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Electronic Arts Inc.
Fiscal Year 2011
Proxy Statement and Annual Report

Table of contents

  • Page 1
    Electronic Arts Inc. Fiscal Year 2011 Proxy Statement and Annual Report

  • Page 2

  • Page 3
    Proxy Statement Notice of 2011 Annual Meeting and Proxy Statement

  • Page 4
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  • Page 5
    ...fiscal 2012. After the meeting, we will report on our recent performance and answer your questions. Details regarding admission to the meeting and the business to be conducted are described in the Notice of Internet Availability of Proxy Materials you received in the mail and in this proxy statement...

  • Page 6
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  • Page 7
    Notice of 2011 Annual Meeting of Stockholders DATE: TIME: July 28, 2011 2:00 p.m. local time PLACE: ELECTRONIC ARTS' HEADQUARTERS Building 250* 209 Redwood Shores Parkway Redwood City, CA 94065 * Please note: Building 250 is located on the headquarters campus at 250 Shoreline Drive MATTERS TO BE ...

  • Page 8
    ...Leadership Committee Report on Executive Compensation ...Summary Compensation Table ...Grants of Plan-Based Awards Table ...Outstanding Equity Awards at Fiscal Year-end ...Option Exercises and Stock Vested Table ...Nonqualified Deferred Compensation Table ...Potential Payments Upon Change of Control...

  • Page 9
    ... "the Company" mean Electronic Arts Inc. • "2000 Equity Plan" and "Equity Plan" mean EA's 2000 Equity Incentive Plan. • "2000 Purchase Plan" and "Purchase Plan" mean EA's 2000 Employee Stock Purchase Plan. • Holding shares in "street name" means your EA shares are held in an account at a bank...

  • Page 10
    ... by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the meeting. Who can vote at the Annual Meeting? Stockholders who owned common stock on June 6, 2011 may attend and vote at the Annual Meeting. If your shares are registered directly in...

  • Page 11
    ... change your vote at any time before the polls close at the meeting. You may do this by: • Sending a signed statement to the Company that the proxy is revoked (you may send such a statement to the Company's Secretary at our corporate headquarters address listed on the Notice of 2011 Annual Meeting...

  • Page 12
    ... votes on executive compensation, an "abstain" vote will have no effect. If you sign and return your proxy without voting instructions, your shares will be voted as recommended by the Board. What is the effect of a "broker non-vote" on the proposals to be voted on at the 2011 Annual Meeting? If your...

  • Page 13
    ... contacting our Investor Relations department at (650) 628-7352 or the SEC at (800) SEC-0330 for the location of its nearest public reference room. You can also get a copy on the Internet at http://investor.ea.com or through the SEC's electronic data system called EDGAR at www.sec.gov. Who will pay...

  • Page 14
    ... first time this year: • Luis A. Ubiñas Mr. Ubiñas was appointed to the Board on November 9, 2010. Required Vote and Board of Directors' Recommendation In accordance with our bylaws, if EA's Corporate Secretary has not received timely and proper notice from a stockholder indicating an intention...

  • Page 15
    .../Nets. Mr. Coleman was President of The National League of Professional Baseball Clubs from 1994 to 1999, having previously served since 1992 as Executive Director, Market Development of Major League Baseball. Mr. Coleman currently serves on the Board of Directors of the following public companies...

  • Page 16
    ... Board his past experience as the Vice Chairman of a large public company and Chief Executive Officer of its dominant business. He has extensive international business knowledge, particularly emerging markets, and expertise in financial evaluation of business plans, mergers and acquisitions and risk...

  • Page 17
    ... as President, Business Operations and Chief Financial Officer of Rearden Commerce since April 2011. From 2001 to 2010, Mr. Simonson held a number of executive positions at Nokia Corporation, including Executive Vice President, Head of Mobile Phones and Sourcing, Chief Financial Officer, and Vice...

  • Page 18
    ... compensatory fee from the Company other than their director compensation. BOARD, BOARD MEETINGS, AND COMMITTEES The Board meets on a fixed schedule four times each year and also holds special meetings and acts by written consent. In fiscal 2011, the Board met eight times and also acted by written...

  • Page 19
    ... 2010. Copies of the each Committee's charter may be found in the Investor Relations portion of our website at http://investor.ea.com. In accordance with the Committee charters, and with current regulatory requirements, all members of these Committees are independent directors. During fiscal 2011...

  • Page 20
    ... as business experience and diversity. The Nominating and Governance Committee is currently comprised of three directors, each of whom in the opinion of the Board of Directors meets the independence requirements of the NASDAQ Stock Market Rules. The Nominating and Governance Committee met four times...

  • Page 21
    ...of time the stockholder has held such stock. Stockholders wishing to submit candidates for consideration by the Nominating and Governance Committee may do so by writing to EA's Corporate Secretary at Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065, Attn: Director Nominations...

  • Page 22
    ... code of ethics provisions applicable to our directors, principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers) is available in the Investor Relations section of our website at http://investor.ea.com. From time to time, we post...

  • Page 23
    ... with the Board of Directors EA stockholders may communicate with the Board as a whole, with a committee of the Board, or with an individual director by sending a letter to EA's Corporate Secretary at Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065, or by sending an email to...

  • Page 24
    ... stock option having an exercise price equal to the fair market value of our common stock on the date of grant, which is the first trading day of each quarter of the Board year. Other Benefits Non-employee directors, who are not employed with any other company, are offered an opportunity to purchase...

  • Page 25
    ...(4) Compensation and Employee Benefit Plans," of the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011. Each non-employee director standing for re-election at the 2010 Annual Meeting received an RSU grant of 10,000 shares of EA common stock...

  • Page 26
    ... a reasonable range. Historically, we have made a significant portion of our equity grants in a given fiscal year in connection with our annual reviews and merit increases. During fiscal 2011, we granted stock options to purchase a total of approximately 174,047 shares and restricted stock units to...

