings. Significant changes in forecasted earnings would result in significantly higher or lower fair value measurement. This fair value assessment is also required in periods subsequent to a business combination. Such estimates are inherently difficult and subjective and can have a material impact on our Consolidated Financial Statements.

Royalties and Licenses
Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers, and (3) co-publishing and distribution affiliates. License royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related to our games. Co-publishing and distribution royalties are payments made to third parties for the delivery of products.

Royalty-based obligations with content licensors and distribution affiliates are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations are generally expensed to cost of revenue generally at the greater of the contractual rate or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums. Significant judgment is required to estimate the effective royalty rate for a particular contract. Because the computation of effective royalty rates requires us to project future revenue, it is inherently subjective as our future revenue projections must anticipate a number of factors, including (1) the total number of titles subject to the contract, (2) the timing of the release of these titles, (3) the number of software units and amount of extra content that we expect to sell, which can be impacted by a number of variables, including product quality, number of platforms we release on, the timing of the title’s release and competition, and (4) future pricing. Determining the effective royalty rate for our titles is particularly challenging due to the inherent difficulty in predicting the popularity of entertainment products. Furthermore, if we conclude that we are unable to make a reasonably reliable forecast of projected net revenue, we recognize royalty expense at the greater of contract rate or on a straight-line basis over the term of the contract. Accordingly, if our future revenue projections change, our effective royalty rates would change, which could impact the amount and timing of royalty expense we recognize.

Prepayments made to thinly capitalized independent software developers and co-publishing affiliates are generally made in connection with the development of a particular product, and therefore, we are generally subject to development risk prior to the release of the product. Accordingly, payments that are due prior to completion of a product are generally expensed to research and development over the development period as the services are incurred. Payments due after completion of the product (primarily royalty-based in nature) are generally expensed as cost of revenue.

Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract.

Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product and service sales. Any impairments or losses determined before the launch of a product are generally charged to research and development expense. Impairments or losses determined post-launch are charged to cost of revenue. We evaluate long-lived royalty-based assets for impairment using undiscounted cash flows when impairment indicators exist. If impairment exists, then the assets are written down to fair value. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated.
Income Taxes
We recognize deferred tax assets and liabilities for both (1) the expected impact of differences between the financial statement amount and the tax basis of assets and liabilities and (2) the expected future tax benefit to be derived from tax losses and tax

credit carryforwards. We do not recognize any deferred taxes related to the U.S. taxes on foreign earnings as we recognize these taxes as a period cost.
We record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of our deferred tax assets will not be realized. In making this determination, we are required to give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results. Therefore, cumulative losses weigh heavily in the overall assessment.
In addition to considering forecasts of future taxable income, we are also required to evaluate and quantify other possible sources of taxable income in order to assess the realization of our deferred tax assets, namely the reversal of existing deferred tax liabilities, the carryback of losses and credits as allowed under current tax law, and the implementation of tax planning strategies. Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence;evidence and this evaluation involvesmay involve assumptions about future activity. Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted by tax law cannot be considered as a source of future taxable income that may be available to realize the benefit of deferred tax assets.
Each quarter, we perform a realizability analysis to evaluate whether it is more likely than not that all or a portion of our deferred tax assets will not be realized. In particular, our Swiss deferred tax asset realizability analysis relies upon future Swiss taxable income as the fourth quarterprimary source of fiscal year 2016, we realizedtaxable income but considers all available sources of Swiss income based on the positive and negative evidence. We give more weight to evidence that can be objectively verified. However, there is significant U.S. pre-taxjudgment involved in estimating future Swiss taxable income, for both the fourth quarterspecifically related to assumptions about expected growth rates of future Swiss taxable income, which are based primarily on third party market and the fiscal year ended March 31, 2016. Asindustry growth data. Actual results that differ materially from those estimates could have a result, we releasedmaterial impact on our valuation allowance assessment. Although objectively verifiable, Swiss interest rates have an impact on the valuation allowance against alland are based on published Swiss guidance. Any significant changes to such interest rates could result in a material impact to the valuation allowance. Switzerland has a seven-year carryforward period and does not permit the carry back of losses. Changes in Estimated Offering Period and actions we take in connection with acquisitions could also impact the U.S. federalutilization of our Swiss deferred tax assets and a portion of the U.S. state deferred tax assets during the fourth quarter of fiscal year 2016. We continue to maintain a valuation allowance related to specific U.S. state deferred tax assets and foreign capital loss carryovers, due to uncertainty about the future realization of these assets.

Our effective tax rate and resulting provision for income taxes for the three and nine months ended December 31, 2017 was significantly impacted by the U.S. Tax Act, enacted on December 22, 2017. The U.S. Tax Act significantly revises the U.S. corporate income tax system by, among other things, lowering the U.S. corporate income tax rates, generally implementing a territorial tax system and imposing the Transition Tax.

The final calculations of tax expenses and tax benefits resulting from the U.S. Tax Act may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the U.S. Tax Act, our analysis of the U.S. Tax Act, or any updates or changes to estimates that we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions.

Reasonable estimates of the impacts of the U.S. Tax Act are provided in accordance with SEC guidance that allows for a measurement period of up to one year after the enactment date of the U.S. Tax Act to finalize the recording of the related tax impacts. We expect to complete the accounting under the U.S. Tax Act as soon as practicable, but in no event later than one year from the enactment date of the U.S. Tax Act.

asset.
As part of the process of preparing our Condensed Consolidated Financial Statements, we are required to estimate our income taxes in each jurisdiction in which we operate prior to the completion and filing of tax returns for such periods. This process requires estimating both our geographic mix of income and our uncertain tax positions in each jurisdiction where we operate. These estimates involve complex issues and require us to make judgments about the likely application of the tax law to our situation, as well as with respect to other matters, such as anticipating the positions that we will take on tax returns prior to our preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations. In addition, changes in our business, including acquisitions and the alignment of them with our global operating structure, changes in our international corporate structure, changes in the geographic location of business functions or assets, changes in the geographic mix and amount of income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and other matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective tax rate.

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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The information under the subheading “Impact of“Other Recently Issued Accounting Standards” in Note 1 -— Description of Business and Basis of Presentation to the Condensed Consolidated Financial Statements in this Form 10-Q is incorporated by reference into this Item 2.

RESULTS OF OPERATIONS
Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal year ending March 31, 20182022 contains 52 weeks and ends on March 31, 2018.April 2, 2022. Our results of operations for the fiscal year ended March 31, 20172021 contained 5253 weeks and ended on April 1, 2017.3, 2021. Our results of operations for the three and six months ended December 31, 2017 and 2016September 30, 2021 contained 13 weeks eachand 26 weeks, respectively, and ended on December 30, 2017 and December 31, 2016, respectively.October 2, 2021. Our results of operations for the ninethree and six months ended December 31, 2017September 30, 2020 contained 13 weeks and 2016 contained 39 each27 weeks, respectively, and ended on December 30, 2017 and December 31, 2016, respectively.October 3, 2020. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end.


Net Revenue
Net revenue consists of sales generated from (1) videofull games sold as digital downloads or as packaged goods and designed for play on game consoles, and PCs (2) video games forand mobile phones and tablets (3) separate software products and extra-content and online game(2) live services associated with these products,games, such as extra-content, (3) subscriptions that generally offer access to a selection of full games, in-game content, online services and other benefits, and (4) licensing our game softwaregames to third parties (5) allowing other companies to manufacturedistribute and sell our products in conjunction with other products, and (6) advertisements on our online web pages and inhost our games. We recognize revenue from the sale of online-enabled games for which we do not have VSOE for the unspecified updates on a straight-line basis, generally over an estimated six-month period for digitally-delivered games and content and an estimated nine-month period beginning in the month after shipment for physical games sold through retail.

We provide two different measures of our Net Revenue. (1) Net Revenue by Product revenue and Service and other revenue, and (2) Net Revenue by Type, which is primarily based on method of distribution. Management places a greater emphasis and focus on assessing our business through a review of the Net Revenue by Type (Digital, and Packaged goods and other) than by Net Revenue by Product revenue and Service and other revenue.

Net Revenue Quarterly Analysis

Net Revenue

ForNet revenue for the three months ended December 31, 2017September 30, 2021 was $1,826 million, primarily driven bysales of our FIFA franchise, Apex Legends, Madden NFL 22, netand The Sims 4. Net revenue was $1,160for the three months ended September 30, 2021 increased $675 million and increased $11 million, or 1 percent, as compared to the three months ended December 31, 2016.September 30, 2020. This increase was driven by a $217$785 million increase in net revenue primarily due to the year-over-year change in the launch date of our FIFA console title from the third quarter in fiscal year 2021 to the second quarter in fiscal year 2022 and Apex Legends, partially offset by a $110 million decrease in net revenue primarily from the FIFA franchiseStar Wars and Mass Effect: Andromeda. This increase was partially offset by a $206 million decrease in revenue primarily from the Battlefield and TitanfallUFC franchises.

Net Revenue by Product Revenue and Service and Other RevenueComposition

Our Net Revenuenet revenue by Product revenue and Service and other revenuecomposition for the three months ended December 31, 2017September 30, 2021 and 20162020 was as follows (in millions):
Three Months Ended September 30,
20212020$ Change% Change
Net revenue:
Full game downloads$337 $163 $174 107 %
Packaged goods280 119 161 135 %
Full game$617 $282 $335 119 %
Live services and other$1,209 $869 $340 39 %
Total net revenue$1,826 $1,151 $675 59 %
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 Three Months Ended December 31,
 2017 2016 $ Change % Change
Net revenue:       
Product$547
 $649
 $(102) (16)%
Service and other613
 500
 113
 23 %
Total net revenue$1,160
 $1,149
 $11
 1 %

Product Revenue

For the three months ended December 31, 2017, Product net revenue was $547 million, primarily driven by FIFA 18, Madden NFL 18, and The Sims 4. Product net revenue decreased $102 million, or 16 percent, as compared to the three months ended December 31, 2016. This decrease was driven by a $218 million decrease primarily from the Battlefield franchise and Titanfall 2. This decrease was partially offset by a $116 million increase primarily from Mass Effect: Andromeda, The Sims 4, and the FIFA franchise.

Service and Other Revenue

For the three months ended December 31, 2017, Service and other net revenue was $613 million, primarily driven by FIFA Ultimate Team, Star Wars: Galaxy of Heroes and Battlefield 1 Premium. Service and other net revenue for the three months ended December 31, 2017 increased $113 million, or 23 percent, as compared to the three months ended December 31, 2016. This increase was driven by a $147 million increase primarily from FIFA Ultimate Team and Battlefield 1 Premium. This increase was partially offset by a $34 million decrease primarily from the Plants vs. Zombies franchise.

Supplemental Net Revenue by Type
As we continue to evolve our business and more of our products are delivered to consumers digitally, we place a greater emphasis and focus on assessing our business performance through a review of net revenue by type.


Our net revenue by type for the three months ended December 31, 2017 and 2016 was as follows (in millions):
 Three Months Ended December 31,
 2017 2016 $ Change % Change
        
Full game downloads$143
 $169
 $(26) (15)%
Live services (a)
476
 369
 107
 29 %
Mobile161
 147
 14
 10 %
Total Digital$780
 $685
 $95
 14 %
        
Packaged goods and other$380
 $464
 $(84) (18)%
Net revenue$1,160
 $1,149
 $11
 1 %
(a)Live services net revenue is comprised of net revenue previously presented as “Extra content” and “Subscription, advertising, and other” through the fourth quarter of fiscal 2017.

DigitalFull Game Net Revenue

DigitalFull game net revenue includes full game downloads live services,and packaged goods. Full game downloads includes revenue from digital sales of full games on console, PC, and mobile revenue. Digital net revenue includes game software distributed through our direct-to-consumer PC platform Origin, distributed wirelessly through mobile carriers, or licensed to our third-party publishing partners who distribute our games digitally.

For the three months ended December 31, 2017, digital net revenue was $780 million primarily driven by FIFA Ultimate Team, Madden Ultimate Team,phones and FIFA Online 3 in Asia. Digital net revenue for the three months ended December 31, 2017 increased $95 million, or 14 percent, as compared to the three months ended December 31, 2016. This increase is due to (1)a $107 million or 29 percent increase in live services net revenue primarily driven by our Ultimate Team game mode and Battlefield 1 Premium and (2) a $14 million or 10 percent increase in mobile net revenue primarily driven by Star Wars: Galaxy of Heroes and FIFA Mobile. These increases were offset by a $26 million or 15 percent decrease in full-game download net revenue primarily driven by Battlefield 1.

Packaged Goods and Other Net Revenue

tablets. Packaged goods and other net revenue includes revenue from software that is distributedsold physically. This includes (1) net revenue from game software distributedsold physically through traditional channels such as brick and mortar retailers, and (2) our software licensing revenue from third parties (for example, makers of console platforms, personal computers or computer accessories) who include certain of our productsfull games for sale with their products (“(for example, OEM bundles”)bundles).

For the three months ended December 31, 2017,September 30, 2021, full game net revenue was $617 million, primarily driven by FIFA 22, Madden NFL 22, and F1 2021. Full game net revenue for the three months ended September 30, 2021 increased $335 million, or 119 percent, as compared to the three months ended September 30, 2020. This increase was driven by a $174 million increase in full game downloads net revenue and a $161 million increase in packaged goods net revenue, each primarily due to year-over-year change in the launch date of our FIFA console title from the third quarter in fiscal year 2021 to the second quarter in fiscal year 2022, and F1 2021, partially offset by the Star Wars franchise and UFC 4.
Live Services and Other Net Revenue
Live services and other net revenue includes revenue from sales of extra content for console, PC and mobile games, licensing revenue from third-party publishing partners who distribute our games digitally, subscriptions, advertising, and non-software licensing.
For the three months ended September 30, 2021, live services and other net revenue was $380$1,209 million primarily driven by sales of extra content for FIFA 18Ultimate Team, Apex Legends, The Sims 4, Star Wars: Galaxy of Heroes, and Madden NFL 18, and Mass Effect: AndromedaUltimate Team. Packaged goodsLive services and other net revenue for the three months ended December 31, 2017 decreased $84September 30, 2021 increased $340 million, or 1839 percent, as compared to the three months ended December 31, 2016.September 30, 2020. This decreaseincrease was primarily driven by a $162 million decrease in net revenue primarily from the Battlefield sales of extra content for FIFA Ultimate Team, Apex Legends and Titanfall franchises. This decrease was partially offset by a $78 million increase primarily from the Mass Effect and FIFA franchises.

new games added to our portfolio through acquisitions activity.
Net Revenue Year-to-Date Analysis

Net Revenue

ForNet revenue for the ninesix months ended December 31, 2017, netSeptember 30, 2021 was $3,377 million, primarily driven by sales of our FIFA franchise, Apex Legends, The Sims 4, and our Madden franchise. Net revenue was $3,568 million andfor the six months ended September 30, 2021 increased $250$767 million, or 829 percent, as compared to the ninesix months ended December 31, 2016.September 30, 2020. This increase was driven by a $769$1,058 million increase in revenue primarily from the FIFA and Battlefield franchises, and Mass Effect: Andromeda. This increase was partially offset by a $519 million decrease in revenue primarily from the Star Wars and Need for Speed franchises.


