It was a tough week. We laid my partner and founder Karen Berman to rest in LA on Tuesday and then it was on to San Francisco for two days with EA. May Karen rest in peace.
The training went well when we finally made it through the fog the night before. One of the exciting parts of traveling and training is presenting on a day when delayed flights get you to your hotel after 1:00am. I find it builds character. Since I was coming from Karen’s service I had my wife and two youngest sons with me on this trip. My son Jonah told me that travel wasn’t as cool as he thought. The family got a good taste of the glamorous business travel life.
The EA training on the first day went well. We had a surprise visit in the afternoon from EA’s new CFO Blake Jorgensen. The class had lots of questions and Blake did not disappoint. We talked about a lot of topics like how to improve operating margins and forecasting. One interesting point was the change in the EA forecasting approach from a range to a single point on key metrics like earning per share (EPS). Blake said he went to a single number to build credibility with the street and set solid tangible goals for EA. There is some risk because if you miss the numbers presented the stock can be punished. We had a great discussion on strategies to improve margins and the places EA needs to focus. The stock is up lately so it appears at this point the street likes the direction that EA is headed.
One the second day we did a session with the sales group. This class was lively. I find that sales people always like to ask questions and understand the business. The EA group was no different. We hit all the standard topics related to the P & L in this session. The group was especially interested in SRA’s (sales return allowances). This allowance guarantee is an accrual (accounting for estimate) of how many of the games EA ships to its retailers will be returned. This estimate is deducted from the revenue recorded on the income statement in a current period for returns allowed by EA. Since this number effects sales commissions and total sales these accruals are closely watched. This SRA accrual like so many other accruals on the income statement is estimates. So when you see the net profit at the bottom of the income statement you know that the number you are looking at is based on estimates and therefore is subject to change and adjustments. To sum it up accounting in many ways is as much an art as it is a science.