UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2014
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File No. 000-17948
ELECTRONIC ARTS INC.
(Exact name of registrant as specified in its charter)
Delaware
 
94-2838567
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
209 Redwood Shores Parkway
 
94065
Redwood City, California
 
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code:
(650) 628-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
  
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
  
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ         No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨         No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ         No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ         No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer     þ
 
Accelerated filer     ¨
 
Non-accelerated filer     ¨
 
Smaller reporting company     ¨
 
 
(Do not check if a smaller reporting company)                
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨         No þ
The aggregate market value of the registrant’s common stock, $0.01 par value, held by non-affiliates of the registrant as of September 27, 2013, the last business day of our second fiscal quarter, was $5,271 million .
As of May 19, 2014 there were 314,539,637 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 2014 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.




ELECTRONIC ARTS INC.
2014 FORM 10-K ANNUAL REPORT
Table of Contents
 
 
 
 
 
 
Page
 
PART I
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
 
 
 
 
PART II
 
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
 
 
 
 
PART III
 
Item 10
Item 11
Item 12
Item 13
Item 14
 
 
 
 
PART IV
 
Item 15


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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, made in this Report are forward looking. Examples of forward-looking statements include statements related to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie the forward-looking statements. We use words such as “anticipate,” “believe,” “expect,” “intend,” “estimate” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management’s current expectations, and involve subjects that are inherently uncertain and difficult to predict. Our actual results could differ materially from those in the forward-looking statements. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors,” beginning on page 11.

PART I

Item 1:     Business

Overview

We develop, market, publish and distribute game software content and services that can be played by consumers on a variety of video game machines and electronic devices (which we call “platforms”). These platforms include video game consoles (such as the Microsoft Xbox 360 and One and the Sony PlayStation 3 and 4), personal computers (“PCs”), and mobile phones and tablets.

Our Strategy
Leverage Core Intellectual Properties
A cornerstone of our strategy is to leverage established intellectual properties (which we call “brands”) to create year-round gaming experiences on multiple platforms, each capable of delivering additional content and revenue over extended periods of time. As an example, in recent years we have released yearly iterations of our FIFA-branded soccer products for console, PC and mobile platforms; by providing additional content and services for these products, we are able to extend the period of time over which consumers engage with these products. We also seek to create and similarly leverage new intellectual properties with the potential to become established franchises, such as the EA SPORTS UFC mixed-martial arts product expected to be released in June 2014.

Our portfolio of brands spans a diverse range of categories (including action-adventure, casual, family, fantasy, first-person shooter, horror, science fiction, role-playing, racing, simulation, sports, and strategy) and includes wholly-owned brands such as Battlefield, Mass Effect, Need for Speed, Dragon Age, The Sims, Bejeweled and Plants v. Zombies, as well as brands based on licensed intellectual property such as FIFA, Madden NFL and Star Wars.

In our experience, leveraging strong brands with mass consumer appeal allows us to create iterative brand-based products and services (e.g., sequels, prequels, spinoffs and installments) that can be sold across a range of platforms to an established consumer base over extended periods of time.
Focused Product Portfolio
In recent years, we have narrowed our product portfolio to reduce costs and to focus on developing products with the potential to become hit products. For example, in fiscal year 2011, we published over 30 titles for console and PC, while in fiscal year 2014 we published 11; in fiscal year 2015, we expect to release 10 titles for console and PC. We have similarly reduced the number of major mobile titles we publish.

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Publish on Multiple Platforms
Our ability to deliver our products and services across multiple platforms has been, and will continue to be, another cornerstone of our business strategy. We believe the ability to successfully publish across multiple platforms is critical to maintaining and growing our overall consumer base, which continues to evolve in response to the introduction of new platforms and platform business models.
•
New Consoles . We are highly focused on developing games and services for Xbox One and PlayStation 4, which were each released in November 2013. The rates at which consumers purchase these new consoles and our ability to release commercially successful products on them will be critical to our success.
•
Legacy Consoles . Though industry sales of major games for Xbox 360 and PlayStation 3 declined significantly during our 2014 fiscal year, these legacy platforms maintain a sizeable user base and we expect to continue to develop and market products for each of them in the near term.
•
Mobile . We develop and publish games for mobile phones and tablets (“mobile games”). The market for mobile games addresses a significantly wider demographic than that of games traditionally played on consoles and PCs, has low barriers to entry and is crowded with thousands of product offerings. We believe the consumer recognition associated with our wholly-owned and licensed brands helps to differentiate our offerings in order to acquire customers in this crowded market. In addition, our free-to-play, micro-transaction mobile game offerings allow consumers to try and play our games with no up-front cost, reducing a major barrier to initial customer acquisition.
•
PC Free-to-Play . We publish, directly and through publishing partners, free-to-play, micro-transaction-based games that can be played on PCs directly over the Internet such as FIFA Online. The mass introduction and wide consumer acceptance of free-to-play, micro-transaction-based PC games has created a large addressable market.
•
PC & Origin . We digitally distribute PC downloadable games directly to consumers via our online Origin portal. The Origin portal, as well as the Origin client application integrated into our PC games, provide opportunities to acquire and maintain direct on-going relationships with consumers.

New online-enabled gaming platforms, such as “micro-consoles” offered in entertainment set-top boxes, have emerged and are expected to continue to emerge in the future. We intend to evaluate new platform publishing opportunities on a case-by-case basis as they emerge.
Digital Revenue Growth
We are investing in strategies and capabilities that will allow us to enhance our digitally delivered and online-enabled product and service offerings. Historically, our revenue came mainly from selling disc-based video game products through retailers (we call these “packaged goods” products). Now, we also derive significant and increasing revenue from the delivery of games, additional content and services through online and wireless networks, which we refer to as “digital revenue.” For example:
•
Consumers can purchase and download our PC games (and those of other publishers) directly through our Origin online platform, as well as through third-party online download stores and services;
•
Consumers can purchase and acquire digitally-delivered console games, additional content and enhanced online services directly through Sony’s PlayStation Network and Microsoft’s Xbox LIVE Marketplace;
•
Our mobile and PC free-to-play games, which are monetized through discrete digital micro-transactions, are available only through wireless and online delivery; and
•
We offer large-scale, massively multi-player online games and game services on a free-to-play and subscription basis.

We believe that digital revenue, which is frequently higher-margin relative to packaged goods sales revenue, will continue to increase in relative and absolute terms.
Direct Consumer Relationship; Games-as-a-Service
We believe establishing and maintaining direct relationships with our consumers and supporting the evolution of a games-as-a-service business model are strategic priorities.
By acquiring direct relationships with consumers, we are able to market products and services in a direct, targeted manner, often in response to purchasing history or playing behavior. We believe this reduces overall customer acquisition and marketing costs.

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With network-connected gameplay and digitally-delivered content, features and services, which have become core elements of the experience we offer to consumers, we are able to update, evolve and refresh our product offerings over extended periods, increasing both consumer engagement and product life. Additionally, many of our brands offer different products and services on various respective platforms, offering consumers the opportunity to engage with their favorite brands more frequently and at different points in time (e.g., on a console in the home, with a mobile device on the go, and on a PC at work). As a result, we can offer consumers an always-on, multi-platform, live service organized around one of their favorite brands.
Global Operations
We were initially incorporated in California in 1982. In September 1991, we were reincorporated under the laws of Delaware. Our principal executive offices are located at 209 Redwood Shores Parkway, Redwood City, California 94065 and our telephone number is (650) 628-1500.
We operate development studios in North America, Europe, Asia and Australia. We also engage third parties to assist with the development of our games at their own development and production studios. Internationally, we conduct business through our international headquarters in Switzerland and have wholly-owned subsidiaries throughout the world, including offices in Europe, Australia, Asia and Latin America.
Our North America net revenue was $1,510 million in fiscal year 2014, as compared to $1,701 million in fiscal year 2013 and $1,991 million in fiscal year 2012. International net revenue (revenue derived from countries other than Canada and the United States) decreased by 1 percent to $2,065 million, or 58 percent of total net revenue in fiscal year 2014, as compared to $2,096 million, or 55 percent of total net revenue in fiscal year 2013 and as compared to $2,152 million, or 52 percent of total net revenue in fiscal year 2012. We attribute net revenue from external customers to individual countries based on the location of the legal entity that sells the products and/or services. Note that revenue attributed to the legal entity that makes the sale is often not the country where the consumer resides. For example, revenue generated by our Swiss legal entities includes digital revenue from consumers who reside outside of Switzerland, including consumers who reside outside of Europe. Revenue generated by our Swiss legal entities during fiscal years 2014, 2013, and 2012 represents $1,171 million , $885 million and $589 million or 33 percent , 23 percent and 14 percent of our total net revenue, respectively. Revenue generated in the United States represents over 99 percent of our total North America net revenue. There were no other countries with net revenue greater than 10 percent . The amounts of net revenue and long-lived assets attributable to each of our geographic regions for each of the last three fiscal years are set forth in Note 18 of the Notes to Consolidated Financial Statements included in Item 8 of this report.
In fiscal year 2014, revenue from sales of FIFA 14 represented approximately 15 percent of our total net revenue. In fiscal year 2013, revenue from sales of FIFA 13 represented approximately 17 percent of our total net revenue. In fiscal year 2012, revenue from sales of FIFA 12 and Battlefield 3 represented approximately 13 percent and 11 percent, respectively of our total net revenue.
For the fiscal years ended March 31, 2014, 2013 and 2012, research and development expenses were $1,125 million, $1,153 million and $1,180 million, respectively.
Our Operating Structure
Our studios and development teams are organized around three divisions: EA Studios, Maxis, and EA Mobile. Each division operates globally with support from our Global Publishing and Marketing organization.
EA Studios
EA Studios is home to the largest number of our studios and development teams and responsible for developing games and related content and services across an expansive range of game categories. The FIFA, Madden NFL, Need for Speed, Battlefield, Mass Effect and Dragon Age franchises fall within the EA Studios organization. The largest studios within the EA Studios organization include:
•
DICE (Sweden)
•
EA Canada (Canada)
•
Tiburon (United States)
•
BioWare (Canada and United States)
•
Visceral (United States)

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The diverse studios within the EA Studios organization have the goal of operating as one collaborative organization through the use of common technologies and shared development frameworks. We may also contract with external game developers for development services or to establish publishing and distribution relationships, such as the one we have with Respawn Entertainment related to Titanfall .
Maxis
Our Maxis organization focuses on creating compelling games and related content and services that engage player creativity. Maxis products include the wholly-owned franchises The Sims and SimCity. Maxis games are primarily developed at studios in the United States.
EA Mobile
Our EA Mobile organization develops and publishes interactive games for play on mobile phones and tablets, as well as certain casual games for the PC. The Mobile organization’s brand portfolio includes wholly owned properties such as Plants vs. Zombies, Real Racing, Bejeweled and Dungeon Keeper, as well licensed intellectual properties such as Tetris, The Simpsons and various intellectual properties owned by Hasbro. The EA Mobile organization also manages our Pogo online service, through which we offer casual games such as card, puzzle and word games on www.pogo.com, as well as on other platforms. Pogo generates revenue through paid subscriptions, Internet-based advertising and sales of digital content. The EA Mobile organization has studios located in the United States, Canada, China, Australia and India. Certain mobile games, such as those related to our EA SPORTS franchises, are developed primarily by the EA Studios organization.
Global Publishing and Marketing
Our Global Publishing and Marketing organization is responsible for the distribution, sales, and marketing of our products, including strategic planning, operations, and manufacturing functions. The organization also manages our global media advertising sales business and customer support teams. Mobile game publishing is overseen by our EA Mobile organization.
Competition
We compete with other video game companies for the leisure time and discretionary spending of consumers, as well as with providers of different forms of entertainment, such as motion pictures, television, social networking, online casual entertainment, and music. Our competitors vary in size from very small companies with limited resources to very large, diversified corporations with global operations and greater financial resources than ours. We also face competition from other video game companies and large media companies to obtain license agreements for the right to use some of the intellectual property included in our products.
Competition in Games for Console Devices and PCs
We compete directly with Sony and Microsoft, each of which develops and publishes software for its respective console platform. We also compete with numerous companies which, like us, develop and publish premium video games that operate on these consoles and on PCs. These competitors include Activision Blizzard, Take-Two Interactive, and Ubisoft. Diversified media companies such as Disney are also involved in software game development and publishing.
Competition in Games for Mobile Devices
The marketplace for mobile games is characterized by frequent product introductions, rapidly emerging new mobile platforms, new technologies, new mobile application storefronts and thousands of game offerings. As the penetration of mobile devices that feature fully-functional browsers and additional gaming capabilities continues to deepen, the demand for applications continues to increase and there are more mobile application storefronts through which developers can offer products. Mobile game applications are currently being offered by a wide range of competitors, including King, Supercell, DeNA, Gameloft and Zynga, and hundreds of smaller companies. We expect new competitors to enter the market and existing competitors to allocate more resources to develop and market competing applications. As a result, we expect competition in the mobile entertainment market to continue to intensify.

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Competition in PC Free-to-Play Online Gaming Services
The PC free-to-play games market is characterized by frequent product introductions. We expect new competitors to enter the market and existing competitors to allocate more resources toward developing PC free-to-play online game services. As a result, we expect competition in this market to intensify. Our competitors in this market include major media companies, traditional video game publishing companies, and companies that specialize in online games such as Tencent and Nexon.
Intellectual Property
Like 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 and to make them run properly. Other intellectual property is in the form of audio-visual elements that consumers can see, hear and interact with when they are playing our games - we call this form of intellectual property “content.”
We develop products and services from wholly-owned intellectual properties we create within our own studios and obtain through acquisitions. In addition, we obtain content and intellectual property through licenses and service agreements such as those with sports leagues and players’ associations, movie studios and performing talent, authors and literary publishers, music labels, music publishers and musicians. These agreements typically limit our use of the licensed rights in products for specific time periods. In addition, our products that play on game consoles and mobile devices, or other proprietary platforms may include technology that is owned by the device manufacturer or platform operator and licensed non-exclusively to us for use. We also license technology from other providers. While we may have renewal rights for some licenses, our business and the justification for the development of many of our products is dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights on reasonable terms.
We actively engage in enforcement and other activities to protect our intellectual property. We typically own the copyright to our software code and content, as well as the brand or title name trademark under which our products are marketed. We register copyrights and trademarks in the United States and other countries as appropriate.
As with other forms of entertainment, our products are susceptible to unauthorized copying and piracy. We typically distribute our PC products using copy protection technology, digital rights management technology or other technological protection measures to prevent piracy and the use of unauthorized copies of our products. In addition, console manufacturers typically incorporate technological protections and other security measures in their consoles in an effort to prevent the use of unlicensed product. We are actively engaged in enforcement and other activities to protect against unauthorized copying and piracy, including monitoring online channels for distribution of pirated copies, and participating in various industry-wide enforcement initiatives, education programs and legislative activity around the world.
Significant Relationships
Channel Partners
Sony . Under the terms of agreements we have entered into with Sony Computer Entertainment Inc. and its affiliates, we are authorized to develop and distribute disc-based and digitally-delivered software products and services compatible with PlayStation 3 and 4. As of the date of this filing, we have not entered into a new licensed publisher agreement with Sony for PlayStation 4, and the parties currently operate under the terms of existing agreements subject to a new pricing structure with respect to PlayStation 4.
Microsoft . Under the terms of agreements we have entered into with Microsoft Corporation and its affiliates, we are authorized to develop and distribute disc-based and digitally-delivered software products and services compatible with Xbox 360 and Xbox One. Our publisher license agreement with Microsoft to publish our products for Xbox One is included in Exhibit 10.27 of this Form 10-K.
Under the agreements with Sony and Microsoft, we are provided with the non-exclusive right to use, for a fixed term and in a designated territory, technology that is owned or licensed by the console manufacturer in order to publish our games on such platform. Our transactions for disc-based products are made pursuant to individual purchase orders, which are accepted on a case-by case basis by Sony or Microsoft (or their designated replicators), as the case may be. Many key commercial terms of our relationships with Sony and Microsoft - such as manufacturing terms, delivery times, platform policies and approval conditions - are determined unilaterally, and are subject to change by the console manufacturers. For packaged goods products, we pay the console manufacturers a per-unit royalty for each unit manufactured. With respect to digitally-delivered products,

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other online content and services sold by the console manufacturers, the console manufacturers pay us either a wholesale price or a percentage royalty on the revenue they derive from their sales.
The platform license agreements also require us to indemnify the manufacturers with respect to all loss, liability and expense resulting from any claim against the manufacturer regarding our games and services, including any claims for patent, copyright or trademark infringement brought against the manufacturer. Each platform license may be terminated by the manufacturer if a breach or default by us is not cured after we receive written notice from the manufacturer, or if we become insolvent. The manufacturers are not obligated to enter into platform license agreements with us for any future consoles, products or services.
Apple, Google and Other App Stores. We have agreements to distribute our mobile applications through distribution partners worldwide, including Apple and Google. Consumers download our applications for their mobile devices from third party-application storefronts. The distributor invoices the consumers a one-time fee if there is a cost to download the application. If the application is a “free-to-download” application, the distributor invoices the consumer for micro-transactions that are purchased by the consumer within the application. Our distribution agreements establish the fees to be retained by the distributor for distributing our applications. These arrangements are typically terminable on short notice. The agreements generally do not obligate the distributors to market or distribute any of our applications.
Retailers
In North America and Europe, our largest markets, we sell packaged goods products to retailers, including mass market retailers (such as Walmart), electronics specialty stores (such as Best Buy) or game software specialty stores (such as GameStop).
Our direct sales to GameStop Corp. represented approximately 13 percent, 13 percent and 15 percent of total net revenue in fiscal years 2014, 2013, and 2012, respectively. Our direct sales to Walmart Stores, Inc. represented approximately 10 percent of total net revenue in fiscal year 2012. Our direct sales to Wal-Mart Stores, Inc. did not exceed 10 percent of net revenue for the fiscal years ended March 31, 2014 and 2013. We sell our products to GameStop Corp. and Wal-Mart Stores, Inc. pursuant to numerous and frequent individual purchase orders, which contain delivery and pricing terms. There are no minimum sales or purchase commitments between us and either GameStop or Wal-Mart.
As our business becomes increasingly digital, more of our products and services are purchased from a digital retailer and delivered via a network connection. Our digital retail outlets include Origin (our direct-to-consumer platform), mobile application storefronts, the digital marketplaces operated by Sony for PlayStation 3 and PlayStation 4 and Microsoft for Xbox 360 and Xbox One, and various third party retailers offering digital game downloads.
Seasonality
Our business is highly seasonal with the highest levels of consumer demand and a significant percentage of our sales occurring in the holiday season quarter ending in December and a seasonal low in sales volume in the quarter ending in June. While our sales generally follow this seasonal trend, there can be no assurance that this trend will continue. In addition, we defer the recognition of a significant amount of net revenue related to our online-enabled games over an extended period of time. As a result, the quarter in which we generate the highest sales volume may be different than the quarter in which we recognize the highest amount of net revenue. Our results can also vary based on a number of factors, including title release dates, cancellation or delay of a key event or sports season to which our product release schedule is tied, consumer demand for our products, shipment schedules and our revenue recognition policies.
Government Regulation
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. In addition, laws and regulations relating to user privacy, data collection and retention, content, advertising and information security have been adopted or are being considered for adoption by many countries throughout the world.
Employees
As of March 31, 2014, we had approximately 8,300 regular, full-time employees, over 4,800 of whom were outside the United States. We believe that our ability to attract and retain qualified employees is a critical factor in the successful development of our products and that our future success will depend, in large measure, on our ability to continue to attract and retain qualified employees. Approximately 7 percent of our employees, all of whom work for DICE, our Swedish development studio, are represented by a union.

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Investor Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as amended, 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, the contents of our website are not incorporated into, or otherwise to be regarded as part of this report.

Executive Officers
The following table sets forth information regarding our executive officers as of May 21, 2014 :
Name
 
Age
 
Position
Lawrence F. Probst III
 
63
 
Executive Chairman
Andrew Wilson
 
39
 
Chief Executive Officer
Blake Jorgensen
 
54
 
Executive Vice President, Chief Financial Officer
Peter R. Moore
 
59
 
Chief Operating Officer
Patrick Söderlund
 
40
 
Executive Vice President, EA Studios
Frank D. Gibeau
 
45
 
Executive Vice President, EA Mobile
Joel Linzner
 
62
 
Executive Vice President, Business and Legal Affairs
Gabrielle Toledano
 
47
 
Executive Vice President, Chief Talent Officer
Lucy Bradshaw
 
51
 
Senior Vice President, EA Maxis
Kenneth A. Barker
 
47
 
Senior Vice President, Chief Accounting Officer
Stephen G. Bené
 
50
 
Senior Vice President, General Counsel and Corporate Secretary
Mr. Probst has been our Executive Chairman since March 18, 2013. He was employed by EA previously from 1984 to September 2008. He has served as Chairman of the Board of Directors since July 1994 and, from May 1991 until April 2007, also served as our Chief Executive Officer. Previously, Mr. Probst served as President from 1991 until 1998. Mr. Probst serves as the Chairman of the Board of Directors of the U.S. Olympic Committee and is a member of the International Olympic Committee. Mr. Probst is also a director of Blackhawk Network Holdings, Inc. Mr. Probst holds a B.S. degree from the University of Delaware.

Mr. Wilson was named Chief Executive Officer and appointed to the Board of Directors in September 2013. From August 2011 to September 2013, he served as Executive Vice President, EA SPORTS. From March 2010 to August 2011, Mr. Wilson served as Senior Vice President, EA SPORTS. Prior to that, he held the position of Senior Vice President Online from July 2009 to September 2010 and Vice President, EA SPORTS from June 2008 to September 2009. Prior to this, Mr. Wilson held various positions within the Company since joining Electronic Arts in May 2000.

Mr. Jorgensen has served as Executive Vice President, Chief Financial Officer since September 2012. Prior to joining EA, he served as Executive Vice President, Chief Financial Officer of Levi Strauss & Co. from July 2009 to August 2012. From June 2007 to June 2009, Mr. Jorgensen served as Executive Vice President, Chief Financial Officer of Yahoo! Inc. Mr. Jorgensen earned his M.B.A. from Harvard Business School and his Economics degree from Stanford University.

Mr. Moore was named Chief Operating Officer in August 2011. Prior to that time, he served as President, EA SPORTS, from September 2007. From January 2003 until he joined EA, Mr. Moore was with Microsoft where he served as head of Xbox marketing and was later named as Corporate Vice President, Interactive Entertainment Business, Entertainment and Devices Division, a position in which he led both the Xbox and Games for Windows businesses. Mr. Moore holds a bachelor's degree from Keele University, United Kingdom, and a Master's degree from California State University, Long Beach.

Mr. Söderlund was named Executive Vice President, EA Studios in September 2013. Prior to that time, he served as Executive Vice President, EA Games Label from August 2011. From December 2010 to July 2011, he served as Executive Vice President, Group General Manager - FPS/Driving. Prior to that, Mr. Söderlund held the position of Senior Vice President, EA Games Europe from September 2007 to December 2010 and the Chief Executive Officer of DICE until September 2007. Mr. Söderlund joined DICE in 2000. The studio was sold to EA in October 2006.


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Mr. Gibeau was named Executive Vice President, EA Mobile in September 2013. Prior to that time, he served as President, EA Labels from August 2011. From June 2007 until August 2011, he served as President, EA Games Label. From September 2005 until June 2007, he was Executive Vice President, General Manager, North America Publishing. Mr. Gibeau has held various positions since joining the Company in 1991. Mr. Gibeau holds a B.S. degree from the University of Southern California and an M.B.A. from Santa Clara University.

Mr. Linzner has served as Executive Vice President, Business and Legal Affairs since March 2005. Prior to joining EA in July 1999, Mr. Linzner served as outside litigation counsel to EA and several other companies in the video game industry. Mr. Linzner earned his J.D. from Boalt Hall at the University of California, Berkeley, after graduating from Brandeis University. He is a member of the Bar of the State of California and is admitted to practice in the United States Supreme Court, the Ninth Circuit Court of Appeals and several United States District Courts.

Ms. Toledano , our Chief Talent Officer, was named Executive Vice President, Human Resources and Facilities on April 1, 2007. From February 2006 until March 2007, Ms. Toledano served as Senior Vice President, Human Resources & Facilities. Ms. Toledano also serves on the Board of Directors of Big City Mountaineers.  Ms. Toledano earned both her undergraduate degree in Humanities and her graduate degree in Education from Stanford University.

Ms. Bradshaw was named Senior Vice President, EA Maxis in June 2013. Prior to that time, she held various titles within the Maxis Studio since 1997 including Senior Vice President from February 2011 to June 2013 and Vice President from January 2001 to February 2011. Ms. Bradshaw received her B.A. degree from the University of Michigan.

Mr. Barker has served as Senior Vice President, Chief Accounting Officer since April 2006. From February 2012 to August 2012, he also served as Interim Chief Financial Officer. From June 2003 to April 2006, Mr. Barker held the position of Vice President, Chief Accounting Officer. Prior to joining EA, Mr. Barker was employed at Sun Microsystems, Inc., as Vice President and Corporate Controller from October 2002 to June 2003 and Assistant Corporate Controller from April 2000 to September 2002. Prior to that, he was an audit partner at Deloitte & Touche. Mr. Barker graduated from the University of Notre Dame with a B.A. degree in Accounting.

Mr. Bené has served as Senior Vice President, General Counsel and Corporate Secretary since October 2004. Mr. Bené joined EA in March 1995. Mr. Bené earned his J.D. from Stanford Law School, and received his B.S. in Mechanical Engineering from Rice University. Mr. Bené is a member of the Bar of the State of California.



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Item 1A. Risk Factors

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occurs, our business and financial performance could be harmed, our actual results could differ materially from our expectations and the market value of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may harm our business and financial performance.

Our business is intensely competitive and “hit” driven. If we do not deliver “hit” products and services, or if consumers prefer our competitors’ products or services over our own, our operating results could suffer.

Competition in our industry is intense. Many new products and services are regularly introduced in each major industry segment (console, mobile and PC free-to-play), but only a relatively small number of “hit” titles account for a significant portion of total revenue in each segment. 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 based on payment models perceived as offering a better value proposition, or if we do not continue to develop consistently high-quality and well-received products and services, our revenue, margins, and profitability will decline.

In recent years, we have narrowed our product portfolio in an effort to focus on developing high-quality products with the potential to become “hits”. High-quality titles, even if highly-reviewed, may not turn into “hit” products. Many “hit” products within our industry are iterations of prior hit products with large established consumer bases and significant brand recognition, which makes competing in certain product categories challenging. In addition, hit products or services of our competitors may take a larger share of consumer spending than we anticipate, which could cause our products and services to underperform relative to revenue expectations. Publishing fewer major titles also concentrates risk in a smaller number of titles and means each major title has greater associated risk. The underperformance of a single major title may have a large adverse impact on our financial results.

Our operating results will be adversely affected if we do not consistently meet our product development schedules or if key events or sports seasons that we tie our product release schedules to are delayed or cancelled.

Our business is highly seasonal with the highest levels of consumer demand and a significant percentage of our sales occurring in the quarter ending in December and a seasonal low in sales volume in the quarter ending in June. While our sales generally follow this seasonal trend, there can be no assurance that this trend will continue. If we miss key selling periods for products, for any reason, including product delays, product cancellations, or delayed introduction of a new platform for which we have developed products, our sales are likely to suffer significantly. Additionally, macroeconomic conditions or the occurrence of unforeseen events that negatively impact retailer or consumer buying patterns during the quarter ending in December are likely to affect us disproportionately. Our ability to meet product development schedules is affected by a number of factors both within and outside our control, including the creative processes involved, the coordination of large and sometimes geographically dispersed development teams, the increasing complexity of our products and the platforms for which they are developed, and the need to fine-tune our products prior to their release. We have experienced development delays for our products in the past, which caused us to push back or cancel release dates. We also seek to release certain products in conjunction with key events, such as the beginning of a sports season or major sporting event, or the release of a related movie. If a key event or sports season to which our product release schedule is tied were to be delayed or cancelled, our sales would likely suffer disproportionately. In the future, any failure to meet anticipated production or release schedules would likely result in a delay of revenue and/or possibly a significant shortfall in our revenue, increase our development and/or marketing expenses, harm our profitability, and cause our operating results to be materially different than anticipated.

The console segment of the entertainment software industry is cyclical, driven by the periodic introduction of new console systems. As new console systems are introduced, our operating results may be more volatile.

New video game console systems have historically been developed and released every few years, which causes the video game software market to be cyclical as well. In periods of transition from legacy generation consoles to new generation consoles, sales of software for legacy generation console systems typically slow or decline in response to the anticipated and actual introduction of new consoles, and new generation console software sales typically stabilize after new consoles are widely-established with the consumer base.

During fiscal year 2014, consumers responded to the introduction of new consoles-the PlayStation 4 from Sony and Xbox One from Microsoft-by purchasing fewer software products for the Sony PlayStation 3 and Microsoft Xbox 360 legacy generation

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consoles. We expect this trend to continue. This trend could also accelerate faster than anticipated and may put downward pressure on legacy generation video game software pricing, which could negatively affect our operating results. Our revenues from new generation software sales may not offset the negative effects of this trend on our operating results. In the near term, we expect to continue to develop and market products and services for the Xbox 360 and PlayStation 3, while also developing and marketing products and services for the Xbox One and PlayStation 4. We do not control the unit volumes of the new generation console systems made available for sale or the rates at which consumers purchase these consoles. As a result, our operating results during this transitional period may be more volatile and difficult to predict.

Our business is dependent on the success and availability of video game hardware systems and devices manufactured by third parties, as well as our ability to develop commercially successful products and services for these systems and devices.

The success of our business is driven in part by the commercial success and adequate supply of video game console systems, PCs, mobile phones and tablets manufactured by third parties. Our success also depends on our ability to accurately predict which platforms will be successful in the marketplace and our ability to develop commercially successful products and services for these platforms. We must make product development decisions and commit significant resources well in advance of anticipated platform release dates and may incur significant expense to adjust our product portfolio and development efforts in response to changing consumer platform preferences. Additionally, we may enter into certain exclusive licensing arrangements that affect our ability to deliver or market products or services on certain platforms. A platform for which we are developing products and services may not succeed to the extent expected or new platforms may take market share and game software consumers away from platforms for which we have devoted significant resources. If consumer demand for the platforms for which we are developing products and services is lower than our expectations, we may be unable to fully recover the investments we have made in developing our products and services, and our financial performance will be harmed. Alternatively, a platform for which we have not devoted significant resources could be more successful than we had initially anticipated, causing us to miss out on meaningful revenue opportunities.

Our adoption of new business models could fail to produce our desired financial returns.

We are actively seeking to monetize game properties through a variety of new business models, including online distribution of full games and additional content, free-to-play games supported by advertising and/or micro-transactions and subscription services. Forecasting our revenues and profitability for these new business models is inherently uncertain and volatile. Our actual revenues and profits for these businesses may be significantly greater or less than our forecasts. Additionally, these new business models could fail for one or more of our titles, resulting in the loss of our investment in the development and infrastructure needed to support these new business models, and the opportunity cost of diverting management and financial resources away from more successful businesses.

Technology changes rapidly in our business and if we fail to anticipate or successfully develop games for new platforms and services, adopt new distribution technologies or methods, or implement new technologies in our games, the quality, timeliness and competitiveness of our products and services will suffer.

Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our products and services competitive in the market. We have invested, and in the future may invest, in new business strategies, technologies, products, and services. Such endeavors may involve significant risks and uncertainties, and no assurance can be given that the technology we choose to adopt and the platforms, products and services that we pursue will be successful and will not materially adversely affect our reputation, financial condition, and operating results.

Our product development usually starts with particular platforms and distribution methods in mind, and a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can. In either case, our products and services may be technologically inferior to our competitors’, less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule for our products and services, then we may delay their release until these technology goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our product or service launch schedule or to keep up with our competition, which would increase our development expenses. We may also miss opportunities to adopt technology, or develop products and services for new platforms or services that become popular with consumers, which could adversely affect our revenues. It may take significant time and resources to shift our focus to such technologies or platforms, putting us at a competitive disadvantage.


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We may experience outages and disruptions of our online services that harm our business.  

We expect to continue to invest in technology, hardware and software to support our portfolio of online products and services. Launching and operating online games and services, developing related technologies and implementing online business initiatives is expensive and complex. Execution of these initiatives could result in inefficiencies or operational failures, such as significant user connectivity issues. These efforts, as well as the deepening integration of online features and functionality into our products and services generally, may also result in increased vulnerability to cyber attacks that attempt to damage, disrupt or gain unauthorized access to our networks, computer systems and supporting infrastructure, many of which may be difficult to detect. Operational failures or successful cyber attacks could lead to consumers being unable to use our products and services or other negative effects upon the products, services and user experience we offer, possibly resulting in damage to our reputation, the loss of current and potential customers and harm to our business. In addition, our online products and services could be adversely impacted by outages, disruptions and failures in basic network and electrical infrastructure, as well as in the online platforms of key business partners who offer or support our products and services.

Our business could be adversely affected if our consumer protection, data privacy and security practices are not adequate, or perceived as being inadequate, to prevent data breaches, or by the application of consumer protection and data privacy laws generally.

In the course of our business, we collect, process, store and use consumer information, including personal information, passwords and credit card information. Although we take measures to protect consumer information from unauthorized access, acquisition, disclosure and misuse, our security controls may not be able to prevent the improper or unauthorized access, acquisition or disclosure of such consumer information. In addition, third party vendors and business partners which in the course of our business receive access to consumer information that we collect also may not be able to prevent data security breaches with respect to the consumer information we provide them. The unauthorized access, acquisition or disclosure of consumer information could significantly harm our reputation, compel us to comply with disparate breach notification laws and otherwise subject us to substantial legal liability. A perception that we do not adequately secure consumer information could result in a loss of current or potential consumers and business partners, as well as a loss of anticipated revenues. Our key business partners also face these same risks with respect to consumer information they collect and data security breaches with respect to such information could cause reputational harm to them and negatively impact our ability to offer our products and services through their platforms.

In addition, the rate of privacy law-making is accelerating globally, and the interpretation and application of consumer protection and data privacy laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices, which could result in litigation, potential legal liability or require us to change our practices in a manner adverse to our business. As a result, our reputation may be harmed, we could incur substantial costs, and we could lose both customers and revenues.

Our reputation with consumers is critical to our success as a company. Negative consumer perceptions about our brands, products, services and/or business practices may damage our business and the costs incurred in addressing consumer concerns may increase our operating expenses.

Individual consumers form our ultimate customer base, and consumer expectations regarding the quality, performance and integrity of our products and services are high. Consumers may be critical of our brands, products, services and/or business practices for a wide variety of reasons. These negative consumer reactions may not be foreseeable or within our control to manage effectively, including perceptions about gameplay fairness, negative player reactions to game content, components and services, or objections to certain of our business practices. We value our consumers and expect to take actions to address consumer concerns as appropriate, including actions that may result in additional expenditures and the loss of revenue. Negative consumer sentiment about our business practices can also result in investigations from regulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be damaging to our reputation and harm our business.

If we release defective products or services, our operating results could suffer.

Products and services such as ours are extremely complex software programs, and are difficult to develop and distribute. We have quality controls in place to detect defects in our products and services before they are released. Nonetheless, these quality controls are subject to human error, overriding, and reasonable resource constraints. Therefore, these quality controls and preventative measures may not be effective in detecting defects in our products and services before they have been released

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into the marketplace. In such an event, we could be required to or may find it necessary to voluntarily recall a product or suspend the availability of the product or service, which could significantly harm our business and operating results.

Our business is subject to increasing regulation and the adoption of proposed legislation we oppose could negatively impact our business.

Legislation is continually being introduced in the United States and other countries to mandate rating requirements or set other restrictions on the advertisement or distribution of entertainment software based on content. In the United States, most courts, including the United States Supreme Court, that have ruled on such legislation have ruled in a manner favorable to the interactive entertainment industry. Some foreign countries have adopted ratings regulations and certain countries allow government censorship of entertainment software products. Adoption of government ratings system or restrictions on distribution of entertainment software based on content could harm our business by limiting the products we are able to offer to our customers and compliance with new and possibly inconsistent regulations for different territories could be costly or delay the release of our products.

As we increase the online delivery of our products and services, we are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. In addition, laws and regulations relating to user privacy, data collection and retention, content, advertising and information security have been adopted or are being considered for adoption by many countries throughout the world. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business.

If we do not continue to attract and retain key personnel, we will be unable to effectively conduct our business.

The market for technical, creative, marketing and other personnel essential to the development and marketing of our products and management of our businesses is extremely competitive. Our leading position within the interactive entertainment industry makes us a prime target for recruiting of executives and key creative and technical talent. If we cannot successfully recruit and retain the employees we need, or replace key employees following their departure, our ability to develop and manage our business will be impaired.

If our marketing and advertising efforts fail to resonate with our customers, our business and operating results could be adversely affected.

Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs such as television and online advertising, print advertising, retail merchandising, website development, event sponsorship and direct communications with our consumers. Our ability to sell our products and services is dependent in part upon the success of these programs. If the marketing for our products and services fail to resonate with our customers, particularly during the critical holiday season or during other key selling periods, or if advertising rates or other media placement costs increase, these factors could have a material adverse impact on our business and operating results.

A significant portion of our sales are made to a relatively small number of key customers. If these customers reduce their purchases of our products or become unable to pay for them, our business could be harmed.

During the fiscal year ended March 31, 2014 , approximately 68 percent of our North America net revenue was derived from our top ten customers. Though our products are available to consumers through a variety of retailers and directly through us, the concentration of our sales in one, or a few, large customers could lead to a short-term disruption in our sales if one or more of these customers significantly reduced their purchases or ceased to carry our products, and could make us more vulnerable to collection risk if one or more of these large customers became unable to pay for our products or declared bankruptcy. Additionally, our receivables from these large customers increase significantly in the December quarter as they make purchases in anticipation of the holiday selling season. Having such a large portion of our total net revenue concentrated in a few customers could reduce our negotiating leverage with these customers. If one or more of our key customers experience deterioration in their business, or become unable to obtain sufficient financing to maintain their operations, our business could be harmed.


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Our channel partners have significant influence over the products and services that we offer on their platforms.
 
Our products and services are sold to customers, primarily through retailers and online through our channel partners, including Sony, Microsoft, Apple and Google. In many cases, our channel partners set the rates that we must pay to provide our games and services through their online channels. In certain cases, our channel partners retain flexibility to change their fee structures or adopt different fee structures for their online channels, which could adversely impact our costs, profitability and margins.

Outside of the financial arrangements, our agreements with our channel partners typically give them significant control over other aspects of the distribution of the products and services that we develop for their platform. For example, our agreements with Sony and Microsoft typically give significant control to them over the approval, manufacturing and distribution of our products and services, which could, in certain circumstances, leave us unable to get our products and services approved, manufactured and distributed to customers. For the fiscal year ended March 31, 2014 , 55 percent of our net revenue was derived from products and services for Sony’s PlayStation 3 and 4 and Microsoft’s Xbox 360 and One consoles (combined across all four platforms). For our digital products and services delivered direct to consumers via digital channels such as Sony’s PlayStation Network, Microsoft’s Xbox LIVE Marketplace, Apple’s App Store and the Google Play store, the channel partner has policies and guidelines that control the promotion and distribution of these titles and the features and functionalities that we are permitted to offer through the channel.

In addition, while we have negotiated agreements in place with our channel partners - these agreements reserve the right by our channel partners to determine and change unilaterally certain key terms and conditions, including the ability to change their user and developer policies and guidelines, which can negatively impact our business. If our channel partners establish terms that restrict our offerings through their channels, or significantly impact the financial terms on which these products or services are offered to our customers, our business could be harmed.

Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences.

We expect to continue making acquisitions or entering into other strategic transactions including (1) acquisitions of companies, businesses, intellectual properties, and other assets, (2) minority investments in strategic partners, and (3) investments in new interactive entertainment businesses (e.g., online and mobile publishing platforms) as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on our investment, that we acquire unknown liabilities, or that we experience difficulty in the integration of business systems and technologies, the integration and retention of new employees, or in the maintenance of key business and customer relationships of the businesses we acquire, or diversion of management’s attention from our other businesses. These events could harm our operating results or financial condition.

Future acquisitions and investments could also involve the issuance of our equity and equity-linked securities (potentially diluting our existing stockholders), the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased cash and non-cash expenses, such as stock-based compensation. Any of the foregoing factors could harm our financial condition or prevent us from achieving improvements in our financial condition and operating performance that could have otherwise been achieved by us on a stand-alone basis. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.

If we are unable to maintain or acquire licenses to include intellectual property owned by others in our games, or to maintain or acquire the rights to publish or distribute games developed by others, our business may be harmed.

Many of our products are based on or incorporate intellectual property owned by others. For example, our EA SPORTS products include rights licensed from major sports leagues and players’ associations. Similarly, other products are based on film and literary licenses and our Hasbro products are based on a license for certain of Hasbro’s toy and game properties. We also publish and distribute products developed and owned by third-parties under license agreements with these parties. Competition for these licenses and rights is intense. If we are unable to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our revenues, profitability and cash flows may decline significantly. Competition for these licenses may also drive up the advances, guarantees and royalties that we must pay to licensors and developers, which could significantly increase our costs and reduce our profitability.


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Our business is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results.

Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of our games and the platforms on which they are played; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

We rely on business partners in many areas of our business and our business may be harmed if they are unable to honor their obligations to us or their actions may put us at risk.

We rely on various business partners, including third-party service providers, vendors, licensing partners, development partners, and licensees, among others, in many areas of our business. The actions of our business partners may put our business and our reputation at risk. In many cases, these third parties are given access to sensitive and proprietary information in order to provide services and support to our teams. These third parties may misappropriate our information and engage in unauthorized use of it. The failure of these third parties to provide adequate services and technologies, or the failure of the third parties to adequately maintain or update their services and technologies, could result in a disruption to our business operations. Further, disruptions in the financial markets and economic downturns may adversely affect our business partners and they may not be able to continue honoring their obligations to us. Alternative arrangements and services may not be available to us on commercially reasonable terms or we may experience business interruptions upon a transition to an alternative partner or vendor. If we lose one or more significant business partners, our business could be harmed.

We may be subject to claims of infringement of third-party intellectual property rights, which could harm our business.

From time to time, third parties may assert claims against us relating to patents, copyrights, trademarks, personal publicity rights, or other intellectual property rights related to technologies, products, content or delivery/payment methods that are important to our business. Although we believe that we make reasonable efforts to ensure that our products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement. For example, we may be subject to intellectual property infringement claims from certain individuals and companies who have acquired patent portfolios for the sole purpose of asserting such claims against other companies. In addition, many of our products are highly realistic and feature materials that are based on real world examples, which may be the subject of intellectual property infringement claims of others. From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether valid or not, may be time consuming and expensive to defend. Such claims or litigations could require us to pay damages and other costs, stop selling the affected products, redesign those products to avoid infringement, or obtain a license, all of which could be costly and harm our business. In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing game software products and services, such as those that we produce or would like to offer in the future. We may discover that future opportunities to provide new and innovative modes of game play and game delivery to consumers may be precluded by existing patents that we are unable to license on reasonable terms.

From time to time we may become involved in other legal proceedings, which could adversely affect us.

We are currently, and from time to time in the future may become, subject to legal proceedings, claims, litigation and government investigations or inquiries, which could be expensive, lengthy, and disruptive to normal business operations. In addition, the outcome of any legal proceedings, claims, litigation, investigations or inquiries may be difficult to predict and could have a material adverse effect on our business, operating results, or financial condition.

Our products are subject to the threat of piracy and unauthorized copying.

We take measures to protect our pre-release software and other confidential information from unauthorized access. A security breach that results in the disclosure of pre-release software or other confidential assets could lead or contribute to piracy of our games or otherwise compromise 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 designed to circumvent the protection measures used with our products all have contributed to an expansion in piracy. Though we take technical steps to make the unauthorized copying of our products more difficult, as do the

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providers of the video game systems, personal computers, mobile phones and tablets on which our games are played, these efforts may not be successful in controlling the piracy of our products.

While legal protections exist to combat piracy and other forms of unauthorized copying, preventing and curbing infringement through enforcement of our intellectual property rights may be difficult, costly and time consuming, particularly in countries where laws are less protective of intellectual property rights. Further, the scope of the legal protection of copyright and prohibitions against the circumvention of technological protection measures to protect copyrighted works are often under scrutiny by courts and governing bodies. The repeal or weakening of laws intended to combat piracy, protect intellectual property and prohibit the circumvention of technological protection measures could make it more difficult for us to adequately protect against piracy. These factors could have a negative effect on our growth and profitability in the future.

Our business is subject to currency fluctuations.

International sales are a fundamental part of our business. For the fiscal year ended March 31, 2014 , international net revenue comprised 58 percent of our total net revenue. We expect international sales to continue to account for a significant portion of our total net revenue. Such sales may be subject to unexpected regulatory requirements, tariffs and other barriers. Additionally, foreign sales are primarily made in local currencies, which may fluctuate against the U.S. dollar. In addition, our foreign investments and our cash and cash equivalents denominated in foreign currencies are subject to currency fluctuations. We use foreign currency hedging contracts to mitigate some foreign currency risk. However, these activities are limited in the protection they provide us from foreign currency fluctuations and can themselves result in losses. In the past, the disruption in the global financial markets has impacted many of the financial institutions with which we do business, and we are subject to counterparty risk with respect to such institutions with whom we enter into hedging transactions. A sustained decline in the financial stability of financial institutions as a result of a disruption in the financial markets could negatively impact our treasury operations, including our ability to secure credit-worthy counterparties for our foreign currency hedging programs. Accordingly, our results of operations, including our reported net revenue, operating expenses and net income, and financial condition can be adversely affected by unfavorable foreign currency fluctuations, especially the Euro, British pound sterling, Canadian dollar and Swedish Krona.

We utilize debt financing and such indebtedness could adversely impact our business and financial condition.

In July 2011, we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016 (the “Notes”), resulting in debt service obligations on the Notes of approximately $5 million per year. In addition, in August 2012, we entered into an unsecured committed $500 million revolving credit facility. While the facility is currently undrawn, we may use the proceeds of any future borrowings for general corporate purposes. The credit facility contains affirmative, negative and financial covenants, including a maximum capitalization ratio and minimum liquidity requirements.

We intend to fulfill our debt service obligations from cash generated by our operations and from our existing cash and investments. We may enter into other financial instruments in the future.

Our indebtedness could have significant negative consequences. For example, it could:
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increase our vulnerability to general adverse economic and industry conditions;
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limit our ability to obtain additional financing;
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require the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures and other general corporate purposes;
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limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
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place us at a competitive disadvantage relative to our competitors with less debt.

We may not have enough available cash or be able to arrange for financing to pay such principal amount at the time we are required to make purchases of the Notes or convert the Notes. In addition, we may be required to use funds that are domiciled in foreign tax jurisdictions in order to make the cash payments upon any purchase or conversion of the Notes. If we were to choose to use such funds, we would be required to accrue any additional taxes on any portion of the repatriation where no United States income tax had been previously provided.


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The hedge transactions and warrant transactions entered into in connection with the Notes may affect the value of the Notes and our common stock.

In connection with the offering of the Notes, we entered into privately-negotiated convertible note hedge transactions (the “Convertible Note Hedge”) with certain counterparties (“Options Counterparties”) to reduce the potential dilution with respect to our common stock upon conversion of the Notes. The Convertible Note Hedge covers, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of common stock underlying the Notes. We also entered into separate, privately-negotiated warrant transactions with the certain counterparties whereby we sold to independent third parties warrants (the “Warrants”) with the Option Counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments.

The effect, if any, of these activities, including the direction or magnitude, on the market price of our common stock will depend on a variety of factors, including market conditions, and cannot be ascertained at this time. Any of these activities could, however, adversely affect the market price of our common stock and the trading price of the Notes.

In addition, the Option Counterparties are financial institutions, and we will be subject to the risk that one or more of the Option Counterparties might default under the Convertible Note Hedge. Our exposure to the credit risk of the Option Counterparties will not be secured by any collateral. If any of the Option Counterparties becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the Convertible Note Hedge with such option counterparty. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock.

Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition.

We are subject to taxes in the United States and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective income tax rate could be adversely affected by our profit levels, by changes in our business, reorganization of our business and operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make, changes in applicable tax laws, or changes in the valuation allowance for deferred tax assets, as well as other factors. We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and foreign jurisdictions. Furthermore, we are regularly subject to audit by tax authorities with respect to both income and such other non-income taxes. Adverse changes in our effective income tax rate, unfavorable audit results or tax rulings, or other changes resulting in significant additional tax liabilities could have material adverse effects upon our earnings, cash flows, and financial condition.

Our reported financial results could be adversely affected by changes in financial accounting standards.

Our reported financial results are impacted by the accounting standards promulgated by the SEC and national accounting standards bodies and the methods, estimates, and judgments that we use in applying our accounting policies. For example, accounting standards affecting software revenue recognition have affected and could continue to 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., online-enabled games that include updates on a when-and-if-available basis or a matchmaking service) on a deferred basis over an estimated offering period. The Financial Accounting Standards Board (“FASB”) is currently evaluating the accounting and financial reporting for revenue transactions. We believe the current proposal by the FASB would require us to materially change the way we account for revenue by requiring us to recognize more revenue upon delivery of the primary product than we currently do under current accounting standards.

As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenue and taxes, could have a significant adverse effect on our reported results although not necessarily on our cash flows.

Our stock price has been volatile and may continue to fluctuate significantly.

The market price of our common stock historically has been, and we expect will continue to be, subject to significant fluctuations. These fluctuations may be due to factors specific to us (including those discussed in the risk factors above, as well as others not currently known to us or that we currently do not believe are material), to changes in securities analysts’ earnings estimates or ratings, to our results or future financial guidance falling below our expectations and analysts’ and investors’

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expectations, to factors affecting the entertainment, computer, software, Internet, media or electronics industries, to our ability to successfully integrate any acquisitions we may make, or to national or international economic conditions. In particular, economic downturns 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.


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Item 1B:      Unresolved Staff Comments
None.  
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 418,000-square-foot product development studio facility in Burnaby, Canada. In addition to the properties we own, we lease approximately 1.2 million square feet in North America and 0.9 million square feet in Europe and Asia at various research and development, sales and administration and distribution facilities, including leases for our development studios in Orlando, Florida and Stockholm, Sweden.
While we continually evaluate our facility requirements, we believe that suitable additional or substitute space will be available as needed to accommodate our future needs. For information regarding our lease commitments, see Note 13 of the Notes to Consolidated Financial Statements, included in Item 8 in this report. For information on long-lived assets by geography, see Note 18 of the Notes to Consolidated Financial Statements, included in Item 8 in this report.

Item 3:      Legal Proceedings
We are a defendant in several actions that allege we misappropriated the likenesses of various college athletes in certain of our college-themed sports games.
•
We are defending a putative class action lawsuit brought by Ryan Hart, a former college football player, in the United States District Court for the District of New Jersey in June 2009, which alleges that we misappropriated his likeness in our college-themed football game. The complaint seeks actual damages and other unspecified damages, which have not been quantified. In September 2011, the district court granted our motion to dismiss the complaint. On May 21, 2013, the Third Circuit Court of Appeal reversed the district court's decision and remanded the case back to the district court.
•
The In re NCAA Student-Athlete Name & Likeness Licensing litigation pending in the United States District Court for the Northern District of California involves two groups of common claims brought by several different former collegiate student-athletes in 2009. These various actions were consolidated into one action in February 2010. The first group of claims is a class action against us, the NCAA and the Collegiate Licensing Company (CLC) alleging that our college-themed video games misappropriated the likenesses of collegiate student-athletes without their authorization. This group of claims seeks actual damages, statutory damages and other unspecified damages, which have not been quantified. On July 31, 2013, the Ninth Circuit Court of Appeals affirmed the trial court’s denial of our motion to strike the complaint. The second group of claims is a federal antitrust class action against us, the NCAA and the CLC that challenges NCAA/CLC licensing practices and the NCAA By-Laws and regulations. This group of claims seeks unspecified damages, which have not been quantified.
In September 2013, we reached an agreement to settle all actions brought by college athletes. We and counsel for plaintiffs are in the process of preparing a written settlement agreement and other documents to present to the respective courts for approval of the settlement. We recognized a $30 million accrual during the second quarter of fiscal 2014 associated with the anticipated settlement. On November 4, 2013, the NCAA filed a complaint against the Company and the CLC in the Superior Court of Fulton County, Georgia. The complaint seeks unspecified damages and alleges that the Company is contractually obligated to defend and indemnify the NCAA against claims asserted in In re NCAA Student-Athlete Name & Likeness Licensing concerning the alleged misappropriation of student-athletes’ publicity rights in EA’s collegiate video games. We have not yet responded to the NCAA’s complaint.
On December 17, 2013, a purported shareholder class action lawsuit was filed in the United States District Court for the Northern District of California against the Company and certain of its officers by an individual purporting to represent a class of purchasers of EA common stock. A second purported shareholder class action lawsuit alleging substantially similar claims was subsequently filed in the same court. These lawsuits have been consolidated into one action. The lawsuits, which assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, allege, among other things, that the Company and certain of its officers issued materially false and misleading statements regarding the rollout of the Company’s Battlefield 4 game. The lawsuits seek unspecified damages, which have not been quantified. We have not yet responded to the complaints.
We are also subject to claims and litigation arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our Consolidated Financial Statements.

20



Item 4:      Mine Safety Disclosures
Not applicable.
 

21


PART II
Item 5:
Market for Registrant’s Common Equity, 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 “EA”. The following table sets forth the quarterly high and low closing sales price per share of our common stock from April 1, 2012 through March 31, 2014.
 
Prices
 
High    
 
Low    
Fiscal Year Ended March 31, 2013:
 
 
 
First Quarter
$
16.71

 
$
11.89

Second Quarter
14.50

 
10.94

Third Quarter
15.42

 
11.91

Fourth Quarter
19.34

 
13.70

Fiscal Year Ended March 31, 2014:
 
 
 
First Quarter
23.61

 
16.91

Second Quarter
27.99

 
23.18

Third Quarter
26.44

 
20.97

Fourth Quarter
30.25

 
21.54

Holders
There were approximately 1,356 holders of record of our common stock as of May 19, 2014, and the closing price of our common stock was $34.57 per share as reported by the NASDAQ Global Select Market. In addition, we believe that a significant number of beneficial owners of our common stock hold their shares in street name.
Dividends
We have not paid any cash dividends and do not anticipate paying cash dividends in the foreseeable future.
Issuer Purchases of Equity Securities
Stock Repurchase Plan. In July 2012, our Board of Directors authorized a program to repurchase up to $500 million of our common stock. During fiscal year 2013 , we repurchased and retired a total of approximately 26 million shares of our common stock for approximately $349 million , of which approximately 22 million shares, or $278 million , was repurchased under this program. During fiscal year 2014 , we did not repurchase any shares of our common stock.

In May 2014, a special committee of our Board of Directors, on behalf of the full Board of Directors, authorized a new program to repurchase up to $750 million of our common stock. This new stock repurchase program, which expires on May 31, 2016, supersedes and replaces the stock repurchase authorization approved by our Board of Directors in July 2012. Under this program, we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase any specific number of shares under this program and it may be modified, suspended or discontinued at any time.


22


Stock Performance Graph
The following information shall not be deemed to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into a filing.
The following graph shows a five-year comparison of cumulative total returns during the period from March 31, 2009 through March 31, 2014, for our common stock, the S&P 500 Index (to which EA was added in July 2002), the NASDAQ Composite Index, and the RDG Technology Composite Index, each of which assumes an initial value of $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.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Electronic Arts Inc., the S&P 500 Index, the NASDAQ Composite Index,
and the RDG Technology Composite Index

*
Based on $100 invested on March 31, 2009 in stock or index, including reinvestment of dividends.
 
 
March 31,
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Electronic Arts Inc.
$
100

 
$
103

 
$
107

 
$
91

 
$
97

 
$
159

S&P 500 Index
100

 
150

 
173

 
188

 
214

 
261

NASDAQ Composite Index
100

 
158

 
185

 
210

 
226

 
296

RDG Technology Composite Index
100

 
160

 
184

 
214

 
213

 
272



23


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,
STATEMENTS OF OPERATIONS DATA
2014
 
2013
 
2012
 
2011
 
2010
Net revenue
$
3,575

 
$
3,797

 
$
4,143

 
$
3,589

 
$
3,654

Cost of revenue
1,347

 
1,388

 
1,598

 
1,499

 
1,866

Gross profit
2,228

 
2,409

 
2,545

 
2,090

 
1,788

Total operating expenses
2,195

 
2,288

 
2,510

 
2,402

 
2,474

Operating income (loss)
33

 
121

 
35

 
(312
)
 
(686
)
Gains (losses) on strategic investments, net
—

 
39

 
—

 
23

 
(26
)
Interest and other income (expense), net
(26
)
 
(21
)
 
(17
)
 
10

 
6

Income (loss) before provision for (benefit from) income taxes
7

 
139

 
18

 
(279
)
 
(706
)
Provision for (benefit from) income taxes
(1
)
 
41

 
(58
)
 
(3
)
 
(29
)
Net income (loss)
$
8

 
$
98

 
$
76

 
$
(276
)
 
$
(677
)
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.03

 
$
0.32

 
$
0.23

 
$
(0.84
)
 
$
(2.08
)
Diluted
$
0.03

 
$
0.31

 
$
0.23

 
$
(0.84
)
 
$
(2.08
)
Number of shares used in computation:
 
 
 
 
 
 
 
 
 
Basic
308

 
310

 
331

 
330

 
325

Diluted
316

 
313

 
336

 
330

 
325

 
As of March 31,
BALANCE SHEETS DATA
2014
 
2013
 
2012
 
2011
 
2010
Cash and cash equivalents
$
1,782

 
$
1,292

 
$
1,293

 
$
1,579

 
$
1,273

Short-term investments
583

 
388

 
437

 
497

 
432

Marketable equity securities
—

 
—

 
119

 
161

 
291

Working capital
748

 
408

 
489

 
1,031

 
1,011

Total assets
5,716

 
5,070

 
5,491

 
4,928

 
4,646

0.75% convertible senior notes due 2016, net
580

 
559

 
539

 
—

 
—

Other long-term liabilities
324

 
327

 
374

 
363

 
343

Total liabilities
3,294

 
2,803

 
3,033

 
2,364

 
1,917

Total stockholders’ equity
2,422

 
2,267

 
2,458

 
2,564

 
2,729

 


24


Item 7:      Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW
The following overview is a high-level discussion of our operating results, as well as some of the trends and drivers that affect our business. Management believes that an understanding of these trends and drivers is important in order to understand our results for the fiscal year ended March 31, 2014 , as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Form 10-K, including in the “Business” section and the “Risk Factors” above, the remainder of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)”, and the Consolidated Financial Statements and related Notes.
About Electronic Arts
We develop, market, publish and distribute game software content and services that can be played by consumers on a variety of platforms, including video game consoles (such as PlayStation 3 and 4 from Sony and Xbox 360 and Xbox One from Microsoft), personal computers, mobile phones and tablets. Our ability to deliver games and services across multiple platforms, through multiple distribution channels, and directly to consumers (online and wirelessly) has been, and will continue to be, a cornerstone of our product strategy. We have adopted new business models and alternative revenue streams (such as subscription, micro-transactions, and advertising) in connection with our online and wireless product and service offerings. Some of our games are based on our wholly-owned intellectual property ( e.g. , Battlefield, Mass Effect, Need for Speed, Dragon Age, The Sims, Bejeweled, and Plants vs. Zombies), and some of our games are based on content that we license from others ( e.g. , FIFA, Madden NFL and Star Wars). Our goal is to turn our intellectual properties into year-round businesses available on a range of platforms. Our products and services may be purchased through physical and online retailers, platform providers such as console manufacturers and mobile carriers via digital downloads, as well as directly through our own distribution platform, including online portals such as Origin.
Financial Results
Total net revenue for the fiscal year ended March 31, 2014 was $3,575 million , a decrease of $222 million , or 6 percent , as compared to the fiscal year ended March 31, 2013 , primarily due to an increase in our estimated offering period for physical games sold through retail from six to nine months, partially offset by an increase in net revenue before revenue deferral. At March 31, 2014 , deferred net revenue associated with sales of online-enabled games increased by $446 million as compared to March 31, 2013 , directly decreasing the amount of reported net revenue during the fiscal year ended March 31, 2014 . At March 31, 2013 , deferred net revenue associated with sales of online-enabled games decreased by $4 million as compared to March 31, 2012 , directly increasing the amount of reported net revenue during the fiscal year ended March 31, 2013 . Disregarding the impact of the deferred net revenue, reported net revenue would have increased by approximately $228 million , or 6% , during fiscal year 2014 as compared to the fiscal year 2013 . Net revenue for fiscal year 2014 was driven by FIFA 14 , FIFA 13 and Battlefield 4. Battlefield 4 , which delivers 60 frames-per-second gameplay for 64 players, two commanders on tablets and other innovative features, was launched on five gaming platforms, including two new consoles. It has performed well in the fiscal year despite unanticipated launch issues.