Net Revenue by Product Revenue and Service and Other Revenue

Our Net Revenue by Product revenue and Service and other revenue for the nine months ended December 31, 2017 and 2016 was as follows (in millions):
 Nine Months Ended December 31,
 2017 2016 $ Change % Change
Net revenue:       
Product$1,829
 $1,753
 $76
 4%
Service and other1,739
 1,565
 174
 11%
Total net revenue$3,568
 $3,318
 $250
 8%

Product Revenue

For the nine months ended December 31, 2017, Product net revenue was $1,829 million, primarily driven by Battlefield 1, FIFA 17, and FIFA 18. Product net revenue increased $76 million, or 4 percent, as compared to the nine months ended December 31, 2016. This increase was driven by a $482 million increase primarily from Battlefield 1 and Mass Effect: Andromeda. This increase was partially offset by a $406 million decrease primarily from Star Wars Battlefront and UFC 2.

Service and Other Revenue

For the nine months ended December 31, 2017, Service and other net revenue was $1,739 million, primarily driven by FIFA Ultimate Team, Star Wars: Galaxy of Heroes and Battlefield 1 Premium. Service and other net revenue for the nine months ended December 31, 2017 increased $174 million, or 11 percent, as compared to the nine months ended December 31, 2016. This increase was driven by a $338 million increase primarily from FIFA Ultimate Team and Battlefield 1 Premium. This increase was partially offset by a $164 million decrease primarily from Need for Speed (2015)and the Plants vs. Zombies franchise.

Supplemental Net Revenue by Type
Our net revenue by type for the nine months ended December 31, 2017 and 2016 was as follows (in millions):
 Nine Months Ended December 31,
 2017 2016 $ Change % Change
        
Full game downloads$475
 $400
 $75
 19 %
Live services (a)
1,385
 1,079
 306
 28 %
Mobile488
 461
 27
 6 %
Total Digital$2,348
 $1,940
 $408
 21 %
        
Packaged goods and other$1,220
 $1,378
 $(158) (11)%
Net revenue$3,568
 $3,318
 $250
 8 %
(a)Live services net revenue is comprised of net revenue previously presented as “Extra content” and “Subscription, advertising, and other” through the fourth quarter of fiscal 2017.

Digital Net Revenue

For the nine months ended December 31, 2017, digital net revenue was $2,348 million primarily driven by FIFA Ultimate Team, Battlefield 1, and FIFA Online 3 in Asia. Digital net revenue for the nine months ended December 31, 2017 increased $408 million, or 21 percent, as compared to the nine months ended December 31, 2016. This increase is due to (1) a $75 million or 19 percent increase in full-game download net revenue primarily driven by Mass Effect: Andromeda the year-over-year change in the launch date of our FIFA console title and Battlefield 1, (2)a $306 million or 28 percent increasegrowth in live services net revenue primarily driven by our Ultimate Team game modeFIFA catalog sales, and Battlefield 1 PremiumApex Legends, and (3) a $27 million or 6 percent increase in mobile net revenue primarily driven by Star Wars: Galaxy of Heroes and FIFA Mobile.

Packaged Goods and Other Net Revenue

For the nine months ended December 31, 2017, packaged goods and other net revenue was $1,220 million, primarily driven by FIFA 17, Battlefield 1 and FIFA 18. Packaged goods and other net revenue for the nine months ended December 31, 2017 decreased $158 million, or 11 percent, as compared to the nine months ended December 31, 2016. This decrease was drivenpartially offset by a $465$291 million decrease in net revenue primarily from the Star Wars, The Sims, and Need for Speed franchises. This decrease was partially offset

Net Revenue by a $307 million increase primarily from the Battlefield and Mass Effect franchises.Composition


Cost of Revenue Quarterly Analysis

Cost ofOur net revenue by composition for the threesix months ended December 31, 2017September 30, 2021 and 20162020 was as follows (in millions):
Six Months Ended September 30,
20212020$ Change% Change
Net revenue:
Full game downloads$570 $386 $184 48 %
Packaged goods369 255 114 45 %
Full game$939 $641 $298 46 %
Live services and other$2,438 $1,969 $469 24 %
Total net revenue$3,377 $2,610 $767 29 %
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 December 31, 2017 
% of
Related
 Net Revenue
 December 31, 2016 
% of
Related
 Net Revenue
 % Change 
Change as a
% of Related
Net Revenue
Cost of revenue:           
Product$352
 64.4% $389
 59.9% (9.5)% 4.5 %
Service and other149
 24.3% 127
 25.4% 17.3 % (1.1)%
Total cost of revenue$501
 43.2% $516
 44.9% (2.9)% (1.7)%
Full Game Net Revenue

For the six months ended September 30, 2021, full game net revenue was $939 million, primarily driven by sales of our FIFA and Madden franchises, and Mass Effect Trilogy Remaster. Full game net revenue for the six months ended September 30, 2021 increased $298 million, or 46 percent, as compared to the six months ended September 30, 2020. This increase was driven by a $184 million increase in full game downloads net revenue and a $114 million increase in packaged goods net revenue, each primarily due to year-over-year change in the launch date of our FIFA console title from the third quarter in fiscal year 2021 to the second quarter in fiscal year 2022, and Mass Effect Trilogy Remaster,partially offset by the Star Wars, Need for Speed, and UFC franchises.
Live Services and Other Net Revenue
For the six months ended September 30, 2021, live services and other net revenue was $2,438 million primarily driven by sales of extra content for FIFA Ultimate Team, Apex Legends, The Sims 4, Madden Ultimate Team, and Star Wars: Galaxy of Heroes. Live services and other net revenue for the six months ended September 30, 2021 increased $469 million, or 24 percent, as compared to the six months ended September 30, 2020. This increase was primarily driven by sales of extra content for FIFA Ultimate Team, Apex Legends andnew games added to our portfolio through acquisitions activity, partially offset by The Sims 4.
Cost of Product Revenue Quarterly Analysis
Cost of product revenue consists of (1) manufacturing royalties, net of volume discounts and other vendor reimbursements, (2) certain royalty expenses for celebrities, professional sports leagues, movie studios and other organizations, and independent software developers, (3) data center, bandwidth and server costs associated with hosting our online games and websites, (4) inventory costs, (4)(5) payment processing fees, (6) mobile platform fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer), (7) expenses for defective products, (5)(8) write-offs of post launch prepaid royalty costs and losses on previously unrecognized licensed intellectual property commitments, (6)(9) amortization of certain intangible assets, (7)(10) personnel-related costs, and (8)(11) warehousing and distribution costs. We generally recognize volume discounts when they are earned from the manufacturer (typically in connection with the achievement of unit-based milestones); whereas other vendor reimbursements are generally recognized as the related revenue is recognized.
Cost of product revenue decreasedfor the three months ended September 30, 2021 and 2020 was as follows (in millions):
September 30,
2021		% of Net RevenueSeptember 30,
2020		% of Net Revenue% ChangeChange as a % of Net Revenue
$494 27 %$286 25 %73 %2 %
Cost of Revenue
Cost of revenue increased by $37$208 million, or 9.573 percent during the three months ended December 31, 2017,September 30, 2021, as compared to the three months ended December 31, 2016. This decrease was primarily due to a decrease in inventory costs associated with Battlefield 1 and Titanfall 2 which were launched during thethree months ended December 31, 2016, and a decrease in intangible amortization. These decreases were partially offset by an increase in the royalty costs associated with our product launches during the three months ended December 31, 2017, as compared to the three months ended December 31, 2016.

Cost of Service and Other Revenue
Cost of service and other revenue consists primarily of (1) royalty costs, (2) data center, bandwidth and server costs associated with hosting our online games and websites, (3) inventory costs, (4) platform processing fees from operating our website-based games on third party platforms, and (5) credit card fees associated with our service revenue.

Cost of service and other revenue increased by $22 million, or 17.3 percent during the three months ended December 31, 2017, as compared to the three months ended December 31, 2016.September 30, 2020. This increase was primarily due to an increase in inventory and royalty costs associateddriven by year-over-year change in the launch date of our FIFA console title from the third quarter in fiscal year 2021 to the second quarter in fiscal year 2022, an increase in platform and hosting fees due to new games added to our portfolio through acquisitions activity and higher engagement with higher sales from FIFA Ultimate TeamApex Legends, and Madden Ultimate Team.an increase in intangible amortization due to acquisition-related intangible assets.

Total Cost of Revenue as a Percentage of Total Net Revenue
During the three months ended December 31, 2017, total cost of revenue as a percentage of total net revenue decreasedincreased by $15 million, or 1.72 percent during the three months ended September 30, 2021, as compared to the three months ended December 31, 2016. This decrease was primarily due to a decrease in inventory and warehouse operations costs as a result of the closure of our Switzerland distribution business in fiscal year 2017, and an increase in the proportion of our digital net revenues to packaged goods and other net revenues, which generally have higher costs than our digital products and services.

Cost of Revenue Year-to-Date Analysis

Cost of revenue for the nine months ended December 31, 2017 and 2016 was as follows (in millions):
 December 31, 2017 
% of
Related
 Net Revenue
 December 31, 2016 
% of
Related
 Net Revenue
 % Change 
Change as a
% of Related
Net Revenue
Cost of revenue:           
Product$716
 39.1% $796
 45.4% (10.1)% (6.3)%
Service and other328
 18.9% 300
 19.2% 9.3 % (0.3)%
Total cost of revenue$1,044
 29.3% $1,096
 33.0% (4.7)% (3.7)%

Cost of Product Revenue
Cost of product revenue decreased by $80 million, or 10.1 percent during the nine months ended December 31, 2017, as compared to the nine months ended December 31, 2016. This decrease was primarily due to a decrease in inventory costs associated with Battlefield 1 and Titanfall 2 which were launched during thenine months ended December 31, 2016, a decrease in inventory and warehouse operations costs as a result of the closure of our Switzerland distribution business in fiscal year 2017, and a $26 million decrease in intangible amortization. These decreases were partially offset by an increase in royalty costs associated with our product launches during the nine months ended December 31, 2017, as compared to the nine months ended December 31, 2016.

Cost of Service and Other Revenue

Cost of service and other revenue increased by $28 million, or 9.3 percent during the nine months ended December 31, 2017, as compared to the nine months ended December 31, 2016.September 30, 2020. This increase was primarily due to an increase in royalty costs associated with higher sales from FIFA Ultimate Teamdeferred net revenue, platform and Madden Ultimate Team,hosting fees, and intangible amortization due to acquisition-related intangible assets, partially offset by lower royalty and inventory costs in proportion to net revenue due to product mix, and a $16 million decrease in intangible amortization.favorable mix of higher digital net revenue as compared to packaged goods net revenue, respectively.

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Cost of Revenue Year-to-Date Analysis
Cost of revenue for the six months ended September 30, 2021 and 2020 was as a Percentagefollows (in millions):
September 30,
2021		% of Net RevenueSeptember 30,
2020		% of Net Revenue% ChangeChange as a % of Net Revenue
809 24 %574 22 %41 %2 %
Cost of Total Net Revenue
DuringCost of revenue increased by $235 million, or 41 percent during the ninesix months ended December 31, 2017, total costSeptember 30, 2021, as compared to the six months ended September 30, 2020. This increase was primarily due to an increase in inventory and royalty costs driven by year-over-year change in the launch date of our FIFA console title from the third quarter in fiscal year 2021 to the second quarter in fiscal year 2022, an increase in platform and hosting fees due to new games added to our portfolio through acquisitions activity and higher engagement with Apex Legends, and an increase in intangible amortization due to acquisition-related intangible assets.
Cost of revenue as a percentage of total net revenue decreasedincreased by $52 million, or 3.72 percent during the six months ended September 30, 2021, as compared to the ninesix months ended December 31, 2016.September 30, 2020. This decreaseincrease was primarily due to a decrease in inventory and warehouse operations costs as a result of the closure of our Switzerland distribution business in fiscal year 2017, and an increase in thedeferred net revenue, platform and hosting fees, and intangible amortization due to acquisition-related intangible assets, partially offset by lower royalty and inventory costs in proportion to net revenue due to product mix and a favorable mix, of ourhigher digital net revenuesrevenue as compared to packaged goods and other net revenues, which generally have a higher costs than our digital products and services.revenue, respectively.

Research and Development
Research and development expenses consist of expenses incurred by our production studios for personnel-related costs, related overhead costs, external third-party development costs, contracted services, depreciation and any impairment of prepaid royalties for pre-launch products. Research and development expenses for our online products include expenses incurred by our studios consisting of direct development and related overhead costs in connection with the development and production of our online games. Research and development expenses also include expenses associated with our digital platform, software licenses and maintenance, and management overhead.
Research and development expenses for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 were as follows (in millions):
September 30,
2021		% of Net
Revenue		September 30,
2020		% of Net
Revenue		$ Change% Change
Three months ended$553 30 %$421 37 %$132 31 %
Six months ended$1,068 32 %$859 33 %$209 24 %
 December 31,
2017		 
% of Net
Revenue
 December 31,
2016		 
% of Net
Revenue
 $ Change % Change
Three months ended$329
 28% $285
 25% $44
 15%
Nine months ended$985
 28% $870
 26% $115
 13%

Research and development expenses increased by $44$132 million,, or 1531 percent,, during the three months ended December 31, 2017,September 30, 2021, as compared to the three months ended December 31, 2016.September 30, 2020. This $44 million increase was primarily due to (1) a $30$72 million increase in personnel-related costs primarily resulting from an increaseinvestment in headcount due to acquisitions and workforce investments, (2) an $11our continued investment in our studios, a $27 million increase in stock-based compensation, and (3) a $7$16 million increase in facilities-relatedstudio related contracted services, and a $9 million increase in facility related costs. These increases were partially offset by a $12 million decrease primarily due to a loss on a royalty-based commitment and impairment on a royalty-based asset during the three-months ended December 31, 2016.

Research and development expenses increased by $115$209 million, or 1324 percent, during the ninesix months ended December 31, 2017,September 30, 2021, as compared to the ninesix months ended December 31, 2016.September 30, 2020. This $115 million increase was primarily due to (1) a $59$117 million increase in personnel-related costs primarily resulting from an increaseinvestment in headcount due to acquisitions and workforce investments, (2)our continued investment in our studios, a $21$46 million increase in stock-based compensation, (3) a $14$34 million increase in facilities-related costs,studio related contracted services, and (4) a $12$16 million decrease primarily due toincrease in facility related costs. These increases were partially offset by a loss on a royalty-based commitment and impairment on a royalty-based asset during the three-months ended December 31, 2016.$18 million benefit in cash flow hedging activities.

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Marketing and Sales

Marketing and sales expenses consist of personnel-related costs, related overhead costs, advertising, marketing and promotional expenses, net of qualified advertising cost reimbursements from third parties.

