Electronic Arts 2008 Annual Report Download - page 117

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, software licenses and maintenance, network infrastructure and management
overhead.
Research and development expenses for fiscal years 2008 and 2007 were as follows (in millions):
March 31,
2008
% of Net
Revenue
March 31,
2007
% of Net
Revenue $ Change % Change
$1,145 31% $1,041 34% $104 10%
As a percentage of net revenue, research and development expenses were adversely impacted by our deferral
of net revenue related to online-enabled packaged goods and digital content during fiscal 2008.
Research and development expenses increased by $104 million, or 10 percent, in fiscal 2008 as compared to
fiscal 2007. The increase was primarily due to (1) an increase of $93 million in additional personnel-related
costs primarily due to an increase in headcount and partially as a result of our acquisition of VGH, (2) higher
external development costs of $32 million to support new releases such as our Union of European Football
Association’s EURO soccer franchise and titles from The Sims franchise, and (3) an increase in depreciation
of $12 million. These increases were partially offset by a $24 million reduction in incentive-based compensa-
tion expense and $6 million reduction in facilities-related expenses.
We expect research and development expenses to increase in absolute dollars in fiscal 2009 as compared to
fiscal 2008 primarily due to an increase in personnel-related costs and a greater number of titles in
development.
Amortization of Intangibles
Amortization of intangibles for fiscal years 2008 and 2007 were as follows (in millions):
March 31,
2008
% of Net
Revenue
March 31,
2007
% of Net
Revenue $ Change % Change
$34 1% $27 1% $7 26%
For fiscal 2008, amortization of intangibles resulted from our acquisitions of JAMDAT, VGH and others. For
fiscal 2007, amortization of intangibles resulted from our acquisitions of JAMDAT, Mythic and others.
Amortization of intangibles increased by $7 million, or 26 percent, in fiscal 2008 as compared to fiscal 2007
primarily due to the amortization of intangibles related to our acquisition of VGH. See Note 4 of the Notes to
Consolidated Financial Statements included in Item 8 of this report.
We expect amortization of intangible expenses to increase in fiscal 2009 primarily due to the amortization of
intangibles related to our acquisition of VGH, which will be included in our results for a full year in fiscal
2009.
Acquired In-Process Technology
Acquired in-process technology charges for fiscal years 2008 and 2007 were as follows (in millions):
March 31,
2008
% of Net
Revenue
March 31,
2007
% of Net
Revenue $ Change % Change
$138 4% $3 — $135 4500%
Acquired in-process technology includes the value of products in the development stage that are not considered
to have reached technological feasibility or have an alternative future use. Accordingly, upon consummation of
an acquisition, we generally incur a charge for the related acquired in-process technology, as reflected in our
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