REVENUE FROM CONTRACTS WITH CUSTOMERS

Impacts on financial statement line items

Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Statement of Operations for the three months ended December 31, 2018:



	Amounts as reported			Amounts without adoption of New Revenue Accounting Standard			Increase (decrease) due to adoption of New Revenue Accounting Standard
Net revenue	$	1,248,738		$	486,563		$	762,175
Cost of goods sold	898,484			603,170			295,314
Gross profit (loss)	350,254			(116,607		)	466,861
Selling and marketing	161,322			161,322			—
General and administrative	70,638			70,638			—
Research and development	62,305			62,305			—
Depreciation and amortization	10,140			10,140			—
Business reorganization	(5,930		)	(5,930		)	—
Total operating expenses	298,475			298,475			—
Income (loss) from operations	51,779			(415,082		)	466,861
Interest and other, net	8,071			7,808			263
Income (loss) before income taxes	59,850			(407,274		)	467,124
Benefit from income taxes	120,098			176,570			(56,472		)
Net income (loss)	$	179,948		$	(230,704	)	$	410,652
Earnings (loss) per share:
Basic earnings (loss) per share	$	1.59		$	(2.03	)	$	3.62
Diluted earnings (loss) per share	$	1.57		$	(2.03	)	$	3.60

Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Statement of Operations for the nine months ended December 31, 2018:



	Amounts as reported			Amounts without adoption of New Revenue Accounting Standard			Increase (decrease) due to adoption of New Revenue Accounting Standard
Net revenue	$	2,129,387		$	1,345,985		$	783,402
Cost of goods sold	1,264,730			953,742			310,988
Gross profit	864,657			392,243			472,414
Selling and marketing	313,793			313,793			—
General and administrative	205,693			205,693			—
Research and development	173,582			173,582			—
Depreciation and amortization	29,151			29,151			—
Business reorganization	(6,172		)	(6,172		)	—
Total operating expenses	716,047			716,047			—
Income (loss) from operations	148,610			(323,804		)	472,414
Interest and other, net	19,647			18,757			890
Income (loss) before income taxes	168,257			(305,047		)	473,304
Benefit from income taxes	108,750			208,210			(99,460		)
Net income (loss)	$	277,007		$	(96,837	)	$	373,844
Earnings (loss) per share:
Basic earnings (loss) per share	$	2.44		$	(0.85	)	$	3.29
Diluted earnings (loss) per share	$	2.41		$	(0.85	)	$	3.26

Our adoption of the New Revenue Accounting Standard had the following impact on our Condensed Consolidated Balance Sheet as of December 31, 2018:



	Amounts as reported			Amounts without adoption of New Revenue Accounting Standard			Increase (decrease) due to adoption of New Revenue Accounting Standard
ASSETS
Accounts receivable, net	$	823,482		$	746,971		$	76,511
Software development costs and licenses	33,542			47,223			(13,681		)
Deferred cost of goods sold	57,280			198,202			(140,922		)
Prepaid expenses and other	179,454			218,016			(38,562		)
Software development costs and licenses, net of current portion	597,497			759,754			(162,257		)
Deferred cost of goods sold, net of current portion	7,819			88,941			(81,122		)
Deferred tax assets	146,216			168,414			(22,198		)

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities	$	1,206,332		$	1,098,639		$	107,693
Deferred revenue	818,411			1,457,069			(638,658		)
Non-current deferred revenue	69,137			734,057			(664,920		)
Other long-term liabilities	191,198			217,492			(26,294		)
Retained earnings (accumulated deficit)	820,796			(23,323		)	844,119
Accumulated other comprehensive loss	(50,954		)	(46,783		)	(4,171		)

Our adoption of the New Revenue Accounting Standard accelerated the revenue recognition of prior period game sales into retained earnings, which may result in increased cash taxes paid on our Consolidated Statement of Cash Flows for the fiscal year ending March 31, 2019.

Disaggregation of revenue

Product revenue

Product revenue is primarily comprised of the portion of revenue from software products that is recognized when the customer takes control of the product (i.e. upon delivery of the software product).

Service and other revenue

Service and other revenue is primarily comprised of revenue from game related services, virtual currency transactions, and in-game purchases which are recognized over an estimated service period.

Net revenue by product revenue and service and other was as follows:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2018		2018
Net revenue recognized:
Product	$	937,456	$	1,195,724
Service and other	311,282		933,663
Total net revenue	$	1,248,738	$	2,129,387

Full game and other revenue

Full game and other revenue primarily includes the initial sale of full game software products, which may include offline and/or significant game related services.

Recurrent consumer spending revenue

Recurrent consumer spending revenue is generated from ongoing consumer engagement and includes revenue from virtual currency, add-on content, and in-game purchases.

Net revenue by full game and other revenue and recurrent consumer spending was as follows:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2018		2018
Net revenue recognized:
Full game and other	$	952,182	$	1,351,202
Recurrent consumer spending	296,556		778,185
Total net revenue	$	1,248,738	$	2,129,387

Geography

We attribute net revenue to geographic regions based on software product destination. Net revenue by geographic region was as follows:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2018		2018
Net revenue recognized:
United States	$	651,568	$	1,152,285
International	597,170		977,102
Total net revenue	$	1,248,738	$	2,129,387

Platform

Net revenue by platform was as follows:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2018		2018
Net revenue recognized:
Console	$	1,144,459	$	1,811,429
PC and other	104,279		317,958
Total net revenue	$	1,248,738	$	2,129,387

Distribution channel

Our products are delivered through digital online services (digital download, online platforms, and cloud streaming) and physical retail and other. Net revenue by distribution channel was as follows:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2018		2018
Net revenue recognized:
Digital online	$	594,722	$	1,268,140
Physical retail and other	654,016		861,247
Total net revenue	$	1,248,738	$	2,129,387

Deferred Revenue

We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations. Deferred revenue, including current and non-current balances as of December 31, 2018 and April 1, 2018 were $887,548 and $566,141, respectively. For the nine months ended December 31, 2018, the additions to our deferred revenue balance were due primarily to cash payments received or due in advance of satisfying our performance obligations, while the reductions to our deferred revenue balance were due primarily to the recognition of revenue upon fulfillment of our performance obligations, both of which were in the ordinary course of business.

During the nine months ended December 31, 2018, $504,600 of revenue was recognized that was included in the deferred revenue balance at the beginning of the period. As of December 31, 2018, the aggregate amount of contract revenue allocated to unsatisfied performance obligations is $887,548. We expect to recognize approximately $818,411 of this balance as revenue over the next 12 months, and the remainder thereafter.

As of December 31, 2018 and April 1, 2018, our contract asset balances were $70,067 and $69,522, respectively, which are recorded within Prepaid expenses and other in our Consolidated Balance Sheets.