Electronic Arts 2007 Annual Report Download - page 115

Marketing and sales expenses increased by $35 million, or 8 percent, in fiscal 2007 as compared to fiscal
2006. The increase was primarily due to (1) an increase of $17 million in stock-based compensation expense
recognized as a result of our adoption of SFAS No. 123(R), (2) an increase of $10 million in our annual bonus
expense, and (3) $10 million in additional personnel-related costs primarily resulting from an increase in
headcount. These increases were partially offset by a decrease of $9 million in our marketing, advertising,
promotional and related services as a result of higher advertising in the prior year to support our product
releases, primarily from our Harry Potter and BLACK franchises.
Marketing and sales expenses included vendor reimbursements for advertising expenses of $28 million and
$41 million in fiscal 2007 and 2006, respectively.
We expect marketing and sales expenses to increase in absolute dollars in fiscal 2008 primarily to support our
titles.
General and Administrative
General and administrative expenses consist of personnel and related expenses of executive and administrative
staff, fees for professional services such as legal and accounting, and allowances for doubtful accounts.
General and administrative expenses for fiscal years 2007 and 2006 were as follows (in millions):
March 31,
2007
%ofNet
Revenue
March 31,
2006
%ofNet
Revenue $ Change % Change
$288 9% $215 7% $73 34%
General and administrative expenses increased by $73 million, or 34 percent, in fiscal 2007 as compared to
fiscal 2006 primarily due to (1) an increase of $36 million in stock-based compensation expense recognized as
a result of our adoption of SFAS No. 123(R), (2) a $14 million increase in our annual bonus expense, (3) an
$11 million increase in additional personnel-related costs to help support our administrative functions
worldwide, and (4) an increase of $11 million in professional and contracted services in support of our
technology infrastructure.
We expect general and administrative expenses to increase in absolute dollars in fiscal 2008 primarily due to
an increase in personnel-related costs.
Research and Development
Research and development expenses consist of expenses incurred by our production studios for personnel-
related costs, contracted services, equipment depreciation and any impairment of prepaid royalties for pre-
launch products. Research and development expenses for our online business 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 the
development of web site content, network infrastructure direct expenses, software licenses and maintenance,
and network and management overhead.
Research and development expenses for fiscal years 2007 and 2006 were as follows (in millions):
March 31,
2007
%ofNet
Revenue
March 31,
2006
%ofNet
Revenue $ Change % Change
$1,041 34% $758 26% $283 37%
Research and development expenses increased by $283 million, or 37 percent, in fiscal 2007 as compared to
fiscal 2006. The increase was primarily due to (1) an increase of $75 million in stock-based compensation
expense recognized as a result of our adoption of SFAS No. 123(R), (2) a $59 million increase in our annual
bonus expense, (3) $54 million in additional personnel-related costs, primarily due to a 14 percent increase in
headcount related in part to our acquisitions of JAMDAT and Mythic, and partially to support development of
games for the new generation of consoles, (4) an increase of $50 million in external development expenses
primarily due to a greater number of projects in development as compared to the prior year as well as
Annual Report
41