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Electronic Arts Inc.
Fiscal Year 2016
Proxy Statement and Annual Report

Table of contents

  • Page 1
    Electronic Arts Inc. Fiscal Year 2016 Proxy Statement and Annual Report

  • Page 2

  • Page 3
    Proxy Statement Notice of 2016 Annual Meeting and Proxy Statement

  • Page 4
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  • Page 5
    ... this Proxy Statement, as well as our Annual Report on Form 10-K (the "Annual Report") for fiscal year ended March 31, 2016, is available at http://investor.ea.com. By Order of the Board of Directors, 1. Proxy Statement Jacob J. Schatz Senior Vice President, General Counsel and Corporate Secretary

  • Page 6
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  • Page 7
    ... 2000 Equity Incentive Plan ...Proposal 4: Approval of an Amendment to our 2000 Employee Stock Purchase Plan ...Proposal 5: Advisory Vote on the Compensation of the Company's Named Executive Officers ...Proposal 6: Ratification of the Appointment of KPMG LLP, Independent Registered Public Accounting...

  • Page 8
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  • Page 9
    ...Stockholders, Annual Report and form of proxy. You are encouraged to read the entire Proxy Statement carefully before voting. In this Proxy Statement, the terms "EA," "we," "our" or "the Company" refer to Electronic Arts Inc. FINANCIAL AND OPERATING HIGHLIGHTS Fiscal 2016 was a very good year for EA...

  • Page 10
    ... all employees and directors from engaging in hedging transactions in EA stock and prohibit directors and executives from pledging EA stock Conduct annual "say on pay" advisory votes Regularly solicit feedback from our largest stockholders on our executive compensation programs Recover equity...

  • Page 11
    ... Company and New York Times Chief Executive Officer, Electronic Arts Inc. Director Since 2001 Independence X Committee Memberships NG, C Jay C. Hoag Jeffrey T. Huber Vivek Paul Lawrence F. Probst III (Chairman) Talbott Roche 2011 2009 2005 1991 2016 X X X C (chair) A NG Proxy Statement...

  • Page 12
    ... 100% of board and standing committee meetings in fiscal 2016; number of directors that attended at least 86% of all meetings Board Evaluations Committee Evaluations Director stock ownership requirement Stockholder Rights Annual Majority of votes cast Adopted May 2016 Voting rights for all shares...

  • Page 13
    ... in connection with the Company's solicitation of proxies for use at our Annual Meeting, which will take place on Thursday, July 28, 2016 at 2:00 p.m. local time, at our corporate headquarters in Redwood City, California. This Proxy Statement describes proposals on which you, as a stockholder, are...

  • Page 14
    ...any fiscal year to a non-employee director and approvals related to the Company's ability to deduct equity-based compensation for income tax purposes (Proposal 3); • Approve an amendment to the 2000 Employee Stock Purchase Plan (the "ESPP") to increase the number of shares of common stock reserved...

  • Page 15
    ...our Corporate Secretary at 209 Redwood Shores Parkway, Redwood City, CA 94065 or call (650) 628-1500. If you are receiving more than one copy of the proxy materials at a single address and would like to participate in householding, please contact the Company using the mailing address or phone number...

  • Page 16
    ...for good cause will not serve, as a member of the Board of Directors, the Board of Directors may reduce the number of directors or select a substitute nominee or substitute nominees, as the case may be. In the latter case, if you have completed and returned your proxy card, Mr. Wilson, Mr. Jorgensen...

  • Page 17
    ... for the 2017 Annual Meeting of stockholders? Stockholder proposals and director nominations should be sent in writing to Jacob Schatz, Corporate Secretary at Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065. How can I obtain a copy of the Company's Amended and Restated...

  • Page 18
    ... the last day of a calendar month. Thus, in this Proxy Statement, "fiscal 2017," "fiscal 2016," "fiscal 2015," and "fiscal 2014" refer to our fiscal years ending or ended (as the case may be) on March 31, 2017, 2016, 2015 and 2014, respectively. Who can I call with any questions about my shares? If...

  • Page 19
    ...a board member on numerous companies, both public and private, and is familiar with a full range of corporate and board functions. His many years of experience in helping companies shape and implement strategy provide the Board of Directors with useful perspectives on matters such as risk management...

  • Page 20
    ... of New Business Development for Landor Associates, a marketing consulting firm, and held executive positions at News Corporation, a media and marketing services company. Ms. Roche has previously served as a member of the board of directors of the Network Branded Prepaid Card Association, a trade...

  • Page 21
    ...a number of executive positions at The New York Times Company from June 2005 through October 2014, including Executive Vice President of Digital Products and Services from March 2013 until October 2014, General Manager of NYTimes.com from December 2008 to March 2013, and as Chief Advertising Officer...

  • Page 22
    ...Company at this time. Given his over 30 years of experience with the Company, more than 15 of which he served as CEO, Mr. Probst has invaluable knowledge regarding the Company and interactive entertainment industry and is uniquely positioned to lead the Board of Directors in its review of management...

  • Page 23
    ... Board of Directors meets the independence requirements of the NSADAQ Stock Market Rules. The Nominating and Governance Committee met six times in fiscal 2016. Compensation Committee The Compensation Committee is responsible for setting the overall compensation strategy for the Company, recommending...

  • Page 24
    ... is informed by reports from our management team that are designed to provide visibility about the identification and assessment of key risks and our risk mitigation strategies. Business risks are reviewed by the full Board of Directors. Risks related to investments, financial reporting, internal...

