Electronic Arts 2010 Annual Report Download - page 176

Subsequent to March 31, 2010, we entered into various licensor and development agreements with third parties,
which contingently commits us to pay up to $170 million at various dates through fiscal year 2016. No single
licensor and development agreement represented greater than one-third of the total $170 million.
Legal Proceedings
We are subject to claims and litigation arising in the ordinary course of business. We do not believe that any
liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the
aggregate, would have a material adverse effect on our Consolidated Financial Statements.
(12) PREFERRED STOCK
As of March 31, 2010 and 2009, we had 10,000,000 shares of preferred stock authorized but unissued. The rights,
preferences, and restrictions of the preferred stock may be designated by our Board of Directors without further
action by our stockholders.
(13) STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS
Valuation Assumptions
We are required to estimate the fair value of share-based payment awards on the date of grant. We recognize
compensation costs for stock-based payment transactions to employees based on their grant-date fair value on a
straight-line approach over the service period for which such awards are expected to vest. The fair value of
restricted stock units and restricted stock is determined based on the quoted market price of our common stock on
the date of grant. The fair value of stock options and stock purchase rights granted pursuant to our equity incentive
plans and our ESPP, respectively, is determined using the Black-Scholes valuation model. The fair value of our
stock options is based on the multiple-award valuation method. The determination of fair value is affected by our
stock price, as well as assumptions regarding subjective and complex variables such as expected employee exercise
behavior and our expected stock price volatility over the expected term of the award. Generally, our assumptions are
based on historical information and judgment is required to determine if historical trends may be indicators of future
outcomes. The key assumptions for the Black-Scholes valuation calculation are:
•Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of
grant for the expected term of the option.
•Expected volatility. We use a combination of historical stock price volatility and implied volatility
computed based on the price of options publicly traded on our common stock for our expected volatility
assumption.
•Expected term. The expected term represents the weighted-average period the stock options are expected
to remain outstanding. The expected term is determined based on historical exercise behavior, post-
vesting termination patterns, options outstanding and future expected exercise behavior.
•Expected dividends.
The estimated assumptions used in the Black-Scholes valuation model to value our option grants and ESPP were
as follows:
Stock Option Grants ESPP
Year Ended March 31, Year Ended March 31,
2010 2009 2008 2010 2009 2008
Risk-free interest
rate .............. 1.4-3.1% 1.0 - 3.8% 1.8 - 5.1% 0.2 - 0.4% 0.5 - 2.1% 1.7 - 4.2%
Expected volatility .... 40-48% 32-53% 31-37% 35-57% 35-75% 32-35%
Weighted-average
volatility .......... 45% 42% 33% 39% 66% 34%
Expected term ....... 4.2years 4.3 years 4.4 years 6-12 months 6-12 months 6-12 months
Expected dividends . . . None None None None None None
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