Electronic Arts 2011 Annual Report Download - page 118

Research and Development
Research and development expenses consist of expenses incurred by our production studios for personnel-related
costs, related overhead costs, contracted services, depreciation and any impairment of prepaid royalties for
pre-launch products. Research and development expenses for our online products 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 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
$1,153 32% $1,229 34% $(76) (6%)
Research and development expenses decreased by $76 million, or 6 percent, in fiscal year 2011, as compared to
fiscal year 2010. This decrease was primarily due to decreases in expenses resulting from our cost reduction
initiatives including (1) a $38 million decrease in external development and contracted services, (2) a $37 million
decrease in additional personnel-related costs, and (3) a $27 million decrease in facilities-related expenses
primarily due to lower depreciation expense. These decreases were partially offset by a $24 million increase in
incentive-based compensation expense.
Restructuring and Other Charges
Restructuring and other charges 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
$161 4% $140 4% $21 15%
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 certain licensing and developer agreements. To a much lesser extent, as part of this restructuring we
had workforce reductions and facilities closures through March 31, 2011. Substantially all of these exit activities
were completed by March 31, 2011.
During fiscal year 2011, we incurred charges of $148 million, consisting of (1) $104 million related to the
amendment of certain licensing agreements and other intangible asset impairment costs, (2) $31 million related to
the amendment of certain developer agreements, and (3) $13 million in employee-related expenses. In fiscal year
2012, we anticipate incurring less than $10 million of restructuring and other charges related to the fiscal 2011
restructuring (primarily interest expense accretion).
Overall, including $148 million in charges incurred through March 31, 2011, we expect to incur total cash and
non-cash charges between $170 million and $180 million by June 2016. These charges will consist primarily of
(1) charges, including accretion of interest expense, related to the amendment of certain licensing and developer
agreements and other intangible asset impairment costs (approximately $160 million) and (2) employee-related
costs (approximately $15 million).
Fiscal 2010 Restructuring
In connection with our fiscal 2010 restructuring plan, during fiscal year 2011, we incurred $13 million of
restructuring charges primarily due to costs to assist in the reorganization of our business support functions.
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