  • Page 25
    ...General Manager and Executive Producer of Visceral Studio. The aggregate value of his total compensation in fiscal 2016, including base salary, bonus award, and grant-date value of equity awards, was an amount consistent with total compensation provided to other EA employees in similar positions and...

  • Page 26
    ...proposal that passed at our 2015 Annual Meeting and our review of market developments, our Board of Directors adopted proxy access that best serves the interest of the Company and our stockholders. A substantial majority of our stockholders favored provisions that differed from the specific terms of...

  • Page 27
    ... their shares in order to meet the three percent ownership requirement and fixing the number of allowable proxy access nominees at the greater of 2 directors or twenty percent of our Board of Directors. Stockholders will be able to propose proxy access nominees beginning with our 2017 Annual Meeting...

  • Page 28
    ...to assist the Board of Directors in its oversight responsibilities relating to the integrity of EA's accounting policies, internal control and financial reporting processes. The Audit Committee reviews EA's quarterly and annual financial statements prior to public earnings releases and submission to...

  • Page 29
    ... reviews and discussions referred to in this report and in light of its role and responsibilities, the Audit Committee recommended to the Board of Directors that the Company's audited financial statements for fiscal 2016 be included for filing with the SEC in the Company's Annual Report. The Audit...

  • Page 30
    ... NASDAQ Stock Market or SEC rules). No directors earned any compensation for special assignments during fiscal 2016. Stock Compensation In fiscal 2016, each of our non-employee directors who were re-elected at the 2015 Annual Meeting of stockholders were granted restricted stock units with time...

  • Page 31
    ... on a closing price of $72.82 for our common stock on the date of grant, August 14, 2015. For additional information regarding the valuation methodology for RSUs, see Note 15, "Stock-Based Compensation and Employee Benefit Plans," to the Consolidated Financial Statements in our Annual Report. Each...

  • Page 32
    ...an exercise price equal to the fair market value of our common stock on the date of grant. The values represent the approved value of stock options for the premium shares-in-lieu received. The aggregate number of unexercised stock options held by our non-employee directors as of April 2, 2016 was as...

  • Page 33
    ... compensation program to align with pay-for-performance considerations. The Company's executive compensation program is designed to reward our officers for the achievement of specific Company-wide financial objectives, as well as the creation of long-term stockholder value. 25 Proxy Statement

  • Page 34
    ... 2016 Say On Pay Vote and Our Investor Outreach Program In response to stockholder concerns with certain of our past executive compensation programs, in connection with the say on pay vote at our 2014 Annual Meeting we engaged with stockholders representing over 53% of our outstanding shares to...

  • Page 35
    ... using publicly available compensation information on our peer group and data from the Radford Global Technology Survey. The analysis included a comparison of the base salary, target cash compensation, long-term incentives and target total direct compensation of each of our senior vice-president...

  • Page 36
    ... Vice President and Chief Technology Officer. Effective April 1, 2016, Mr. Moore transitioned from his role as Chief Operating Officer to focus exclusively on leading the Company's Competitive Gaming Division. Compensation Dashboard: The Compensation Dashboard below provides a snapshot of the key...

  • Page 37
    ... performance as set forth below in determining the final bonus payouts. FISCAL 2016 BASE SALARY AND CASH BONUS FOR NEOs Base Salary Earned in Fiscal 2016 Target Annual Bonus Award Company Bonus Funding Percentage (108.3%) Fiscal 2016 Cash Bonus Proxy Statement Mr. Wilson ...Mr. Jorgensen ...Mr...

  • Page 38
    ... NFL Mobile and subscription programs such as EA Access and Origin Access; the development of new IP; recognizing and fostering talent within the Company and Mr. Wilson's implementation of his strategy and direction for the Company. Mr. Jorgensen, Executive Vice President and Chief Financial Officer...

  • Page 39
    ...; his leadership of the strategy and vision for EA's digital platform and information technology divisions; and his team's support of the Company's products and services, such as ensuring the launch quality and timely delivery of the Company's fiscal 2016 games including FIFA 16, Madden NFL 16...

  • Page 40
    ... 75% of the aggregate compensation of our NEOs for fiscal 2016 was provided in the form of long-term equity. Mr. Wilson, Chief Executive Officer In determining the size of Mr. Wilson's Annual Award, the Board of Directors considered market data for existing CEOs, Mr. Wilson's current unvested...

  • Page 41
    ... based on the Company's overall financial performance, the terms of the Executive Bonus Plan and EA Bonus Plan, target bonus award and individual performance against strategic and operational objectives, as discussed in "Our NEOs' Fiscal 2016 Compensation" above. Subject to stockholder approval of...

  • Page 42
    ... annual equity awards. To encourage executive retention and to encourage our executives to focus on long-term stock price performance, the PRSUs vest over a three-year period. The number of shares earned is adjusted based upon changes in our TSR relative to the TSR of the companies in the NASDAQ-100...

  • Page 43
    ...the number of shares that can be earned is capped at 100% of the target regardless of the Company's Relative NASDAQ-100 TSR Percentile. In addition, as an incentive to keep our executives focused on long-term TSR performance, our PRSU program provides an opportunity for our executives to earn shares...

  • Page 44
    ... of our "Fiscal 2016 Summary Compensation Table" beginning on page 38 of this Proxy Statement. Change of Control Arrangements and Severance Our executive officers, including our NEOs, are eligible to participate in the Electronic Arts Inc. Key Employee Continuity Plan (the "CoC Plan"), which is...

