Electronic Arts 2014 Annual Report Download - page 155

Annual Report
Since the inception of the fiscal 2013 restructuring plan through March 31, 2014, we have incurred charges of
$23 million, consisting of (1) $10 million in employee-related expenses, (2) $9 million related to license
termination costs, and (3) $4 million related to the closure of certain of our facilities. Substantially all of these
costs were settled in cash by March 31, 2013, with the exception of approximately $2 million of license and lease
termination costs, which will be settled by August 2016. We do not expect to incur any additional restructuring
charges under this plan.
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.
Since the inception of the fiscal 2011 restructuring plan through March 31, 2014, we have incurred charges of
$172 million, consisting of (1) $129 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) $12 million in employee-related expenses. The $47 million restructuring accrual as of March 31, 2014 related
to the fiscal 2011 restructuring is expected to be settled by June 2016. We currently estimate recognizing in
future periods through June 2016, approximately $7 million for the accretion of interest expense related to our
amended licensing and developer agreements. This interest expense will be included in restructuring and other
charges in our Consolidated Statement of Operations.
Overall, including $172 million in charges incurred through March 31, 2014, we expect to incur total cash and
non-cash charges between $175 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 $167 million) and (2) employee-related
costs ($12 million).
Other Restructurings and Reorganization
We also engaged in various other restructurings and a reorganization based on management decisions made prior
to fiscal 2011. We do not expect to incur any additional restructuring charges under these plans. The $1 million
restructuring accrual as of March 31, 2014 related to our other restructuring plans is expected to be settled by
September 2016.
(9) ROYALTIES AND LICENSES
Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers, and
(3) co-publishing and distribution affiliates. License royalties consist of payments made to celebrities,
professional 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 to our games. Co-
publishing and distribution royalties are payments made to third parties for the delivery of products.
Royalty-based obligations with content licensors and distribution affiliates are either paid in advance and
capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations
are generally expensed to cost of revenue generally at the greater of the contractual rate or an effective royalty
rate based on the total projected net revenue for contracts with guaranteed minimums. Prepayments made to
thinly capitalized independent software developers and co-publishing affiliates are generally made in connection
with the development of a particular product, and therefore, we are generally subject to development risk prior to
the release of the product. Accordingly, payments that are due prior to completion of a product are generally
expensed to research and development over the development period as the services are incurred. Payments due
after completion of the product (primarily royalty-based in nature) are generally expensed as cost of revenue.
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