  • Page 27
    ... the Purchase Plan, as well as the number of employees who have participated in the Purchase Plan: Proxy Statement Shares Purchased Pursuant to the Purchase Plan No. of Employees Participating as of the Last Purchase Date in Fiscal Year Fiscal 2009 ...Fiscal 2010 ...Fiscal 2011 ...Fiscal 2012...

  • Page 28
    ... Annual Meeting: "RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the named executive officers for 2011, including the Compensation Discussion and Analysis, the compensation tables and the related narrative disclosures in this Proxy Statement." Our Board...

  • Page 29
    ...proposal on the proxy card: one year, two years, three years or abstain. The option that receives the highest number of votes by Company stockholders will be the frequency for the advisory vote on executive compensation that has been selected by the stockholders. Advisory Vote and Board of Directors...

  • Page 30
    ...the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fee." These services may include employee benefit plan audits, accounting consultations in connection with transactions, and merger and acquisition due diligence. In fiscal year 2011, these...

  • Page 31
    ... audit-related services are compatible with maintaining KPMG LLP's independence. Proxy Statement Required Vote and Board of Directors' Recommendation Approval of this proposal requires the affirmative vote of a majority of the voting shares present at the meeting in person or by proxy and voting...

  • Page 32
    ... non-employee directors, each of whom in the opinion of the Board of Directors meets the current independence requirements and financial literacy standards of the NASDAQ Stock Market Rules, as well as the independence requirements of the Securities and Exchange Commission. During fiscal 2011, the...

  • Page 33
    ...audited consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows of the Company for each of the last three years ended March 31, 2011 be included for filing with the SEC in the Company's Annual Report on Form 10-K for the year ended March 31, 2011. The Audit...

  • Page 34
    ... as otherwise indicated, the address for each of our directors and executive officers is c/o Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065. Shares Owned(1) Right to Acquire(2) Percent of Outstanding Shares(3) Stockholder Name Dodge & Cox(4) ...Primecap Management Company...

  • Page 35
    ... to vote or direct the vote of 21,490,000 shares. The address for Capital Research Global Investors is 333 South Hope Street, Los Angeles, CA 90071. Based on information contained in a report on Form 13F filed with the SEC in which The Vanguard Group, Inc. indicated that as of March 31, 2011 it had...

  • Page 36
    ...pay-for-performance approach to executive compensation: • Principle 1 - Cash Compensation: A significant portion of each NEO's cash compensation should be based on the annual financial, strategic and operational performance of the Company and the NEO's business unit (if applicable) and be "at risk...

  • Page 37
    ... stock price. The performance-based RSUs granted in fiscal 2012 will vest based on the Company's total stockholder return relative to the performance of the companies in the NASDAQ-100 Index, an index of the 100 largest domestic and international non-financial securities listed on NASDAQ. Additional...

  • Page 38
    ... our executive compensation programs using data from the Radford High Technology Executive Compensation Surveys, the Croner Software Games Survey, and publicly available information on our peer group. This analysis included a comparison of the compensation of each of our executive-level positions to...

  • Page 39
    ... financial, strategic and operational performance of the Company and the executive's relevant business unit (as applicable); • the individual performance of each executive officer, as evaluated by management; • the market data provided by Compensia; and • the current unvested equity holdings...

  • Page 40
    ...after consulting with Compensia regarding the current market practices for CEO compensation, considering Mr. Riccitiello's unvested equity holdings, the performance of our stock, and the overall performance of the Company. Time-based restricted stock units were used to strengthen the retention value...

  • Page 41
    ...our executive management team through the use of long-term equity retention incentives during a period of Company transformation. As a result of these decisions, Mr. Brown's total direct compensation declined by 1 percent year-over-year. Mr. Gibeau FY 2011 ($) FY 2010 ($) Change (%) Proxy Statement...

  • Page 42
    ... internal revenue and profitability goals; significant growth in digital revenue for the EA SPORTS Label; and specific organizational objectives. Mr. Moore was granted 130,000 time-based restricted stock units in fiscal 2011, which will vest ratably on an annual basis over a three-year period...

  • Page 43
    ... set the fiscal 2011 performance measure needed for funding under the Executive Bonus Plan as non-GAAP earnings per share of $0.50. The Committee selected this funding threshold because it reflected a key measure of our ability to execute on our operating plan for the year. The Company reported non...

  • Page 44
    ...can be earned will be based on the Company's total stockholder return ("TSR") relative to the performance of the companies in the NASDAQ-100 Index over a one, two, and three-year period. In each period, the number of shares that each executive can earn will range from 0 percent to 200 percent of the...

  • Page 45
    ...benefits provided to NEOs in prior years are reported in the "All Other Compensation" column of the "Summary Compensation Table" below. Post-Employment Arrangements Change of Control Plan Our executive officers, including our NEOs, are eligible to participate in the Electronic Arts Inc. Key Employee...

  • Page 46
    ... insider trading laws. Under this policy, certain employees (including all of our executive officers) who regularly have access to material, non-public information about the Company are prohibited from buying or selling shares of the Company's common stock during periods when the Company's trading...

  • Page 47
    ... units and stock options has removed a financial reporting disincentive to use restricted stock units that existed before we began expensing stock options under the current accounting standard. As such, we use restricted stock units for all employee groups, including our NEOs. EXECUTIVE COMPENSATION...

  • Page 48
    ... used to calculate the fair value of stock options, see Note 13, "Stock-Based Compensation and Employee Benefit Plans", of the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011. Represents amounts awarded under the Electronic Arts Executive...