  • Page 45
    ...the Company's financial statements, the Compensation Committee may terminate the equity award and recapture any equity award proceeds received by the employee within the 12-month period following the public issuance or filing of the financial statements required to be restated. Proxy Statement Tax...

  • Page 46
    ... and Employee Benefit Plans," of the Consolidated Financial Statements in our Annual Report. Represents amounts awarded under the Executive Bonus Plan for fiscal 2016, 2015 and 2014, in addition to amounts awarded to Mr. Söderlund under the EA Bonus Plan in fiscal 2016. For additional information...

  • Page 47
    ... video game merchandise from Company store, videogame credits, Company paid or reimbursed commuting expenses between his home in Seattle, Washington and Company headquarters in Redwood Shores, California ($32,753) and costs incurred in connection with attending the Super Bowl with business partners...

  • Page 48
    ... maximum vesting of 127,266 PRSUs multiplied by the closing price of our common stock on the date of grant of $62.86. Represents the aggregate grant date fair value of 27,839 RSUs granted to Mr. Moore in fiscal 2016 of $1,749,960 and the grant date fair value of the target payout of 27,839...

  • Page 49
    ... to as "Market-Based Restricted Stock Units" in Note 15 "Stock-Based Compensation and Employee Benefit Plans," to the Consolidated Financial Statements in our Annual Report. The PRSUs vest over a full three year period. The number of PRSUs that vest is adjusted based on EA's Relative NASDAQ-100 TSR...

  • Page 50
    ... and PRSUs were granted pursuant to our EIP. The market value of the unvested RSUs and PRSUs is determined by multiplying the number of unvested RSUs by $65.92, the closing price of the Company's common stock on April 1, 2016, the last trading day of fiscal 2016. For the PRSUs, as described in the...

  • Page 51
    ... maximum achievement level of 200% of target for June 2013, June 2014 and June 2015 PRSU grants. The number of PRSUs that vest is based on EA's Relative NASDAQ-100 TSR Percentile. For additional information regarding the specific terms of the PRSUs granted to our NEOs, see the discussion of "PRSUs...

  • Page 52
    ...the number of RSUs and PRSUs vested by the prior day's closing price of EA common stock on the vest date. (2) (3) POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL Electronic Arts Key Employee Continuity Plan Our NEOs participate in the Electronic Arts Inc. Key Employee Continuity Plan (the...

  • Page 53
    ..." or for "good reason") in connection with a change of control of the Company. For purposes of the table below, we have assumed a termination date of April 1, 2016, the last business day of fiscal 2016. The closing price of our common stock on April 1, 2016 (the last trading day of fiscal 2016) was...

  • Page 54
    ... COMPENSATION PLAN INFORMATION We have two equity incentive plans that have been approved by our stockholders and under which our common stock is or has been authorized for issuance to employees or directors: the EIP and the ESPP. In addition, we assumed a plan in connection with our acquisition of...

  • Page 55
    ... our common stock outstanding. Except 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 Vanguard...

  • Page 56
    ... interests therein. The address for each of Mr. Hoag, the Management Companies and the TCV Funds is c/o Technology Crossover Ventures, 528 Ramona Street, Palo Alto, CA 94301. (7) Includes 16,669 shares of common stock held directly by Mr. Probst, 58,590 shares of common stock held by Mr. Probst...

  • Page 57
    ... consented to serve a one-year term, if elected. For additional information regarding the nominees and our corporate governance practices, including our director resignation policies, please see the sections of this Proxy Statement entitled "2016 Proxy Statement Summary and Highlights," "Commonly...

  • Page 58
    ... of the Executive Bonus Plan set forth in Appendix B of this Proxy Statement New Plan Benefits Awards under the Executive Bonus Plan are determined based on actual future performance. The maximum bonus payment that any participant may receive is $5,000,000 during any fiscal year. For fiscal 2016, we...

  • Page 59
    ... of the material terms of performance-based compensation provided for in the Executive Bonus Plan. 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...

  • Page 60
    ...,000 shares of common stock have been reserved for issuance. For more information regarding the EIP, please read the summary of its material terms, as proposed to be amended, included as Appendix C of this Proxy Statement and the full text of the EIP, as proposed to be amended, filed with the SEC on...

  • Page 61
    ... the loan of, funds to participants. Proxy Statement • Provide that non-employee directors may not be granted equity awards in excess of $1,200,000, in aggregate, in any fiscal year of the company for (1) shares-in-lieu of cash compensation and (2) annual equity grants. Currently there are no...

  • Page 62
    ... proposal is approved by our stockholders, the Board of Directors intends to cause the shares of common stock that will become available for issuance under the amended EIP to be registered on a Form S-8 Registration Statement to be filed with the SEC at the Company's expense prior to the issuance...

  • Page 63
    ...this Proxy Statement, and the full text of the ESPP, as proposed to be amended, filed with the SEC on June 10, 2016. The following table presents information since the beginning of fiscal 2014 relating to the aggregate number of shares purchased under the ESPP, as well as the number of employees who...

  • Page 64
    ... proposal is approved by our stockholders, the Board of Directors intends to cause the shares of common stock that will become available for issuance under the amended ESPP to be registered on a Form S-8 Registration Statement to be filed with the SEC at the Company's expense prior to the issuance...

  • Page 65
    ... Annual Meeting: "RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the named executive officers for fiscal 2016, as disclosed in the Compensation Discussion and Analysis, the compensation tables and the related narrative disclosures in this Proxy Statement...

  • Page 66
    ... are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees." In fiscal 2016, these fees include services in connection with our debt offering and other regulatory filings in our international jurisdictions. Tax Fees...