Net income for the fiscal year ended March 31, 2014 was $8 million as compared to $98 million for the fiscal year ended March 31, 2013 . Diluted earnings per share for the fiscal year ended March 31, 2014 was $0.03 as compared to a diluted earnings per share of $0.31 for the fiscal year ended March 31, 2013 . Net income decreased for fiscal year 2014 as compared to the fiscal year 2013 primarily as a result of (1) a $181 million decrease in gross profit due to an increase in our estimated offering period for physical games sold through retail after July 1, 2013 and a higher percentage of our sales being subject to deferral, which further delayed the recognition of revenue, (2) a $56 million increase in general and administrative costs, and (3) a $39 million decrease in our gains on strategic investments due to the sale of our investment in Neowiz during fiscal year 2013 . These increases in costs were partially offset by (1) a $108 million decrease in marketing and sales expenses primarily due to a decrease in headcount and reduced advertising and promotional spending on our franchises, (2) a $28 million decrease in research and development costs, and (3) a $28 million decrease in restructuring and other charges as a result of the fiscal 2013 restructuring plan in fiscal year 2013 as compared to none in fiscal year 2014 .
 
Trends in Our Business

Console System Transition . In November 2013, the PlayStation 4 from Sony and Xbox One from Microsoft were released. EA delivered five major products for each of these new-generation console systems around the time of their launch, and we are continuing to make significant investments in products and services for these new consoles. We also expect to continue to develop and market products and services for the Microsoft Xbox 360 and the Sony PlayStation 3. Industry sales of major

25


games for these legacy consoles declined significantly during our 2014 fiscal year. This sales decline trend is likely to continue and may accelerate. The success of our products and services for the new-generation consoles depends in part on the commercial success and adequate supply of, as well as our ability to develop commercially successful products and services for, these consoles.

Digital Transformation . Our business continues to transform from a traditional packaged goods business model to one in which our games and services are sold and delivered via a network connection, with digitally-delivered content, features and services helping to extend the life of the respective game offering. For example, many of our products that traditionally have been sold only as packaged goods products can now also be purchased and downloaded via a network connection. We also include digitally-delivered content, features and services as part of the product offering, either made available for free or at additional cost. Additionally, our mobile and PC free-to-play games are available solely via digital delivery and are typically monetized through a micro-transaction business model through which we sell incremental content and/or features in discrete transactions.
We significantly increased the digital revenue that we derive from wireless, Internet-derived and advertising products and services from $1,159 million in fiscal year 2012 to $1,440 million in fiscal year 2013 . During fiscal year 2014 , digital revenue was $1,833 million and we expect this portion of our business to continue to grow in fiscal 2015 and beyond.

Mobile and PC Free-to-Play Games . The proliferation of mobile phones and tablets has significantly increased the consumer base for mobile games. The broad consumer acceptance of free-to-play business models, which allow consumers to try new games with no up-front cost and pay for additional content or in-game items through micro-transactions, has led to growth in the mobile gaming industry. Likewise, the mass introduction and wide consumer acceptance of free-to-play, micro-transaction-based PC games played over the Internet has also broadened our consumer base. We expect revenue generated from mobile and PC free-to-play games to remain an important part of our business.

Concentration of Sales Among the Most Popular Games . In all major segments of our industry, we see a larger portion of games sales concentrated on the most popular titles, and many of those titles are sequels of prior games. We have responded to this trend by significantly reducing the number of games that we produce to provide greater focus on our most promising intellectual properties. For example, in fiscal year 2011 , we published over 30 titles for consoles and PC, while in fiscal year 2014 we published 11; in fiscal year 2015 , we expect to release 10 titles for console and PC. We have similarly reduced the number of major mobile titles that we publish.
    
Recent Developments
Stock Repurchase Program. In May 2014, a special committee of our Board of Directors, on behalf of the full Board of Directors, authorized a new program to repurchase up to $750 million of our common stock. This new stock repurchase program, which expires on May 31, 2016, supersedes and replaces the stock repurchase authorization approved by our Board of Directors in July 2012. Under this program, we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase any specific number of shares under this program and it may be modified, suspended or discontinued at any time.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting periods. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations, but also because application and interpretation of these policies requires both management judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.
Revenue Recognition, Sales Returns and Allowances, and Bad Debt Reserves
We derive revenue principally from sales of interactive software games, and related content and services on (1) video game consoles (such as Playstation 3 and 4 from Sony and Xbox 360 and Xbox One from Microsoft) and PCs, and (2) mobile phones and tablets. We evaluate revenue recognition based on the criteria set forth in FASB Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 985-605, Software: Revenue Recognition . We classify our revenue as either product revenue or service and other revenue.

26



Product revenue. Our product revenue includes revenue associated with the sale of software games or related content, whether delivered via a physical disc ( e . g ., packaged goods) or delivered digitally via the Internet ( e.g., full-game downloads, micro-transactions), and licensing of game software to third-parties. Product revenue also includes revenue from mobile full game downloads that do not require our hosting support, and sales of tangible products such as hardware, peripherals, or collectors’ items.

Service and other revenue. Our service revenue includes revenue recognized from time-based subscriptions and games or related content that requires our hosting support in order to utilize the game or related content ( i.e. , can only be played with an Internet connection). This includes (1) entitlements to content that are accessed through hosting services ( e.g., micro-transactions for Internet-based, social network and mobile games), (2) massively multi-player online (“MMO”) games (both software game and subscription sales), (3) subscriptions for our Battlefield Premium and Pogo-branded online game services, and (4) allocated service revenue from sales of software games with an online service element ( i.e., “matchmaking” service). Our other revenue includes advertising and non-software licensing revenue.

With respect to the allocated service revenue from sales of software games with a matchmaking service mentioned above, our allocation of proceeds between product and service revenue for presentation purposes is based on management’s best estimate of the selling price of the matchmaking service with the residual value allocated to product revenue. Our estimate of the selling price of the matchmaking service is comprised of several factors including, but not limited to, prior selling prices for the matchmaking service, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. We review the estimated selling price of the online matchmaking service on a regular basis and use this methodology consistently to allocate revenue between product and service for software game sales with a matchmaking service.

We evaluate and recognize revenue when all four of the following criteria are met:

•
Evidence of an arrangement . Evidence of an agreement with the customer that reflects the terms and conditions to deliver the related products or services must be present.

•
Fixed or determinable fee . If a portion of the arrangement fee is not fixed or determinable, we recognize revenue as the amount becomes fixed or determinable.

•
Collection is deemed probable . Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable as the amounts become due, we generally conclude that collection becomes probable upon cash collection.

•
Delivery . Delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer. For digital downloads, delivery is considered to occur when the software is made available to the customer for download. For services and other, delivery is generally considered to occur as the service is delivered, which is determined based on the underlying service obligation.

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. In addition, we may also offer an online matchmaking service that permits consumers to play against each other via the Internet without a separate fee. U.S. GAAP requires us to account for the consumer’s right to receive unspecified updates or the matchmaking service for no additional fee as a “bundled” sale, or multiple-element arrangement.

We have an established historical pattern of providing unspecified updates to online-enabled games ( e.g., player roster updates to Madden NFL 25 ) at no additional charge to the consumer. We do not have vendor-specific objective evidence of fair value (“VSOE”) for these unspecified updates, and thus, as required by U.S. GAAP, we recognize revenue from the sale of these online-enabled games over the period we expect to offer the unspecified updates to the consumer (“estimated offering period”).

Estimated Offering Period

Because the offering period is not an explicitly defined period, we must make an estimate of the offering period. Determining the estimated offering period is inherently subjective and is subject to regular revision based on historical online usage. For example, in determining the estimated offering period for unspecified updates associated with our online-enabled games, we

27


consider the period of time consumers are online as online connectivity is required. On an annual basis, we review consumers’ online gameplay of all online-enabled games that have been released 12 to 24 months prior to the evaluation date. For example, if our evaluation date is April 1, 2013, we evaluate all online-enabled games released between April 1, 2011 and March 31, 2012. Based on this population of games, for all players that register the game online within the first six months of release of the game to the general public, we compute the weighted-average number of days for each online-enabled game, based on when a player initially registers the game online to when that player last plays the game online. We then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games ( i.e., a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold). Under a similar computation, we also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to an end consumer ( i.e., time in channel). Based on these two calculations we then consider the method of distribution. For example , physical software games sold at retail would have a composite offering period equal to the online gameplay plus time in channel as opposed to digitally distributed software games which are delivered immediately via digital download and thus have no concept of channel. Additionally, we consider results from prior years, known online gameplay trends, as well as disclosed service periods for competitors’ games in determining the estimated offering period for future sales.

While we consistently apply this methodology, inherent assumptions used in this methodology include which online-enabled games to sample, whether to use only units that have registered online, whether to weight the number of days for each game, whether to weight the days based on the units sold of each game, determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends.

Prior to July 1, 2013, for most sales, we estimated the offering period to be six months and recognized revenue over this period in the month after delivery. During the three months ended June 30, 2013, we completed our annual evaluation of the estimated offering period and noted that generally, consumers are playing our games online over a longer period of time. Based on this, we concluded that for physical software sales made after June 30, 2013, the estimated offering period should be increased to nine months, resulting in revenue being recognized over a longer period of time. The estimated offering period for digitally distributed software games is six months.
Other Multiple-Element Arrangements
In some of our multiple-element arrangements, we sell tangible products with software and/or software-related offerings. These tangible products are generally either peripherals or ancillary collectors’ items, such as figurines and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below. If the arrangement contains more than one software deliverable, the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with ASC 985-605.

We determine the selling price for a tangible product deliverable based on the following selling price hierarchy: VSOE ( i.e. , the price we charge when the tangible product is sold separately) if available, third-party evidence (“TPE”) of fair value ( i.e. , the price charged by others for similar tangible products) if VSOE is not available, or our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. Determining the BESP is a subjective process that is based on multiple factors including, but not limited to, recent selling prices and related discounts, market conditions, customer classes, sales channels and other factors. In accordance with ASC 605, provided the other three revenue recognition criteria other than delivery have been met, we recognize revenue upon delivery to the customer as we have no further obligations.

We must make assumptions and judgments in order to (1) determine whether and when each element is delivered, (2) determine whether VSOE exists for each undelivered element, and (3) allocate the total price among the various elements, as applicable. Changes to any of these assumptions and judgments, or changes to the elements in the arrangement, could cause a material increase or decrease in the amount of revenue that we report in a particular period.

28


Principal Agent Considerations
In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations , we evaluate sales of our interactive software games via third party storefronts, including digital storefronts such as Xbox Live Marketplace, Sony PSN, Apple AppStore, Google Play, in order to determine whether or not we are acting as the principal or as an agent, which we consider in determining if revenue should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following:

•
The party responsible for delivery/fulfillment of the product or service to the end consumer
•
The party responsible for the billing, collection of fees and refunds to the consumer
•
The storefront and Terms of Sale that govern the consumer’s purchase of the product or service
•
The party that sets the pricing with the consumer and has credit risk
Based on the evaluation of the above indicators, we have determined that we are generally acting as an agent and are not considered the primary obligor to consumers for our interactive software games distributed through third party digital storefronts. We therefore recognize revenue related to these arrangements on a net basis.

Sales Returns and Allowances and Bad Debt Reserves

We reduce revenue primarily for estimated future returns and price protection which may occur with our distributors and retailers (“channel partners”). Price protection represents our practice to provide our channel partners with a credit allowance to lower their wholesale price on a particular product in the channel. The amount of the price protection is generally the difference between the old wholesale price and the new reduced wholesale price. In certain countries for our PC and console packaged goods software products, we also have a practice of allowing channel partners to return older software products in the channel in exchange for a credit allowance. As a general practice, we do not give cash refunds.

When evaluating the adequacy of sales returns and price protection allowances, we analyze the following: historical credit allowances, current sell-through of our channel partners’ inventory of our software products, current trends in retail and the video 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 protection in subsequent periods.

In the future, 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. While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates change, our returns and price protection allowances would change and would impact the total net revenue, accounts receivable and deferred net revenue that we report.

We determine our allowance for doubtful accounts by evaluating the following: customer creditworthiness, current economic trends, historical experience, age of current accounts receivable balances, changes in financial condition or payment terms of our customers. Significant management judgment is required to estimate our allowance for doubtful accounts in any accounting period. The amount and timing of our bad debt expense and cash collection could change significantly as a result of a change in any of the evaluation factors mentioned above.
Fair Value Estimates
The preparation of financial statements in conformity with U.S. GAAP often requires us to determine the fair value of a particular item in order to fairly present our financial statements. Without an independent market or another representative transaction, determining the fair value of a particular item requires us to make several assumptions that are inherently difficult to predict and can have a material impact on the accounting.

There are various valuation techniques used to estimate fair value. These include (1) the market approach where market transactions for identical or comparable assets or liabilities are used to determine the fair value, (2) the income approach, which uses valuation techniques to convert future amounts (for example, future cash flows or future earnings) to a single present value amount, and (3) the cost approach, which is based on the amount that would be required to replace an asset. For many of our fair value estimates, including our estimates of the fair value of acquired intangible assets, we use the income approach. Using the income approach requires the use of financial models, which require us to make various estimates including, but not limited to (1) the potential future cash flows for the asset or liability being measured, (2) the timing of receipt or payment of those

29


future cash flows, (3) the time value of money associated with the expected receipt or payment of such cash flows, and (4) the inherent risk associated with the cash flows (risk premium). Making these cash flow estimates is inherently difficult and subjective, and if any of the estimates used to determine the fair value using the income approach turns out to be inaccurate, our financial results may be negatively impacted. Furthermore, relatively small changes in many of these estimates can have a significant impact to the estimated fair value resulting from the financial models or the related accounting conclusion reached. For example, a relatively small change in the estimated fair value of an asset may change a conclusion as to whether an asset is impaired.

While we are required to make certain fair value assessments associated with the accounting for several types of transactions, the following areas are the most sensitive to these assessments:

Business Combinations . We must estimate the fair value of assets acquired, liabilities and contingencies assumed, acquired in-process technology, and contingent consideration issued in a business combination. Our assessment of the estimated fair value of each of these can have a material effect on our reported results as intangible assets are amortized over various estimated useful lives. Furthermore, the estimated fair value assigned to an acquired asset or liability has a direct impact on the amount we recognize as goodwill, which is an asset that is not amortized. Determining the fair value of assets acquired requires an assessment of the highest and best use or the expected price to sell the asset and the related expected future cash flows. Determining the fair value of acquired in-process technology also requires an assessment of our expectations related to the use of that technology. Determining the fair value of an assumed liability requires an assessment of the expected cost to transfer the liability. Determining the fair value of contingent consideration requires an assessment of the probability-weighted expected future cash flows over the period in which the obligation is expected to be settled, and applying a discount rate that appropriately captures the risk associated with the obligation. The significant unobservable inputs used in the fair value measurement of the contingent consideration payable are forecasted earnings. Significant changes in forecasted earnings would result in significantly higher or lower fair value measurement. This fair value assessment is also required in periods subsequent to a business combination. Such estimates are inherently difficult and subjective and can have a material impact on our Consolidated Financial Statements.

Assessment of Impairment of Goodwill, Intangibles, and Other Long-Lived Assets. Current accounting standards require that we assess the recoverability of our finite lived acquisition-related intangible assets and other long-lived assets whenever events or changes in circumstances indicate the remaining value of the assets recorded on our Consolidated Balance Sheets is potentially impaired. In order to determine if a potential impairment has occurred, management must make various assumptions about the estimated fair value of the asset by evaluating future business prospects and estimated future cash flows. For some assets, our estimated fair value is dependent upon predicting which of our products will be successful. This success is dependent upon several factors, such as which operating platforms will be successful in the marketplace. Also, our revenue and earnings are dependent on our ability to meet our product release schedules. Judgments and assumptions about future cash flows and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including but not limited to, significant negative industry or economic trends, significant changes in the manner of our use of the assets or the strategy of our overall business and significant under-performance relative to projected future operating results. When we consider such assets to be impaired, the amount of impairment we recognize is measured by the amount by which the carrying amount of the asset exceeds its fair value.

In assessing impairment on our goodwill, we first analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The qualitative factors we assess include long-term prospects of our performance, share price trends and market capitalization, and Company specific events. If we conclude it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, we do not need to perform the two-step impairment test. If based on that assessment, we believe it is more likely than not that the fair value of the reporting unit is less than its carrying value, a two-step goodwill impairment test will be performed. The first step measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit. Reporting units are determined by the components of operating segments that constitute a business for which (1) discrete financial information is available, (2) segment management regularly reviews the operating results of that component, and (3) whether the component has dissimilar economic characteristics to other components.

As of our last annual assessment of goodwill in the fourth quarter of fiscal year 2014, we determined that it was more likely than not that the fair value of our reporting unit exceeded its carrying amount and, as such, we did not need to perform the two-step impairment test. We have not identified any indicators of impairment since that assessment.


30


Our business consists of developing, marketing and distributing video game software using both established and emerging intellectual properties and our forecasts for emerging intellectual properties are based upon internal estimates and external sources rather than historical information and have an inherently higher risk of inaccuracy. If future forecasts are revised, they may indicate or require future impairment charges. We base our fair value estimates on assumptions we believe to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
 
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. Significant judgment is required to estimate the effective royalty rate for a particular contract. Because the computation of effective royalty rates requires us to project future revenue, it is inherently subjective as our future revenue projections must anticipate a number of factors, including (1) the total number of titles subject to the contract, (2) the timing of the release of these titles, (3) the number of software units we expect to sell, which can be impacted by a number of variables, including product quality, number of platforms we release on, the timing of the title’s release and competition, and (4) future pricing. Determining the effective royalty rate for our titles is particularly challenging due to the inherent difficulty in predicting the popularity of entertainment products. Furthermore, if we conclude that we are unable to make a reasonably reliable forecast of projected net revenue, we recognize royalty expense at the greater of contract rate or on 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 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.

Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract. Royalty liabilities are classified as current liabilities to the extent such royalty payments are contractually due within the next 12 months.

Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product 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 generally using undiscounted cash flows when impairment indicators exist. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned ( i.e. , cease use) or the contractual rights to use the intellectual property are terminated.
Income Taxes
We recognize deferred tax assets and liabilities for both the expected impact of differences between the financial statement amount and the tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. We record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of our deferred tax assets will not be realized. In making this determination, we are required to give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable

31


income are considered to be less objective than past results, particularly in light of the economic environment. Therefore, cumulative losses weigh heavily in the overall assessment.
In addition to considering forecasts of future taxable income, we are also required to evaluate and quantify other possible sources of taxable income in order to assess the realization of our deferred tax assets, namely the reversal of existing deferred tax liabilities, the carry back of losses and credits as allowed under current tax law, and the implementation of tax planning strategies. Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence; this evaluation involves assumptions about future activity. Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted by tax law cannot be considered as a source of future taxable income that may be available to realize the benefit of deferred tax assets.
Based on the assumptions and requirements noted above, we have recorded a valuation allowance against most of our U.S. deferred tax assets. In addition, we expect to provide a valuation allowance on future U.S. tax benefits until we can sustain a level of profitability in the U.S., or until other significant positive evidence arises that suggest that these benefits are more likely than not to be realized.
In the ordinary course of our business, there are many transactions and calculations where the tax law and ultimate tax determination is uncertain. As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion 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 our situation, as well as with respect to other matters, such as anticipating the positions that we will take on tax returns prior to our actually preparing the returns and the outcomes of disputes with tax authorities. The ultimate resolution of these issues may take extended periods of time due to examinations by tax authorities and statutes of limitations. In addition, changes in our business, including acquisitions, changes in our international corporate structure, changes in the geographic location of business functions or assets, changes in the geographic mix and amount of income, as well as changes in our agreements with tax authorities, valuation allowances, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in 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.

RESULTS OF OPERATIONS
Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal years ended March 31, 2014, 2013 and 2012 each contained 52 weeks and ended on March 29, 2014, March 30, 2013, and March 31, 2012, respectively. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month-end.

Net Revenue
Net revenue consists of sales generated from (1) video games sold as packaged goods or as digital downloads and designed for play on video game consoles (such as the PlayStation 3 and 4 from Sony and Xbox 360 and One from Microsoft) and PCs, (2) video games for mobile phones and tablets , (3) separate software products and content and online game services associated with these products, (4) licensing our game software to third parties, (5) allowing other companies to manufacture and sell our products in conjunction with other products, and (6) advertisements on our online web pages and in our games.

We provide three different measures of our Net Revenue. Two of these measures are presented in accordance with U.S. GAAP - (1) Net Revenue by Product revenue and Service and other revenue and (2) Net Revenue by Geography. The third measure is a non-GAAP financial measure - Net Revenue before Revenue Deferral by Revenue Composition, which is primarily based on method of distribution. We use this third non-GAAP financial measure internally to evaluate our operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of our management team.

Management places a greater emphasis and focus on assessing our business through a review of the Net Revenue before Revenue Deferral by Revenue Composition than by Net Revenue by Product revenue and Service and other revenue. These two measures differ as (1) Net Revenue by Product revenue and Service and other revenue reflects the deferral and recognition of revenue in periods subsequent to the date of sale due to U.S. GAAP while Net Revenue before Revenue Deferral by Revenue Composition does not, and (2) both measures contain a different aggregation of sales from one another. For instance, Service and other revenue does not include a portion of our full-game digital download and mobile sales that are fully included in our Digital revenue. Further, Service and other revenue includes all of our revenue associated with MMO games while software sales associated with our MMOs are included in either Digital revenue or Packaged goods and other revenue depending on whether the sale was a full-game digital download or a packaged goods sale.

32



Comparison of Fiscal Year 2014 to Fiscal Year 2013
Net Revenue
For fiscal year 2014 , Net Revenue was $3,575 million and decreased $222 million , or 6 percent , as compared to fiscal year 2013 . This decrease was driven by a $745 million decrease in revenue primarily from the Mass Effect, Madden NFL, Medal of Honor, The Sims, and FIFA Street franchises. This decrease was partially offset by a $523 million increase in revenue primarily from the Battlefield, SimCity, Crysis franchises, and The Simpsons: Tapped Out.

Net Revenue by Product Revenue and Service and Other Revenue

Our total net revenue by product revenue and service and other revenue for fiscal years 2014 and 2013 was as follows (in millions):
 
Year Ended March 31,
 
2014
 
2013
 
$ Change
 
% Change
Net revenue:
 
 
 
 
 
 
 
Product
$
2,134

 
$
2,738

 
$
(604
)
 
(22
)%
Service and other
$
1,441

 
$
1,059

 
$
382

 
36
 %
Total net revenue
$
3,575

 
$
3,797

 
$
(222
)
 
(6
)%

Product Revenue

For fiscal year 2014 , product revenue was $2,134 million , primarily driven by FIFA 14 , Battlefield 4 , and FIFA 13 . Product revenue decreased $604 million , or 22 percent , as compared to fiscal year 2013 . This decrease was driven by an $842 million decrease primarily from the Mass Effect, Madden NFL, FIFA, Medal of Honor, and FIFA Street franchises. This decrease was partially offset by a $238 million increase primarily from the Battlefield, Dead Space, and Crysis franchises.

Service and Other Revenue

For fiscal year 2014 , service and other revenue was $1,441 million , primarily driven by FIFA Ultimate Team, Star Wars: The Old Republic, and SimCity . Service and other revenue for fiscal year 2014 increased $382 million , or 36 percent , as compared to fiscal year 2013 . This increase was driven by a $468 million increase primarily from the FIFA and SimCity franchises, and The Simpsons: Tapped Out . This increase was partially offset by an $86 million decrease primarily from lower revenue from The Sims Social , which shut down in June 2013, Star Wars: The Old Republic, as well as Pogo-branded online game services.

Net Revenue by Geography

We attribute net revenue from external customers to individual countries based on the location of the legal entity that sells the products and/or services. Note that revenue attributed to the legal entity that makes the sale is often not the country where the consumer resides. For example, revenue generated by our Swiss legal entities includes digital revenue from consumers who reside outside of Switzerland, including consumers who reside outside of Europe. Revenue generated by our Swiss legal entities during fiscal year 2014 represented $1,171 million , or 33 percent , of our total net revenue. Revenue generated by our Swiss legal entities during fiscal year 2013 represented $885 million , or 23 percent , of our total net revenue. Revenue generated in the United States represents over 99 percent of our total North America net revenue. No other country represented greater than 10 percent of total net revenue.

 
Year Ended March 31,
(In millions)
2014
 
2013
 
$ Change
 
% Change
North America
$
1,510

 
$
1,701

 
$
(191
)
 
(11
)%
International
2,065

 
2,096

 
$
(31
)
 
(1
)%
Total net revenue
$
3,575

 
$
3,797

 
$
(222
)
 
(6
)%

Net revenue in North America was $1,510 million , or 42 percent of total net revenue for fiscal year 2014 , compared to $1,701 million , or 45 percent of total net revenue for fiscal year 2013 , a decrease of $191 million , or 11 percent . Net revenue in North

33


America decreased primarily due to decreased revenue in our Mass Effect, Madden NFL, Medal of Honor, FIFA franchises, and Kingdoms of Amalur: Reckoning , partially offset by increased revenue in our Battlefield, SimCity, Dead Space franchises, and The Simpsons: Tapped Out during fiscal year 2014 . International net revenue was $2,065 million , or 58 percent of total net revenue during fiscal year 2014 , compared to $2,096 million , or 55 percent of total net revenue during fiscal year 2013 , a decrease of $31 million , or 1 percent . We estimate that foreign exchange rates (primarily due to the Euro) decreased reported International net revenue by approximately $61 million, or 3 percent, for fiscal year 2014 as compared to the exchange rates in effect for the fiscal year 2013 . Excluding the effect of foreign exchange rates from International net revenue, we estimate that International net revenue increased by approximately $30 million, or 1 percent for fiscal year 2014 as compared to fiscal year 2013 . This increase is primarily due to our Battlefield, SimCity, FIFA, and Crysis franchises, partially offset by decreased revenue in our Mass Effect, FIFA Street, The Sims, and Medal of Honor franchises during fiscal year 2014 .

Supplemental Net Revenue by Revenue Composition
As we continue to evolve our business and more of our products are delivered to consumers digitally via the Internet, we place a greater emphasis and focus on assessing our business through a review of net revenue by revenue composition.

Net Revenue before Revenue Deferral, a non-GAAP financial measure, is provided in this section of MD&A, including a discussion of the components of this measure: (1) packaged goods and other, (2) digital, and (3) distribution. See “Non-GAAP Financial Measures” below for an explanation of our use of this non-GAAP financial measure. A reconciliation to the corresponding measure calculated in accordance with U.S. GAAP is provided in the discussion below.

“Revenue Deferral” in this “Net Revenue” section generally includes the unrecognized revenue from bundled sales of certain online-enabled games for which we do not have VSOE for the unspecified updates. Fluctuations in the Revenue Deferral are largely dependent upon the amounts of products that we sell with the online features and services previously discussed, while the Recognition of Revenue Deferral for a period is also dependent upon (1) the amount deferred, (2) the period of time the software-related offerings are to be provided, and (3) the timing of the sale. For example, most Revenue Deferrals incurred in the first quarter of a fiscal year are recognized within the same fiscal year; however, substantially all of the Revenue Deferrals incurred in the last month of a fiscal year will be recognized in the subsequent fiscal year.

Our total net revenue by revenue composition for fiscal years 2014 and 2013 was as follows (in millions):
 
Year Ended March 31,
 
2014
 
2013
 
$ Change
 
% Change
Packaged goods and other
$
2,149

 
$
2,028

 
$
121

 
6
 %
Digital
1,793

 
1,663

 
130

 
8
 %
Distribution
79

 
102

 
(23
)
 
(23
)%
Net Revenue before Revenue Deferral
4,021

 
3,793

 
228

 
6
 %
 
 
 
 
 
 
 
 
Revenue Deferral
(3,350
)
 
(3,022
)
 
(328
)
 
(11
)%
Recognition of Revenue Deferral
2,904

 
3,026

 
(122
)
 
(4
)%
Total net revenue
$
3,575

 
$
3,797

 
$
(222
)
 
(6
)%

Net Revenue before Revenue Deferral

Packaged goods and other Revenue

Packaged goods revenue (previously disclosed as “publishing revenue”) includes sales of software that is distributed physically. This includes (1) sales of our internally-developed and co-published game software distributed physically through traditional channels such as brick and mortar retailers, and (2) our software licensing revenue from third parties (for example, makers of personal computers or computer accessories) who include certain of our products for sale with their products (“OEM bundles”). Other revenue includes our non-software licensing revenue.

For fiscal year 2014 , packaged goods and other Net Revenue before Revenue Deferral was $2,149 million , primarily driven by FIFA 14 , Battlefield 4, and Madden NFL 25 . Packaged goods and other Net Revenue before Revenue Deferral for fiscal year 2014 increased $121 million , or 6 percent , as compared to fiscal year 2013 . This increase was driven by a $652 million increase in sales primarily from the Battlefield and FIFA franchises, and Titanfall. This increase was partially offset by a $532 million decrease in sales primarily from the Medal of Honor, The Sims, Crysis, and Dead Space franchises .

34



Digital Revenue

Digital revenue (previously disclosed as “wireless, Internet-derived, and advertising (digital) revenue”) includes sales of software distributed through direct download via the Internet. This includes internally-developed and co-published game software distributed through our direct-to-consumer platform Origin, distributed wirelessly through mobile carriers, or licensed to our third-party publishing partners who distribute our games digitally. This includes our full-game downloads, mobile and tablet revenue (each of which are generally classified as product revenue with the exception of our MMO game downloads and freemium mobile games, which are classified as service revenue), as well as subscription services, micro-transactions, and advertising revenues (each of which is generally classified as service and other revenue).

For fiscal year 2014 , digital Net Revenue before Revenue Deferral was $1,793 million , an increase of $130 million , or 8% , as compared to fiscal year 2013 . This increase is due to (1) a $297 million or 24 percent increase in full-game download, extra content and free-to-play sales primarily driven by FIFA 14 , Battlefield 4 , and FIFA Online 3. These increases were partially offset by a $167 million or 39 percent decrease in subscription sales primarily driven by Battlefield 3 Premium subscription, Star Wars: The Old Republic and FIFA 13 . In the previous year, Star Wars: The Old Republic was a subscription-only based MMO. This year, some of the revenue from this title was recognized in the free-to-play category as we expanded this title to be both a subscription and free-to-play game.

Distribution Revenue

For fiscal year 2014 , distribution net revenue was $79 million and decreased $23 million , or 23 percent , compared to fiscal year 2013 . This decrease was primarily driven by decreases in sales from The Secret World and our Switzerland distribution business.

Revenue Deferral

Revenue Deferral for fiscal year 2014 increased $328 million , or 11 percent , as compared to fiscal year 2013 . Substantially all of this increase was due to a $251 million increase in Net Revenue before Revenue Deferral related to our Packaged goods and other and digital sales during fiscal year 2014 as compared to fiscal year 2013 , and a slightly higher percentage of both our packaged goods and other and digital sales being deferred and recognized over time.

Recognition of Revenue Deferral

The Recognition of Revenue Deferral for fiscal year 2014 decreased $122 million , or 4 percent , as compared to fiscal year 2013 , primarily due to the increase in our estimated offering period, which commenced during the second quarter of fiscal 2014 for physical games sold through retail from six to nine months.

Non-GAAP Financial Measures

Net Revenue before Revenue Deferral is a non-GAAP financial measure that excludes the impact of Revenue Deferral and the Recognition of Revenue Deferral on Net Revenue related to sales of games and digital content.

We believe that excluding the impact of Revenue Deferral and the Recognition of Revenue Deferral related to games and digital content from our operating results is important to facilitate comparisons between periods in understanding our underlying sales performance for the period, and understanding our operations because all related costs of revenues are expensed as incurred instead of deferred and recognized ratably. We use this non-GAAP financial measure internally to evaluate our operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of our management team. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from or as a substitute for the related financial information prepared in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same as non-GAAP financial measures presented by other companies.


35


Product Revenue and Service and Other Revenue by Revenue Composition

Our product and service and other revenue by revenue composition for fiscal years 2014 and 2013 was as follows (in millions):
 
Year Ended March 31
 
2014
 
2013
Product revenue:
 
 
 
Packaged goods and other
$
1,512

 
$
2,164

Digital
543

 
472

Distribution
79

 
102

Total product revenue
2,134

 
2,738

 
 
 
 
Service and other revenue:
 
 
 
Packaged goods and other
151

 
91

Digital
1,290

 
968

Total service and other revenue
1,441

 
1,059

Total net revenue
$
3,575

 
$
3,797


Cost of Revenue

Total cost of revenue for fiscal years 2014 and 2013 was as follows (in millions):
 
March 31,
2014
 
% of
Related
 Net Revenue
 
March 31,
2013
 
% of
Related
 Net Revenue
 
% Change
 
Change as a
% of Related
Net Revenue
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Product
$
1,032

 
48.4
%
 
$
1,085

 
39.6
%
 
(4.9
)%
 
8.8
 %
Service and other
315

 
21.9
%
 
303

 
28.6
%
 
4.0
 %
 
(6.7
)%
Total cost of revenue
$
1,347

 
37.7
%
 
$
1,388

 
36.6
%
 
(3.0
)%
 
1.1
 %

Cost of Product Revenue
Cost of product revenue consists of (1) product costs, (2) certain royalty expenses for celebrities, professional sports and other organizations, and independent software developers, (3) manufacturing royalties, net of volume discounts and other vendor reimbursements, (4) expenses for defective products, (5) write-offs of post launch prepaid royalty costs, (6) amortization of certain intangible assets, (7) personnel-related costs, and (8) warehousing and distribution costs. We generally recognize volume discounts when they are earned from the manufacturer (typically in connection with the achievement of unit-based milestones); whereas other vendor reimbursements are generally recognized as the related revenue is recognized.

Cost of product revenue decreased by $53 million , or 4.9 percent in fiscal year 2014 , as compared to fiscal year 2013 . The decrease was primarily due to intangible impairment charges incurred in fiscal year 2013 compared to an immaterial amount of such charges incurred during fiscal year 2014, and a decrease in royalty costs due to fewer royalty-bearing products released during fiscal year 2014 , as compared to fiscal year 2013 .

Cost of Service and Other Revenue
Cost of service and other revenue consists primarily of (1) data center and bandwidth costs associated with hosting our online games and websites, (2) associated royalty costs, (3) credit card fees associated with our service revenue, (4) server costs related to our website advertising business, and (5) platform processing fees from operating our website-based games on third party platforms.

Cost of service and other revenue increased by $12 million, or 4.0 percent in fiscal year 2014 , as compared to fiscal year 2013 . The increase was primarily due to an increase in product costs due to the release of Titanfall and an increase in royalty costs due to more royalty-bearing services released during fiscal year 2014 , as compared to fiscal year 2013 .


36


Total Cost of Revenue as a Percentage of Total Net Revenue

Total cost of revenue as a percentage of total net revenue remained relatively consistent during fiscal year 2014 as compared to fiscal year 2013 .
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 network infrastructure, software licenses and maintenance, and management overhead.
Research and development expenses for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
1,125

 
31
%
 
$
1,153

 
30
%
 
$
(28
)
 
(2
)%
Research and development expenses decreased by $28 million , or 2 percent , in fiscal year 2014, as compared to fiscal year 2013. This decrease was primarily due to a $49 million decrease in contracted services as a result of fewer titles released this fiscal year as compared to the prior fiscal year. This was partially offset by a $25 million increase in facility-related costs related to higher rent and depreciation expenses.
Marketing and Sales
Marketing and sales expenses consist of personnel-related costs, related overhead costs, advertising, marketing and promotional expenses, net of qualified advertising cost reimbursements from third parties.
Marketing and sales expenses for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
680

 
19
%
 
$
788

 
21
%
 
$
(108
)
 
(14
)%
Marketing and sales expenses decreased by $108 million , or 14 percent , in fiscal year 2014, as compared to fiscal year 2013. The decrease was primarily due to (1) a $54 million decrease in personnel-related costs resulting from a decrease in headcount, (2) a $29 million decrease in advertising and promotional spending on our franchises as compared to the prior year, and (3) a $24 million decrease in contracted services.
General and Administrative
General and administrative expenses consist of personnel and related expenses of executive and administrative staff, corporate functions such as finance and human resources, related overhead costs, fees for professional services such as legal and accounting, and allowances for doubtful accounts.
General and administrative expenses for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
410

 
11
%
 
$
354

 
9
%
 
$
56

 
16
%
General and administrative expenses increased by $56 million , or 16 percent , in fiscal year 2014, as compared to fiscal year 2013. The increase was primarily due to (1) a $30 million accrual related to the anticipated settlement of a litigation matter related to our college football franchise, (2) an $18 million loss on a license related to our college football franchise, and (3) a $13 million increase in incentive-based compensation expense. This was partially offset by a $7 million decrease in facility-related costs.

37


Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
(35
)
 
(1
)%
 
$
(64
)
 
(2
)%
 
$
29

 
45
%
During fiscal year 2014, acquisition-related contingent consideration credits decreased by $29 million , or 45 percent , as compared to fiscal year 2013, primarily resulting from changes in our earn-out estimates related to our PopCap acquisition. The PopCap earn-out expired on December 31, 2013. No payments were made under this earn-out.
Amortization of Intangibles
Amortization of intangibles for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
16

 
—
%
 
$
30

 
1
%
 
$
(14
)
 
(47
)%
Amortization of intangibles decreased by $14 million , or 47 percent , in fiscal year 2014, as compared to fiscal year 2013, primarily due to certain intangible assets from our acquisitions being fully amortized and impairment charges incurred during fiscal year 2013.
Restructuring and Other Charges
Restructuring and other charges for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
(1
)
 
—
 %
 
$
27

 
1
%
 
$
(28
)
 
(104
)%
Restructuring and other charges decreased as compared to fiscal year 2013 , as there were no new restructuring initiatives in fiscal year 2014. See the “Liquidity and Capital Resources” section on page 46 for additional information regarding our previous restructuring plans.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, for fiscal years 2014 and 2013 were as follows (in millions):
March 31,
2014
 
% of Net
Revenue
 
March 31,
2013
 
% of Net
Revenue
 
$ Change
 
% Change
$
(26
)
 
(1
)%
 
$
(21
)
 
(1
)%
 
$
(5
)
 
(24
)%
Interest and other income (expense), net, remained relatively consistent, as compared to fiscal year 2013 .
Income Taxes
Provision for (benefit from) income taxes for fiscal years 2014 and 2013 was as follows (in millions):
March 31, 2014
 
Effective Tax Rate
 
March 31, 2013
 
Effective Tax Rate
$
(1
)
 
(14.3
)%
 
$
41

 
29.5
%
Our effective tax rate for the fiscal year 2014 was a tax benefit of 14.3%. The fiscal year 2014 effective tax rate differs from the statutory rate of 35.0 percent as a result of the utilization of U.S. deferred tax assets subject to a valuation allowance and tax benefits related to the expiration of statutes of limitations and the resolution of examinations by taxing authorities.
Our effective tax rate for the fiscal year 2013 differs from the statutory rate of 35.0 percent primarily due to the U.S. losses for which no benefit is recognized and non-deductible stock-based compensation, offset by non-U.S. profits subject to reduced or zero tax rates and the nontaxable change in the estimated fair value of acquisition-related contingent consideration.
Our effective income tax rates for fiscal year 2015 and future periods will 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 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 and other matters, and variations in our annual pre-

38


tax income or loss. We incur certain tax expenses that do not decline proportionately with declines in our pre-tax consolidated income or loss. As a result, in absolute dollar terms, our tax expense will have a greater influence on our effective tax rate at lower levels of pre-tax income or loss than at higher levels. In addition, at lower levels of pre-tax income or loss, our effective tax rate will be more volatile.
Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted by tax law have not been considered as a source of future taxable income that is available to realize the benefit of deferred tax assets.
The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act contains a number of provisions including, most notably, an extension of the research tax credit through December 31, 2013. The Act did not have a material impact on our effective tax rate for fiscal 2013 due to the effect of the valuation allowance on our deferred tax assets.
Historically, we have considered 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. In connection with a review of our cash position including potential future cash needs for stock repurchases and debt retirement, we made a one-time repatriation of $700 million from certain of our wholly-owned subsidiaries during the three months ended March 31, 2014. This repatriation did not have a material impact on our effective tax rate for fiscal 2014 due to the deferred tax valuation allowance.
The remaining undistributed foreign earnings of approximately $150 million, principally related to Electronic Arts (Canada), will continue to be indefinitely reinvested going forward. If these earnings were to be repatriated in the future, they may be subject to additional U.S. income taxes.

Comparison of Fiscal Year 2013 to Fiscal Year 2012
Net Revenue
For fiscal year 2013, net revenue was $3,797 million and decreased $346 million, or 8 percent, as compared to fiscal year 2012. This decrease was driven by a $1,181 million decrease in revenue primarily from the Battlefield, Crysis, Dragon Age, Portal, and Need for Speed franchises. This decrease was partially offset by an $835 million increase in revenue primarily from the FIFA, Mass Effect, and FIFA Street franchises.

Net Revenue by Product Revenue and Service and Other Revenue

Our total net revenue by product revenue and service and other revenue for fiscal years 2013 and 2012 was as follows (in millions):
 
Year Ended March 31,
 
2013
 
2012
 
$ Change
 
% Change
Net revenue:
 
 
 
 
 
 
 
Product
$
2,738

 
$
3,415

 
$
(677
)
 
(20
)%
Service and other
1,059

 
728

 
331

 
45
 %
Total net revenue
$
3,797

 
$
4,143

 
$
(346
)
 
(8
)%

Product Revenue

For fiscal year 2013, product revenue was $2,738 million, primarily driven by FIFA 13, Battlefield 3 , and Madden NFL 13 . Product revenue for fiscal year 2013 decreased $677 million, or 20 percent, as compared to fiscal year 2012. This decrease was driven by a $1,224 million decrease primarily from the Battlefield, Crysis, Dragon Age, Portal, and Need for Speed franchises. This decrease was partially offset by a $547 million increase primarily from the Mass Effect, FIFA, and FIFA Street franchises.

Service and Other Revenue

For fiscal year 2013, service and other revenue was $1,059 million, primarily driven by Star Wars: The Old Republic and FIFA 13 Ultimate Team, as well as Battlefield 3 Premium subscriptions. Service and other revenue for fiscal year 2013 increased $331 million, or 45 percent, as compared to fiscal year 2012. This increase was driven by a $396 million increase primarily from services associated with the FIFA and Battlefield franchises, along with Star Wars: The Old Republic (which launched in December 2011). This increase was partially offset by a $65 million decrease from Pogo-branded online game services and certain franchises including Warhammer and Ultima Online.

39



Net Revenue by Geography
 
Year Ended March 31,
(In millions)
2013
 
2012
 
$ Change
 
% Change
North America
$
1,701

 
$
1,991

 
$
(290
)
 
(15
)%
International
2,096

 
2,152

 
(56
)
 
(3
)%
Total net revenue
$
3,797

 
$
4,143

 
$
(346
)
 
(8
)%

Net revenue in North America was $1,701 million, or 45 percent of total net revenue for fiscal year 2013, compared to $1,991 million, or 48 percent of total net revenue for fiscal year 2012, a decrease of $290 million, or 15 percent. This decrease was driven by a $657 million decrease from certain franchises including Battlefield, Dragon Age, Portal, Crysis, and Need for Speed franchises. This decrease was offset by a $367 million increase primarily from the Mass Effect franchise, as well as Star Wars: The Old Republic and Kingdoms of Amalur: Reckoning . International net revenue was $2,096 million, or 55 percent of total net revenue during fiscal year 2013, compared to $2,152 million, or 52 percent of total net revenue during fiscal year 2012, a decrease of $56 million, or 3 percent. We estimate that foreign exchange rates (primarily due to the Euro and Swiss Franc) decreased reported International net revenue by approximately $127 million, or 6 percent, for fiscal year 2013. Excluding the effect of foreign exchange rates from International net revenue, we estimate that International net revenue increased by approximately $71 million, or 3 percent, for fiscal year 2013 as compared to fiscal year 2012. This increase is primarily due to greater revenue from our Battlefield, Crysis, Need for Speed, Dragon Age, and The Sims franchises, partially offset by decreased revenue in our FIFA, Mass Effect, and FIFA Street franchises during fiscal year 2013.

Supplemental Net Revenue by Revenue Composition

Our total net revenue by revenue composition for fiscal years 2013 and 2012 was as follows (in millions):
 
Year Ended March 31,
 
2013
 
2012
 
$ Change
 
% Change
Packaged goods and other
$
2,028

 
$
2,736

 
$
(708
)
 
(26
)%
Digital
1,663

 
1,227

 
436

 
36
 %
Distribution
102

 
223

 
(121
)
 
(54
)%
Net Revenue before Revenue Deferral
3,793

 
4,186

 
(393
)
 
(9
)%
 
 
 
 
 
 
 
 
Revenue Deferral
(3,022
)
 
(3,142
)
 
120

 
4
 %
Recognition of Revenue Deferral
3,026

 
3,099

 
(73
)
 
(2
)%
Total net revenue
$
3,797

 
$
4,143

 
$
(346
)
 
(8
)%

Net Revenue before Revenue Deferral

Packaged goods and Other Revenue

Packaged goods and other revenue includes (1) sales of our internally-developed and co-published game software distributed physically through traditional channels such as brick and mortar retailers, (2) our non-software licensing revenue, and (3) our software licensing revenue from third parties (for example, makers of personal computers or computer accessories) who include certain of our products for sale with their products (“OEM bundles”).

For fiscal year 2013, packaged goods and other Net Revenue before Revenue Deferral was $2,028 million, primarily driven by FIFA 13 , Madden NFL 13 , and Need for Speed Most Wanted . Packaged goods and other Net Revenue before Revenue Deferral for fiscal year 2013 decreased $708 million, or 26 percent, as compared to fiscal year 2012. This decrease was driven by a $1,130 million decrease in sales primarily from the Battlefield and Mass Effect franchises, as well as Star Wars: The Old Republic. This decrease was partially offset by a $422 million increase in sales primarily from the FIFA, Medal of Honor, and Dead Space franchises.


40


Digital Revenue

Digital revenue includes revenue from sales of our internally-developed and co-published game software distributed through direct download through the Internet, including through our direct-to-consumer platform Origin, or distributed wirelessly through mobile carriers. This includes our full-game downloads, mobile and tablet revenue (each of which are generally classified as product revenue with the exception of our MMO game downloads and freemium mobile games which are classified as service revenue) as well as subscription services, micro-transactions, and advertising revenues (each of which is generally classified as service and other revenue).

For fiscal year 2013, digital Net Revenue before Deferral was $1,663 million, an increase of $436 million, or 36 percent, as compared to fiscal year 2012. This increase is due to (1) a $221 million or 51 percent increase in extra content and free-to-play sales primarily driven by the FIFA and Bejeweled franchises, along with Star Wars: The Old Republic, (2) a $136 million or 47 percent increase in subscription and advertising sales primarily driven by Battlefield 3 Premium subscriptions , (3) an $86 million or 30 percent increase in mobile sales primarily driven by The Simpsons: Tapped Out and FIFA World Class Soccer . These increases were partially offset by a $7 million or 3 percent decrease in full-game download sales primarily driven by Star Wars: The Old Republic and the Battlefield franchise.

Distribution Revenue

For fiscal year 2013, distribution net revenue was $102 million and decreased $121 million, or 54 percent, as compared to fiscal year 2012, due to a decrease in sales primarily from the Portal franchise and to a lesser extent, our Switzerland distribution business.

Revenue Deferral

Revenue Deferral for fiscal year 2013 decreased $120 million, or 4 percent, as compared to fiscal year 2012. This decrease was primarily due to a $708 million decrease in Net Revenue before Revenue Deferral related to our packaged goods and other sales, which was partially offset by a higher percentage of digital sales being deferred and recognized over time, due in part to a 51 percent increase in extra content and free-to-play sales, a 47 percent increase in subscription and advertising revenue, a 30 percent increase in mobile sales, all of which contain an online service component requiring revenue recognition over the period of time that the service is delivered.

Recognition of Revenue Deferral

Our non-distribution sales are generally deferred and recognized over a weighted average six-month period, and therefore, the related revenue recognized in any fiscal year is primarily due to sales that occurred during the respective twelve months period ended December 31. The Recognition of Revenue Deferral for fiscal year 2013 decreased $73 million, or 2 percent, as compared to fiscal year 2012. This decrease was primarily due to lower publishing sales during the twelve months ended December 31, 2013 as compared to the same period in fiscal year 2012.


41


Product Revenue and Service and Other Revenue by Revenue Composition

Our product and service and other revenue by revenue composition for fiscal years 2013 and 2012 was as follows (in millions):
 
Year Ended March 31
 
2013
 
2012
Product revenue:
 
 
 
Packaged goods and other
$
2,164

 
$
2,674

Digital
472

 
518

Distribution
102

 
223

Total product revenue
2,738

 
3,415

 
 
 
 
Service and other revenue:
 
 
 
Packaged goods and other
91

 
87

Digital
968

 
641

Total service and other revenue
1,059

 
728

Total net revenue
$
3,797

 
$
4,143


Cost of Revenue

Total cost of revenue for fiscal years 2013 and 2012 was as follows (in millions):
 
March 31, 2013
 
% of
Related
 Net Revenue
 
March 31, 2012
 
% of
Related
 Net Revenue
 
% Change
 
Change as a
% of Related
Net Revenue
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Product
$
1,085

 
39.6
%
 
$
1,374

 
40.2
%
 
(21.0
)%
 
(0.6
)%
Service and other
303

 
28.6
%
 
224

 
30.8
%
 
35.3
 %
 
(2.2
)%
Total cost of revenue
$
1,388

 
36.6
%
 
$
1,598

 
38.6
%
 
(13.1
)%
 
(2.0
)%

Cost of Product Revenue

Cost of product revenue decreased by $289 million, or 21.0 percent in fiscal year 2013, as compared to fiscal year 2012. The decrease was primarily due to a decrease in the number of titles released, which led to a 19 percent decrease in packaged goods and other revenue and a 54 percent decrease in distribution revenue, during fiscal year 2013, as compared to fiscal year 2012.

Cost of Service and Other Revenue

Cost of service and other revenue increased by $79 million, or 35.3 percent in fiscal year 2013, as compared to fiscal year 2012. The increase was primarily due to increased server and support costs due to the release of more online-connected and subscription-based titles and related content during fiscal year 2013, as compared to fiscal year 2012.

Total Cost of Revenue as a Percentage of Total Net Revenue

During fiscal year 2013, total cost of revenue as a percentage of total net revenue decreased by 2.0 percent as compared to fiscal year 2012. This decrease as a percentage of net revenue is primarily due to (1) a 54 percent decrease in distribution revenue which has higher costs and (2) a greater percentage of net revenue from our digital products and services that have a lower cost than our packaged goods and other products.


42


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 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
1,153

 
30
%
 
$
1,180

 
28
%
 
$
(27
)
 
(2
)%
Research and development expenses decreased by $27 million, or 2 percent, in fiscal year 2013, as compared to fiscal year 2012. This decrease was primarily due to (1) a $17 million decrease in incentive-based compensation expense, (2) a $14 million decrease in contracted services, and (3) a $9 million decrease in stock-based compensation expense. These decreases were partially offset by a $17 increase million in personnel-related costs.
Marketing and Sales
Marketing and sales expenses consist of personnel-related costs, related overhead costs, advertising, marketing and promotional expenses, net of qualified advertising cost reimbursements from third parties.
Marketing and sales expenses for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
788

 
21
%
 
$
883

 
21
%
 
$
(95
)
 
(11
)%
Marketing and sales expenses decreased by $95 million, or 11 percent, in fiscal year 2013, as compared to fiscal year 2012. The decrease was primarily due to (1) a $111 million decrease in advertising and promotional spending on our franchises due to fewer frontline title releases as compared to the prior year, (2) a $7 million decrease in contracted services, and (3) a $7 million decrease in incentive-based compensation expense. This was partially offset by a $29 million increase in personnel-related costs.
Marketing and sales expenses included vendor reimbursements for advertising expenses of $45 million and $39 million in fiscal years 2013 and 2012, respectively.
General and Administrative
General and administrative expenses consist of personnel and related expenses of executive and administrative staff, related overhead costs, fees for professional services such as legal and accounting, and allowances for doubtful accounts.
General and administrative expenses for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
354

 
9
%
 
$
377

 
9
%
 
$
(23
)
 
(6
)%
General and administrative expenses decreased by $23 million, or 6 percent, in fiscal year 2013, as compared to fiscal year 2012. The decrease was primarily due to (1) a $27 million accrual related to a settlement of a litigation matter recorded in fiscal year 2012, (2) a $12 million decrease in contracted services primarily related to litigation matters, and (3) a $10 million decrease in incentive-based compensation expense. This was partially offset by an increase in personnel-related costs for $26 million.

43


Acquisition-Related Contingent Consideration
Acquisition-related contingent consideration for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
(64
)
 
(2
)%
 
$
11

 
—
%
 
$
(75
)
 
(682
)%
Acquisition-related contingent consideration expense decreased by $75 million, or 682 percent, in fiscal year 2013, as compared to fiscal year 2012, primarily resulting from decreases in our accrual related to our PopCap acquisition.
Amortization of Intangibles
Amortization of intangibles for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
30

 
1
%
 
$
43

 
1
%
 
$
(13
)
 
(30
)%
Amortization of intangibles decreased by $13 million, or 30 percent, in fiscal year 2013, as compared to fiscal year 2012, primarily due to certain intangible assets from our prior year acquisitions being fully amortized during fiscal year 2012. This decrease was partially offset by $5 million of impairment charges recognized in fiscal year 2013.
Restructuring and Other Charges
Restructuring and other charges for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
27

 
1
%
 
$
16

 
—
%
 
$
11

 
69
%

During fiscal year 2013, restructuring and other charges increased by $11 million, or 69 percent, as compared to fiscal year 2012, primarily due to (1) $22 million in costs in connection with our fiscal 2013 restructuring, which was initiated in this fiscal year, and (2) a $10 million gain on the sale of our facility in Chertsey, England related to our fiscal 2008 reorganization that was recognized during fiscal year 2012, and for which there was no comparable gain in the current year. These increases were partially offset by costs that were recognized during fiscal year 2012 comprised of (1) $15 million expense adjustment for the amendment of certain licensing agreements related to our fiscal 2011 restructuring plan, and (2) $6 million in IT and other costs to assist in reorganizing certain activities.
Gains on Strategic Investments, Net
Gains on strategic investments, net, for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
39

 
1
%
 
$
—

 
—
%
 
$
39

 
—
%
During fiscal year 2013, we sold our investment in Neowiz for proceeds of $72 million, and realized a gain of $39 million, net of costs to sell. We did not recognize any impairment charges or losses on our marketable equity securities during the year ended March 31, 2013.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, for fiscal years 2013 and 2012 were as follows (in millions):
March 31,
2013
 
% of Net
Revenue
 
March 31,
2012
 
% of Net
Revenue
 
$ Change
 
% Change
$
(21
)
 
(1
)%
 
$
(17
)
 
—
 %
 
$
(4
)
 
(24
)%
Interest and other income (expense), net increased by $4 million, or 24 percent, during fiscal year 2013 as compared to the fiscal year 2012, primarily due to (1) a $22 million change due to a $1 million loss in the current year compared to a $21 million gain in the prior year in foreign currency forward contract gains and losses, (2) a $9 million increase in interest expense, including the amortization of debt discount recognized in connection with our 0.75% Convertible Senior Notes due

44


2016, and (3) a $3 million decrease in interest income as a result of decreasing average cash balances. This was partially offset by a $31 million increase in foreign currency transaction gains as compared to the same period in the prior year.
Income Taxes
Provision for (benefit from) income taxes for fiscal years 2013 and 2012 was as follows (in millions):
March 31, 2013
 
Effective Tax Rate
 
March 31, 2012
 
Effective Tax Rate
$
41

 
29.5
%
 
$
(58
)
 
(322.2
)%
Our effective tax rate for the fiscal year 2013 was a tax expense of 29.5%. The fiscal year 2013 effective tax rate differs from the statutory rate of 35.0 percent primarily due to the U.S. losses for which no benefit is recognized and non-deductible stock-based compensation, offset by non-U.S. profits subject to reduced or zero tax rates and the nontaxable change in the estimated fair value of acquisition-related contingent consideration.
Our effective tax rate for the fiscal year 2012 was a tax benefit of 322.2 percent. In fiscal year 2012, we recorded approximately $58 million of additional net deferred tax liabilities related to the PopCap and KlickNation Corporation (“KlickNation”) acquisitions. These additional deferred tax liabilities create a new source of taxable income, thereby requiring us to release a portion of our deferred tax asset valuation allowance with a related reduction in income tax expense of $58 million. In addition, during the three months ended March 31, 2012, we recorded $48 million of additional tax benefits related to the expiration of statutes of limitations in non-U.S. tax jurisdictions.
The fiscal year 2012 effective tax rate differs from the statutory rate of 35.0 percent as a result of the utilization of U.S. deferred tax assets subject to a valuation allowance and non-U.S. profits subject to a reduced or zero tax rate, partially offset by non-deductible stock-based compensation. In addition, the fiscal year 2012 effective tax rate is impacted by tax benefits related to the expiration of statutes of limitations and the resolution of examinations by taxing authorities, as well as a reduction in the U.S. valuation allowance related to the PopCap and KlickNation acquisitions.