  • Page 49
    ... sale of his home, measured as the difference between the original purchase price of the home and the fair market value, assessed using independent appraisals, immediately prior to marketing the home for sale. Mr. Schappert returned $247,201 of the relocation-related compensation paid by the Company...

  • Page 50
    ... be $6,200,000. No shares have yet vested under the Performance-Based RSUs. Mr. Schappert resigned and ceased being EA's Chief Operating Officer effective April 25, 2011. Represents a sign-on bonus provided to Mr. Schappert to offset for foregone cash bonus and equity awards that he was eligible...

  • Page 51
    ... of the valuation methodology and assumptions used to calculate fair value, see Note 13, "Stock-Based Compensation and Employee Benefit Plans", of the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011. The amounts reflected in this column...

  • Page 52
    ... AT FISCAL YEAR-END The following table shows information regarding all outstanding equity awards held by the Named Executive Officers as of the end of fiscal 2011. Option Awards Stock Awards Equity Incentive Market Plan Value of Awards: Shares Number of or Units Unearned of Stock Shares, Units That...

  • Page 53
    ... the closing price of EA's common stock on April 1, 2011, the last trading day of our fiscal year. For more information regarding these awards, see "Prior Performance-Based RSU Program" in the Compensation Discussion and Analysis above and footnote 2 of the Summary Compensation Table. Options vested...

  • Page 54
    ... amount of compensation from prior years that was distributed during fiscal 2011, and the aggregate earnings and balance of Mr. Schappert's account as of the end of fiscal 2011. Mr. Schappert resigned and ceased being EA's Chief Operating Officer effective April 25, 2011. Executive Contributions in...

  • Page 55
    ... of April 1, 2011, the last trading day of our fiscal year. The closing market price of our common stock on April 1, 2011 was $19.73 per share. Cash Award ($)(1) Stock Options ($)(2) Restricted Units (time-based) ($)(3) Restricted Stock Units (performance-based) ($)(4) Proxy Statement Name Other...

  • Page 56
    ... of the change of control event. Includes eighteen months of post-termination health benefits and any accrued paid time off/vacation pay. Mr. Schappert resigned and ceased being EA's Chief Operating Officer effective April 25, 2011. (4) (5) (6) EQUITY COMPENSATION PLAN INFORMATION We have four...

  • Page 57
    ... price. Includes (a) 16,857,464 shares available for issuance as stock options or 11,788,436 shares available for issuance as restricted stock units or restricted stock under the 2000 Equity Incentive Plan and (b) 4,559,826 shares available for purchase by our employees under the 2000 Employee Stock...

  • Page 58
    ...would require approval of the Board of Directors. For purposes of the policy, a "related person" is (a) any person who is, or at any time since the beginning of EA's last fiscal year was, a director or executive officer of EA or a nominee to become a director of EA, (b) any person who is known to be...

  • Page 59
    ... of these individuals is an employee or current or former officer of EA. No EA officer serves or has served since the beginning of fiscal 2011 as a member of the board of directors or the compensation committee of a company at which a member of EA's Executive Compensation and Leadership Committee is...

  • Page 60
    ... principal executive office no later than February 10, 2012. Stockholders who otherwise wish to present a proposal at the 2012 Annual Meeting of Stockholders must deliver written notice of the proposal to our Corporate Secretary c/o Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA...

  • Page 61
    ... of the Annual Meeting, it is intended that the proxies will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. By Order of the Board of Directors, Stephen G. Bené Senior Vice President, General Counsel and Corporate Secretary Proxy Statement 53

  • Page 62
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  • Page 63
    ... without shares being issued. The following types of shares are not available for future grant or issuance as awards under the Equity Plan: (x) shares that are not issued or delivered as a result of the net settlement of a stock option or stock appreciation right; (y) shares that are used to pay the...

  • Page 64
    ... fair market value of a share of common stock at the time the incentive stock option is granted. The exercise price of options and purchase price of shares granted under the Equity Plan may be paid as approved by the Executive Compensation and Leadership Committee at the time of grant: (a) in cash...

  • Page 65
    ... the net amount of the increase in stock price in the form of cash or stock. The exercise price for a SAR must be no less than 100 percent of the "fair market value" (as defined in the Equity Plan) of a share of common stock at the time the SAR is granted. In addition, the Executive Compensation and...

  • Page 66
    ...(n) total stockholder return; (o) market share; (p) return on assets or net assets; (q) the Company's stock price; (r) growth in stockholder value relative to a pre-determined index; (s) return on equity; (t) return on invested capital; (u) cash flow (including free cash flow or operating cash flows...

  • Page 67
    ... taxable income at the time a nonqualified stock option ("NQSO") is granted or vests provided the exercise price is no less than the fair market value of the underlying shares on the grant date. Upon exercise of a vested NQSO, the participant will include in income as compensation an amount equal to...

  • Page 68
    ...the time the award is received, include the fair market value of the shares of stock on the date of receipt of the award (determined without regard to lapse restrictions), less any purchase price paid for such shares in income as compensation. The income will be subject to withholding by the Company...

  • Page 69
    ...and is not qualified under Section 401(a) of the Code. Proposed Amendment to the Equity Plan At the 2011 Annual Meeting, stockholders will be asked to approve an amendment to the Equity Plan to increase the number of shares authorized under the Equity Plan by 10,000,000 shares. Proxy Statement A-7

  • Page 70
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  • Page 71
    ...purchase shares at a rate that, when aggregated with all other rights to purchase stock under all other employee stock purchase plans of the Company, or any parent or subsidiary of the Company, exceeds $25,000 in fair market value (determined on the Offering Date) for each year. B-1 Proxy Statement

  • Page 72
    ...of the shares on the Purchase Date. The fair market value of the common stock on a given date is the closing price of the common stock on the immediately preceding business day as quoted on the NASDAQ Global Select Market. Purchase of Stock. The number of whole shares an employee may purchase in any...