  • Page 67
    ... Public Accountants, and the NASDAQ Stock Market, whether the proposed services are permitted under EA's policies, and whether the proposed services are consistent with the principles of the SEC's auditor independence rules. The Company also annually confirms with each of its directors and executive...

  • Page 68
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  • Page 69
    ...OF NON-GAAP FINANCIAL MEASURES Fiscal Year Ended March 31, 2016 GAAP net revenue ...Change in deferred net revenue (online-enabled games) ...Non-GAAP net revenue ...GAAP gross profit ...Acquisition-related expenses ...Change in deferred net revenue (online-enabled games) ...Stock-based compensation...

  • Page 70
    .... Change in Deferred Net Revenue (Online-enabled Games). The majority of our software games can be connected to the Internet whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ("unspecified updates") for use with the original game software...

  • Page 71
    ... Bonus Plan, as proposed to be amended, as filed by the Company with the SEC on June 10, 2016. Unless otherwise indicated, capitalized terms used in this Appendix B shall have the meanings set forth in the text of the Executive Bonus Plan. Material Terms of the Executive Bonus Plan Proxy Statement...

  • Page 72
    ... net income; earning per share; total stockholder return; market share; return on assets or net assets; the Company's stock price; growth in stockholder value relative to a pre-determined index; return on equity; return on invested capital; cash flow (including free cash flow or operating cash flows...

  • Page 73
    ... U.S. federal income tax consequences of participation in the Executive Bonus Plan based upon federal income tax laws in effect on the date of this Proxy Statement. An Executive Bonus Plan Participant will be taxed at ordinary income rates on the cash Bonus in the year in which such cash is received...

  • Page 74
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  • Page 75
    ... the Annual Meeting. The following general description is qualified in its entirety by reference to the text of the EIP, as proposed to be amended, as filed by the Company with the SEC on June 10, 2016. Unless otherwise indicated, capitalized terms used in this Appendix C shall have the meanings set...

  • Page 76
    ... released. The Compensation Committee may determine the terms and conditions of a SAR, however no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted and the exercise price for a SAR must be no less than 100% of the fair market value of a Share at the time...

  • Page 77
    ...; (l) net income; (m) diluted earnings per share; (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...

  • Page 78
    ...Consequences We believe that, based on the laws as in effect on the date of this Proxy Statement, the following are the principal U.S. federal income tax consequences to participants and to us of Options and other Awards granted under the EIP. This summary is not a complete analysis of all potential...

  • Page 79
    ... of restrictions on Restricted Stock Awards, the Participant, generally, recognizes compensation equal to the fair market value of the shares as of the date of delivery or release. We are entitled to a deduction equal to the compensation recognized by the Participant. Limits on Deductions. Under...

  • Page 80
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  • Page 81
    ...amended, as filed by the Company with the SEC on June 10, 2016. Unless otherwise indicated, capitalized terms used in this Appendix D shall have the meanings set forth in the text of the ESPP. Proxy Statement Material Terms of the ESPP Purpose The purpose of the ESPP is to provide employees of the...

  • Page 82
    ... the fair market value of a Company share on the Offering Date or (b) the maximum number of shares set by the Board of Directors. In addition, no employee may purchase shares at a rate that, when aggregated with all other rights to purchase stock under all other employee stock purchase plans of the...

  • Page 83
    ... day of the applicable Purchase Period. The Board of Directors may generally amend or terminate the ESPP at any time, subject to the restrictions set forth in the ESPP. Withdrawal Termination of Eligibility Return of Payroll Deductions Proxy Statement Nonassignability Capital Changes Amendment...

  • Page 84
    ... provisions of the Employee Retirement Income Security Act of 1974 and is not qualified under Section 401(a) of the Code. Proposed Amendment of the ESPP At the Annual Meeting, stockholders will be asked to increase by 3,000,000 the number of shares of the Company's common stock reserved for issuance...

  • Page 85
    2016 Annual Report on Form 10-K Annual Report

  • Page 86
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  • Page 87
    ... business day of our second fiscal quarter, was $20,088 million. As of May 23, 2016, there were 301,609,583 shares of the registrant's common stock, $0.01 par value, outstanding. Documents Incorporated by Reference Portions of the registrant's definitive proxy statement for its 2016 Annual Meeting...

  • Page 88
    ELECTRONIC ARTS INC. 2016 FORM 10-K ANNUAL REPORT Table of Contents Page PART I Item 1 Business ...Item 1A Risk Factors ...Item 1B Unresolved Staff Comments ...Item 2 Properties ...Item 3 Legal Proceedings ...Item 4 Mine Safety Disclosures ...PART II Item 5 Market for Registrant's Common Equity, ...

  • Page 89
    ... offices are located at 209 Redwood Shores Parkway, Redwood City, California 94065 and our telephone number is (650) 628-1500. Our Strategy We have three core strategies Players First Commitment to Digital One EA Business Annual Report Players First Players are the foundation of our success...

  • Page 90
    ...business model opportunities on a case-by-case basis. Digitally, our console games, additional content and online services can be purchased through Sony's PlayStation Network and Microsoft's Xbox Store. Our PC games and additional content can be downloaded directly through our Origin online platform...

  • Page 91
    ... brands across a diverse range of genres and platforms enables us to build long-term relationships with a wide variety of players. In fiscal year 2016, revenue from sales of FIFA 16 represented approximately 16 percent of our total net revenue; in fiscal year 2015, revenue from sales of FIFA...

