Electronic Arts 2004 Annual Report Download - page 46

We expected increased research and development expenses in Ñscal 2004 as we continued to support the
global growth of our research and development capabilities. In recent quarters, we have developed a greater
number of titles internally. We expect increased research and development spending to continue in Ñscal 2005
due to the development of next-generation tools and technologies and to a lesser extent, increased spending
on current-generation console products including the PlayStation 2, Xbox and Nintendo GameCube, as well
as extending our investment in the development of games for the PC.
Amortization of Intangibles
Amortization of intangibles for Ñscal years 2004 and 2003 (in thousands):
March 31, % of Net March 31, % of Net
2004 Revenue 2003 Revenue $ Change % Change
$2,735 0.1% $7,482 0.3% $(4,747) (63.4%)
Amortization of intangibles results primarily from our acquisitions of Westwood, Kesmai, DreamWorks
Interactive, ABC Software, Pogo and other acquisitions. The decline in amortization was a result of the
impairment charges taken in Ñscal 2003.
Restructuring and Asset Impairment Charges
Restructuring and asset impairment charges for Ñscal years 2004 and 2003 (in thousands):
March 31, % of Net March 31, % of Net
2004 Revenue 2003 Revenue % Change
Restructuring Charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $9,708 0.3% $15,102 0.6% (35.7%)
Asset Impairment Charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì 0.0% $66,329 2.7% (100.0%)
Fiscal 2004 Studio Restructuring
During the fourth quarter of Ñscal 2004, we closed the majority of our leased studio facility in Walnut Creek,
California and our entire owned studio facility in Austin, Texas. The studio closures were the result of a
strategic decision to consolidate local development eÅorts in Redwood City, California. We recorded total
pre-tax charges of $9.2 million, consisting of $7.0 million for consolidation of facilities, $1.7 million for
workforce reductions and $0.5 million for the write-oÅ of non-current assets, primarily leasehold
improvements. The facilities charge included contractual rental commitments under the real estate lease for
unutilized oÇce space at our Walnut Creek location, oÅset by estimated future sub-lease income. The exit
plans resulted in a workforce reduction of approximately 117 personnel in development and administrative
departments, the majority of whom are expected to be terminated in the Ñrst quarter of Ñscal 2005. In
addition, we also expect immaterial charges to be incurred during the Ñrst quarter of Ñscal 2005, primarily
related to the Texas facility relocation.
Fiscal 2003 Studio Restructuring
During the third quarter of Ñscal 2003, we closed our oÇce located in San Francisco, California and our studio
located in Seattle, Washington. The oÇce and studio closures were the result of a strategic decision to
consolidate local development eÅorts in Redwood City, California and Vancouver, British Columbia, Canada.
We recorded total pre-tax charges of $9.4 million, consisting of $7.3 million for consolidation of facilities,
$1.5 million for the write-oÅ of non-current assets, primarily leasehold improvements, and $0.6 million for
workforce reductions. The facilities charge was net of a reduction in deferred rent of $0.5 million. The exit
plans resulted in a workforce reduction of approximately 33 personnel in development and administrative
departments. The estimated costs for consolidation of facilities included contractual rental commitments
under the real estate lease for unutilized oÇce space, oÅset by estimated future sub-lease income.
Additionally, during the fourth quarter of Ñscal 2003, we approved a plan to consolidate the Los Angeles,
California, Irvine, California and Las Vegas, Nevada, studios into one major game studio in Los Angeles.
These measures were taken in order to maximize eÇciencies and streamline the creative development process
and operations of our studios. In connection with these consolidation activities, we recorded a total pre-tax
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