Marketing and sales expenses for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 were as follows (in millions):
September 30,
2021		% of Net
Revenue		September 30,
2020		% of Net
Revenue		$ Change% Change
Three months ended$233 13 %$156 14 %$77 49 %
Six months ended$423 13 %$277 11 %$146 53 %
 December 31,
2017		 
% of Net
Revenue
 December 31,
2016		 
% of Net
Revenue
 $ Change % Change
Three months ended$230
 20% $240
 21% $(10) (4)%
Nine months ended$511
 14% $511
 15% $—
 — %

Marketing and sales expenses decreasedincreased by $10$77 million, or 449 percent, and $146 million, or 53 percent, during the three and six months ended December 31, 2017,September 30, 2021, as compared to the three and six months ended December 31, 2016. This $10 million decrease wasSeptember 30, 2021, respectively. These increases were primarily due to a $10 million decreasean increase in advertising and promotional spending.

Marketingspending primarily on our mobile titles, FIFA 22, F1 2021, and sales expenses remained consistent during the nine months ended December 31, 2017, as compared to the nine months ended December 31, 2016.
upcoming release of Battlefield 2042.
General and Administrative
General and administrative expenses consist of personnel and related expenses of executive and administrative staff, corporate functions such as finance, legal, human resources, and information technology, related overhead costs, fees for professional services such as legal and accounting, and allowances for doubtful accounts.
General and administrative expenses for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 were as follows (in millions):
 December 31,
2017		 
% of Net
Revenue
 December 31,
2016		 
% of Net
Revenue
 $ Change % Change
Three months ended$120
 10% $110
 10% $10
 9%
Nine months ended$343
 10% $329
 10% $14
 4%
September 30,
2021		% of Net
Revenue		September 30,
2020		% of Net
Revenue		$ Change% Change
Three months ended$176 10 %$133 12 %$43 32 %
Six months ended$345 10 %$269 10 %$76 28 %
General and administrative expenses increased by $10$43 million, or 932 percent, during the three months ended December 31, 2017,September 30, 2021, as compared to the three months ended December 31, 2016.September 30, 2020. This $10 million increase was primarily due to (1) a $6 million increase in contracted services primarily due to higher legal expenses, (2) a $5$16 million increase in personnel-related costs primarily resulting from an increase in headcount primarily due to acquisitions, and (3) a $4$13 million increase in stock-based compensation. These increases were partially offset by a $9 million decrease in facility-relatedacquisition-related transaction and integration costs.
General and administrative expenses increased by $14$76 million, or 428 percent, during the ninesix months ended December 31, 2017,September 30, 2021, as compared to the ninesix months ended December 31, 2016.September 30, 2020. This $14 million increase was primarily due to (1)a $23 million increase in personnel-related costs resulting from an increase in headcount primarily due to acquisitions, a $22 million increase in acquisition-related transaction and integration costs, and a $10 million increase in contracted services primarilyservices.
Amortization of Intangibles
Amortization of intangibles for the three and six months ended September 30, 2021 and 2020 were as follows (in millions):
September 30,
2021		% of Net
Revenue		September 30,
2020		% of Net
Revenue		$ Change% Change
Three months ended$30 2 %$6 1 %$24 400 %
Six months ended$70 2 %$11 — %$59 536 %
Amortization of intangibles increased by $24 million and $59 million during the three and six months ended September 30, 2021, as compared to the three and six months ended September 30 2020, respectively, due to higher legal expenses, (2) a $7 million increase in personnel-related costs primarily resulting from an increase in headcount, and (3) a $7 million increase in stock-based compensation. These increases were partially offset by a $10 million decrease in facility-related costs.acquired intangible assets from recent acquisitions.



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Income Taxes
Provision for (benefit from) income taxes for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 were as follows (in millions):
 December 31, 2017 Effective Tax Rate December 31, 2016 Effective Tax Rate
Three Months Ended$170
 (1,062.5)% $(5) 83.3%
Nine Months Ended$259
 37.3 % $93
 18.8%
September 30, 2021Effective Tax RateSeptember 30, 2020Effective Tax Rate
Three months ended$32 10 %$(46)(33)%
Nine months ended$136 21 %$57 9 %
The provision for income taxes for the three and ninesix months ended December 31, 2017September 30, 2021 is based on our projected annual effective tax rate for fiscal year 2018,2022, adjusted for specific items that are required to be recognized in the period in which they are incurred. Our effective tax rate and resulting provision for income taxes for the three and ninesix months ended December 31, 2017September 30, 2021 was significantly impacted by10 percent and 21 percent, respectively, as compared to negative 33 percent and 9 percent, respectively, for the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”), enacted on December 22, 2017. The U.S. Tax Act significantly revises the U.S. corporate income tax system by, among other things, lowering the U.S. corporate income tax rates, generally implementing a territorial tax system and imposing the Transition Tax.
same period in fiscal year 2021. Our effective tax rate for the three and ninesix months ended December 31, 2017September 30, 2021 was negative 1,062.5 percent and positive 37.3 percent, respectively, as comparedhigher than prior year due to 83.3 percent and 18.8 percent, respectivelyour decision to capitalize for income tax purposes certain foreign expenses which increased the same periodstaxable income in fiscalour foreign entities that is subject to U.S. tax. In accordance with our existing accounting policy, we do not establish deferred tax assets to offset this charge, but we expect future deductions of the capitalized amounts. The prior year 2017. The effective tax rate forrates included a tax benefit, net of valuation allowance, resulting from the three and nine months ended December 31, 2017 was negatively impacted byAltera opinion. Excluding the provisional income tax effects of the U.S. Tax Act, offset by earnings realized in countries that have lower statutory tax rates and the recognition of excess tax benefits from stock-based compensation. Without the provisional tax charge of the U.S. Tax Act, our effective tax rate for the three and nine months ended December 31, 2017 would have been 37.5 percent and 11.9 percent, respectively.
We have a March 31 fiscal year-end; therefore, the lower corporate tax rate enacted by the U.S. Tax Act will be phased in, resulting in a U.S. statutory federal rate of 31.6 percent for our fiscal year ending March 31, 2018, and 21.0 percent for subsequent fiscal years. When compared to the statutory rate of 31.6 percent,Altera opinion, the effective tax rate for three and six months ended September 30, 2020 would have been 13 percent and 20 percent, respectively.
In addition, during the three months ended September 30, 2021, we completed the Codemasters intra-entity sale of intellectual property rights to our U.S. and Swiss intellectual property owners. The transaction resulted in a taxable gain. Under U.S. GAAP, any profit resulting from this intercompany transaction will be eliminated upon consolidation. However, the transaction resulted in a step-up of the U.S. and Swiss tax-deductible basis in the transferred intellectual property rights and, accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights. As a result, we recognized a $60 million net tax benefit for the current and deferred tax impacts of the sale. Excluding the Codemasters intra-entity sale, the effective tax rate for three and six months ended September 30, 2021 would have been 28 percent and 31 percent, respectively.
Each quarter, we perform a realizability analysis to evaluate whether it is more likely than not that all or a portion of our deferred tax assets will not be realized. During the three and ninesix months ended December 31, 2017 was higherSeptember 30, 2021, we recognized a decrease of $6 million and an increase of $7 million of valuation allowance against our deferred tax assets primarily due to the income tax impactsexpected alignment of the U.S. Tax Act, offset by earnings realized in countries that have lower statutory tax rates and the recognition of excess tax benefits from stock-based compensation. We anticipate that the impact of excess tax benefits and tax deficiencies may result in significant fluctuations torecently acquired businesses with our effective tax rate in the future. Excluding excess tax benefits, our effective tax rate would have been negative 1,075.0 percent and positive 43.6 percent, respectively, for the three and nine months ended December 31, 2017.global operating structure.
We recorded a provision for income taxes of $170 million and $259 million for the three and nine months ended December 31, 2017, respectively, including $176 million which is a reasonable estimate of the impacts of the U.S. Tax Act. We recorded a reasonable estimate of $151 million related to the Transition Tax. The final calculation of the Transition Tax may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the U.S. Tax Act, our analysis of the U.S. Tax Act, or any updates or changes to estimates that we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions.
In addition, we provisionally recorded a tax charge related to the remeasurement of U.S. deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate and a tax benefit related to the deferred tax impacts of global intangible income. The impact of these, as well as certain other charges and benefits, were not material individually, or in the aggregate, and are provisional for the same reasons as stated above.
Reasonable estimates of the impacts of the U.S. Tax Act are provided in accordance with SEC guidance that allows for a measurement period of up to one year after the enactment date of the U.S. Tax Act to finalize the recording of the related tax impacts. We expect to complete the accounting under the U.S. Tax Act as soon as practicable, but in no event later than one year from the enactment date of the U.S. Tax Act.
We file income tax returns and are subject to income tax examinations in various jurisdictions with respect to fiscal years after 2008. The timing and potential resolution of income tax examinations is highly uncertain. While we continue to measure our uncertain tax positions, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued. It is reasonably possible that a reduction of up to $45 million of unrecognized tax benefits may occur within the next 12 months, a portion of which would impact our effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.

LIQUIDITY AND CAPITAL RESOURCES
(In millions)
As of
September 30, 2021
As of
March 31, 2021

Increase/(Decrease)
Cash and cash equivalents$1,630 $5,260 $(3,630)
Short-term investments342 1,106 (764)
Total$1,972 $6,366 $(4,394)
Percentage of total assets15 %48 %
 Six Months Ended September 30, 
(In millions)20212020Change
Net cash provided by (used in) operating activities$(79)$439 $(518)
Net cash used in investing activities(2,722)(61)(2,661)
Net cash used in financing activities(827)(112)(715)
Effect of foreign exchange on cash and cash equivalents(2)25 (27)
Net increase (decrease) in cash and cash equivalents$(3,630)$291 $(3,921)
45

(In millions)As of
December 31, 2017		 As of
March 31, 2017		 

Increase/(Decrease)
Cash and cash equivalents$2,566
 $2,565
 $1
Short-term investments2,318
 1,967
 351
Total$4,884
 $4,532
 $352
Percentage of total assets57% 59%  
 Nine Months Ended December 31,  
(In millions)2017 2016 Change
Net cash provided by operating activities$1,077
 $1,141
 $(64)
Net cash used in investing activities(593) (498) (95)
Net cash used in financing activities(508) (625) 117
Effect of foreign exchange on cash and cash equivalents25
 (28) 53
Net increase in cash and cash equivalents$1
 $(10) $11
Changes in Cash Flow
Operating Activities. Net cash provided byused in operating activities decreasedincreased by $64$518 million during the ninesix months ended December 31, 2017September 30, 2021, as compared to the ninesix months ended December 31, 2016. The decrease isSeptember 30, 2020, primarily driven by a $160 million decreasehigher cash payments for income taxes, higher marketing and advertising payments, higher personnel-related payments primarily from an increase in accounts receivablesheadcount and higher variable compensation payments, and higher cash payments for royalties. These increases were offset by higher collections due to the timing of customer receiptsimproved performance as we executed against our strategic pillars and game launches during the three months ended December 31, 2017 as comparedincreased engagement with our products and services which led to the three months ended December 31, 2016. This decrease was partially offset by a $46 million increasegrowth in operating cash flows as a result of sales related to the FIFA, Star Wars, and Need for Speed franchises and a $39 million increase in other assets primarily due to higher prepaid royalties during the nine months ended December 31, 2017, as compared to the nine months ended December 31, 2016.our business.
Investing Activities.Net cash used in investing activities increased by $95$2,661 million during the ninesix months ended December 31, 2017September 30, 2021, as compared to the ninesix months ended December 31, 2016September 30, 2020, primarily driven by payments of $3,394 million in connection with acquisitions completed during the six months ended September 30, 2021 and a $640$290 million increasedecrease in proceeds from maturities and sales of short-term investments. These increases were offset by a $1,047 million decrease in the purchase of short-term investments, and the payment of $150 million in connection with the acquisition of Respawn. This increase is partially offset by a $688 million increase in proceeds from the sales and maturities of short-term investments.
Financing Activities. Net cash used in financing activities decreasedincreased by $117$715 million during the ninesix months ended December 31, 2017September 30, 2021, as compared to the ninesix months ended December 31, 2016September 30, 2020, primarily due to a repayment of $163 million of our formerly outstanding convertible notes during the nine months ended December 31, 2016 and a $24 million increase in proceeds from the exercise of stock options and the purchase of ESPP during the nine months ended December 31, 2017 as compared to the nine months ended December 31, 2016. This decrease was partially offsetdriven by a $70$572 million increase in the repurchase and retirement of our common stock, a payment of $97 million of cash dividends during the ninesix months ended December 31, 2017 as compared to the nine months ended December 31, 2016.
Cash Flow Reclassifications. The adoption of ASU 2016-09 at the beginning of fiscal year 2018 resultedSeptember 30, 2021, and a $44 million increase in two changes to our cash flow presentation. First, excess tax benefits are now presented as operating activities rather than as financing activities. Second, cash paymentspaid to taxing authorities in connection with shares withheld to meet statutory tax withholding requirements are now presented as a financing activity rather than as an operating activity. Both of these changes had the effect of increasing our cash provided by operating activities and increasing our cash used in financing activitiestaxes for the nine months ended December 31, 2017 and 2016. We recast our cash flow presentation for the nine months ended December 31, 2016 to reflect the adoption of ASU 2016-09. For more information, see Note 1 - Description of Business and Basis of Presentation to the Condensed Consolidated Financial Statements in this Form 10-Q as it relates to ASU 2016-09.stock-based compensation.
Short-term Investments
Due to our mix of fixed and variable rate securities, our short-term investment portfolio is susceptible to changes in short-term interest rates. As of December 31, 2017,September 30, 2021, our short-term investments had gross unrealized losses of $8 million, or less than 1 percent of the total in short-term investments,gains and gross unrealized gainslosses of less than $1 million, or less than 1 percent of the total in short-term investments. From time to time, we may liquidate some or all of our short-term investments to fund operational needs or other activities, such as capital expenditures, business acquisitions or stock repurchase programs.

Depending on which short-term investments we liquidate to fund these activities, we could recognize a portion, or all, of the gross unrealized gains or losses.