  • Page 92
    ..., social networking, online casual entertainment and music that our players could enjoy in their free time. Important competitive factors include game quality and ease of use, compatibility of products with certain platforms, brand recognition, price, marketing, and quality of customer service...

  • Page 93
    ... 31, 2016, 2015 and 2014, research and development expenses were $1,109 million, $1,094 million and $1,125 million, respectively. Executive Officers The following table sets forth information regarding our executive officers as of May 26, 2016: Name Age Position Andrew Wilson ...Blake Jorgensen...

  • Page 94
    ... as EA's Chief Operating Officer from August 2011 until March 2016 and as President, EA SPORTS from September 2007 to August 2011. From January 2003 until he joined EA in 2007, Mr. Moore was with Microsoft where he served as head of Xbox marketing and was later named as Corporate Vice President...

  • Page 95
    ... Mr. Schatz has served as Senior Vice President, General Counsel and Corporate Secretary since June 2014. Mr. Schatz joined EA in 1999 and prior to his current role, he served as Deputy General Counsel and as Vice President since 2006. Mr. Schatz earned his J.D. from Georgetown University Law Center...

  • Page 96
    .... Our competitors range from large established companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world. If our competitors develop and market more successful products or services, offer competitive products or services at lower price points, or if...

  • Page 97
    ... revenue opportunities. Technology changes rapidly in our business and if we fail to anticipate or successfully implement new technologies in our games or adopt new business strategies, distribution technologies or methods, the quality, timeliness and competitiveness of our products and services...

  • Page 98
    ... in the online platforms or services of key business partners who offer or support our products and services. Our business is subject to currency fluctuations. International sales are a fundamental part of our business. For our fiscal year ended March 31, 2016, international net revenue comprised 57...

  • Page 99
    ..., these new business models could fail, resulting in the loss of our investment in the development and infrastructure needed to support these new business models, as well as the opportunity cost of diverting management and financial resources away from more successful and established businesses. If...

  • Page 100
    .... Historically, new video game console systems have been developed and released every few years, which has caused the video game software market to be cyclical as well. In these periods of transition, sales of software for legacy generation console systems typically slow or decline in response to...

  • Page 101
    ... distribution of interactive entertainment software based on content could harm our business by limiting the products we are able to offer to our customers. In addition, compliance with new and possibly inconsistent regulations for different territories could be costly, delay or prevent the release...

  • Page 102
    ... cases our channel partners also set the rates that we must pay to provide our games and services through their online channels, and retain flexibility to change their fee structures or adopt different fee structures for their online channels, which could adversely impact our costs, profitability...

  • Page 103
    ... of Internet service providers or platform holders to remove infringing content in certain instances, and the proliferation of online channels through which infringing product is distributed all have contributed to an expansion in unauthorized copying of our products and brands. 17 Annual Report

  • Page 104
    ... or inadequate, and the Company's disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to our products, services or online stores selling our products and services. Our corporate headquarters in Redwood City, CA and our studio in...

  • Page 105
    ...and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenue, costs and taxes, could have a significant adverse effect on our reported results although not necessarily on our cash flows. Our stock price has...

  • Page 106
    ... 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. In addition...

  • Page 107
    ... Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "EA". The following table sets forth the quarterly high and low closing sales price per share of our common stock from April 1, 2014 through March 31, 2016. Prices...

  • Page 108
    ...the fourth quarter of the fiscal year ended March 31, 2016: Total Number of Shares Purchased as part of Publicly Announced Programs Maximum Dollar Value that May Still Be Purchased Under the Programs (in millions) Fiscal Month Total Number of Shares Purchased Average Price Paid per Share January...

  • Page 109
    ... $150 $100 $50 $0 3/11 3/12 3/13 3/14 3/15 3/16 Annual Report Electronic Arts Inc. NASDAQ Composite S&P 500 RDG Technology Composite * Based on $100 invested on March 31, 2011 in stock or index, including reinvestment of dividends. March 31, 2013 2014 2011 2012 2015 2016 Electronic Arts Inc...

  • Page 110
    Item 6: Selected Financial Data ELECTRONIC ARTS INC. AND SUBSIDIARIES SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA (In millions, except per share data) Year Ended March 31, 2015 2014 2013 STATEMENTS OF OPERATIONS DATA 2016 2012 Net revenue ...Cost of revenue ...Gross profit ...Total operating ...

  • Page 111
    ... PC free-to-download games that are monetized through a business model through which we sell incremental content and/or features in discrete transactions. We also provide our EA Access service for the Xbox One and Origin Access service on PC, which offer players access to a selection of EA games and...

  • Page 112
    ... player-centric ways to discover and try new experiences, such as our subscription-based EA Access and Origin Access services. We significantly increased our digital net revenue from $1,833 million in fiscal year 2014 to $2,199 million in fiscal year 2015 and $2,409 million during fiscal year 2016...

  • Page 113
    ... free-to-download mobile games), (2) massively multi-player online ("MMO") games (both software game and subscription sales), (3) subscriptions for our Battlefield Premium, EA Access, and Pogo-branded online game services, and (4) allocated service revenue from sales of software games with an online...

  • Page 114
    ... acceptance is reasonably assured. • Online-Enabled Games The majority of our software games and related content have online connectivity whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ("unspecified updates") for use with the original...

  • Page 115
    ... including, but not limited to, recent selling prices and related discounts, market conditions, customer classes, sales channels and other factors. Provided the other three revenue recognition criteria other than delivery have been met, we recognize revenue upon delivery to the customer as we have...