Impact of Recently Issued Accounting Standards
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) . The amendments of this ASU require that only the disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. The disclosure requirements will be effective for annual periods (and interim periods within those annual periods) beginning after December 15, 2014, and will require prospective application. Early adoption is permitted. We expect to adopt this new standard in the first quarter of fiscal year 2016. We do not expect the adoption to have a material impact on our Consolidated Financial Statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 220): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . The amendments of this ASU require that entities that have an unrecognized tax benefit and a net operating loss carryforward or similar tax loss or tax credit carryforward in the same jurisdiction as the uncertain tax position present the unrecognized tax benefit as a reduction of the deferred tax asset for the loss or tax credit carryforward rather than as a liability when the uncertain tax position would reduce the loss or tax credit carryforward under the tax law. The disclosure requirements will be effective for annual periods (and interim periods within those annual periods) beginning after December 15, 2013, and will require prospective application. Early adoption is permitted. The adoption will impact our balance sheet only, and we expect to adopt this new standard in the first quarter of fiscal year 2015. While we have not completed our analysis, we anticipate the adoption will result in equal reductions to both deferred tax assets and noncurrent income tax obligations between $80 million and $90 million .



45



LIQUIDITY AND CAPITAL RESOURCES  
 
As of March 31,
 
Increase
(In millions)
2014
 
2013
 
Cash and cash equivalents
$
1,782

 
$
1,292

 
$
490

Short-term investments
583

 
388

 
195

Total
$
2,365

 
$
1,680

 
$
685

Percentage of total assets
41
%
 
33
%
 
 
 
Year Ended March 31,
 
Change
(In millions)
2014
 
2013
 
Cash provided by operating activities
$
712

 
$
324

 
$
388

Cash provided by (used in) investing activities
(301
)
 
32

 
(333
)
Cash provided by (used in) financing activities
89

 
(345
)
 
434

Effect of foreign exchange on cash and cash equivalents
(10
)
 
(12
)
 
2

Net increase (decrease) in cash and cash equivalents
$
490

 
$
(1
)
 
$
491

Changes in Cash Flow
Operating Activities. Cash provided by operating activities increased $388 million during fiscal year 2014 as compared to fiscal year 2013 . The change is primarily due to (1) a $228 million increase in Net Revenue before Revenue Deferral during fiscal year 2014 as compared to fiscal year 2013 , (2) a $108 million decrease in marketing and sales expenses during fiscal year 2014 as compared to fiscal year 2013 , (3) a $28 million decrease in research and development expenses during fiscal year 2014 as compared to fiscal year 2013 , and (4) $25 million of lower payments made under our restructuring plans during fiscal year 2014 as compared to fiscal year 2013 . These increases were partially offset by (1) an $80 million increase in royalty-related payments during fiscal year 2014 as compared to fiscal year 2013 , and (2) a $56 million increase in general and administrative expenses during fiscal year 2014 as compared to fiscal year 2013 .
Investing Activities. Cash provided by investing activities decreased $333 million during fiscal year 2014 as compared to fiscal year 2013 primarily driven by (1) a $186 million increase in purchases of short-term investments during fiscal year 2014 as compared to fiscal year 2013 , (2) a $72 million decrease in proceeds from the sales of marketable equity securities during fiscal year 2014 as compared to fiscal year 2013 , (3) a $58 million decrease in proceeds received from maturities and sales of short-term investments during fiscal year 2014 as compared to fiscal year 2013 , and (4) a $31 million release of acquisition-related cash that was no longer restricted during fiscal year 2014 as compared to the fiscal year 2013 .
Financing Activities. Cash used in financing activities decreased $434 million during fiscal year 2014 as compared to fiscal year 2013 primarily due to (1) $349 million used to repurchase and retire common stock during fiscal year 2013 as compared to no stock repurchases during fiscal year 2014 , (2) an increase of $43 million in proceeds received from the exercise of stock options during fiscal year 2014 , (3) a $27 million decrease in acquisition-related contingent consideration payments during fiscal year 2014 as compared to fiscal year 2013 and (4) a $13 million excess tax benefit recognized during fiscal year 2014 as compared to no benefit recognized during fiscal year 2013 .
Short-term Investments
Due to our mix of fixed and variable rate securities, our short-term investment portfolio is susceptible to changes in short-term interest rates. As of March 31, 2014 , our short-term investments had gross unrealized gains of less than $1 million , or less than 1 percent of the total in short-term investments, and gross unrealized losses of less than $1 million , or less than 1 percent of the total in short-term investments. From time to time, we may liquidate some or all of our short-term investments to fund operational needs or other activities, such as capital expenditures, business acquisitions or stock repurchase programs. Depending on which short-term investments we liquidate to fund these activities, we could recognize a portion, or all, of the gross unrealized gains or losses.

Fiscal 2011 Restructuring
In connection with our fiscal 2011 restructuring plan, we expect to incur cash expenditures through June 2016 of approximately (1) $10 million in fiscal year 2015 , (2) $9 million in fiscal year 2016 , and (3) $34 million in fiscal year 2017 . The actual cash expenditures are variable as they will be dependent upon the actual revenue we generate from certain games.


46


Financing Arrangement
In July 2011, we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016 (the “Notes”). The Notes are senior unsecured obligations which pay interest semiannually in arrears at a rate of 0.75 percent per annum on January 15 and July 15 of each year, beginning on January 15, 2012 and will mature on July 15, 2016, unless earlier purchased or converted in accordance with their terms prior to such date. The Notes are convertible into cash and shares of our common stock based on an initial conversion value of 31.5075 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $31.74 per share). Upon conversion of the Notes, holders will receive cash up to the principal amount of each Note, and any excess conversion value will be delivered in shares of our common stock. We used the net proceeds of the Notes to finance the cash consideration of our acquisition of PopCap, which closed in August 2011.
Prior to April 15, 2016, the Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. The Notes do not contain any financial covenants.
The conversion rate is subject to customary anti-dilution adjustments, but will not be adjusted for any accrued and unpaid interest. Following certain corporate events described in the indenture governing the notes (the “Indenture”) that occur prior to the maturity date, the conversion rate will be increased for a holder who elects to convert its Notes in connection with such corporate event in certain circumstances. The Notes are not redeemable prior to maturity, and no sinking fund is provided for the Notes.
If we undergo a “fundamental change,” as defined in the Indenture, subject to certain conditions, holders may require us to purchase for cash all or any portion of their Notes. The fundamental change purchase price will be 100 percent of the principal amount of the Notes to be purchased plus any accrued and unpaid interest up to but excluding the fundamental change purchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of at least 25 percent in principal amount of the outstanding Notes may declare 100 percent of the principal and accrued and unpaid interest on all the Notes to be due and payable.
In addition, in July 2011, we entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge”) with certain counterparties to reduce the potential dilution with respect to our common stock upon conversion of the Notes. The Convertible Note Hedge, subject to customary anti-dilution adjustments, provides us with the option to acquire, on a net settlement basis, approximately 19.9 million shares of our common stock at a strike price of $31.74, which corresponds to the conversion price of the Notes and is equal to the number of shares of our common stock that notionally underlie the Notes. As of March 31, 2014 , we have not purchased any shares under the Convertible Note Hedge. We paid $107 million for the Convertible Note Hedge.
Separately, we have also entered into privately negotiated warrant transactions with certain counterparties whereby we sold to independent third parties warrants (the “Warrants”) to acquire, subject to customary anti-dilution adjustments that are substantially the same as the anti-dilution provisions contained in the Notes, up to 19.9 million shares of our common stock (which is also equal to the number of shares of our common stock that notionally underlie the Notes), with a strike price of $41.14. The Warrants could have a dilutive effect with respect to our common stock to the extent that the market price per share of our common stock exceeds $41.14 on or prior to the expiration date of the Warrants. We received proceeds of $65 million from the sale of the Warrants.
See Note 12 to the Consolidated Financial Statements for additional information related to our 0.75% Convertible Senior Notes due 2016.
Credit Facility
On August 30, 2012, we entered into a $500 million senior unsecured revolving credit facility with a syndicate of banks. The credit facility terminates on February 29, 2016 and contains an option to arrange with existing lenders and/or new lenders for them to provide up to an aggregate of $250 million in additional commitments for revolving loans. Proceeds of loans made under the credit facility may be used for general corporate purposes.

The loans bear interest, at our option, at the base rate plus an applicable spread or an adjusted LIBOR rate plus an applicable spread, in each case with such spread being determined based on our consolidated leverage ratio for the preceding fiscal quarter. We are also obligated to pay other customary fees for a credit facility of this size and type. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval

47


in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted LIBOR rate. Principal, together with all accrued and unpaid interest, is due and payable on February 29, 2016.

The credit agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur subsidiary indebtedness, grant liens, dispose of all or substantially all assets and pay dividends or make distributions, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a capitalization ratio and maintain a minimum level of total liquidity and a minimum level of domestic liquidity.

The credit agreement contains customary events of default, including among others, non-payment defaults, covenant defaults, bankruptcy and insolvency defaults and a change of control default, in each case, subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in the acceleration of the obligations under the credit agreement, an obligation by any guarantors to repay the obligations in full and an increase in the applicable interest rate.

As of March 31, 2014 , no amounts were outstanding under the credit facility. 

Financial Condition
We believe that our cash, cash equivalents, short-term investments, cash generated from operations and available financing facilities will be sufficient to meet our operating requirements for at least the next 12 months, including working capital requirements, capital expenditures, and potentially, future acquisitions, stock repurchases, or strategic investments. We may choose at any time to raise additional capital to strengthen our financial position, facilitate expansion, repurchase our stock, pursue strategic acquisitions and investments, and/or to take advantage of business opportunities as they arise. There can be no assurance, however, that such additional capital will be available to us on favorable terms, if at all, or that it will not result in substantial dilution to our existing stockholders.
As of March 31, 2014 , approximately $762 million of our cash, cash equivalents, and short-term investments were domiciled in foreign tax jurisdictions. While we have no plans to repatriate these funds to the United States in the short term, if we choose to do so, we may be required to accrue and pay additional taxes on any portion of the repatriation where no United States income tax had been previously provided. We made a one-time repatriation of $700 million from certain of our wholly-owned subsidiaries during the three months ended March 31, 2014.  This repatriation did not have a material impact on our effective tax rate for fiscal 2014 due to the deferred tax valuation allowance.

In July 2012, our Board of Directors authorized a program to repurchase up to $500 million of our common stock. During fiscal year 2013 , we repurchased and retired approximately 26 million shares of our common stock for approximately $349 million , of which approximately 22 million shares, or $278 million, was repurchased under this program. The remainder of the shares repurchased and retired during fiscal year 2013 were repurchased pursuant to a stock repurchase program approved by our Board of Directors in February 2011.

In May 2014, a special committee of our Board of Directors, on behalf of the full Board of Directors, authorized a new program to repurchase up to $750 million of our common stock. This new stock repurchase program, which expires on May 31, 2016, supersedes and replaces the stock repurchase authorization approved by our Board of Directors in July 2012. Under this program, we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase any specific number of shares under this program and it may be modified, suspended or discontinued at any time.
We have a “shelf” registration statement on Form S-3 on file with the SEC. This shelf registration statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, including for working capital, financing capital expenditures, research and development, marketing and distribution efforts, and if opportunities arise, for acquisitions or strategic alliances. Pending such uses, we may invest the net proceeds in interest-bearing securities. In addition, we may conduct concurrent or other financings at any time.
Our ability to maintain sufficient liquidity could be affected by 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 impact of acquisitions and other strategic transactions in which we may engage, the impact of competition, economic conditions in the

48


United States and abroad, the seasonal and cyclical nature of our business and operating results, risks of product returns and the other risks described in the “Risk Factors” section, included in Part II, Item 1A of this report.
Contractual Obligations and Commercial Commitments
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products we produce in our studios are designed and created by our employee designers, artists, software programmers and by non-employee software developers (“independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, usually in installment payments made upon the completion of specified development milestones. Contractually, these payments are generally considered advances against subsequent royalties 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 may not be dependent on any deliverables. Celebrities and organizations with whom we have contracts include, but are not limited to: FIFA (Fédération Internationale de Football Association), FIFPRO Foundation, FAPL (Football Association Premier League Limited), and DFL Deutsche Fußball Liga GmbH (German Soccer League) (professional soccer); Dr. Ing. h.c. F. Porsche AG, Ferrari S.p.A. (Need For Speed and Real Racing games); National Basketball Association (professional basketball); PGA TOUR (professional golf); National Hockey League and NHL Players’ Association (professional hockey); National Football League Properties, PLAYERS Inc., and Red Bear Inc. (professional football); Collegiate Licensing Company (collegiate football); Zuffa, LLC (Ultimate Fighting Championship); ESPN (content in EA SPORTS games); Hasbro, Inc. (certain of Hasbro’s board game intellectual properties); Disney Interactive (Star Wars); and Fox Digital Entertainment, Inc. (The Simpsons). These developer and content license commitments represent the sum of (1) the cash payments due under non-royalty-bearing licenses and services agreements and (2) the minimum guaranteed payments and advances against royalties due under royalty-bearing licenses and services agreements, the majority of which are conditional upon performance by the counterparty. These minimum guarantee payments and any related marketing commitments are included in the table below.
The following table summarizes our minimum contractual obligations as of March 31, 2014 , and the effect we expect them to have on our liquidity and cash flow in future periods (in millions):  
 
 
 
Fiscal Year Ending March 31,
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Unrecognized commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Developer/licensor commitments
$
1,301

 
$
132

 
$
288

 
$
212

 
$
129

 
$
98

 
$
442

Marketing commitments
254

 
48

 
41

 
62

 
24

 
24

 
55

Operating leases
148

 
46

 
39

 
23

 
17

 
13

 
10

0.75% Convertible Senior Notes due 2016 interest (a)
12

 
5

 
5

 
2

 
—

 
—

 
—

Other purchase obligations
19

 
17

 
2

 
—

 
—

 
—

 
—

Total unrecognized commitments
1,734

 
248

 
375

 
299

 
170

 
135

 
507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recognized commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
0.75% Convertible Senior Notes due 2016 principal (a)
633

 
—

 
—

 
633

 
—

 
—

 
—

Licensing and lease obligations (b)
59

 
12

 
11

 
34

 
1

 
1

 
—

Total recognized commitments
692

 
12

 
11

 
667

 
1

 
1

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Commitments
$
2,426

 
$
260

 
$
386

 
$
966

 
$
171

 
$
136

 
$
507

 
(a)
Included in the $12 million coupon interest on the 0.75% Convertible Senior Notes due 2016 is $1 million of accrued interest recognized as of March 31, 2014 . We will be obligated to pay the $632.5 million principal amount of the 0.75% Convertible Senior Notes due 2016 in cash and any excess conversion value in shares of our common stock upon redemption of the Notes at maturity on July 15, 2016 or upon earlier redemption. The $632.5 million principal amount excludes $53 million of unamortized discount of the liability component. See Note 12 to the Consolidated Financial Statements for additional information regarding our 0.75% Convertible Senior Notes due 2016 .

(b)
See Note 8 to the Consolidated Financial Statements for additional information regarding recognized commitments resulting from our restructuring plans. Lease commitments have not been reduced for approximately $6 million due in the future from third parties under non-cancelable sub-leases.

49


The unrecognized amounts represented in the table above reflect our minimum cash obligations for the respective fiscal years, but do not necessarily represent the periods in which they will be recognized and expensed in our Consolidated Financial Statements. In addition, the amounts in the table above are presented based on the dates the amounts are contractually due as of March 31, 2014 ; however, certain payment obligations may be accelerated depending on the performance of our operating results.
In addition to what is included in the table above, as of March 31, 2014 , we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $188 million , of which we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.
Subsequent to March 31, 2014, we entered into or amended various licensor and lease agreements with third parties, which contingently commits us to pay an additional approximately $110 million at various dates through fiscal year 2025.
Also, in addition to what is included in the table above as of March 31, 2014 , in connection with our KlickNation and Chillingo acquisitions, we may be required to pay an additional $10 million of cash consideration based upon the achievement of certain performance milestones through March 31, 2015 . As of March 31, 2014 , we have accrued $4 million of contingent consideration on our Consolidated Balance Sheet representing the estimated fair value of the contingent consideration.

OFF-BALANCE SHEET COMMITMENTS
Lease Commitments
As of March 31, 2014 , we leased certain facilities, furniture and equipment under non-cancelable operating lease agreements. We were required to pay property taxes, insurance and normal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.
Director Indemnity Agreements
We entered into indemnification agreements with each of the members of our Board of Directors at the time they joined the Board to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors are sued or charged as a result of their service as members of our Board of Directors.

INFLATION
We believe the impact of inflation on our results of operations has not been significant in any of the past three fiscal years.

Item 7A:      Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and market prices, which have experienced significant volatility in light of the global economic downturn. Market risk is the potential loss arising from changes in market rates and market prices. We employ established policies and practices to manage these risks. Foreign currency option and forward contracts are used to hedge anticipated exposures or mitigate some existing exposures subject to foreign exchange risk as discussed below. While we do not hedge our short-term investment portfolio, we protect our short-term investment portfolio against different market risks, including interest rate risk as discussed below. Our cash and cash equivalents portfolio consists of highly liquid investments with insignificant interest rate risk and 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 trading or speculative purposes and do not hedge our market price risk relating to marketable equity securities, if any.
Foreign Currency Exchange Rate Risk
Cash Flow Hedging Activities . From time to time, we hedge a portion of our foreign currency risk related to forecasted foreign-currency-denominated sales and expense transactions by purchasing foreign currency forward and option contracts that generally have maturities of 15 months or less. These transactions are designated and qualify as cash flow hedges. The derivative assets or liabilities associated with our hedging activities are recorded at fair value in other current assets or accrued and other current liabilities on our Consolidated Balance Sheets. The effective portion of gains or losses resulting from changes in the fair value of these hedges is initially 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 expenses, as appropriate, in the period

50


when the forecasted transaction is recognized in our Consolidated Statements of Operations. In the event that the gains or losses in accumulated other comprehensive income are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to interest and other income (expense), net, in our Consolidated Statements of Operations. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges are reclassified from accumulated other comprehensive income to interest and other income (expense), net, in our Consolidated Statements of Operations. Our hedging programs are designed to reduce, but do not entirely eliminate, the impact of currency exchange rate movements in net revenue and research and development expenses. Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation are as follows:
 
As of March 31, 2014
 
As of March 31, 2013
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
 
 
Asset
 
Liability
 
 
Asset
 
Liability
Option contracts to purchase
$
—

 
$
—

 
$
—

 
$
84

 
$
—

 
$
—

Forward contracts to purchase
179

 
—

 
3

 
—

 
—

 
—

Total
$
179

 
$
—

 
$
3

 
$
84

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Option contracts to sell
$
—

 
$
—

 
$
—

 
$
149

 
$
6

 
$
—

Forward contracts to sell
363

 
—

 
2

 
—

 
—

 
—

Total
$
363

 
$
—

 
$
2

 
$
149

 
$
6

 
$
—

The net impact of the effective portion of gains and losses from our cash flow hedging activities in our Consolidated Statements of Operations for the fiscal years ended March 31, 2014, 2013 and 2012 was a loss of $9 million , $4 million , and $4 million respectively. During the fiscal years ended March 31, 2014, 2013 and 2012 , we reclassified an immaterial amount of the ineffective portion of gains or losses resulting from changes in fair value into interest and other income (expense), net.
Balance Sheet Hedging Activities . We use foreign currency forward contracts to mitigate foreign currency risk associated with foreign-currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts generally have a contractual term of three months or less and are transacted near month-end. Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as derivatives whereby the fair value of the contracts is reported as other current assets or accrued and other current liabilities on our Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other income (expense), net, in our Consolidated Statements of Operations. The gains and losses on these foreign currency forward contracts generally offset the gains and losses on the underlying foreign-currency-denominated monetary assets and liabilities, which are also reported in interest and other income (expense), net, in our Consolidated Statements of Operations. In certain cases, the amount of such gains and losses will significantly differ from the amount of gains and losses recognized on the underlying foreign-currency-denominated monetary asset or liability, in which case our results will be impacted. Total gross notional amounts and fair values for currency derivatives that are not designated as hedging instruments are accounted for as follows:
 
As of March 31, 2014
 
As of March 31, 2013
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
 
 
Asset
 
Liability
 
 
Asset
 
Liability
Forward contracts to purchase in exchange for USD
$
140

 
$
—

 
$
1

 
$
87

 
$
—

 
$
—

Total
$
140

 
$
—

 
$
1

 
$
87

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Forward contracts to sell in exchange for USD
$
232

 
$
—

 
$
—

 
$
213

 
$
—

 
$
—

Forward contracts to sell in exchange for GBP
—

 
—

 
—

 
6

 
—

 
—

Total
$
232

 
$
—

 
$
—

 
$
219

 
$
—

 
$
—

The effect of foreign currency forward contracts not designated as hedging instruments in our Consolidated Statements of Operations for the fiscal years ended March 31, 2014, 2013 and 2012 was a loss of $5 million, a loss of $2 million, and a gain of $21 million, respectively.

51


We believe the counterparties to these foreign currency forward and option contracts are creditworthy multinational commercial banks. While we believe the risk of counterparty nonperformance is not material, a sustained decline in the financial stability of financial institutions as a result of disruption in the financial markets could affect our ability to secure credit-worthy counterparties for our foreign currency hedging programs.
Notwithstanding our efforts to mitigate some foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. As of March 31, 2014 , a hypothetical adverse foreign currency exchange rate movement of 10 percent or 20 percent would have resulted in potential declines in the fair value of the premiums on our foreign currency forward and option contracts used in cash flow hedging of $54 million and $108 million , respectively. As of March 31, 2014 , a hypothetical adverse foreign currency exchange rate movement of 10 percent or 20 percent would have resulted in potential losses on our foreign currency forward contracts used in balance sheet hedging of $37 million and $74 million , respectively. This sensitivity analysis assumes an adverse shift of all foreign currency exchange rates; however, all foreign currency exchange rates do not always move in such manner and actual results may differ materially.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our short-term investment portfolio. We manage our interest rate risk by maintaining an investment portfolio generally consisting of debt instruments of high credit quality and relatively short maturities. However, because short-term investments mature relatively quickly and are required to be reinvested at the then-current market rates, interest income on a portfolio consisting of short-term investments is more subject to market fluctuations than a portfolio of longer term investments. Additionally, the contractual terms of the investments do not permit the issuer to call, prepay or otherwise settle the investments at prices less than the stated par value. Our investments are held for purposes other than trading. Also, we do not use derivative financial instruments in our short-term investment portfolio.
As of March 31, 2014 and 2013 , 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 fair value reported as a separate component of accumulated other comprehensive income, net of tax, in stockholders’ equity. Our portfolio of short-term investments consisted of the following investment categories, summarized by fair value as of March 31, 2014 and 2013 (in millions):
 
As of March 31,
 
2014
 
2013
Corporate bonds
$
279

 
$
178

U.S. Treasury securities
114

 
85

Commercial paper
110

 
49

U.S. agency securities
80

 
76

Total short-term investments
$
583

 
$
388


Notwithstanding our efforts to manage interest rate risks, there can be no assurance that we will be adequately protected against risks associated with interest rate fluctuations. At any time, a sharp change in interest rates could have a significant impact on the fair value of our investment portfolio. The following table presents the hypothetical changes in the fair value of our short-term investment portfolio as of March 31, 2014 , arising from potential changes in interest rates. The modeling technique estimates the change in fair value from immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS.
(In millions)
Valuation of Securities
Given an Interest Rate Decrease
of X Basis Points
 
Fair Value
as of
March 31,
2014
 
Valuation of Securities Given
an Interest Rate Increase of
X Basis Points
(150 BPS)
 
(100 BPS)
 
(50 BPS)
 
50 BPS
 
100 BPS
 
150 BPS
Corporate bonds
$
285

 
$
283

 
$
282

 
$
279

 
$
278

 
$
276

 
$
275

U.S. Treasury securities
116

 
115

 
114

 
114

 
113

 
112

 
112

Commercial paper
110

 
110

 
110

 
110

 
110

 
110

 
109

U.S. agency securities
81

 
81

 
80

 
80

 
79

 
79

 
78

Total short-term investments
$
592

 
$
589

 
$
586

 
$
583

 
$
580

 
$
577

 
$
574



52


Item 8:      Financial Statements and Supplementary Data

Index to Consolidated Financial Statements
 
 
Page
Consolidated Financial Statements of Electronic Arts Inc. and Subsidiaries:
 
 
 
Financial Statement Schedule:
 
The following financial statement schedule of Electronic Arts Inc. and Subsidiaries for the years ended March 31, 2014, 2013 and 2012 is filed as part of this report and should be read in conjunction with the Consolidated Financial Statements of Electronic Arts Inc. and Subsidiaries:
 
 
 
Other financial statement schedules have been omitted because the information called for in them is not required or has already been included in either the Consolidated Financial Statements or the Notes thereto.


53


ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(In millions, except par value data)
March 31, 2014
 
March 31, 2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,782

 
$
1,292

Short-term investments
583

 
388

Receivables, net of allowances of $186 and $200, respectively
327

 
312

Inventories
56

 
42

Deferred income taxes, net
74

 
52

Other current assets
316

 
239

Total current assets
3,138

 
2,325

Property and equipment, net
510

 
548

Goodwill
1,723

 
1,721

Acquisition-related intangibles, net
177

 
253

Deferred income taxes, net
28

 
53

Other assets
140

 
170

TOTAL ASSETS
$
5,716

 
$
5,070

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
119

 
$
136

Accrued and other current liabilities
781

 
737

Deferred net revenue (online-enabled games)
1,490

 
1,044

Total current liabilities
2,390

 
1,917

0.75% convertible senior notes due 2016, net
580

 
559

Income tax obligations
189

 
205

Deferred income taxes, net
18

 
1

Other liabilities
117

 
121

Total liabilities
3,294

 
2,803

Commitments and contingencies (See Note 13)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value. 10 shares authorized
—

 
—

Common stock, $0.01 par value. 1,000 shares authorized; 311 and 302 shares issued and outstanding, respectively
3

 
3

Paid-in capital
2,353

 
2,174

Retained earnings
29

 
21

Accumulated other comprehensive income
37

 
69

Total stockholders’ equity
2,422

 
2,267

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
5,716

 
$
5,070

See accompanying Notes to Consolidated Financial Statements.



54


ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Year Ended March 31,
(In millions, except per share data)
2014
 
2013
 
2012
Net revenue:
 
 
 
 
 
Product
$
2,134

 
$
2,738

 
$
3,415

Service and other
1,441

 
1,059

 
728

Total net revenue
3,575

 
3,797

 
4,143

Cost of revenue:
 
 
 
 
 
Product
1,032

 
1,085

 
1,374

Service and other
315

 
303

 
224

Total cost of revenue
1,347

 
1,388

 
1,598

Gross profit
2,228

 
2,409

 
2,545

Operating expenses:
 
 
 
 
 
Research and development
1,125

 
1,153

 
1,180

Marketing and sales
680

 
788

 
883

General and administrative
410

 
354

 
377

Acquisition-related contingent consideration
(35
)
 
(64
)
 
11

Amortization of intangibles
16

 
30

 
43

Restructuring and other charges
(1
)
 
27

 
16

Total operating expenses
2,195

 
2,288

 
2,510

Operating income
33

 
121

 
35

Gains on strategic investments, net
—

 
39

 
—

Interest and other income (expense), net
(26
)
 
(21
)
 
(17
)
Income before provision for (benefit from) income taxes
7

 
139

 
18

Provision for (benefit from) income taxes
(1
)
 
41

 
(58
)
Net income
$
8

 
$
98

 
$
76

Net income per share:
 
 
 
 
 
Basic
$
0.03

 
$
0.32

 
$
0.23

Diluted
$
0.03

 
$
0.31

 
$
0.23

Number of shares used in computation:
 
 
 
 
 
Basic
308

 
310

 
331

Diluted
316

 
313

 
336

See accompanying Notes to Consolidated Financial Statements.

55


ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Year Ended March 31,
(In millions)
2014
 
2013
 
2012
Net income
$
8

 
$
98

 
$
76

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in unrealized net gains and losses on available-for-sale securities
—

 
(46
)
 
(40
)
Reclassification adjustment for net realized gains on available-for-sale securities
—

 
(41
)
 
(2
)
Change in unrealized net gains and losses on derivative instruments
(19
)
 
(2
)
 
(4
)
Reclassification adjustment for net realized losses on derivative instruments
9

 
4

 
4

Foreign currency translation adjustments
(22
)
 
(19
)
 
(4
)
Total other comprehensive income (loss), net of tax
(32
)
 
(104
)
 
(46
)
Total comprehensive income (loss)
$
(24
)
 
$
(6
)
 
$
30


See accompanying Notes to Consolidated Financial Statements.




56


ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, share data in thousands)
 
 
 
Common Stock
 
Paid-in
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Shares
 
Amount
 
Balances as of March 31, 2011
332,564

 
$
3

 
$
2,495

 
$
(153
)
 
$
219

 
$
2,564

Total comprehensive income
—

 
—

 
—

 
76

 
(46
)
 
30

Issuance of common stock
7,850

 
—

 
12

 
—

 
—

 
12

Equity issued in connection with acquisition
4,356

 
—

 
87

 
—

 
—

 
87

Equity value of convertible note issuance, net
—

 
—

 
105

 
—

 
—

 
105

Purchase of convertible note hedge
—

 
—

 
(107
)
 
—

 
—

 
(107
)
Sale of common stock warrants
—

 
—

 
65

 
—

 
—

 
65

Repurchase and retirement of common stock
(24,547
)
 
—

 
(471
)
 
—

 
—

 
(471
)
Stock-based compensation
—

 
—

 
170

 
—

 
—

 
170

Tax benefit from exercise of stock options
—

 
—

 
3

 
—

 
—

 
3

Balances as of March 31, 2012
320,223

 
3

 
2,359

 
(77
)
 
173

 
2,458

Total comprehensive loss
—

 
—

 
—

 
98

 
(104
)
 
(6
)
Issuance of common stock
7,801

 
—

 
1

 
—

 
—

 
1

Repurchase and retirement of common stock
(25,860
)
 
—

 
(349
)
 
—

 
—

 
(349
)
Stock-based compensation
—

 
—

 
164

 
—

 
—

 
164

Tax costs from exercise of stock options
—

 
—

 
(1
)
 
—

 
—

 
(1
)
Balances as of March 31, 2013
302,164

 
3

 
2,174

 
21

 
69

 
2,267

Total comprehensive loss
—

 
—

 
—

 
8

 
(32
)
 
(24
)
Issuance of common stock
9,278

 
—

 
16

 
—

 
—

 
16

Stock-based compensation
—

 
—

 
150

 
—

 
—

 
150

Tax benefit from exercise of stock options
—

 
—

 
13

 
—

 
—

 
13

Balances as of March 31, 2014
311,442

 
$
3

 
$
2,353

 
$
29

 
$
37

 
$
2,422

See accompanying Notes to Consolidated Financial Statements.

57


ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  
 
Year Ended March 31,
(In millions)
2014
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
8

 
$
98

 
$
76

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation, amortization and accretion
227

 
264

 
216

Stock-based compensation
150

 
164

 
170

Acquisition-related contingent consideration
(35
)
 
(64
)
 
11

Net (gains) losses on investments and disposal of property and equipment
2

 
(37
)
 
(12
)
Non-cash restructuring charges
—

 
7

 
(6
)
Change in assets and liabilities:
 
 
 
 
 
Receivables, net
(12
)
 
56

 
(14
)
Inventories
(13
)
 
16

 
21

Other assets
(56
)
 
15

 
(101
)
Accounts payable
(18
)
 
(78
)
 
(50
)
Accrued and other liabilities
(3
)
 
(106
)
 
13

Deferred income taxes, net
16

 
(7
)
 
(90
)
Deferred net revenue (online-enabled games)
446

 
(4
)
 
43

Net cash provided by operating activities
712

 
324

 
277

INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
(97
)
 
(106
)
 
(172
)
Proceeds from sale of property and equipment
—

 
—

 
26

Proceeds from sale of marketable equity securities
—

 
72

 
—

Proceeds from maturities and sales of short-term investments
401

 
459

 
526

Purchase of short-term investments
(600
)
 
(414
)
 
(468
)
Acquisition-related restricted cash
—

 
31

 
75

Acquisition of subsidiaries, net of cash acquired
(5
)
 
(10
)
 
(676
)
Net cash provided by (used in) investing activities
(301
)
 
32

 
(689
)
FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from issuance of common stock
77

 
34

 
57

Proceeds from borrowings on convertible senior notes, net of issuance costs
—

 
—

 
617

Proceeds from issuance of warrants
—

 
—

 
65

Purchase of convertible note hedge
—

 
—

 
(107
)
Payment of debt issuance costs
—

 
(2
)
 
—

Excess tax benefit from stock-based compensation
13

 
—

 
4

Repurchase and retirement of common stock
—

 
(349
)
 
(471
)
Acquisition-related contingent consideration payment
(1
)
 
(28
)
 
(25
)
Net cash provided by (used in) financing activities
89

 
(345
)
 
140

Effect of foreign exchange on cash and cash equivalents
(10
)
 
(12
)
 
(14
)
Increase (decrease) in cash and cash equivalents
490

 
(1
)
 
(286
)
Beginning cash and cash equivalents
1,292

 
1,293

 
1,579

Ending cash and cash equivalents
$
1,782

 
$
1,292

 
$
1,293

Supplemental cash flow information:
 
 
 
 
 
Cash paid (refunded) during the year for income taxes, net
$
29

 
$
26

 
$
(4
)
Cash paid during the year for interest
$
6

 
$
5

 
$
2

Non-cash investing activities:
 
 
 
 
 
Change in unrealized net gains on available-for-sale securities
$
—

 
$
(46
)
 
$
(40
)
Equity issued in connection with acquisition
$
—

 
$
—

 
$
87

See accompanying Notes to Consolidated Financial Statements.

58


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 content and services that can be played by consumers on a variety of platforms, including video game consoles (such as PlayStation 3 and 4 from Sony and Xbox 360 and Xbox One from Microsoft), personal computers, mobile phones and tablets. Our ability to deliver games and services across multiple platforms, through multiple distribution channels, and directly to consumers (online and wirelessly) has been, and will continue to be, a cornerstone of our product strategy. We have adopted new business models and alternative revenue streams (such as subscription, micro-transactions, and advertising) in connection with our online and wireless product and service offerings. Some of our games are based on our wholly-owned intellectual property ( e.g. , Battlefield, Mass Effect, Need for Speed, Dragon Age, The Sims, Bejeweled, and Plants vs. Zombies), and some of our games are based on content that we license from others ( e.g. , FIFA, Madden NFL and Star Wars). Our goal is to turn our intellectual properties into year-round businesses available on a range of platforms. Our products and services may be purchased through physical and online retailers, platform providers such as console manufacturers and mobile carriers via digital downloads, as well as directly through our own distribution platform, including online portals such as Origin.
A summary of our significant accounting policies applied in the preparation of our Consolidated Financial Statements follows:
Consolidation
The accompanying Consolidated Financial Statements include the accounts of Electronic Arts Inc. and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year
Our fiscal year is reported on a 52 - or 53 -week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal years ended March 31, 2014, 2013 and 2012 each contained 52 weeks and ended on March 29, 2014, March 30, 2013, and March 31, 2012, respectively. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month-end.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include sales returns and allowances, provisions for doubtful accounts, accrued liabilities, offering periods for deferred net revenue, multiple-element arrangements, income taxes, losses on royalty commitments, estimates regarding the recoverability of prepaid royalties, inventories, long-lived assets, assets acquired and liabilities assumed in business combinations, certain estimates related to the measurement and recognition of costs resulting from our share-based payment awards, deferred income tax assets and associated valuation allowances, as well as estimates used in our goodwill, intangibles and short-term investment impairment tests. These estimates generally involve complex issues and require us to make judgments, involve analysis of historical and future trends, can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from our estimates.
Cash, Cash Equivalents, and Short-Term Investments
Cash equivalents consist of highly liquid investments with insignificant interest rate risk and original or remaining maturities of three months or less at the time of purchase.
Short-term investments consist of securities with original or remaining maturities of greater than three months at the time of purchase, are accounted for as available-for-sale securities and are recorded at fair value. Short-term investments are available for use in current operations or other activities such as capital expenditures and business combinations.
Unrealized gains and losses on our short-term investments are recorded as a component of accumulated other comprehensive income in stockholders’ equity, net of tax, until either (1) the security is sold, (2) the security has matured, or (3) we determine that the fair value of the security has declined below its adjusted cost basis and the decline is other-than-temporary. Realized gains and losses on our short-term investments are calculated based on the specific identification method and are reclassified from accumulated other comprehensive income to interest and other income (expense), net, and gains on strategic investments, net, respectively. Determining whether the decline in fair value is other-than-temporary requires management judgment based

59


on the specific facts and circumstances of each security. The ultimate value realized on these securities is subject to market price volatility until they are sold.
Our short-term investments are evaluated for impairment quarterly. We consider various factors in determining whether we should recognize an impairment charge, including the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost basis, severity of the impairment, reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the investees, our intent to sell and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and any contractual terms impacting the prepayment or settlement process. If we conclude that an investment is other-than-temporarily impaired, we recognize an impairment charge at that time in our Consolidated Statements of Operations.
Inventories
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor and freight-in and are stated at the lower of cost (using the weighted average costing method) or market value. We regularly review inventory quantities on-hand. We write down inventory based on excess or obsolete inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference between the cost of the inventory and market value, based upon assumptions about future demand that are inherently difficult to assess. At the point of a loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established basis.
Property and Equipment, Net
Property and equipment, net, are stated at cost. Depreciation is calculated using the straight-line method over the following useful lives:
Buildings
  
20 to 25 years
Computer equipment and software
  
3 to 6 years
Office equipment, furniture and fixtures
  
3 to 5 years
Warehouse equipment and other
 
5 years
Leasehold improvements
  
Lesser of the lease term or the estimated useful lives of the improvements, generally 1 to 10 years
We capitalize costs associated with internal-use software that have reached the application development stage and meet recoverability tests. Such capitalized costs include external direct costs utilized in developing or obtaining the software, and payroll and payroll-related expenses for employees who are directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose. The net book value of capitalized costs associated with internal-use software was $74 million and $81 million as of March 31, 2014 and 2013 , respectively. Once the internal-use software is ready for its intended use, the assets are depreciated on a straight-line basis over each asset’s estimated useful life, which is generally three years.
Acquisition-Related Intangibles and Other Long-Lived Assets
We record acquisition-related intangible assets that have finite useful lives, such as developed and core technology, in connection with business combinations. We amortize the cost of acquisition-related intangible assets on a straight-line basis over the lesser of their estimated useful lives or the agreement terms, typically from two to fourteen years. We evaluate acquisition-related intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. This includes assumptions about future prospects for the business that the asset relates to and typically involves computations of the estimated future cash flows to be generated by these businesses. Based on these judgments and assumptions, we determine whether we need to take an impairment charge to reduce the value of the asset stated on our Consolidated Balance Sheets to reflect its estimated fair value. When we consider such assets to be impaired, the amount of impairment we recognize is measured by the amount by which the carrying amount of the asset exceeds its fair value. There were no material impairments in fiscal year 2014 . We recognized $39 million and $12 million in impairment charges in fiscal years 2013 and 2012 , respectively. The charges for fiscal year 2013 consist of $34 million and $5 million that were recognized in cost of revenue and amortization of intangibles, respectively, on our Consolidated Statement of Operations. The charges for fiscal year 2012 of $12 million were included in cost of revenue on our Consolidated Statements of Operations.

60


Goodwill
In assessing impairment on our goodwill, we first analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The qualitative factors we assess include long-term prospects of our performance, share price trends, market capitalization, and Company specific events. If we conclude it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, we do not need to perform the two-step impairment test. If based on that assessment, we believe it is more likely than not that the fair value of the reporting unit is less than its carrying value, a two-step goodwill impairment test will be performed. The first step measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit. Reporting units are determined by the components of operating segments that constitute a business for which (1) discrete financial information is available, (2) segment management regularly reviews the operating results of that component, and (3) whether the component has dissimilar economic characteristics to other components. We determined that it was more likely than not that the fair value of our reporting unit exceeded its carrying
amount and, as such, we did not need to perform the two-step impairment test.
During the fiscal years ended March 31, 2014, 2013 and 2012 , we completed our annual goodwill impairment testing in the fourth quarter of each year and did not recognize any impairment charges on goodwill in fiscal years 2014, 2013, and 2012 .
Revenue Recognition, Sales Returns and Allowances, and Bad Debt Reserves
We derive revenue principally from sales of interactive software games, and related content and services on (1) video game consoles (such as PlayStation 3 and 4 from Sony and Xbox 360 and Xbox One from Microsoft) and PCs, and (2) mobile phones and tablets. We evaluate revenue recognition based on the criteria set forth in FASB Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 985-605, Software: Revenue Recognition . We classify our revenue as either product revenue or service and other revenue.

Product revenue. Our product revenue includes revenue associated with the sale of software games or related content, whether delivered via a physical disc ( e . g ., packaged goods) or delivered digitally via the Internet ( e.g., full-game downloads, micro-transactions), and licensing of game software to third-parties. Product revenue also includes revenue from mobile full game downloads that do not require our hosting support, and sales of tangible products such as hardware, peripherals, or collectors’ items.

Service and other revenue. Our service revenue includes revenue recognized from time-based subscriptions and games or related content that requires our hosting support in order to utilize the game or related content ( i.e. , can only be played with an Internet connection). This includes (1) entitlements to content that are accessed through hosting services ( e.g., micro-transactions for Internet-based, social network and mobile games), (2) massively multi-player online (“MMO”) games (both software game and subscription sales), (3) subscriptions for our Battlefield Premium and Pogo-branded online game services, and (4) allocated service revenue from sales of software games with an online service element ( i.e., “matchmaking” service). Our other revenue includes advertising and non-software licensing revenue.

With respect to the allocated service revenue from sales of software games with a matchmaking service mentioned above, our allocation of proceeds between product and service revenue for presentation purposes is based on management’s best estimate of the selling price of the matchmaking service with the residual value allocated to product revenue. Our estimate of the selling price of the matchmaking service is comprised of several factors including, but not limited to, prior selling prices for the matchmaking service, prices charged separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. We review the estimated selling price of the online matchmaking service on a regular basis and use this methodology consistently to allocate revenue between product and service for software game sales with a matchmaking service.

We evaluate and recognize revenue when all four of the following criteria are met:

•
Evidence of an arrangement . Evidence of an agreement with the customer that reflects the terms and conditions to deliver the related products or services must be present.

•
Fixed or determinable fee . If a portion of the arrangement fee is not fixed or determinable, we recognize revenue as the amount becomes fixed or determinable.


61


•
Collection is deemed probable . Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable as the amounts become due, we generally conclude that collection becomes probable upon cash collection.

•
Delivery . Delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer. For digital downloads, delivery is considered to occur when the software is made available to the customer for download. For services and other, delivery is generally considered to occur as the service is delivered, which is determined based on the underlying service obligation.

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. In addition, we may also offer an online matchmaking service that permits consumers to play against each other via the Internet without a separate fee. U.S. GAAP requires us to account for the consumer’s right to receive unspecified updates or the matchmaking service for no additional fee as a “bundled” sale, or multiple-element arrangement.

We have an established historical pattern of providing unspecified updates to online-enabled games ( e.g., player roster updates to Madden NFL 25 ) at no additional charge to the consumer. We do not have vendor-specific objective evidence of fair value (“VSOE”) for these unspecified updates, and thus, as required by U.S. GAAP, we recognize revenue from the sale of these online-enabled games over the period we expect to offer the unspecified updates to the consumer (“estimated offering period”).

Prior to July 1, 2013, for most sales we estimated the offering period to be six months and recognized revenue over this period in the month after delivery. During the three month ended June 30, 2013, we completed our annual evaluation of the estimated offering period and noted that generally, consumers are playing our games online over a larger period of time. Based on this, we concluded that for physical software sales made after June 30, 2013, the estimated offering period should be increased to nine months, resulting in revenue being recognized over a longer period of time. The estimated offering period for digitally distributed software games is six months.
Other Multiple-Element Arrangements
In some of our multiple-element arrangements, we sell tangible products with software and/or software-related offerings. These tangible products are generally either peripherals or ancillary collectors’ items, such as figurines and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below. If the arrangement contains more than one software deliverable, the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with ASC 985-605.

We determine the selling price for a tangible product deliverable based on the following selling price hierarchy: VSOE ( i.e. , the price we charge when the tangible product is sold separately) if available, third-party evidence (“TPE”) of fair value ( i.e. , the price charged by others for similar tangible products) if VSOE is not available, or our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. In accordance with ASC 605, provided the other three revenue recognition criteria other than delivery have been met, we recognize revenue upon delivery to the customer as we have no further obligations.

Principal Agent Considerations
In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations , we evaluate sales of our interactive software games via third party storefronts, including digital storefronts such as Xbox Live Marketplace, Sony PSN, Apple AppStore, Google Play) in order to determine whether or not we are acting as the principal or as an agent, which we consider in determining if revenue should be reported gross or net of fees retained by the storefront. Key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following:

•
The party responsible for delivery/fulfillment of the product or service to the end consumer
•
The party responsible for the billing, collection of fees and refunds to the consumer
•
The storefront and Terms of Sale that govern the consumer’s purchase of the product or service
•
The party that sets the pricing with the consumer and has credit risk

62


Based on the evaluation of the above indicators, we have determined that we are generally acting as an agent and are not considered the primary obligor to consumers for our interactive software games distributed through third party digital storefronts. We therefore recognize revenue related to these arrangements on a net basis.

Sales Returns and Allowances and Bad Debt Reserves

We reduce revenue primarily for estimated future returns and price protection which may occur with our distributors and retailers (“channel partners”). Price protection represents our practice to provide our channel partners with a credit allowance to lower their wholesale price on a particular product in the channel. The amount of the price protection is generally the difference between the old wholesale price and the new reduced wholesale price. In certain countries for our PC and console packaged goods software products, we also have a practice of allowing channel partners to return older software products in the channel in exchange for a credit allowance. As a general practice, we do not give cash refunds.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a government authority that are both imposed on and concurrent with specific revenue transactions between us and our customers are presented on a net basis in our Consolidated Statements of Operations.
Concentration of Credit Risk, Significant Customers and Channel Partners
We extend credit to various retailers and channel partners. Collection of trade receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. Although we generally do not require collateral, we perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses. Invoices are aged based on contractual terms with our customers. The provision for doubtful accounts is recorded as a charge to general and administrative expense when a potential loss is identified. Losses are written off against the allowance when the receivable is determined to be uncollectible. Worldwide, we had three customers who accounted for approximately 17 percent , 15 percent , and 11 percent and two customers who accounted for 13 percent and 10 percent of our consolidated gross receivables as of March 31, 2014 and 2013 , respectively. We did not have any additional customers that exceeded 10 percent of our consolidated gross receivables as of March 31, 2014 and 2013 .

A majority of our sales are made to major retailers and distributors. During the fiscal year ended March 31, 2014 , approximately 68 percent of our North America net revenue was derived from our top ten customers. Though our products are available to consumers through a variety of retailers and directly through us, the concentration of our sales in one, or a few, large customers could lead to a short-term disruption in our sales if one or more of these customers significantly reduced their purchases or ceased to carry our products.

Currently, a majority of our revenue is derived through sales of products and services on hardware consoles from Sony and Microsoft. For the fiscal year ended March 31, 2014 (the fiscal year in which the PlayStation 4 and Xbox One were released), 55 percent of our net revenue was for products and services on Sony’s PlayStation 3 and 4 and Microsoft’s Xbox 360 and One consoles (combined across all four platforms). In the fiscal years ended March 31, 2013 and 2012 , 60 percent and 61 percent of our net revenue was for products and services on the PlayStation 3 and Xbox 360 combined. These platform partners have significant influence over the products and services that we offer on their platform. Our agreements with Sony and Microsoft typically give significant control to them over the approval, manufacturing and distribution of our products and services, which could, in certain circumstances, leave us unable to get our products and services approved, manufactured and provided to customers.
Short-term investments are placed with high quality financial institutions or in short-duration, investment-grade securities. We limit the amount of credit exposure in any one financial institution or type of investment instrument.
Royalties and Licenses
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.

Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product 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

63


impairment generally using undiscounted cash flows when impairment indicators exist. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned ( i.e. , cease use) or the contractual rights to use the intellectual property are terminated.
Advertising Costs
We generally expense advertising costs as incurred, except for production costs associated with media campaigns, which are recognized as prepaid assets (to the extent paid in advance) and expensed at the first run of the advertisement. Cooperative advertising costs are recognized when incurred and are included in marketing and sales expense if there is a separate identifiable benefit for which we can reasonably estimate the fair value of the benefit identified. Otherwise, they are recognized as a reduction of revenue and are generally accrued when revenue is recognized. We then reimburse the channel partner when qualifying claims are submitted.
We are also reimbursed by our vendors for certain advertising costs incurred by us that benefit our vendors. Such amounts are recognized as a reduction of marketing and sales expense if the advertising (1) is specific to the vendor, (2) represents an identifiable benefit to us, and (3) represents an incremental cost to us. Otherwise, vendor reimbursements are recognized as a reduction of cost of revenue as the related revenue is recognized. Vendor reimbursements of advertising costs of $66 million , $45 million , and $39 million reduced marketing and sales expense for the fiscal years ended March 31, 2014, 2013 and 2012 , respectively. For the fiscal years ended March 31, 2014, 2013 and 2012 , advertising expense, net of vendor reimbursements, totaled approximately $217 million , $240 million , and $321 million , respectively.
Software Development Costs
Research and development costs, which consist primarily of software development costs, are expensed as incurred. We are required to capitalize software development costs incurred for computer software to be sold, leased or otherwise marketed after technological feasibility of the software is established or for development costs that have alternative future uses. Under our current practice of developing new games, the technological feasibility of the underlying software is not established until substantially all product development and testing is complete, which generally includes the development of a working model. The software development costs that have been capitalized to date have been insignificant.
Foreign Currency Translation
For each of our foreign operating subsidiaries, the functional currency is generally its local currency. Assets and liabilities of foreign operations are translated into U.S. dollars using month-end exchange rates, and revenue and expenses are translated into U.S. dollars using average exchange rates. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity.
Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Net foreign currency transaction gains (losses) of $4 million , $2 million , and $(29) million for the fiscal years ended March 31, 2014, 2013 and 2012 , respectively, are included in interest and other income (expense), net, in our Consolidated Statements of Operations.
Income Taxes
We recognize deferred tax assets and liabilities for both the expected impact of differences between the financial statement amount and the tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. We record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of our deferred tax assets will not be realized. In making this determination, we are required to give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results, particularly in light of the economic environment. Therefore, cumulative losses weigh heavily in the overall assessment.
In addition to considering forecasts of future taxable income, we are also required to evaluate and quantify other possible sources of taxable income in order to assess the realization of our deferred tax assets, namely the reversal of existing deferred tax liabilities, the carry back of losses and credits as allowed under current tax law, and the implementation of tax planning strategies. Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence; this evaluation involves assumptions about future activity. Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted by tax law cannot be considered as a source of future taxable income that may be available to realize the benefit of deferred tax assets.

64


Based on the assumptions and requirements noted above, we have recorded a valuation allowance against most of our U.S. deferred tax assets. In addition, we expect to provide a valuation allowance on future U.S. tax benefits until we can sustain a level of profitability in the U.S., or until other significant positive evidence arises that suggest that these benefits are more likely than not to be realized.
Impact of Recently Issued Accounting Standards
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) . The amendments of this ASU require that only the disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. The disclosure requirements will be effective for annual periods (and interim periods within those annual periods) beginning after December 15, 2014, and will require prospective application. Early adoption is permitted. We expect to adopt this new standard in the first quarter of fiscal year 2016. We do not expect the adoption to have a material impact on our Consolidated Financial Statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 220): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . The amendments of this ASU require that entities that have an unrecognized tax benefit and a net operating loss carryforward or similar tax loss or tax credit carryforward in the same jurisdiction as the uncertain tax position present the unrecognized tax benefit as a reduction of the deferred tax asset for the loss or tax credit carryforward rather than as a liability when the uncertain tax position would reduce the loss or tax credit carryforward under the tax law. The disclosure requirements will be effective for annual periods (and interim periods within those annual periods) beginning after December 15, 2013, and will require prospective application. Early adoption is permitted. The adoption will impact our balance sheet only, and we expect to adopt this new standard in the first quarter of fiscal year 2015. While we have not completed our analysis, we anticipate the adoption will result in equal reductions to both deferred tax assets and noncurrent income tax obligations between $80 million and $90 million .

(2)  FAIR VALUE MEASUREMENTS
There are various valuation techniques used to estimate fair value, the primary one being the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
•
Level 1 . Quoted prices in active markets for identical assets or liabilities.
•
Level 2 . Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.
•
Level 3 . Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

65


Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2014 and 2013 , our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
As of March 31, 2014
 
Quoted Prices in
Active Markets for Identical
Financial Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet Classification
Assets
 
 
 
 
 
 
 
 
 
Money market funds
$
588

 
$
588

 
$
—

 
$
—

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
279

 
—

 
279

 
—

 
Short-term investments
Commercial paper
146

 
 
 
146

 
 
 
Short-term investments and cash equivalents
U.S. Treasury securities
118

 
118

 
—

 
—

 
Short-term investments and cash equivalents
U.S. agency securities
89

 
—

 
89

 
—

 
Short-term investments and cash equivalents
Deferred compensation plan assets (a)
9

 
9

 
—

 
—

 
Other assets
Total assets at fair value
$
1,229

 
$
715

 
$
514

 
$
—

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
4

 
$
—

 
$
—

 
$
4

 
Accrued and other current 
liabilities and other liabilities
Foreign currency derivatives
6

 
—

 
6

 
—

 
Accrued and other current liabilities
Deferred compensation plan liabilities (a)
9

 
9

 
—

 
—

 
Other liabilities
Total liabilities at fair value
$
19

 
$
9

 
$
6

 
$
4

 
 
 
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
 
 
 
 
 
 
 
Contingent
Consideration
 
 
Balance as of March 31, 2013
 
$
43

 
 
Change in fair value (c)
 
(35
)
 
 
Payments (d)
 
(4
)
 
 
Balance as of March 31, 2014
 
$
4

 
 

66


 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
As of
March 31,
2013
 
Quoted Prices in Active Markets for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet Classification
Assets
 
 
 
 
 
 
 
 
 
Money market funds
$
469

 
$
469

 
$
—

 
$
—

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
178

 
—

 
178

 
—

 
Short-term investments
U.S. agency securities
91

 
—

 
91

 
—

 
Short-term investments and cash equivalents
U.S. Treasury securities
88

 
88

 
—

 
—

 
Short-term investments and cash equivalents
Commercial paper
73

 
—

 
73

 
—

 
Short-term investments and cash equivalents
Deferred compensation plan assets (a)
11

 
11

 
—

 
—

 
Other assets
Foreign currency derivatives
6

 
—

 
6

 
—

 
Other current assets
Total assets at fair value
$
916

 
$
568

 
$
348

 
$
—

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
43

 
$
—

 
$
—

 
$
43

 
Accrued and other current 
liabilities and other liabilities
Deferred compensation plan liabilities (a)
12

 
12

 
—

 
—

 
Other liabilities
Total liabilities at fair value
$
55

 
$
12

 
$
—

 
$
43

 
 
 
 
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
 
 
 
 
 
 
 
Contingent
Consideration
 
 
Balance as of March 31, 2012
 
$
112

 
 
Change in fair value (c)
 
(64
)
 
 
Payments (d)
 
(5
)
 
 
Balance as of March 31, 2013
 
$
43

 
 
(a)
The Deferred Compensation Plan assets consist of various mutual funds. See Note 15 for additional information regarding our Deferred Compensation Plan.
(b)
The contingent consideration as of March 31, 2014 represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisitions of KlickNation Corporation (“KlickNation”) and Chillingo Limited (“Chillingo”) that are contingent upon the achievement of certain performance milestones. The contingent consideration as of March 31, 2013 represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisitions of PopCap Games, Inc. (“PopCap”), KlickNation and Chillingo that are contingent upon the achievement of certain performance milestones. We estimated the fair value of the acquisition-related contingent consideration payable using probability-weighted discounted cash flow models, and applied a discount rate that appropriately captures the risk associated with the obligation. The weighted average of the discount rates used during the fiscal year 2014 was 18 percent . The weighted average of the discount rates used during the fiscal year 2013 was 13 percent . The significant unobservable input used in the fair value measurement of the contingent consideration payable are forecasted earnings. Significant changes in forecasted earnings would result in a significantly higher or lower fair value measurement. At March 31, 2014 and March 31, 2013 , the fair market value of acquisition-related contingent consideration totaled $4 million and $43 million , respectively, compared to a maximum potential payout of $10 million and $566 million , respectively.
(c)
The change in fair value is reported as acquisition-related contingent consideration in our Consolidated Statements of Operations.
(d)
During fiscal year 2014 , we made payments totaling $4 million to settle certain performance milestones achieved in connection with one of our acquisitions. During fiscal year 2013 , we made payments totaling $5 million to settle certain performance milestones achieved in connection with two of our acquisitions.