Senior Notes
In February 2016,2021, we issued $600$750 million aggregate principal amount of the 20212031 Notes and $750 million aggregate principal amount of the 2051 Notes. The effective interest rate is 1.98% for the 2031 Notes and 3.04% for the 2051 Notes. Interest is payable semiannually in arrears, on February 15 and August 15 of each year.
In February 2016, we issued $400 million aggregate principal amount of the 2026 Notes. We used the net proceeds of $989 million for general corporate purposes, including the payment of our formerly outstanding convertible notes and the repurchase of our common stock, including under the $500 million stock repurchase program approved in February 2016 and completed in March 2016. The effective interest rate is 3.94% for the 2021 Notes and 4.97% for the 2026 Notes. Interest is payable semiannually in arrears, on March 1 and September 1 of each year.
See Note 11 -— Financing Arrangementsto the Condensed Consolidated Financial Statements in this Form 10-Q as it relates to our Senior Notes, which is incorporated by reference into this Item 2.
Credit Facility
In March 2015,On August 29, 2019, we entered into a $500 million senior unsecured revolving credit facility (“Credit Facility”) with a syndicate of banks. The Credit Facility terminates on August 29, 2024 unless the maturity is extended in accordance with its terms. As of December 31, 2017,September 30, 2021, no amounts were outstanding under the credit facility.
Credit Facility. See Note 11 -— Financing Arrangements to the Condensed Consolidated Financial Statements in this Form 10-Q as it relates to the above items,our Credit Facility, which is incorporated by reference into this Item 2.
Financial Condition
Our material cash requirements as of September 30, 2021 are set forth in our Note 12 — Commitments and Contingencies to the Condensed Consolidated Financial Statements in this Form 10-Q, which is incorporated by reference into this Item 2. We expect capital expenditures to be approximately $200 million in fiscal year 2022 due to facility buildouts, which we expect to continue in fiscal year 2023. 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 debt repayment obligations of $1.9 billion, and fund our operating requirements for at least the next 12 months and beyond, including working capital requirements, capital expenditures, debt repayment obligations,our $2.6 billion share repurchase program, quarterly cash dividend, which is currently $0.17
46

per share, subject to declaration by our Board of Directors or a designated Committee of the Board of Directors, and potentially, future acquisitions stock repurchases, 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.
During the six months ended September 30, 2021, we returned $747 million to stockholders through our capital return programs, repurchasing 4.6 million shares for approximately $650 million and $97 million through our quarterly cash dividend program which was initiated in November 2020.
During the six months ended September 30, 2021, we also completed mergers and acquisitions activity, including the acquisitions of 100% of the equity interests of Glu and Playdemic for cash considerations of $2.0 billion and $1.4 billion, net of cash acquired, respectively, and one other immaterial acquisition.

Our foreign subsidiaries are generally subject to U.S. tax, and to the extent earnings from these subsidiaries can be repatriated without a material tax cost, such earnings will not be indefinitely reinvested. As of December 31, 2017,September 30, 2021, approximately $3.1$0.7 billion of our cash and cash equivalents and short-term investments were domiciled in foreign tax jurisdictions. As a resultAll of the U.S. Tax Act, which generally implemented a territorial tax system, a substantial portion of this amountour foreign cash is available for repatriation.
In May 2015, our Board of Directors authorizedrepatriation without a program to repurchase up to $1 billion of our common stock. We repurchased approximately 0.3 million shares for approximately $31 million under this program during the three months ended June 30, 2017. We completed repurchases under the May 2015 program in April 2017.
In May 2017, a Special Committee of our Board of Directors, on behalf of the full Board of Directors, authorized a program to repurchase up to $1.2 billion of our common stock. This stock repurchase program expires on May 31, 2019. 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. During the three and nine months ended December 31, 2017, we repurchased approximately 1.4 million and 3.8 million shares for approximately $150 million and $422 million, respectively, under this program. We are actively repurchasing shares under this program.material tax cost.
We have a “shelf” registration statement on Form S-3 on file with the SEC. This shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, which may include funding for working capital, financing capital expenditures, research and development, marketing and distribution efforts, and if opportunities arise, for acquisitions or strategic alliances. Pending such uses, we may invest the net proceeds in interest-bearing securities. In addition, we may conduct concurrent or other financings at any time.

Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties including, but not limited to, those related to, customer demand and acceptance of our products, our ability to collect our accounts receivable as they become due, successfully achieving our product release schedules and attaining our forecasted sales objectives, economic conditions in the United States and abroad, the impact of acquisitions and other strategic transactions in which we may engage, the impact of competition, economic conditions in the United States and abroad, the seasonal and cyclical nature of our business and operating results, risks of product returns and the other risks described in the “Risk Factors”“Risk Factors” section, included in Part II, Item 1A of this report.
Contractual Obligations and Commercial Commitments
Note 12 - Commitments and Contingencies to the Condensed Consolidated Financial Statements in this Form 10-Q as it relates to our contractual obligations and commercial commitments, which is incorporated by reference into this Item 2.


OFF-BALANCE SHEET COMMITMENTS
As of December 31, 2017,September 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii)arrangements.

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Item 3:     3.Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and market prices, which have experienced significant volatility.volatility, including increased volatility in connection with the COVID-19 pandemic. Market risk is the potential loss arising from changes in market rates and market prices. We employ established policies and practices to manage these risks. Foreign currency forward contracts are used to hedge anticipated exposures or mitigate some existing exposures subject to foreign exchange risk as discussed below. While we do not hedge our short-term investment portfolio, we protect our short-term investment portfolio against different market risks, including interest rate risk as discussed below. Our cash and cash equivalents portfolio consists of highly liquid investments with insignificant interest rate risk and original or remaining maturities of three months or less at the time of purchase. We do not enter into derivatives or other financial instruments for speculative trading purposes and do not hedge our market price risk relating to marketable equity securities, if any.
Foreign Currency Exchange Risk

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, and South Korean won)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-denominatedforeign 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.
Balance Sheet Hedging Activities. We use foreign currency forward contracts to mitigate foreign currency exchange risk associated with foreign-currency-denominatedforeign currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. TheThese foreign currency forward contracts generally have a contractual term of three months or less and are transacted near month-end.
We believe the counterparties to our foreign currency forward contracts are creditworthy multinational commercial banks. While we believe the risk of counterparty nonperformance is not material, a sustained decline in the financial stability of financial institutions as a result of disruption in the financial markets could affect our ability to secure creditworthy counterparties for our foreign currency hedging programs.
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 December 31, 2017,September 30, 2021, 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 $122$188 million or $244$375 million, respectively. As of December 31, 2017,September 30, 2021, a hypothetical adverse foreign currency exchange rate movement of 10 percent or 20 percent would have resulted in potential losses in the Condensed Consolidated Statements of Operations on our foreign currency forward contracts used in balance sheet hedging of $99$104 million or $197$207 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 suchthe same manner and actual results may differ materially. See Note 4 -— Derivative Financial Instruments to the Condensed Consolidated Financial Statements in this Form 10-Q as it relates to our derivative financial instruments, which is incorporated by reference into this Item 3.
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Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our short-term investment portfolio. We manage our interest rate risk by maintaining an investment portfolio generally consisting of debt instruments of high credit quality and relatively short maturities. However, because short-term investments mature relatively quickly and, if reinvested, are invested at the then-current market rates, interest income on a portfolio consisting of short-term investments is subject to market fluctuations to a greater extent than a portfolio of longer term investments. Additionally, the contractual terms of the investments do not permit the issuer to call, prepay or otherwise settle the investments at prices less than the stated par value. Our investments are held for purposes other than trading. We do not use derivative financial instruments in our short-term investment portfolio.

As of December 31, 2017,September 30, 2021, our short-term investments were classified as available-for-sale securities and, consequently, were recorded at fair value with unrealized gains or losses resulting from changes in fair value, including unrealized gains and unrealized losses not related to credit losses, reported as a separate component of accumulated other comprehensive income (loss), net of tax, in stockholders’ equity.

Notwithstanding our efforts to manage interest rate risks, there can be no assurance that we will be adequately protected against risks associated with interest rate fluctuations. FluctuationsChanges in interest rates could have a significant impact on the fair value of our investment portfolio. The following table presents the hypothetical changes inaffect the fair value of our short-term investment portfolio. To provide a meaningful assessment of the interest rate risk associated with our short-term investment portfolio, as of December 31, 2017, arising from potential changeswe performed a sensitivity analysis to determine the impact a change in interest rates. The modeling technique estimatesrates would have on the change in fair value from immediate hypotheticalof the portfolio assuming a 150 basis point parallel shiftsshift in the yield curvecurve. As of plusSeptember 30, 2021, a hypothetical 150 basis point increase in interest rates would have resulted in a $4 million, or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS.1% decrease in the fair market value of our short-term investments.



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(In millions)
Valuation of Securities Given
an Interest Rate Decrease
of X Basis Points
 
Fair Value
as of
December 31, 2017
 
Valuation of Securities Given
an Interest Rate Increase of
X Basis Points
(150 BPS) (100 BPS) (50 BPS) 50 BPS 100 BPS 150 BPS
Corporate bonds$1,221
 $1,217
 $1,212
 $1,209
 $1,204
 $1,200
 $1,196
U.S. Treasury securities453
 451
 449
 446
 444
 442
 439
U.S. agency securities118
 117
 117
 115
 116
 115
 114
Commercial paper295
 295
 294
 294
 293
 293
 293
Foreign government securities99
 99
 98
 98
 97
 96
 96
Asset-backed securities136
 135
 135
 134
 134
 133
 133
Certificates of deposit22
 22
 22
 22
 22
 22
 22
Total short-term investments$2,344

$2,336

$2,327

$2,318

$2,310

$2,301

$2,293


Item 4.Controls and Procedures
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, believe that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing the requisite reasonable assurance that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.
Changes in internal control over financial reporting
There has been no change in our internal controls over financial reporting identified in connection with our evaluation that occurred during the fiscal quarter ended December 31, 2017September 30, 2021 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Limitations on effectiveness of disclosure controls
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.





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PART II – OTHER INFORMATION
Item 1.Legal Proceedings
The information underItem 1.Legal Proceedings
Refer to Note 12 of the subheading “Legal Proceedings” in Note 12 - Commitments and ContingenciesNotes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q is incorporated by reference into this Part II.for disclosures regarding our legal proceedings.

Item 1A.Risk Factors

Item 1A.Risk Factors
Our business is subject to many risks and uncertainties, which may affect our future financial performance. In the past, we have experienced certain of the events and circumstances described below, which adversely impacted our business and financial performance. If any of the events or circumstances described below occurs,occur, our business or financial performance could be harmed, our actual results could differ materially from our expectations and the market value of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe could be material that may harm our business or financial performance.

STRATEGIC RISKS
Our business is intensely competitive and “hit” driven.competitive. We may not deliver “hit”successful and engaging products and services, or consumers may prefer our competitors’ products or services over our own.

Competition in our industrybusiness is intense. Many new products and services are regularly introduced, in each major industry segment (console, mobile and PC free-to-download), but only a relatively small number of “hit” titlesproducts and associated services drive significant engagement and account for a significant portion of total revenue in each segment.revenue. Our competitors range from established interactive entertainment companies and diversified media companies to emerging start-ups,start-ups. In addition, the gaming, technology/internet, and weentertainment industries have converged in recent years and larger, well-funded technology companies are pursuing and strengthening their interactive entertainment capabilities. We expect new competitors to continue to emerge throughout the world. If our competitors develop and market more successful and engaging products or services, offer competitive products or services at lower price points, or if we do not continue to develop consistently high-quality, well-received and engaging products and services, or if our marketing strategies are not innovative or fail to resonate with players, particularly during key selling periods, our revenue, margins, and profitability will decline.

We maintain a relatively limited product portfolio in an effortstrive to focus on developingcreate innovative and high-quality products and engaging productsservices that allow us to build on-going and meaningful relationships with the potential to become hits. High-qualityour community. However, innovative and high-quality titles, even if highly-reviewed, may not turn into hit products.meet our expectations or the expectations of our players. Many hitfinancially successful products and services within our industry are iterations of prior hit productstitles with large established consumer bases and significant brand recognition, which makes competing in certain product categories challenging. In addition, hit 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. Publishing a relatively small number of major titles each year also concentrates risk in those titles and means each major title has greater associated risk. A significant portion of our revenue historically has been derived from gamesproducts 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 largest and most popular game, FIFA, annualized versions of which are consistently one of the best-selling games in the marketplace. Any events or circumstances that negatively impact our FIFA franchise, such as product or service quality, changes to the game, 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.
The increased importance of live services, revenueincluding extra content, to our business heightens the risks associated with our limited product portfolio asthe products for which such live services are offered. Live services that are either poorly-received or provided in connection with underperforming games may generate lower than expected sales.

Our business is dependent on the success and availability of platforms developed by third parties, as well as Any lapse, delay or failure in our ability to develop commercially successfulprovide high-quality live services content to consumers over an extended period of time could materially and adversely affect our financial results, consumer engagement with our live services, and cause harm to our reputation and brand. Our most popular live service is the extra content available for the Ultimate Team mode associated with our sports franchises. Any events or circumstances that negatively impact our ability to reliably provide content or sustain engagement for Ultimate Team, particularly FIFA Ultimate Team, would negatively impact our financial results to a disproportionate extent.
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We may not meet our product and live service development schedules and key events, sports seasons and/or movies that are tied to our product and live service release schedule may be delayed, cancelled or poorly received.
Our ability to meet product and live service development schedules is affected by a number of factors both within and outside our control, including feedback from our players, the creative processes involved, the coordination of large and sometimes geographically dispersed development teams, the complexity of our products and services for these platforms.

The success of our business is driven in part by the commercial success and adequate supply of third party platforms for which we developthey are developed, the need to fine-tune our products prior to their release, factors related to the COVID-19 pandemic, and, in certain cases, approvals from third parties. We have experienced development delays for our products and services or through which our products and services are distributed. Our success also depends on our ability to accurately predict which platforms will be successful in the marketplace,past which caused us to delay or cancel release dates. Any failure to meet anticipated production or release schedules likely would result in a delay of revenue and/or possibly a significant shortfall in our abilityrevenue, increase our development and/or marketing expenses, harm our profitability, and cause our operating results to develop commercially successful products and servicesbe materially different than anticipated. If we miss key selling periods for these platforms and our ability to effectively manage the transition from one generation of platforms to the next. We must make product development decisions and commit significant resources well in advance of anticipated platform release dates and may incur significant expense to adjust our product portfolio and development efforts in response to changing consumer platform preferences. Additionally, we may enter into certain exclusive licensing arrangements that affect our ability to deliver or market products or services, onparticularly the fiscal quarter ending in December, for any reason, including product delays or product cancellations our sales likely will suffer significantly.
We also seek to release certain platforms. A platformproducts and extra content for our live services - such as our sports franchises and the associated Ultimate Team live service - in conjunction with key events, such as the beginning of a sports season, events associated with the sports calendar, or the release of a related movie. If such seasons or events were delayed, cancelled or poorly received, our sales could suffer materially. For example, the COVID-19 pandemic has resulted in the disruption, postponement, and cancellation of sports seasons and sporting events. Further disruption, postponement and cancellation of sports seasons and sporting events around which we are developing productsseek to launch our games and provide live services may not succeed as expected or new platforms may take market share and interactive entertainment consumers away from platforms for which wecould have devoted significant resources. If consumer demand for the platforms for which we are developing products and services is lower than our expectations, we may be unable to fully recover the investments we have made in developing our products and services, and our financial performance will be harmed. Alternatively, a platform for which we have not devoted significant resources could be more successful than we initially anticipated, causing us to not be able to take advantage of meaningful revenue opportunities.