  • Page 116
    ... game industry, changes in customer demand, acceptance of our software products, and other related factors. In addition, we monitor the volume of sales to our channel partners and their inventories, as substantial overstocking in the distribution channel could result in high returns or higher price...

  • Page 117
    ... a straight-line basis over the term of the contract. Accordingly, if our future revenue projections change, our effective royalty rates would change, which could impact the amount and timing of royalty expense we recognize. Prepayments made to thinly capitalized independent software developers and...

  • Page 118
    ...tax audit and other matters, and variations in the estimated and actual level of annual pre-tax income can affect the overall effective income tax rate. Impact of Recently Issued Accounting Standards In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software...

  • Page 119
    ...of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These pronouncements have the same effective date as the new...

  • Page 120
    ... generated from (1) video games sold as packaged goods or as digital downloads and designed for play on consoles (such as the PlayStation from Sony and the Xbox from Microsoft) and PCs, (2) video games for mobile phones and tablets, (3) separate software products and content and online game services...

  • Page 121
    ... online games and websites, (3) inventory costs, (4) platform processing fees from operating our website-based games on third party platforms, and (5) credit card fees associated with our service revenue. Cost of service and other revenue increased by $15 million, or 3.7 percent in fiscal year 2016...

  • Page 122
    ... costs in connection with the development and production of our online games. Research and development expenses also include expenses associated with our digital platform, software licenses and maintenance, and management overhead. Research and development expenses for fiscal years 2016 and 2015...

  • Page 123
    ... effective income tax rates for fiscal year 2017 and future periods will continue to depend on a variety of factors, including changes in the deferred tax valuation allowance, changes in our business such as acquisitions and intercompany transactions, changes in our international structure, changes...

  • Page 124
    ..., our effective tax rate will be more volatile. Historically, we have considered all undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S. taxes have been provided thereon. During the fourth quarter of fiscal year 2016...

  • Page 125
    ... Revenue Cost of service and other revenue increased by $86 million, or 27.3 percent in fiscal year 2015, as compared to fiscal year 2014. The increase was primarily due to an increase in royalty-related costs due to FIFA Ultimate Team, Madden Ultimate Team, and Titanfall. Annual Report Total Cost...

  • Page 126
    ... fair market value of the acquisition-related contingent consideration of our PopCap acquisition during fiscal year 2014. The PopCap earn-out expired on December 31, 2013. No payments were made under this earn-out. Income Taxes Provision for (benefit from) income taxes for fiscal years 2015 and 2014...

  • Page 127
    ... 388 $813 Year Ended March 31, (In millions) Cash provided by operating activities ...Cash used in investing activities ...Cash used in financing activities ...Effect of foreign exchange on cash and cash equivalents ...Net increase in cash and cash equivalents ... 2016 2015 Change $1,223 (484...

  • Page 128
    .... During the quarter ending June 30, 2016, we expect to settle conversion requests with $27 million in cash and a number of shares of our common stock equal in value to the excess conversion value. Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended March 31...

  • Page 129
    ... various risks and uncertainties including, but not limited to, those related to customer demand and acceptance of our products, our ability to collect our accounts receivable as they become due, successfully achieving our product release schedules and attaining our forecasted sales objectives, the...

  • Page 130
    ... original or remaining maturities of three months or less at the time of purchase. We do not enter into derivatives or other financial instruments for speculative trading purposes and do not hedge our market price risk relating to marketable equity securities, if any. Foreign Currency Exchange Rate...

  • Page 131
    ... Financial Statements in this Form 10-K as it relates to our derivative financial instruments, which is incorporated by reference into this Item 7A. Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our short-term investment portfolio. We manage...

  • Page 132
    ... Financial Statements ...Report of Independent Registered Public Accounting Firm ...Financial Statement Schedule: The following financial statement schedule of Electronic Arts Inc. and Subsidiaries for the years ended March 31, 2016, 2015 and 2014 is filed as part of this report and should be read...

  • Page 133
    ......Acquisition-related intangibles, net ...Deferred income taxes, net ...Other assets ...TOTAL ASSETS ...LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ...Accrued and other current liabilities ...0.75% convertible senior notes due 2016, net ...Deferred net revenue (online...

  • Page 134
    ... share data) Net revenue: Product ...Service and other ...Total net revenue ...Cost of revenue: Product ...Service and other ...Total cost of revenue ...Gross profit ...Operating expenses: Research and development ...Marketing and sales ...General and administrative ...Acquisition-related contingent...

  • Page 135
    ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Net income ...Other comprehensive income (loss), net of tax: Change in unrealized net gains and losses on available-for-sale securities ...Reclassification adjustment for net realized gains and...

  • Page 136
    ELECTRONIC ARTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In millions, share data in thousands) Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Stock Shares Amount Retained Earnings Balances as of March 31, ...

  • Page 137
    ...income taxes, net ...Deferred net revenue (online-enabled games) ...Net cash provided by operating activities ...INVESTING ACTIVITIES Capital expenditures ...Proceeds from maturities and sales of short-term investments ...Purchase of short-term investments ...Acquisition of subsidiaries, net of cash...

  • Page 138
    ... and services may be purchased through multiple distribution channels, including physical and online retailers, platform providers such as console manufacturers, providers of free-to-download PC games, mobile carriers and directly through Origin, our own digital distribution platform. A summary of...

  • Page 139
    ... 10 years We capitalize costs associated with internal-use software development once a project has reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the software, and payroll and payroll-related expenses for employees...

