ERTS » Topics » Research and Development

These excerpts taken from the ERTS 10-K filed May 22, 2009.

Research and Development

Research and development expenses consist of expenses incurred by our production studios for personnel-related costs, related overhead costs, contracted services, equipment depreciation and any impairment of prepaid royalties for pre-launch products. Research and development expenses for our online business 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 web site content, software licenses and maintenance, network infrastructure and management overhead.

Research and development expenses for fiscal years 2009 and 2008 were as follows (in millions):

 

March 31,

2009

    

% of Net
Revenue

    

March 31,
2008

    

% of Net
Revenue

    

$ Change

    

% Change

$1,359

     32%      $1,145      31%      $214      19%

Research and development expenses increased by $214 million, or 19 percent, in fiscal year 2009, as compared to fiscal year 2008. The increase was primarily due to (1) higher external development costs of $120 million due to a greater number of projects in development as compared to the prior year, (2) an increase of $66 million in additional personnel-related costs primarily resulting from an increase in headcount prior to actions taken under our fiscal year 2009 restructuring, (3) an increase of $43 million in stock-based compensation expense, and (4) an increase in facilities-related expenses of $8 million to support our research and development functions worldwide. These increases were partially offset by a decrease of $26 million in incentive-based compensation expense.

We expect research and development expenses to decrease in absolute dollars in fiscal year 2010 as compared to fiscal year 2009 primarily due to a decrease in personnel-related costs.

Research and Development

FACE="Times New Roman" SIZE="2">Research and development expenses consist of expenses incurred by our production studios for personnel-related costs, related overhead costs, contracted services, equipment depreciation and any impairment of prepaid
royalties for pre-launch products. Research and development expenses for our online business 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 web site content, software licenses and maintenance, network infrastructure and management overhead.

STYLE="margin-top:12px;margin-bottom:0px">Research and development expenses for fiscal years 2009 and 2008 were as follows (in millions):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 








































March 31,

STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000;width:35pt" ALIGN="center">2009

    

% of Net
Revenue

    

March 31,
2008

    

% of Net
Revenue

    

$ Change

    

% Change

$1,359

    32%    $1,145    31%    $214    19%

Research and development expenses increased by $214 million, or 19 percent, in fiscal year 2009, as compared to
fiscal year 2008. The increase was primarily due to (1) higher external development costs of $120 million due to a greater number of projects in development as compared to the prior year, (2) an increase of $66 million in additional
personnel-related costs primarily resulting from an increase in headcount prior to actions taken under our fiscal year 2009 restructuring, (3) an increase of $43 million in stock-based compensation expense, and (4) an increase in
facilities-related expenses of $8 million to support our research and development functions worldwide. These increases were partially offset by a decrease of $26 million in incentive-based compensation expense.

STYLE="margin-top:12px;margin-bottom:0px">We expect research and development expenses to decrease in absolute dollars in fiscal year 2010 as compared to fiscal year 2009 primarily due to a decrease in
personnel-related costs.

Research and Development

Research and development expenses for fiscal years 2008 and 2007 were as follows (in millions):

 

March 31,
2008

     % of Net
Revenue
     March 31,
2007
     % of Net
Revenue
     $ Change      % Change

$1,145

     31%      $1,041      34%      $104      10%

As a percentage of net revenue, research and development expenses were adversely impacted by our deferral of net revenue related to online-enabled packaged goods and digital content during fiscal year 2008.

Research and development expenses increased by $104 million, or 10 percent, in fiscal year 2008 as compared to fiscal year 2007. The increase was primarily due to (1) an increase of $93 million in additional personnel-related costs primarily due to an increase in headcount and partially as a result of our acquisition of VGH, (2) higher external development costs of $32 million to support new releases such as our Union of European Football Association’s EURO soccer franchise and titles from The Sims franchise, and (3) an increase in depreciation of $12 million. These increases were partially offset by a $24 million reduction in incentive-based compensation expense and $6 million reduction in facilities-related expenses.

Research and Development

Research and development expenses for fiscal years 2008 and 2007 were as follows (in millions):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 








































March 31,
2008

    % of Net
Revenue
    March 31,
2007
    % of Net
Revenue
    $ Change    % Change

$1,145

    31%    $1,041    34%    $104    10%

As a percentage of net revenue, research and development expenses were adversely impacted by our deferral of net
revenue related to online-enabled packaged goods and digital content during fiscal year 2008.