Technology changes rapidly inmaterial adverse impact on our business and ifoperating results.
Our industry changes rapidly and we may fail to anticipate orsuccessfully implement new or evolving technologies, or adopt newsuccessful business strategies, technologiesdistribution methods or methods, the quality, timeliness and competitiveness of our products and services may suffer.

services.
Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must develop, implement and take advantage ofthe ways in order to makewhich our products and services will be competitive in the market. We have invested, and in the future may invest, in new business and marketing strategies, technologies, distribution methods, products, and services. There can be no assurance that these strategic investments will achieve expected returns. For example, we are investing in our mobile business through seeking to maximize our mobile live services, meaningfully expanding key franchises on the mobile platform and through mergers and acquisitions activity. In addition, we are investing in a technological infrastructure for our EA Player Network whichthat we expect will allowenable us to market and deliver content that will resonate with players and services for our franchisesprovide more efficiently as well as enablechoice in the way that players connect with their games, with each other, and with new player-centric ways to discover and try new experiences.types of content. Such endeavors may involve significant risks and uncertainties, and nouncertainties. No assurance can be given that the technology we choose to implement, the business and marketing strategies we choose to adopt and the products, services and servicesplatform strategies that we pursue will achieve financial results that meet or exceed our expectations. Our reputation and brand could also be successful. If we do not successfully implement these new technologies, our reputation may be materially adversely affected and our financial condition and operating results may be impacted.affected. We also may miss opportunities or fail to respond quickly enough to adopt technology or distribution methods or develop products, and services or new ways to engage with our games that become popular with consumers, which could adversely affect our financial results. It may take significant time and resources to shift our focus to such technologies, putting us at a competitive disadvantage.

Our development process usually starts with particular platforms and distribution methods in mind, and a range of technical development, feature and featureongoing goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can.in a way that better engages consumers. In either case, our products and services may be technologically inferior to those of our competitors, less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule for our products and services, then we may delay their release until these goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our product or service launch schedule or to keep up with our competition, which would increase our development expenses.

We may experience security breachesNegative perceptions about our industry, business, culture, products and cyber threats.

We continually face cyber risksservices and threats that seek to damage, disrupt or gain access to our networks,the communities within our products and services supporting infrastructure, intellectual property and other assets. In addition, we rely on technological infrastructure provided by third party business partners to support the online functionality of our products and services. These business partners, as well as our channel partners, also are subject to cyber risks and threats. Such cyber risks and threats may be difficult to detect. Both our partners and we have implemented certain systems, processes and technologies to guard against cyber risks and to help protect our data and systems. However, the techniques that may be used to obtain unauthorized access or disable, degrade, exploit or sabotage our products, services and systems change frequently and often are not detected. Our systems, processes and technologies, and the systems, processes and technologies of our business partners, may not be adequate. Any failure to prevent or mitigate security breaches or cyber risks, or respond adequately to a security breach or cyber risk, could result in interruptions to our products and services, degrade the user experience, cause consumers to lose confidence in our products, as well as significant legal and financial exposure. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.

Successful exploitation of our systems can have other negative effects upon the products, services and user experience we offer.  In particular, the virtual economies that we have established in many of our games are subject to abuse, exploitation and other forms of fraudulent activity that can negatively impact our business. Virtual economies involve the use of virtual currency and/or virtual assets that can be used or redeemed by a player within a particular game or service. The abuse or exploitation of our virtual economies include the illegitimate generation and sale of virtual items in black markets. Our online services have been impacted by in-game exploits and the use of automated processes to generate virtual currency illegitimately, and such activity may continue.  These kinds of activities and the steps that we take to address these issues may result in a loss of anticipated revenue, interfere with players’ enjoyment of a balanced game environment and cause reputational harm.

Our business could be adversely affected if our consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate, to prevent data breaches, or by the application of consumer protection and data privacy and security laws generally.

In the course of our business, we collect, process, store and use consumer and other information, including personal information, passwords and credit card information. Although we take measures to protect this information from unauthorized access, acquisition, disclosure and misuse, our security controls, policies and practices may not be able to prevent the improper or unauthorized access,

acquisition or disclosure of such information. For example, third parties may fraudulently induce employees or customers into disclosing identification or other sensitive information which may, in turn, be used to access our information technology systems. The unauthorized access, acquisition or disclosure of this information, or a perception that we do not adequately secure consumer and other information could result in legal liability, costly remedial measures, governmental and regulatory investigations, harm our profitability and reputation and cause our financial results to be materially affected. In addition, third party vendors and business partners receive access to information that we collect. These vendors and business partners may not prevent data security breaches with respect to the information we provide them or fully enforce our policies, contractual obligations and disclosures regarding the collection, use, storage, transfer and retention of personal data. A data security breach of one of our vendors or business partners could cause reputational harm to them and/or negatively impact our ability to offer our products and services.

We are subject to payment card association rules and obligations pursuant to contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the cost of associated expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if no consumer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.

Data privacy, data protection, localization, security and consumer-protection laws are evolving, and the interpretation and application of these laws in the United States, Europe and elsewhere often are uncertain, contradictory and changing. It is possible that these laws may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business. As a result, our reputation and brand may be harmed, we could incur substantial costs, and we could lose both consumers and revenue.

We may experience outages, disruptions and/or degradations of our online services.

We are investing and expect to continue to invest in technology, hardware and software to support the online functionality of our portfolio of products and services. In addition, we rely on technological infrastructure provided by third party business partners.  Launching and operating games and services with online features, developing related technologies and implementing online business initiatives is expensive and complex. Implementation of these technologies and execution of these initiatives could result in operational failures and other issues impacting the technical stability of our products and services. In addition, having access to the necessary infrastructure to support the online functionality of our products and services is vital to our growth and success. Our products and services could be adversely impacted by outages, disruptions, failures and/or degradations in our network and related infrastructure, as well as in the online platforms or services of key business partners who offer or support our products and services.

Negative player perceptions about our brands, products, services and/or business practices may damage our business, and thewe may incur costs incurred in addressing player concerns may increase our operating expenses.to address concerns.

Player expectationsExpectations regarding the quality, performance and integrity of our business, culture, products and services are high. Players may beand other stakeholders have sometimes been critical of our industry, brands, products, services, online communities, business models and/or business practices for a wide variety of reasons. These negative player reactions may not be foreseeable or within our control to manage effectively,reasons, including perceptions about gameplay fun, fairness, negative player reactions to game content, components andfeatures or services, or objections to certain of our business practices. These negative responses may not be foreseeable. We also may not effectively manage our responses because of reasons within or outside of our control. For example, we have included in certain games the ability for players to purchase digital items, including in some instances virtual “packs”, “boxes” or “crates” that
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contain variable digital items. The inclusion of variable digital items in certain games has attracted the attention of our community and if the future implementation of these features creates a negative perception of gameplay fairness or other negative perceptions, our reputation and brand could be harmed and revenue could be negatively impacted. In the past,addition, we have taken actions, including delaying the release of our games and delaying or discontinuing features and services for our games, after taking into consideration, among other things, feedback from the playerour community even if those decisions negatively impacted our operating results in the short term. We expect to continue to take actions to address concerns as appropriate, including actions that may result in additional expenditures and the loss of revenue.
We aim to offer our players safe, fun and inclusive environments in which to play; provide players with information about their engagement and tools that allow them control of their experiences; and deploy tools and technologies to give players faith in their gameplay experience. Although we expend resources, and expect to continue to expend resources, to promote positive play, our efforts may not be successful due to scale, limitations of existing technologies or other factors. If our efforts are unsuccessful, our brand and reputation may be harmed and our financial and operating results may be adversely impacted. Negative player sentiment about gameplay fairness, our online communities, our business practices, business models or game content also can lead to investigations or increased scrutiny from regulatory agenciesgovernmental bodies and consumer groups, as well as litigation, which, regardless of their outcome, may be costly, damaging to our reputation and harm our business.

WeCertain of our games and features on our platforms support online features that allow players and viewers to communicate with one another and post content, in real time, that is visible to other players and viewers. From time to time, this “user generated content” may contain objectionable and offensive content that is distributed and disseminated by third parties and our brands may be negatively affected by such actions. If we fail to appropriately respond to the dissemination of such content, we may be subject to lawsuits and governmental regulation, our players may not consistently meet our product development schedules or key events, sports seasons or movies that we tie our product release schedules to may be delayed, cancelled or poorly received.

Our ability to meet product development schedules is affected by a number of factors both within and outside our control, including feedback from our players, the creative processes involved, the coordination of large and sometimes geographically dispersed development teams, the complexity of our products and the platforms for which they are developed, the need to fine-tune our products prior to their release and, in certain cases, approvals from third parties. We have experienced development delays for our products in the past, which caused us to delay or cancel release dates. We also seek to release certain products in conjunctionengage with key events, such as the beginning of a sports season, major sporting event, or the release of a related movie. If such a key event were delayed, cancelled or poorly received, our sales likely would suffer materially. Any failure to meet anticipated production or release schedules likely would result in a delay of revenue and/or possibly a significant shortfall in our revenue, increase our

development and/or marketing expenses, harm our profitability, and cause our operating results to be materially different than anticipated.

Our business is highly seasonal with the highest percentage of our sales occurring in the quarter ending in December. While our sales generally follow this seasonal trend, there can be no assurance that this trend will continue. If we miss key selling periods for products, for any reason, including product delays, product cancellations, or delayed introduction of a new platform for which we have developed products and services or through which we distribute our products and services and/or may lose confidence in our sales likely will suffer significantly. Additionally, macroeconomic conditions or the occurrence of unforeseen events that negatively impact retailer or consumer buying patterns, particularly during the quarter ending in December, likely will harmbrands and our financial performance disproportionately.

Our financial results are subject to currency fluctuations.

International sales are a fundamental part of our business. For our fiscal year ended March 31, 2017, international net revenue comprised 56 percent of our total net revenue, and we expect our international business to continue to account for a significant portion of our total net revenue. As a result of our international sales, and also the denomination of our foreign investments and our cash and cash equivalents in foreign currencies, we are exposed to the effects of fluctuations in foreign currency exchange rates. Strengthening of the U.S. dollar, particularly relative to the Euro, British pound sterling, Australian dollar, Chinese yuan and South Korean won, has a negative impact on our reported international net revenue but a positive impact on our reported international operating expenses (particularly when the U.S. dollar strengthens against the Swedish krona and the Canadian dollar) because these amounts are translated at lower rates. We use foreign currency hedging contracts to mitigate some foreign currency risk. However, these activities are limited in the protection they provide us from foreign currency fluctuations and can themselves result in losses.

We may not attract and retain key personnel.

The market for technical, creative, marketing and other personnel essential to the development, marketing and support of our products and services and management of our businesses is extremely competitive. 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. If we cannot successfully recruit and retain qualified employees, or replace key employees following their departure, our ability to develop and manage our business will be impaired.

We may experience declines or fluctuations in the recurring portion of our business.

Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized titles (e.g., FIFA and Madden NFL), and associated services, and ongoing mobile businesses. While we have been able to forecast the revenue from these areas of our business with greater certainty than for new offerings, we cannot provide assurances that consumers will purchase these games and services on a consistent basis. Furthermore, we may cease to offer games and services that we previously had deemed to be recurring in nature. Consumer purchases of our games and services may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our games and services, our ability to improve and innovate our annualized titles, our ability to adapt our games and services to new platforms, outages and disruptions of online services, the games and services offered by our competitors, our marketing and advertising efforts or declines in consumer activity generally as a result of economic downturns, among others. The reception to our licensed sports games may be adversely impacted by circumstances outside our control impacting the sports leagues and organizations. Any decline or fluctuation in the recurring portion of our business may have a negative impact on our financial and operating results.

We could fail to successfully adopt new business models.

From time to time we seek to establish and implement new business models. Forecasting the success of any new business model is inherently uncertain and depends on a number of factors both within and outside of our control. Our actual revenue and profit for these businesses may be significantly greater or less than our forecasts. Additionally, these new business models could fail, resulting in the loss of our investment in the development and infrastructure needed to support these new business models, as well as the opportunity cost of diverting management and financial resources away from more successful and established businesses.


We may be unable to maintain or acquire licenses to include intellectual property owned by others in our games, or to maintain or acquire the rights to publish or distribute games developed by others.

Many of our products and services are based on or incorporate intellectual property owned by others. For example, our EA Sports products include rights licensed from major sports leagues and players’ associations and our Star Wars products include rights licensed from Disney. Competition for these licenses and rights is intense. If we are unable to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our ability to develop and successful and engaging games and services may be adversely affected and our revenue, profitability and cash flows may decline significantly. Competition for these licenses also may increase the amounts that we must pay to licensors and developers, through higher minimum guarantees or royalty rates, which could significantly increase our costs and reduce our profitability.

affected.
External game developers may not meet product development schedules or otherwise honor their obligations.

We may contract with external game developers to develop our games or to publish or distribute their games. While we maintain contractual protections, we have less control over the product development schedules of games developed by external developers, and wedevelopers. We depend on their ability to meet product development schedules.schedules which could be negatively affected by, among other things, the distributed workforce model resulting from the COVID-19 pandemic. In addition, we may have disputes occasionally arise with external developers, overincluding with respect to game content, launch timing, achievement of certain milestones, the game development timeline, marketing campaigns, or other matters.contractual terms and interpretation. If we have disputes with external developers or they cannot meet product development schedules, acquire certain approvals or are otherwise unable or unwilling to honor their obligations to us, we may delay or cancel previously announced games, alter our launch schedule or experience increased costs and expenses, which could result in a delay or significant shortfall in anticipated revenue, harm our profitability and reputation, and cause our financial results to be materially affected.

Our business depends on the success and availability of consoles, systems and devices developed by third parties and our ability to develop commercially successful products and services for those consoles, systems and devices.
The success of our business is driven in part by the commercial success and adequate supply of third-party consoles, systems and devices for which we develop our products and services or services we release may contain defects.