  • Page 140
    ..., 2016, 2015 and 2014, we completed our annual goodwill impairment testing in the fourth quarter of each year and did not recognize any impairment charges. Revenue Recognition, Sales Returns and Allowances, and Bad Debt Reserves We derive revenue principally from sales of interactive software games...

  • Page 141
    ... free-to-download mobile games), (2) massively multi-player online ("MMO") games (both software game and subscription sales), (3) subscriptions for our Battlefield Premium, EA Access, and Pogo-branded online game services, and (4) allocated service revenue from sales of software games with an online...

  • Page 142
    ... including, but not limited to, recent selling prices and related discounts, market conditions, customer classes, sales channels and other factors. Provided the other three revenue recognition criteria other than delivery have been met, we recognize revenue upon delivery to the customer as we have...

  • Page 143
    ... accounted for approximately 55 percent of our net revenue. Currently, a majority of our revenue is derived through sales of products and services on hardware consoles from Sony and Microsoft. For the fiscal years ended March 31, 2016, 2015 and 2014, our net revenue for products and services...

  • Page 144
    ...March 31, 2016, 2015 and 2014, respectively. For the fiscal years ended March 31, 2016, 2015 and 2014, advertising expense, net of vendor reimbursements, totaled approximately $240 million, $228 million, and $217 million, respectively. Software Development Costs Research and development costs, which...

  • Page 145
    ... of employee share-based payment accounting. This pronouncement eliminates the APIC pool concept and requires that excess tax benefits and tax deficiencies be recorded in the income statement when awards are settled. The pronouncement also addresses simplifications related to statement of cash flows...

  • Page 146
    ... of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new...

  • Page 147
    ... Other Significant Financial Observable Unobservable As of Instruments Inputs Inputs March 31, 2016 (Level 1) (Level 2) (Level 3) Annual Report Balance Sheet Classification Assets Bank and time deposits ...$ 345 Money market funds ...143 Available-for-sale securities: Corporate bonds ...745...

  • Page 148
    ... at Reporting Date Using Quoted Prices in Active Markets for Significant Identical Other Significant Financial Observable Unobservable As of Inputs Inputs March 31, Instruments 2015 (Level 1) (Level 2) (Level 3) Balance Sheet Classification Assets Bank and time deposits ...$ 175 Money market funds...

  • Page 149
    ... significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency forward contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and...

  • Page 150
    ... of hedge effectiveness during fiscal years ended March 31, 2016, 2015 and 2014 and recognized in interest and other income (expense), net, was immaterial. Balance Sheet Hedging Activities Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as...

  • Page 151
    ... From Accumulated Other Comprehensive Income (Loss) Year Ended March 31, 2016 2015 2014 Statement of Operations Classification (Gains) losses on cash flow hedges from forward contracts Net revenue ...Research and development ...Total amount reclassified, net of tax ... (23) 11 $(12) (2) 13...

  • Page 152
    ... 31, 2016 2015 2014 Cost of service and other ...Cost of product ...Operating expenses ...Total ... $33 14 7 $54 $36 16 14 $66 $27 33 16 $76 Acquisition-related intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms...

  • Page 153
    ...$(12) Annual Report $- 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...

  • Page 154
    ...and service sales. Any impairments or losses determined before the launch of a product are generally charged to research and development expense. Impairments or losses determined post-launch are charged to cost of revenue. We evaluate long-lived royalty-based assets for impairment using undiscounted...

  • Page 155
    ... delivery of the product or content or other factors) and such commitments were therefore not recorded in our Consolidated Financial Statements. See Note 13 for further information on our developer and licensor commitments. (10) BALANCE SHEET DETAILS Inventories Inventories as of March 31, 2016...

  • Page 156
    ... the cost of revenue related to these transactions during the period in which the product is delivered (rather than on a deferred basis). (11) INCOME TAXES The components of our income before provision for (benefit from) income taxes for the fiscal years ended March 31, 2016, 2015 and 2014 are...

  • Page 157
    ... 2014 were as follows: Year Ended March 31, 2016 2015 2014 Annual Report Statutory federal tax expense rate ...State taxes, net of federal benefit ...Differences between statutory rate and foreign effective tax rate ...Valuation allowance ...Research and development credits ...Unremitted earnings...

  • Page 158
    ...March 31, 2016. As we currently have no plans to repatriate those earnings, no U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and...

  • Page 159
    ... statute of limitations ...Changes in unrecognized tax benefits due to foreign currency translation ...Balance as of March 31, 2014 ...Increases in unrecognized tax benefits related to prior year tax positions ...Decreases in unrecognized tax benefits related to prior year tax positions ...Increases...

  • Page 160
    ...amount is amortized to interest expense over the term of the Convertible Notes using the effective interest method. The equity component on the date of issuance was $107 million. In accounting for $15 million of issuance costs paid in July 2011 related to the Convertible Notes issuance, we allocated...

  • Page 161
    ... the quarter ending June 30, 2016, we expect to settle conversion requests with $27 million in cash and a number of shares of our common stock equal in value to the excess conversion value. Annual Report Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended...

  • Page 162
    ... will be determined based upon the market price of our common stock during the 60 day trading period beginning on October 17, 2016. We received proceeds of $65 million from the sale of the Warrants in fiscal year 2012. Effect of conversion on earning per share ("EPS") The Convertible Notes have no...

  • Page 163
    ... interest rate. As of March 31, 2016 and 2015, no amounts were outstanding under the Credit Facility. $2 million of debt issuance costs that were paid in connection with obtaining this credit facility are being amortized to interest expense over the 5 year term of the Credit Facility. Annual Report...