  • Page 73
    ... of shares purchased under the Purchase Plan. Proposed Amendment of the 2000 Employee Stock Purchase Plan At the 2011 Annual Meeting, stockholders will be asked to increase by 3,500,000 the number of shares of the Company's common stock reserved for issuance under the Purchase Plan. Proxy Statement...

  • Page 74
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  • Page 75
    2011 Annual Report on Form 10-K Annual Report

  • Page 76
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  • Page 77
    ...-17948 ELECTRONIC ARTS INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 94-2838567 (I.R.S. Employer Identification No.) 209 Redwood Shores Parkway Redwood City, California (Address of principal executive offices...

  • Page 78
    ... About Market Risk ...Item 8 Financial Statements and Supplementary Data ...Item 9 Changes in and Disagreements with Accountants on Accounting on Financial Disclosure ...Item 9A Controls and Procedures ...Item 9B Other Information ...PART III Directors, Executive Officers and Corporate Governance...

  • Page 79
    ...packaged goods" products) or by us directly to consumers. We also deliver game content and services online for the platforms listed above through digital downloads. In addition, we offer online delivered content and services as add-ons or as related features to our packaged goods products (e.g., add...

  • Page 80
    .... For the fiscal years ended March 31, 2011, 2010 and 2009, research and development expenses were $1,153 million, $1,229 million and $1,359 million, respectively. We operate development studios (which develop products and perform other related functions) worldwide: BioWare (Canada and United States...

  • Page 81
    ... fiscal year 2012 and beyond. Substantially all of our games contain digital content. Many of our games that are available as packaged goods products are also available through direct online download through the Internet. We also offer onlinedelivered content and services that are add-ons or related...

  • Page 82
    ... March 31, 2011, we had approximately 35.7 million monthly active players across 40 applications. Playfish generates revenue through sales of digital content and Internet-based advertising. Through our Pogo online service, we offer casual games such as card, puzzle and word games on www.pogo.com, as...

  • Page 83
    ...-name recognition, availability and quality of in-game content, access to distribution channels, effectiveness of marketing and price. For sales of packaged goods, we compete directly with Sony, Microsoft and Nintendo, each of which develop and publish software for their respective console platforms...

  • Page 84
    ... other entertainment companies, our business is based on the creation, acquisition, exploitation and protection of intellectual property. Some of this intellectual property is in the form of software code, patented technology, and other technology and trade secrets that we use to develop our games...

  • Page 85
    ...game and toy companies, athletes and the major sports leagues and players' associations. EA Partners Through our EA Partners group, we team with external game developers to provide these developers with a variety of services including development assistance, publishing, and distribution. For example...

  • Page 86
    ... 47 Chief Executive Officer Executive Vice President, Chief Financial Officer President, EA Games Label President, EA SPORTS Label Executive Vice President, EA Play Label Executive Vice President, Global Publishing Executive Vice President, Business and Legal Affairs Executive Vice President, Human...

  • Page 87
    ... 2011. From May 2009 to March 2011, Mr. Karp served as the Chief Revenue Officer for the EA Games Label. From October 2008 to May 2009, he served as the Chief Executive Officer of MEVIO. From March 2006 to October 2008, he served as Senior Vice President of Marketing Worldwide for Electronic Arts...

  • Page 88
    ..., are available free of charge on the Investor Relations section of our website at http://ir.ea.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). Except as expressly set forth in this Form 10-K annual report...

  • Page 89
    ... consumer adoption of these new platforms for games and other technological advances in online or mobile game offerings could negatively impact our sales of console, handheld and traditional PC products before we have sufficiently developed profitable businesses in these markets. If our competitors...

  • Page 90
    ... financial returns. We are actively seeking to monetize game properties through a variety of new platforms and business models, including online distribution of full games and additional content, free-to-play games supported by advertising and/or micro-transactions on social networking services...

  • Page 91
    ...perception that our products or services do not adequately protect the privacy of personal information could result in a loss of current or potential consumers for our online offerings that require the collection of consumer data. Our key business partners also face these same risks and any security...

  • Page 92
    ... on new game sales. We do not receive revenue from retailers' sales of used video games. Sales of used video games may negatively impact our sales and profitability. The video game hardware manufacturers are among our chief competitors and frequently control the manufacturing of and/or access to...

  • Page 93
    ... Sony, Microsoft or Nintendo refuse to approve our products with online capabilities, restrict our digital download offerings on their proprietary networks, or significantly impact the financial terms on which these services are offered to our customers, our business could be harmed. The video game...

  • Page 94
    ... acquisitions of companies, businesses, intellectual properties, and other assets, (2) minority investments in strategic partners, and (3) investments in new interactive entertainment businesses (for example, online and mobile publishing platforms) as part of our long-term business strategy. These...

  • Page 95
    ... our product plans. Further, entertainment software piracy is a persistent problem in our industry. The growth in peer-to-peer networks and other channels to download pirated copies of our products, the increasing availability of broadband access to the Internet and the proliferation of technology...

  • Page 96
    ...originally purchased them for, or if the obligor were unable to pay the full amount at maturity, we could incur a significant loss. Similarly, we hold marketable equity securities, which have been and may continue to be adversely impacted by price and trading volume volatility in the public stock 20

  • Page 97
    ... that we use in applying our accounting policies. Policies affecting software revenue recognition have and could further significantly affect the way we account for revenue related to our products and services. We recognize all of the revenue from bundled sales (i.e., packaged goods video games that...

  • Page 98
    ... 2012. This system will integrate our order management, product shipment, cash management and financial accounting processes, among others. The successful conversion from our current multiple financial information systems to this new integrated financial information system entails a number of risks...

  • Page 99
    ... may contribute to the public stock markets experiencing extreme price and trading volume volatility. These broad market fluctuations have and could continue to adversely affect the market price of our common stock. In February 2011, we announced that our Board of Directors authorized a program to...