Ourthrough which our products and services are extremely complex software programs,distributed. Our success depends on our ability to connect more players, across more platforms, and are difficultmore ways to play by accurately predicting which consoles, systems and devices will be successful in the marketplace, our ability to develop commercially successful products and distribute. We have quality controls in placeservices that reach players across multiple channels, our ability to detect defects insimultaneously manage products and services on multiple consoles, systems and devices and our ability to effectively transition our products and services before theyto new consoles, systems and devices. We must make product development decisions and commit significant resources well in advance of the commercial availability of new consoles, systems and devices, and we may incur significant expense to adjust our product portfolio and development efforts in response to changing consumer preferences. Additionally, we may enter into certain exclusive licensing arrangements that affect our ability to deliver or market products or services on certain consoles, systems or devices. A console, system or device for which we are released. Nonetheless, these quality controls are subject to human error, overriding,developing products and reasonable resource or technical constraints. Therefore, these quality controls and preventative measuresservices may not succeed as expected or new consoles, systems or devices may take market share and interactive entertainment consumers away from those for which we have devoted significant resources. If consumer demand for the consoles, systems or devices for which we are developing products and services is lower than our expectations, we may be effectiveunable to fully recover the investments we have made in detecting all defects indeveloping our products and services, before theyand our financial performance will be harmed. Alternatively, a console, system or device for which we have not devoted significant resources could be more successful than we initially anticipated, causing us to not be able to reach our intended audience and take advantage of meaningful revenue opportunities.
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In fiscal year 2021, our key console partners Sony and Microsoft each released new generation consoles. In periods of transition, sales of products for legacy generation consoles typically slow or decline in response to the introduction of new consoles, and sales of products for new generation consoles typically stabilize only after new consoles are widely-established with the consumer base. This console transition may have a comparable impact on our live services business, potentially increasing the impact on our financial results. The transition could accelerate faster than anticipated and may put downward pressure on legacy generation pricing, which could negatively affect our operating results. Our revenue from sales for the new generation consoles from Sony and Microsoft may not offset the negative effects of the transition on our operating results. Alternatively, adoption of the new generation consoles in which we have made significant investments may be slower than we anticipate or wide consumer availability may be delayed. We do not control the unit volumes of consoles made available for sale, the pricing or appeal of new generation consoles, or the rates at which consumers purchase these consoles. For a period of time, we will also develop, market and operate games and services on both legacy and new generation consoles simultaneously. As a result of these factors, our operating results during this transition may be more volatile and difficult to predict.
We may experience declines or fluctuations in the recurring portion of our business.
Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized sports franchises (e.g., FIFA, Madden NFL), our console, PC and mobile catalog titles (i.e., titles that did not launch in the current fiscal year), and our live services. While we have been released intoable to forecast the marketplace. In such an event,revenue from these areas of our business with greater relative confidence than for new games, services and business models, we could be required to, orcannot provide assurances that consumer demand will remain consistent, including in connection with circumstances outside of our control. Furthermore, we may find it necessarycease to offer games and services that we previously had deemed to be recurring in nature. Consumer demand has declined and fluctuated, and could in the future decline or fluctuate, as a refund forresult of a number of factors, including their level of satisfaction with our games and services, our ability to improve and innovate our annualized titles, our ability to adapt our games and services to new distribution channels and business models, outages and disruptions of online services, the productgames and services offered by our competitors, our marketing and advertising efforts or service, suspenddeclines in consumer activity generally as a result of economic downturns, among others. The reception to our sports games also depends, in part, on the availability or salepopularity, reputation and brand of the productleagues, organizations and individual athletes with whom we partner. Events and circumstances outside of our control that have a negative impact on the accessibility, popularity, reputation and brand of these partners has impacted, and could in the future negatively impact, sales related to our annualized sports games. Any decline or service or expend significant resources to curefluctuation in the defect, eachrecurring portion of which could significantly harm our business may have a negative impact on our financial and operating results.

We could fail to successfully adopt new business models.
OurFrom time to time we seek to establish and implement new business models. Forecasting the success of any new business model is subject to regulation,inherently uncertain and changes in applicable regulations may negatively impact our business.

We are subject todepends on a number of foreignfactors both within and domestic lawsoutside of our control. Our actual revenue and regulations that affect companies conducting business on the Internet.profit for these businesses may be significantly greater or less than our forecasts. In addition, lawsthese new business models could fail, resulting in the loss of our investment in the development and regulations relatinginfrastructure needed to user privacy, data collection, retention, electronic commerce, virtual itemssupport these new business models, as well as the opportunity cost of diverting management and currency, consumer protection, content, advertising, localization,financial resources away from more successful and information securityestablished businesses. For example, we have been adopted or are being considered for adoption by many jurisdictionsdevoted financial and countries throughout the world. These laws could harmoperational resources to our subscription offerings without any assurance that these businesses will be financially successful. While we anticipate growth in this area of our business, by limiting the products and services we can offer consumers or the manner in which we offer them. The costs of compliance with these laws may increase in the futureconsumer demand is difficult to predict as a result of changesa number of factors, including satisfaction with our products and services, our ability to provide engaging products and services, third parties offering their products and services within our subscription, partners that provide, or don’t provide, access to our subscription, products and services offered by our competitors, reliability of our infrastructure and the infrastructure of our partners, pricing, the actual or perceived security of our and our partners information technology systems and reductions in interpretation. Furthermore, any failureconsumer spending levels. In addition, if our subscription offerings are successful, sales could be diverted from established business models. If we do not select a target price that is optimal for our subscription services, maintain our target pricing structure or correctly project renewal rates, our financial results may be harmed.
Acquisitions, investments, divestitures and other strategic transactions could result in operating difficulties and other negative consequences.
We have made and may continue to make acquisitions or enter into other strategic transactions including (1) acquisitions of companies, businesses, intellectual properties, and other assets, (2) minority investments in strategic partners, and (3) investments in new interactive entertainment businesses as part of our long-term business strategy. For example, in 2021 we have completed several acquisitions, including the acquisitions of Codemasters, Glu and Playdemic. These acquisitions and other transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on our part to comply with these lawsinvestment or cannot realize anticipated tax benefits, that we acquire liabilities
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and/or litigation from acquired companies or liabilities and/or litigation results from the applicationtransactions, that our due diligence process does not identify significant issues, liabilities or other challenges, diversion of these laws in an unanticipated manner may harmmanagement’s attention from our businessother businesses, and result in penaltiesthe incurrence of debt, contingent liabilities or significant legal liability.

We are subject to laws in certain foreign countries,amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased cash and adhere to industry standards in the United States, that mandate rating requirements or set other restrictions on the advertisement or distribution of interactive entertainment software based on content. In addition, certain foreign countries allow government censorship of interactive entertainment software products. Adoption of ratings systems, censorship or restrictions on distribution of interactive entertainment software based on content could harm our business by limiting the products we are able to offer to our customers. In addition, compliance with new and possibly inconsistent regulations for different territories could be costly, delay or prevent the release of our products in those territories.

non-cash expenses. In addition, we may not integrate these businesses successfully or achieve expected synergies. For example, we may experience difficulties and costs associated with the integration of business systems and technologies, and acquired products and services, the integration and retention of new employees, the implementation of our internal control and compliance procedures and/or the remediation of the internal control and compliance environment of the acquired entity, or the maintenance of key business and customer relationships. These events could harm our operating results or financial condition.
We may fund strategic transactions with (1) cash, which would reduce cash available for other corporate purposes, (2) debt, which would increase our interest expense and leverage and/or (3) equity which would dilute current shareholders’ percentage ownership and also dilute our earnings per share. We also may divest or sell assets or a business and we may have difficulty selling such assets or business on acceptable terms in a timely manner. This could result in a delay in the achievement of our strategic objectives, cause us to incur additional expense, or the sale of such assets or business at a price or on terms that are less favorable than we anticipated.
We may be unable to maintain or acquire licenses to include modesintellectual property owned by others in our games, that allow playersor to compete against each other and we may manage player competitions based on our products and services. Although we structure and operate these skill-based competitions with applicable laws in mind, our skill based competitions inmaintain or acquire the future could become subjectrights to evolving rules and regulations and expose us to significant liability, penalties and reputational harm.publish or distribute games developed by others.


Our marketing and advertising efforts may fail to resonate with our customers.

Our products and services are marketed worldwide through a diverse spectrum of advertising and promotional programs such as online and mobile advertising, television advertising, retail merchandising, marketing through websites, event sponsorship and direct communications with our consumers including via email. Furthermore, an increasing portion of our marketing activity is taking place on social media platforms that are outside of our direct control. Our ability to sell our products and services is dependent in part upon the success of these programs, and changes to consumer preferences, marketing regulations, technology changes or service disruptions may negatively impact our ability to reach our customers. Moreover, if the marketing for our products and services fails to resonate with our customers, particularly during the critical holiday season or during other key selling periods, or if advertising rates or other media placement costs increase, our business and operating results could be harmed.

A significant portion of our sales are made to a relatively small number ofcustomers, and these sales may be disrupted.

We derive a significant percentage of our net revenue through sales to our top customers. The concentration of a significant percentage of our sales through a few large customers could lead to a short-term disruption to our business if certain of these customers significantly reduced their purchases or ceased to offer our products and services. We also could be more vulnerable to collection risk if one or more of these large customers experienced a deterioration of their business or declared bankruptcy. Additionally, receivables from our customers generally increase in our December fiscal quarter as salesMany of our products and services generally increase in anticipation of the holiday season. Having a significant portion ofare based on or incorporate intellectual property owned by others. For example, our net revenue concentrated in sales through a few customers could reduceEA Sports products include rights licensed from major sports leagues, teams and players’ associations and our negotiating leverage with them.Star Wars products include rights licensed from Disney. Competition for these licenses and rights is intense. If one or more of our key customers experience deterioration in their business, or becomewe are unable to maintain these licenses and rights or obtain sufficient financingadditional licenses or rights with significant commercial value, our ability to maintain their operations, our business could be harmed.

Our channel partners have significant influence over thedevelop successful and engaging products and services that we offer on their platforms.

Our agreements withmay be adversely affected and our channel partners typically give them significant control overrevenue, profitability and cash flows may decline significantly. Other competitors may assume certain licenses and create competing products, impacting our sales. Competition for these licenses has increased, and may continue to increase, the approval, manufacturing and distribution of the products and services that we develop for their platform. In particular, our arrangements with Sony and Microsoft could, in certain circumstances, leave us unable to get our products and services approved, manufactured and distributed to customers. For our digital products and services delivered via digital channels such as Sony’s PlayStation Store, Microsoft’s Xbox Store, Apple’s App Store and Google Play, each respective channel partner has policies and guidelines that control the promotion and distribution of these titles and the features and functionalities that we are permitted to offer through the channel. In addition, we are dependent on our channel partners to invest in, and upgrade, digital commerce capabilities in a manner than corresponds to the way in which consumers purchase our products and services. Failure by our channels partners to keep pace with consumer preferences could have an adverse impact on our ability to merchandise and commercialize our products and services which could harm our business and/or financial results.

Moreover, certain of our channel partners can determine and change unilaterally certain key terms and conditions, including the ability to change their user and developer policies and guidelines. In many cases our channel partners also set the ratesamounts that we must pay to provide our gameslicensors and servicesdevelopers, through their online channels, and retain flexibility to change their fee structureshigher minimum guarantees or adopt different fee structures for their online channels,royalty rates, which could adversely impactsignificantly increase our costs profitability and margins. In addition,reduce our channel partners control the information technology systems through which online sales of our products and service channels are captured. If our channel partners establish terms that restrict our offerings through their channels, significantly impact the financial terms on which these products or services are offered to our customers, or their information technology systems fail or cause an unanticipated delay in reporting, our business and/or financial results could be materially affected.

Our business is subject to risks generally associated with the entertainment industry.

Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of our games, economic conditions that adversely affect discretionary consumer spending, changes in consumer demographics, the availability and popularity of other forms of entertainment, and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

profitability.
Our business partners may be unable to honor their obligations to us or their actions may put us at risk.

We rely on various business partners, including third-party service providers, vendors, licensing partners, development partners and licensees in many areas of our business.licensees. Their actions may put our business and our reputation and brand at risk. For example, we may have disputes with our business partners that may impact our business and/or financial results. In many cases, our business partners

may be given access to sensitive and proprietary information in order to provide services and support, to our teams, and they may misappropriate our information and engage in unauthorized use of it. In addition, the failure of these third parties to provide adequate services and technologies, or the failure of the third parties to adequately maintain or update their services and technologies, could result in a disruption to our business operations. Further, disruptions in the financial markets, economic downturns, poor business decisions, or reputational harm may adversely affect our business partners and they may not be able to continue honoring their obligations to us or we may cease our arrangements with them. Alternative arrangements and services may not be available to us on commercially reasonable terms or we may experience business interruptions upon a transition to an alternative partner or vendor. If we lose one or more significant business partners, our business could be harmed and our financial results could be materially affected.