67



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During fiscal year 2014 , our assets that were measured and recorded at fair value on a nonrecurring basis and the related impairments on those assets were as follows (in millions):
 
 
 
Fair Value Measurements Using
 
 
 
Net Carrying
Value as of
March 31, 2014
 
Quoted Prices in
Active Markets 
for Identical Assets
 
Significant
Other Observable Inputs
 
Significant
Unobservable
Inputs
 
Total Impairments  for the Fiscal Year Ended March 31, 2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Assets
 
 
 
 
 
 
 
 
 
Royalty-based asset
$
—

 
$
—

 
$
—

 
$
—

 
$
17

Total impairments recorded for non-recurring measurements on assets held as of March 31, 2014
 
 
 
 
 
 
 
$
17

During fiscal year 2014 , we became aware of facts and circumstances that indicated that the carrying value of one of our royalty-based assets was not recoverable. The impairment charges are included in cost of revenue on our Consolidated Statements of Operations.
During fiscal year 2013 , our assets that were measured and recorded at fair value on a nonrecurring basis and the related impairments on those assets were as follows (in millions):
 
 
 
Fair Value Measurements Using
 
 
 
Net Carrying
Value as of
March 31, 2013
 
Quoted Prices in
Active Markets for Identical Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Total Impairments for
the Fiscal Year Ended March 31, 2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Assets
 
 
 
 
 
 
 
 
 
Acquisition-related intangible assets
$
4

 
$
—

 
$
—

 
$
4

 
$
39

Total impairments recorded for non-recurring measurements on assets held as of March 31, 2013
 
 
 
 
 
 
 
$
39

During fiscal year 2013 , we became aware of facts and circumstances that indicated that the carrying value of some of our acquisition-related intangible assets were not recoverable. We recognized impairment charges of $34 million and $5 million in cost of revenue and amortization of intangibles, respectively, on our Consolidated Statements of Operations.
(3)  FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
As of March 31, 2014 and 2013 , our cash and cash equivalents were $1,782 million and $1,292 million , respectively. Cash equivalents were valued at their carrying amounts as they approximate fair value due to the short maturities of these financial instruments.
Short-Term Investments
Short-term investments consisted of the following as of March 31, 2014 and 2013 (in millions):
 
As of March 31, 2014
 
As of March 31, 2013
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Gains
 
Losses
 
Gains
 
Losses
 
Corporate bonds
$
279

 
$
—

 
$
—

 
$
279

 
$
177

 
$
1

 
$
—

 
$
178

U.S. Treasury securities
114

 
—

 
—

 
114

 
85

 
—

 
—

 
85

Commercial paper
110

 
—

 
—

 
110

 
49

 
—

 
—

 
49

U.S. agency securities
80

 
—

 
—

 
80

 
76

 
—

 
—

 
76

Short-term investments
$
583

 
$
—

 
$
—

 
$
583

 
$
387

 
$
1

 
$
—

 
$
388


68


We evaluate our investments for impairment quarterly. Factors considered in the review of investments with an unrealized loss include the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost basis, severity of the impairment, reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the investees, our intent to sell and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and any contractual terms impacting the prepayment or settlement process. Based on our review, we did not consider these investments to be other-than-temporarily impaired as of March 31, 2014 and 2013 .
The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of March 31, 2014 and 2013 (in millions):
 
As of March 31, 2014
 
As of March 31, 2013
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Short-term investments
 
 
 
 
 
 
 
Due in 1 year or less
$
318

 
$
318

 
$
160

 
$
160

Due in 1-2 years
156

 
156

 
126

 
127

Due in 2-3 years
104

 
104

 
101

 
101

Due in 3-4 years
5

 
5

 
—

 
—

Short-term investments
$
583

 
$
583

 
$
387

 
$
388

0.75% Convertible Senior Notes Due 2016
The following table summarizes the carrying value and fair value of our 0.75% Convertible Senior Notes due 2016 as of March 31, 2014 and 2013 (in millions):
 
As of March 31, 2014
 
As of March 31, 2013
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
0.75% Convertible Senior Notes due 2016
$
580

 
$
731

 
$
559

 
$
614

The carrying value of the 0.75% Convertible Senior Notes due 2016 excludes the fair value of the equity conversion feature, which was classified as equity upon issuance, while the fair value is based on quoted market prices for the 0.75% Convertible Senior Notes due 2016 , which includes the equity conversion feature. The fair value of the 0.75% Convertible Senior Notes due 2016 is classified as Level 2 within the fair value hierarchy. See Note 12 for additional information related to our 0.75% Convertible Senior Notes due 2016 .
(4)  DERIVATIVE FINANCIAL INSTRUMENTS
The assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets or accrued and other current liabilities, respectively, on our Consolidated Balance Sheets. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative instrument and whether it is designated and qualifies for hedge accounting.
We transact business in various foreign currencies and have significant international sales and expenses denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency forward and option contracts, generally with maturities of 15 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in certain foreign currencies. Our cash flow risks are primarily related to fluctuations in the Euro, British pound sterling, Canadian dollar, and Swedish Krona. In addition, we utilize foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign-currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts not designated as hedging instruments generally have a contractual term of approximately 3 months or less and are transacted near month-end. At each quarter-end, the fair value of the foreign currency forward contracts is generally not significant. We do not use foreign currency option or foreign currency forward contracts for speculative or trading purposes.

69


Cash Flow Hedging Activities
Our foreign currency option and certain of our forward contracts are designated and qualify as cash flow hedges. The effectiveness of the cash flow hedge contracts, including time value, is assessed monthly using regression analysis, as well as other timing and probability criteria. To qualify for hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions. The derivative assets or liabilities associated with our hedging activities are recorded at fair value in other current assets or accrued and other liabilities on our Consolidated Balance Sheets. The effective portion of gains or losses resulting from changes in the fair value of these hedges is initially 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 expenses, as appropriate, in the period when the forecasted transaction is recognized in our Consolidated Statements of Operations. In the event that the gains or losses in accumulated other comprehensive income are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to interest and other income (expense), net, in our Consolidated Statements of Operations. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges are reclassified from accumulated other comprehensive income to interest and other income (expense), net, in our Consolidated Statements of Operations.
Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation are as follows:

As of March 31, 2014

As of March 31, 2013

Notional Amount

Fair Value

Notional Amount

Fair Value


Asset

Liability


Asset

Liability
Option contracts to purchase
$
—


$
—


$
—


$
84


$
—


$
—

Forward contracts to purchase
179


—


3


—


—


—

Total
$
179

 
$
—

 
$
3

 
$
84

 
$
—

 
$
—















Option contracts to sell
$
—


$
—


$
—


$
149


$
6


$
—

Forward contracts to sell
363


—


2


—


—


—

Total
$
363

 
$
—

 
$
2

 
$
149

 
$
6

 
$
—

The net impact of the effective portion of gains and losses from our cash flow hedging activities in our Consolidated Statements of Operations for the fiscal years ended March 31, 2014, 2013 and 2012 was a loss of $9 million , $4 million , and $4 million respectively. During the fiscal years ended March 31, 2014, 2013 and 2012 , we reclassified an immaterial amount of the ineffective portion of gains or losses resulting from changes in fair value into interest and other income (expense), net.
Balance Sheet Hedging Activities
Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or accrued and other current liabilities on our Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other income (expense), net, in our Consolidated Statements of Operations. The gains and losses on these foreign currency forward contracts generally offset the gains and losses in the underlying foreign-currency-denominated monetary assets and liabilities, which are also reported in interest and other income (expense), net, in our Consolidated Statements of Operations. The fair value of our foreign currency forward contracts was measured using Level 2 inputs.

70


Total gross notional amounts and fair values for currency derivatives that are not designated as hedging instruments are accounted for as follows:
 
As of March 31, 2014
 
As of March 31, 2013
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
 
 
Asset
 
Liability
 
 
Asset
 
Liability
Forward contracts to purchase in exchange for USD
$
140

 
$
—

 
$
1

 
$
87

 
$
—

 
$
—

Total
$
140

 
$
—

 
$
1

 
$
87

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Forward contracts to sell in exchange for USD
$
232

 
$
—

 
$
—

 
$
213

 
$
—

 
$
—

Forward contracts to sell in exchange for GBP
—

 
—

 
—

 
6

 
—

 
—

Total
$
232

 
$
—

 
$
—

 
$
219

 
$
—

 
$
—

The effect of foreign currency forward contracts not designated as hedging instruments in our Consolidated Statements of Operations for the fiscal years ended March 31, 2014, 2013 and 2012 , was as follows (in millions):
 
Location of Gain (Loss) Recognized in Income on
Derivative
 
Amount of Gain (Loss) Recognized in Income on Derivative
 
Year Ended March 31,
 
2014
 
2013
 
2012
Foreign currency forward contracts not designated as hedging instruments
Interest and other 
income (expense), net
 
$
(5
)
 
$
(2
)
 
$
21


(5) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the fiscal years ended March 31, 2014, 2013 and 2012  are as follows (in millions):

 
Unrealized Net Gains (Losses) on Available-for-Sale Securities
 
Unrealized Net Gains (Losses) on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Balances as of March 31, 2011
$
125

 
$
(2
)
 
$
96

 
$
219

Other comprehensive loss before reclassifications
(40
)
 
(4
)
 
(4
)
 
(48
)
Amounts reclassified from accumulated other comprehensive income
(2
)
 
4

 
—

 
2

Net current-period other comprehensive income (loss)
(42
)
 
—

 
(4
)
 
(46
)
Balances as of March 31, 2012
$
83

 
$
(2
)
 
$
92

 
$
173

Other comprehensive loss before reclassifications
$
(46
)
 
$
(2
)
 
$
(19
)
 
$
(67
)
Amounts reclassified from accumulated other comprehensive income
(41
)
 
4

 
—

 
(37
)
Net current-period other comprehensive income (loss)
(87
)
 
2

 
(19
)
 
(104
)
Balances as of March 31, 2013
(4
)
 
—

 
73

 
69

Other comprehensive loss before reclassifications
$
—

 
$
(19
)
 
$
(22
)
 
$
(41
)
Amounts reclassified from accumulated other comprehensive income
—

 
9

 
—

 
9

Net current-period other comprehensive income (loss)
—

 
(10
)
 
(22
)
 
(32
)
Balances as of March 31, 2014
(4
)
 
(10
)
 
51

 
37


71

The effects on net loss of amounts reclassified from accumulated other comprehensive income (loss) for the fiscal years ended March 31, 2014, 2013 and 2012 were as follows (in millions):
 
 
Amount Reclassified From Accumulated Other Comprehensive Income (loss)
 
 
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Year Ended March 31, 2014
 
Year Ended March 31, 2013
 
Year Ended March 31, 2012
 
Statement of Operations Classification
Reclassification adjustment for realized gains on available-for-sale securities
 
 
 
 
 
 
 
 
 
 
$
—

 
$
(39
)
 
$
—

 
Gains on strategic investments
 
 
—

 
(2
)
 
(2
)
 
Interest and other income (expense)
 
 
—

 
(41
)
 
(2
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Reclassification adjustment for net realized losses on derivative instruments
 
 
 
 
 
 
 
 
 
 
7

 
3

 
3

 
Net revenue
 
 
2

 
1

 
1

 
Research and development
 
 
9

 
4

 
4

 
Net of tax
 
 
 
 
 
 
 
 
 
Total amount reclassified, net of tax
 
$
9

 
$
(37
)
 
$
2

 
 

(6)  BUSINESS COMBINATIONS
Fiscal Year 2014 Acquisitions
During the fiscal year ended March 31, 2014 , we completed one acquisition that did not have a significant impact on our Consolidated Financial Statements.
Fiscal Year 2013 Acquisitions
During the fiscal year ended March 31, 2013 , we completed one acquisition that did not have a significant impact on our Consolidated Financial Statements.
Fiscal Year 2012 Acquisitions
PopCap Games Inc.
In August 2011 , we acquired all of the outstanding shares of PopCap for an aggregate purchase price of approximately (1)  $645 million in cash and (2)  $87 million in privately-placed shares of our common stock to the founders and chief executive officer of PopCap. In addition, we agreed to grant over a four year period to PopCap’s employees up to $50 million in long-term equity retention arrangements in the form of restricted stock unit awards and options to acquire our common stock. These awards and options are accounted for as stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. PopCap is a leading developer of games for mobile phones, tablets, PCs, and social network sites. This acquisition strengthened our participation in casual gaming and contributed to the growth of our digital product offerings.
The following table summarizes the acquisition date fair value of the consideration transferred which consisted of the following (in millions):  
Cash
$
645

Equity
87

Total purchase price
$
732

The equity included in the consideration above consisted of privately-placed shares of our common stock, whose fair value was determined based on the quoted market price of our common stock on the date of acquisition.
In addition, we were required to pay additional variable cash consideration that was contingent upon the achievement of certain performance milestones through December 31, 2013 and was limited to a maximum of $550 million based on achievement of certain non-GAAP earnings targets before interest and tax. As of December 31, 2013, performance milestones were not met, resulting in the expiration of the earn-out. No payments were made under this earn-out.


72


The final allocation of the purchase price was completed during the third quarter of fiscal year 2012. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in millions):  
Current assets
$
62

Property and equipment, net
6

Goodwill
563

Finite-lived intangible assets
302

Contingent consideration
(95
)
Deferred income taxes, net
(51
)
Other liabilities
(55
)
Total purchase price
$
732

All of the goodwill was initially assigned to our EA Labels operating segment and subsequently assigned to our operating segment. None of the goodwill recognized upon acquisition is deductible for tax purposes. See Note 7 for additional information related to the changes in the carrying amount of goodwill and Note 18 for segment information.
Finite-lived intangible assets acquired in this transaction were being amortized on a straight-line basis over their estimated lives ranging from three to nine years. The intangible assets as of the date of the acquisition include:  
 
Gross Carrying
Amount
(in millions)
 
Weighted-Average
Useful Life
(in years)
Developed and core technology
$
245

 
6
Trade names and trademarks
40

 
9
In-process research and development
15

 
5
Other intangibles
2

 
4
Total finite-lived intangibles
$
302

 
6
In connection with our acquisition of PopCap, we acquired in-process research and development assets valued at approximately $15 million in relation to game software that had not reached technical feasibility as of the date of acquisition. The fair value of PopCap’s products under development was determined using the income approach, which discounts expected future cash flows from the acquired in-process technology to present value. The discount rates used in the present value calculations were derived from an average weighted average cost of capital of 13 percent .
There were six in-process research and development projects acquired as of the acquisition date each with $4 million or less of assigned fair value and $15 million of aggregate fair value. Additionally, each project had less than $2 million of estimated costs to complete, and aggregate cost to complete was $5 million . As of the acquisition date, the weighted-average estimated percentage completion of all six projects combined was 36 percent . Certain development projects were completed beginning in the fourth quarter of fiscal year 2012 with the remaining projects completed in fiscal year 2014.
The results of operations of PopCap and the estimated fair market values of the assets acquired and liabilities assumed have been included in our Consolidated Financial Statements since the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to our Consolidated Statements of Operations.
Other Fiscal 2012 Acquisitions
During the fiscal year ended March 31, 2012, we completed four other acquisitions. These business combinations were completed for total cash consideration of approximately $55 million . These acquisitions were not material to our Consolidated Balance Sheets and Statements of Operations. The results of operations and the estimated fair value of the acquired assets and assumed liabilities have been included in our Consolidated Financial Statements since the date of the acquisitions. See Note 7 for information regarding goodwill and acquisition-related intangible assets. Pro forma results of operations have not been presented because the effect of the acquisitions was not material to our Consolidated Statements of Operations.

73


(7) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET
The changes in the carrying amount of goodwill for the fiscal year ended March 31, 2014 are as follows (in millions):
 
As of
March 31, 2013
 
Activity
 
Effects of Foreign Currency Translation
 
As of
March 31, 2014
Goodwill
$
2,089

 
$
5

 
$
(3
)
 
$
2,091

Accumulated impairment
(368
)
 
—

 
—

 
(368
)
Total
$
1,721

 
$
5

 
$
(3
)
 
$
1,723

The changes in the carrying amount of goodwill for the fiscal year ended March 31, 2013 are as follows (in millions):
 
As of
March 31, 2012
 
Activity
 
Effects of Foreign Currency Translation
 
As of
March 31, 2013
Goodwill
$
2,086

 
$
3

 
$
—

 
$
2,089

Accumulated impairment
(368
)
 
—

 
—

 
(368
)
Total
$
1,718

 
$
3

 
$
—

 
$
1,721

Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. Goodwill is not amortized, but rather subject to at least an annual assessment for impairment by applying a fair value-based test. Our goodwill is fully attributed to our operating segment. See Note 18 for additional information regarding our segment information.
Acquisition-related intangibles, consisted of the following (in millions):  
 
As of March 31, 2014
 
As of March 31, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
Developed and core technology
$
531

 
$
(385
)
 
$
146

 
$
527

 
$
(324
)
 
$
203

Trade names and trademarks
130

 
(105
)
 
25

 
130

 
(99
)
 
31

Registered user base and other intangibles
87

 
(87
)
 
—

 
87

 
(84
)
 
3

Carrier contracts and related
85

 
(79
)
 
6

 
85

 
(73
)
 
12

In-process research and development
—

 
—

 
—

 
4

 
—

 
4

Total
$
833

 
$
(656
)
 
$
177

 
$
833

 
$
(580
)
 
$
253


Amortization of intangibles and impairment charges recognized for our acquisition-related intangible assets for the fiscal years ended March 31, 2014, 2013 and 2012 are classified in the Consolidated Statement of Operations as follows (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Cost of product
$
33

 
$
55

 
$
35

Cost of service and other
27

 
38

 
17

Operating expenses
16

 
30

 
43

Total
$
76

 
$
123

 
$
95

Acquisition-related intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, typically from 2 to 14 years. As of March 31, 2014 and 2013 , the weighted-average remaining useful life for acquisition-related intangible assets was approximately 3.2 years and 3.9 years for each period, respectively.

74


As of March 31, 2014 , future amortization of acquisition-related intangibles that will be recorded in the Consolidated Statement of Operations is estimated as follows (in millions):  
Fiscal Year Ending March 31,
 
2015
$
65

2016
53

2017
32

2018
12

2019
8

Thereafter
7

Total
$
177


(8) RESTRUCTURING AND OTHER CHARGES
Restructuring and other restructuring plan-related information as of March 31, 2014 was as follows (in millions):  
 
Fiscal 2013
Restructuring
 
Fiscal  2011
Restructuring
 
Other Restructurings and Reorganization
 
 
 
Workforce
 
Facilities-
related
 
Other
 
Workforce
 
Other
 
Facilities-
related
 
Other
 
Total
Balances as of March 31, 2011
$
—

 
$
—

 
$
—

 
$
3

 
$
101

 
$
8

 
$
5

 
$
117

Charges to operations
—

 
—

 
—

 
(1
)
 
21

 
(12
)
 
8

 
16

Charges settled in cash
—

 
—

 
—

 
(2
)
 
(47
)
 
7

 
(13
)
 
(55
)
Balances as of March 31, 2012
—

 
—

 
—

 
—

 
75

 
3

 
—

 
78

Charges to operations
10

 
3

 
9

 
—

 
6

 
(1
)
 
—

 
27

Charges settled in cash
(10
)
 
—

 
(1
)
 
—

 
(24
)
 
(1
)
 
—

 
(36
)
Charges settled in non-cash
—

 
(1
)
 
(7
)
 
—

 
—

 
1

 
—

 
(7
)
Balances as of March 31, 2013
—

 
2

 
1

 
—

 
57

 
2

 
—

 
62

Charges to operations
—

 
1

 
—

 
—

 
(2
)
 
—

 
—

 
(1
)
Charges settled in cash
—

 
(2
)
 
—

 
—

 
(8
)
 
(1
)
 
—

 
(11
)
Balances as of March 31, 2014
$
—

 
$
1

 
$
1

 
$
—

 
$
47

 
$
1

 
$
—

 
$
50


Fiscal 2013 Restructuring

In fiscal year 2013, we announced a restructuring plan to align our cost structure with our ongoing digital transformation. Under this plan, we reduced our workforce, terminated licensing agreements, and consolidated or closed various facilities. We completed all actions under this restructuring plan during fiscal year 2013.

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.

75


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.

Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract. Royalty liabilities are classified as current liabilities to the extent such royalty payments are contractually due within the next 12 months.
Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product 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 generally using undiscounted cash flows when impairment indicators exist. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned ( i.e. , cease use) or the contractual rights to use the intellectual property are terminated. During fiscal year 2014 , we recognized losses of $35 million , inclusive of impairment charges of $17 million on royalty-based assets and $18 million of losses on previously unrecognized royalty-based commitments. During fiscal year 2013 , we recognized losses of $15 million on previously unrecognized royalty-based commitments, inclusive of $9 million in license termination costs related to our fiscal 2013 restructuring. The losses related to restructuring and other plan-related activities are presented in Note 8.
The current and long-term portions of prepaid royalties and minimum guaranteed royalty-related assets, included in other current assets and other assets, consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Other current assets
$
97

 
$
63

Other assets
58

 
93

Royalty-related assets
$
155

 
$
156


76


At any given time, depending on the timing of our payments to our co-publishing and/or distribution affiliates, content licensors and/or independent software developers, we recognize unpaid royalty amounts owed to these parties as accrued liabilities. The current and long-term portions of accrued royalties, included in accrued and other current liabilities and other liabilities, consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Accrued royalties
$
73

 
$
103

Other accrued expenses
7

 
21

Other liabilities
53

 
46

Royalty-related liabilities
$
133

 
$
170

As of March 31, 2014, $1 million of restructuring accruals related to the fiscal 2013 restructuring plan, and $47 million of restructuring accruals related to the fiscal 2011 restructuring plan is included in royalty-related liabilities in the table above. See Note 8 for details of restructuring and other restructuring plan-related activities and Note 10 for the details of our accrued and other current liabilities.
In addition, as of March 31, 2014, we were committed to pay approximately $1,301 million to content licensors, 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.
(10)  BALANCE SHEET DETAILS
Inventories
Inventories as of March 31, 2014 and 2013 consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Finished goods
$
55

 
$
41

Raw materials and work in process
1

 
1

Inventories
$
56

 
$
42


Property and Equipment, Net
Property and equipment, net, as of March 31, 2014 and 2013 consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Computer equipment and software
$
718

 
$
660

Buildings
327

 
336

Leasehold improvements
129

 
129

Office equipment, furniture and fixtures
67

 
72

Land
63

 
64

Warehouse equipment and other
10

 
10

Construction in progress
5

 
8

 
1,319

 
1,279

Less accumulated depreciation
(809
)
 
(731
)
Property and equipment, net
$
510

 
$
548

Depreciation expense associated with property and equipment was $126 million , $118 million and $102 million for the fiscal years ended March 31, 2014, 2013 and 2012 , respectively.

77


Accrued and Other Current Liabilities
Accrued and other current liabilities as of March 31, 2014 and 2013 consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Other accrued expenses
$
328

 
$
338

Accrued compensation and benefits
259

 
217

Accrued royalties
73

 
103

Deferred net revenue (other)
121

 
79

Accrued and other current liabilities
$
781

 
$
737


Deferred net revenue (other) includes the deferral of subscription revenue, deferrals related to our Switzerland distribution business, advertising revenue, licensing arrangements and other revenue for which revenue recognition criteria has not been met.
Deferred Net Revenue (Online-Enabled Games)
Deferred net revenue (online-enabled games) was $1,490 million and $1,044 million as of March 31, 2014 and 2013 , respectively. Deferred net revenue (online-enabled games) generally includes the unrecognized revenue from bundled sales of certain online-enabled games for which we do not have VSOE for the obligation to provide unspecified updates. We recognize revenue from the sale of online-enabled games for which we do not have VSOE for the unspecified updates on a straight-line basis, generally over an estimated nine-month period beginning in the month after shipment for physical games sold through retail and an estimated six-month period for digitally-distributed games. However, we expense 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, 2014, 2013 and 2012 are as follows (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Domestic
$
(146
)
 
$
(15
)
 
$
(51
)
Foreign
153

 
154

 
69

Income before provision for (benefit from) income taxes
$
7

 
$
139

 
$
18



78


Provision for (benefit from) income taxes for the fiscal years ended March 31, 2014, 2013 and 2012 consisted of (in millions):
 
Current
 
Deferred
 
Total
Year Ended March 31, 2014
 
 
 
 
 
Federal
$
(2
)
 
$
(9
)
 
$
(11
)
State
1

 
(2
)
 
(1
)
Foreign
8

 
3

 
11

 
$
7

 
$
(8
)
 
$
(1
)
Year Ended March 31, 2013
 
 
 
 
 
Federal
$
—

 
$
5

 
$
5

State
—

 
1

 
1

Foreign
39

 
(4
)
 
35

 
$
39

 
$
2

 
$
41

Year Ended March 31, 2012
 
 
 
 
 
Federal
$
36

 
$
(89
)
 
$
(53
)
State
3

 
(2
)
 
1

Foreign
(11
)
 
5

 
(6
)
 
$
28

 
$
(86
)
 
$
(58
)

Current income tax provision includes tax benefits allocated directly to contributed capital of $12 million and $4 million for fiscal years 2014 and 2012, respectively, and none for fiscal year 2013.

The differences between the statutory tax expense rate and our effective tax expense (benefit) rate, expressed as a percentage of income before provision for (benefit from) income taxes, for the fiscal years ended March 31, 2014, 2013 and 2012 were as follows:  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Statutory federal tax expense rate
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes, net of federal benefit
(242.9
)%
 
(5.0
)%
 
(33.5
)%
Differences between statutory rate and foreign effective tax rate
(142.9
)%
 
(15.2
)%
 
(33.5
)%
Valuation allowance
936.5
 %
 
35.0
 %
 
(195.1
)%
Research and development credits
(128.6
)%
 
(8.6
)%
 
(39.2
)%
Non-deductible acquisition-related costs and tax expense from integration restructurings
—

 
—

 
16.7
 %
Differences between book and tax on sale of strategic investments
—

 
(15.2
)%
 
—

Resolution of tax matters with authorities
(657.1
)%
 
—

 
—

Expiration of statutes of limitations
—

 
—

 
(266.8
)%
Non-deductible stock-based compensation
385.7
 %
 
21.5
 %
 
205.6
 %
Acquisition-related contingent consideration
(185.7
)%
 
(16.5
)%
 
—

Other
(14.3
)%
 
(1.5
)%
 
(11.4
)%
Effective tax expense (benefit) rate
(14.3
)%
 
29.5
 %
 
(322.2
)%
In connection with a review of our cash position including potential future cash needs for stock repurchases and debt retirement, we made a one-time repatriation of $700 million from certain of our wholly-owned subsidiaries during the three months ended March 31, 2014. This repatriation did not have a material impact on our effective tax rate for fiscal 2014 due to the deferred tax valuation allowance.
Undistributed earnings of our foreign subsidiaries amounted to approximately $150 million as of March 31, 2014 , principally related to Electronic Arts (Canada). Those earnings are considered to be indefinitely reinvested and, accordingly, 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 withholding taxes payable to various foreign countries. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

79


The components of net deferred tax assets, as of March 31, 2014 and 2013 consisted of (in millions):  
 
As of March 31,
 
2014
 
2013
Deferred tax assets:
 
 
 
Accruals, reserves and other expenses
$
163

 
$
179

Tax credit carryforwards
462

 
214

Stock-based compensation
43

 
46

Net operating loss & capital loss carryforwards
199

 
286

Total
867

 
725

Valuation allowance
(675
)
 
(510
)
Deferred tax assets, net of valuation allowance
192

 
215

Deferred tax liabilities:
 
 
 
Depreciation
(12
)
 
(16
)
State effect on federal taxes
(63
)
 
(56
)
Amortization
(28
)
 
(34
)
Prepaids and other liabilities
(9
)
 
(11
)
Total
(112
)
 
(117
)
Deferred tax assets, net of valuation allowance and deferred tax liabilities
$
80

 
$
98

The valuation allowance increased by $165 million in fiscal year 2014 , primarily due to the increase in deferred tax assets for U.S. tax credits that are not currently considered to be more likely than not to be realized.

As of March 31, 2014 , we have federal net operating loss (“NOL”) carry forwards of approximately $402 million of which approximately $48 million is attributable to various acquired companies. These acquired net operating loss carry forwards are subject to an annual limitation under Internal Revenue Code Section 382. The federal NOL, if not fully realized, will begin to expire in 2032 . Furthermore, we have state net loss carry forwards of approximately $932 million of which approximately $137 million is attributable to various acquired companies. The state NOL, if not fully realized, will begin to expire in 2016 . We also have U.S. federal, California and Canada tax credit carry forwards of $365 million , $121 million and $14 million , respectively. The U.S. federal tax credit carry forwards will begin to expire in 2019 . The California and Canada tax credit carry forwards can be carried forward indefinitely.
The total unrecognized tax benefits as of March 31, 2014 and 2013 were $232 million and $297 million , respectively. As of March 31, 2014 , no prior cash deposits to tax authorities for issues pending resolution as of March 31, 2014 were available to offset tax liabilities. As of March 31, 2013 , prior cash deposits to tax authorities for issues pending resolution as of March 31, 2013 were available to offset $46 million of liabilities. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):  
Balance as of March 31, 2012
$
274

Increases in unrecognized tax benefits related to prior year tax positions
2

Decreases in unrecognized tax benefits related to prior year tax positions
(2
)
Increases in unrecognized tax benefits related to current year tax positions
30

Decreases in unrecognized tax benefits related to settlements with taxing authorities
—

Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations
(5
)
Changes in unrecognized tax benefits due to foreign currency translation
(2
)
Balance as of March 31, 2013
297

Increases in unrecognized tax benefits related to prior year tax positions
10

Decreases in unrecognized tax benefits related to prior year tax positions
(79
)
Increases in unrecognized tax benefits related to current year tax positions
44

Decreases in unrecognized tax benefits related to settlements with taxing authorities
(29
)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations
(9
)
Changes in unrecognized tax benefits due to foreign currency translation
(2
)
Balance as of March 31, 2014
$
232


80


A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable resolution of the uncertain tax positions. As of March 31, 2014 , approximately $84 million of the unrecognized tax benefits would affect our effective tax rate and approximately $148 million would result in adjustments to deferred tax valuation allowance. As of March 31, 2013 , approximately $106 million of the unrecognized tax benefits would affect our effective tax rate and approximately $177 million would result in corresponding adjustments to the deferred tax valuation allowance.
Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current other liabilities was approximately $16 million as of March 31, 2014 , as compared to $23 million as of March 31, 2013 . Accrued interest expense related to estimated obligations for unrecognized tax benefits decreased by approximately $7 million during fiscal year 2014 . There is no material change in accrued penalties during fiscal year 2014 .
We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the United Kingdom. During the fourth quarter of the fiscal year ended March 31, 2014 we reached a final settlement with the Internal Revenue Service (“IRS”) for the fiscal years 2006 through 2008. As a result, we recorded approximately $73 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $6 million . The recognition of approximately $19 million of these previously unrecognized tax benefits resulted in a reduction to our effective tax rate. The remainder, approximately $54 million , resulted in a corresponding adjustment to the deferred tax valuation allowance. The IRS is currently examining our returns for fiscal years 2009 through 2011, and we remain subject to income tax examination by the IRS for fiscal years after 2011.
On January 18, 2011, we received a Corporation Notice of Reassessment (the “Notice”) from the Canada Revenue Agency (“CRA”) claiming that we owe additional taxes, plus interest and penalties, for the 2004 and 2005 tax years. During the fourth quarter of the fiscal year ended March 31, 2014, we reached a final settlement with the CRA for the 2004 and 2005 tax years. In addition, we reached agreement on the major terms of a bilateral Advance Pricing Agreement (“APA”) with the IRS and the CRA for fiscal years 2006 through 2016. As a result, we recorded approximately $17 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $3 million . The recognition of these previously unrecognized tax benefits resulted in a reduction to our effective rate.
We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2012, in Germany for fiscal years 2008 through 2012, in Spain for fiscal years 2010 through 2013, and in Italy for fiscal years 2009 through 2011. We remain subject to income tax examination for several other jurisdictions including in France for fiscal years after 2011, in Germany for fiscal years after 2012, in the United Kingdom for fiscal years after 2012, and in Switzerland for fiscal years after 2007.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that a reduction of up to $11 million of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.
(12)  FINANCING ARRANGEMENT
0.75% Convertible Senior Notes Due 2016
In July 2011 , we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016 (the “Notes”). The Notes are senior unsecured obligations which pay interest semiannually in arrears at a rate of 0.75% per annum on January 15 and July 15 of each year, beginning on January 15, 2012 and will mature on July 15, 2016 , unless earlier purchased or converted in accordance with their terms prior to such date. The Notes are senior in right of payment to any unsecured indebtedness that is expressly subordinated in right of payment to the Notes.

The Notes are convertible into cash and shares of our common stock based on an initial conversion value of 31.5075 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately 31.74 per share). Upon conversion of the Notes, holders will receive cash up to the principal amount of each Note, and any excess conversion value will be delivered in shares of our common stock. Prior to April 15, 2016 , the Notes are convertible only if (1) the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or

81


equal to 130 percent of the conversion price ( $41.26 per share) on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of notes falls below 98 percent of the last reported sale price of our common stock multiplied by the conversion rate on each trading day; or (3) specified corporate transactions, including a change in control, occur. On or after April 15, 2016 , a holder may convert any of its Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate is subject to customary anti-dilution adjustments (for example, certain dividend distributions or tender or exchange offer of our common stock), but will not be adjusted for any accrued and unpaid interest. The Notes are not redeemable prior to maturity except for specified corporate transactions and events of default, and no sinking fund is provided for the Notes. The Notes do not contain any financial covenants.
We separately account for the liability and equity components of the Notes. The carrying amount of the equity component representing the conversion option is equal to the fair value of the Convertible Note Hedge, as described below, which is a substantially identical instrument and was purchased on the same day as the Notes. The carrying amount of the liability component was determined by deducting the fair value of the equity component from the par value of the Notes as a whole, and represents the fair value of a similar liability that does not have an associated convertible feature. A liability of $525 million as of the date of issuance was recognized for the principal amount of the Notes representing the present value of the Notes’ cash flows using a discount rate of 4.54 percent . The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the term of the Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for $15 million of issuance costs paid in July 2011 related to the Notes issuance, we allocated $13 million to the liability component and $2 million to the equity component. Debt issuance costs attributable to the liability component are being amortized to interest expense over the term of the Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.
The carrying values of the liability and equity components of the Notes are reflected in our Consolidated Balance Sheets as follows (in millions):  
 
As of
March 31, 2014
 
As of
March 31, 2013
Principal amount of Notes
$
633

 
$
633

Unamortized discount of the liability component
(53
)
 
(74
)
Net carrying amount of Notes
$
580

 
$
559

Equity component, net
$
105

 
$
105

As of March 31, 2014 , the remaining life of the Notes is 2.2 years .
Convertible Note Hedge and Warrants Issuance
In July 2011, we entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge”) with certain counterparties to reduce the potential dilution with respect to our common stock upon conversion of the Notes. The Convertible Note Hedge, subject to customary anti-dilution adjustments, provides us with the option to acquire, on a net settlement basis, approximately 19.9 million shares of our common stock at a strike price of $31.74 , which corresponds to the conversion price of the Notes and is equal to the number of shares of our common stock that notionally underlie the Notes. As of March 31, 2014 , we have not purchased any shares under the Convertible Note Hedge. We paid $107 million for the Convertible Note Hedge, which was recorded as an equity transaction.
Separately, in July 2011 we also entered into privately negotiated warrant transactions with the certain counterparties whereby we sold to independent third parties warrants (the “Warrants”) to acquire, subject to customary anti-dilution adjustments that are substantially the same as the anti-dilution provisions contained in the Notes, up to 19.9 million shares of our common stock (which is also equal to the number of shares of our common stock that notionally underlie the Notes), with a strike price of $41.14 . The Warrants could have a dilutive effect with respect to our common stock to the extent that the market price per share of our common stock exceeds $41.14 on or prior to the expiration date of the Warrants. We received proceeds of $65 million from the sale of the Warrants.
Credit Facility
On August 30, 2012 , we entered into a $500 million senior unsecured revolving credit facility with a syndicate of banks. The credit facility terminates on February 29, 2016 and contains an option to arrange with existing lenders and/or new lenders for them to provide up to an aggregate of $250 million in additional commitments for revolving loans. Proceeds of loans made under the credit facility may be used for general corporate purposes.

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The loans bear interest, at our option, at the base rate plus an applicable spread or an adjusted LIBOR rate plus an applicable spread, in each case with such spread being determined based on our consolidated leverage ratio for the preceding fiscal quarter. We are also obligated to pay other customary fees for a credit facility of this size and type. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted LIBOR rate. Principal, together with all accrued and unpaid interest, is due and payable on February 29, 2016 .

The credit agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur subsidiary indebtedness, grant liens, dispose of all or substantially all assets and pay dividends or make distributions, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a capitalization ratio and maintain a minimum level of total liquidity and a minimum level of domestic liquidity.

The credit agreement contains customary events of default, including among others, non-payment defaults, covenant defaults, bankruptcy and insolvency defaults and a change of control default, in each case, subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in the acceleration of the obligations under the credit agreement, an obligation by any guarantors to repay the obligations in full and an increase in the applicable interest rate.

As of March 31, 2014 , no amounts were outstanding under the credit facility. During the three months ended September 30, 2012 , we paid $2 million of debt issuance costs in connection with obtaining this credit facility. These costs are deferred and are being amortized to interest expense over the 3.5 years term of the credit facility.   
The following table summarizes our interest expense recognized for fiscal years 2014, 2013, and 2012 that is included in interest and other income (expense), net on our Consolidated Statements of Operations (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Amortization of debt discount
$
(21
)
 
$
(20
)
 
$
(14
)
Amortization of debt issuance costs
(3
)
 
(3
)
 
(2
)
Coupon interest expense
(5
)
 
(5
)
 
(3
)
Other interest expense
(1
)
 
(1
)
 
(1
)
Total interest expense
$
(30
)
 
$
(29
)
 
$
(20
)

(13)  COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of March 31, 2014 , we leased certain facilities, furniture and equipment under non-cancelable operating lease agreements. We were required to pay property taxes, insurance and normal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products we produce in our studios are designed and created by our employee designers, artists, software programmers and by non-employee software developers (“independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, usually in installment payments made upon the completion of specified development milestones. Contractually, these payments are generally considered advances against subsequent royalties 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 may not be dependent on any deliverables. Celebrities and organizations with whom we have contracts include, but are not limited to: FIFA (Fédération Internationale de Football Association), FIFPRO Foundation, FAPL (Football Association Premier League Limited), and DFL Deutsche Fußball Liga GmbH (German Soccer League) (professional soccer); Dr. Ing. h.c. F. Porsche AG, Ferrari S.p.A. (Need For Speed and Real Racing games); National Basketball Association (professional basketball); PGA TOUR (professional golf); National Hockey League and NHL Players’ Association (professional hockey); National Football League Properties, PLAYERS Inc., and Red Bear Inc. (professional football);

83


Collegiate Licensing Company (collegiate football); Zuffa, LLC (Ultimate Fighting Championship); ESPN (content in EA SPORTS games); Hasbro, Inc. (certain of Hasbro’s board game intellectual properties); Disney Interactive (Star Wars); and Fox Digital Entertainment, Inc. (The Simpsons). These developer and content license commitments represent the sum of (1) the cash payments due under non-royalty-bearing licenses and services agreements and (2) the minimum guaranteed payments and advances against royalties due under royalty-bearing licenses and services agreements, the majority of which are conditional upon performance by the counterparty. These minimum guarantee payments and any related marketing commitments are included in the table below.
The following table summarizes our minimum contractual obligations as of March 31, 2014 (in millions):  
 
 
 
Fiscal Year Ending March 31,
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Unrecognized commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Developer/licensor commitments
$
1,301

 
$
132

 
$
288

 
$
212

 
$
129

 
$
98

 
$
442

Marketing commitments
254

 
48

 
41

 
62

 
24

 
24

 
55

Operating leases
148

 
46

 
39

 
23

 
17

 
13

 
10

0.75% Convertible Senior Notes due 2016 interest (a)
12

 
5

 
5

 
2

 
—

 
—

 
—

Other purchase obligations
19

 
17

 
2

 
—

 
—

 
—

 
—

Total unrecognized commitments
1,734

 
248

 
375

 
299

 
170

 
135

 
507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recognized commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
0.75% Convertible Senior Notes due 2016 principal (a)
633

 
—

 
—

 
633

 
—

 
—

 
—

Licensing and lease obligations (b)
59

 
12

 
11

 
34

 
1

 
1

 
—

Total recognized commitments
692

 
12

 
11

 
667

 
1

 
1

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Commitments
$
2,426

 
$
260

 
$
386

 
$
966

 
$
171

 
$
136

 
$
507

 
(a)
Included in the $12 million coupon interest on the 0.75% Convertible Senior Notes due 2016 is $1 million of accrued interest recognized as of March 31, 2014 . We will be obligated to pay the $632.5 million principal amount of the 0.75% Convertible Senior Notes due 2016 in cash and any excess conversion value in shares of our common stock upon redemption of the Notes at maturity on July 15, 2016 or upon earlier redemption. The $632.5 million principal amount excludes $53 million of unamortized discount of the liability component. See Note 12 for additional information regarding our 0.75% Convertible Senior Notes due 2016 .

(b)
See Note 8 for additional information regarding recognized commitments resulting from our restructuring plans. Lease commitments have not been reduced for approximately $6 million due in the future from third parties under non-cancelable sub-leases.
The unrecognized amounts represented in the table above reflect our minimum cash obligations for the respective fiscal years, but do not necessarily represent the periods in which they will be recognized and expensed in our Consolidated Financial Statements. In addition, the amounts in the table above are presented based on the dates the amounts are contractually due as of March 31, 2014 ; however, certain payment obligations may be accelerated depending on the performance of our operating results.
In addition to what is included in the table above, as of March 31, 2014 , we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $188 million , of which we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.
Subsequent to March 31, 2014, we entered into or amended various licensor and lease agreements with third parties, which contingently commits us to pay an additional approximately $110 million at various dates through fiscal year 2025.
Also, in addition to what is included in the table above as of March 31, 2014 , in connection with our KlickNation and Chillingo acquisitions, we may be required to pay an additional $10 million of cash consideration based upon the achievement of certain performance milestones through March 31, 2015 . As of March 31, 2014 , we have accrued $4 million of contingent consideration on our Consolidated Balance Sheet representing the estimated fair value of the contingent consideration.

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Legal Proceedings
We are a defendant in several actions that allege we misappropriated the likenesses of various college athletes in certain of our college-themed sports games.
•
We are defending a putative class action lawsuit brought by Ryan Hart, a former college football player, in the United States District Court for the District of New Jersey in June 2009, which alleges that we misappropriated his likeness in our college-themed football game. The complaint seeks actual damages and other unspecified damages, which have not been quantified. In September 2011, the district court granted our motion to dismiss the complaint. On May 21, 2013, the Third Circuit Court of Appeal reversed the district court's decision and remanded the case back to the district court.
•
The In re NCAA Student-Athlete Name & Likeness Licensing litigation pending in the United States District Court for the Northern District of California involves two groups of common claims brought by several different former collegiate student-athletes in 2009. These various actions were consolidated into one action in February 2010. The first group of claims is a class action against us, the NCAA and the Collegiate Licensing Company (CLC) alleging that our college-themed video games misappropriated the likenesses of collegiate student-athletes without their authorization. This group of claims seeks actual damages, statutory damages and other unspecified damages, which have not been quantified. On July 31, 2013, the Ninth Circuit Court of Appeals affirmed the trial court’s denial of our motion to strike the complaint. The second group of claims is a federal antitrust class action against us, the NCAA and the CLC that challenges NCAA/CLC licensing practices and the NCAA By-Laws and regulations. This group of claims seeks unspecified damages, which have not been quantified.
In September 2013, we reached an agreement to settle all actions brought by college athletes. We and counsel for plaintiffs are in the process of preparing a written settlement agreement and other documents to present to the respective courts for approval of the settlement. We recognized a $30 million accrual during the second quarter of fiscal 2014 associated with the anticipated settlement. On November 4, 2013, the NCAA filed a complaint against the Company and CLC in the Superior Court of Fulton County, Georgia. The complaint seeks unspecified damages and alleges that the Company is contractually obligated to defend and indemnify the NCAA against claims asserted in In re NCAA Student-Athlete Name & Likeness Licensing concerning the alleged misappropriation of student-athletes’ publicity rights in EA’s collegiate video games. We have not yet responded to the NCAA’s complaint.
On December 17, 2013, a purported shareholder class action lawsuit was filed in the United States District Court for the Northern District of California against the Company and certain of its officers by an individual purporting to represent a class of purchasers of EA common stock. A second purported shareholder class action lawsuit alleging substantially similar claims was subsequently filed in the same court. These lawsuits have been consolidated into one action. The lawsuits, which assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, allege, among other things, that the Company and certain of its officers issued materially false and misleading statements regarding the rollout of the Company’s Battlefield 4 game. The lawsuits seek unspecified damages, which have not been quantified. We have not yet responded to the complaints.
We are also subject to claims and litigation arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our Consolidated Financial Statements.
(14)  PREFERRED STOCK
As of March 31, 2014 and 2013 , 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.

(15)  STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS
Valuation Assumptions
We estimate the fair value of share-based payment awards on the date of grant. We recognize compensation costs for stock-based payment awards to employees based on the grant-date fair value using a straight-line approach over the service period for which such awards are expected to vest. For awards with only service conditions that has a graded vesting schedule, we recognize compensation costs on a straight-line basis over the requisite service period for the entire award.

85


We determine the fair value of our share-based payment awards as follows:

•
Restricted Stock Units, Restricted Stock, and Performance-Based Restricted Stock Units . The fair value of restricted stock units, restricted stock, and performance-based restricted stock units (other than market-based restricted stock units) is determined based on the quoted market price of our common stock on the date of grant. Performance-based restricted stock units include grants made (1) to certain members of executive management primarily granted in fiscal year 2009 and (2) in connection with certain acquisitions.

•
Market-Based Restricted Stock Units . Market-based restricted stock units consist of grants of performance-based restricted stock units to certain members of executive management that vest contingent upon the achievement of pre-determined market and service conditions (referred to herein as “market-based restricted stock units”). The fair value of 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 fair value of stock options and stock purchase rights granted pursuant to our equity incentive plans and our 2000 Employee Stock Purchase Plan (“ESPP”), respectively, is determined using the Black-Scholes valuation model based on the multiple-award valuation method. Key assumptions of the Black-Scholes valuation model are the risk-free interest rate, expected volatility, expected term and expected dividends.
The determination of the fair value of market-based restricted stock units, stock options and ESPP is affected by assumptions regarding subjective and complex variables. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes.
The estimated assumptions used in the Black-Scholes valuation model to value our stock option grants and ESPP were as follows:
 
 
Stock Option Grants
 
ESPP
 
 
Year Ended March 31,
 
Year Ended March 31,
 
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Risk-free interest rate
 
1.6
%
 
0.4 - 1.0%

 
0.4 - 1.8%

 
0.1
%
 
0.1 - 0.2%

 
0.1 - 0.2%

Expected volatility
 
37 - 42%

 
40 - 46%

 
40 - 46%

 
36 - 38%

 
35 - 42%

 
39 - 41%

Weighted-average volatility
 
37
%
 
43
%
 
43
%
 
38
%
 
38
%
 
41
%
Expected term
 
4.5 years

 
4.4 years

 
4.4 years

 
6 - 12 months

 
6 - 12 months

 
6 - 12 months

Expected dividends
 
None

 
None

 
None

 
None

 
None

 
None

The estimated assumptions used in the Monte-Carlo simulation model to value our market-based restricted stock units were as follows:  
 
Year Ended
March 31, 2014
 
Year Ended
March 31, 2013
 
Year Ended
March 31, 2012
Risk-free interest rate
0.4
%
 
0.2 - 0.4%

 
0.2 -0.6%

Expected volatility
16 - 58%

 
17 - 116%

 
14 - 83%

Weighted-average volatility
31
%
 
35
%
 
35
%
Expected dividends
None

 
None

 
None

Stock-Based Compensation Expense
Employee stock-based compensation expense recognized during the fiscal years ended March 31, 2014, 2013 and 2012 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. In subsequent periods, if actual forfeitures differ from those estimates, an adjustment to stock-based compensation expense will be recognized at that time.


86


The following table summarizes stock-based compensation expense resulting from stock options, restricted stock, restricted stock units, performance-based restricted stock units, market-based restricted stock units, and the ESPP included in our Consolidated Statements of Operations (in millions):
 
 
Year Ended March 31,
 
 
2014
 
2013
 
2012
Cost of revenue
 
$
2

 
$
2

 
$
2

Research and development
 
90

 
94

 
103

Marketing and sales
 
26

 
30

 
27

General and administrative
 
32

 
38

 
38

Stock-based compensation expense
 
$
150

 
$
164

 
$
170

During the fiscal years ended March 31, 2014, 2013 and 2012 , we did not recognize any benefit from income taxes related to our stock-based compensation expense.
As of March 31, 2014 , our total unrecognized compensation cost related to stock options was $9 million and is expected to be recognized over a weighted-average service period of 3.6 years . As of March 31, 2014 , our total unrecognized compensation cost related to restricted stock and restricted stock units (collectively referred to as “restricted stock rights”) was $220 million and is expected to be recognized over a weighted-average service period of 1.6 years . Of the $220 million of unrecognized compensation cost, $14 million relates to market-based restricted stock units.
For fiscal year ended March 31, 2014 , we recognized $13 million of tax benefit from the exercise of stock options; this amount is reported in the financing activities on our Consolidated Statements of Cash Flows. For the fiscal year ended March 31, 2013 , we recognized $1 million of tax expense from the exercise of stock options, net of $1 million of deferred tax write-offs. There was no tax benefit related to stock-based compensation reported in the financing activities on our Consolidated Statements of Cash Flows. For the fiscal year ended March 31, 2012 , we recognized $3 million of tax benefit from the exercise of stock options, net of $1 million of deferred tax write-offs; of this amount $4 million of excess tax benefit related to stock-based compensation was reported in the financing activities on our Consolidated Statements of Cash Flows.
Summary of Plans and Plan Activity
Equity Incentive Plans
Our 2000 Equity Incentive Plan (the “Equity Plan”) allows us to grant options to purchase our common stock and to grant restricted stock, restricted stock units and stock appreciation rights to our employees, officers and directors. Pursuant to the Equity Plan, incentive stock options may be granted to employees and officers and non-qualified options may be granted to employees, officers and directors, at not less than 100 percent of the fair market value on the date of grant.
Options granted under the Equity Plan generally expire ten years from the date of grant and are generally exercisable as to 24 percent of the shares after 12 months, and then ratably over the following 38 months.
At our Annual Meeting of Stockholders, held on July 31, 2013, our stockholders approved (a) amendments to our 2000 Equity Incentive Plan (the “Equity Plan”) to increase the number of shares of common stock authorized under the Equity Plan by 18 million shares, and to increase the limit on the number of shares that may be covered by equity awards to new employees under the Equity Plan from a maximum of 2 million shares in the fiscal year of hire to 4 million shares in the fiscal year of hire, and (b) an amendment to the ESPP to increase the number of shares authorized under the ESPP by 7 million shares. A total of 24.2 million options or 17.0 million restricted stock units were available for grant under our Equity Plan as of March 31, 2014 .

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Stock Options
The following table summarizes our stock option activity for the fiscal year ended March 31, 2014 :  
 
 
Options
(in thousands)
 
Weighted-
Average
Exercise Prices
 
Weighted-
Average
Remaining
Contractual
Term  (in years)
 
Aggregate
Intrinsic Value
(in millions)
Outstanding as of March 31, 2013
 
7,802

 
$
34.17

 
 
 
 
Granted
 
1,013

 
26.21

 
 
 
 
Exercised
 
(2,445
)
 
18.09

 
 
 
 
Forfeited, cancelled or expired
 
(1,059
)
 
47.31

 
 
 
 
Outstanding as of March 31, 2014
 
5,311

 
$
37.43

 
4.59
 
$
18

Vested and expected to vest
 
5,096

 
$
37.92

 
4.38
 
$
17

Exercisable as of March 31, 2014
 
4,191

 
$
40.70

 
3.31
 
$
14


As of March 31, 2014 , the weighted-average remaining contractual term for our stock options outstanding was 4.59 years and the aggregate intrinsic value of our stock options outstanding was $18 million . The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price as of March 31, 2014 , which would have been received by the option holders had all the option holders exercised their options as of that date. The weighted-average grant date fair values of stock options granted during fiscal years 2014, 2013, and 2012 were $8.61 , $4.64 and $7.27 , respectively. The total intrinsic values of stock options exercised during fiscal years 2014 and 2012 were $16 million and $4 million , respectively, and immaterial for fiscal year 2013 . The total estimated fair values (determined as of the grant date) of stock options vested during fiscal years 2014, 2013 and 2012 were $2 million , $11 million and $15 million , respectively. We issue new common stock from our authorized shares upon the exercise of stock options.

The following table summarizes outstanding and exercisable stock options as of March 31, 2014 :  
 
 
Options Outstanding
 
Options Exercisable
Range of
Exercise Prices
 
Number
of Shares
(in thousands)
 
Weighted-
Average
Remaining
Contractual
Term  (in years)
 
Weighted-
Average
Exercise
Prices
 
Potential
Dilution
 
Number
of Shares
(in thousands)
 
Weighted-
Average
Exercise
Prices
 
Potential
Dilution
$11.53 - $19.99
 
911

 
4.90
 
$
17.40

 
0.3
%
 
845

 
$
17.69

 
0.3
%
20.00 - 29.99
 
1,752

 
7.76
 
24.03

 
0.6
%
 
697

 
21.16

 
0.2
%
30.00 - 39.99
 
8

 
4.50
 
36.00

 
—
%
 
8

 
36.00

 
—
%
40.00 - 59.99
 
2,271

 
2.63
 
51.34

 
0.7
%
 
2,272

 
51.34

 
0.7
%
60.00 - 64.92
 
369

 
0.83
 
64.85

 
0.1
%
 
369

 
64.85

 
0.1
%
$11.53 - $64.92
 
5,311

 
4.59
 
$
37.43

 
1.7
%
 
4,191

 
$
40.70

 
1.3
%
Potential dilution is computed by dividing the options in the related range of exercise prices by 311 million shares of common stock, which were issued and outstanding as of March 31, 2014 .
Restricted Stock Rights
We grant restricted stock rights under our Equity Plan to employees worldwide. Restricted stock units entitle holders to receive shares of common stock at the end of a specified period of time. Upon vesting, the equivalent number of common shares is typically issued net of required tax withholdings, if any. Restricted stock is issued and outstanding upon grant; however, restricted stock award holders are restricted from selling the shares until they vest. Upon granting or vesting of restricted stock, as the case may be, we will typically withhold shares to satisfy tax withholding requirements. Restricted stock rights are subject to forfeiture and transfer restrictions. Vesting for restricted stock rights is based on the holders’ continued employment with us. If the vesting conditions are not met, unvested restricted stock rights will be forfeited. Generally, our restricted stock rights vest according to one of the following vesting schedules:

•
Three-year vesting with  1 / 3 cliff vesting at the end of each year;
•
Three-year vesting with 100% cliff vesting at the end of year three;
•
Four-year vesting with  1 / 4 cliff vesting at the end of each year;

88


•
Five-year vesting with  1 / 9 ,  2 / 9 ,  3 / 9 ,  2 / 9 and  1 / 9 of the shares cliff vesting respectively at the end of each of the 1 st , 2 nd , 3 rd , 4 th , and 5 th years;
•
Three-year vesting with  1 / 2 cliff vesting after 18 and 36 months;
•
35 month vesting with  1 / 3 cliff vesting after 11, 23 and 35 months or;
•
One-year vesting with 100% cliff vesting at the end of one year.
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 performance-based restricted stock unit activity which is discussed below, for the fiscal year ended March 31, 2014 :  
 
 
Restricted
Stock Rights
(in thousands)
 
Weighted-
Average Grant
Date Fair Values
Balance as of March 31, 2013
 
15,918

 
$
16.85

Granted
 
7,364

 
23.01

Vested
 
(6,893
)
 
17.37

Forfeited or cancelled
 
(2,853
)
 
17.99

Balance as of March 31, 2014
 
13,536

 
$
19.70


The grant date fair value of restricted stock rights is based on the quoted market price of our common stock on the date of grant. The weighted-average grant date fair values of restricted stock rights granted during fiscal years 2014, 2013, and 2012 were $23.01 , $12.85 and $21.38 , respectively. The total grant date fair values of restricted stock rights that vested during fiscal years 2014, 2013, and 2012 were $120 million , $143 million and $165 million , respectively.
Performance-Based Restricted Stock Units
Our performance-based restricted stock units vest contingent upon the achievement of pre-determined performance-based milestones. If these performance-based milestones are not met, the restricted stock units will not vest, in which case, any compensation expense we have recognized to date will be reversed.
The following table summarizes our performance-based restricted stock unit activity for the fiscal year ended March 31, 2014 :  
 
 
Performance-
Based Restricted
Stock Units
(in thousands)
 
Weighted-
Average Grant
Date Fair Values
Balance as of March 31, 2013
 
1,324

 
$
51.54

Vested
 
(36
)
 
15.39

Forfeited or cancelled
 
(1,234
)
 
48.32

Balance as of March 31, 2014
 
54

 
$
15.39

The grant date fair value of performance-based restricted stock units is based on the quoted market price of our common stock on the date of grant. There were no performance-based restricted stock units granted during fiscal years 2014, 2013, and 2012 . The total grant date fair values of performance-based restricted stock units that vested during fiscal years 2014 and 2013 was less than $1 million . No performance-based restricted stock units vested during fiscal year 2012 .
Market-Based Restricted Stock Units
Our market-based restricted stock units vest contingent upon the achievement of pre-determined market and service conditions. If these market conditions are not met but service conditions are met, the restricted stock units will not vest; however, any compensation expense we have recognized to date will not be reversed. The number of shares of common stock to be received at vesting will range from zero percent to 200 percent of the target number of stock units based on our total stockholder return (“TSR”) relative to the performance of companies in the NASDAQ-100 Index for each measurement period, generally over a three year period. We present shares granted at 100 percent of target of the number of stock units that may potentially vest. The maximum number of common shares that could vest is approximately 1.1 million for market-based restricted stock units granted in the fiscal year 2014 . As of March 31, 2014 , the maximum number of shares that could vest is approximately 2.0 million for market-based restricted stock units outstanding.

89


The following table summarizes our market-based restricted stock unit activity for the year ended March 31, 2014 :  
 
 
Market-Based
Restricted  Stock
Units
(in thousands)
 
Weighted-
Average  Grant
Date Fair Value
Balance as of March 31, 2013
 
925

 
$
19.16

Granted
 
555

 
29.52

Vested
 
(304
)
 
16.01

Vested above target
 
24

 
10.45

Forfeited or cancelled
 
(222
)
 
23.47

Balance as of March 31, 2014
 
978

 
$
24.83

The weighted-average grant date fair values of market-based restricted stock units granted during fiscal years 2014, 2013, and 2012 were $29.52 , $12.41 , and $33.70 respectively. The total grant date fair value of market-based restricted stock units that vested during fiscal years 2014 and 2013 were $4.9 million and $3.7 million , respectively. No market-based restricted stock units vested during fiscal year 2012 .

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 common stock on the date of commencement of the offering or on the last day of each six-month purchase period.
During fiscal year 2014 , we issued approximately 2 million shares under the ESPP with exercise prices for purchase rights ranging from $11.33 to $22.64 . During fiscal years 2014, 2013, and 2012 , the estimated weighted-average fair values of purchase rights were $4.67 , $4.83 and $4.98 , respectively.
We issue new common stock out of the ESPP’s pool of authorized shares. The fair values above were estimated on the date of grant using the Black-Scholes option-pricing model assumptions.
Deferred Compensation Plan
We have a Deferred Compensation Plan (“DCP”) for the benefit of a select group of management or highly compensated employees and Directors, which is unfunded and intended to be a plan that is not qualified within the meaning section 401(a) of the Internal Revenue Code. The DCP permits the deferral of the annual base salary and/or Director fees up to a maximum amount. The deferrals are held in a separate trust, which has been established by us to administer the DCP. The trust is a grantor trust and the specific terms of the trust agreement provide that the assets of the trust are available to satisfy the claims of general creditors in the event of our insolvency. The assets held by the trust are classified as trading securities and are held at fair value on our Consolidated Balance Sheets. The assets and liabilities of the DCP are presented in other assets and other liabilities on our Consolidated Balance Sheets, respectively, with changes in the fair value of the assets and in the deferred compensation liability recognized as compensation expense. The estimated fair value of the assets was $9 million and $11 million as of March 31, 2014 and 2013 , respectively. As of March 31, 2014 and 2013 , $9 million and $12 million were recorded respectively to recognize undistributed deferred compensation due to employees.
401(k) Plan and Registered Retirement Savings Plan
We have a 401(k) plan covering substantially all of our U.S. employees, and a Registered Retirement Savings Plan covering substantially all of our Canadian employees. These plans permit us to make discretionary contributions to employees’ accounts based on our financial performance. We contributed an aggregate of $9 million , $14 million and $13 million to these plans in fiscal years 2014, 2013, and 2012 , respectively.
Stock Repurchase Program
In February 2011, our Board of Directors authorized a program to repurchase up to $600 million of our common stock over the following 18 months . We completed that program in April 2012. We repurchased approximately 32 million shares in the open market under this program, including pursuant to pre-arranged stock trading plans.

In July 2012, our Board of Directors authorized a program to repurchase up to $500 million of our common stock. We repurchased approximately 22 million shares in the open market under this program, including pursuant to pre-arranged stock trading plans.