  • Page 100
    ...Item 2: Properties We own our 660,000-square-foot Redwood Shores headquarters facilities located in Redwood City, California which includes a product development studio and administrative and sales functions. We also own a 418,000square-foot product development studio facility in Burnaby, Canada and...

  • Page 101
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "ERTS." The following table sets forth the quarterly high and low sales price per share of our common stock from April 1, 2009...

  • Page 102
    ...$100. Each measurement point is as of the end of each fiscal year ended March 31. The performance of our stock depicted in the following graph is not necessarily indicative of the future performance of our stock. 2006 2007 March 31, 2008 2009 2010 2011 Electronic Arts Inc. S&P 500 Index NASDAQ...

  • Page 103
    ...-YEAR CONSOLIDATED FINANCIAL DATA (In millions, except per share data) STATEMENTS OF OPERATIONS DATA 2011 Year Ended March 31, 2010 2009 2008 2007 Net revenue ...Cost of goods sold ...Gross profit ...Operating expenses: Marketing and sales ...General and administrative ...Research and development...

  • Page 104
    ... Financial Statements and related Notes. About Electronic Arts We develop, market, publish and distribute game software and content that can be played by consumers on a variety of platforms, including video game consoles (such as the Sony PLAYSTATION 3, Microsoft Xbox 360 and Nintendo Wii), personal...

  • Page 105
    ... the prior year. Trends in Our Business Digital Content Distribution and Services. Consumers are spending an ever-increasing portion of their money and time on interactive entertainment that is accessible online, or through mobile digital devices such as smart phones, or through social networks such...

  • Page 106
    ... our business. Net revenue from international sales accounted for approximately 49 percent of our total net revenue during fiscal year 2011 and approximately 45 percent of our total net revenue during fiscal year 2010. Our net revenue is impacted by foreign exchange rates during the reporting period...

  • Page 107
    ...fee for this online service, we account for the sale of the software product and the online service as a "bundled" sale, or multiple element arrangement, in which we sell both the software product and the online service for one combined price. We defer net revenue from sales of these games for which...

  • Page 108
    ...actual returns and price protections may materially exceed our estimates as unsold software products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing software products...

  • Page 109
    ... changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. Our reporting units are determined by the components of our operating segments that constitute a business for which (1) discrete financial information is available and (2) segment management regularly...

  • Page 110
    ... than three months at the time of purchase and our marketable equity securities consist of investments in common stock of publicly traded companies, both are accounted for as available-for-sale securities. Unrealized gains and losses on our short-term investments and marketable equity securities are...

  • Page 111
    ... sports organizations, movie studios and other organizations for our use of their trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related...

  • Page 112
    ...and filing of tax returns for such periods. This process requires estimating both our geographic mix of income and our uncertain tax positions in each jurisdiction where we operate. These estimates involve complex issues and require us to make judgments about the likely application of the tax law to...

  • Page 113
    ... on a calendar month-end. Comparison of Fiscal Year 2011 to Fiscal Year 2010 Net Revenue Annual Report Net revenue consists of sales generated from (1) video games sold as packaged goods and designed for play on hardware consoles (such as the PLAYSTATION 3, Xbox 360 and Wii), PCs, and handheld...

  • Page 114
    ...driven by FIFA 11, Battlefield: Bad Company 2, and Madden NFL 11. Net Revenue for fiscal year 2011 decreased $65 million, or 2 percent, as compared to fiscal year 2010. This decrease was driven by a $481 million decrease from the Rock Band, Left 4 Dead, and EA SPORTS Active franchises. This decrease...

  • Page 115
    ... Honor, FIFA World Cup, Crysis, FIFA, and Dead Space franchises. We estimate that foreign exchange rates (primarily the Australian dollar) increased reported Net Revenue before Revenue Deferral by approximately $15 million, or 7 percent, in fiscal year 2011 as compared to fiscal year 2010. Excluding...

  • Page 116
    ... Company 2, FIFA 11, and EA SPORTS FIFA Online 2. Net Revenue for fiscal year 2011 decreased by $6 million, or 3 percent, as compared to fiscal year 2010. This decrease was driven by a $33 million decrease from the Need for Speed, Rock Band, Left 4 Dead, EA SPORTS Active, and Fight Night franchises...

  • Page 117
    ...related to certain online-enabled packaged goods and digital content for fiscal year 2011 as compared to fiscal year 2010, which positively impacted gross profit as a percent of total net revenue by 3.7 percentage points and (2) a greater percentage of net revenue from EA studio and digital products...

  • Page 118
    ... the development of website content, software licenses and maintenance, network infrastructure and management overhead. Research and development expenses for fiscal years 2011 and 2010 were as follows (in millions): March 31, 2011 % of Net Revenue March 31, 2010 % of Net Revenue $ Change % Change...

  • Page 119
    ... Investments, Net Annual Report Gains (losses) on strategic investments, net, for fiscal years 2011 and 2010 were as follows (in millions): March 31, 2011 % of Net Revenue March 31, 2010 % of Net Revenue $ Change $23 1% $(26) (1%) $49 During the fiscal year ended March 31, 2011, gains...

  • Page 120
    ... in the geographic location of business functions or assets, changes in the geographic mix of income, changes in or termination of our agreements with tax authorities, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit...

  • Page 121
    ...SPORTS Active and The Sims franchises. North America Annual Report For fiscal year 2010, Net Revenue before Revenue Deferral in North America was $2,322 million, driven by Madden NFL 10, The Beatles:Rock Band, and Battlefield: Bad Company 2. Net Revenue before Revenue Deferral for fiscal year 2010...

