Electronic Arts 1999 Annual Report Download - page 12

The increase in marketing and sales expenses was primarily attributable to increased print, Internet and television advertis-
ing to support new releases and increased cooperative advertising associated with higher revenues in North America and
Europe as compared to the prior year. Increases in marketing and sales expenses were also due to additional headcount
related to the continued expansion of our worldwide distribution business and the acquisitions of ABC Software and
Westwood Studios.
The increase in general and administrative expenses was primarily due to an increase in headcount and occupancy costs
to support the increase in growth in North America and Europe operations, including the opening of additional interna-
tional offices in Europe and the acquisition of ABC Software.
The increase in research and development expenses was due to additional headcount-related expenses attributable
to the acquisition of Westwood Studios, Inc. and certain assets of the Irvine, California–based Virgin Studio (collectively
“Westwood”) in September 1998 and Tiburon Entertainment, Inc. in April 1998, higher development costs per title,
as products are including more content and are more complex and time consuming to develop, and an increase
in development costs for Ultima Online.
We released a total of 59 new products in fiscal 1999 compared to 71 in fiscal 1998.
Other Operating Expenses 1999 1998 % change
Amortization of intangibles $ 5,880,000 $ – N/M
As a percentage of net revenues 0.5% N/A
Charge for acquired in-process technology $ 44,115,000 $ 1,500,000 N/M
As a percentage of net revenues 3.6% 0.2%
Merger costs $ – $ 10,792,000 (100.0)
As a percentage of net revenues N/A 1.2%
Amortization of intangibles results from the acquisitions of Westwood and ABC Software in the second quarter of
fiscal 1999.
In connection with the purchase of Westwood in September 1998, we allocated and expensed $41,836,000 of the
$122,688,000 purchase price to in-process research and development projects. This allocation represents the estimated
fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of
acquisition, this amount was expensed as a non-recurring charge as the in-process technology had not yet reached tech-
nological feasibility and had no alternative future uses. Westwood had three major PC-CD projects in progress at the time
of the acquisition including two in the best-selling franchise Command and Conquer and one in the critically acclaimed
Lands of Lore series. As of the acquisition date, costs to complete the Westwood projects acquired were expected to be
approximately $9.1 million in fiscal 1999, $10.6 million in fiscal 2000 and $1.0 million in fiscal 2001. We believe there have
been no significant changes to these estimates as of March 31, 1999. We currently expect to complete the development
of these projects at various dates through fiscal 2001 and to publish the products upon completion.
The nature of the efforts required to develop the acquired in-process technology into commercially viable products
principally relate to the completion of all planning, designing and testing activities necessary to establish that the product
can be produced to meet our design requirements including functions, features and technical performance requirements.