  • Page 164
    ... on the sales of the products. These terms are set forth in written agreements entered into with the independent artists and third-party developers. In addition, we have certain celebrity, league and content license contracts that contain minimum guarantee payments and marketing commitments that...

  • Page 165
    ...during any fiscal year. The number of shares to be issued will be based on fair market value at the time of issuance. In addition to what is included in the table above, as of March 31, 2016, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling...

  • Page 166
    ... our market-based restricted stock units is determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient. Stock Options and Employee Stock Purchase Plan. The...

  • Page 167
    ... Statements of Operations (in millions): Year Ended March 31, 2016 2015 2014 Cost of revenue ...Research and development ...Marketing and sales ...General and administrative ...Stock-based compensation expense ... $ 2 103 24 49 $ 2 82 21 39 $ 2 90 26 32 $178 $144 $150 Annual Report...

  • Page 168
    ... the options in the related range of exercise prices by 301 million shares of common stock, which were issued and outstanding as of March 31, 2016. Restricted Stock Rights We grant restricted stock rights under our Equity Plan to employees worldwide. Restricted stock units are unfunded, unsecured...

  • Page 169
    ...2nd, 3rd, 4th, and 5th years. Annual Report Each restricted stock right granted reduces the number of shares available for grant by 1.43 shares under our Equity Plan. The following table summarizes our restricted stock rights activity, excluding market-based restricted stock unit activity which is...

  • Page 170
    ... years 2016, 2015, and 2014, the estimated weighted-average fair values of purchase rights were $12.97, $8.26 and $4.67, respectively. The fair values were estimated on the date of grant using the BlackScholes valuation model. We issue new common stock out of the ESPP's pool of authorized shares...

  • Page 171
    ... contributions to employees' accounts based on our financial performance. We contributed an aggregate of $27 million, $27 million and $16 million to these plans in fiscal years 2016, 2015, and 2014, respectively. Stock Repurchase Program In May 2014, a special committee of our Board of Directors, on...

  • Page 172
    ...2016, an immaterial amount of options to purchase, restricted stock units and restricted stock to be released were excluded from the treasury stock method computation of diluted shares as their inclusion would have had an antidilutive effect. For the fiscal years ended March 31, 2015 and 2014, stock...

  • Page 173
    ...relates to sales of online-enabled games and content for which we do not have VSOE for unspecified updates to be delivered after the initial sale or for which we have a continuing service obligation. Fluctuations in the revenue deferral are largely dependent upon the amounts of products that we sell...

  • Page 174
    ... sales through our Switzerland distribution business. Other revenue includes our non-software licensing revenue. Digital revenue includes full-game downloads, extra content, subscriptions, advertising and other, and mobile revenue. Digital revenue includes internally-developed and co-published game...

  • Page 175
    ... of total net revenue in fiscal years 2015 and 2014, respectively. (19) QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED) (In millions, except per share data) Fiscal 2016 Consolidated Net revenue ...Gross profit ...Operating income (loss) ...Net income (loss) ...Common Stock Earnings (loss) per...

  • Page 176
    Report of Independent Registered 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, 2016 and March 28, 2015, and the related ...

  • Page 177
    ... 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 178
    ... registered public accounting firm, has issued an auditors' report on the effectiveness of our internal control over financial reporting. That report appears on page 81. Changes in Internal Control over Financial Reporting There has been no change in our internal controls over financial reporting...

  • Page 179
    ...." Annual Report Item 14: Principal Accounting Fees and Services The information required by Item 14 is incorporated herein by reference to the information to be included in the 2016 Proxy under the subheading "Fees of Independent Auditors." PART IV Item 15: Exhibits, Financial Statement Schedules...

  • Page 180
    ... on its behalf by the undersigned, thereunto duly authorized. ELECTRONIC ARTS INC. By: /s/ Andrew Wilson Andrew Wilson Chief Executive Officer Date: May 26, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 181
    ELECTRONIC ARTS INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended March 31, 2016, 2015 and 2014 (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 182
    ...Compensation Plan Electronic Arts Inc. Key Employee Continuity Plan First Amendment to the Electronic Arts Deferred Compensation Plan, as amended and restated EA Bonus Plan EA Bonus Plan Fiscal Year 2016 Addendum Form of 2014 Performance-Based Restricted Stock Unit Agreement Form of 2015 Performance...

  • Page 183
    ..., 2014, by and between Liberty Property Limited Partnership, a Pennsylvania limited partnership and Electronic Arts - Tiburon, a Florida corporation f/k/a Tiburon Entertainment, Inc. First Amended North American Territory Rider to the Global PlayStation®3 Format Licensed Publisher Agreement, dated...

  • Page 184
    ..., by and among Electronic Arts Inc., EA International (Studio & Publishing) Ltd., Microsoft Licensing, GP and Microsoft Corporation Form of Call Option Agreement dated as of July 14, 2011 between EA and each Option Counterparty Form of Warrant Agreement dated July 14, 2011 between EA and each Option...

  • Page 185
    ... granted in accordance with Exchange Act Rule 24b-2. Attached as Exhibit 101 to this Annual Report on Form 10-K for the year ended March 31, 2016 are the following formatted in eXtensible Business Reporting Language ("XBRL"): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations...

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    Electronic Arts Inc. 209 Redwood Shores Parkway Redwood City, CA 94065 (650) 628-1500 www.ea.com Investor Relations (650) 628-0406 http://investor.ea.com