  • Page 122
    ..., Battlefield: Bad Company 2, and The Sims 3. Net Revenue before Revenue Deferral for fiscal year 2010 increased by $19 million, or 9 percent, as compared to fiscal year 2009. This increase was driven by a $23 million increase from the FIFA, EA SPORTS Active, and Dragon Age franchises. This increase...

  • Page 123
    ... lease obligation related to the purchase of our Redwood Shores headquarters facilities. Research and Development Research and development expenses for fiscal years 2010 and 2009 were as follows (in millions): March 31, 2010 % of Net Revenue March 31, 2009 % of Net Revenue $ Change % Change $1,229...

  • Page 124
    ... charges for fiscal years 2010 and 2009 were as follows (in millions): March 31, 2010 % of Net Revenue March 31, 2009 % of Net Revenue $ Change % Change $140 4% $80 2% $60 75% Fiscal 2010 Restructuring In fiscal year 2010, we announced a restructuring plan to narrow our product portfolio to...

  • Page 125
    ... million related to our EA Mobile reporting unit. During the fiscal year ended March 31, 2010, we performed our annual goodwill impairment test for our reporting units, and we determined that there were no indicators of impairment to our goodwill. Gains (Losses) on Strategic Investments, Net Gains...

  • Page 126
    .... ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. We do not expect the adoption of ASU 2009-13 to have a material impact on our Consolidated Financial Statements. In October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements that...

  • Page 127
    ... cash provided by operating activities in fiscal year 2011 as compared to fiscal year 2010 was primarily due to (1) a greater percentage of net revenue from EA studio and digital products, which have higher margins than our co-publishing and distribution products, (2) the timing of payments related...

  • Page 128
    ... provided. During fiscal year 2011, our Board of Directors authorized a program to repurchase up to $600 million of our common stock over the next 18 months. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory...

  • Page 129
    ... of March 31, 2011, and the effect we expect them to have on our liquidity and cash flow in future periods (in millions): Contractual Obligations Developer/ Licensor Commitments Marketing Other Purchase Obligations Annual Report Fiscal Year Ending March 31, Leases(a) Total 2012 ...2013 ...2014...

  • Page 130
    ... of when cash settlement with a taxing authority will occur. OFF-BALANCE SHEET COMMITMENTS Lease Commitments As of March 31, 2011, we leased certain of our current facilities, furniture and equipment under non-cancelable operating lease agreements. We were required to pay property taxes, insurance...

  • Page 131
    ...the time of purchase. We also do not currently hedge our market price risk relating to our marketable equity securities and we do not enter into derivatives or other financial instruments for trading or speculative purposes. Foreign Currency Exchange Rate Risk Cash Flow Hedging Activities. From time...

  • Page 132
    ... not use derivative financial instruments in our short-term investment portfolio. As of March 31, 2011 and 2010, our short-term investments were classified as available-for-sale securities and, consequently, were recorded at fair market value with unrealized gains or losses resulting from changes in...

  • Page 133
    ...82 1 $424 Annual Report The fair value of our marketable equity securities in publicly traded companies is subject to market price volatility and foreign currency risk for investments denominated in foreign currencies. As of March 31, 2011 and 2010, our marketable equity securities were classified...

  • Page 134
    ...and 2009 ...Consolidated Statements of Cash Flows for the Years Ended March 31, 2011, 2010 and 2009 ...Notes to Consolidated Financial Statements ...Reports of Independent Registered Public Accounting Firm ...Financial Statement Schedule: The following financial statement schedule of Electronic Arts...

  • Page 135
    ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except par value data) ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Marketable equity securities ...Receivables, net of allowances of $304 and $217, respectively ...Inventories ......

  • Page 136
    ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, 2011 2010 2009 (In millions, except per share data) Net revenue ...Cost of goods sold ...Gross profit ...Operating expenses: Marketing and sales ...General and administrative ...Research and development...

  • Page 137
    ... of common stock ...Stock-based compensation ...Tax benefit from exercise of stock options ...Equity consideration granted in connection with acquisition ...Balances as of March 31, 2010 ...Net loss ...Change in unrealized losses on available-for-sale securities, net ...Reclassification adjustment...

  • Page 138
    ... in-process technology ...Change in assets and liabilities: Receivables, net ...Inventories ...Other assets ...Accounts payable ...Accrued and other liabilities ...Deferred income taxes, net ...Deferred net revenue (packaged goods and digital content) ...Net cash provided by operating activities...

  • Page 139
    ELECTRONIC ARTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES We develop, market, publish and distribute game software and content that can be played by consumers on a variety of platforms, including video ...

  • Page 140
    ... than three months at the time of purchase and are accounted for as available-for-sale securities and are recorded at fair value. Shortterm investments are available for use in current operations or other activities such as capital expenditures and business combinations. Marketable equity securities...

  • Page 141
    ... for fiscal year 2011 are included in restructuring and other charges and research and development in our Consolidated Statements of Operations. Goodwill We are required to perform a two-step approach for testing goodwill for impairment for each reporting unit annually, or whenever events or changes...

  • Page 142
    ...type of product, we may offer an online service that permits consumers to play against others via the Internet and/or receive additional updates or content from us. For those games that consumers can play via the Internet, we may provide a "matchmaking" service that permits consumers to connect with...

  • Page 143
    ... and stock-balancing programs related to product revenue. When evaluating the adequacy of sales returns and price protection allowances, we analyze historical returns, current sell-through of distributor and retailer inventory of our software products, current trends in retail and the video game...

  • Page 144
    ... the fiscal years ended March 31, 2011, 2010 and 2009, respectively. For the fiscal years ended March 31, 2011, 2010 and 2009, advertising expense, net of vendor reimbursements, totaled approximately $312 million, $326 million, and $270 million, respectively. Software Development Costs Research and...

  • Page 145
    ...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 2000 Employee Stock Purchase Plan ("ESPP...