A significant portion of our packaged goods sales are made to a relatively small number of retail and distribution partners, and these sales may be disrupted.
We derive a significant percentage of our net revenue attributable to sales of our packaged goods products to our top retail and distribution partners. The concentration of a significant percentage of these sales through a few large partners could lead to a short-term disruption to our business if certain of these partners significantly reduced their purchases or ceased to offer our products. The financial position of certain partners has deteriorated and while we maintain protections such as monitoring the credit extended to these partners, we could be vulnerable to collection risk if one or more of these partners experienced continued deterioration of their business or declared bankruptcy. The COVID-19 pandemic has resulted in closures of the retail stores of certain partners, which could negatively impact the sales of our packaged goods products and accelerate deterioration of the financial position of such partners. Additionally, receivables from these partners generally increase in our December fiscal quarter as sales of our products generally increase in anticipation of the holiday season which exposes us to heightened risk at that time of year. Having a significant portion of our packaged goods sales concentrated in a few partners could reduce
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our negotiating leverage with them. If one or more of these partners experience deterioration in their business or become unable to obtain sufficient financing to maintain their operations, our business could be harmed.
OPERATIONAL RISKS
The COVID-19 pandemic has affected how we are operating our business and the full extent of the impact of the COVID-19 pandemic on our business and financial results is uncertain.
As a result of the COVID-19 pandemic and related public health measures, federal, state, local and foreign governmental authorities have imposed, and continue to impose, protocols and restrictions intended to contain the spread of the virus, including limitations on the size of gatherings, mandated closure of work facilities, schools and businesses, quarantines, lockdowns and travel restrictions. In addition, we have established, and will continue to maintain protocols to promote the health and safety of our workforce and business partners. Substantially all of our office locations, including our global headquarters in Redwood Shores, California and key studios across North America, Europe and Asia remain closed to the majority of our employees.
The global work-from-home operating environment has caused strain and fatigue to our global workforce. In addition, certain of our development teams currently work in a distributed environment, whereas these teams historically collaborated in-person on the creative and technical process required to develop high-quality products and services at scale. Each of these factors has disrupted, and may continue to disrupt, the productivity of our workforce and the creative process to which our teams are accustomed. Companies in our industry have experienced issues related to game and service quality during the current work-from-home period, and we have changed the launch date of key products because of challenges associated with a distributed development environment. In addition, the longer-term impact to our creative and technical development processes is unknown and the associated risks, including with respect to game quality and developmental delays, which may cause us to delay or cancel additional release dates, may be heightened as the work-from-home period persists.
We are beginning to re-open locations to a limited number of employees as it is appropriate to do so, consistent with the health and safety of our employees and in compliance with any local legal restrictions or requirements. The reintroduction of employees to the workplace could introduce operational risk, negatively impact productivity, and give rise to claims by employees or otherwise adversely affect our business. In addition, the long-term effects of the COVID-19 pandemic on the nature of the office environment and remote working are not certain and 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.
During fiscal 2021, we experienced increased demand for our products and services and changing player behavior with more people staying at home. Our financial results and operating metrics benefited during fiscal year 2021 from these factors. In addition, longer-term trends that benefit our business accelerated, including a significant increase in live services revenue and the proportion of our games purchased digitally. These trends from fiscal year 2021 may not be indicative of results for future periods, particularly as factors related to the COVID-19 pandemic lessen and consumers can engage with other forms of entertainment, if the trend towards digital adoption decelerates, or if global macroeconomic effects related to the COVID-19 pandemic persist even after the pandemic has subsided.
The extent of the impact of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the duration and spread of the pandemic, the extent, speed and effectiveness of worldwide containment and vaccination efforts and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to flexibly respond to and manage the impact of these and other currently unknown impacts related to the COVID-19 pandemic, our business will be harmed.
To the extent that the COVID-19 pandemic harms our business and results of operations, many of the other risks described in this “Risk Factors” section may be heightened.
Catastrophic events may disrupt our business.
Natural disasters, cyber-incidents, weather events, wildfires, power disruptions, telecommunications failures, pandemics, health crises and other public health events, failed upgrades of existing systems or migrations to new systems, acts of terrorism or other events could cause outages, disruptions and/or degradations of our infrastructure (including our or our partners’ information technology and network systems), a failure in our ability to conduct normal business operations, or the closure of public spaces in which players engage with our games and services. The health and safety of our employees, players, third-party
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organizations with whom we partner, or regulatory agencies on which we rely could be also affected, any of which may prevent us from executing against our business strategies and/or cause a decrease in consumer demand for our products and services.
System redundancy may be ineffective and our disaster recovery and business continuity planning may not be sufficient for all eventualities. Such failures, disruptions, closures, or inability to conduct normal business operations could also prevent access to our products, services or online stores selling our products and services, cause delay or interruption in our product or live services offerings, allow breaches of data security or result in the loss of critical data. Our corporate headquarters and several of our key studios also are located in seismically active regions. An event that results in the disruption or degradation of any of our critical business functions or information technology systems, harms our ability to conduct normal business operations or causes a decrease in consumer demand for our products and services could materially impact our reputation and brand, financial condition and operating results.
We have and may continue to experience security breaches and cyber threats.
The integrity of our and our partners’ information technology networks and systems is critical to our ongoing operations, products, and services. Our industry is prone to, and our systems and networks are subject to actions by malfeasant actors, such as cyber-attacks and other information security incidents that seek to exploit, disable, damage, and/or disrupt our networks, business operations, products and services and supporting technological infrastructure, or gain access to consumer and employee personal information, our intellectual property and other assets. In addition, our systems and networks could be harmed or improperly accessed due to error by employees or third parties that are authorized to access these networks and systems. We also rely on technological infrastructure provided by third-party business partners to support the online functionality of our products and services, who are also subject to these same cyber risks. Both our partners and we have expended, and expect to continue to expend, financial and operational resources to guard against cyber risks and to help protect our data and systems. However, the techniques used by malfeasant actors change frequently, continue to evolve in sophistication and volume, and often are not detected for long periods of time.
As a result of the COVID-19 pandemic, remote access to our networks and systems, and the networks and systems of our partners, has increased substantially. While we and our partners have taken steps to secure our networks and systems, these networks and systems may be more vulnerable to a successful cyber-attack or information security incident while workforces remain distributed. The costs to respond to, mitigate, and/or notify affected parties of cyber-attacks and other security vulnerabilities are significant. It may also be necessary for us to take additional extraordinary measures and make additional expenditures to take appropriate responsive and preventative steps. In addition, such events could compromise the confidentiality, integrity, or accessibility of these networks and systems or result in the compromise or loss of the data, including personal data, processed by these systems. Consequences of such events, responsive measures and preventative measures have included, and could in the future include, the loss of proprietary and personal data and interruptions or delays in our business operations, exploitation of our data, as well as loss of player confidence and damage to our brand and reputation, financial expenses and financial loss. In addition, such events could cause us to be non-compliant with applicable regulations, and subject us to legal claims or penalties under laws protecting the privacy or security of personal information or proprietary material information. We have experienced such events in the past and expect future events to occur.
In addition, the virtual economies that we have established in many of our games are subject to abuse, exploitation and other forms of fraudulent activity that can negatively impact our business. Virtual economies involve the use of virtual currency and/or virtual assets that can be used or redeemed by a player within a particular game or service. The abuse or exploitation of our virtual economies have included the illegitimate or unauthorized generation and sale of virtual items, including in black markets. Our online services have been impacted by in-game exploits and the use of automated or other fraudulent processes to generate virtual item or currency illegitimately, and such activity may continue. These abuses and exploits, and the steps that we take to address these abuses and exploits may result in a loss of anticipated revenue, increased costs to protect against or remediate these issues, interfere with players’ enjoyment of a balanced game environment and cause harm to our reputation and brand.
We may experience outages, disruptions or degradations in our services, products and/or technological infrastructure.
The reliable performance of our products and services depends on the continuing operation and availability of our information technology systems and those of our external service providers, including third-party “cloud” computing services. Our games and services are complex software products and maintaining the sophisticated internal and external technological infrastructure required to reliably deliver these games and services is expensive and complex. The reliable delivery and stability of our products and services has been, and could in the future be, adversely impacted by outages, disruptions, failures or degradations in our network and related infrastructure, as well as in the online platforms or services of key business partners that offer,
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support or host our products and services. The reliability and stability of our products and services has been affected by events outside of our control as well as by events within our control, such as the migration of data among data centers and to third-party hosted environments, the performance of upgrades and maintenance on our systems, and online demand for our products and services that exceeds the capabilities of our technological infrastructure.
If we or our external business partners were to experience an event that caused a significant system outage, disruption or degradation or if a transition among data centers or service providers or an upgrade or maintenance session encountered unexpected interruptions, unforeseen complexity or unplanned disruptions, our products and services may not be available to consumers or may not be delivered reliably and stably. As a result, our reputation and brand may be harmed, consumer engagement with our products and services may be reduced, and our revenue and profitability could be negatively impacted. We do not have redundancy for all our systems, many of our critical applications reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities.
As our digital business grows, we will require an increasing amount of internal and external technical infrastructure, including network capacity and computing power to continue to satisfy the needs of our players. We are investing, and expect to continue to invest, in our own technology, hardware and software and the technology, hardware and software of external service providers to support our business. It is possible that we may fail to scale effectively and grow this technical infrastructure to accommodate increased demands, which may adversely affect the reliable and stable performance of our games and services, therefore negatively impacting engagement, reputation, brand and revenue growth.
Attracting, managing and retaining our talent is critical to our success.
Our business depends on our ability to attract, train, motivate and retain executive, technical, creative, marketing and other personnel that are essential to the development, marketing and support of our products and services. The market for highly-skilled workers and leaders in our industry is extremely competitive, particularly in the geographic locations in which many of our key personnel are located. 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. We strive to provide a workplace culture that is diverse, equitable, inclusive and safe and have invested in policies, practices, tools and people in this regard. If we cannot successfully recruit, train, motivate and retain qualified employees, develop and maintain a diverse, equitable, inclusive and safe work environment, or replace key employees following their departure, our reputation and brand may be negatively impacted and our ability to develop and manage our business will be impaired.
We rely on the consoles, systems and devices of partners who have significant influence over the products and services that we offer in the marketplace.
A significant percentage of our digital net revenue is attributable to sales of products and services through our significant partners, including Sony, Microsoft, Apple and Google. The concentration of a material portion of our digital sales in these partners exposes us to risks associated with these businesses. Any deterioration in the businesses of our significant partners could disrupt and harm our business, including by limiting the methods through which our digital products and services are offered and exposing us to collection risks.
In addition, our license agreements typically provide these partners with significant control over the approval and distribution of the products and services that we develop for their consoles, systems and devices. For products and services delivered via digital channels, each respective partner has policies and guidelines that control the promotion and distribution of these titles and the features and functionalities that we are permitted to offer through the channel. In addition, we are dependent on these partners to invest in, and upgrade, the capabilities of their systems in a manner that corresponds to the preferences of consumers. Failure by these partners to keep pace with consumer preferences could have an adverse impact on the engagement with our products and services and our ability to merchandise and commercialize our products and services which could harm our business and/or financial results.
Moreover, certain significant partners can determine and change unilaterally certain key terms and conditions, including the ability to change their user and developer policies and guidelines. In many cases these partners also set the rates that we must pay to provide our games and services through their online channels, and retain flexibility to change their fee structures or adopt different fee structures for their online channels, which could adversely impact our costs, profitability and margins. These partners also control the information technology systems through which online sales of our products and service channels are captured. If our partners establish terms that restrict our offerings, significantly impact the financial terms on which these products or services are offered to our customers, or their information technology systems experience outages that impact our
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players’ ability to access our games or purchase extra content or cause an unanticipated delay in reporting, our business and/or financial results could be materially affected.
The products or services we release may contain defects, bugs or errors.
Our products and services are extremely complex software programs and are difficult to develop and distribute. We have quality controls in place to detect defects, bugs or other errors in our products and services before they are released. Nonetheless, these quality controls are subject to human error, overriding, and resource or technical constraints. In addition, the effectiveness of our quality controls and preventative measures may be negatively affected by the distribution of our workforce resulting from the COVID-19 pandemic. As such, these quality controls and preventative measures may not be effective in detecting all defects, bugs or errors in our products and services before they have been released into the marketplace. In such an event, the technological reliability and stability of our products and services could be below our standards and the standards of our players and our reputation, brand and sales could be adversely affected. In addition, we could be required to, or may find it necessary to, offer a refund for the product or service, suspend the availability or sale of the product or service or expend significant resources to cure the defect, bug or error each of which could significantly harm our business and operating results.
LEGAL AND COMPLIANCE RISKS
Our business is subject to complex and prescriptive regulations regarding consumer protection and data privacy practices, and could be adversely affected if our consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate.
We are subject to global data privacy, data protection, localization, security and consumer-protection laws and regulations worldwide. These laws and regulations are emerging and evolving and the interpretation and application of these laws and regulations often are uncertain, contradictory and changing. The failure to maintain data practices that are compliant with applicable laws and regulations, or evolving interpretations of applicable laws and regulations, could result in inquiries from enforcement agencies or direct consumer complaints, resulting in civil or criminal penalties, and could adversely impact our reputation and brand. In addition, the operational costs of compliance with these regulations is high and will likely continue to increase. Even if we remain in strict compliance with applicable laws and regulations, consumer sensitivity to the collection and processing of their personal information continues to increase. Any real or perceived failures in maintaining acceptable data privacy practices, including allowing improper or unauthorized access, acquisition or misuse and/or uninformed disclosure of consumer, employee and other information, or a perception that we do not adequately secure this information or provide consumers with adequate notice about the information that they authorize us to collect and disclose could result in brand, reputational, or other harms to the business, result in costly remedial measures, deter current and potential customers from using our products and services and cause our financial results to be materially affected.
Third party vendors and business partners receive access to certain information that we collect. These vendors and business partners may not prevent data security breaches with respect to the information we provide them or fully enforce our policies, contractual obligations and disclosures regarding the collection, use, storage, transfer and retention of personal data. A data security breach of one of our vendors or business partners could cause reputational and financial harm to them and us, negatively impact our ability to offer our products and services, and could result in legal liability, costly remedial measures, governmental and regulatory investigations, harm our profitability, reputation and brand, and cause our financial results to be materially affected.
We also are subject to payment card association rules and obligations pursuant to contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the cost of associated expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if no consumer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.
Government regulations applicable to us may negatively impact our business.
We are a global company subject to various and complex laws and regulations domestically and internationally, including laws and regulations related to consumer protection, protection of minors, content, advertising, localization, information security, intellectual property, competition, taxation, and employment, among others. Many of these laws and regulations are continuously evolving and developing, and the application to, and impact on, us is uncertain. For example, the World Health Organization included “gaming disorder” in the 11th Revision of the International Classification of Diseases, prompting discussion and consideration of legislation and policies aimed at mitigating the risk of overuse of, and overspending within,
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video games. These laws could harm our business by limiting the products and services we can offer consumers or the manner in which we offer them. The costs of compliance with these laws may increase in the future as a result of changes in applicable laws or changes to interpretation. Any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability.
Certain of our business models and features within our games and services are subject to new laws or regulations or evolving interpretations and application of existing laws and regulations, including those related to gambling. The growth and development of electronic commerce, virtual items and virtual currency has prompted calls for new laws and regulations and resulted in the application of existing laws or regulations that have limited or restricted the sale of our products and services in certain territories. For example, governmental organizations have applied existing laws and regulations to certain mechanics commonly included within our games, including the Ultimate Team mode associated with our sports franchises. In addition, we include modes in our games that allow players to compete against each other and manage player competitions that are based on our products and services. Although we structure and operate our skill-based competitions with applicable laws in mind, including those related to gambling, our skill-based competitions in the future could become subject to evolving laws and regulations. We are also introducing features into our games and services that allow players to create and share user-generated content. Such content may be objectionable or offensive and decrease engagement with our products and services, cause a loss of confidence in our brands and expose us to liability and regulatory oversight, particularly as applicable global laws and regulations are introduced and evolve. New laws related to these business models and features or the interpretation or application of current laws that impact these business models and features - each of which could vary significantly across jurisdictions - could subject us to additional regulation and oversight, cause us to further limit or restrict the sale of our products and services or otherwise impact our products and services, lessen the engagement with, and growth of, profitable business models, and expose us to increased compliance costs, significant liability, fines, penalties and harm to our reputation and brand.
We are subject to laws in certain foreign countries, and adhere to industry standards in the United States, that mandate rating requirements or set other restrictions on the advertisement or distribution of interactive entertainment software based on content. In addition, certain foreign countries allow government censorship of interactive entertainment software products or require pre-approval processes of uncertain length before our games and services can be offered. Adoption of ratings systems, censorship, restrictions on distribution and changes to approval processes or the status of any approvals could harm our business by limiting the products we are able to offer to our consumers. In addition, compliance with new and possibly inconsistent regulations for different territories could be costly, delay or prevent the release of our products in those territories.
We may be subject to claims of infringement of third-party intellectual property rights.

From time to time, third parties may claim that we have infringed their intellectual property rights. For example, patent holding companies may assert patent claims against us in which they seek to monetize patents they have purchased or otherwise obtained. Although we take steps to avoid knowingly violating the intellectual property rights of others, it is possible that third parties still may claim infringement.

Existing or future infringement claims against us whether valid or not, may be expensive to defend and divert the attention of our employees from business operations. Such claims or litigation could require us to pay damages and other costs. We also could be required to stop selling, distributing or supporting products, features or services which incorporate the affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a license, all of which could be costly and harm our business.

In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing interactive entertainment software products and services such as those that we produce or would like to offer in the future. We may discover that future opportunities to provide new and innovative modes of game play and game delivery to consumers may be precluded by existing patents that we are unable to acquire or license on reasonable terms.

From time to time we may become involved in other legal proceedings.

We are currently, and from time to time in the future may become, subject to legal proceedings, claims, litigation and government investigations or inquiries, which could be expensive, lengthy, disruptive to normal business operations and occupy a significant amount of our employees’ time and attention. In addition, the outcome of any legal proceedings, claims, litigation, investigations or inquiries may be difficult to predict and could have a material adverse effect on our business, reputation, operating results, or financial condition.