90



The following table summarizes total shares repurchased and retired during fiscal years 2013 and 2012 :
 
February 2011 Program
 
July 2012 Program
 
Total
(In millions)
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
Fiscal Year 2012
25

 
$
471

 
—

 
$
—

 
25

 
$
471

Fiscal Year 2013
4

 
$
71

 
22

 
$
278

 
26

 
$
349


During fiscal year 2014 , we did not repurchase any shares of our common stock.
In May 2014, a special committee of our Board of Directors, on behalf of the full Board of Directors, authorized a new program to repurchase up to $750 million of our common stock. This new stock repurchase program, which expires on May 31, 2016, supersedes and replaces the stock repurchase authorization approved by our Board of Directors in July 2012. Under this program, we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase any specific number of shares under this program and it may be modified, suspended or discontinued at any time.
 
(16)  INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, for the fiscal years ended March 31, 2014, 2013 and 2012 consisted of (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Interest expense
$
(30
)
 
$
(29
)
 
$
(20
)
Interest income
5

 
6

 
9

Net gain (loss) on foreign currency transactions
4

 
2

 
(29
)
Net gain (loss) on foreign currency forward contracts
(5
)
 
(2
)
 
21

Other income, net
—

 
2

 
2

Interest and other income (expense), net
$
(26
)
 
$
(21
)
 
$
(17
)

(17)  NET INCOME PER SHARE
The following table summarizes the computations of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS is computed as net income divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, restricted stock, restricted stock units, common stock through our ESPP, warrants, and other convertible securities using the treasury stock method.
 
 
Year Ended March 31,
(In millions, except per share amounts)
2014
 
2013
 
2012
Net income
$
8

 
$
98

 
$
76

Shares used to compute net income per share:
 
 
 
 
 
Weighted-average common stock outstanding — basic
308

 
310

 
331

Dilutive potential common shares
8

 
3

 
5

Weighted-average common stock outstanding — diluted
316

 
313

 
336

Net income per share:
 
 
 
 
 
Basic
$
0.03

 
$
0.32

 
$
0.23

Diluted
$
0.03

 
$
0.31

 
$
0.23


For the fiscal years ended March 31, 2014, 2013 and 2012, options to purchase, restricted stock units and restricted stock

91


to be released in the amount of $4 million shares, $15 million shares and $10 million shares of common stock, respectively, were excluded from the treasury stock method computation of diluted shares as their inclusion would have had an antidilutive effect.
Potentially dilutive shares of common stock related to our 0.75% Convertible Senior Notes due 2016 issued during the fiscal year ended March 31, 2012, which have a conversion price of $31.74 per share and the associated Warrants, which have a conversion price of $41.14 per share, were excluded from the computation of Diluted EPS for the fiscal years ended March 31, 2014, 2013 and 2012 as their inclusion would have had an antidilutive effect resulting from the conversion price. The associated Convertible Note Hedge was excluded from the calculation of diluted shares as the impact is always considered antidilutive since the call option would be exercised by us when the exercise price is lower than the market price. See Note 12 for additional information related to our 0.75% Convertible Senior Notes due 2016 and related Convertible Note Hedge and Warrants.
(18)  SEGMENT INFORMATION
Our reporting segment is based upon: our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, our Chief Operating Decision Maker (“CODM”), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations.
Prior to the third quarter of fiscal 2014, our “EA Labels” operating segment was comprised of our five labels: EA Games, EA SPORTS, Maxis, PopCap and All Play. Our CODM regularly reviewed the aggregated results of the five labels to assess overall performance and allocate resources.
In September 2013, we announced the appointment of a new Chief Executive Officer. Our new Chief Executive Officer subsequently made a number of changes to our internal organizational structure and the manner in which our operations are managed. In addition, we redefined our definition of segment profit for management reporting. Our CODM currently reviews total company operating results to assess overall performance and allocate resources.
The following table summarizes the financial performance of our current segment operating profit and a reconciliation to our consolidated operating income for the fiscal years ended March 31, 2014, 2013 and 2012 . Our current segment operating profit differs from the prior “EA Labels” segment profit primarily due to the inclusion of (1) our Switzerland distribution revenues and expenses and (2) certain corporate and other functional costs such as our Global Publishing and Marketing organization expenses, which were previously not allocated to the EA Labels. Prior periods below have been restated to reflect our current reporting segment structure (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Segment:
 
 
 
 
 
Net revenue before revenue deferral
$
4,021

 
$
3,793

 
$
4,186

Depreciation
(126
)
 
(118
)
 
(102
)
Other expenses
(3,178
)
 
(3,308
)
 
(3,687
)
Segment operating profit
717

 
367

 
397

Reconciliation to consolidated operating income:
 
 
 
 
 
Other:
 
 
 
 
 
Revenue deferral
(3,350
)
 
(3,022
)
 
(3,142
)
Recognition of revenue deferral
2,904

 
3,026

 
3,099

Amortization of intangibles
(76
)
 
(123
)
 
(95
)
Acquisition-related contingent consideration
35

 
64

 
(11
)
Restructuring and other charges
1

 
(27
)
 
(16
)
Stock-based compensation
(150
)
 
(164
)
 
(170
)
Other expenses
(48
)
 
—

 
(27
)
Consolidated operating income
$
33

 
$
121

 
$
35


Our segment profit differs from consolidated operating income primarily due to the exclusion of (1) the deferral of certain net revenue related to online-enabled games (see Note 10 for additional information regarding deferred net revenue (online-enabled games)), (2) certain non-cash costs such as stock-based compensation, (3) acquisition-related expenses such as amortization of intangibles and acquisition-related contingent consideration, and (4) other significant non-recurring costs that may not be

92


indicative of the company’s core business, operating results or future outlook. Our CODM reviews assets on a consolidated basis and not on a segment basis.
Information about our total net revenue by revenue composition for the fiscal years ended March 31, 2014, 2013 and 2012 is presented below (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Packaged goods and other
$
1,663

 
$
2,255

 
$
2,761

Digital
1,833

 
1,440

 
1,159

Distribution
79

 
102

 
223

Net revenue
$
3,575

 
$
3,797

 
$
4,143

Information about our operations in North America and internationally as of and for the fiscal years ended March 31, 2014, 2013 and 2012 is presented below (in millions):  
 
Year Ended March 31,
 
2014
 
2013
 
2012
Net revenue from unaffiliated customers
 
 
 
 
 
North America
$
1,510

 
$
1,701

 
$
1,991

International
2,065

 
2,096

 
2,152

Total
$
3,575

 
$
3,797

 
$
4,143

 
As of March 31,
 
2014
 
2013
Long-lived assets
 
 
 
North America
$
1,940

 
$
2,024

International
470

 
498

Total
$
2,410

 
$
2,522

We attribute net revenue from external customers to individual countries based on the location of the legal entity that sells the products and/or services. Note that revenue attributed to the legal entity that makes the sale is often not the country where the consumer resides. For example, revenue generated by our Swiss legal entities includes digital revenue from consumers who reside outside of Switzerland, including consumers who reside outside of Europe. Revenue generated by our Swiss legal entities during fiscal years 2014, 2013, and 2012 represents $1,171 million , $885 million and $589 million or 33 percent , 23 percent and 14 percent of our total net revenue, respectively. Revenue generated in the United States represents over 99 percent of our total North America net revenue. There were no other countries with net revenue greater than 10 percent .
Our direct sales to GameStop Corp. represented approximately 13 percent , 13 percent , and 15 percent of total net revenue in fiscal years 2014, 2013, and 2012 , respectively.

93


(19)  QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED)  
 
Quarter Ended
 
Year
Ended
(In millions, except per share data)
June 30
 
September 30
 
December 31
 
March 31
 
Fiscal 2014 Consolidated
 
 
 
 
 
 
 
 
 
Net revenue
$
949

 
$
695

 
$
808

 
$
1,123

 
$
3,575

Gross profit
755

 
282

 
291

 
900

 
2,228

Operating income (loss)
233

 
(252
)
 
(292
)
 
344

 
33

Net income (loss)
222

(a)
(273
)
(b)
(308
)
(c)
367

(d)
8

Common Stock
 
 
 
 
 
 
 
 
 
Net income (loss) per share — Basic
$
0.73

 
$
(0.89
)
 
$
(1.00
)
 
$
1.18

 
$
0.03

Net income (loss) per share — Diluted
$
0.71

 
$
(0.89
)
 
$
(1.00
)
 
$
1.15

 
$
0.03

Common stock price per share
 
 
 
 
 
 
 
 
 
High
$
23.61

 
$
27.99

 
$
26.44

 
$
30.25

 
$
30.25

Low
$
16.91

 
$
23.18

 
$
20.97

 
$
21.54

 
$
16.91

Fiscal 2013 Consolidated
 
 
 
 
 
 
 
 
 
Net revenue
$
955

 
$
711

 
$
922

 
$
1,209

 
$
3,797

Gross profit
750

 
266

 
493

 
900

 
2,409

Operating income (loss)
215

 
(364
)
 
(39
)
 
309

 
121

Net income (loss)
201

(e)
(381
)
(f)
(45
)
(g)
323

(h)
98

Common Stock
 
 
 
 
 
 
 
 
 
Net income (loss) per share — Basic
$
0.63

 
$
(1.21
)
 
$
(0.15
)
 
$
1.07

 
$
0.32

Net income (loss) per share — Diluted
$
0.63

 
$
(1.21
)
 
$
(0.15
)
 
$
1.05

 
$
0.31

Common stock price per share
 
 
 
 
 
 
 
 
 
High
$
16.71

 
$
14.50

 
$
15.42

 
$
19.34

 
$
19.34

Low
$
11.89

 
$
10.94

 
$
11.91

 
$
13.70

 
$
10.94

(a)
Net income includes restructuring charges of $1 million and $7 million of acquisition-related contingent consideration, both of which are pre-tax amounts.
(b)
Net loss includes restructuring charges of $(2) million and $(44) million of acquisition-related contingent consideration, both of which are pre-tax amounts.
(c)
Net loss includes pre-tax restructuring charges of $(1) million .
(d)
Net income includes restructuring charges of $1 million and $2 million of acquisition-related contingent consideration, both of which are pre-tax amounts.
(e)
Net income includes restructuring charges of $27 million and $(20) million of acquisition-related contingent consideration, both of which are pre-tax amounts.
(f)
Net loss includes pre-tax restructuring charges of $(2) million .
(g)
Net loss includes $(45) million of acquisition-related contingent consideration, $(14) million gain on strategic investments, net, $6 million of impairment charges on acquisition-related intangible assets, and restructuring charges of $2 million , all of which are pre-tax amounts.
(h)
Net income includes $31 million of impairment charges on acquisition-related intangible assets, $(25) million of gain on strategic investments, net, and $1 million of acquisition-related contingent consideration, both of which are pre-tax amounts.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “EA”. The prices for the common stock in the table above represent the high and low closing sales prices as reported on the NASDAQ Global Select Market.

94


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 March 29, 2014 and March 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‑year period ended March 29, 2014. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Electronic Arts Inc. and subsidiaries as of March 29, 2014 and March 30, 2013, and the results of their operations and their cash flows for each of the years in the three‑year period ended March 29, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Electronic Arts Inc.’s internal control over financial reporting as of March 29, 2014, based on criteria established in Internal Control - Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 21, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Santa Clara, California
May 21, 2014




95


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Electronic Arts Inc.:
We have audited Electronic Arts Inc.’s (the Company) internal control over financial reporting as of March 29, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Electronic Arts Inc. maintained, in all material respects, effective internal control over financial reporting as of March 29, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Electronic Arts Inc. and subsidiaries as of March 29, 2014 and March 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 29, 2014. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule. Our report dated May 21, 2014 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Santa Clara, California
May 21, 2014





96


Item 9:      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A:      Controls and Procedures
Definition and Limitations of Disclosure Controls
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluates these controls and procedures on an ongoing basis.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, believe that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing the requisite reasonable assurance that material information required to be disclosed 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 appropriate to allow timely decisions regarding the required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Our internal control over financial reporting is designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of internal control over financial reporting. These limitations include the possibility of human error, the circumvention or overriding of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with our policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of the end of our most recently completed fiscal year. In making its assessment, management used the criteria set forth in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management believes that, as of the end of our most recently completed fiscal year, our internal control over financial reporting was effective.
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 96.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation that occurred during the fiscal year ended March 31, 2014 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Item 9B:      Other Information
None.

97


PART III

Item 10:      Directors, Executive Officers and Corporate Governance
The information required by Item 10, other than the information regarding executive officers, which is included in Item 1 of this report, is incorporated herein by reference to the information to be included in our Proxy Statement for our 2014 Annual Meeting of Stockholders (the “Proxy Statement”) under the headings “Proposal 1: Election of Directors,” “Global Code of Conduct,” and “Report of the Audit Committee of the Board of Directors.” The information regarding Section 16 compliance is incorporated herein by reference to the information to be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”
 
Item 11:      Executive Compensation
The information required by Item 11 is incorporated herein by reference to the information to be included in the Proxy Statement, under the headings “Director Compensation and Stock Ownership Guidelines,” “Executive Compensation,” “Compensation Committee Report on Executive Compensation” and “Compensation Committee Interlocks and Insider Participation.”
 
Item 12:      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated herein by reference to the information to be included in the Proxy Statement under the headings “Equity Compensation Plan Information” and “Principal Stockholders.”
 
Item 13:      Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated herein by reference to the information to be included in the Proxy Statement under the headings “Director Independence,” “Board of Directors, Board Meetings and Committees” and “Certain Relationships and Related Person Transactions.”
 
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 Proxy Statement under the heading “Proposal 3: Ratification of the Appointment of KPMG LLP, Independent Registered Public Accounting Firm.”
 
PART IV
Item 15:      Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report
1.   Financial Statements: See Index to Consolidated Financial Statements under Item 8 on Page 53 of this report.
2.   Financial Statement Schedule: See Schedule II on Page 100 of this report.
3.   Exhibits: The exhibits listed in the accompanying index to exhibits on Page 101 are filed or incorporated by reference as part of this report.

98


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ELECTRONIC ARTS INC.
 
 
 
 
By:
/s/    Andrew Wilson
 
 
Andrew Wilson
 
 
Chief Executive Officer
 
 
Date: May 21, 2014
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 Registrant and in the capacities indicated and on the 21 st of May 2014.
 
Name
 
Title
 
 
 
/s/    Andrew Wilson
 
Chief Executive Officer
Andrew Wilson
 
 
 
 
 
/s/ Blake Jorgensen
 
Executive Vice President,
Blake Jorgensen
 
Chief Financial Officer
 
 
 
/s/    Kenneth A. Barker
 
Senior Vice President,
Kenneth A. Barker
 
Chief Accounting Officer
 
 
(Principle Accounting Officer)
 
 
 
Directors:
 
 
/s/    Lawrence F. Probst III
 
Executive Chairman
Lawrence F. Probst III
 
 
 
 
 
/s/    Jay C. Hoag
 
Director
Jay C. Hoag
 
 
 
 
 
/s/    Jeffrey T. Huber
 
Director
Jeffrey T. Huber
 
 
 
 
 
/s/    Vivek Paul
 
Director
Vivek Paul
 
 
 
 
 
/s/    Richard A. Simonson
 
Director
Richard A. Simonson
 
 
 
 
 
/s/    Luis A. Ubiñas
 
Director
Luis A. Ubiñas
 
 
 
 
 
/s/    Andrew Wilson
 
Director
Andrew Wilson
 
 

99


ELECTRONIC ARTS INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended March 31, 2014, 2013 and 2012
(In millions)
 
Allowance for Doubtful Accounts,
Price Protection and Returns
Balance at
Beginning
of Period
 
Charged to
Revenue,
Costs and
Expenses
 
Charged
(Credited)
to Other
Accounts (a)
 
Deductions (b)
 
Balance at
End of
Period
Year Ended March 31, 2014
200

 
355

 
3

 
(372
)
 
186

Year Ended March 31, 2013
252

 
371

 
(4
)
 
(419
)
 
200

Year Ended March 31, 2012
304

 
463

 
(13
)
 
(502
)
 
252

 
(a)
Primarily other reclassification adjustments and the translation effect of using the average exchange rate for expense items and the year-end exchange rate for the balance sheet item (allowance account).

(b)
Primarily the utilization of returns allowance and price protection reserves.


100


ELECTRONIC ARTS INC.
2014 FORM 10-K ANNUAL REPORT
EXHIBIT INDEX
 
 
  
   
 
Incorporated by Reference
  
Filed
Herewith
Number
  
Exhibit Title
 
Form
  
File No.
  
Filing Date
  
3.01
 
Amended and Restated Certificate of Incorporation
 
10-Q
 
000-17948
 
11/3/2004
  
 
 
 
 
 
 
 
 
 
 
 
 
3.02
 
Amended and Restated Bylaws
 
8-K
 
000-17948
 
8/1/2013
  
 
 
 
 
 
 
 
 
4.01
 
Specimen Certificate of Registrant’s Common Stock
 
10-K
 
000-17948
 
5/22/2009
  
 
 
 
 
 
 
 
 
4.02
 
Indenture (including form of Notes) with respect to EA’s 0.75% Convertible Senior Notes due 2016 dated as of July 20, 2011 by and between EA and U.S. Bank
National Association
 
8-K
 
000-17948
 
7/20/2011
  
 
 
 
 
 
 
 
 
10.01*
 
Form of Indemnity Agreement with Directors
 
10-K
 
000-17948
 
6/4/2004
  
 
 
 
 
 
 
 
 
10.02*
 
Electronic Arts Inc. Executive Bonus Plan
 
8-K
 
000-17948
 
7/27/2012
  
 
 
 
 
 
 
 
 
10.03*
 
Electronic Arts Deferred Compensation Plan
 
10-Q
 
000-17948
 
8/6/2007
  
 
 
 
 
 
 
 
 
10.04*
 
Electronic Arts Key Employee Continuity Plan
 
10-Q
 
000-17948
 
2/5/2013
  
 
 
 
 
 
 
 
 
10.05*
 
First Amendment to the Electronic Arts Deferred Compensation Plan, as amended and restated
 
10-K
 
000-17948
 
5/22/2009
  
 
 
 
 
 
 
 
 
10.06*
 
EA Bonus Plan
 
10-Q
 
000-17948
 
11/8/2010
 
 
 
 
 
 
 
 
 
10.07*
 
Form of 2012 Performance-Based Restricted Stock Unit Agreement
 
8-K
 
000-17948
 
5/18/2012
 
 
 
 
 
 
 
 
 
10.08*
 
Form of 2013 Performance-Based Restricted Stock Unit Agreement
 
8-K
 
000-17948
 
5/16/2013
 
 
 
 
 
 
 
 
 
10.09*
 
Form of 2014 Performance-Based Restricted Stock Unit Agreement
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
10.10*
 
EA Bonus Plan Fiscal Year 2014 Addendum
 
8-K
 
000-17948
 
5/16/2013
 
 
 
 
 
 
 
 
 
10.11*
 
2000 Equity Incentive Plan, as amended, and related documents
 
8-K
 
000-17948
 
8/1/2013
 
 
 
 
 
 
 
 
 
 
10.12*
 
2000 Employee Stock Purchase Plan, as amended
 
8-K
 
000-17948
 
8/1/2013
 
 
 
 
 
 
 
 
 
10.13*
 
Offer Letter for Employment at Electronic Arts Inc. to Andrew Wilson, dated September 15, 2013
 
8-K
 
000-17948
 
9/17/2013
 
 
 
 
 
 
 
 
 
 
 
 
10.14*
 
Offer Letter for Employment at Electronic Arts Inc. to Blake Jorgensen, dated July 25, 2012
 
8-K
 
000-17948
 
7/31/2012
 
 
 
 
 
 
 
 
 
 
 
 
 
10.15*
 
Employment Agreement for Patrick Söderlund, dated September 17, 2013
 
10-Q
 
000-17948
 
11/5/2013
 
 
 
 
 
 
 
 
 
10.16*
 
Separation Agreement dated as of March 25, 2013 between Electronic Arts Inc. and John Riccitiello
 
10-K
 
000-17948
 
5/22/2013
  
 
 
 
 
 
 
 
 
10.17
 
Lease agreement between ASP WT, L.L.C. and Tiburon Entertainment, Inc. for space at Summit Park I, dated June 15, 2004
 
10-Q
 
000-17948
 
8/3/2004
  
 
 
 
 
 
 
 
 
 
 
 
 
10.18
 
First amendment to lease, dated December 13, 2005, by and between Liberty Property Limited Partnership, a Pennsylvania limited partnership and Electronic Arts - Tiburon, a Florida corporation f/k/a Tiburon Entertainment, Inc.
 
10-Q
 
000-17948
 
2/8/2006
 
 

101


 
  
   
 
Incorporated by Reference
  
Filed
Herewith
Number
  
Exhibit Title
 
Form
  
File No.
  
Filing Date
  
10.19
 
Second Amendment to Lease, dated May 8, 2009, by and between Liberty Property Limited Partnership, a Pennsylvania limited partnership and Electronic Arts - Tiburon, a Florida corporation f/k/a Tiburon Entertainment, Inc.
 
10-Q
 
000-17948
 
8/10/2009
  
 
 
 
 
 
 
 
 
 
 
 
 
10.20
 
Third amendment to lease, dated December 24, 2009, by and between Liberty Property Limited Partnership, a Pennsylvania limited partnership and Electronic Arts - Tiburon, a Florida corporation f/k/a Tiburon Entertainment, Inc.
 
10-Q
 
000-17948
 
2/9/2010
  
 
 
 
 
 
 
 
 
 
 
 
 
10.21
 
Fourth Amendment to lease, dated May 16, 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.
 
 
 
 
 
 
  
X
 
 
 
 
 
 
 
 
 
 
 
10.22**
 
First Amended North American Territory Rider to the Global PlayStation ®  3 Format Licensed Publisher Agreement, dated September 11, 2008, by and between the Electronic Arts Inc. and Sony Computer Entertainment America Inc.
 
10-Q
 
000-17948
 
11/10/2009
 
 
 
 
 
 
 
 
 
10.23**
 
Sony Computer Entertainment Europe Limited Regional Rider to the Global PlayStation ®  3 Format Licensed Publisher Agreement, dated December 17, 2008, by and between EA International (Studio and Publishing) Limited and Sony Computer Entertainment Europe Limited
 
10-Q
 
000-17948
 
11/10/2009
  
 
 
 
 
 
 
 
 
 
 
 
10.24**
 
Global PlayStation ®  3 Format Licensed Publisher Agreement, dated September 11, 2008, by and between the Electronic Arts Inc. and Sony Computer Entertainment America Inc.
 
10-Q/A
 
000-17948
 
4/30/2010
  
 
 
 
 
 
 
 
 
10.25**
 
Global PlayStation ®  3 Format Licensed Publisher Agreement, dated December 17, 2008, by and between EA International (Studio and Publishing) Limited and Sony Computer Entertainment Europe Limited
 
10-Q/A
 
000-17948
 
4/30/2010
  
 
 
 
 
 
 
 
 
10.26**
 
Xbox2 Publisher License Agreement, dated May 15, 2005, by and among Electronic Arts Inc., Electronic Arts C.V. and Microsoft Licensing, GP
 
10-Q/A
 
000-17948
 
4/30/2010
  
 
 
 
 
 
 
 
 
10.27***
 
Durango Publisher License Agreement, dated June 29, 2012, by and among Electronic Arts Inc., EA International (Studio & Publishing) Ltd., Microsoft Licensing, GP and Microsoft Corporation
 
 
 
 
 
 
  
X
 
 
 
 
 
 
 
10.28
 
Form of Call Option Agreement dated as of July 14, 2011 between EA and each Option Counterparty
 
8-K
 
000-17948
 
7/20/2011
  
 
 
 
 
 
 
 
 
 
 
 
10.29
 
Form of Warrant Agreement dated July 14, 2011 between EA and each Option Counterparty
 
8-K
 
000-17948
 
7/20/2011
  
 
 
 
 
 
 
 
 
10.30
 
Form of Additional Call Option Agreement dated July 18, 2011 between EA and each Option Counterparty
 
8-K
 
000-17948
 
7/20/2011
  
 
 
 
 
 
 
 
 
 
10.31
 
Form of Additional Warrant Agreement dated July 18, 2011 between EA and each Option Counterparty
 
8-K
 
000-17948
 
7/20/2011
  
 
 
 
 
 
 
 
 
 
 
 
 
10.32
 
Credit Agreement, dated August 30, 2012, by and among Electronic Arts Inc., the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.
 
8-K
 
000-17948
 
8/30/2012
 
 
 
 
 
 
 
 
 
21.01
 
Subsidiaries of the Registrant
 
 
 
 
 
 
 
X
 

102


 
  
  
 
Incorporated by Reference
  
Filed
Herewith
Number
  
Exhibit Title
 
Form
  
File No.
  
Filing Date
  
23.01
 
Consent of KPMG LLP, Independent Registered Public Accounting Firm
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
31.01
 
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
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
31.02
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
Additional exhibits furnished with this report:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32.01
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
32.02
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
101.INS †
 
XBRL Instance Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
101.SCH †
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
101.CAL †
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
101.DEF †
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
101.LAB †
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
101.PRE †
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
*
Management contract or compensatory plan or arrangement.
**
Confidential portions of these documents have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment that was granted in accordance with Exchange Act Rule 24b-2.
***
Confidential portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
†  
Attached as Exhibit 101 to this Annual Report on Form 10-K for the year ended March 31, 2014 are the following formatted in eXtensible Business Reporting Language (“XBRL”): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income (Loss), (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, and (6) Notes to Consolidated Financial Statements.


103

Exhibit 10.09

ELECTRONIC ARTS INC.
2000 EQUITY INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD

[PARTICIPANT INFORMATION]

Electronic Arts Inc., a Delaware corporation, (the “Company”) hereby grants on the date hereof (the “Award Date”) to the Participant named above a Performance-Based Restricted Stock Unit Award (the “Award”) consisting of Restricted Stock Units issued under the Company’s 2000 Equity Incentive Plan, as amended (the “Plan”), to receive the total number of units set forth below of the Company’s Common Stock (the “Award Units”). The Award is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4)(C) of the Code. The Award is subject to all the terms and conditions set forth herein, in the attached Appendix A, Appendix B, Appendix C and in the Plan, the provisions of which are incorporated herein by reference. The principal features of the Award are as follows:

TARGET NUMBER OF AWARD UNITS:     [___________]
MAXMIMUM NUMBER OF AWARD UNITS*:      [___________]
* The actual number of Award Units that vest pursuant to the terms and condition of this Award will be between 0% and 200% of the Target Number of Award Units. The Maximum Number of Award Units represents 200% of the Target Number of Award Units.

Performance-based Vesting Schedule: Subject to the terms and conditions of the Plan, Appendix A, Appendix B, and this paragraph, the number of Award Units that vest on the applicable Vest Date for each Measurement Period shall be based (after certification by the Committee as described below) on the relative total stockholder return (“Relative TSR”) percentile ranking of the Company for each Measurement Period, provided Participant is, and has remained continuously since the Award Date through each applicable Vest Date, employed by the Company or a Subsidiary. Participant shall not be considered to have terminated employment for purposes of the vesting requirements during a leave of absence that is protected under local law (which may include, but is not limited to, a maternity, paternity, disability, medical, or military leave), provided that such period shall not exceed the maximum leave of absence period protected by local law. Following the completion of each Measurement Period, the Committee shall determine and certify, on or before each Vest Date, in accordance with the requirements of Section 162(m) of the Code the Relative TSR percentile ranking for the applicable Measurement Period and the number of Award Units that vest according to the performance terms set forth in Appendix B; provided, however, that the Committee retains discretion to reduce, but not increase the number of Award Units that would

1


otherwise vest as a result of the Company’s Relative TSR percentile ranking for each Measurement Period. 

PLEASE READ ALL OF APPENDIX A, APPENDIX B AND APPENDIX C WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THE AWARD.



ELECTRONIC ARTS INC.                                      
/s/                            DATE
Senior Vice President and General Counsel

ACCEPTANCE:

By accepting this Award and signing below, Participant hereby acknowledges that a copy of the Plan and a copy of the Prospectus, as amended, are available upon request from the Company’s Stock Administration department and can also be accessed electronically. Participant represents that Participant has read and understands the terms and conditions thereof, and accepts the Award subject to all the terms and conditions of the Plan, the Award, including appendices thereto. Participant acknowledges that there may be adverse tax consequences due to the Award and that Participant should consult a tax advisor to determine his or her actual tax consequences. Participant must accept this Award by executing and delivering a paper or electronic version to the Company within thirty (30) days. Otherwise the Company may, at its discretion, rescind the Award in its entirety.



                    
Participant Signature

__________________________
Date









2



APPENDIX A
ELECTRONIC ARTS INC.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD

1. Award . Each Award Unit represents the unsecured right to receive one share of Electronic Arts Inc. common stock, $0.01 par value per share (“Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Restricted Stock Unit Award (“Award”), and the Electronic Arts’ 2000 Equity Incentive Plan, as amended (the “Plan”). In the event of any conflict between the terms of the Plan and this Award, including appendices thereto, the terms of the Plan shall govern. Any terms not defined herein shall have the meaning set forth in the Plan.

2. Award Date. The Award Date shall be the date on which the Committee makes the determination to grant such Restricted Stock Units, unless otherwise specified by the Committee. The Award will be delivered to Participant within a reasonable time after the Award Date.

3. No Stockholder Rights . The Award does not entitle Participant to any rights of a stockholder of Common Stock. The rights of Participant with respect to the Award shall remain forfeitable at all times prior to the date on which such rights become vested.

4. Conversion of Award Units; Issuance of Common Stock . No Shares of Common Stock shall be issued to Participant prior to each Vest Date. After any Award Units vest, the Company shall promptly cause to be issued in book-entry form, registered in Participant’s name or in the name of Participant’s legal representatives, beneficiaries or heirs, as the case may be, Common Stock in payment of such vested whole Award Units; provided, however, that in the event such Award Units do not vest on a day during which the Common Stock is quoted on the NASDAQ Global Select Market (or traded on such other principal national securities market or exchange on which the Common Stock may then be listed) (“Trading Day”), the Company shall cause Award Shares to be issued on the next Trading Day following the date on which such Award Units vest; provided, further, that in no event shall the Company cause such Shares to be issued later than two (2) months after each Vest Date. For purposes of this Award, the date on which vested Award Units are converted into Common Stock shall be referred to as the “Conversion Date.”

5. Fractional Award Units . In the event Participant is vested in a fractional portion of an Award Unit (a “Fractional Portion”), such Fractional Portion shall not be converted into a share or issued to Participant. Instead, the Fractional Portion shall remain unconverted until the final Vest Date for the Award Units; provided, however, if Participant vests in a subsequent Fractional Portion prior to the final Vest Date for the Award Units and such Fractional Portion taken together with a previous Fractional Portion accrued by Participant under this Award would equal or be greater than a whole

3


Share, then such Fractional Portions shall be converted into one Share; provided, further, that following such conversion, any remaining Fractional Portion shall remain unconverted. Upon the final Vest Date, the value of any remaining Fractional Portion(s) shall be rounded up to the nearest whole Award Unit at the same time as the conversion of the remaining Award Units and issuance of Common Stock described in Section 4 above.

6. Restriction on Transfer . Neither the Award Units nor any rights under this Award may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of by Participant other than by will or by the laws of descent and distribution, and any such purported sale, assignment, transfer, pledge, hypothecation or other disposition shall be void and unenforceable against the Company. Notwithstanding the foregoing, Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise Participant’s rights and receive any property distributable with respect to the Award Units upon Participant’s death.

7. Forfeiture Upon Termination of Employment .

(a)    Except as otherwise provided in Section 7(b) or 10(b) hereof in the event that Participant’s employment or service is Terminated for any reason, any unvested Award Units that are not yet vested as of the date of Termination shall be forfeited immediately upon such Termination, as described in Section 12(l) below.

(b)    In the event of a Termination due to the death or Disability of Participant, the Participant shall vest in a pro-rata portion of the Award Units on each remaining Vest Date in the Performance Period thereafter, with such number of Award Units vesting to be determined based upon the actual Relative TSR percentile ranking for the applicable Measurement Period, as set forth in Appendix B, and the number of months worked by the Participant during the Measurement Period, based upon the following pro-ration formula:

Number of Award Units determined to vest on each Vest Date multiplied by the number of calendar months worked by Participant from (i) March 30, 2014 through the date of Termination due to death or Disability divided by (i) twelve (12) for the 1 st Measurement Period; (ii) twenty-four (24) for the 2 nd Measurement Period; and (iii) thirty-six (36) for the 3 rd Measurement Period.

Participant shall be deemed to have worked a calendar month if Participant has worked
any portion of that month. The Committee’s determination of vested Award Units shall be in whole Award Units only and will be binding on the Participant.

8. Forfeiture Upon Termination of Performance Period . Any Award Units that do not vest, pursuant to the terms of Appendix B, for the Performance Period shall be forfeited.


4


9. Suspension of Award and Repayment of Proceeds for Contributing Misconduct . If at any time the Committee reasonably believes that a Participant, other than an Outside Director, has engaged in an act of misconduct, including, but not limited to an act of embezzlement, fraud or breach of fiduciary duty during the Participant’s employment that contributed to an obligation to restate the Company’s financial statements (“Contributing Misconduct”), the Committee may suspend the vesting of the Award pending a determination of whether an act of Contributing Misconduct has been committed. If the Committee determines that a Participant has engaged in an act of Contributing Misconduct, then the Award will terminate immediately upon such determination and the Committee may require Participant to repay to the Company, in cash and upon demand, the Award Proceeds (as defined below) resulting from any sale or other disposition (including to the Company) of Shares issued or issuable upon the vesting of the Award if the sale or disposition was effected during the twelve-month period following the first public issuance or filing with the SEC of the financial statements required to be restated. The term “Award Proceeds” means, with respect to any sale or other disposition (including to the Company) of Shares issued or issuable upon vesting of Award Units, an amount determined appropriate by the Committee to reflect the effect of the restatement on the Company’s stock price, up to the amount equal to the market value per Share at the time of such sale or other disposition multiplied by the number of Shares sold or disposed of. The return of Award Proceeds is in addition to and separate from any other relief available to the Company due to the Participant’s Contributing Misconduct. Any determination by the Committee with respect to the foregoing shall be final, conclusive and binding on all interested parties. For any Participant who is designated as an “executive officer”, the determination of the Committee shall be subject to the approval of the Board of Directors.

10. Change of Control .

(a) Upon a Change of Control prior to the expiration of the Performance Period, the Committee shall certify the Relative TSR percentile ranking as of the effective date of the Change of Control (the “CoC TSR percentile ranking”) for the current Measurement Period, as set forth in Appendix B. The CoC TSR percentile ranking shall thereafter be applied to determine the number of shares that vest on each remaining Vest Date in the Performance Period or pursuant to section 10(b), and no other performance terms applicable thereto shall have any force or effect for purposes of determining the vesting of the Award Units.
(a)      Notwithstanding any provision to the contrary under the Electronic Arts Inc. Key Employee Continuity Plan (the “Continuity Plan”) or subsection (a) above, and subject to the timely execution, return, and non-revocation of a Severance Agreement and Release, unvested Award Units, shall automatically vest: (i) as of the date of the Participant’s Termination of employment with the Company if such Termination occurs during the time period beginning on the effective date of the Change of Control and ending on the first anniversary of the effective date of the Change of Control; and provided further that the Termination is initiated by the Company without Cause, or by

5


Participant for Good Reason (as these terms are defined in Section 10(c)); or (ii) as of the effective date of the date of the Change of Control if a Participant’s employment is Terminated without Cause during the two (2) months immediately preceding a Change of Control, and such Termination is made in connection with the Change of Control, as determined by the Committee in its sole discretion; provided that in the case of either clause (i) or clause (ii) of this provision, such employment Termination meets the criteria for a “separation from service” as defined in Treas. Reg. §1.409A-1(h).
(b)      For purposes of this Award Agreement:
(i)      “Cause” means (i) the continued failure by Participant to substantially perform Participant’s duties with the Company (other than any such failure resulting from Participant’s incapacity due to physical or mental illness), (ii) the engaging by Participant in conduct which is demonstrably injurious to the Company or any of its affiliates, monetarily or otherwise, (iii) Participant committing any felony or any crime involving fraud, breach of trust or misappropriation or (iv) any breach or violation of any agreement or written code of conduct relating to Participant’s employment with the Company where the Company, in its sole discretion, determines that such breach or violation materially and adversely affects the Company or any of its affiliates.
(ii)      “Change of Control” means the occurrence of an event as set forth in any one of the following paragraphs:
(1)      any Person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its affiliates, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) is or becomes the Beneficial Owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company other than securities acquired by virtue of the exercise of a conversion or similar privilege or right unless the security being so converted or pursuant to which such right was exercised was itself acquired directly from the Company) representing 50% or more of (X) the then outstanding shares of common stock of the Company or (Y) the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors; or
(2)      the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board (the “Incumbent Board”): individuals who, as of the date of this Award,

6


constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, without limitation, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors on the date of this Award, or whose appointment, election or nomination for election was previously so approved or recommended; or
(3)      there is consummated a merger or consolidation of the Company or any Subsidiary of the Company with any other corporation, other than a merger or consolidation pursuant to which (A) the voting securities of the Company outstanding immediately prior to such merger or consolidation will continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the outstanding shares of common stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; (B) no Person will become the Beneficial Owner, directly or indirectly, of securities of the Company or such surviving entity or any parent thereof representing 50% or more of the outstanding shares of common stock or the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to such merger or consolidation); and (C) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation (or any parent thereof) resulting from such merger or consolidation; or
(4)      the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, (A) more than 50% of the outstanding shares of common stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of which (or of any parent of such entity) is owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; (B) in which (or in any parent of such entity) no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the outstanding shares of common stock resulting from such sale or disposition or the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors (except to the extent that such ownership

7


existed prior to such sale or disposition); and (C) in which (or in any parent of such entity) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors.
(iii)      “Good Reason” means: the occurrence without Participant’s written consent, of any of the following on or after the date of a Change of Control:
(1)      a change in the location of Participant’s principal place of business by more than 50 miles when compared to Participant’s principal place of business immediately before the Change of Control; and
(A) a more than 10% reduction in Participant’s annual base salary in effect immediately before the Change of Control; (B) a more than 10% reduction in Participant’s target annual bonus or incentive opportunity from that in effect immediately before the Change of Control, or (C) a more than 10% reduction in Participant’s total target annual cash compensation, including without limitation, annual base salary and target annual bonus or incentive opportunity, from that in effect immediately before the Change of Control; and (D) with respect to only those Participants in the position of CEO, CFO, Chief Talent Officer, EVP Legal and Business Affairs, SVP Tax and Treasury, General Counsel or Chief Accounting Officer of the Company on the Award Date, the occurrence without the affected Participant’s written consent, on or after the date of a Change of Control, of a material reduction in Participant’s authority, duties, or responsibilities, including, without limitation, a material diminution in the authority, duties, or responsibilities of the supervisor to whom Participant is required to report, which shall include a requirement that a Participant report to a corporate officer or employee instead of reporting directly to the board of directors of a corporation (or similar governing body with respect to an entity other than a corporation), when compared to Participant’s authority, duties, or responsibilities, or the authority, duties or responsibilities of the supervisor to whom Participant is required to report, immediately before the Change of Control.
(2)      Notwithstanding the foregoing, Good Reason shall exist only if the following conditions are met: (A) Participant gives the Company written notice of his or her intention to terminate employment with the Company for Good Reason; (B) such notice is delivered to the Company within 90 days of the initial existence of the condition giving rise to the right to terminate for Good Reason, and at least 30 days in advance of the date of termination; (C) the Company fails to cure the alleged Good Reason to the reasonable satisfaction of Participant prior to Participant’s termination, and (D) the events described in the preceding sentence, singly or in combination, result in a material negative change in Participant’s employment relationship with the Company, so that Participant’s termination effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code.

8


(iv)      “Severance Agreement and Release” means the written separation agreement and release substantially in the form set forth in Appendix C, as may be amended from time to time.
(c)      Anything to the contrary in this Award or the Plan notwithstanding, in the event that following the Award Date and prior to a Change of Control the Committee determines, in its sole discretion, that the Award would fail to qualify as "qualified performance-based compensation" as described in Section 162(m)(4)(C) of the Code because of the provisions of Section 10(b) the Committee may adopt such amendments (including with retroactive effect) to the provisions of Section 10(b) , including eliminating the effect of the provisions of Section 10(b), that the Committee reasonably determines, in its sole discretion, are required to preserve the treatment of the Award as qualified performance-based compensation under Section 162(m) of the Code prior to a Change of Control. Notwithstanding the foregoing, nothing in the proceeding sentence provides the Committee with any rights or discretion that is not itself permitted under Section 162(m).
 
11. Section 280G Provision . If Participant, upon taking into account the benefit provided under this Award and all other payments that would be deemed to be “parachute payments” within the meaning of Section 280G of the Code (collectively, the “280G Payments”), would be subject to the excise tax under Section 4999 of the Code, notwithstanding any provision of this Award to the contrary, Participant’s benefit under this Award shall be reduced to an amount equal to (i) 2.99 times Participant’s “base amount” (within the meaning of Section 280G of the Code), (ii) minus the value of all other payments that would be deemed to be “parachute payments” within the meaning of Section 280G of the Code (but not below zero); provided, however, that the reduction provided by this sentence shall not be made if it would result in a smaller aggregate after-tax payment to Participant (taking into account all applicable federal, state and local taxes including the excise tax under Section 4999 of the Code). Participant’s benefit hereunder shall be reduced prior to any benefit owing to Participant under the Continuity Plan may be reduced pursuant to Section 2.11 of the Continuity Plan. Unless the Company and Participant otherwise agree in writing, all determinations required to be made under this Section 11, and the assumptions to be used in arriving at such determinations, shall be made in writing in good faith by the accounting firm serving as the Company’s independent public accountants immediately prior to the events giving rise to the payment of such benefits (the “Accountants”). For the purposes of making the calculations required under this Section 11, the Accountants may make reasonable assumptions and approximations concerning the application of Sections 280G and 4999 of the Code. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 11.




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12. Acknowledgement of Nature of Plan and Award . In accepting the Award, Participant acknowledges that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan;

(b) the Award is voluntary and occasional and does not create any contractual or other right to receive future awards of Award Units, or benefits in lieu of Award Units, even if Award Units have been granted repeatedly in the past;

(c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

(d) nothing in the Plan or the Award shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or Participant’s employer or limit in any way the right of the Company or Participant’s employer to Terminate Participant’s employment or service relationship at any time, with or without cause;

(e) Participant’s participation in the Plan is voluntary;

(f) the Award Units are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or Participant’s employer, and which is outside the scope of Participant’s employment or service contract, if any;

(g) notwithstanding any other provisions of the Plan or this Award, this Award is intended to provide tax-qualified performance based compensation in accordance with Section 162(m)(4)(C) of the Code to Participant. Accordingly, this Award shall be construed consistent with that intent;

(h) the Award Units are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event may be considered as compensation for, or relating in any way to, past services for the Company or Participant’s employer;

(i) in the event that Participant is not an employee of the Company, the Award and Participant’s participation in the Plan will not be interpreted to form an employment or service contract or relationship with the Company; and furthermore, the Award will not be interpreted to form an employment or service contract or relationship with Participant’s employer or any Subsidiary;


10


(j) the future value of the underlying Shares of Common Stock is unknown and cannot be predicted with certainty;

(k) in consideration of the Award, no claim or entitlement to compensation or damages shall arise from termination of the Award Units or diminution in value of the Award Units or Shares of Common Stock received upon vesting of the Award Units resulting from Termination of Participant’s employment by the Company or Participant’s employer (for any reason whatsoever and whether or not in breach of local labor laws), and Participant irrevocably releases the Company and Participant’s employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the Award, Participant will be deemed irrevocably to have waived his or her entitlement to pursue such claim;

(l) except as otherwise provided by the Committee or pursuant to Section 10(b) hereof, in the event of Termination of Participant’s employment (whether or not in breach of local labor laws), Participant’s right to receive an Award and vest in the Award Units under the Plan, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); the Committee shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of his or her Award;

(m) the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares of Common Stock; and

(n) Participant is hereby advised to consult with his or her own tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.

13. Tax Withholding . Regardless of any action the Company or Participant’s employer takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other applicable taxes (“Tax Items”) in connection with the Award, Participant hereby acknowledges and agrees that the ultimate liability for all Tax Items legally due by Participant is and remains the responsibility of Participant. Further, if Participant has become subject to tax in more than one jurisdiction between the date of grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.


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(a)      Participant acknowledges and agrees that the Company and/or Participant’s employer: (i) make no representations or undertakings regarding the treatment of any Tax Items in connection with any aspect of the Award, including, but not limited to, the grant or vesting of the Award Units, the subsequent sale of Shares of Common Stock acquired under the Plan and the receipt of any dividends; and (ii) do not commit to structure the terms of the Award or any aspect of the Award to reduce or eliminate Participant’s liability for Tax Items.

(b)      Prior to delivery of Shares of Common Stock upon the vesting of the Award Units (“Award Shares”), Participant must pay or make adequate arrangements satisfactory to the Company and/or Participant’s employer to satisfy all withholding obligations for Tax Items of the Company and/or Participant’s employer. In this regard, Participant authorizes the Company and/or Participant’s employer, at their discretion and if permissible under local law, to satisfy the obligations with regard to all Tax Items legally payable by Participant by one or a combination of the following:

(i) withholding Shares from the delivery of the Award Shares, provided that the Company only withholds a number of Shares with a Fair Market Value equal to or below the minimum withholding amount for Tax Items, provided, however, that in order to avoid issuing fractional Shares, the Company may round up to the next nearest number of whole Shares, as long as the Company issues no more than a single whole Share in excess of the minimum withholding obligation for Tax Items. For example, if the minimum withholding obligation for Tax Items is $200 and the Fair Market Value of the Common Stock is $20 per share, then the Company may withhold up to ten (10) Shares from the delivery of Award Shares on the Conversion Date. The Company or Participant’s employer will remit the total amount withheld for Tax Items to the appropriate tax authorities; or

(ii) withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or Participant’s employer; or

(iii) selling or arranging for the sale of Award Shares.

Participant shall pay to the Company or Participant’s employer any amount of Tax Items that the Company or Participant’s employer may be required to withhold as a result of Participant’s participation in the Plan that cannot be satisfied by one or more of the means previously described. The Company may refuse to deliver the Award Shares if Participant fails to comply with his or her obligations in connection with the Tax Items as described in this section.

14. Compliance with Laws and Regulations . The issuance and transfer of Common Stock shall be subject to compliance by the Company and Participant with all applicable requirements of federal, state and non-U.S. laws and with all applicable requirements of any stock exchange or national market system on which the Company’s Common Stock may be listed at the time of such issuance or transfer. The Company is

12


not required to issue or transfer Common Stock if to do so would violate such requirements.

15. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in the Award and any other Award materials by and among, as applicable, Participant’s employer, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company and Participant’s employer may hold certain personal information about him or her, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

Participant understands that Data will be transferred to E*Trade Financial Services, Inc. or such other stock plan service provider as may be selected by Participant or as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative. Participant authorizes the Company, E*Trade Financial Services, Inc. and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing Participant’s participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s local human resources representative. Participant understands, however, that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.

16. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award or future awards made under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system

13


established and maintained by the Company or another third party designated by the Company.

17. Authority of the Board and the Committee . Any dispute regarding the interpretation of the Award shall be submitted by Participant, Participant’s employer, or the Company, forthwith to either the Board or the Committee, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or Committee shall be final and binding on Participant, Participant’s employer, and/or the Company.

18. No Deferral of Compensation . Payments made pursuant to this Plan and Award are intended to qualify for the “short-term deferral” exemption from Section 409A of the Code. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify the Plan and/or this Award agreement to ensure that all Awards are made in a manner that qualifies for exemption from or complies with Section 409A of the Code, provided however, that the Company makes no representations that the Award will be exempt from Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to this Award.

19. Governing Law and Choice of Venue . The Award as well as the terms and conditions set forth in the Plan shall be governed by, and subject to, the law of the State of California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Award, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of San Mateo County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

20. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award.

21. Language . If Participant has received this Award agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control unless otherwise prescribed by local law.

22. Agreement Severable . In the event that any provision in this Award agreement is held to be invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award agreement.

23. Entire Agreement . The Award, including the appendices thereto, and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof.

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APPENDIX B
ELECTRONIC ARTS INC.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD

Performance Vesting Terms

1.      Performance Period . The performance period for the Award Units shall be the period of time beginning March 30, 2014 and ending on April 1, 2017 (the “ Performance Period ”). During the Performance Period there will be three (3) separate measurement periods of the Company’s Relative TSR (each a “ Measurement Period ”). Each Measurement Period has a corresponding vest date (the “ Vest Date ”) on which Award Units will vest.

The Start Dates, End Dates and Vest Dates for the First, Second and Third Measurement Periods are:

 
First Measurement Period
Second Measurement Period
Third Measurement
Period
Start Date
March 30, 2014
March 30, 2014
March 30, 2014
End Date
March 28, 2015
April 2, 2016
April 1, 2017
Vest Date
May 16, 2015
May 16, 2016
May 16, 2017

2.      Target Number of Award Units . The Target Number of Award Units for each Measurement Period is:
 
First Measurement Period
Second Measurement Period
Third Measurement Period
Target Number of Award Units
 
 
 

3.     Performance Measure. The Performance Measure for the Performance Period is Relative TSR, as defined below.
4.     Vesting Scale. Subject to the Negative TSR Limitation and Maximum Value, as defined below, the number of Award Units that may vest for each Measurement Period will be determined by multiplying the Target Number of Award Units by the Maximum Vest Percentage that corresponds to the Company’s Relative TSR percentile ranking according to the following schedule (the “ Vesting Scale ”):
        




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Relative TSR        Maximum Vest
Percentile Ranking      Percentage

≥ 94th percentile         = 200%
     61st to 93rd percentile     = 100% plus 3% for each percentile >60th
TARGET     60th percentile             = 100%
     11th to 59th percentile     = 100% minus 2% for each percentile <60th
        ≤ 10th percentile         = 0%
If, based solely on the Vesting Scale above, less than the Target Number of Award Units vest for a Measurement Period, then a number of unvested Award Units equal to the Target Number of Award Units for the Measurement Period minus the number of Award Units vested for the Measurement Period vested (“ Remaining Award Units ”) may remain outstanding and vest in a subsequent Measurement Period, as set forth below in Section 5 “Maximum Number of Award Units”.
5.      Maximum Number of Award Units. Following each Measurement Period, the maximum number of award units that may vest on the corresponding Vest Date for the Measurement Period will be determined in accordance with methodology set forth in this Section 5 (“Maximum Number of Award Units ”) as follows:
(v)      First Measurement Period:
(1)      The number of Award Units that vest will be between 0% and 200% of the Target Number of Award Units stated for the First Measurement Period, as determined in accordance with the Vesting Scale and subject to the Committee’s discretion.
(2)      If the Maximum Vest Percentage for the First Measurement Period is less than 100%, then the Remaining Award Units will remain outstanding and may incrementally vest, in accordance with the Vesting Scale, on the Vest Date immediately following the next Measurement Period for which the Company’s Relative TSR Percentile Ranking exceeds the Relative TSR Percentile Ranking for the First Measurement Period.







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Example 1:

Target Number of Award Units for First Measurement Period = 25,000
Relative TSR Percentile Ranking for First Measurement Period = 40 th percentile

Vesting

•
60% of the Target Number of Award Units for the First Measurement Period may vest (15,000 shares).

Remaining Award Units

•
40% of the Target Number of Award Units for First Measurement Period (10,000 Award Units) will remain outstanding and may vest for the Second or Third Measurement Period if the Relative TSR Percentile Ranking is greater than the 40 th percentile.
    
(vi)      Second Measurement Period:
(1)      The number of Award Units that vest will be between 0% and 200% of the Target Number of Award Units stated for the Second Measurement Period, as determined in accordance with Vesting Scale and subject to the Committee’s discretion. In addition:
a.      if the Company’s Relative TSR Percentile Ranking for the Second Measurement Period is greater than the Relative TSR Percentile Ranking for the First Measurement Period and is equal to or exceeds the 60 th percentile, then all of the Remaining Award Units from the First Measurement Period may vest; or
b.      if the Company’s Relative TSR Percentile Ranking for the Second Measurement Period is greater than the Relative TSR Percentile Ranking for the First Measurement Period, but less than the 60 th percentile, an additional number of the Remaining Award Units from the First Measurement Period may vest to the extent that the number of Award Units cumulatively vested in accordance with the Vesting Scale for the First Measurement Period and Second Measurement Period reflects vesting for both periods at the higher Relative TSR Percentile Ranking achieved in the Second Measurement Period.
(2)      If the Maximum Vest Percentage for the Second Measurement Period is less than 100%, then a number of Remaining Award Units will remain outstanding and may incrementally vest, in accordance with the Vesting Scale, on the Vest Date for the Third Measurement Period, if the Company’s Relative TSR Percentile Ranking exceeds the Relative TSR Percentile Ranking for the First and/or Second Measurement Periods, with such number of Remaining Award Units to be equal to the sum of:

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a.      the Target Number of Award Units for the First Measurement Period; minus the number of Award Units vested, to date, for the First Measurement Period; and
b.      the Target Number of Award Units for the Second Measurement Period minus the number of Award Units vested for the Second Measurement Period.
Example 2 :     

Target Number of Award Units for Second Measurement Period = 25,000
Relative TSR Percentile Ranking for First Measurement Period = 40 th percentile
Relative TSR Percentile Ranking for the Second Measurement Period = 50 th percentile

Vesting

•
80% of the Target Number of Award Units for the Second Measurement Period may vest (20,000 shares), plus

•
20% of the Target Number of Award Units from the First Measurement Period (5,000 shares), which represents the incremental difference between (a) the percentage of the Target Number of Award Units vested for the First Measurement Period (60%) and (b) the Maximum Vest Percentage (80%) achieved for the Second Measurement Period.

Remaining Award Units

•
20% of the Target Number of Award Units for First Measurement Period (5,000 Award Units) will remain outstanding and may vest for the Third Measurement Period if the Relative TSR Percentile Rank for the Third Measurement Period is greater than the 50 th percentile; and

•
20% of the Target Number of Award Units for the Second Measurement Period (5,000 Award Units) will remain outstanding and may vest for the Third Measurement Period, if the Relative TSR Percentile Rank for the Third Measurement Period is greater than the 50 th percentile.

(iii)     Third Measurement Period:
(1) The number of Award Units that vest will be between 0% and 200% of the Target Number of Award Units stated for the Third Measurement Period as determined in accordance with the Vesting Scale and subject to the Committee’s discretion. In addition:
i. If the Company’s Relative TSR Percentile Ranking for the Third Measurement Period is greater than the Relative TSR Percentile Ranking for the First and/or Second Measurement Period and is equal to or exceeds 60, then all of the Remaining Award Units from the First Measurement Period and the Second Measurement Period may vest.
ii. If the Company’s Relative TSR Percentile Ranking for the Third Measurement Period is greater than the Relative TSR Percentile Ranking for the First Measurement Period and/or the Second Measurement Period, but less than 60, an additional

18


number of the Remaining Award Units from the First Measurement Period and/or Second Measurement Period may vest to the extent that the number of Award Units cumulatively vested for each of the First, Second and Third Measurement Periods reflects vesting for all three periods at the Relative TSR Percentile ranking achieved for the Third Measurement Period.
Example 3 :     

Target Number of Award Units for Third Measurement Period = 25,000
Relative TSR Percentile Ranking for First Measurement Period = 40 th percentile
Relative TSR Percentile Rank for the Second Measurement Period = 50 th percentile
Relative TSR Percentile Rank for the Third Measurement Period = 58 th percentile

Vesting

•
96% of the Target Number of Award Units for the Third Measurement Period may vest (24,000 shares), plus

•
16% of the Target Number of Award Units from the First Measurement Period (4,000 shares) which represents the incremental difference between (a) the percentage of the Target Number of Award Units cumulatively vested for the First Measurement Period and Second Measurement Period (80%) and (b) the Maximum Vest Percentage (96%) achieved for the Third Measurement Period; plus

•
16% of the Target Number of Award Units from the Second Measurement Period (4,000 shares), which represents the incremental difference between the percentage of the Target Number of Award Units vested for the Second Measurement Period (80%) and the Maximum Vest Percentage (96%) achieved for the Third Measurement Period.

Remaining Award Units

•
All Remaining Award Units, if any, shall be cancelled following the final Vest Date of the Performance Period.
    
(iv)     Notwithstanding Sections 5(i) through (iii) above, for any Measurement Period for which the Company’s TSR is negative, the Maximum Number of Awards Units that vest shall not exceed the Target Number of Award Units for that Measurement Period plus the Remaining Award Units, if any, even if the Relative TSR Percentile Ranking of the Company is equal to or exceeds the 60 th percentile (the “ Negative TSR Limitation ”).
(v)    Notwithstanding Sections 5(i) through (iv) above, under no circumstances will the monetary value of the actual number of Award Units that vest following each Measurement Period, exceed five (5) times the monetary value of those Award Units on the Award Date (the “ Maximum Value ”). For purposes of this Award Agreement “monetary value” refers to the value of a share of Company stock as determined on any specified date by the Company’s closing stock price for that date. The Maximum Value for each Measurement Period is determined by multiplying the number of Award Units determined to vest based on the Company’s Relative TSR percentile Ranking for that Measurement Period in accordance with the Vesting Scale,

19


by the closing price of the Company’s stock on the Award Date and then multiplying that product by five (5). Accordingly, the Maximum Number of Award Units that vest for each Measurement Period shall not exceed the lesser of:
(1) the number of Award Units determined pursuant to Sections 5(i) through 5(iv) above; or
(2) the number of Award Units determined not to exceed the Maximum Value, (with such number of Award Units calculated by dividing the Maximum Value by the closing price of the Company’s stock on the End Date of each Measurement Period.)
6.      Determination of Relative TSR. “Relative TSR” means the Company’s Total Stockholder Return relative to the Total Stockholder Returns of the other Group Companies. Relative TSR will be determined by ranking the Group Companies from the highest to lowest according to their respective Total Stockholder Return, then calculating the Relative TSR percentile ranking of the Company relative to the other Group Companies as follows:

Where:

“P” represents the Relative TSR percentile ranking rounded to the nearest whole percentile

“R” represents the Company’s ranking among the Group Companies

“N” represents the number of Group Companies

“Total Stockholder Return” means the number calculated by dividing (i) the Closing Average Share Value minus the Opening Average Share Value (in each case adjusted to take into consideration the cumulative amount of dividends per share for the Measurement Period, assuming reinvestment, as of the of applicable ex-dividend date, of all cash dividends and other cash distributions (excluding cash distributions resulting from share repurchases or redemptions by the Company) paid to stockholders) by (ii) the Opening Average Share Value.

“Opening Average Share Value” means the average of the daily closing prices per share of a Group Company’s stock as reported on the NASDAQ for all Trading Days in the 90 calendar days immediately following and including March 30, 2014.

“Closing Average Share Value” means the average of the daily closing prices per share of a Group Company’s stock as reported on the NASDAQ for all Trading Days in the Closing Average Period.

“Closing Average Period” means (i) in the absence of a Change of Control of the Company, the 90 calendar days immediately prior to and including March 28, 2015 for the First Measurement Period; the 90 calendar days immediately prior to and including April 2, 2016

20


for the Second Measurement Period; and the 90 calendar days immediately prior to and including April 1, 2017 for the Third Measurement Period; or (ii) in the event of a Change of Control, the 90 calendar days immediately prior to and including the effective date of the Change of Control.