  • Page 146
    .... ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. We do not expect the adoption of ASU 2009-13 to have a material impact on our Consolidated Financial Statements. In October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements that...

  • Page 147
    ... at Reporting Date Using Quoted Prices in Active Markets Significant for Identical Other Significant Financial Observable Unobservable Instruments Inputs Inputs As of March 31, 2011 (Level 1) (Level 2) (Level 3) Balance Sheet Classification Assets Money market funds ...$ 774 Available-for-sale...

  • Page 148
    Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets Significant for Identical Other Significant Financial Observable Unobservable Instruments Inputs Inputs As of March 31, 2010 (Level 1) (Level 2) (Level 3) Balance Sheet Classification Assets Money market funds ...$ ...

  • Page 149
    ...fiscal year 2011, we became aware of facts and circumstances that indicated that the carrying value of one of our royalty-based assets was not recoverable. This impairment is included in research and development expenses on our Consolidated Statement of Operations. In connection with our fiscal 2010...

  • Page 150
    ... years ...Short-term investments ... $214 156 126 $496 $214 157 126 $497 $165 174 91 $430 $165 176 91 $432 Marketable Equity Securities Our investments in marketable equity securities consist of investments in common stock of publicly traded companies and are accounted for as available-for-sale...

  • Page 151
    ... Statements of Operations. We did not sell any of our marketable equity securities during the fiscal year ended March 31, 2009. In April 2007, we expanded our commercial agreements with, and made strategic equity investments in, Neowiz Corporation and a related online gaming company, Neowiz Games...

  • Page 152
    ... reported, net of tax, as a component of accumulated other comprehensive income in stockholders' equity. The gross amount of the effective portion of gains or losses resulting from changes in the fair value of these hedges is subsequently reclassified into net revenue or research and development...

  • Page 153
    ... ...(5) BUSINESS COMBINATIONS Fiscal Year 2011 Acquisition Interest and other income, net $(12) $10 In October 2010, we acquired all of the outstanding shares of Chillingo Limited in cash. Chillingo publishes games and software for various mobile platforms. In addition, we may be required to pay...

  • Page 154
    ... stock and restricted stock units, using the quoted market price of our common stock on the date of grant. In addition, we may be required to pay additional variable cash consideration that is contingent upon the achievement of certain performance milestones through December 31, 2011 and is limited...

  • Page 155
    ... unit are estimated using a combination of the market approach, which utilizes comparable companies' data, and/or the income approach, which utilizes discounted cash flows. During the fiscal years ended March 31, 2011 and 2010, we completed the first step of the annual goodwill impairment testing...

  • Page 156
    ... Carrying Amount As of March 31, 2011 AcquisitionAccumulated Related Amortization Intangibles, Net Gross Carrying Amount As of March 31, 2010 AcquisitionAccumulated Related Amortization Intangibles, Net Developed and core technology ...Trade names and trademarks ...Registered user base and other...

  • Page 157
    ... 161 (70) (3) $117 Fiscal 2011 Restructuring Fiscal 2011 Restructuring In fiscal year 2011, we announced a plan focused on the restructuring of certain licensing and developer agreements in an effort to improve the long-term profitability of our packaged goods business. Under this plan, we amended...

  • Page 158
    ... to the amendment of certain developer agreements, and (3) $13 million in employee-related expenses. The $104 million restructuring accrual as of March 31, 2011 related to the fiscal 2011 restructuring is expected to be settled by June 2016. In fiscal year 2012, we anticipate incurring less than...

  • Page 159
    ...agreement in which we terminated certain rights we previously had to use the licensor's intellectual property. The losses and impairment charges related to restructuring and other restructuring plan-related activities are presented in Note 7 of the Notes to Consolidated Financial Statements. Annual...

  • Page 160
    ..., independent software developers, and co-publishing and/or distribution affiliates, but performance remained with the counterparty (i.e., delivery of the product or content or other factors) and such commitments were therefore not recorded in our Consolidated Financial Statements. (9) BALANCE SHEET...

  • Page 161
    ... useful lives. Acquisition-Related Restricted Cash Included in Other Current Assets and Other Assets In connection with our acquisition of Playfish in fiscal year 2010, we deposited $100 million into an escrow account to pay the former shareholders of Playfish in the event certain performance...

  • Page 162
    ... the cost of goods sold related to these transactions during the period in which the product is delivered (rather than on a deferred basis). (10) INCOME TAXES The components of our loss before provision for (benefit from) income taxes for the fiscal years ended March 31, 2011, 2010 and 2009 are as...

  • Page 163
    .... Annual Report The components of net deferred tax assets, as of March 31, 2011 and 2010 consisted of (in millions): As of March 31, 2011 2010 Deferred tax assets: Accruals, reserves and other expenses ...Tax credit carryforwards ...Stock-based compensation ...Amortization ...Net operating loss...

  • Page 164
    ...of applicable statute of limitations ...Changes in unrecognized tax benefits due to foreign currency translation ...Balance as of March 31, 2010 ...Increases in unrecognized tax benefits related to prior year tax positions ...Decreases in unrecognized tax benefits related to prior year tax positions...

  • Page 165
    ...penalties. The Notice primarily relates to transfer pricing in connection with the reimbursement of costs for services rendered to our U.S. parent company by one of our subsidiaries in Canada. We do not agree with the CRA's position and we have filed a Notice of Objection with the appeals department...

  • Page 166
    ... our Consolidated Balance Sheet. Total rent expense for all operating leases was $96 million, $91 million and $98 million, for the fiscal years ended March 31, 2011, 2010 and 2009, respectively. Legal Proceedings We are subject to claims and litigation arising in the ordinary course of business. We...

  • Page 167
    ... 31, 2011 and 2010, 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...