Research and development expenses increased by $104 million,
or 10 percent, in fiscal year 2008 as compared to fiscal year 2007. The increase was primarily due to (1) an increase of $93 million in additional personnel-related costs primarily due to an increase in headcount and partially as a result of
our acquisition of VGH, (2) higher external development costs of $32 million to support new releases such as our Union of European Football Association’s EURO soccer franchise and titles from The Sims franchise, and (3) an increase in
depreciation of $12 million. These increases were partially offset by a $24 million reduction in incentive-based compensation expense and $6 million reduction in facilities-related expenses.

STYLE="margin-top:18px;margin-bottom:0px">Acquired In-Process Technology

Acquired in-process technology
charges for fiscal years 2008 and 2007 were as follows (in millions):

 








































March 31,
2008

    % of Net
Revenue
    March 31,
2007
    % of Net
Revenue
    $ Change    % Change

$138

    4%    $3        $135    4500%

In connection with our acquisition of VGH, we incurred acquired in-process technology charges of $138 million in
relation to game software that had not reached technical feasibility at the date of acquisition. The fair values of VGH’s products under development were determined using the income approach, which discounts expected future cash flows from the
acquired in-process technology to present value. The acquired in-process technology charge we incurred in fiscal year 2007 resulted from our acquisitions of Mythic and the remaining minority interest in DICE.

STYLE="margin-top:18px;margin-bottom:0px">Amortization of Intangibles

Amortization of intangibles for
fiscal years 2008 and 2007 was as follows (in millions):

 








































March 31,
2008

    % of Net
Revenue
    March 31,
2007
    % of Net
Revenue
    $ Change    % Change

$34

    1%    $27    1%    $7    26%

For fiscal year 2008, amortization of intangibles resulted from our acquisitions of JAMDAT, VGH and others. For
fiscal year 2007, amortization of intangibles resulted from our acquisitions of JAMDAT, Mythic and others. Amortization of intangibles increased by $7 million, or 26 percent, in fiscal year 2008 as compared to fiscal year 2007 primarily due to the
amortization of intangibles related to our acquisition of VGH.

This excerpt taken from the ERTS 10-Q filed Feb 4, 2009.

Research and Development

Research and development expenses consist of expenses incurred by our production studios for personnel-related costs, related overhead costs, contracted services, equipment depreciation and any impairment of prepaid royalties for pre-launch products. Research and development expenses for our online business 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 web site content, software licenses and maintenance, network infrastructure and management overhead.

Research and development expenses for the three and nine months ended December 31, 2008 and 2007 were as follows (in millions):

 

     December 31,
2008
   % of Net
Revenue
    December 31,
2007
   % of Net
Revenue
    $ Change     % Change  

Three months ended

   $ 299    18 %   $ 321    21 %   $ (22 )   (7 %)

Nine months ended

   $ 1,027    31 %   $ 829    33 %   $ 198     24 %

Research and development expenses decreased by $22 million, or 7 percent, during the three months ended December 31, 2008, as compared to the three months ended December 31, 2007. The decrease was primarily due to a decrease of $62 million in incentive-based compensation expense. This decrease was partially offset by (1) higher external development costs of $26 million due to a greater number of projects in development as compared to the prior year and (2) an increase of $17 million in additional personnel-related costs, partially resulting from our acquisition of VGH in January 2008.

Research and development expenses increased by $198 million, or 24 percent, during the nine months ended December 31, 2008, as compared to the nine months ended December 31, 2007. The increase was primarily due to (1) higher external development costs of $91 million due to a greater number of projects in development as compared to the prior year, (2) an increase of $82 million in additional personnel-related costs, partially resulting from our acquisition of VGH in January 2008, (3) an increase of $37 million in stock-based compensation expense, and (4) an increase in facilities-related expenses of $10 million to support our research and development functions worldwide. These increases were partially offset by a decrease of $24 million in incentive-based compensation expense.

We expect research and development expenses to increase in absolute dollars in fiscal 2009 as compared to fiscal 2008 primarily due to an increase in personnel-related costs and a greater number of titles in development.

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