“Group Companies” means those companies listed in the NASDAQ-100 Index on March 30, 2014. The Group Companies may be changed as follows:

(i) In the event of a merger, acquisition or business combination transaction of a Group Company with or by another Group Company, the surviving entity shall remain a Group Company;

(ii) In the event of a merger, acquisition, or business combination transaction of a Group Company with or by another company that is not a Group Company, or “going private transaction” where the Group Company is not the surviving entity or is otherwise no longer publicly traded, the company shall no longer be a Group Company; and

(iii) In the event of a bankruptcy of a Group Company, such company shall remain a Group Company and its stock price will continue to be tracked for purposes of the Relative TSR calculation. If the company liquidates, it will remain a Group Company and its stock price will be reduced to zero for all remaining Measurement Periods in the Performance Period.

7.     Award Vesting . The Committee will certify the Relative TSR percentile ranking of the Company after the End Date of each Measurement Period and determine the actual number of Award Units that vest for that Measurement Period on or before each applicable Vest Date.



















21


APPENDIX C
FORM OF SEVERANCE AGREEMENT AND RELEASE


This SEVERANCE AGREEMENT AND RELEASE (this “ Agreement ”) is made as of [___________________], 200[_], by and between Electronic Arts Inc., a Delaware corporation, with its principal place of business at 209 Redwood Shores Parkway, Redwood City, California 94065-1175 (which together with its affiliates and subsidiaries, if any, will hereinafter collectively be called “ Employer ”) and [_______________________], an individual residing at [______________________________] (“ Employee ”).

A.     Employee has been employed by Employer since on or about [____________________]. [Employer and Employee have entered into a New Hire/Proprietary Information Agreement dated as of [_______________] (the “ New Hire/Proprietary Information Agreement ”)]

B.     The Electronic Arts Inc. Key Employee Continuity Plan (as such plan may be amended from time to time, the “ Plan ”) and the Electronic Arts Inc. Restricted Stock Unit Award (“ Award ”), dated [_________] sets forth certain rights, benefits and obligations of the parties arising out of Employee’s employment by Employer and the severance of such employment in connection with a Change in Control as determined in accordance with the Plan and Award.

C.     Employee recognizes that this Agreement will automatically be revoked and Employee shall forfeit any benefit to which he or she may be entitled under the Plan and Award unless Employee submits an executed copy of this Agreement [or similar agreement to be provided to persons employed by the Company outside the United States] to the Employer on or before [____________].

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Employer and Employee agree as follows:

1.     Termination of Employment Relationship . The relationship between Employee and Employer shall terminate as of ___________________ (the “ Separation Date ”). [Note that Separation Date cannot be later than the date the agreement is signed or the release will not provide the Company with full protection.]

2.      Employee Severance .     In consideration of Employee’s undertakings set forth in this Agreement, Employer will pay Employee $[__________________] in accordance with the terms of the Plan, plus such other benefits as are provided under the terms of the Plan, the Award and this Agreement. Such payment and benefits will be less all applicable deductions (including, without limitation, any federal, state or local tax withholdings). Such payment and benefits are contingent upon the execution of this

22


Agreement by Employee and Employee’s compliance with all terms and conditions of this Agreement, the Plan and Award. Employee agrees that if this Agreement does not become effective, Employer shall not be required to make any further payments or provide any further benefits to Employee pursuant to this Agreement, the Plan and Award and shall be entitled to recover all payments and be reimbursed for all benefits already made or provided by it (including interest thereon). Except for Employee’s final paycheck and the amounts and benefits set forth herein and in the Plan, Employee acknowledges and agrees that Employer has already paid Employee any and all wages, salary, benefit payments and/or other payments owed to Employee from Employer, and that no further payments, amounts or benefits are owed or will be owed. Employee further acknowledges and agrees that the amounts and benefits received under this Section 2 exceed that to which Employee would be entitled under Employer’s policies, practices, and benefit plans, if any.

3.     Release of Employer . In consideration of the obligations of Employer described in Paragraph 2 above, Employee hereby completely releases and forever discharges Employer, its related corporations, divisions and entities, its predecessors, successors, and assigns, and its and each of their current and former officers, directors, employees and agents, (collectively referred to as the “ Releasees ”) from all claims, rights, demands, actions, liabilities and causes of action of any kind whatsoever, known and unknown, which Employee may have or have ever had against the Releasees (“ claims ”) including without limitation all claims arising from or connected with Employee’s employment by the Employer and his or her separation from employment, whether based in tort or contract (express or implied) or on federal, state or local law or regulation. Employee has been advised that Employee’s release does not apply to any rights or claims that may arise after the date that this Agreement is signed by the Employee (the “ Effective Date ”). This Agreement shall not affect Employee’s rights under the Older Workers Benefit Protection Act to have a judicial determination of the validity of the release contained herein. [ Note: release to be reviewed in each case for purposes of compliance with laws of applicable jurisdiction .]

4.     Acknowledgment . Employee understands and agrees that this is a final release and that Employee is waiving all rights now or in the future to pursue any remedies available under any employment related cause of action against the Releasees, including without limitation claims of wrongful discharge, emotional distress, defamation, harassment, discrimination, retaliation, breach of contract or covenant of good faith and fair dealing, claims of violation of the California Labor Code and claims under Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1963, the Civil Rights Act of 1866, as amended, the Americans with Disabilities Act, the Age Discrimination in Employment Act (the “ ADEA ”), the Family and Medical Leave Act, the California Family Rights Act, the California Fair Employment and Housing Act, the Employee Retirement Income Security Act, and any other laws and regulations relating to employment. Employee further acknowledges and agrees that Employee has received all leave to which Employee is entitled under all federal, state, and local laws and regulations related to leave from employment, including, but not limited to, the Family and Medical Leave Act, the California

23


Family Rights Act, and California worker’s compensation laws. [ Note: release to be reviewed in each case for purposes of compliance with laws of applicable jurisdiction .]

5.     Waiver of California Civil Code . Employee hereby expressly waives the provision of California Civil Code Section 1542 which provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his/her favor at the time of executing the release, which if known by him/her must have materially affected his/her settlement with the debtor.

Employee acknowledges that the waiver of this Section of the California Civil Code set forth above is an essential and material term of this release, and that Employee has read this provision, and intends these consequences even as to unknown claims which may exist at the time of this release.

6.     Covenant Not to Sue . Employee represents that Employee has not filed or commenced any proceeding against the Releasees and agrees that at no time in the future will Employee file or maintain any charge, claim or action of any kind, nature and character whatsoever against the Releasees, or cause or knowingly permit any such charge, claim or action to be filed or maintained, in any federal, state or municipal court, administrative agency or other tribunal, arising out of any of the matters covered by this Agreement, except as provided in the following sentence. Notwithstanding Employee’s release and waiver of remedies under the ADEA, this Agreement and the above covenant not to sue do not affect enforcement of the ADEA by the Equal Employment Opportunity Commission (“EEOC”), nor preclude Employee from (i) filing an ADEA charge with the EEOC, (ii) participating in an ADEA investigation or proceeding conducted by the EEOC, or (iii) initiating a proceeding regarding the enforceability of this Agreement with respect to ADEA rights and remedies. If Employee initiates any lawsuit or other legal proceeding in contravention of this covenant not to sue (other than a proceeding regarding the enforceability of this Agreement with respect to ADEA rights and remedies), Employee shall be required to immediately repay to Employer the full consideration paid to Employee pursuant to Paragraph 2 above, regardless of the outcome of Employee’s legal action.

7.      Nondisclosure of Agreement . Employee will maintain the fact and terms of this Agreement and any payments made by Employer in strict confidence and will not disclose the same to any other person or entity (except Employee’s legal counsel, spouse and accountant) without the prior written consent of Employer. The parties agree that this confidentiality provision is a material term of this Agreement. A violation of the promise of nondisclosure shall be a material breach of this Agreement. It is acknowledged that in the event of such a violation, it will be impracticable or extremely difficult to calculate the actual damages and, therefore, the parties agree that upon a breach, in addition to whatever rights and remedies Employer may have at law and in equity, Employee will pay to Employer

24


as liquidated damages, and not as a penalty, the sum of Five Hundred Dollars ($500.00) for each such breach and each repetition thereof.

[8.      Return of Property; Confidentiality; Inventions .
(a)    Employee represents that Employee does not have in Employee’s possession any records, documents, specifications, or any confidential material or any equipment or other property of Employer.

(b)    Employee represents that Employee has complied with and will continue to comply with Paragraphs 3 and 4 of the New Hire/Proprietary Information Agreement pertaining to Proprietary Information (as defined therein), and will preserve as confidential all confidential information pertaining to the business of Employer and its customers, licensees and affiliates.

(c)    Employee represents that Employee has complied with and will continue to comply with Paragraphs 5 and 6 of the New Hire/Proprietary Information Agreement pertaining to Inventions (as defined therein).

(d)    Employee acknowledges and agrees that the New Hire/Proprietary Information Agreement will continue in full force and effect following his/her separation from the employ of Employer.]

[8.      Return of Property; Confidentiality; Inventions .

(a)    Employee represents that Employee does not have in Employee’s possession any records, documents, specifications, or any confidential material or any equipment or other property of Employer.

(b)    Employee understands and acknowledges that all Proprietary Information (as defined below) is the sole property of Employer and its assigns. Employee hereby assigns to Employer any rights Employee may have in all Proprietary Information. At all times, Employee shall keep in confidence and trust all Proprietary Information, and Employee will not use or disclose any Proprietary Information or anything relating to it without the prior written consent of Employer. Employee represents that Employee has delivered to Employer all materials, documents and data of any nature containing or pertaining to any Proprietary Information and has not taken and will not take with Employee any such materials, documents or data or any reproduction thereof. “ Proprietary Information ” means any information of a confidential or secret nature that may have been learned or developed by Employee during the period of Employee’s employment by Employer and which (i) relates to the business of Employer or to the business of any customer or supplier of Employer, or (ii) has been created, discovered or developed by, or has otherwise become known to Employer and has commercial value in the business in which Employer is engaged. By way of illustration, but not limitation, Proprietary Information includes trade secrets, processes, formulas, computer programs, data, know‑how, inventions,

25


improvements, techniques, marketing plans, product plans, strategies, forecasts, personnel information and customer lists.

(c)    Employee represents that Employee has disclosed or will disclose in confidence to Employer, or any persons designated by it, all Inventions (as defined below) that have been made or conceived or first reduced to practice by Employee during Employee’s employment with Employer (or thereafter if Invention uses Proprietary Information of Employer). All such Inventions are the sole and exclusive property of Employer and its assigns, and Employer and its assigns shall have the right to use and/or to apply for patents, copyrights or other statutory or common law protections for such Inventions in any and all countries. Employee agrees to assist Employer in every proper way (but at Employer’s expense) to obtain and from time to time enforce patents, copyrights and other statutory or common law protections for such Inventions in any and all countries. To that end, Employee has executed or will execute all documents for use in applying for and obtaining such patents, copyrights and other statutory or common law protections therefore and enforcing same, as Employer may desire, together with any assignments thereof to Employer or to persons designated by Employer. Employer shall compensate Employee at a reasonable rate for any time after the Separation Date actually spent by Employee at Employer’s request on such assistance. “ Inventions ” means all inventions, improvements, original works or authorship, formulas, processes, computer programs, techniques, know‑how and data, whether or not patentable or copyrightable, made or conceived or first reduced to practice or learned by Employee, whether or not in the course of Employee’s employment.]

[(d)    Employee has been notified and understands that the provisions of Paragraph 8(c) above do not apply to an Invention which qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:  

(i)    Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1)
Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

(2)
Result from any work performed by the employee for the employer.

(ii)    To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded

26


from being required to be assigned under subdivision (i), the provision is against the public policy of this state and is unenforceable.]

[(d)    The provisions of Paragraph 8(c) above do not apply to an Invention for which all of the following are true:

(i)    The Invention was developed entirely on Employee’s own time;

(ii)    Employee developed the Invention away from Employer’s facilities, and entirely without using the Employer’s equipment, supplies, or trade secret information;

(iii)    The Invention does not relate to the business or any anticipated research or development of Employer; and

(iv)    The Invention does not result from, and is not the extension of, any work done by Employee for Employer.]        

9.     Non-Disparagement . Without limiting the foregoing, Employee agrees that Employee will not make statements or representations to any other person, entity or firm which may cast Employer, or its directors, officers, agents or employees, in an unfavorable light, which are offensive, or which could adversely affect Employer’s name or reputation or the name or reputation of any director, officer, agent or employee of Employer. The parties agree that the provisions of this Paragraph 9 are material terms of this Agreement.

10.     Cooperation with Employer . Employee agrees that Employee will cooperate with Employer, its agents, and its attorneys with respect to any matters in which Employee was involved during Employee’s employment with Employer or about which Employee has information, will provide upon request from Employer all such information or information about any such matter, will be available to assist with any litigation or potential litigation relating to Employee’s actions as an employee of Employer, and will testify truthfully in any legal proceeding related to his or her employment with Employer.

11.     Non-Solicitation . [In accordance with the terms of the New Hire/Proprietary Information Agreement, until]/[Until] the [first] anniversary of the Separation Date, Employee agrees not to recruit, solicit or induce, or attempt to induce, any employee or employees of Employer to terminate their employment with, or otherwise cease their relationship with, Employer.

12.     No Assignment By Employee . This Agreement, and any of the rights hereunder, may not be assigned or otherwise transferred, in whole or in part by Employee.


27


13.     Arbitration . Any and all controversies arising out of or relating to the validity, interpretation, enforceability, or performance of this Agreement will be solely and finally settled by means of binding arbitration. Any arbitration shall be conducted in accordance with the then-current Employment Dispute Resolution Rules of the American Arbitration Association. The arbitration will be final, conclusive and binding upon the parties. All arbitrator’s fees and related expenses shall be divided equally between the parties. Further, each party shall bear its own attorney's fees and costs incurred in connection with the arbitration.

14.     Equitable Relief . Each party acknowledges and agrees that a breach of any term or condition of this Agreement may cause the non-breaching party irreparable harm for which its remedies at law may be inadequate. Each party hereby agrees that the non-breaching party will be entitled, in addition to any other remedies available to it at law or in equity, to seek injunctive relief to prevent the breach or threatened breach of the other party’s obligations hereunder. Notwithstanding Paragraph 13, above, the parties may seek injunctive relief through the civil court rather than through private arbitration if necessary to prevent irreparable harm.

15.      No Admission . The execution of this Agreement and the performance of its terms shall in no way be construed as an admission of guilt or liability by either Employee or Employer. Both parties expressly disclaim any liability for claims by the other.

16.      Consultation With Counsel and Time to Consider . Employee has been advised to consult an attorney before signing this Agreement. Employee acknowledges that Employee has been given the opportunity to consult counsel of Employee’s choice before signing this Agreement, and that Employee is fully aware of the contents and legal effect of this Agreement. Employee acknowledges that Employer has provided Employee with a list, which is Attachment A to this Agreement, of the job titles and ages of all employees being terminated on the Separation Date as well as the ages of the employees with the same titles who are not being terminated (“ OWBPA Information ”). Employee has been given [21/45] days from receipt of the OWBPA Information to consider this Agreement.

17.      Right to Revoke .

(a)    Employee and Employer have seven days from the date Employee signs this Agreement to revoke it in a writing delivered to the other party. After that seven-day period has elapsed, this Agreement is final and binding on both parties.

(b)    Employee acknowledges and understands that if Employee fails to provide the Employer with an executed copy of this Agreement by the date indicated in paragraph C on the first page of this Agreement, Employer’s offer to enter into this Agreement and/or its execution of this Agreement is automatically revoked and Employee shall forfeit all rights under the Plan and Award.


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18.     Severability . It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, although Employer and Employee consider the restrictions contained in this Agreement to be reasonable for the purpose of preserving Employer’s goodwill and proprietary rights, if any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

19.     Entire Agreement . This Agreement together with the Plan, Award [and the New Hire/Proprietary Information Agreement] represents the complete understanding of Employee and Employer with respect to the subject matter herein.

20.     Notices . Notices or other communications given pursuant to this Agreement shall be given in accordance with the Plan.

21.     Governing Law . This Agreement will be construed and enforced in accordance with the laws of [________________].

22.     Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement.


BY SIGNING THIS AGREEMENT, YOU STATE THAT:
(a)      YOU HAVE READ THIS AGREEMENT AND HAVE HAD SUFFICIENT TIME TO CONSIDER ITS TERMS;
(b)      YOU UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND KNOW THAT YOU ARE GIVING UP IMPORTANT RIGHTS, INCLUDING, WITHOUT LIMITATION, THOSE ARISING UNDER THE ADEA;
(c)      YOU AGREE WITH EVERYTHING IN THIS AGREEMENT;
(d)      YOU ARE AWARE OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT AND HAVE BEEN ADVISED OF SUCH RIGHT;
(e)      YOU HAVE SIGNED THIS AGREEMENT KNOWINGLY AND VOLUNTARILY; AND
(f)      THIS AGREEMENT INCLUDES A RELEASE BY YOU OF ALL KNOWN AND UNKNOWN CLAIMS AS OF ITS EFFECTIVE DATE, AND NO CLAIMS ARISING AFTER ITS EFFECTIVE DATE ARE WAIVED OR RELEASED IN THIS AGREEMENT.

29




[ELECTRONIC ARTS INC.]    [EMPLOYEE NAME]


By:                              Signature:                 

Name: [_________________]                 Date:                 
Title: General Counsel


By:                         
Name: [_________________]
Title: Chief Human Resources Officer

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Attachment A to Severance Agreement and Release

This notice contains the information that is required to be provided to you by the Older Workers Benefit Protection Act.

The following is a listing of the job titles and ages of (a) persons who were selected for termination and offered enhanced severance benefits for signing the Severance Agreement and Release, and (b) all individuals in the same job classification or organizational unit who were not selected:

Table 1 - Positions Selected or Eligible for Severance Package

Job Class or Group
Job Title
Age
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

















31


Table 2 - Positions Not Selected or Ineligible for Severance Package

Job Class or Group
Job Title
Age
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 












32



Exhibit 10.21

FOURTH AMENDMENT TO LEASE

THIS FOURTH AMENDMENT TO LEASE (this “ Fourth Amendment ”) is made and entered into as of the 16th day of May, 2014, with an effective date of August 1, 2013 (with August 1, 2013 being referred to herein as the “ Fourth Amendment Effective Date ”), by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“ Landlord ”) and ELECTRONIC ARTS-TIBURON, A FLORIDA CORPORATION, formerly known as Tiburon Entertainment, Inc., a Florida corporation (“ Tenant ”).
R E C I T A L S:
A. Landlord’s predecessor-in-interest, ASP WT, L.L.C., a Delaware limited liability company, and Tenant entered into that certain Lease by and between Landlord and Tenant dated June 15, 2004 (“ Original Lease ”) as amended by that certain First Amendment to Lease by and between Landlord and Tenant dated December 13, 2005 (“ First Amendment ”), that certain Second Amendment to Lease by and between Landlord and Tenant dated May 8, 2009 (“ Second Amendment ”) and that certain Third Amendment to Lease by and between Landlord and Tenant dated December 24, 2009 (“ Third Amendment ”) (the Original Lease, the First Amendment, the Second Amendment and the Third Amendment are hereinafter referred to as the “ Lease ”).

B. Pursuant to the Lease, Tenant presently leases the Leased Premises, consisting of 128,240 rentable square feet in the Building, located at 1950 Summit Park Drive, Maitland, Florida 32751, together with the exclusive use of the parking garage immediately adjacent to the Building and located adjacent to the Leased Premises (“ Garage ”) and the non-exclusive use of certain common areas adjacent to the Leased Premises and within the Project.

C. Landlord and Tenant hereby acknowledge that Tenant presently subleases those certain premises consisting of 12,590 rentable square feet located on a portion of the third floor in Building III (the “ Subleased Premises ”), pursuant to that certain Sublease dated April 1, 2012 by and between Metavante Corporation, a Wisconsin corporation, as “ Sublessor ” and Tenant, as “ Sublessee ” (“ Sublease ”), which Sublease is subject to that certain Lease Agreement dated July 18, 2008 between Landlord and Sublessor (“ Master Lease ”), as affected by that certain Consent to Lease by and between Landlord, Tenant and Sublessor, dated as of May 23, 2012 (“ Consent ”).
D. The parties desire to further amend the Lease to extend the Term, to provide for certain improvements to the Leased Premises and to memorialize their agreement on certain other matters, all as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:


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O1037432.2 5/9/2014



1. Recitals; Defined Terms .

a Recitals . The recitals set forth hereinabove are true and correct in all respects and are incorporated herein as fully as if set forth herein verbatim. Defined (capitalized) terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.
b Defined Terms . Defined (capitalized) terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. Section 1.1 of the Lease is hereby deleted in its entirety and the following new Section 1.1 is inserted in place and in lieu thereof:
1.1     DEFINITIONS .
a
Leased Premises shall mean those suites/floors within both the Original Premises and the Second Expansion Premises, subject to such other adjustments as are specifically contemplated and provided in the Lease.
b
Original Premises shall mean those suites/floors within Building I as described in Schedule 1.
c
Expansion Premises shall mean those suites/floors within Building II as described in Schedule 1.
d
Second Expansion Premises shall mean those suites/floors within Building I as described in Section 5 of this Second Amendment.
e
Building shall mean Building I.
f
Building I shall mean Maitland Summit Park I located at 1950 Summit Park Drive, Orlando, Florida 32801.
g
Building II shall mean Maitland Summit Park II located at 1958 Summit Park Drive, Orlando, Florida 32801.
h
Project shall mean Building I, Building II and Building III, and the parking facilities and the lots on which the said buildings are located.
i
Tenant’s Building I Square Footage shall mean 128,240 rentable square feet; Total Building I Square Footage of Building I shall mean 128,240 rentable square feet.
j
Lease Commencement Date shall mean January 1, 2005; Lease Expiration Date shall mean October 31, 2025; Lease Term shall mean the time period between and including the Lease Commencement Date and Lease Expiration Date.
k
Extension Term shall mean the time period between (and including) August 1, 2013 and October 31, 2025.

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O1037432.2 5/9/2014



l
Building I Base Rent shall mean those amounts as set forth in Section 13.17 of this Lease, plus applicable sales tax, if any; but subject to adjustment as provided in this Lease.
m
Base Rent shall mean Building I Base Rent, plus applicable sales tax.
n
Tenant’s Pro Rata Share shall mean 100% of the Building.
o
Deposit Not used; there is no deposit; Prepaid Rent Not used; there is no Prepaid Rent.
p
Permitted Purpose shall mean general office use and such other ancillary uses as are specifically and expressly contemplated or permitted pursuant to this Lease.
q
Authorized Number of Parking Spaces shall mean a minimum of 484 unreserved spaces at a rate of $-0- per space per month.
r
Managing Agent shall mean Landlord.
s
Landlord’s Mailing Address : 2400 Lake Orange Drive, Suite 110, Orlando, Florida 32837, telephone: 407-447-1776, and fax: 407-888-3242. Copy to: Attn: General Counsel, 500 Chesterfield Parkway, Malvern, Pennsylvania 19355.
t
Tenant’s Mailing Address : 1950 Summit Park Drive, Orlando, Florida 32810, telephone: 407-386-4000, and fax: 407-386-4555, with copy to 209 Redwood Shores Parkway, Redwood City, California 94065, attn: Vice President, Global Real Estate.
u
Market Base Rent shall mean market rents, tenant improvements, rent concessions and other typical and material financial lease terms for renewing tenants in similar Class A office space in Maitland, Florida.
v
Business Day shall mean each weekday that the majority of Banks located in Orange County, Florida are open for business.
w
Controllable CAM Charges shall mean common area maintenance, landscaping, elevator maintenance, personnel for the Project, management fee as long as management services are being provided by Landlord or an affiliate of Landlord, and other miscellaneous maintenance required as part of the Project Services.
x
Non-Controllable CAM Charges shall mean all CAM Charges including without limitation, taxes, insurance and utilities, that are not Controllable CAM Charges.

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O1037432.2 5/9/2014



y
Controllable CAM Charges Cap shall mean a maximum annual increase in the amount of Controllable CAM Charges equal to four percent (4%) per annum.
z
CAM Charges Force Majeure shall mean any act of God, fire, natural disaster, accident, act of government, shortages of material or supplies or any other cause reasonably beyond the control of such party.
aa
Affiliate shall mean (1) any entity controlling, controlled, or under common control of, Tenant (ii) any successor to Tenant by merger, consolidation or reorganization, and (iii) any purchaser of all or substantially all of the assets of Tenant as a going concern.
2. Extension of Term . Effective as of the Fourth Amendment Effective Date, the Term of the Lease is hereby extended through and including October 31, 2025, unless sooner terminated or extended in accordance with the provisions of the Lease or this Fourth Amendment.
3. Base Rent . Commencing as of the Fourth Amendment Effective Date and through and including the new Lease Expiration Date, Base Rent shall be paid, in accordance with the provisions of the Lease, at the rental rates set forth below:
Date
Rate PSF
Monthly Rent

8/1/13 – 10/31/13
$0.00
$0.00
11/1/13 – 10/31/14
$15.80
$168,849.33
11/1/14 – 10/31/15
$16.20
$173,124.00
11/1/15 – 10/31/16
$16.60
$177,398.67
11/1/16 – 10/31/17
$17.01
$181,780.20
11/1/17 – 10/31/18
$17.44
$186,375.47
11/1/18 – 10/31/19
$17.88
$191,077.60
11/1/19 – 10/31/20
$18.32
$195,779.73
11/1/20 – 10/31/21
$18.78
$200,695.60
11/1/21 – 10/31/22
$19.25
$205,718.33
11/1/22 – 10/31/23
$19.73
$210,847.93
11/1/23 – 10/31/24
$20.23
$216,191.27
11/1/24 – 10/31/25
$20.73
$221,534.60
If, and to the extent, that Tenant has paid any Base Rent or any additional sums or charges in excess of that required in accordance with the foregoing provisions, the same shall be refunded to Tenant promptly following the Fourth Amendment Effective Date or credited by Landlord to Tenant against the next future payment(s) of Base Rent that become due.

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O1037432.2 5/9/2014



4. CAM Charges; Maintenance Services .
(a)      Tenant Maintenance Services . Notwithstanding anything contained in the Lease to the contrary, the parties acknowledge that Tenant has been performing certain Maintenance Services, at Tenant’s expense, with the consent and permission of Landlord, which Maintenance Services are the obligation of the Landlord under the Lease. Accordingly, the parties desire to: (i) memorialize their agreement with respect to such Maintenance Services as of the Fourth Amendment Effective Date and (ii) to memorialize their agreement that no reconciliation of Operating Costs prior to the Fourth Amendment Effective Date, shall be made between the parties for any period during the Term prior to calendar year 2013.
Pursuant to the foregoing, the parties hereby agree that Landlord shall continue to be liable and responsible for the performance of all Maintenance Services set forth in the Lease and all other repair and maintenance obligations imposed under the Lease, except for and excluding the Maintenance Services outlined in Exhibit A and made a part hereof (“ Tenant Maintenance Services ”), which Tenant Maintenance Services shall be performed by Tenant, at its expense, and any cost thereof shall not be included in CAM Charges (as defined below) as of the Fourth Amendment Effective Date. All references in the Lease to Project Services to be provided by Landlord shall not include Tenant Maintenance Services.
Tenant’s maintenance obligations hereunder shall be accomplished at Tenant’s sole cost and expense in a first class manner and performed as required to have been performed by Landlord under the terms and provisions of the Lease as related to the Tenant Maintenance Services. Tenant shall be solely responsible for the payment of all water, sewer, gas, and other utility charges (including electricity charges) for the Building. While Tenant is providing Tenant Maintenance Services as provided in this Section, CAM Charges shall not include costs incurred by Tenant related to the provision of the Tenant Maintenance Services. As long as Tenant manages all or any portion of the Building or the Building Systems as provided in this Section, Tenant agrees to indemnify Landlord as to any claims, damages, liability or expenses of Landlord, including reasonable attorneys' fees or costs, arising from or related to the management of all or any portion of the Building and/or Building Systems by Tenant. This indemnity shall survive the termination or expiration of the Lease.
While Tenant is providing the Tenant Maintenance Services, Tenant shall provide Landlord with at least 48 hours prior notice of any fire, building or other governmental inspections, and Landlord shall be entitled to have a representative present during such inspections. Tenant shall ensure that the Building is maintained at a level similar to or better than Landlord’s maintenance standards applicable to the Building and the Project. All third parties performing the Tenant Maintenance Services shall be approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall provide Landlord with copies of all maintenance reports prepared by or at the direction of Tenant, within five (5) business days after receipt by Tenant. Tenant shall provide complete copies of all contracts entered into by Tenant for the provision of Tenant Maintenance Services. Tenant will adhere to Landlord and FM Global Fire Protection Impairment Procedures, Hot Work Permit Procedures, without exception, including Red Tag. Tenant must follow OSHA Lockout/Tagout procedures when working on electrical equipment. Tenant will

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ensure all reasonable insurance requirements established by Landlord for contractors/subcontractors are met and maintained by all of Tenant’s contractors and vendors performing Tenant Maintenance Services and certificates of insurance for such parties must be sent to Landlord for approval prior to any contractor or vendor starting work. Tenant shall strictly adhere to all local, state and national building and fire codes applicable to Tenant Maintenance Services.

(b)     Transition of Operating Costs to CAM Charges . In light of the agreement of the parties set forth in subsection 4(a) above, and in light of the fact that the Leased Premises consist of 100% of the rentable square footage of the Building, the parties hereby agree that, as of the Fourth Amendment Effective Date, and for so long as Tenant is providing the Tenant Maintenance Services, Tenant shall pay, as additional rent under the Lease, 100% of CAM Charges (as defined below) for the Building in accordance with the provisions of this Section 4, and, as of the Fourth Amendment Effective Date, any reference in the Lease to Operating Costs or Excess Operating Costs shall mean and refer to 100% of Landlord’s CAM Charges for the Building. Moreover, any reference to Tenant’s Pro Rata Share shall mean and refer to 100%. As of the date hereof, Landlord estimates that CAM Charges for the Building for 2014 are $3.87 per square foot. In addition, as of the Fourth Amendment Effective Date and for so long as Tenant is providing the Tenant Maintenance Services, any reference to the term “Base Year” is hereby deleted, and starting in 2014, Landlord shall cap increases in Controllable CAM Charges to four percent (4%) per year, provided that such Controllable CAM Charges Cap shall not apply to Non- Controllable CAM Charges; provided, however, that the cap on controllable operating cost increases set forth in Section 3.3.b. of the Original Lease remains in effect for 2013.

(c)     Cessation . Tenant may elect at any time upon thirty (30) days written notice to Landlord to cease providing the Tenant Maintenance Services. At any time that Landlord determines, in its reasonable discretion, that Tenant is not providing the Tenant Maintenance Services as required by the Lease, Landlord shall have the right to terminate Tenant’s right to provide the Tenant Maintenance Services by delivery of written notice to Tenant, whereupon Tenant’s right to provide the Tenant Maintenance Services, as set forth in this Fourth Amendment, shall terminate and cease on the date that is thirty (30) days after the date of Landlord’s written notice, unless remedied by Tenant, prior to such date, to Landlord’s reasonable satisfaction. In either such cessation event, the provisions of this Section 4 shall no longer apply, and Operating Costs shall include any reasonable, out of pocket costs and expenses incurred by Landlord to remedy any deferred or improper maintenance by Tenant, and reasonable remediation actions needed to bring the Building to the level required in this Lease, and thereafter with respect to providing all of the Maintenance Services.

(d)     Security Procedures . While Tenant is performing the Tenant Maintenance Services, which shall minimize the necessity of access to the Leased Premises by Landlord, except to perform maintenance related to the Building elevator systems as provided in Exhibit B , Landlord hereby agrees to comply with Tenant’s security procedures for access to the Leased Premises attached hereto as Exhibit B and made a part hereof (“ Tenant’s Security Procedures ”).

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(e)     CAM Charges . Section 3.3 of the Original Lease, as amended and restated in Section 8 of the Second Amendment, is hereby amended and restated in its entirety as follows:

“CAM Charges . As used in this Lease, the term “ CAM Charges ” shall mean all reasonable third party expenses incurred by Landlord in providing Project Services, for ad valorem real property taxes and assessments levied against the Leased Premises and the Building by governmental authority, for the share of any assessments levied against the Building or the Leased Premises pursuant to any recorded instrument or otherwise applicable to the Project but only as to the amount thereof allocable to the Leased Premises or the Building and for any insurance premiums Landlord is required to pay with respect to the Building or Leased Premises pursuant to this Lease. Notwithstanding anything contained herein to the contrary, CAM Charges shall exclude or have deducted from them, the expenses listed on Exhibit F , attached hereto and made a part hereof.

Prior to the beginning of each calendar year, and from time to time thereafter, Landlord shall deliver to Tenant its estimate of the CAM Charges to be incurred during the next calendar year. Landlord may adjust the estimate from time to time during the year to which it relates.

On the first day of each month during the Lease Term, Tenant shall pay to Landlord, as additional rent, without offset or deduction, an amount equal to one-twelfth (1/12) of the estimated annual CAM Charges as calculated by Landlord. Within ninety (90) days following the end of each calendar year, Landlord shall furnish to Tenant a statement showing the total actual CAM Charges for the calendar year just expired and payments made by Tenant during such calendar year. If the actual CAM Charges for such calendar year exceed the aggregate of Tenant’s monthly payments made during the calendar year just expired, Tenant shall pay to Landlord the deficiency within thirty (30) days after receipt of said statement. If Tenant’s payments exceed the actual CAM Charges as shown on such statement, Landlord shall pay to Tenant the overage within thirty (30) days after receipt of said statement.

Promptly following the delivery by Landlord to Tenant of the aforementioned statement, the estimated CAM Charges shall be adjusted accordingly for the ensuing calendar year. Upon computation of the CAM Charges and the corresponding adjustment of the estimated CAM Charges for the current calendar year and the communication of that adjustment by Landlord to Tenant, Tenant shall pay, with the monthly installment of Base Rent and the adjusted amount of CAM Charges next due following communication of such adjustments, the difference, if any, between the monthly estimated CAM Charges for the preceding calendar year and the monthly estimated CAM Charges for the current calendar year, multiplied by the number of months, if any, elapsed during the then current calendar year prior to such communication.


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Tenant shall have the right to audit Landlord’s CAM Charges from time to time during the Lease Term hereof, at a cost to be borne by Tenant, except as otherwise provided hereinbelow. In the event that CAM Charges are determined to be overstated during the course of any such audit, then Landlord shall credit the excess rent against Base Rent payments thereafter becoming due. If CAM Charges are determined to be overstated by more than five percent (5%) thereof during the course of any such audit, then Landlord shall credit the reasonable cost of such audit (provide such audit is performed on an hourly or service fee basis and not on a contingency, success fee or similar basis), as well as any excess, against Base Rent payments thereafter becoming due. In addition to any notice of CAM Charges required hereunder, Landlord shall provide quarterly statements of CAM Charges, within twenty (20) days following the end of each calendar quarter, during the term hereof, to Tenant for Tenant’s review.”
5. Improvements to the Leased Premises . Landlord and Tenant hereby acknowledge and agree that Landlord shall perform certain improvements to the Leased Premises in accordance with the provisions of this Fourth Amendment, including, without limitation, the work letter attached hereto and made a part hereof as Exhibit C (the “ Work Letter ”). The provisions governing such improvements are set forth in the Work Letter.
No portion of the Leased Premises or the Project shall be subject to any liens for improvements made by Tenant. Tenant shall keep the Leased Premises and the Project free from any liens arising out of any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to Tenant. Tenant acknowledges that Landlord has filed a certain Statement by Property Owner Pursuant to Section 713.10, Florida Statutes Prohibiting Construction Liens, dated October 24, 2008 and recorded October 29, 2008 in Official Records Book 9782, Page 7029, Public Records of Orange County, Florida (the “ Statement Prohibiting Construction Liens ”), which applies to the Project. Tenant agrees to notify each of Tenant’s contractors in writing that no portion of the Leased Premises or the Project shall be subject to any liens for improvements made by Tenant, and provide a copy of the Statement Prohibiting Construction Liens to each and every contractor engaged by Tenant for performance of any part of, or delivery of materials for, the work performed by or at the direction of Tenant, and will also require such contractors and material suppliers to provide a copy to each of their subcontractors and material suppliers.
6. Termination and Contraction Rights .
(a)     Contraction . Tenant shall have a one-time right to terminate a portion of the Leased Premises consisting of the top floor (sixth floor) of the Leased Premises, or another full floor if mutually agreed upon by Landlord and Tenant (the “ Terminated Floor ”) effective March 1, 2017 by providing not less than nine (9) months prior written notice to Landlord (“ Contraction Notice ”), and, simultaneous with the delivery of the Contraction Notice to Landlord, paying a contraction fee of $625,000 (“ Contraction Fee ”). The Contraction Fee shall be reported as receipt of a “Contraction Fee” in Landlord’s electronic financial records, it being the intention of the parties that the Contraction Fee is not for rent or use of the Leased Premises and that no State of Florida sales tax shall be due on the Contraction Fee. If sales tax is required to be paid with respect to the

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Contraction Fee, the Tenant shall pay said sales tax, plus all interest, late fees and penalties, within thirty (30) days of imposition by the Florida Department of Revenue, unless the same was due, solely and directly, to the Landlord’s failure to record the Contraction Fee as a Contraction Fee in Landlord’s electronic financial records. Tenant agrees to indemnify Landlord as to any claims, damages, liability or expenses of Landlord, including reasonable attorneys' fees or costs, arising from or related to sales tax that may be due with respect to the Contraction Fee, including any interest, late fees and penalties. This indemnity shall survive the contraction or expiration of the Lease. The foregoing option to downsize is subject to there being no event of default by Tenant under this Lease at the time such option is exercised that is not cured within the applicable cure period and provided that Landlord has not given Tenant notice of default more than two (2) times during the immediately preceding twelve (12) months.
Upon Tenant properly exercising its contraction option set forth in this paragraph, the number of parking spaces allocated to Tenant shall be reduced by 91 spaces, and the provisions of Section 4(c) shall be triggered so that Tenant shall no longer have the right to provide the Tenant Maintenance Services. Tenant shall be required to modify Tenant’s security features to allow access to the Terminated Floor, through the building elevators, freight elevator and stairwells, by one or more other tenants of the Building, without passing through Tenant’s security features. Tenant shall not be required to remove or modify any improvements in the common areas and lobby as existing and configured as of the date hereof but may be required to do so in the event of substantive alterations to the common areas and lobby in the future; provided, however, that Tenant shall not be obligated to make any such alterations unless, at the time that Landlord approves the plans and specifications for such alterations, Landlord advises Tenant, in writing, of which proposed improvements to the common areas and lobby area on the first floor will have to be altered if and when the Contraction Right is exercised. Such changes shall be contained in an amendment signed by Landlord and Tenant prior to the contraction taking effect.
The contraction right of Tenant, described in in this Section 6(a) (the “ Contraction Right ”), is personal to Tenant and any assignees that were either consented to or deemed consented to by Landlord, or are Affiliates and are non-transferable to any other assignee or sublessee. If all or a portion of the Leased Premises in excess of one (1) full floor has been sublet to any third party other than an Affiliate, the Contraction Right shall be deemed null and void and Tenant and/or any such sublessee shall not have the right to exercise such Contraction Right.
(b)     Termination . Provided Tenant is not in default beyond any applicable cure or grace period, Tenant may elect to terminate this Lease as of October 31, 2021 (the “ Termination Date ”), by giving Landlord written notice (“ Tenant’s Notice ”) not later than January 31, 2021 and not sooner than October 31, 2020. Within thirty (30) days following the Termination Date, Tenant shall pay a termination fee (“ Termination Fee ”) equal to One Million Eight Hundred Fifty Thousand Dollars ($1,850,000.00). Notwithstanding the foregoing, if Tenant exercises Tenant’s Contraction Right set forth in Section 6(a) above, then the Termination Date shall be changed to October 31, 2022, so that Tenant will be required to provide Tenant’s Notice not later than January 31, 2022 and not sooner than October 31, 2021; provided, further that in such event the Termination Fee does not change. If this Option is timely exercised, Tenant will deliver possession of the Leased Premises to Landlord on the Termination Date in accordance with the terms of the Lease and all other terms

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and provisions will apply as if the Lease had expired according to its terms, including Tenant’s obligation for payment of Tenant’s Excess Operating Costs attributable to periods prior to the Termination Date at such time as such obligation is determined. If Tenant fails to timely give notice, Tenant will be deemed to have waived its right to terminate under this section. The Termination Fee shall be reported as receipt of a “Termination Fee” in Landlord’s electronic financial records, it being the intention of the parties that the Termination Fee is not for rent or use of the Leased Premises and that no State of Florida sales tax shall be due on the Termination Fee. If sales tax is required to be paid with respect to the Termination Fee, the Tenant shall pay said sales tax, plus all interest, late fees and penalties, within thirty (30) days of imposition by the Florida Department of Revenue, unless the same was due, solely and directly, to the Landlord’s failure to record the Termination Fee as a Termination Fee in Landlord’s electronic financial records. Tenant agrees to indemnify Landlord as to any claims, damages, liability or expenses of Landlord, including reasonable attorneys' fees or costs, arising from or related to sales tax that may be due with respect to the Termination Fee, including any interest, late fees and penalties. This indemnity shall survive the termination or expiration of the Lease.
The early termination right of Tenant, described in this Section 6(b) (the “ Termination Right ”), is personal to Tenant and any assignees that were either consented to or deemed consented to by Landlord, or are Affiliates and are non-transferable to any other assignee or sublessee. If all or a portion of the Leased Premises in excess of one (1) full floor has been sublet to any third party other than an Affiliate, the Termination Right shall be deemed null and void and Tenant and/or any such sublessee shall not have the right to exercise such Termination Right.
7. Expansion Rights .
(a)     Subleased Premises . In the event that the Master Lease is terminated at any time during the Term hereof for any reason other than a default due to the acts or omissions of Tenant, as sublessee thereunder, and such termination occurs when Tenant occupies the Subleased Premises pursuant to the Sublease, in order to assure Tenant of the continuation of its use and occupancy of the Subleased Premises without interruption, Landlord hereby grants to Tenant an option to add the Subleased Premises to the Lease hereunder, upon the terms and conditions set forth in this Section and in the Consent. The provisions of this Section 7(a) supplement and are intended to be in addition to the rights granted to Tenant in the Consent. Landlord shall give written notice to Tenant within seven (7) business days after Landlord sends to Sublessor, or receives from Sublessor, written notice that the Master Lease is terminated, or being terminated, and that the termination date will occur prior to the expiration of the current term of the Sublease. Tenant shall have ten (10) business days following its receipt of such written notice from Landlord within which to exercise the expansion option granted by this Section. In the event Tenant exercises its expansion option granted pursuant to this Section to add the Subleased Premises to the Leased Premises governed by the Lease, then Tenant and Landlord shall negotiate in good faith to agree to the terms of an amendment to the Lease (the “ Lease Amendment ”) consistent with the terms of this Section. The Lease Amendment shall provide, among other provisions, that (1) the Subleased Premises shall be added to the “Leased Premises” under the Lease upon all of the terms and conditions outlined in the Lease applicable to the Leased Premises, including rental rates, (2) the Base Rent, at the amount per rentable square foot as set forth in this Fourth Amendment, as applicable during such

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lease year, (3) Tenant and Landlord reaffirm all other terms and conditions set forth in the Lease, as amended by this Fourth Amendment, to apply to the Subleased Premises, with the exception of the provisions set forth in Section 4 above related to the Tenant Maintenance Services, (3) Landlord shall have a relocation right for the Subleased Premises, to allow Landlord to change the location of the Subleased Premises within Building III, subject to the provisions contained herein and (4) Tenant will be provided with the same parking spaces as granted to Tenant under the Sublease. The parties shall enter into the Lease Amendment prior to the date of termination of the Master Lease.

With respect to such relocation, such Lease Amendment shall provide for the following:

(i)    The premises to which Tenant shall be relocated (“ Substitute Premises ”) shall be within Building III, in a size and configuration comparable to the Subleased Premises;

(ii)    Prior to the obligation of Tenant to relocate to the Substitute Premises, the Landlord shall construct such tenant improvements, at Landlord’s sole cost and expense, as are necessary to render the Substitute Premises in the same or comparable condition as the Subleased Premises;

(iii)    Landlord shall pay all reasonable costs associated with such relocation, including, without limitation, all cost of the physical relocation of the Subleased Premises and new promotional materials, business cards, letterhead, signage and other business related materials that reference the suite number and the cost of moving any phone and computers and installing related cabling; and
(iv)    An appropriate adjustment in the Base Rent and Tenant’s Pro Rata Share of any Operating Expenses based upon any variance in the size of the Substitute Premises (but not the rate on a per square foot basis), but in no event shall Tenant be obligated to pay any rent or Operating Expenses in excess of the amount Tenant pays under the Lease for the Subleased Premises.
Tenant’s right to exercise this option is conditioned upon Tenant not being in default of the time of exercise or as of the date upon which the Subleased Premises is added to the Lease.

It is expressly understood and agreed that the option granted to Tenant under this subsection 7(a) shall apply only if and when the existing lease rights of Metavante Corporation (“ Metavante ”) cease in Building III in a manner which results in the loss of Tenant’s possessory rights in Building III.
(b)     Right of First Offer – Building III . In addition to the option set forth in subsection 7(a) above, at all times during the Term of this Lease, Landlord grants Tenant a continuous right of first offer (“ Right of First Offer for Building III ”) on all or any portion of Building III in accordance with the provisions contained in this Section. At such time as Landlord desires to lease

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all or any portion of Building III (“ Right of First Offer Space for Building III ”), Landlord shall give written notice thereof to Tenant specifying the terms and provisions upon which Landlord would offer to lease the Right of First Offer Space for Building III to third parties (“ Landlord’s Offer Notice for Building III ”). Tenant shall have five (5) business days after receipt of Landlord’s Offer Notice for Building III within which to give Landlord notice of its election to exercise its Right of First Offer for Building III as to the Right of First Offer Space for Building III (“ Tenant’s Offer Notice for Building III ”).
Tenant’s Right of First Offer for Building III is subject and subordinate only to (a) the existing expansion rights of other tenants in Building III in place as of the date hereof, which are existing lease rights to occupy its leased space, renewal rights and a right of first refusal and right of first offer of Metavante, and (b) the rights of first opportunity for Building III held by Schwab.
If Tenant does not timely give Tenant’s Offer Notice for Building III or notifies Landlord that Tenant does not elect to exercise its Right of First Offer for Building III, it will be presumed that Tenant has waived its Right of First Offer for Building III and Landlord shall be free to lease the Right of First Offer Space for Building III to anyone to whom it desires and Tenant will have no further expansion rights with respect to Building III pursuant to this Section 7(b) until any Right of First Offer Space for Building III again becomes available.

Unless expressly waived by Landlord, Tenant’s Right of First Offer for Building III is conditioned upon Tenant not being in default under the Lease at the time of the exercise of the Right of First Offer for Building III or on the date the Tenant’s occupancy of the Right of First Offer Space for Building III is scheduled to commence.
(c)     Right of First Offer – Building II . Landlord has advised Tenant that Landlord presently leases the entirety of Building II to Schwab. At all times during the Term of this Lease, Landlord grants Tenant a continuous right of first offer (“ Right of First Offer for Building II ”) on all or any portion of Building II in accordance with the provisions contained in this Section. At such time as Landlord desires to lease all or any portion of Building II (“ Right of First Offer Space for Building II ”), Landlord shall give written notice thereof to Tenant specifying the terms and provisions upon which Landlord would offer to lease the Right of First Offer Space for Building II to third parties (“ Landlord’s Offer Notice for Building II ”). Tenant shall have five (5) business days after receipt of Landlord’s Offer Notice for Building II within which to give Landlord notice of its election to exercise its Right of First Offer for Building II as to the Right of First Offer Space for Building II (“ Tenant Offer Notice for Building II ”).
Tenant’s Right of First Offer for Building II is subject and subordinate only to the existing rights of tenant Schwab in place as of the date hereof, which are only that Schwab has existing lease rights to occupy its leased space with renewal rights.
If Tenant does not timely give Tenant’s Offer Notice for Building II or notifies Landlord that Tenant does not elect to exercise its Right of First Offer for Building II, it will be presumed that Tenant has waived its Right of First Offer for Building II and Landlord shall be free to lease the Right of First Offer Space for Building II to anyone to whom it desires and Tenant will have no

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further expansion rights to Building II pursuant to this Section 7(c) until any Right of First Offer Space for Building II again becomes available.

Unless expressly waived by Landlord, Tenant’s Right of First Offer for Building II is conditioned upon Tenant not being in default under the Lease at the time of the exercise of the Right of First Offer for Building II or on the date the Tenant’s occupancy of the Right of First Offer Space for Building II is scheduled to commence.
(d)     Personal Rights . The rights of Tenant described in subsections (b) and (c) above in this Section 7 (the “ Expansion Rights ”) are personal to Tenant and its Affiliates and are non-transferable to any other assignee or sublessee (regardless of whether any such assignment or sublease was made with or without Landlord’s consent) or any other party. If this Lease has been assigned, or all or a portion of the Leased Premises has been sublet, to any third party other than an Affiliate, the Expansion Rights in (b) and (c) above in this Section 7 shall be deemed null and void and Tenant (or any such assignee/sublessee) shall not have the right to exercise such Expansion Rights.
8. Renewal Options; Option to Extend . Landlord grants Tenant an option (the “ Option ”) to extend the term of the Lease for two (2) additional terms of five (5) years each (the “ Option Term ” or “ Option Terms ”). The Option applies to the entire Leased Premises or to one or more full floors as selected by Tenant, and is on the following conditions:
(a)    Notice of Tenant's interest in exercising the Option must be given to Landlord no later than twelve (12) months and no earlier than eighteen (18) months, prior to the Expiration Date of the Term (“ Tenant's Notice ”). Within thirty (30) days after being given Tenant's Notice, Landlord will notify Tenant of the Base Rent applicable during the Option Term (“ Option Rental Rate ”) calculated by Landlord to be the Prevailing Market Rental Rate (as defined below) and any allowances that Landlord will make available to Tenant (“ Landlord's Notice ”).
(b)    Tenant has seven (7) days after having been given Landlord's Notice to dispute the proposed Option Rental Rate quoted by Landlord by delivering written notice of dispute to Landlord. If Tenant does not timely dispute the proposed Option Rental Rate, the Term will be deemed extended on the terms as set forth in Landlord's Notice at the Option Rental Rate proposed by Landlord, and the parties will execute an amendment evidencing the extension. If Tenant disputes Landlord's determination of the Option Rental Rate, Tenant shall give written notice of such dispute to Landlord (“ Dispute Notice ”) within the seven (7) day period and the Option Rental Rate shall thereafter be determined in accordance with Section (f) below.
(c)    Unless Landlord is timely notified by Tenant in accordance with Section (a) above, it will be conclusively deemed that Tenant has not exercised the Option and the Lease will expire in accordance with its terms on the Lease Expiration Date of the Term.
(d)    Unless expressly waived by Landlord, Tenant's right to exercise the Option is conditioned on Tenant not being in default at the time of exercise or commencement of the particular Option Term.

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(e)    The provisions of the Lease shall be applicable during any Option Term, except that any allowances shall be as set forth in Landlord’s Notice and Base Rent shall be equal to the Option Rental Rate as set forth in Landlord’s Notice, unless determined in accordance with Section (f) below.
(f)    Following giving of Tenant's Dispute Notice, Landlord and Tenant shall promptly negotiate to determine a mutually acceptable Option Rental Rate. If the parties mutually agree upon a new Option Rental rate, such agreed rate shall be the Base Rent rate applicable during the particular Option Term. If the parties have not agreed within 20 days after the giving of Tenant's Dispute Notice, then within such 20-day period Landlord and Tenant shall endeavor to agree upon (i) an independent and qualified licensed real estate broker of good reputation, or (ii) independent and qualified licensed real estate appraiser of good reputation, who is a member of the Appraisal Institute (or its successor) with a then current senior designation of MAI and of good reputation, and provided such broker/appraiser shall have at least ten (10) years’ experience in the real estate market in which the Building is located, and who has not been engaged by Landlord or Tenant within the five year period immediately preceding their appointment hereunder, to act as arbitrator (“ Arbitrator ”); otherwise, they shall each select, within the foregoing 20-day period, a real estate broker/real estate appraiser who meets the above qualifications and together such parties will then select a real estate broker /real estate appraiser who meets the above qualifications and who shall be deemed the Arbitrator. Within ten (10) days after designation of the Arbitrator, Landlord and Tenant each shall give notice of its determination of the Prevailing Market Rental Rate supported by the reasons therefor by delivering copies to each other and the Arbitrator, under an arrangement for simultaneous exchange of such determinations. The Arbitrator will review each party's determination and select the one which most accurately reflects such Arbitrator's determination of the Prevailing Market Rental Rate. Such selection shall be final and binding on both parties and shall be the Option Rental Rate paid during the particular Option Term. The Arbitrator shall have no right to propose a middle ground or any modifications of either party’s determination of the Prevailing Market Rental Rate. The Arbitrator’s costs incurred in this procedure shall be shared equally by Landlord and Tenant and shall be fixed when the Arbitrator is selected. For purposes of this paragraph, “ Prevailing Market Rental Rate ” means the annual amount per rentable square foot that a willing tenant would pay and a willing landlord would accept for Base Rent following arm’s length negotiations with respect to an Assumed Lease (defined below) under the circumstances then obtaining. Assumed Lease means (i) a lease or renewal having a commencement date within 6 months of Tenant's Notice for space of approximately the same size as the Leased Premises, located in a Comparable Building (defined below) or portion thereof, for a term equal in length to the Option Term; (ii) a real estate commission is payable with respect to such extension to the extent a third party commission with respect to extension is agreed or obligated to be paid by Landlord; and (iii) taking into consideration allowances, if any, as provided in Landlord's Notice. Comparable Building means any then-existing building having a similar configuration and otherwise similar to the Building in comparable “Class A” office buildings in the immediate area of the Building, commonly known as the Maitland Center business district, and that is of a size, location, quality and prestige comparable to the Building, provided that appropriate adjustments shall be made to adjust for differences in the size, location, age, efficiency of floorplate, and quality of any Comparable Building and the Building.

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(g)    After exercise with respect to the last Option Term, or failure to exercise the Option as to any Option Term, Tenant shall have no further rights to extend the Term.
(h)    The provisions of this Section 8 amend and restate in their entirety the provisions of Section 12.4 of the Original Lease and Section 10 of the Second Amendment.
(i)    The Option of Tenant described in in this Section 8 is personal to Tenant and any assignees that were either consented to or deemed consented to by Landlord, or are Affiliates and are non-transferable to any other assignee or sublessee. If all or a portion of the Leased Premises in excess of one (1) full floor has been sublet to any third party other than an Affiliate, the Option of Tenant shall be deemed null and void and Tenant and/or any such sublessee shall not have the right to exercise such Option of Tenant.
(j)    If the Option of Tenant applies to only a part of the Premises, then the provisions of Section 4(c) shall be triggered so that Tenant shall no longer have the right to provide the Tenant Maintenance Services.
9. Sports Field . Landlord and Tenant hereby agree that Tenant has the right, but not the obligation, at its sole election, to use the outdoor area labeled as “Potential Athletic Field” on Exhibit E , attached hereto and made a part hereof (“ Field ”) as an athletic field for athletic activities for its employees, at no additional rent to Tenant. The use of the Field by Tenant shall be subject to the following conditions:
(a)    If Tenant elects to use the Field in accordance with the provisions of this Section 9, Tenant shall give written notice thereof to Landlord, no later than the date that is two (2) years after the Fourth Amendment Effective Date (“ Sports Field Notice ”). If Tenant fails to deliver a Sports Field Notice on or before such date, then Tenant’s right to construct and use the Field shall terminate. Unless and until Tenant makes such election, the provisions of this Section 9 shall not be in effect. If Tenant makes such written election, Tenant shall be entitled to make improvements to the Field, which may include both surface and above-ground improvements, including, without limitation, a building of no more than 2,000 square feet, and the installation of sports related improvements (e.g., field markings for certain games, soccer/lacrosse goals, nets and the like) (“ Field Improvements ”), provided that Tenant obtains, at Tenant’s sole cost and expense, any and all governmental permits, approvals and consents for the Field Improvements and provided that all Field Improvements shall be considered an alteration governed by the provisions of Section 6.1 of the Lease. Tenant shall comply with the provisions of Section 6.1 of the Lease irrespective of the cost of the Field Improvements, including, without limitation, obtaining Landlord’s prior written consent. Upon Tenant’s delivery of the Sports Field Notice, the Field and all Field Improvements, when constructed, shall be considered a part of the common areas of the Project, subject to the uses and restrictions set forth herein;

(b)    No Field Improvements which may be made by Tenant shall interfere with the function of the Field as part of the stormwater management system for the Project, and Tenant shall not be permitted to make any change to the grading of the Field;


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(c)    Prior to the construction or installation of any Field Improvements, Tenant shall provide plans and specifications therefor to Landlord for Landlord’s prior written approval, which written approval shall not be unreasonably withheld, delayed or conditioned. At such time as Tenant provides such proposed plans and specifications, Landlord and Tenant shall cooperate in order to identify any elements of the Field or such stormwater management system or any recorded easements or governmental permits and approvals affecting the Field which may impact Tenant’s use thereof or the installation and use of the Field Improvements.

(d)    As consideration for Tenant’s expense in installing the Field Improvements described herein, Tenant shall have priority rights for the use of the Field. Subject to such priority rights, other tenants in the Project may use the Field on a non-exclusive basis, but Tenant shall have no obligation or liability to Landlord of any kind, nature or description arising out of the use of the Field by such other tenants. Landlord shall perform reasonable maintenance of the Field which shall be included in CAM Charges under the Lease.

(e)    Tenant shall provide commercial general liability insurance covering the Field to the extent required to be obtained by Tenant under the Lease, and otherwise on the terms and conditions outlined in the Lease applicable to Tenant’s commercial general liability insurance. In addition, within a reasonable period following substantial completion of any Field Improvements made by Tenant, Tenant shall furnish evidence of the full payment by Tenant for such improvements and the release of any applicable lien from any contractor, subcontractor or other potential lienor.

(f)    Landlord makes no representations or warranties regarding the suitability of the Field for Tenant’s intended use, or the ability to obtain permits for the construction or use of any Field Improvements. Tenant agrees to indemnify Landlord for any claims, damages, liability or expenses of Landlord, including reasonable attorneys’ fees or costs, arising from or related to the use of the Field or Field Improvements by Tenant and Tenant’s express invitees (but not arising from or related to the use of the Field or Field Improvements by any other person) and/or the negligent installation or negligent construction of the Field Improvements by or at the direction of Tenant and the breach by Tenant of Tenant’s obligations under this Section 9. This indemnity shall survive the termination or expiration of the Lease.

10. Surrender and Restoration . Notwithstanding anything contained in the Lease to the contrary, Tenant shall have no restoration obligation upon surrender of the Leased Premises; provided, however that at the time that Landlord has approved the final plans and specifications for the work to be performed under the Work Letter for the common areas on the first floor of the Building (“ Lobby ”), Landlord shall notify Tenant in writing which of such improvements (which could be all) to the Lobby will be required to be restored by Tenant at the end of the Term. If restoration is required, the Lobby, or such portion as contained in Landlord’s notice, shall be surrendered in the same or better condition as when the Original Lease commenced, ordinary wear and tear excepted.