  • Page 168
    ... from stock options, restricted stock, restricted stock units and the ESPP included in our Consolidated Statements of Operations (in millions): Year Ended March 31, 2011 2010 2009 Cost of goods sold ...Marketing and sales ...General and administrative ...Research and development ...Restructuring...

  • Page 169
    ... fiscal years 2011, 2010 and 2009 were $24 million, $26 million and $83 million, respectively. We issue new common stock from our authorized shares upon the exercise of stock options. A total of 16.9 million options, or 11.8 million restricted stock units, were available for grant under our Equity...

  • Page 170
    ... options in the related range of exercise prices by 333 million shares of common stock, which were issued and outstanding as of March 31, 2011. At our Annual Meeting of Stockholders, held on August 5, 2010, our stockholders approved amendments to the Equity Plan to (1) increase the number of shares...

  • Page 171
    ... respectively. No performance-based restricted stock units vested during fiscal year 2011. ESPP Pursuant to our ESPP, eligible employees may authorize payroll deductions of between 2 percent and 10 percent of their compensation to purchase shares at 85 percent of the lower of the market price of our...

  • Page 172
    ... contributions to employees' accounts based on our financial performance. We contributed an aggregate of $9 million, $10 million and $7 million to these plans in fiscal years 2011, 2010 and 2009, respectively. Stock Repurchase Program On February 1, 2011, our Board of Directors authorized a program...

  • Page 173
    ...occur from common shares issuable through stock-based compensation plans including stock options, restricted stock, restricted stock units, and common stock through the ESPP using the treasury stock method. As a result of our net loss for the fiscal years ended March 31, 2011, 2010 and 2009, we have...

  • Page 174
    ... the financial performance of the Label segment and a reconciliation of the Label segment's profit to our consolidated operating loss for the fiscal years ended March 31, 2011, 2010 and 2009 (in millions): Year Ended March 31, 2011 2010 2009 Label segment: Net revenue before revenue deferral...

  • Page 175
    ... 712 189 222 174 585 146 $4,212 Information about our operations in North America, Europe and Asia as of and for the fiscal years ended March 31, 2011, 2010 and 2009 is presented below (in millions): Year Ended March 31, 2011 2010 2009 Annual Report Net revenue from unaffiliated customers North...

  • Page 176
    ... FINANCIAL AND MARKET INFORMATION (UNAUDITED) (In millions, except per share data) Fiscal 2011 Consolidated Net revenue ...Gross profit ...Operating income (loss) ...Net income (loss) ...Common Stock Net income (loss) per share-Basic and Diluted . . Common stock price per share High ...Low ...Fiscal...

  • Page 177
    ... PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Electronic Arts Inc.: We have audited the accompanying consolidated balance sheets of Electronic Arts Inc. and subsidiaries (the Company) as of April 2, 2011 and April 3, 2010, and the related consolidated statements of operations...

  • Page 178
    ...Company Accounting Oversight Board (United States), the consolidated balance sheets of Electronic Arts Inc. and subsidiaries as of April 2, 2011 and April 3, 2010, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years...

  • Page 179
    ... in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as...

  • Page 180
    KPMG LLP, our independent registered public accounting firm, has issued an auditors' report on the effectiveness of our internal control over financial reporting. That report appears on page 102. Changes in Internal Control over Financial Reporting There has been no change in our internal control ...

  • Page 181
    ... herein by reference to the information to be included in our Proxy Statement for our 2011 Annual Meeting of Stockholders (the "Proxy Statement") other than the information regarding executive officers, which is included in Item 1 of this report. The information regarding Section 16 compliance is...

  • Page 182
    ... undersigned, thereunto duly authorized. ELECTRONIC ARTS INC. By: /s/ John S. Riccitiello John S. Riccitiello, Chief Executive Officer Date: May 24, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 183
    ELECTRONIC ARTS INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended March 31, 2011, 2010 and 2009 (In millions) Balance at Beginning of Period Charged to Revenue, Costs and Expenses Charged (Credited) to Other Accounts(a) Balance at End of Period Allowance for Doubtful ...

  • Page 184
    ELECTRONIC ARTS INC. 2011 FORM 10-K ANNUAL REPORT EXHIBIT INDEX Incorporated by Reference Number Exhibit Title Form File No. Filing Date Filed Herewith 2.01 3.01 3.02 4.01 10.01* 10.02* 10.03* 10.04* 10.05* 10.06* 10.07* 10.08* 10.09* 10.10 Agreement for the Sale and Purchase of Playfish Limited, ...

  • Page 185
    ... and Electronic Arts - Tiburon, a Florida corporation f/k/a Tiburon Entertainment, Inc. Offer Letter for Employment at Electronic Arts Inc. to John Schappert, dated June 15, 2009. Bill of Sale (2001 Transaction), dated July 13, 2009, by and between SELCO Service Corporation (doing business in...

  • Page 186
    ... (Studio and Publishing) Limited, and Nintendo of America Inc. Xbox2 Publisher License Agreement, dated May 15, 2005, by and among Electronic Arts Inc., Electronic Arts C.V. and Microsoft Licensing, GP. Third amendment to lease, dated December 24, 2009, by and between Liberty Property Limited...

  • Page 187
    ... LLP, Independent Registered Public Accounting Firm. Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Executive Vice President, Chief Financial Officer pursuant to Rule 13a...

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    ... Chief Accounting Officer Stephen G. Bené Senior Vice President General Counsel & Corporate Secretary CORPORATE HEADQUARTERS 209 Redwood Shores Parkway Redwood City, CA 94065 (650) 628-1500 Investor Relations (650) 628-7352 http://investor.ea.com AUDITORS KPMG LLP Independent Registered Public...

  • Page 192
    Electronic Arts Inc. 209 Redwood Shores Parkway Redwood City, CA 94065 www.ea.com