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Acquisitions, investments, divestitures and other strategic transactions could result inoperating difficulties and other negativeconsequences.

We may make acquisitions or enter into other strategic transactions including (1) acquisitionsTable of companies, businesses, intellectual properties, and other assets, (2) minority investments in strategic partners, and (3) investments in new interactive entertainment businesses as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on our investment, that we acquire liabilities, diversion of management’s attention from our other businesses, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased cash and non-cash expenses. In addition, we may not integrate these businesses successfully, including experiencing difficulty in the integration of business systems and technologies, the integration and retention of new employees, or in the maintenance of key business and customer relationships. These events could harm our operating results or financial condition. We also may divest or sell assets or a business and we may have difficulty selling such assets or business on acceptable terms in a timely manner. This could result in a delay in the achievement of our strategic objectives, cause us to incur additional expense, or the sale of such assets or business at a price or on terms that are less favorable than we anticipated.Contents

Our products and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement.

infringement, including in jurisdictions that do not adequately protect our products and intellectual property rights.
We regard our products, brands and brandsintellectual property as proprietary and take measures to protect our products, brands and other confidential informationassets from infringement. We are aware that some unauthorized copying of our products and brands occurs, and if a significantly greater amount were to occur, it could negatively impact our business.

Piracy Further, our products and other forms of unauthorized copyingservices are available worldwide and use of our content and brands are persistent problems for us, and policing is difficult. Further, the laws of some countries, particularly in which our products are or may be distributedAsia, either do not protect our products, brands and intellectual property rights to the same extent as the laws of the United States or are poorly enforced. Legal protection of our rights may be ineffective in such countries.countries with weaker intellectual property enforcement mechanisms. In addition, althoughcertain third parties have registered our intellectual property rights without authorization in foreign countries. Successfully registering such intellectual property rights could limit or restrict our ability to offer products and services based on such rights in those countries. Although we take steps to enforce and police our rights, factors such asthe proliferation of technology designed to circumvent the protection measures used by our business partners or by us, the availability of broadband access to the Internet, the refusal of Internet service providers or platform holders to remove infringing content in certain instances,practices and the proliferation of online channels through which infringing product is distributed all have contributed to an expansion in unauthorized copying of our products and brands.

We may experience outages, disruptions and/or degradations of our infrastructure.

We may experience outrages, disruptions and/or degradations of our infrastructure, including information technology system failures and network disruptions. These may be caused by natural disasters, cyber-incidents, weather events, power disruptions, telecommunications failures, failed upgrades of existing systems or migrations to new systems, acts of terrorism or other events. System redundancy may be ineffective or inadequate, and our disaster recovery planningmethodologies may not be sufficienteffective against all eventualities.
FINANCIAL RISKS
Our financial results are subject to currency and interest rate fluctuations.
International sales are a fundamental part of our business. For our fiscal year ended March 31, 2021, international net revenue comprised 56 percent of our total net revenue, and we expect our international business to continue to account for all eventualities. Such failures or disruptions could prevent access toa significant portion of our products, services or online stores sellingtotal net revenue. As a result of our productsinternational sales, and services or interruption inalso the denomination of our ability to conduct critical business functions.  Our corporate headquarters in Redwood City, CAforeign investments and our studiocash and cash equivalents in Burnaby,foreign currencies, we are exposed to the effects of fluctuations in foreign currency exchange rates, and volatility in foreign currency exchange rates remains elevated as compared to historic levels. Strengthening of the U.S. dollar, particularly relative to the Euro, British Columbiapound 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 when the U.S. dollar strengthens against the Swedish krona and the Canadian dollar) because these amounts are located in seismically active regions, and certain of our game developmenttranslated at lower rates. We use foreign currency hedging contracts to mitigate some foreign currency risk. However, these activities and other essential business operations are conducted at these locations. An event that resultslimited in the disruption or degradationprotection they provide us from foreign currency fluctuations and can themselves result in losses. In addition, interest rate volatility, including lower interest rates resulting from actions taken in connection with the COVID-19 pandemic, can decrease the amount of any ofinterest earned on our critical business or information technology systems could harm our ability to conduct normal business operations.

cash, cash equivalents and short-term investment portfolio.
We utilize debt financing and such indebtedness could adversely impact our business and financial condition.

We have $1$1.9 billion in senior unsecured notes outstanding as well as an unsecured committed $500 million revolving credit facility. While the facility is currently undrawn, we may use the proceeds of any future borrowings for general corporate purposes. We may also enter into other financial instruments in the future.

OurThis indebtedness and any indebtedness that we may incur in the future could affect our financial condition and future financial results by, among other things:

•Requiring the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fundfor other purposes, including capital expenditures, share repurchases, acquisitions or otherwise funding our growth strategy, working capital, capital expenditures and other general corporate purposes; andstrategy;

•Limiting our flexibility in planning for, or reacting to, changes in our business and our industry.industry; and

•Increasing our vulnerability to downturns in our business or adverse changes in general economic and industry conditions.
The agreements governing our indebtedness impose restrictions on us and require us to maintain compliance with specified covenants. In particular, the revolving credit facility includesrequires us to maintain compliance with a maximum capitalization ratio and minimum liquidity requirements.debt to EBITDA ratio. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of these covenants and do not obtain a waiver from the lenders or noteholders, then, subject to applicable cure periods, our outstanding indebtedness may be declared immediately due and payable. There can be no assurance that any refinancing or additional financing would be available on terms that are favorable or acceptable to us, if at all. In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with any potential refinancing of our indebtedness. Downgrades in our credit rating could also restrict our ability to obtain additional financing in the future and could affect the terms of any such financing.

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Changes in our tax rates or exposure to additional tax liabilities, and changes to tax laws and interpretations of tax laws could adversely affect our earnings and financial condition.

We are subject to taxes in the United States and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision, tax assets, and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective income tax rate is based in part on our corporate operating structure and the manner in which we operate our business and develop, value and use our intellectual property. Taxing authorities in jurisdictions in which we operate have challenged and audited, and may continue to, challenge and audit our methodologies for calculating our income taxes, which could be adverselyincrease our effective income tax rate and have an adverse impact on our results of operations and cash flows. In addition, our provision for income taxes is materially affected by our profit levels, changes in our business, reorganization of our business and operating structure, changes in theour geographic mix of earnings, in countries with differing statutory tax rates, changes in the elections we make, changes in the valuation of our deferred tax assets and liabilities, changes in our corporate structure, changes in applicable accounting rules, or changes in applicable tax laws or interpretations of existing income and withholding tax laws, or changes in the valuation allowance for deferred tax assets, as well as other factors. The Tax Cutsimpact of excess tax benefits and Jobs Act, enacted on December 22, 2017, represents atax deficiencies could result in significant overhaulfluctuations to theour effective tax rate.
In addition, changes to U.S. federal, tax code. This tax legislation lowers the U.S. statutory tax rate, but also includes a number of provisions that could significantly and adversely impact our U.S. federal income tax position in a reporting period, including the limitationstate or elimination of certain deductions or credits, and ongoing tax requirements related to foreign earnings. During the three months ended December 31, 2017, we recorded a provision for income taxes of $176 million which is a reasonable estimate of the impact of the U.S. Tax Act.  The final calculation of tax expense resulting from the U.S. Tax

Act may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the U.S. Tax Act, our analysis of the U.S. Tax Act, or any updates or changes to estimates that we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions. In addition, any further changes tointernational tax laws applicableor their applicability to corporate multinationals in the countries in which we do business, particularly in Switzerland, where our international business is headquartered, and actions we have taken in our business with respect to such laws, have affected, and could adverselycontinue to affect, our effective tax rates and cash taxes, and could cause us to change the way in which we structure our business orand result in other costscosts. In particular, enactment of the recently proposed U.S. tax legislation could materially impact our provision for income taxes and cash taxes. Our effective tax rate also could be adversely affected by changes in our valuation allowances for deferred tax assets. Our valuation allowances, in turn, can be impacted by several factors, including changes to us.

the expected mix and timing of product releases and future taxable income, expected growth rates of future taxable income, which are based primarily on third party market and industry growth data, changes in interest rates, and actions we take in connection with acquisitions. Significant judgment is involved in determining the amount of valuation allowances, and actual financial results also may differ materially from our current estimates and could have a material impact on our assessments.
We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property, transfer, and goods and services taxes, in both the United States and foreign jurisdictions. Furthermore, we are regularly subjectSeveral foreign jurisdictions have introduced new digital services taxes on revenue of companies that provide certain digital services or expanded their interpretation of existing tax laws with regard to audit by tax authorities with respect to both income and such other non-income taxes. Unfavorable audit resultsThere is limited guidance about the applicability of these new taxes or tax rulings, or other changes resulting in significant additional tax liabilities could have material adverse effects upon our earnings, cash flows, and financial condition.

Our reported financial results could be adversely affected by changes infinancial accounting standards.

Our reported financial results are impacted by the accounting standards promulgated by the SEC and national accounting standards bodies and the methods, estimates, and judgments that we use in applying our accounting policies. These methods, estimates, and judgments are subjectchanging interpretations to risks, uncertainties, assumptions and changes that could adversely affect our reported financial position and financial results. In addition, changes to applicable financial accounting standards could adversely affect our reported financial position and financial results. For example, recently issued accounting standards are expected to materially change the way in which we recognize revenue and account for leases upon adoption. For more information, see Part I, Item 1 of this Form 10-Q in the Notes to Consolidated Financial Statements in Note 1 - Description of Business and Basis of Presentation under the subheading “Impact of Recently Issued Accounting Standards”.

As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relatingsignificant uncertainty as to the way we account for revenue, costs andwhat will be deemed in scope. If these foreign taxes are applied to us, it could have an adverse effectand material impact on our reported results although not necessarilybusiness and financial performance.
GENERAL RISKS
Our business is subject to economic, market, public health and geopolitical conditions.
Our business is subject to economic, market, public health and geopolitical conditions, which are beyond our control. The United States and other international economies have experienced cyclical downturns from time to time. Worsening economic conditions that negatively impact discretionary consumer spending and consumer demand, including inflation, slower growth, recession and other macroeconomic conditions, including those resulting from, and that may persist from, public health outbreaks such as the COVID-19 pandemic and geopolitical issues, such as the impact from the United Kingdom’s departure from the European Union, could have a material adverse impact on our cash flows.business and operating results.

We are particularly susceptible to market conditions and risks associated with the entertainment industry, which, in addition to general macroeconomic downturns, also include the popularity, price and timing of our games, changes in consumer demographics, the availability and popularity of other forms of entertainment, and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.
Our stock price has been volatile and may continue to fluctuate significantly.

The market price of our common stock historically has been, and we expect will continue to be, subject to significant fluctuations. These fluctuations may be due to our operating results or factors specific to usour operating results (including those discussed in the risk factors above, as well as others not currently known to us or that we currently do not believe are material), to changes in securities analysts’ earnings estimates of our future financial performance, ratings or ratings, torecommendations, our results or future financial guidance falling below our expectations and analysts’ and investors’ expectations, the failure of our capital return programs to factors affectingmeet analysts’ and investors’ expectations, the entertainment, computer, software, Internet, media or electronics industries, to our ability to successfully integrateannouncement and integration of any acquisitions we may make,
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departure of key personnel, cyberattacks, or tofactors largely outside of our control including, those affecting interactive gaming, entertainment, and/or technology companies generally, national or international economic conditions.conditions, investor sentiment or other factors related or unrelated to our operating performance. In particular, economic downturns may contribute to the public stock markets experiencing extreme price and trading volume volatility. These broad market fluctuations could adversely affect the market price of our common stock.




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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Stock Purchase ProgramsItem 2.Unregistered Sales of Equity Securities and Use of Proceeds

In May 2015,November 2020, our Board of Directors authorized a program to repurchase up to $1 billion of our common stock. We repurchased approximately 0.3 million shares for approximately $31 million under this program during the three months ended June 30, 2017. We completed repurchases under the May 2015 program in April 2017.
In May 2017, a Special Committee of our Board of Directors, on behalf of the full Board of Directors, authorized a program to repurchase up to $1.2$2.6 billion of our common stock. This stock repurchase program expires on May 31, 2019.November 4, 2022. Under this program, we may purchase stock in the open market or through privately-negotiatedprivately 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. During the three and nine months ended December 31, 2017,September 30, 2021, we repurchased approximately 1.4 million and 3.82.3 million shares for approximately $150$325 million and $422 million, respectively, under this program. We are actively repurchasing shares under this program.
The following table summarizes the number of shares repurchased during the three months ended December 31, 2017:
Fiscal MonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramsMaximum Dollar Value that May Still Be Purchased Under the Programs (in millions)
July 4, 2021 - July 31, 2021687,704 $142.54 687,704 $1,527 
August 1, 2021 - August 28, 2021736,713 $140.06 736,713 $1,424 
August 29, 2021 - October 2, 2021893,512 $138.58 893,512 $1,300 
2,317,929 $140.23 2,317,929 

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)
October 1 - October 28, 2017 409,732
 $116.42
 409,732
 $880
October 29 - November 25, 2017 244,871
 $112.41
 244,871
 $853
November 26 - December 30, 2017 704,303
 $106.33
 704,303
 $778
  1,358,906
 $110.47
 1,358,906
  


Item 3.Defaults Upon Senior Securities
Item 3.Defaults Upon Senior Securities

None.


Item 4.Mine Safety Disclosures
Item 4.Mine Safety Disclosures

Not applicable.


Item 6.Exhibits
Item 6.Exhibits

The exhibits listed in the accompanying index to exhibits on Page 6265 are filed or incorporated by reference as part of this report.




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Table of Contents
ELECTRONIC ARTS INC.
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2017SEPTEMBER 30, 2021
EXHIBIT INDEX

Incorporated by Reference
NumberExhibit TitleFormFile No.Filing DateFiled
Herewith
Incorporated by Reference
NumberExhibit TitleFormFile No.Filing Date
Filed
Herewith
8-K000-1794808/13/2021X
X
X
X
Additional exhibits furnished with this report:
X
X
101.INS†
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCH†
Inline XBRL Taxonomy Extension Schema DocumentX
101.CAL†
Inline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEF†
Inline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LAB†
Inline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PRE†
Inline XBRL Taxonomy Extension Presentation Linkbase DocumentX
*104Management contract or compensatory plan or arrangement

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2017 are the following formatted in eXtensible Business Reporting Language (“XBRL”): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Operations, (3) Condensed Consolidated Statements of Comprehensive Income (Loss), (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.X



†    Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 are the following formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Operations, (3) Condensed Consolidated Statements of Comprehensive Income, (4) Condensed Consolidated Statements of Stockholders' Equity, (5) Condensed Consolidated Statements of Cash Flows, and (6) Notes to Condensed Consolidated Financial Statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ELECTRONIC ARTS INC.
(Registrant)
/s/ Blake Jorgensen
DATED:Blake Jorgensen
February 6, 2018November 9, 2021Executive Vice President,
EVP and Chief Financial Officer


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