11. Parking . Tenant shall retain all parking rights granted by the existing Lease and the Sublease, including, without limitation, the exclusive right, use and possession of the parking

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garage immediately adjacent to the Building, consisting of approximately 546 parking spaces, and the non-exclusive use of 63 parking spaces in the parking garage associated with the Subleased Premises.
12. Storage . The first floor of the Garage contains a designated storage area (“ Storage Room ”). Landlord and Tenant hereby acknowledge and reaffirm Tenant’s right to use, for storage, an area within the Storage Room, consisting of approximately 952 square feet, in the location currently being utilized by Tenant. Landlord hereby agrees that Tenant have the right to use an additional area in the Storage Room, consisting of approximately 470 square feet currently being utilized by Tenant. Landlord shall retain all rights as to the remaining portion of the Storage Room. There shall be no cost or fee of any kind to Tenant for either storage space in the Storage Room, but such Tenant storage areas shall be considered as a part of the Leased Premises for purposes of the Lease.
13. Non-Disturbance . Notwithstanding anything contained in the Lease to the contrary, Tenant’s obligation to subordinate its rights under the Lease to any mortgage encumbering the Leased Premises in the future and to attorn to any purchaser, transferee or successor landlord arising out of any foreclosure, deed in lieu of foreclosure or sale of the Leased Premises, shall be conditioned upon Landlord obtaining from its lender a subordination, non-disturbance and attornment agreement for the benefit of Tenant, in a form acceptable to the lender. Section 13.15 of the Original Lease is hereby deleted. Landlord hereby represents and warrants to Tenant that the Leased Premises is not subject to any mortgage as of the Fourth Amendment Effective Date.

14. Brokerage . Landlord and Tenant hereby represent and warrant to each other that, except for Jones Lang LaSalle (“ Broker ”) who shall be paid by Landlord in accordance with the terms of a separate agreement between Landlord and Broker, neither Landlord nor Tenant nor any of their representatives, employees or agents have dealt with or consulted any real estate broker in connection with this Lease. Without limiting the effect of the foregoing, each party hereby agrees to indemnify, defend and hold the other party harmless from and against any claim or demand made by any other real estate broker or agent claiming to have dealt or consulted with either party or their representatives, employees or agents contrary to the foregoing representation and warranty.
15. Right of First Refusal .  The ROFR set forth in Section 13.20 of the Lease is hereby deleted in its entirety.
16. Reaffirmation of Guaranty . Landlord has required Tenant to obtain for Landlord’s benefit an unconditional guaranty of Tenant’s performance of its obligations pursuant to the Lease, by Tenant’s parent company, Electronic Arts Inc. (“ Guarantor ”). Guarantor executed and delivered to Landlord a certain Guaranty at the time of Tenant’s execution of the Original Lease, which was reaffirmed with the execution and delivery of the Second Amendment and the Third Amendment. As a condition to and as additional consideration for Landlord entering into this Fourth Amendment, Guarantor shall provide the Reaffirmation of Guaranty attached hereto and incorporated herein by this reference, upon execution of this Fourth Amendment by Tenant.


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17. Third Amendment Contingencies . Landlord and Tenant acknowledge that the contingencies set forth in Section 6 of the Third Amendment have been satisfied.

18. Surrender of Expansion Premises . Landlord and Tenant acknowledge that the surrender of the Expansion Premises, as provided in Section 3 of the Third Amendment, has occurred.

19. Effect of Amendment; Conflict; Reaffirmation . Except as otherwise expressly modified or amended by this Fourth Amendment, the Lease remains unchanged and in full force and effect in accordance with its terms. In the event of a conflict between the terms and provisions of this Fourth Amendment and the Lease, the terms and provisions of this Fourth Amendment shall control and be given effect. This Fourth Amendment shall be binding upon and inure to the benefit of the Landlord and the Tenant and their respective successors and assigns. The parties hereby reaffirm the terms and provisions of the Lease, as amended by this Fourth Amendment, including without limitation any failure to have two witnesses on any prior amendment.

20. Counterparts . This Fourth Amendment may be executed simultaneously in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

[Signatures on the Next Page]

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IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of the date first above written.

                        

Witnesses:


/s/ Michael Cohen
Print Name:  Michael Cohen


/s/ Andrea D. Cinca
Print Name:  Andrea D. Cinca

LANDLORD :

LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership

By: Liberty Property Trust, its sole general
    partner

   By: /s/ Michael T. Hagan                
   Name:  Michael T. Hagan
   Title:  Chief Investment Officer
   Date: May 20, 2014
 
 
 
 



/s/ Ivan P. Purcell
Print Name:  Ivan P. Purcell


/s/ Joseph A. Cowan
Print Name:  Joseph A. Cowan

TENANT :

ELECTRONIC ARTS-TIBURON, A FLORIDA CORPORATION


By: /s/ Curtis J. Wilhelm
Name: Curtis J. Wilhelm
Title: VP Global Facilities and Real Estate
Date: May 16, 2014





                    

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REAFFIRMATION OF GUARANTY

The undersigned Guarantor previously provided a certain Guaranty to Landlord in conjunction with the Lease, as defined in the foregoing Fourth Amendment. By executing this Reaffirmation of Guaranty, the undersigned Guarantor hereby consents to the terms and conditions of the foregoing Fourth Amendment, and ratifies and reaffirms the terms and conditions of the Guaranty, which Guaranty shall remain in full force and effect. The Guarantor hereby waives any defense to its obligations under the Guaranty based upon or arising out of the modifications to the Lease as provided in the First Amendment or in the foregoing Fourth Amendment. Notwithstanding any language contained in the Guaranty, Guarantor, to the extent permitted by law, waives any claim or other right which such Guarantor might now have or hereafter may acquire against Tenant, which arises from the existence or performance of such Guarantor’s liability or other obligations under the Guaranty.
IN WITNESS WHEREOF, the undersigned has executed the Reaffirmation of Guaranty on the date written below intending to be bound as of the Fourth Amendment Effective Date.
WITNESSES:


/s/ Ivan P. Purcell
Signature

Ivan P. Purcell
Print Name

/s/ Joseph A. Cowan
Signature

Joseph A. Cowan
Print Name
GUARANTOR :
ELECTRONIC ARTS INC.
By: /s/ Curtis J. Wilhelm
Name: Curtis J. Wilhelm
Title: VP Global Facilities and Real Estate
Date: May 16, 2014
















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EXHIBIT A



Tenant Maintenance Services


All maintenance of the interior of the Building, which shall, by definition, exclude the shell, roof, exterior windows and exterior walls of the Building, and which shall, notwithstanding the foregoing, exclude the repair, maintenance and servicing of all elevators within the Building. In addition, Tenant Maintenance Services shall include maintenance of the interior of the Garage, also expressly excluding the shell, roof and any exterior windows and exterior walls of the Garage and also excluding any repair, maintenance and servicing of the elevators in the Garage.



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Notwithstanding the generality of the foregoing, the maintenance obligations of Landlord and Tenant shall be as follows:
 
Tenant’s Responsibilities :

Building Fire Protection :
Inspections, Monitoring, Maintenance, Repairs
Extinguishers
Horn / Strobes
Panels
Pull Stations
Pumps
Smoke Detectors
Sprinklers
Backflows ( one for fire pump, one for domestic water)
Fire Drills
Monitoring Lines

HVAC:
Inspections, Monitoring, Maintenance, Repairs
Air Handlers
Cooling Towers
VAV’s & VFD’s
Heat Pumps
T-Stats
EMS (controllers, operation, programming, etc.)
Indoor Air Quality

Building Interior Maintenance & Interior Repair :
Building mechanical and electrical rooms
Plumbing including drains, drain cleaning, leaks, water fountains, faucets, toilets, sinks, urinals, pipes, hose bibs, and 2” backflow behind pylon signs.
All interior painting and metal maintenance including decorative metal medallions in lobby and elevators
Electrical including annual infrared surveys
All lighting including emergency and exit lights
Production Generators (2)
Inspections, Monitoring, Maintenance, Repairs

Life Safety Generator :
Inspections, Monitoring, Maintenance, Repairs

Miscellaneous :
Doors including all entrances

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Interior Landscaping
Holiday Decorations
Lobby Plants, Plant Containers
Lobby Woodwork
Signage
Pest Control
Interior Extermination
Janitorial
Interior Windows
Lobby Floor Granite & Tile Maintenance
Restroom Granite & Tile Maintenance
Carpet

1950 Garage Maintenance & Repair :
Maintenance and Repairs
Extinguishers
Lighting
Extermination
Stairs & handrails, landing
Striping, painting
Parking lot sweeping
Windows (Interior) [Exterior washing is Landlord’s responsibility.]
Signage

Exterior Janitorial :
Flower beds/sidewalks debris removal around 1950 building and 1950 garage
Cleaning, sweeping, pressure washing, trash removal and cob web removal of the following:
Garage
Patio
Breezeways (excluding pressure washing)
Loading Dock (excluding pressure washing)
Benches, tables, and trash cans in front of Building

All Electrical Power for Building and Garage (invoiced Directly to Tenant by Duke Energy)



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Landlord’s Responsibilities :

General :
Building Exterior Maintenance & Repairs
Breezeway (Excludes cleaning and but not pressure washing)
Roof Debris removal (excluding that created by Tenant’s contractors)
Painting
Concrete and Pavers
Roof Inspections, Maintenance, Repairs
Lightning Protection (Building and Garage)
Roof membrane (Leaks)
Bird protection
Exterior wall painting/maintenance
Exterior Windows – cleaning, leak repair, replacement when necessary
Leak repair
Fire Hydrants

Electrical Maintenance and Repair :
All campus exterior lighting including 1950 building breezeways
Pond fountains
Sidewalks
Concrete and Pavers
Campus Roadways
Asphalt repairs
Road Signage and marking
Road drainage
Trash and Recycle Removal
Campus Shared Power Invoiced to Liberty by Duke Energy
Pond Pumps

Garage Exterior :
Window Maintenance
Cleaning
Leak repair
Glass replacement

Campus Maintenance & Repairs :
Backflow preventer (behind generator) and irrigation meter

Landscaping including 1950 building patio :
Tree maintenance
Flower bed maintenance
Grass cutting
Pond debris removal

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Landscape irrigation
Fence maintenance

Building Elevators (three passenger and one freight) :
Inspections, Monitoring, Maintenance, Repairs
Cables
Doors
Lights
Motors
Pits
Woodwork
Monitoring Lines

Garage Elevator :
Inspections, Monitoring, Maintenance, Repairs
Cables
Doors
Lights
Motors
Pits
Woodwork
Monitoring Lines
























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EXHIBIT B

Tenant Security Procedures


Landlord shall be entitled to unlimited access to the Leased Premises at all times in the event of an emergency or to provide maintenance services to the elevators in the Building. Except in the event of an emergency or to provide maintenance services to the elevators in the Building, Landlord may not enter the Leased Premises without first checking in with the security personnel on the first floor of the Building and receiving an identification badge. Designated personnel of Landlord shall be provided a security badge to be kept at Tenant’s security area, so that such designated party is pre-approved for access to the Leased Premises. In addition and absent an emergency or to provide maintenance services to the elevators in the Building, no such access by Landlord shall be permitted except on reasonable prior notice to Tenant of not less than one business day. Moreover, except in the event of an emergency or to provide maintenance services to the elevators in the Building, access for Landlord may be denied by Tenant, to specific limited areas within the Leased Premises due to the sensitive nature of Tenant’s business operations. Tenant shall provide a detailed description of such excluded areas to Landlord (which shall not include an areas containing the elevators or related facilities), which may be updated from time to time by Tenant, and which limited area of exclusion is subject to Landlord’s approval, which shall not be unreasonably withheld, conditioned or denied.


























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EXHIBIT C

Work Letter

This work letter (the “ Work Letter ”) is attached to and made a part of that certain Fourth Amendment to Lease (the “ Fourth Amendment ”) by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“ Landlord ”) and ELECTRONIC ARTS-TIBURON, A FLORIDA CORPORATION, formerly known as Tiburon Entertainment, Inc., a Florida corporation (“ Tenant ”). In the event of any conflict between the terms and provisions of the Lease and the terms and provisions of this Fourth Amendment, the terms and provisions of this Fourth Amendment shall control. Defined (capitalized) terms not otherwise defined herein shall have the same meaning as in the Fourth Amendment.
B A C K G R O U N D
The Building is a six story office building of which Tenant is the sole tenant and occupant pursuant to the Lease. The Garage which is associated with the Building is three stories and Tenant has the exclusive use of the Garage pursuant to the Lease. Each floor of the Building is occupied by different divisions or work units of Tenant who work independently of each other on the development and commercial release of interactive software games. The work and release schedules applicable to Tenant’s various divisions and work units are rigidly incorporated into all aspects of Tenant’s business. It is the express intent of Tenant that the work described in this Work Letter to be performed by Landlord in the Building shall be accomplished on a floor by floor basis in accordance with a schedule which has been initially established by Tenant. Each work unit on each floor within the Building shall be temporarily relocated elsewhere within the Premises while the work to such floor is being done. Each such work unit will move back into its floor when the work on its floor is substantially completed with the next work unit being relocated thereafter. Relocations shall be accomplished over a weekend in each case. Notwithstanding the foregoing, based upon the work and release schedules applicable to Tenant’s various divisions and work units, a delay in Landlord’s completion of Landlord’s Work on a particular floor may result in a delay in the schedule for the relocation for the work unit on such floor and/or the temporary relocation elsewhere within the Premises for the work unit on the next floor, which relocation delay may extend beyond the delay in Landlord’s completion of Landlord’s Work on such floor, but in no event shall such relocation delay last longer than fifteen (15) days. Accordingly, such work unit may not be able to return to its floor when the work on its floor is substantially completed and the work unit next scheduled to be relocated elsewhere within the Premises may not be able to be relocated upon the substantial completion of Landlord’s Work on the prior floor, for a period of up to fifteen (15) days.
This Work Letter sets forth the rights, duties, covenants and obligations of Landlord and Tenant with respect to Landlord’s Work, including the development, preparation, review and approval of all plans and specifications for Landlord’s Work and the engineering, construction and installation of Landlord’s Work, and will contemplate that the performance of Landlord’s Work will proceed generally in accordance with the following stages which may, to some extent, overlap, as provided more particularly below:

a.
Preparation and approval of all plans and specifications for Landlord’s Work;

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b.
Competitive bidding and selection of general contractor.

c.
Negotiation, preparation, review and approval of the contract with the general contractor performing Landlord’s Work, including, without limitation, approval of the billing process;

d.
Submission and approval of all plans and specifications by the appropriate governmental authorities and the issuance of all necessary permits and approvals.

e.
Construction and installation of all improvements constituting Landlord’s Work.

As used in this Work Letter, the term “ Landlord’s Work ” shall consist of two categories. The first category of Landlord’s Work shall mean and refer to the improvement and/or replacement of the HVAC system in the Building and all efforts and improvements associated therewith, including, without limitation, all mechanical, electrical and plumbing improvements required in connection therewith and shall be referred to herein as “ Landlord’s MEP Work ”. Landlord’s MEP Work is generally described in Schedule 1 , attached hereto and made a part hereof. The second category of Landlord’s Work shall mean and refer to other tenant improvements desired by Tenant and is referred to herein as “ Landlord’s TI Work ”. Landlord’s TI Work is generally described in Schedule 2 , attached hereto and made a part hereof. As used herein, the term “Landlord’s Work” shall mean and refer to Landlord’s MEP Work and Landlord’s TI Work, collectively.

Landlord’s MEP Work shall be performed by Landlord at its sole cost and expense and not as a part of the Allowance (as defined below). Landlord’s TI Work shall be performed by Landlord, subject to the Allowance. Tenant shall pay for all costs of Landlord’s TI Work in excess of the Allowance. The construction contract for Landlord’s MEP Work and Landlord’s TI Work shall provide for a system to be agreed upon by Landlord, Tenant and the general contractor for detailed and separate billing to facilitate the fair and equitable allocation of certain costs. Without limiting the foregoing, the parties contemplate that some elements of Landlord’s MEP Work and Landlord’s TI Work shall be distinct and separate elements, but some shall be apportioned by percentages to be agreed upon by the parties.

In addition to Landlord’s Work, Landlord shall improve and modernize the elevators in the Building at Landlord’s sole cost and expense, which work is referred to herein as “ Landlord’s Elevator Work ”. Landlord’s Elevator Work is generally described in Schedule 3 , attached hereto and made a part hereof.


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A G R E E M E N T
1. Landlord’s Work . The parties hereby agree that all aspects of Landlord’s Work shall be subject to the prior written approval by Tenant, which shall not be unreasonably withheld, conditioned or delayed, including, without limitation, the following:
a.
The plans and specifications for Landlord’s Work (“ Landlord’s Plans ”);
b.
The contractor (“ Landlord’s Contractor ”) and all primary subcontractors and engineers to perform Landlord’s Work;
c.
The contract for Landlord’s Work (“ Landlord’s Contract ”), including, without limitation, all schedules and the duration of time allocated for the work to each floor, the phasing schedule for each floor, the liquidated damages provisions of Landlord’s Contract and the procedures to be followed by Landlord’s Contractor in order to minimize delay and interference.
The parties hereby acknowledge their agreement on the preliminary plans and specifications for Landlord’s Work which are shown in Schedule 4 , attached hereto and made a part hereof.

Landlord and Tenant hereby agree that on or before July 1, 2014: (i) the parties shall agree upon the final plans and specifications for Landlord’s Work, and (ii) Landlord shall enter into Landlord’s Contract for Landlord’s Work. Landlord shall secure all consents and approvals for Landlord’s Work, all with the approval of Landlord and Tenant and such that Landlord’s Work shall commence on September 8, 2014. The review and approval of either party to Landlord’s Plans shall not imply that either party has confirmed that such plans comply with applicable laws, codes, rules and regulations. All costs and expenses for Landlord’s TI Work shall be borne by Landlord and shall be paid by Landlord, to the extent of the Allowance.
As to the plans and specifications for Landlord’s Work, the parties shall diligently work together to agree on the final Landlord’s Plans prior to the deadline set forth above.

With respect to the approval of Landlord’s Contractor and all primary subcontractors and engineers, the parties hereby agree on the following:

a.    The architect for Landlord’s Work shall be Baker Barrios Architect, Inc.;

b.    Landlord’s Elevator Contractor shall be Otis Elevator Company;

c.    Landlord’s MEP engineer shall be Sims Wilkerson Cartier Engineering, Inc.;

d.    Landlord’s Contractor shall be Brasfield & Gorrie, or such replacement reasonably acceptable to Landlord and Tenant.
    

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As to Landlord’s Contract, in addition to the matters set forth above, it is hereby agreed that Landlord’s Contract shall include, without limitation, the following:

a.    Provisions for the split billing system described in paragraph 3 below;

b.    Provisions that all written notices and other written communications required thereunder shall include a copy to Tenant;

c.    Landlord’s Contractor’s acknowledgement of the liquidated damages provisions contained herein;

e.    Landlord’s Contractor’s agreement to perform any work which generates excessive noise or vibration or other interference with Tenant’s business during times approved in advance by Tenant, but Tenant shall be obligated to give approval to sufficient times to allow Landlord’s TI Work to be timely completed, and if not, such refusal by Tenant to give such approval shall be considered a Tenant Delay (as defined below);

f.    Agreement between Landlord, Tenant and Landlord’s Contractor of all critical path items (“ Critical Path Items ”) in the work schedule to be established and agreed upon pursuant to Landlord’s Contract, as updated from time to time; and

g.    Provisions which name Tenant as an additional insured, as its interest may appear, on all insurance carried by Landlord’s Contractor and provisions which name Tenant as an indemnitee in any indemnity given by Landlord’s Contractor; and

h.    Provisions obligating Landlord’s Contractor to obtain a performance bond if requested by Tenant, the cost of which shall be deducted from the Allowance.

Changes to Landlord’s Plans may be made only as a result of (i) written request for change by Tenant (“ Tenant Change ”), (ii) written request for change by Landlord (“ Landlord Change ”), or (iii) request for change by the governmental body or bodies having jurisdiction over Landlord’s Work (“ JHA Change ”), any of which must be approved by Landlord and Tenant, except in the case of JHA Changes that are unavoidable. As used in this Work Letter, the term “ Change ” shall refer to Tenant Changes, Landlord Changes and JHA Changes, collectively or individually . Notwithstanding the foregoing, Landlord shall have the right to make reasonable and non-material changes/field adjustments to the Landlord’s Work to the extent that the same shall be necessary or desirable in order to adjust to actual field conditions or to comply with any applicable requirements of public authorities and/or insurance bodies. All such changes/adjustments shall be noted on the applicable plans or documents. Except for such non-material changes/adjustments (which may be made immediately but memorialized by notation on the plans as provided above), modification to the Landlord’s TI Work must be made in accordance with the following provisions. Within a commercially reasonable period of time following any request for Change, but in a timely manner so as not to delay or adversely affect the Critical Path Items, Landlord and Tenant shall confer with Landlord’s Contractor to determine the effect of any such proposed Change on the cost of Landlord’s TI Work arising out of the Change and on the Schedule and/or the Cost Allocation (defined below),

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if any. In the event of any proposed Landlord Change or JHA Change, Tenant shall have a commercially reasonable period of time (assumed to be two (2) business days) to evaluate such proposed Change and either approve or negotiate such costs and/or the effect on the Schedule and/or the effect on the Cost Allocation or in the case of a JHA Change, to confer with the JHA regarding the necessary of such Change. Tenant shall have no obligation to approve any Landlord Change. It is understood and agreed that while Landlord and Tenant may be obligated to accept any JHA Change, Tenant shall have the opportunity to confer with the JHA and attempt to negotiate or modify such proposed JHA Change, at Tenant’s option.

With respect to any proposed Tenant Change, Tenant shall likewise have a commercially reasonable period of time following Tenant’s receipt of notice from Landlord’s Contractor of the proposed cost of such Tenant Change and effect on the Schedule and/or the effect on the Cost Allocation within which to either approve such cost, attempt to negotiate such costs or otherwise evaluate such costs. Landlord shall not be obligated to approve any Tenant Change, but if Landlord shall consider approving such Change, Landlord shall not do so unless and until Landlord and Tenant have agreed on the cost arising out of such Tenant Change and the effect on the Schedule and/or the effect on the Cost Allocation. Costs arising out of any Change to Landlord’s TI Work shall be borne by Tenant and will be paid out of the Allowance, and if the Allowance is not sufficient to cover such cost then Tenant shall pay the costs arising from the Change to Landlord’s TI Work, that exceeds the Allowance; costs arising out of changes to Landlord’s MEP Work shall be borne by Landlord.
2. Landlord’s Elevator Work . The parties hereby acknowledge that Landlord’s Elevator Work shall be performed by Landlord and shall include the work described in Schedule 3 , attached hereto and made a part hereof (“ Landlord’s Elevator Plans ”). Without limiting the foregoing, it is hereby agreed that Landlord’s Elevator Contract shall include, without limitation, the following:
a.
Provisions requiring that the freight elevator be completed before March 15, 2014;
b.
Provisions that all written notices or other written communications required thereunder shall include a copy to Tenant;
c.
Landlord agrees that Landlord will not make any material changes to the existing contract for Landlord’s Elevator Work, without Tenant’s consent.
3. Allowance; Split Billing . The parties hereby agree that the sums to be paid to Landlord’s Contractor under Landlord’s Contract shall be broken down into two categories. The first category shall be equal to sums due for Landlord’s MEP Work and any costs and expenses of Landlord’s TI Work made more expensive or time consuming or otherwise resulting in additional costs and expenses arising out of Landlord’s MEP Work which shall be paid directly by Landlord to Landlord’s Contractor in accordance with the provisions contained herein and not as a part of the Allowance (as defined below). The second category shall be the sums due to Landlord’s Contractor under Landlord’s Contract for Landlord’s TI Work. Landlord hereby agrees to provide an Allowance of $2,112,450.00 (“ Allowance ”) which may be applied to all hard and soft costs of Landlord TI Work, including, without limitation, all costs and expenses for design, engineering, installation, permitting and construction of Landlord’s TI Work. Landlord shall be entitle to receive a construction

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management fee equal to 1% of the Allowance (“ Management Fee ”) to compensate Landlord for billings, payment and contractor-selection and coordination services; provided, further that under no circumstances shall Landlord charge any other construction supervision or management or other similar fee in connection with Landlord’s Work. The Management Fee shall be paid out of the Allowance. In addition, the Allowance may be applied to any and all hard and soft costs incurred by Tenant in connection with any work being done directly by Tenant, and not through Landlord’s Contract, including, by way of example, carpeting, low voltage cabling and lighting. With respect to any such costs incurred by Tenant directly, Landlord shall reimburse Tenant within thirty (30) days following written request therefor by Tenant to Landlord, accompanied by reasonably detailed substantiation of such costs, but only up to the amount of the Allowance. Any and all costs of Landlord’s TI Work over and above the Allowance (“ TI Overage ”) shall be borne by Tenant and shall be paid by Tenant, after the Allowance has been fully depleted, within thirty (30) days from written request for payment by Landlord, either to Landlord or as otherwise agreed by Landlord and Tenant. The TI Overage will not be required to be paid into escrow or paid before incurred. Until the Allowance has been fully depleted, Landlord shall pay for Landlord’s TI Work directly to Landlord’s Contractor.
Landlord and Tenant hereby agree that Landlord’s Contract shall include a mechanism to separate Landlord’s MEP Work and Landlord’s TI Work based upon the current estimated allocation of MEP and TI Work as set forth on Schedule 6 attached hereto and made a part hereof (“ Cost Allocation ”). The Cost Allocation shall be updated from time to time by Landlord with Tenant’s approval, which shall not be unreasonably withheld, conditioned or delayed, as actual costs and/or final firm estimates for Landlord’s MEP Work and Landlord’s TI Work are obtained. In the event the Tenant disagrees with an update to the Cost Allocation, then Landlord and Tenant will discuss in good faith to resolve any differences in ten (10) days. Within ten (10) days following Landlord’s receipt of each periodic payment application issued by Landlord’s Contractor, Landlord shall provide a true, correct and complete copy of same to Tenant. Landlord shall timely make each periodic payment directly to Landlord’s Contractor. Once the Allowance has been fully depleted, Tenant shall pay to Landlord’s Contractor all amounts in excess of the Allowance, in accordance with the payment requirements contained in Landlord’s Contract but only if such payment requirements were approved by Tenant.

4. Construction Delay; Remedies .

A. Tenant expects to incur damage in the event that Landlord fails to timely commence and complete Landlord’s Work hereunder. Tenant hereby advises Landlord that Tenant’s schedule for Landlord’s Work must be accomplished hereunder on a floor by floor basis in accordance with the schedule attached hereto as Schedule 7 and made a part hereof (the “ Schedule ”). The Schedule will only contain all the target commencement and completion dates, which Schedule may be adjusted as provided in Section 4C below. The parties hereby acknowledge and agree that it will be difficult, if not impossible, to quantify the damages to Tenant in the event of the Landlord’s delays specified in this Section 4 and, desiring to obviate the expense of litigation, the parties hereby agree to the liquidated damages set forth herein.


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For each and every day of Landlord Delay (defined below), from and including the date upon which Landlord is obligated to complete a portion of Landlord’s Work to each floor of the Building until and including the date upon which Landlord delivers such floor to Tenant in the condition required by this Work Letter, Landlord shall be liable to Tenant, as Tenant’s sole monetary recovery, for liquidated damages in the amount of $1,295.00 per day.

Notwithstanding anything contained in this Fourth Amendment or the Lease to the contrary, the cumulative amount of all such liquated damages constitute a credit in favor of Tenant for any rent due by Tenant to Landlord.

B.    As used herein, the term “ Substantial Completion ” shall mean and refer to the date upon which possession of each floor is delivered to Tenant in conditions that comply with the Landlord’s Contract, as evidenced by the issuance of a temporary certificate of occupancy or its equivalent issued by the City of Maitland, Florida (“ City ”), and all such that Tenant may utilize such floor for the permitted use under the Lease. Moreover, Substantial Completion of each floor shall not be deemed to have occurred unless and until Landlord has provided the written certification of Landlord’s Contractor certifying that Landlord has achieved Substantial Completion of such floor as defined herein. Notwithstanding the foregoing, Substantial Completion of the entirety of Landlord’s Work must be evidenced by a final unconditional certificate of occupancy issued by the City and not by any temporary or conditional certificate of occupancy and otherwise in accordance with the foregoing provisions. Landlord shall give reasonable advance written notice to Tenant when Landlord anticipates that Landlord’s Work on each floor shall be Substantially Completed. Landlord and Tenant shall jointly inspect such floor with Landlord’s architect and develop a punch list of items that have not been completed, distinguishing between those items which must be completed prior to the floor being deemed Substantially Completed in order for Tenant to conduct its business and those items that can be completed by Landlord’s Contractor after Tenant takes occupancy for the purpose of conducting its business. Taking possession of such floor by Tenant shall be conclusive evidence as against Tenant that such floor is in the condition required by this Work Letter except for the punch list items which must be completed after Tenant occupies such floor and except for latent defects of which Tenant gives written notice to Landlord within one (1) year following the date upon which such floor is Substantially Completed. Landlord shall have Landlord’s Contractor complete the punch list items with commercially reasonable diligence and shall remedy latent defects of which Tenant gives notice to Landlord with commercially reasonable promptness.

C.    Notwithstanding the foregoing, if Landlord shall be delayed in delivering any particular floor or to commence or complete any aspect of Landlord’s Work as a result of:

1.    Tenant’s request for changes to Landlord’s Plans;

2.    The performance of any work by any person, firm or corporation employed or retained by Tenant;

3.    Tenant’s failure to timely make any payment to Landlord as described herein;


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4.    Tenant’s failure to timely perform any obligation under the Lease and/or this Work Letter;

5.    Any other act or omission by Tenant or its agents, representatives and/or employees;

6.    Delays arising out of JHA Changes,

7.    Failure or refusal by Tenant to give sufficient approval to allow Landlord’s TI Work to be timely performed as provided in Section 1(e) above,

8.    Tenant’s recommended action related to field change results, directly or indirectly, in a delay, as provided in Section 1 above.

9.    Any delay or failure in performance, including but not limited to acts of God, casualty, accidents, labor or material shortages, governmental restrictions, delays in governmental permitting or inspections, or any other causes or events that are beyond Landlord’s reasonable control, then, in any such event, such applicable floor or aspect of Landlord’s Work shall be deemed to have been substantially completed and delivered on the date that such floor would have been substantially completed and ready for delivery if such delay or delays have not occurred. The Delays set forth in subsections 1 through 8 above are collectively “ Tenant Delays ”, and the Delay set forth in subsection 9 above is a “ Force Majeure Delay ”. Any other delays shall be referred to herein as “ Landlord Delays ”. As used in this Work Letter, the term “ Delays ” shall mean and refer to Tenant Delays, Force Majeure Delay and Landlord Delays, collectively. With respect to Delays, the parties hereby agree as follows:

(a)    In the event of any Delay, Landlord and Tenant shall cooperate with each other in order to mitigate the effect of the Delay, whether by the mutual agreement on a change to Landlord’s Plans, the attempt to reach agreement with Landlord’s Contractor on an accelerated work schedule which may include additional work shifts or additional manhours, the payment of additional funds or such other appropriate actions, whether by the payment of money or otherwise, as are reasonably likely to mitigate the effect of the Delays.

(b)    Landlord shall provide five (5) days written notice to Tenant when Landlord determines that a Force Majeure Delay has occurred.

(c)    In the event of a Tenant Delay or a Force Majeure Delay, the Schedule shall be extended accordingly. In the event of a Landlord Delay, the Schedule shall not be extended accordingly, it being the intent that Landlord must take whatever commercially reasonable measures are necessary, and use commercially reasonable efforts, to eliminate the effect of such Landlord Delay as soon as practical.


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5.
Tenant Special Cure Rights .
A. If, for whatever reason, Landlord does not timely perform its obligations under Landlord’s Contract, and as such the commencement dates and the completion dates set forth in the Fourth Amendment as not achieved for any reason other than a Delay, Tenant shall have the right to replace Landlord in the management and performance of the Landlord’s Work, provided that Tenant gives Landlord written notice thereof (“ Take Over Notice ”) not later than thirty (30) days prior to the date upon which Tenant intends to do so, and any costs and expenses incurred by Tenant in doing so shall be paid out of the Allowance, and any amounts over and above the Allowance shall be the responsibility of Tenant. Once Tenant delivers a Take Over Notice to Landlord, Landlord shall be relieved of all obligations related to the Landlord’s Work, including, without limitation, the commencement, substantial completion and completion of the various components of Landlord’s Work. In order to facilitate the exercise by Tenant of its remedy described in the preceding sentence, Landlord will work in good faith with Tenant and Landlord’s Contractor to allow Tenant the right to perform Landlord’s obligations under Landlord’s Contract. In such event, the Landlord’s Contractor shall continue to perform under Landlord’s Contract for the benefit of Tenant and shall look to Tenant for the performance of the obligations of the Landlord thereunder. Upon Tenant’s delivery of a Take Over Notice, Tenant shall be deemed to waive any and all rights to any liquidated damages under Section 4A above that would have accrued thereafter, and all other rights and remedies related to Landlord’s Work, and Landlord shall no longer to be required to provide any warranties to with respect to the Landlord’s Work.
In the event the Tenant exercises its right to perform Landlord’s obligations to complete Landlord’s Work, as described in this Section, Tenant hereby agrees to indemnify, defend and hold Landlord harmless (with counsel selected by Landlord) from and against any loss, cost, damage, liability, expense or injury, including, without limitation, attorneys’ fees and other legal expenses whether incurred at or before the trial level or any appellate, bankruptcy or administrative proceeding, arising out of, or resulting from, the performance of such obligations but only thereafter, and not before, including, without limitation, any death or injury to any person or loss or damage to any personal property. In the event of any such death or injury or damage, Landlord shall provide written notice thereof to Tenant promptly following the date upon which Landlord become aware of same.

B. From and after the Take Over Date, but not before, all construction by Tenant shall be done in a lien-free, good and workmanlike manner and shall comply with all laws, permits, approvals and the Landlord’s Plans as approved by Landlord. Tenant shall be responsible in securing and maintaining all necessary governmental approvals and permits with respect to the Landlord’s Work not otherwise obtained by Landlord prior to the Take Over Date. Tenant shall deliver to Landlord copies of all certificates of occupancy, permits and licenses required to be issued by any authority in connection with Tenant’s construction of the Landlord’s Work. The Landlord’s Work by Tenant shall be the property of Landlord upon the completion of such Landlord’s Work.

C. At least seven (7) business days prior to commencement of construction, Tenant shall deliver to Landlord a certificate of insurance for each of Tenant’s contractors, reasonably approved

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by Landlord, evidencing the insurance coverage required in Landlord’s Contract, and naming Landlord as additional insured

D. From and after the Take Over Date, but not before, Tenant shall, with commercially reasonable diligence, pursue until completion the Tenant Improvements (or such portion so commenced), including, to the extent applicable and required by the appropriate governmental agencies, obtaining a certificate of occupancy/completion for that segment of the Landlord’s Work. Landlord shall have the right to conduct a walk-through inspection of the Premises to review the completed Landlord’s Work (or portion thereof) with 48 hours' advance written notice to Tenant. The warranties from Tenant’s contractor(s) shall be for the benefit of Landlord as well as Tenant and Tenant shall deliver complete copies of such warranties to Landlord upon receipt.

6. Indemnity . Landlord hereby agrees to indemnify, defend and hold Tenant harmless (with counsel selected by Tenant) from and against any loss, cost, damage, liability, expense or injury, including, without limitation, attorneys’ fees and other legal expenses whether incurred at or before the trial level or any appellate, bankruptcy or administrative proceeding, arising out of, or resulting from any death or injury to any person or loss or damage to any personal property arising out of Landlord’s Work and not caused, in whole or in part, by the negligence or wrongful acts of Tenant or Tenant’s agents, contractors or invitees. In the event of any such death or injury or damage, Tenant shall provide written notice thereof to Landlord promptly following the date upon which Tenant become aware of same.

7.
Miscellaneous .

a. Landlord agrees to submit to Tenant upon completion of all work a final set of as-built final drawings (one CADD disk) incorporating changes upon completion of Landlord’s Work.

b. Tenant designates and authorizes Ken Stuart on financial matters and Steve Berry on on-site coordination matters to act for Tenant in this Work Letter. Tenant has the right by written notice to Landlord to change its designated representative.

c. Landlord designates and authorizes Keith Harwell and Stephen Whitley to act for Landlord in this Work Letter. Landlord has the right by written notice to Tenant to change its designated representative.

d. All notices required hereunder will be in writing in accordance with provision for notices in the Lease.

e. Except as otherwise expressly set forth herein, with respect to any matter submitted to either party for its prior approval, such approval shall not be unreasonably withheld, delayed or conditioned.

8. Warranty . Landlord represents and warrants that the materials and equipment used in Landlord’s Work will be of good quality, new and carrying full manufacturers', distributors' and installers' warranties unless otherwise required or permitted by Landlord’s Plans and that Landlord’s

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Work will be in material conformance with the requirements of Landlord’s Plans, and manufacturers' recommendations. Any of Landlord’s Work not conforming to these requirements shall be considered defective. Landlord hereby warrants that for a period of one (1) year following the date of Substantial Completion hereunder that any defects in construction materials or workmanship shall be promptly replaced or remedied by Landlord without charge to Tenant. With respect to any items of Landlord’s Work requiring maintenance or repair by Tenant, Landlord shall assign to Tenant the benefit of any warranties received by Landlord for such items (including any warranties from Landlord’s contractor) and Landlord shall assign to Tenant any equipment warranties available to Landlord, all after the expiration of the one (1) year period referred to herein.

9. Access . Tenant, with Landlord’s prior permission, shall have access to each floor during construction on that floor provided that such access does not interfere with or delay work on such floor. In such event, Tenant shall cooperate with Landlord and Landlord’s Contractor so as not to interfere with its work.

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List of Schedules

Schedule 1 – General Description of Landlord’s MEP Work
Schedule 2 – General Description of Landlord’s TI Work
Schedule 3 – General Description of Landlord’s Elevator Work
Schedule 4 – Preliminary Plans and Specifications for Landlord’s Work
Schedule 5 – Intentionally Omitted
Schedule 6 – Cost Allocation
Schedule 7 – Schedule

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Schedule 1
General Description of Landlord’s MEP Work


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Schedule 2
General Description of Landlord’s TI Work

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Schedule 3
General Description of Landlord’s Elevator Work

Elevator Equipment
•
Provide and Install new controllers and landing systems
•
Provide and install AC VVVF drives and motors     
•
Provide and install rope grippers and governors
•
Provide and install new roller guide assemblies for each car counter weights
•
Provide and install new door operators and door protection devices
•
Provide and install new hoist way door interlocks
•
Provide and install new pickup assemblies
•
Provide and install new push button fixtures; applied car push button panels, direction and position signal fixtures and surface mounted hall stations





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Schedule 4
Preliminary Plans and Specifications for Landlord’s Work

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Schedule 5
INTENTIONALLY DELETED

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Schedule 6
Cost Allocation
as of May 16, 2014









































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Schedule 7

Schedule



































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EXHIBIT D

Intentionally Deleted










































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EXHIBIT E

Depiction of Potential Athletic Field



















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EXHIBIT F

Exclusions from CAM Charges


(a)    Wages, salaries, compensation and labor burden for any employee of Landlord or Landlord’s property management company above the level of property manager; to the extent that any such employee at or below the level of property manager does not devote substantially all of his time to the Building, such wages, salaries, compensation and labor burden shall be reasonably allocated on the basis of actual time spent on managing and operating the Building;
(b)    Amounts received by Landlord consisting of proceeds of insurance, proceeds of condemnation or other compensation received by Landlord to the extent that such proceeds or compensation are for CAM Charges which were previously included in CAM Charges hereunder;
(c)    Costs of repairs, replacements, rebuilding or other work incurred by reason of (i) fire or other casualty to the extent to which Landlord is compensated therefor through proceeds of insurance or would have been compensated therefor if Landlord maintained insurance of the type and in an amount customarily carried by owners of first class office buildings similar to the Building in Maitland, Florida, or (ii) the exercise of the right of eminent domain;
(d)    Advertising and promotional expenditures, including, without limitation, expenses for promotional parties directed at the real estate brokerage community, (including gift give-aways);
(e)    Any expenses for which Landlord has a right of reimbursement from others;
(f)    Interest, charges and fees incurred on debt, payment on mortgages and rent on ground leases, and costs expended in connection with any sale, hypothecation, financing, refinancing or ground lease of the Building, the Leased Premises, or any portion thereof, or of Landlord’s interest therein;
(g)    Any expenses in providing service to any tenant of the Project which is not also provided to Tenant;
(h)    All expenses of work, including painting and decorating and maintenance and repair, which Landlord performs for any tenant other than Tenant, including, without limitation, architectural and engineering fees, permits, license and inspection fees and all expenses in connection with the design and installation of tenant improvements for other tenants in the Building or incurred in connection with the improving, painting or redecorating vacant space for any other tenants or other parties;
(i)    Any depreciation (except as may be set forth hereinbelow); Notwithstanding the foregoing, Landlord may continue current practice to charge for accelerated equipment depreciation resulting from excess use beyond the normal operating hours contained in Schedule 3.

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(j)    Any damage award paid by Landlord to any person for personal injury or property damages which is not the result of any act, omission or negligence of Tenant;
(k)    Amounts paid to any affiliates of Landlord for services on or to the Building, to the extent that such amounts exceed competitive costs for such services rendered by persons or entities of similar skill, competence and experience, including the property management fee;
(l)    Expenses incurred in connection with the removal, remediation or other treatment of any Hazardous Materials defined as such as of the date hereof and any judgments, fines, penalties or other expenses incurred in connection with any Hazardous Materials exposure or release by Landlord, except to the extent that the foregoing is caused by the illegal storage, use or disposal of the Hazardous Materials in question by Tenant or Tenant’s agents, contractors or invitees;
(m)    Costs occasioned or incurred by the act or omission or violation of law by Landlord, any occupant of the Building (other than Tenant, or its respective agents, employees or contractors), including fines, penalties, late payments and costs incurred by Landlord due to violation of law or permits, leases or contracts pertaining to the Building;
(n)    Landlord’s general overhead or any other expense not directly related to the Building and costs associated with the operation of Landlord’s business as the same are distinguished from the cost of operation of the Building, including company accounting and legal matters;
(o)    Costs and expenses for which Tenant reimburses Landlord directly or which Tenant pays directly to a third person;
(p)    Costs of correcting defects in or inadequacy of the Landlord’s Work, including costs to correct any design or construction defect in the Leased Premises or to comply with any restrictive covenants, underwriters’ requirements or law applicable to the Leased Premises and which was in effect as of the date hereof;
(q)    Any reserves for any purpose, any bad debt, rent loss or reserves for bad debt or rent loss;
(r)    Expenses of the acquisition of sculpture or other art work;
(s)    Penalties, fines, late payment fees and other charges incurred as a result of late payment of any CAM Charges by Landlord, its agents, employees and independent contractors;
(t)    Expenses for which Landlord is required to indemnify Tenant under the Lease;
(u)    Costs of compliance with the American with Disabilities Act of 1990, and the rules and regulations promulgated thereunder, except to the extent arising out of alterations made by Tenant to the Leased Premises, or any portion thereof;

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(v)    The cost of any capital improvements other than (i) the cost of capital improvements to conform to changes in the law subsequent to the date hereof (“Required Capital Improvements”), unless excluded under any other subsection hereunder, and (ii) the cost of any capital improvements designed primarily to reduce CAM Charges, to the extent that such improvements do in fact reduce CAM Charges (“Cost-Saving Improvements”) and the cost of any other repairs, alterations, improvements and equipment which must be capitalized under generally accepted accounting principles; expenses for Required Capital Improvements and Cost Savings Improvements shall be amortized at a market rate of interest over the useful life of such capital improvement as reasonably determined by Landlord’s accountants in accordance with generally accepted accounting principles, consistently applied.
Notwithstanding anything contained in this Lease to the contrary, to the extent that any employees, utilities or other services or costs which are included within CAM Charges are attributable to the Building and other buildings on a common basis, such CAM Charges shall be reasonably allocated by Landlord to the Building. In addition, if any common areas now or hereafter constructed in the Project or on any other land which serve the Building or the Garage in addition to improvements constructed upon property other than the Leased Premises, including by way of example, any plazas, parking garages, recreational features or the like constructed hereafter upon property located adjacent to the Land, then the CAM Charges allocable to such common areas shall be reasonably allocated by Landlord among the Building, the Garage and such other buildings.


















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Exhibit 10.27

[***] DENOTES CONFIDENTIAL MATERIAL THAT WAS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT



DURANGO PUBLISHER LICENSE AGREEMENT
    
This Durango Publisher License Agreement (the “Agreement”) is entered into and effective as of June 29, 2012 (the “Effective Date”) by and between Microsoft Licensing, GP, a Nevada general partnership (“Microsoft”), Microsoft Corporation, a Washington Corporation, and Electronic Arts Inc., a Delaware corporation and EA International (Studio & Publishing) Ltd., a Bermuda corporation (together referred to as “EA”).

RECITALS
A. Microsoft and its affiliated companies develop and license a computer game system known as the Xbox 360. Microsoft is currently developing its successor to the Xbox 360 (“Durango”), which is a next-generation entertainment system, currently known as Durango consisting of a base hardware unit, a Kinect sensor and an associated proprietary online service known as Xbox LIVE.
B.     EA is a game developer and publisher of software products on the Xbox 360 and other entertainment platforms. EA intends to develop and/or publish software products for the Durango on the terms and conditions set forth herein.
C.     EA and Microsoft desire to enter into [***] this Agreement, to support the Durango Launch [***].
D.     Microsoft is a partnership considered a tax resident of the United States, and whose owner is considered for United States federal income tax purposes a United States corporation and a tax resident of the United States.
Accordingly, for and in consideration of the mutual covenants and conditions contained herein, and for other good and valuable consideration, receipt of which each party hereby acknowledges, Microsoft and EA agree as follows:
1. Exhibits
The following exhibits address important business and program terms and are hereby incorporated into this Agreement.
Exhibit 1:
Form of Annual Title Map
Exhibit 2:
Payments
Exhibit 3:
Authorized Affiliates
Exhibit 4:
Publisher Enrollment Form
Exhibit 5:
Exhibit 6:
Exhibit 7:

Non-Disclosure Agreement
[***]
User Activity Data; Technical Cooperation; and Additional Xbox LIVE Terms

2.      Scope and Relationship Among Agreements
This Agreement is intended by the parties to set forth their entire agreement with respect to the publishing of products by EA for Durango. EA will continue to publish Xbox 360 products pursuant to the terms of the Xbox 2 Publisher License Agreement between the parties dated May 15, 2005 and the Xbox LIVE Amendment between the parties executed on or about May 7, 2004, each as amended, and as supplemented under Section 10.3 below. Upon Durango Launch, the Xbox 2

1      M ICROSOFT AND ELECTRONIC ARTS CONFIDENTIAL


PLA will continue to govern the publication of Xbox 360 FPUs and the Xbox LIVE Amendment will terminate, and with the exception of Xbox 360 FPUs, the terms of this Agreement will govern the publication of all Xbox 360 products by EA.
3.      Definitions
As further described in this Agreement and the Durango Publisher Guide (defined below), the following terms have the following respective meanings:
3.1      “Asian Sales Territory” means the territory for sales distribution comprising Taiwan, Hong Kong, Singapore and Korea and any other countries that are listed by Microsoft from time to time as set forth in the Durango Publisher Guide. The Asian Sales Territory does not include Japan.
3.2      “Authorized Replicator” means a software replicator certified and approved by Microsoft for replication of FPUs that run on Durango.
3.3     “ Branding Specifications ” means the specifications as provided by Microsoft from time to time for using the Licensed Trademarks as set forth in the Durango Publisher Guide.
3.4      “BTS” (“Break the Seal”) means a Microsoft designed sticker that will be issued to the Authorized Replicator for placement on the Packaging Materials as specified in the Durango Publisher Guide.
3.5      “Certification” means the approval process at which Microsoft approves or disapproves of a Software Title and Digital Content for manufacture and distribution. Certification is further defined in this Agreement and the Durango Publisher Guide. [***].
3.6      “Certification Requirements” means the requirements necessary to ensure proper functioning of the Software Title and/or Digital Content on Durango and Xbox LIVE, as further described herein. Certification Requirements include Technical Certification Requirements (TCRs) and functional test cases.  The Certification Requirements will be set forth in the Durango Publisher Guide and Durango XDK and will be enforced during Certification. [***].
3.7      “Commercial Release ” or “Commercially Released” means the first FPU availability at retail or the first, unrestricted availability of a Software Title and/or Digital Content to End Users that is not designated as a Demo Version or trial service.
3.8      “Companion Application ” means a software application that runs on a non-console device that includes content that is a subset of and/or complementary to the primary experience that is designed to be used with and/or attract consumers to the Software Title or Digital Content. An example of a companion application experience is 343 Industries’ “Halo Atlas Companion Application.”
3.9     [***].
3.10      “Concept” means a detailed description of EA’s proposed Software Title and/or Digital Content in each case including such information as reasonably requested by Microsoft.
3.11      “Demo Version” means a small portion of an applicable Software Title or timed availability of full Software Title that is provided to End Users at no or minimal cost to advertise or promote a Software Title.
3.12      “DFU” (Digital Finished Unit) means a digital equivalent of a Commercially Released FPU (defined below). This copy of a Software Title is in object code form that has passed Certification, is approved by Microsoft for release, and for which a Game License is issued.

2                  MICROSOFT CONFIDENTIAL


3.13      “Digital Content” means any content, feature or service that is published by EA and distributed electronically by Microsoft pursuant to this Agreement. Digital Content includes, DFUs, Online Game Features, Title Updates, Demo Versions, digitally distributed games such as Xbox LIVE Arcade games, trailers, “themes,” “gamer pictures” or any other category of digital content or online service approved by Microsoft from time to time. Any other approved Digital Content is further described in the Durango Publisher Guide.
3.14      “Durango Launch” means the first availability of the Durango hardware at retail in the relevant Sales Territory, on a country by country basis.
3.15      “Durango Publisher Guide” is defined in Section 6.1 below.
3.16      “End User” or “Xbox LIVE User” means any authorized individual or entity that accesses and uses Xbox LIVE, whether a Subscriber or Multiplayer Subscriber, a guest of a Subscriber or Multiplayer Subscriber via a user account established by a Subscriber or Multiplayer Subscriber.
3.17      “European Sales Territory” means the territory for sales distribution comprising the United Kingdom, France, Germany, Spain, Italy, Netherlands, Belgium, Sweden, Denmark, Norway, Finland, Austria, Switzerland, Ireland, Portugal, Greece, Australia, New Zealand, India, South Africa, Russia, Poland, Hungary, the Czech Republic, Slovakia, the United Arab Emirates, and any other countries that are included by Microsoft from time to time as set forth in the Durango Publisher Guide.
3.18     “ Expansion Pack ” means an FPU or DFU that is an add-on, mission pack, game expansion, incremental content, and/or other addition to a Software Title that (i) would not be generally considered in the console game industry to be a next full version release (e.g., a version 1.0 to 1.5); (ii) requires another full version video game in order to operate, (iii) is derived from the content, story, characters or other intellectual property of the full version video game required to play it, and (iv) has a Wholesale Price that is equal to or below the Threshold Price listed for the royalty tiers applicable to Expansion Packs in Exhibit 2 attached hereto.
3.19      “FPU” (Finished Product Unit) means a copy of a Software Title in object code form that has passed Certification, has been affixed to a game media, approved by Microsoft for release and manufacturing, and issued a Game License. Once the Packaging Materials have been added, and the BTS has been assigned or affixed to the FPU or its packaging, the FPU also includes its accompanying BTS and Packaging Materials.
3.20      “Game License” means security access technology, such as an authentication key or 5x5 code that allows an End User to access a Software Title or Digital Content.
3.21     [***].
3.22      “Japan Sales Territory” means the country of Japan.
3.23     “ Licensed Trademarks ” means the Microsoft trademarks identified in the Durango Publisher Guide.
3.24     “ Marketing Guidelines ” means requirements in the following categories set forth in the Durango Publisher Guide which form the basis for Microsoft’s review and approval of EA’s Marketing Materials and any Media Plan: (i) conformance to the Branding Specifications; (ii) inclusion of any language pertaining to intellectual property rights of Microsoft or its third party suppliers; (iii) inclusion of any information relating to the use or maintenance of Durango; (iv) with respect to any language relating specifically to Durango, compliance of such language with the overall Durango marketing message, direction and plan; (v) adherence to the requirements of any applicable ratings board per Section 5.10; and (vi) the inclusion of any other information required by law.

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3.25     “ Marketing Materials ” collectively means the Packaging Materials and all press releases, marketing, advertising or promotional materials related to the Software Title and Digital Content, including web advertising and EA’s web pages to the extent they refer to the Software Title(s) and Digital Content, that will be used and distributed by EA in the marketing of the Software Title(s) and Digital Content.
3.26     “ Marketing Titles ” means [***].

3.27     “ Marketplace Policy ” means the document that governs the business of Xbox LIVE Marketplace, including, pricing, tokens, Gamerscore, and achievements.

3.28     [***].

3.29     [***].
3.30      “North American Sales Territory” means the territory comprising the United States, Canada, Mexico, Colombia, Chile, Brazil and any other countries that may be included by Microsoft from time to time as set forth in the Durango Publisher Guide.
3.31      “Online Game Features ” means content, features and/or services related to consuming a specific Software Title that are made available to End Users via Xbox LIVE, whether included in the Software Title’s FPU and/or DFU or otherwise distributed via Xbox LIVE. For example, Online Game Features includes map packs, levels and multiplayer functionality.
3.32     [***].
3.33     “ Packaging Materials ” means art and mechanical formats for a Software Title including the retail packaging, end user instruction manual, warranties, end user warnings, FPU media label, and any promotional inserts and other materials that are to be included in the retail packaging.
3.34     [***].
3.35     “ Partner Titles ” shall mean [***].
3.36     “ PDLC ” means downloadable additional content that is offered to an End User for a fee, such as a game add-on, available from Xbox LIVE Marketplace that is for use with or in a Software Title or Digital Content.
3.37     [***].
3.38      “Sales Territory” means the Asian Sales Territory, European Sales Territory, Japan Sales Territory, and/or North American Sales Territory.
3.39     “ Software Title ” means each single software product as described in the applicable Annual Title Map or Quarterly Update (each as defined in Section 5.3) or Concept, including any Title Updates thereto (if and to the extent approved by Microsoft) and all Digital Content and Expansion Packs for such Software Title that EA proposes to publish for use on Durango. If Microsoft approves one or more additional Concept(s) for other single software product(s) proposed by EA to run on Durango, then this Agreement, and the term “Software Title” will be broadened automatically to cover the respective new software product(s) as additional Software Titles under this Agreement.
3.40      “Sub-Publisher” means an entity that has a valid Durango publisher license agreement with Microsoft or a Microsoft affiliate, and with whom EA has entered into a written agreement to allow such entity to publish a Software Title in specific territories.

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3.41      “Subscriber” means an End User that establishes an account to Xbox LIVE.
3.42      “Suggested Retail Price” means the highest per unit price that EA or its agent recommends the FPU be made commercially available to end-users in a particular Sales Territory. If the Suggested Retail Price of a particular Software Title varies among the countries in a single Sales Territory, then the highest Suggested Retail Price established for any of the countries will be used to determine the royalty fees for the entire Sales Territory.
3.43     “ Technical Certification Requirements " shall mean [***] requirements regarding the proper operation of the Software Titles in conjunction with the Durango and Xbox LIVE. The Technical Certification Requirements will be set forth in the Durango Publisher Guide and enforced during Certification [***]. Microsoft reserves the right to add additional requirements to the Technical Certification Requirements in accordance with Section 6 below.
3.44     “ Threshold Price ” means the Wholesale Price (WSP) in the case of the North American, European, and Asian Sales Territories, or Suggested Retail Price (SRP) in the Japan Sales Territory at which Publisher intends to sell the Software Title. If the Software Title is bundled with any other product or service that is not another Software Title, the Threshold Price will be the applicable WSP or SRP for the entire bundle.
3.45      “User Generated Content” means any content that originates from End Users in any format, including graphics, text or voice content that is published through or as part of the Digital Content.
3.46      “Wholesale Price” or “ WSP ” means the highest per unit price that EA intends to charge retailers and/or distributors in bona fide third party transactions for the right to distribute and resell a FPU of a Software Title within a Sales Territory, it being agreed that (i) any transactions involving affiliates of EA (entities controlling, controlled by or under common control of, EA) are not to be considered in determining the Wholesale Price; (ii) if EA enters into an agreement with a third party (such as a Sub-Publisher) providing the third party with the exclusive right to distribute the Software Title in a Sales Territory, the Wholesale Price is governed by the price charged by the third party to a retailer and/or distributor for an FPU of a Software Title rather than the terms of the exclusive distribution agreement between EA and such third party; and (iii) if the Wholesale Price for a FPU varies among countries in a single Sales Territory, the Wholesale Price in the U.S. will be used to determine the royalty fees for the entire North American Sales Territory, the highest Wholesale Price in [***] will be used to determine the royalty fees for the entire European Sales Territory, and the highest Wholesale Price used in the Asian Sales Territory will be used to determine the royalty fees for the entire Asian Sales Territory. Wholesale Price for Digital Content is the price set by EA for such content and is further described in Exhibit 2.
3.47      “Xbox LIVE” means the proprietary online service offered by Microsoft to End Users.
3.48      Other Terms. All other capitalized terms have the definitions set forth with the first use of such term as described in this Agreement.
4.      Durango Development Kit License / Loaned Equipment
4.1      Durango Development Kit License. Durango XDK Development Kits are licensed to EA under the terms of the development kit license(s) between EA and Microsoft for the relevant territory (each an “XDK License”). [***]. For the avoidance of doubt, the parties acknowledge and agree that Microsoft retains title and ownership of the Durango XDKs and the XDK will be licensed to EA during the Term.
4.2     Loaned Equipment . Microsoft may from time-to-time agree to loan EA certain Microsoft assets in connection with EA’s marketing and promotional activities for the Software Titles. Such loaned assets may include Durango kiosks, Durango hardware and accessories (the “Loaned Equipment”). With respect to all Loaned Equipment provided to EA hereunder, EA agrees that: (i) EA shall not provide the Loaned Equipment to any third party unless such third party is approved by Microsoft in advance (“Approved Third Party”) and, if so approved, EA shall be responsible for ensuring that the Approved Third Party complies with the terms of this Section 4.2; (ii) EA shall assume all responsibility for theft, damage, loss or injuries to people or property that occur while such Loaned Equipment is in EA’s and/or an Approved Third

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Party’s possession, control or use; (iii) the Loaned Equipment shall only be used in a location approved by Microsoft; (iv) EA’s insurance policy set forth in Section 24 of the Agreement shall cover all  theft, damage, loss or injuries to people or property in connection with EA’s or an Approved Third Party’s use or possession of the Loaned Equipment; (v) EA (and any Approved Third Party) shall only use power supplies, power cords, cables, and other parts and accessories provided by Microsoft in connection with the Loaned Equipment; and (vi) EA shall, at its expense, return the Loaned Equipment to Microsoft by the date requested by Microsoft and in accordance with any shipping instructions provided by Microsoft. For the avoidance of doubt, the parties acknowledge and agree that Microsoft retains title and ownership of the Loaned Equipment.
5.      Approval Process
5.1     Both Microsoft and EA acknowledge the importance of the games produced for a next-generation entertainment system. Microsoft will cooperate and use good faith efforts to assist EA’s implementation of Durango capabilities in EA’s games. EA will use good faith efforts to capitalize on the capacity of the Durango in its games.
5.2      Standard Approval Process . The standard approval process for a Software Title will include, at minimum, the following phases: Concept submission, Pre-Certification (optional), Certification, and Marketing Materials approval. Unless EA elects the EU Approval Option for a European FPU (described below) or as otherwise expressly stated herein, EA is required to comply at all phases. Each phase is summarized below and will be fully described in the Durango Publisher Guide.
5.3      Annual Title Map; [***]. [***].
5.4      Concept . EA acknowledges that Microsoft generally requires the submission and approval of a Concept submission from third party publishers for Software Titles proposed to be published on Durango. EA will utilize the Concept submission process as described in the Durango Publisher Guide. [***] EA shall deliver to Microsoft a completed Concept submission form (in the form provided by Microsoft to EA) that describes the Software Title. Following evaluation of EA’s Concept submission, Microsoft will notify EA of whether the Concept is approved or rejected. If approved, the Concept submission form, in the form submitted and approved by Microsoft, is incorporated herein by reference and adherence to its terms is a requirement for Certification.
5.5      Pre-Certification . For each Software Title, EA may, at EA’s option, deliver to Microsoft a feature-complete version of the Software Title and such other content as may be required under the Durango Publisher Guide. Upon receipt thereof, Microsoft shall conduct technical screen and/or other testing of the Software Title consistent with the Durango Publisher Guide and will subsequently provide EA with advisory feedback regarding such testing.
5.6      Certification . EA shall deliver to Microsoft the proposed final release version of the applicable Software Title that is complete, ready for access via Xbox LIVE, release, manufacture, and commercial distribution. Such version must include the final content rating certification required by Section 5.10, and satisfies the Replication Requirements. Microsoft shall conduct compliance, compatibility, functional and other testing to determine the Software Title’s compliance with the Certification Requirements (“Certification Testing”) and shall subsequently provide Publisher with the results of such testing, including any required fixes required prior to achieving Certification in accordance with the process outlined in Section 5.6.1 below. Release from Certification for a Software Title is based on (1) passing the Certification Testing; (2) conformance with the approved Concept and any required submission materials as stated in the Durango Publisher Guide; (3) Packaging Materials approval; and (4) continuing and ongoing compliance with all Certification Requirements and other Required Categories as set forth in the Durango Publisher Guide and this Agreement, except otherwise provided herein. EA and Microsoft acknowledge that [***].
5.6.1      Pre-Certification and Certification Appointments . Microsoft will make "appointments" for Pre- Certification and Certification testing of each Software Title provided that: (i) EA and Microsoft will mutually schedule the Pre-Certification appointment approximately [***] weeks in advance of EA's intended Commercial Release of the Software Title, and the Certification appointment approximately [***] weeks in advance of EA's intended Commercial Release of the

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Software Title; and (ii) EA delivers to Microsoft all materials required to perform Pre-Certification or Certification testing, as applicable, as provided in Sections 5.5 and 5.6 above, respectively, on or before such appointment date. In the event that EA fails to provide required materials prior to its appointment, Microsoft will schedule the applicable Software Title into the first available appointment slot [***].
5.6.2     [***].
5.7      Marketing Materials; Approval. EA shall submit to Microsoft all Marketing Materials that incorporate Licensed Trademarks and shall not distribute such Marketing Materials (as a component of the Software Title, FPU, DFU or otherwise) unless and until Microsoft has approved them in writing. Prior to use or publication of any Marketing Materials, EA agrees to incorporate all changes relating to use of the Licensed Trademarks that Microsoft may request in order to bring such Marketing Materials into compliance with the Marketing Guidelines. Additionally, where press releases or announcements otherwise mention Durango versions of Software Titles, Durango or Xbox LIVE, EA will make reasonable efforts to provide Microsoft with notice of such materials and their contents prior to release.
5.7.1     Notwithstanding anything to the contrary in this Agreement or the Durango Publisher Guide, samples of Marketing Materials approved by Microsoft that are subsequently manufactured or redistributed without change by or on behalf of EA are not required to be resubmitted to Microsoft for approval (i) prior to publication or (ii) prior to assembling the materials with FPUs and distributing the finished goods. Once approved by Microsoft, Marketing Materials, or particular elements thereof, may be reused and republished in related Marketing Materials without the need for additional review or approval by Microsoft, provided that the other elements of such related Marketing Materials shall be subject to Microsoft's approval as provided in Section 5.7.2. By way of example only, elements of the approved packaging for a Software Title may be incorporated into advertisements or point-of-purchase ("POP") displays without requiring additional review or approval by Microsoft of the elements taken from the previously approved packaging (so long as the reused elements are accurately depicted in the ads or POP displays), but other elements (other than the reused or republished elements) of the ads or POP displays shall require review and approval by Microsoft with respect to their conformance to the Marketing Guidelines.
5.7.2     With the exception of certifying that EA's use of Licensed Trademarks is in accordance with the Marketing Guidelines, nothing herein shall require EA to obtain Microsoft's approval of EA's Marketing Materials with respect to screen shots, publicity materials, trademarks, etc. owned by Microsoft or any third parties as permitted by law without a license (for example, pursuant to a right of "fair use" under applicable copyright law or a "referential" use under trademark law).
5.8      EU Approval Option . For a Software Title that EA intends to distribute solely in the countries within the geographic territory of the European Union (a “European FPU”), EA may choose at any time during a Software Title’s development and prior to manufacture by an Authorized Replicator, not to submit the Software Title to Microsoft for Concept approval and/or Marketing Materials approval. Notwithstanding the foregoing, EA is required to submit such Software Title to Microsoft for Certification approval. Collectively, this option is referred to herein as the “EU Approval Option.” The EU Approval Option is not available for Digital Content. If EA chooses the EU Approval Option, EA shall not use the Licensed Trademarks on the European FPU and the license grant set forth in Section 19.1 is withdrawn as to such European FPU. In addition, EA shall make no statements in advertising, marketing materials, packaging, websites or otherwise that the European FPU is approved or otherwise sanctioned by Microsoft or is an official Durango Software Title. The European FPU may not be distributed outside the geographic territory of the European Union without complying with all terms of the Agreement concerning approvals and the release of the FPU as deemed relevant by Microsoft. Microsoft may provide additional information in the Durango Publisher Guide regarding the EU Approval Option. Notwithstanding EA’s choice of the EU Approval Option, all other portions of the Agreement other than those specifically identified above shall remain in effect.
5.9      Additional Review . If a Software Title fails Certification, and if EA has made good faith efforts to address any issues raised by Microsoft, Microsoft will give EA the opportunity to resubmit such Software Title for Certification. Microsoft agrees that the first resubmission for such Software Title is free. For any additional resubmission(s), Microsoft may charge EA a reasonable fee designed to offset the costs associated with testing upon resubmission. EA may request the ability

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to submit versions of the Software Title at stages of development other than as identified above for review and feedback by Microsoft. Such review is within the discretion of Microsoft and may require the payment of reasonable fees by EA to offset the costs associated with the review of such Software Titles.
5.10      Content Rating . For those Sales Territories that utilize a content rating system, Microsoft will not accept submission of a Software Title for Certification approval unless and until EA has obtained, at EA’s sole cost, a rating not higher than “Mature (17+)” or its equivalent from the appropriate rating bodies and/or any and all other independent content rating authority/authorities reasonably designated by Microsoft (such as ESRB, PEGI, etc. ). EA shall include the applicable rating(s) prominently on FPUs and Marketing Materials, in accordance with the applicable rating body guidelines. For those Sales Territories that do not utilize a content rating system, Microsoft will not approve any Software Title that, in its opinion, contains excessive sexual content or violence, inappropriate language or other elements deemed unsuitable for Durango.
5.11      Prompt Release by Microsoft . Once Microsoft and EA agree that a Software Title is in compliance with the Certification Requirements, Microsoft will promptly convert the Software Title submission provided by EA to the form necessary in order for the Software Title to be manufactured and/or released, and Microsoft will immediately submit the Software Title, in a form ready for manufacturing, to the Authorized Replicator designated by EA.
5.12      Title Updates
5.12.1     All digital patches and updates that are provided to End Users for free and acceptance of which is mandatory for game play (collectively, “Title Updates”) for Software Titles are subject to approval by Microsoft, except as otherwise provided herein. EA may release one Title Update per Software Title free of charge from Microsoft. Any additional Title Updates proposed by EA may be subject to a reasonable charge from Microsoft. The requirements and charges for Title Updates will be set forth in the Durango Publisher Guide.
5.12.2     Microsoft may require EA to develop and provide a Title Update (a) if a Software Title adversely affects Xbox LIVE; or (b) if a Title Update is required as provided in Section 7 below. Microsoft will not charge EA for the Certification, hosting, and distribution of Title Updates to End Users for any Title Update per Software Title required by a specific change in the Durango Publisher Guide or for any Title Update requested by Microsoft for any other reason at Microsoft’s reasonable discretion. Microsoft reserves the right to charge EA a reasonable fee to offset the costs associated with the Certification, hosting, and distribution of Title Updates to End Users that are required because of a Software Title adversely affecting Xbox LIVE.
5.13     Localization. [***].
5.14      Digital Content . With the exception of Section 5.8 (EU Approval Option), the provisions of this Section 5 will apply mutatis mutandis to Digital Content, except as otherwise provided herein.
6.      Durango Publisher Guide
6.1     Microsoft is creating a publisher guide containing program-wide requirements and information applicable to the Durango platform (the “Durango Publisher Guide”) that will supplement the terms of this Agreement. The Durango Publisher Guide may consist of (i) Technical Certification Requirements, Branding Specifications, Marketing Guidelines, FPU Technical Specifications and Packaging Requirements ( as each of those terms are defined herein) (“Required Categories”) and (ii) other information (e.g. royalty payment) regarding other operational aspects of Durango and Xbox LIVE. The Durango Publisher Guide may be distributed in physical, electronic or website form and is created by Microsoft in its sole discretion and may be updated from time to time in accordance with this Section 6.
6.2     EA acknowledges and accepts that each Software Title or Digital Content must comply with the requirements set forth in the Durango Publisher Guide, except where such requirements conflict with any of EA’s rights expressly granted to EA in this Agreement (including the following provisions of this Section 6.2, the provisions of Sections 6.3 and 6.4 below, and the terms set forth in Exhibit 7 ). [***]. Subject to compliance with applicable Certification

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Requirements, EA shall be entitled to use its hardware and software infrastructure, tools and applications which have been designed for cross-platform console development. Subject to the limitations set forth in this Section 6.2 and Section 6.4 below, EA shall comply with all future provisions of the Required Categories (and/or new Required Categories) of the Durango Publisher Guide added after the Effective Date [***].
6.3     [***].
6.4     Upon EA’s receipt of a supplement, revision or updated version of the Durango Publisher Guide, EA shall automatically be bound by all provisions of the Required Categories or new Required Categories that have been added in compliance with this Section 6. Microsoft will specify in each such supplement, revision or updated version of the Durango Publisher Guide a reasonable effective date of each change or revision to the Required Categories that has been adopted by Microsoft in accordance with this Section 6 if such change or revision is not required to be effective immediately. All Certification testing (and applicable fees therefore, if any) will be in accordance with the then-applicable versions of the Certification Requirements in the Durango Publisher Guide. Notwithstanding the foregoing: (a) after a Software Title has been scheduled for a Certification appointment, EA will not be obligated to comply, with respect to such Software Title only, with any subsequent changes made by Microsoft to the Certification Requirements and other Required Categories in the Durango Publisher Guide unless such subsequent changes are intended to address Durango or Xbox LIVE security or technical integrity issues, or such changes will not add significant expense or delay to a Software Title’s development, Certification or manufacture; and (b) changes to the replication requirements shall not apply to a particular Software Title if such Software Title has a scheduled appointment for Certification within [***] business days of the effective date for such changes to the replication requirements unless such subsequent changes are intended to address Durango or Xbox LIVE security or technical integrity issues, or such changes will not add significant expense or delay to Certification or manufacture.
6.5     EA and its subcontractors will not be bound by any requirements included by Microsoft in the Durango Publisher Guide that would [***].
6.6     Changes made to Branding Specifications, Marketing Guidelines, Packaging Requirements or FPU Technical Specifications will be effective as to a Software Title that has passed Certification only on a “going forward” basis ( i.e., only to such Marketing Materials and/or FPUs that are manufactured more than thirty (30) days after Microsoft notifies EA of the change), unless (i) the change can be accommodated by EA [***] without delay in shipment of the affected Software Title(s) or in publishing the affected Marketing Materials [***].
6.7     Throughout this Agreement, unless otherwise expressly set forth, references to complying or compliance (or words to similar effect) with the Durango Publisher Guide will be deemed to mean complying or compliance with the Durango Publisher Guide subject to the limitations set forth in this Section 6.
6.8     EA acknowledges and agrees that Microsoft is still developing the Durango Publisher Guide. It is the parties’ expectation that the terms and restrictions set forth therein shall [***].
7.      Post-Release Compliance
7.1      Correction of Bugs or Errors . Notwithstanding Microsoft’s Certification and subject to Section 6.4 above, all Software Titles and Digital Content must remain in compliance with all Certification requirements set forth in the Durango Publisher Guide on a continuing and ongoing basis. Nothing herein will be deemed to relieve EA of is obligation to correct material program bugs and errors in the Software Titles and Digital Content, whenever discovered (including after Commercial Release), and EA agrees to correct such material bugs and errors as soon as possible after discovery, provided, that with respect to material bugs or errors discovered after Commercial Release of the applicable Software Title and Digital Content, EA will correct the material bug or error in all FPUs manufactured after discovery in a manner mutually agreed upon and which may be via a Title Update and Microsoft may charge a reasonable amount to cover additional Certification costs if re-Certification is required.

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7.2     Microsoft shall work with EA [***].
7.3      Digital Content; Minimum Commitment
7.3.1     EA agrees that, if an Online Game Feature is made available via Xbox LIVE, each such Online Game Feature of a Software Title will be made available via Xbox LIVE for at least [***] months following the respective Commercial Release of the Software Title in each Sales Territory in which the Online Game Feature was released (the “Minimum Commitment”) [***]. EA is obligated to provide all necessary customer support for such Online Game Feature during its availability and for [***] months after discontinuation. Subject to EA’s compliance with the Minimum Commitment period, EA may terminate Microsoft’s license associated with such Online Game Feature, as soon as EA makes such a decision to discontinue the Online Game Features, which shall be no less than [***] days prior to termination of such Online Game Features. Microsoft may discontinue the availability of any or all such Online Game Features via Xbox LIVE upon [***] days’ prior written notice to EA. EA is responsible for communicating the duration of Online Game Feature availability to Xbox LIVE Users, and for providing reasonable advance notice to Xbox LIVE Users of any discontinuation of such Online Game Feature.
7.3.2     Subject to Section 7.3.1, EA agrees that Microsoft has the right to make Digital Content other than Online Games Features submitted by EA available to Xbox LIVE Users for the Term of this Agreement, unless removal of such Digital Content is requested by EA as provided below or if the Digital Content is provided for a limited period of time as specified by EA. EA shall use commercially reasonable efforts to provide Microsoft thirty (30) day prior notice for the removal of Digital Content, unless immediate removal is reasonably required to comply with EA’s contractual or other legal obligations. EA agrees to provide all necessary support for such Digital Content as long as such Digital Content is made available to Xbox LIVE Users and for six (6) months thereafter. Notwithstanding any termination or expiration of Microsoft’s license to distribute Digital Content, EA acknowledges and agrees that subject to Section 7.3.1 above, Microsoft will retain a copy of Digital Content, and EA hereby grants Microsoft the license to redistribute the final version of any Digital Content to Xbox LIVE Users who have previously purchased it, directly or indirectly, from Microsoft to their Durango console for no additional fees, including if the Xbox LIVE User is re-downloading to a different Durango unit or within a different Sales Territory than where originally downloaded, provided that EA may terminate the foregoing redistribution license for the applicable Digital Content upon written notice to Microsoft, if EA no longer has the right to grant the redistribution license as provided above due to termination or expiration of its license with any licensors whose intellectual property rights are incorporated in the Digital Content in question or as necessary to comply with applicable laws.
7.3.3      Archive Copies . EA agrees to maintain, and to possess the ability to support copies in object code, source code and symbol format, of all Digital Content available to Xbox LIVE Users during the time such Digital Content is available to Xbox LIVE Users and for no less than two (2) years thereafter.
8.      Manufacturing
8.1      Authorized Replicators . EA may only use Microsoft or an Authorized Replicator to produce FPUs. Prior to placing an order with a replicator for FPUs, EA shall confirm with Microsoft that such entity is an Authorized Replicator. Microsoft will keep an up-to-date list of Authorized Replicators in the Durango Publisher Guide. EA will notify Microsoft in writing of the identity of the applicable Authorized Replicator that it intends to use for each Software Title. The agreement for such replication services will be negotiated between EA and the applicable Authorized Replicator, subject to the requirements in this Agreement. EA acknowledges that Microsoft may charge the Authorized Replicator fees for rights, services or products associated with the manufacture of FPUs and that the agreement between Microsoft and each Authorized Replicator grants Microsoft the right to instruct the Authorized Replicator to cease the manufacture of FPUs and/or prohibit the release of FPUs to EA or its agents in the event EA is in breach of this Agreement or any credit arrangement entered into by the parties. Microsoft does not guarantee any level of performance by the Authorized Replicators, and Microsoft will have no liability to EA for any Authorized Replicator’s failure to perform its obligations under any applicable agreement between Microsoft and such Authorized Replicator and/or between EA and such Authorized Replicator. Microsoft has no responsibility for ensuring that FPUs are free of defects. If EA requests that Microsoft certify and approve a third party replicator that is not then an Authorized Replicator, Microsoft will consider such request in good faith.

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8.2      Submissions to the Authorized Replicator . Microsoft, and not EA, will provide to the applicable Authorized Replicator the final release version of the Software Title and all specifications required by Microsoft for the manufacture of the FPUs including the Security Technology (as defined in Section 8.7 below). EA is responsible for preparing and delivering to the Authorized Replicator all other items required for manufacturing FPUs including approved Packaging Materials associated with the FPUs.
8.3      Verification Versions . Microsoft shall cause the Authorized Replicator to create several test versions of each FPU (“Verification Version(s)”) that will be provided to both Microsoft and EA for approval as to (i) its conformance with the Software Title submitted by EA that has passed Certification, (ii) its proper operation on Durango and (iii) its conformity with all quality standards required by Microsoft of the Authorized Replicator (the “Verification Version Criteria”). Prior to full manufacture of FPUs by the Authorized Replicator, both EA and Microsoft must approve the applicable Verification Version as to its conformance with the Verification Version Criteria. Throughout the manufacturing process, Microsoft shall cause the Authorized Replicator to provide additional Verification Versions of the FPU for evaluation by Microsoft on the Verification Version Criteria. Microsoft’s approval of each Verification Version (as specified in the first sentence of this Section 8.3) is a condition precedent to manufacture, however EA shall grant the final approval and shall work directly with the Authorized Replicator regarding the production run. EA agrees that all FPUs must be replicated in conformity with all of the quality standards and manufacturing specifications, policies and procedures that Microsoft requires of its Authorized Replicators, and that all Packaging Materials must be approved by Microsoft prior to packaging. EA shall cause the Authorized Replicator to include the BTS on each FPU.
8.4      Samples . For each Software Title published under this Agreement, upon Microsoft’s request and at EA’s cost, EA shall provide a reasonable number of samples; the final number of which will be provided via the Durango Publisher Guide provided that it does not exceed [***] copies per Software Title per Sales Territory in which the FPU will be released. Such units may be used solely by Microsoft in marketing, as product samples, for customer support, testing and for archival purposes. EA shall not be required to pay any royalties fees for such samples.
8.5      Manufacturing Reports . For purposes of assisting in the scheduling of manufacturing resources, in the Annual Title Map (and any updates thereto) EA shall provide Microsoft with forecasts showing manufacturing projections by Sales Territory for each Software Title listed on the Annual Title Map. EA will update these forecasts for each Software Title by Sales Territory via its Quarterly Updates. EA will use commercially reasonable efforts to cause the Authorized Replicator to deliver to Microsoft true and accurate monthly statements of FPUs manufactured in each calendar month, on a Software Title-by-Software Title basis and in sufficient detail to satisfy Microsoft, within fifteen (15) days after the end of the applicable month. Microsoft will have reasonable audit rights to examine the records of the Authorized Replicator regarding the number of FPUs manufactured.
8.6      Alternate Manufacturing in Europe . EA may, solely with respect to FPUs manufactured for distribution in the European Sales Territory, utilize a different process or company for the combination of FPUs with Packaging Materials provided that such packaging process incorporates the BTS and otherwise complies with the Durango Publisher Guide. EA shall notify Microsoft regarding its use of such process or company so that the parties may properly coordinate their activities and approvals. To the extent that Microsoft is unable to accommodate such processes or company, EA shall modify its operations to comply with Microsoft’s requirements.
8.7      Security . Microsoft has the right to add to the final release version of the Software Title or Digital Content delivered by EA to Microsoft, and to all FPUs, such digital signature technology and other security technology and copyright management information (collectively, “Security Technology”) as Microsoft may determine to be necessary, and/or Microsoft may modify the signature included in any Security Technology included in the Software Title or Digital Content by EA at Microsoft’s discretion. Additionally, Microsoft may add Security Technology that prohibits the play of Software Titles or Digital Content on Durango units sold in a Sales Territory that is different from the Sales Territory in which the FPUs or Digital Content are intended to be distributed, or FPUs or Digital Content that have been modified in any manner not authorized by Microsoft. Any changes in Security Technology will not be applicable to Software Titles or Digital Content in Certification testing or FPUs in manufacturing by an Authorized Replicator, unless such change will not cause any material delay in the delivery date of such FPUs by the Authorized Replicator to EA, or unless otherwise agreed by EA. Subject to this Section 8.7, updates to Security Technology requirements may be added by Microsoft via the Durango Publisher Guide.

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8.1      Demo Versions . If EA wishes to distribute a Demo Version, EA must obtain Microsoft’s written approval as provided in the Durango Publisher Guide and Microsoft may charge a reasonable fee to offset costs of the Certification. Subject to the terms of the Durango Publisher Guide, Demo Version(s) may be distributed digitally or placed on a single disc, either as a stand-alone or with other Demo Versions and the suggested price of such units must be free or at a suggested retail price that does not exceed [***] US dollars ($[***]) or its equivalent in local currency. All rights, obligations and approvals set forth in this Agreement as applying to Software Titles shall separately apply to any Demo Version. No royalties will be payable to Microsoft with respect to any Demo Versions.
8.2      Minimum Order Quantities . [***].
9.      Payments
The parties will make payments to each other under the terms of Exhibit 2 .
10.      Pre- Durango Launch Support
10.1      [***].
10.2      Microsoft Durango Reveal Event, E3 2013 and PR Support . Microsoft and EA will work together to determine the optimal strategy for announcement and promotion of EA’s Durango support at Microsoft-organized events to announce Durango, including Microsoft’s Press Briefing at E3 2013 (together the “Microsoft Events”). [***]. EA will appear in Microsoft’s 2013 E3 Press Briefing [***].
10.2.3      Demos . At least fourteen (14) days prior to the Microsoft Events, EA will deliver approved [***] Demo Versions (for guided demonstration) for [***] titles listed below: [***] (together the “Reveal Titles”). If any of the above mentioned Demo Versions is not available for a title as provided above, the parties will announce the Reveal Titles at the Microsoft Events instead. [***]. EA agrees to fully participate in dress rehearsals for the Microsoft Events, which participation will include providing the final Reveal Titles Demo Versions as described herein. EA agrees to provide [***] guided Reveal Titles Demo Versions for [***] Reveal Titles [***] at Microsoft’s E3 2013 booth and other Microsoft specified E3 venues [***].
10.3      Xbox 360 and Kinect . [***].
11.      [***].
12.     [***].
13.     [***].
14.      Durango Units
At Durango Launch, Microsoft will make [***] Durango units available for purchase by EA [***].
15.     [***].
[PAGES 14 THROUGH 19 OF THIS AGREEMENT CONTAINING SECTIONS 11 THROUGH 13 AND SECTION 15 HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]

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16.      Marketing, Sales, and Support and Promotion
16.1      EA Responsible . Except as provided for herein, as between Microsoft and EA, EA is solely responsible for the marketing and sales of the Software Titles, and for providing technical and all other support relating to the FPUs (including for End Users of Digital Content). EA shall provide all End Users appropriate contact information (including EA’s street address and telephone number, and the applicable individual/group responsible for customer support), and shall also provide all such information to Microsoft for posting on http://www.xbox.com, or such successor or related website identified by Microsoft.
16.2      Warranty . EA shall provide the original End User of any FPU a minimum warranty in accordance with local laws and industry practices and that is not less favorable to the consumer than the consumer warranty that EA offers for products for play on other dedicated game consoles. EA may offer additional warranty coverage consistent with the traditions and practices of video game console publishers within the applicable Sales Territory or as otherwise required by local law. [***].
16.3      EULA . Microsoft’s requirements with respect to End User License Agreement for Software Titles will be set forth in the Durango Publisher Guide [***].
16.4      Recall. Notwithstanding anything to the contrary contained in this Agreement, if there is a material defect in a Software Title and/or any FPUs, which defect in the reasonable judgment of EA and Microsoft would significantly impair the ability of an End User to play such Software Title or FPU or would adversely affect the gameplay of Durango or Xbox LIVE, Microsoft may require EA to recall FPUs and undertake prompt repair or replacement of such Software Title and/or FPUs if the defect has not been otherwise remedied via a Title Update.
16.5      No Bundling with Unapproved Peripherals, Products or Software . Except as expressly stated in this Section, EA shall not market or distribute FPUs bundled with any other product or service, nor shall EA knowingly permit or assist any third party in such bundling, without Microsoft’s prior written consent. EA may market or distribute (i) FPUs bundled with a Software Title(s) that has been previously certified and released by Microsoft for manufacturing; or (ii) FPUs bundled with a peripheral product (e.g. game pads) that has been previously licensed as a “Durango Licensed Peripheral” by Microsoft, without obtaining the written permission of Microsoft. EA shall contact Microsoft in advance to confirm that the peripheral or Software Title to be bundled has previously been approved by Microsoft pursuant to a valid license.
16.6      Software Title License . Subject to the prior written consent of EA in each case (which consent will not be unreasonably withheld), EA hereby grants Microsoft a fully-paid, royalty-free, non-exclusive license (i) to publicly perform the Software Titles at conventions, events, trade shows, press briefings, public interactive displays and the like; (ii) to use the title of the Software Title, and screen shots from the Software Title, in advertising and promotional material relating to Durango and related Microsoft products and services, as Microsoft may reasonably deem appropriate; and (iii) distribute Demo Versions with the Official Xbox Magazine, or as a standalone product with other demo software. Additional marketing and promotional opportunities shall be discussed by the parties. For purposes of the foregoing, it shall not be deemed to be unreasonable for EA to withhold its approval on the basis that (a) its screen shots, advertising materials, etc. would be depicted with Microsoft titles that are competitive to EA’s Software Titles, or (b) Microsoft’s proposed use is inconsistent with EA’s marketing plan for such Software Title (e.g., use by Microsoft ahead of EA’s official announcement of a Software Title). The parties agree to develop a process whereby Software Titles and/or screen shots thereof may be pre-approved for the uses described in this Section 16.6. Nothing herein shall preclude Microsoft from using screen shots, publicity materials, etc. as permitted by law without a license (for example, pursuant to a right of “fair use” under applicable copyright law or a “referential” use under trademark law). Microsoft may use the code from Software Titles for internal compatibility and testing uses and to ensure that the Software Titles operate correctly on Durango and Xbox LIVE.
17.      Grant of Distribution License, Limitations
17.1      Distribution License . Upon Certification of a Software Title, approval of the Marketing Materials and the Verification Version of the Software Title by Microsoft, and subject to the terms and conditions contained in this Agreement,

13                  MICROSOFT CONFIDENTIAL


Microsoft grants EA a non-exclusive, non-transferable, license to distribute FPUs containing Redistributable and Sample Code (as defined in the XDK License) and Security Technology (as defined in Section 8.7) within the approved Sales Territories in FPU form to third parties for distribution to end users and/or directly to end users. The license to distribute the FPUs is personal to EA and except for transfers of FPUs through normal channels of distribution (e.g. wholesalers, retailers), absent the written approval of Microsoft, EA may not sublicense or assign its rights under this license to other parties. For the avoidance of doubt, without the written approval of Microsoft, EA may not sublicense, transfer or assign its right to distribute Software Titles or FPUs to another entity that will brand, co-brand or otherwise assume control over such products as a “publisher” as that concept is typically understood in the console game industry. EA’s license rights do not include any license, right, power or authority to subject Microsoft’s software or derivative works thereof or intellectual property associated therewith in whole or in part to any of the terms of an Excluded License.  “Excluded License” means any license that requires as a condition of use, modification and/or distribution of software subject to the Excluded License, that such software or other software combined and/or distributed with such software be (a) disclosed or distributed in source code form; (b) licensed for the purpose of making derivative works; or (c) redistributable at no charge.
17.2      Limitations on Distribution . Except as provided for herein, EA shall distribute FPUs only in the Sales Territories for which the Software Titles have been approved by Microsoft. EA shall not, directly or indirectly export any FPUs from one Sales Territory to another, nor shall EA knowingly permit or assist any third party in doing so, except for de minimis quantities of which EA provides Microsoft advanced written notice. Furthermore, EA shall not directly or indirectly export any FPUs outside of any Sales Territories, nor shall EA distribute FPUs to any person or entity that it has reason to believe may re-distribute or sell such FPUs outside a Sales Territory. EA may request to distribute FPUs in countries or regions outside the Sales Territories and Microsoft will not unreasonably withhold or delay its consent.
17.3      Digital Content . In consideration of the royalty payments as described in Exhibit 2 , EA grants to Microsoft (i) a worldwide, transferable, license to broadcast, transmit, distribute, host, publicly display, reproduce, and license Digital Content for use on Durango, and (ii) a worldwide, transferable license solely to distribute to End Users and permit End Users to download and store Digital Content). EA agrees that the license grants set forth in this Section 17.3 applicable to Digital Content are exclusive, meaning that except as expressly permitted under this Agreement, the Durango Publisher Guide and/or as agreed by the parties, EA shall not directly or indirectly permit or enable access to Digital Content by any means, methods, platforms or services other than through Xbox LIVE, or as otherwise set forth in this Agreement. Notwithstanding the foregoing, this Section 17.3 does not prevent EA from making other platform versions of its Software Titles or Digital Content available via other platform-specific online services. Except in cases where the Digital Content is removed in accordance with Section 7.3, this Section 17.3 shall survive termination of this Agreement by Microsoft pursuant to Section 26.2 until expiration or non-renewal of this Agreement.
17.4      No Reverse Engineering . EA shall not, directly or indirectly, reverse engineer or aid or assist in the reverse engineering of all or any part or component of the Durango, including, hardware, software or firmware, except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation and even in such case, subject to the limitations set forth below. For the purposes of this Agreement, "reverse engineer(ing)" shall mean: (a) the x-ray electronic scanning and/or physical or chemical stripping of semiconductor components, including, , the motherboard for the Durango; and/or (b) disassembling, decompiling, sniffing, using logic analyzers or electrical probes or replacing the physical components of the Durango with the purpose or effect of deriving source code. [***].
17.5      Reservation of Rights . Each party reserves all rights not explicitly granted herein.
17.6      Ownership of the Software Titles . Except for the intellectual property supplied by Microsoft to EA (including the Licensed Trademarks hereunder and the licenses in certain software and hardware granted by an XDK License), ownership of which is retained by Microsoft, insofar as Microsoft is concerned, EA will own all rights in and to the Software Titles.
17.7      Authorized Affiliates . Through the mutual written agreement by each party, and once an EA affiliate executes the “Authorized Affiliate” form attached as Exhibit 3 , then EA’s authorized affiliate may exercise the rights granted to EA under this Agreement. The foregoing shall not apply to any EA affiliate which pays or intends to pay royalties from a

14                  MICROSOFT CONFIDENTIAL


European billing address. Any such European affiliate shall instead execute a Durango Publisher Enrollment Form with MIOL, a copy of which is attached hereto as Exhibit 4 .
18.      Usage Data
Usage data terms are covered in Exhibit 7 .
19.      Trademark Rights and Restrictions
19.1      Licensed Trademarks License . In each Software Title, FPU, DFU, Demo Version and Marketing Materials, EA shall incorporate the Licensed Trademarks and include credit and acknowledgement to Microsoft as set forth in the Branding Specifications. Microsoft grants to EA a non-exclusive, non-transferable, personal license to use the Licensed Trademarks on FPUs, DFUs, Demo Versions and Marketing Materials according to the Durango Publisher Guide and other conditions herein, and solely in connection with marketing, sale, and distribution in the approved Sales Territories.
19.2      Limitations . EA is granted no right, and shall not purport, to permit any third party to use the Licensed Trademarks in any manner without Microsoft’s prior written consent. EA’s license to use Licensed Trademarks in connection with the Software Titles, FPUs, and DFUs does not extend to the merchandising or sale of related or promotional products other than approved Demo Versions.
19.3      Branding Specifications . EA’s use of the Licensed Trademarks (including in FPUs, DFUs, and Marketing Materials) must comply with the Branding Specifications set forth in the Durango Publisher Guide. EA shall not use Licensed Trademarks in association with any third party trademarks in a manner that might suggest co-branding or otherwise create potential confusion as to source or sponsorship of the Software Title, FPUs or DFUs or ownership of the Licensed Trademarks unless Microsoft has otherwise approved such use in writing. Upon notice or other discovery of any non-conformance with the requirements or prohibitions of this Section 19.3, EA shall promptly undertake diligent commercial efforts to remedy such non-conformance and notify Microsoft of the non-conformance and remedial steps taken.
19.4      Protection of Licensed Trademarks . At Microsoft’s request and expense, EA shall assist Microsoft in protecting and maintaining Microsoft’s rights in the Licensed Trademarks, including preparation and execution of documents necessary to register the Licensed Trademarks or record this Agreement, and giving immediate notice to Microsoft of potential infringement of the Licensed Trademarks of which EA becomes aware, except in cases of the mere unauthorized replications and distribution of FPUs or Marketing Materials. Microsoft shall have the sole right to, and in its sole discretion may, commence, prosecute or defend, and control any action concerning the Licensed Trademarks, either in its own name or by joining EA as a party thereto. EA shall not during the Term of this Agreement contest the validity of, by act or omission jeopardize, or take any action inconsistent with, Microsoft’s rights or goodwill in the Licensed Trademarks in any country, including attempted registration of any Licensed Trademark, or use or attempted registration of any mark confusingly similar thereto.
19.5      Ownership and Goodwill . EA acknowledges Microsoft’s ownership of all Licensed Trademarks, and all goodwill associated with the Licensed Trademarks. Use of the Licensed Trademarks shall not create any right, title or interest therein in EA’s favor. EA’s use of the Licensed Trademarks shall inure solely to the benefit of Microsoft.
20.      Confidentiality;Announcements.
20.1      Confidentiality. The information, materials and software exchanged by the parties hereunder the Agreement or under a Durango XDK License, including the terms and conditions hereof and of the Durango XDK License and any amendments or supplemental agreements to this Agreement, are subject to the Non-Disclosure Agreement attached hereto as Exhibit 5 (the “Non-Disclosure Agreement”) between the parties, which is incorporated herein by reference; provided, however, that for purposes of the foregoing Section 2(a)(i) of the Non-Disclosure Agreement shall hereinafter read, “[The Receiving Party shall: (i)] Refrain from disclosing Confidential Information of the Disclosing Party to any third parties for as long as such remains undisclosed under 1(b) above except as expressly provided in Sections 2(b) and 2(c) of this [Non-

15                  MICROSOFT CONFIDENTIAL


Disclosure] Agreement.”  In this way, all Confidential Information provided hereunder or by way of the Durango XDK License in whatever form (e.g. information, materials, tools and/or software exchanged by the parties hereunder or under a Durango XDK License), including the terms and conditions hereof and of the Durango XDK License, unless otherwise specifically stated, will be protected from disclosure for as long as it remains Confidential.  [***].  EA and Microsoft each acknowledge that any breach of this Section 20.1 will result in irreparable and ongoing harm to the other party.
20.2      Public Announcements . The parties contemplate that they will coordinate the issuance of initial press releases, or a joint press release, announcing the relationship established by the execution of this Agreement. The parties shall work cooperatively to ensure that an initial announcement of this Agreement shall be similar in stature and magnitude to that of the announcement for the EA’s support of the launch of Xbox 360. However, neither party shall issue any such press release or make any such public announcement(s) without the express prior consent of the other party, which consent will not be unreasonably withheld or delayed. Furthermore, the parties agree to use their commercially reasonable efforts to coordinate in the same manner any subsequent press releases and public announcements relating to their relationship hereunder prior to the issuance of the same. Nothing contained in this Section 20.2 will relieve EA of any other obligations it may have under this Agreement, including its obligations to seek and obtain Microsoft approval of Marketing Materials.
20.3      Required Public Filings . Notwithstanding Sections 20.1 and 20.2, the parties acknowledge that this Agreement, or portions thereof, may be required under applicable law to be disclosed, as part of or an exhibit to a party’s required public disclosure documents. If either party is advised by its legal counsel that such disclosure is required, it will notify the other in writing and the parties will jointly seek confidential treatment of this Agreement to the maximum extent reasonably possible, in documents approved by both parties and filed with the applicable governmental or regulatory authorities, and/or Microsoft will prepare a redacted version of this Agreement for filing.
21.      Protection of Proprietary Rights
21.1      Microsoft Intellectual Property . If EA learns of any infringement or imitation of the Licensed Trademarks, the Software Titles, the FPUs or the DFUs, or the proprietary rights in or related to any of them, it will promptly notify Microsoft thereof, except in cases of the mere unauthorized duplication and distribution of FPUs (“Pirated FPUs”) or Marketing Materials. Microsoft may take such action as it deems advisable for the protection of its rights in and to such proprietary rights, and EA shall, if requested by Microsoft, cooperate in all reasonable respects therein at Microsoft's expense. In no event, however, shall Microsoft be required to take any action if it deems it inadvisable to do so. Microsoft will have the right to retain all proceeds it may derive from any recovery in connection with such actions.
21.2      EA Intellectual Property . EA, without the express written permission of Microsoft, may bring any action or proceeding relating to infringement or potential infringement of the Software Titles or FPUs, to the extent such infringement involves any proprietary rights of EA (provided that EA will not have the right to bring any such action or proceeding involving Microsoft’s intellectual property). EA shall make reasonable efforts to inform Microsoft regarding such actions in a timely manner, except where such action involves only the seizure of Pirated FPUs and the prosecution or other legal action against the parties responsible for the unauthorized duplication and/or distribution of Pirated FPUs. EA will have the right to retain all proceeds it may derive from any recovery in connection with such actions. EA agrees to use all commercially reasonable efforts to protect and enforce its proprietary rights in the Software Title.
21.3      Joint Actions . EA and Microsoft may agree to jointly pursue cases of infringement involving the Software Titles (since such products will contain intellectual property owned by each of them). Unless the parties otherwise agree, or unless the recovery is expressly allocated between them by the court (in which case the terms of Sections 20.1 and 20.2 will apply), in the event EA and Microsoft jointly prosecute an infringement lawsuit under this provision, any recovery will be used first to reimburse EA and Microsoft for their respective reasonable attorneys’ fees and expenses, pro rata, and any remaining recovery shall also be given to EA and Microsoft pro rata based upon the fees and expenses incurred in bringing such action.

16                  MICROSOFT CONFIDENTIAL


22.      Warranties
22.1      EA .  EA warrants and represents that:
22.1.1     It has the full power to enter into this Agreement;
22.1.2     It has not previously granted and will not grant any rights to any third party that are inconsistent with the rights granted to Microsoft herein;
22.1.3     The Software Titles, FPUs, DFUs, Marketing Materials, Digital Content, all information, data, logos, software or other materials provided to Microsoft and/or made available to End Users via Xbox LIVE (excluding those portions that consist of the Licensed Trademarks, Security Technology and redistributable components of the XDK in the form as delivered to EA by Microsoft pursuant to an XDK License) (collectively, the “EA Content”) does not and will not infringe upon or misappropriate any third party trade secrets, copyrights, trademarks, patents, publicity, privacy or other proprietary rights.
22.1.4     It shall comply with all laws, regulations and administrative and court orders, and requirements within the territory of distribution relating to the distribution, sale and marketing of the Software Titles, and shall keep in force all necessary licenses, permits, registrations, approvals and/or exemptions throughout the Term and for so long as it is distributing, selling or marketing the Software Titles.
22.2      Microsoft .  Microsoft warrants and represents that it has the full power to enter into this Agreement and it has not previously granted and will not grant any rights to any third party that are inconsistent with the rights granted to EA herein.
22.3      DISCLAIMER . EXCEPT AS EXPRESSLY STATED IN THIS SECTION 22, MICROSOFT PROVIDES ALL MATERIALS (INCLUDING THE SECURITY TECHNOLOGY) AND SERVICES HEREUNDER ON AN “AS IS” BASIS, AND MICROSOFT DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED UNDER THE APPLICABLE LAWS OF ANY COUNTRY, PROVINCE OR STATE, REGARDING THE MATERIALS AND SERVICES IT PROVIDES HEREUNDER, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTY OF FREEDOM FROM COMPUTER VIRUSES. WITHOUT LIMITATION, MICROSOFT PROVIDES NO WARRANTY OF NON-INFRINGEMENT.
22.4      LIMITATION OF LIABILITY . EXCEPT FOR AMOUNTS OWED HEREUNDER, THE MAXIMUM LIABILITY OF MICROSOFT TO EA OR ANY THIRD PARTY ARISING OUT OF OR RELATED TO THIS AGREEMENT WILL BE [***]. FURTHERMORE, UNDER NO CIRCUMSTANCES SHALL MICROSOFT BE LIABLE TO EA FOR ANY DAMAGES WHATSOEVER WITH RESPECT TO ANY CLAIMS RELATING TO THE SECURITY TECHNOLOGY AND/OR ITS EFFECT ON ANY SOFTWARE TITLE OR FOR ANY STATEMENTS OR CLAIMS MADE BY EA, WHETHER IN EA’S MARKETING MATERIALS OR OTHERWISE, REGARDING THE AVAILABILITY OR OPERATION OF ANY DIGITAL CONTENT.
23.      Indemnity. A claim for which indemnity may be sought hereunder is referred to as a “Claim.”
23.1      Mutual Indemnification . Each party hereby agrees to indemnify, defend, and hold the other party harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including reasonable attorneys' fees, costs, and expert witnesses' fees) arising out of or related to with any Claim that, taking the claimant's allegations to be true, would result in a breach by the indemnifying party of any of its warranties and covenants set forth in Section 22.
23.2      Additional EA Indemnification Obligation . EA further agrees to indemnify, defend, and hold Microsoft harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including reasonable attorneys' fees, costs, and expert witnesses' fees) arising out of or related to any Claim regarding any Software Title, FPU, DFU or User

17                  MICROSOFT CONFIDENTIAL


Generated Content (excluding those portions thereof that consist of components of the Durango XDK in the form(s) as delivered to EA by Microsoft pursuant to a Durango XDK License), including any Claim relating to quality, performance, safety, privacy or security or any Claim arising out of EA’s use of the Licensed Trademarks in breach of this Agreement (but excluding any claims arising out of use of the Licensed Trademarks in accordance with the provisions of this Agreement).
23.3      Additional Microsoft Indemnification Obligation . Subject to Section 22.4, Microsoft further agrees to indemnify, defend, and hold EA harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including reasonable attorneys' fees, costs, and expert witnesses' fees) arising out of related to any Claim that EA’s use in any Sales Territory of a Licensed Trademark as permitted under this Agreement infringes the trademark rights of any third party. Microsoft shall control all litigation relating to Licensed Trademarks.
23.4      Notice and Assistance . The indemnified party shall: (i) provide the indemnifying party reasonably prompt notice in writing of any Claim and permit the indemnifying party to answer and defend such Claim through counsel chosen and paid by the indemnifying party; and (ii) provide information, assistance and authority to help the indemnifying party defend such Claim. The indemnified party may participate in the defense of any Claim at its own expense. The indemnifying party will not be responsible for any settlement made by the indemnified party without the indemnifying party’s written permission, which will not be unreasonably withheld or delayed. In the event the indemnifying party and the indemnified party agree to settle a Claim, the indemnified party agrees not to publicize the settlement without first obtaining the indemnifying party’s written permission.
23.5     [***].
24.      Insurance
EA shall maintain sufficient and appropriate insurance coverage to enable it to meet its obligations under this Agreement and by law (whether Products Liability, General Liability or some other type of insurance). [***].
25.      Bankruptcy
Microsoft and EA agree that the rights conferred by EA upon Microsoft under the Agreement, including those described in Section 17, constitute a license running from EA to Microsoft of a right to intellectual property for purposes of Section 365(n) of the United States Bankruptcy Code (11 U.S.C. 101, et seq.), and that Microsoft shall have, in a bankruptcy proceeding in which the EA is a debtor, the rights of a "licensee" as set forth in that provision.
Microsoft and EA acknowledge and agree that, in a bankruptcy proceeding of EA, and notwithstanding any other provision contained in the Agreement, EA shall not have the power, absent Microsoft's consent, to assume or assign to a third-party any license running from Microsoft to EA of any property, interest or right created in the Agreement.  Microsoft and EA hereby express their mutual intention that all such rights be purely personal to EA, such that governing non-bankruptcy law shall preclude EA's assignment (and, if applicable, assumption) of those rights without Microsoft's consent.
26.      Term and Termination
26.1      Term. The term of this Agreement shall commence upon the Effective Date and continue until [***] (“Initial Term”). [***] To the extent that the parties do not enter into an agreement to extend the Term, the parties shall jointly agree on a plan to allow End Users who purchase Xbox LIVE-enabled Software Titles near the Expiration Date to have the opportunity to access and use the Digital Content of such Software Titles on Xbox LIVE for a commercially reasonable time.
26.2      Termination for Breach . If either party materially fails to perform or comply with this Agreement or any provision thereof and such default has a material adverse effect on the non-breaching party, and fails to remedy the default within [***] days after the receipt of notice to that effect, then the other party has the right, at its sole option and upon written notice to the defaulting party, to terminate this Agreement upon written notice; provided that if EA is the party that has

18                  MICROSOFT CONFIDENTIAL


materially failed to perform or comply with this Agreement and such breach or default has a material adverse effect on Xbox LIVE, Durango consoles or the experience of a significant number of End Users, then Microsoft shall have the right, but not the obligation, to suspend availability of the Digital Content during such [***]-day period until the material adverse effect on Xbox LIVE, Durango, or the experience of a significant number of End Users has been corrected by EA. Any notice of default hereunder must be prominently labeled “NOTICE OF DEFAULT”; provided, however, that if the default is of Sections 17 or 19 above, the Non-Disclosure Agreement, or an Durango XDK License, then the non-defaulting party may terminate this Agreement immediately upon written notice, without being obligated to provide a [***] day cure period. The rights and remedies provided in this Section 26.2 are not exclusive and are in addition to any other rights and remedies provided by law or this Agreement. If the uncured default is related to a particular Software Title or particular Digital Content, then the party not in default has the right, in its discretion, to terminate this Agreement in its entirety or with respect to the applicable Software Title or the particular Digital Content. If Microsoft determines, at any time prior to the Commercial Release of a Software Title, that such Software Title does not materially comply with the requirements set forth in the Durango Publisher Guide, subject to Section 6, or to any applicable laws, then Microsoft has the right, in Microsoft’s sole discretion and notwithstanding any prior approvals given by Microsoft, to terminate this Agreement without cost or penalty, on a Software Title by Software Title, or Sales Territory by Sales Territory basis upon written notice to EA with respect to such Software Title or Sales Territory.
26.3      Effect of Termination; Sell-off Rights . Upon termination or expiration of this Agreement, EA has no further right to exercise the rights licensed hereunder or within the Durango XDK License and shall promptly cease all manufacturing of FPUs through its Authorized Replicators and, other than as provided below, cease use of the Licensed Trademarks. EA shall have a period of [***] months following expiration of this Agreement, or termination for a reason other than EA’s breach, to sell-off its inventory of (i) FPUs existing as of the date of termination or expiration; and (ii) if and only if this Agreement is terminated by EA for a material breach by Microsoft, FPUs manufactured under a bona fide purchase order accepted by an Authorized Replicator prior to the date of EA’s written notice to Microsoft of termination (with respect to the manufacturing of any Software Title that has been previously approved by Microsoft); after which sell-off period EA shall immediately return all FPUs to an Authorized Replicator for destruction. EA shall cause the Authorized Replicator to destroy all FPUs and issue to Microsoft written certification by an authorized representative of the Authorized Replicator(s) confirming the destruction of FPUs required hereunder. All of EA’s obligations under this Agreement shall continue to apply during such [***] sell-off period. If this Agreement is terminated due to EA's breach, at Microsoft’s option, Microsoft may require EA to immediately destroy all FPUs not yet distributed to EA’s distributors, dealers and/or end users and shall require all those distributing the FPUs over which it has control to cease distribution.
26.4      Cross-Default . If Microsoft has the right to terminate this Agreement, then Microsoft may, at its sole discretion also terminate the Durango XDK License. If Microsoft has the right to terminate the Durango XDK License, then Microsoft may, at its sole discretion also terminate this Agreement.
26.5      Survival . The following provisions shall survive expiration or termination of this Agreement: 1, 9, 12.6, 16.1, 16.6, 17.3 (in accordance with its terms), 17.4, 17.5, 17.6, 19.5, 20, 21, 22, 23, 26.3, 26.4, 26.5, and 27.
27.      General
27.1      Governing Law; Venue; Attorney’s Fees . This Agreement shall be construed and controlled by the laws of the State of Washington, U.S.A. Any dispute arising from or in connection with this Agreement shall be subject to binding arbitration at Seattle, Washington in accordance with the commercial rules of the JAMS/Endispute, and judgment upon the arbitral award rendered may be entered in any court having jurisdiction thereof. The parties agree that the existence of any such dispute and subsequent arbitration shall be kept confidential. If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees, costs and other expenses. This choice of jurisdiction provision does not prevent either party from seeking injunctive relief with respect to a violation of intellectual property rights or confidentiality obligations in any appropriate jurisdiction.
27.2      Notices; Requests . All notices and requests in connection with this Agreement shall be deemed given (i) three (3) business days after they are deposited in the U.S. mails, postage prepaid, certified or registered, return receipt

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requested; or (ii) as of the date sent by overnight courier, charges prepaid, with a confirming fax on the date sent; and addressed as follows:

EA:        ELECTRONIC ARTS INC.
209 Redwood Shores Parkway
Redwood City, CA 94065
Attention:    Executive Vice President, Business and Legal Affairs
Fax:        [***]
Phone:        [***]

with a cc to:    ELECTRONIC ARTS INC.
209 Redwood Shores Parkway
Redwood City, CA 94065
Attention:    General Counsel
Fax:        [***]
Phone:        [***]

Microsoft:    MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399

Attention:    President, Interactive Entertainment Business

with a cc to:    MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399

Attention:    Legal & Corporate Affairs Department
Interactive Entertainment Business
Fax:        (425) 936-7329

or to such other address as the party to receive the notice or request so designates by written notice to the other.
27.3      No Delay or Waiver . No delay or failure of either party at any time to exercise or enforce any right or remedy available to it under this Agreement, and no course of dealing or performance with respect thereto, will constitute a waiver of any such right or remedy with respect to any other breach or failure by the other party. The express waiver by a party of any right or remedy in a particular instance will not constitute a waiver of any such right or remedy in any other instance. All rights and remedies will be cumulative and not exclusive of any other rights or remedies.
27.4      Assignment/Change of Control

27.4.1      By EA . EA may not assign this Agreement or any portion thereof, to any third party unless Microsoft expressly consents to such assignment in writing, provided, however, that EA shall be allowed to assign this Agreement (or portion thereof), to its wholly-owned affiliates for reasons not related to a Sale Event, by providing prior written notice to Microsoft.  For the purposes of this Agreement, a merger, consolidation, or other corporate reorganization, or a transfer or sale of a controlling interest in EA’s stock, or of all or substantially all of its assets (collectively a “Sale Event”) is to be deemed to be an assignment.  [***].

27.4.2      By Microsoft . Microsoft will have the right to assign this Agreement and/or any portion thereof as Microsoft may deem appropriate.


20                  MICROSOFT CONFIDENTIAL


27.4.3     This Agreement will inure to the benefit of and be binding upon the parties, their successors, administrators, heirs, and permitted assigns.
27.5      No Partnership . Microsoft and EA are entering into a license pursuant to this Agreement and nothing in this Agreement is to be construed as creating an employer-employee relationship, a partnership, a franchise, or a joint venture between the parties.
27.6      Severability . If any provision of this Agreement is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms. The parties intend that the provisions of this Agreement be enforced to the fullest extent permitted by applicable law. Accordingly, the parties agree that if any provisions are deemed not enforceable, they are to be deemed modified to the extent necessary to make them enforceable.
27.7      Injunctive Relief . The parties agree that EA’s threatened or actual unauthorized use of the Licensed Trademarks or other Microsoft proprietary rights whether in whole or in part, may result in immediate and irreparable damage to Microsoft for which there is no adequate remedy at law. Either party’s threatened or actual breach of the confidentiality provisions may cause damage to the non-breaching party, and in such event the non-breaching party is entitled to appropriate injunctive relief from any court of competent jurisdiction without the necessity of posting bond or other security.
27.8      Entire Agreement; Modification; No Offer . This Agreement (including the Annual Title Map or Concept as applicable, the Non-Disclosure Agreement, the Durango Publisher Guide, written amendments thereto, and other incorporated documents), and the Durango XDK License constitute the entire agreement between the parties with respect to the subject matter hereof and merges all prior and contemporaneous communications. This Agreement shall not be modified except by a written agreement dated subsequent hereto signed on behalf of EA and Microsoft by their duly authorized representatives. Neither this Agreement nor any written or oral statements related hereto constitute an offer, and this Agreement is not legally binding until executed by both parties hereto.
27.9      Interpretation . Lists of examples following “including” or “e.g.” are not exhaustive (i.e., are interpreted to include the words “without limitation”), unless qualified by words such as “only” or “solely.” This Agreement will be interpreted according to the plain meaning of its terms without any presumption that it should be construed to favor either party.
27.10     Microsoft will have the right to authorize its affiliates or agent who is not a third party game publisher to perform this Agreement in whole or part on its behalf, provided that Microsoft shall guarantee such the third party’s compliance and performance of the applicable obligations and restrictions imposed by hereunder.

27.11      Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one single agreement between the parties. Signature pages exchanged via facsimile will be considered to be binding signatures pages for this Agreement.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.



21                  MICROSOFT CONFIDENTIAL


MICROSOFT LICENSING, GP                  ELECTRONIC ARTS INC.

/s/ Steve Ballmer                        /s/ Joel Linzner
By (sign)                        By (sign)

Steve Ballmer                        Joel Linzner
Name (Print)                        Name (Print)

CEO                            EVP
Title                            Title

June 29, 2012                        June 29, 2012
Date                            Date



MICROSOFT CORPORATION                  EA INTERNATIONAL (Studio & Publishing) LTD.


/s/ Steve Ballmer                        /s/ Varinder Saini
By (sign)                        By (sign)

Steve Ballmer                        Varinder Saini
Name (Print)                        Name (Print)

CEO                            Manager, International Publishing
Title                            Title

June 29, 2012                        June 29, 2012
Date                            Date
                            


22                  MICROSOFT CONFIDENTIAL


EXHIBIT 1
ANNUAL TITLE MAP














23                  MICROSOFT CONFIDENTIAL


EXHIBIT 2

PAYMENTS
1.
    Platform Royalty
a. For each FPU manufactured during the Term of the Agreement, EA shall pay Microsoft nonrefundable royalties in accordance with the royalty tables set forth below (in Tables 1 and 2) and the “Unit Discount” table set forth in Section 1.d Table 3 of this Exhibit 2 .
b.    The royalty fee is determined by the Threshold Price and the Sales Territory where the FPUs will be sold. To determine the applicable royalty rate for a particular Software Title that will be sold in a particular Sales Territory, the applicable Threshold Price from Table 1 below for the category of Software Title (Standard Software Title and Expansion Pack) will determine the correct royalty “Tier” The royalty rate is then as set forth in Table 2 based on such Tier and the Sales Territory in which the FPUs will be sold. For example, assume the Wholesale Price of a Standard Software Title to be sold in the North American Sales Territory is $[***]. According to Table 1, Tier 1 royalty rates will apply to that Software Title, and the royalty rate for each FPU as set forth in Table 2 is $[***]. [***].
[***]    
c.     Standard Software Titles and Expansion Packs . Publisher will submit to Microsoft, at least [***] business days before placing the first manufacturing order for a Standard Software Title or an Expansion Pack, a completed “Durango Royalty Tier Selection Form” in the form provided via the Durango Publisher Guide (which may be a designated electronic form) for each Sales Territory. The selection indicated in the Durango Royalty Tier Selection Form will only be effective once it has been approved by Microsoft. If a Standard Software Title or Expansion Pack does not have an approved Durango Royalty Tier Selection Form (e.g. as a result of the Publisher not providing a Durango Royalty Tier Selection Form or because Microsoft has not approved the Durango Royalty Tier Selection Form), the royalty rate for such Standard Software Title will default to [***] or for such Expansion Pack will default to [***], regardless of the actual Threshold Price (i.e., if Microsoft does not approve an Durango Royalty Tier Selection Form because it is filled out incorrectly, the royalty rate will default to [***].

d.     Cross Territory Sales . Except for FPUs manufactured pursuant to Section 4 below (regarding the Asia Simship Program), Publisher may not sell FPUs in a certain Sales Territory that were manufactured for a different Sales Territory. For example, if Publisher were to manufacture and pay royalties on FPUs designated for sale in the Asian Sales Territory, Publisher could not sell those FPUs in the European Sales Territory.
e.     Unit Discounts .   Publisher is eligible for a discount to FPUs manufactured for a particular Sales Territory (a “Unit Discount”) based on the number of FPUs that have been manufactured for sale in a Sales Territory are aggregated only towards a discount on FPUs manufactured for that Sales Territory; there is no worldwide or cross-territorial aggregation of units for a particular Software Title.  The discount will be rounded up to the nearest USD Cent, Yen or a Euro Cent.
[***]     
f.     [***].
g.     [***].
2.    Payment Process
Payment of royalties owed to Microsoft for the manufacture of FPUs by its Authorized Replicator shall be due no later than [***] days [***]. Depending upon EA’s credit worthiness, Microsoft may, but is not obligated to, offer EA credit terms and if Microsoft elects to extend credit terms to EA, the parties will execute the applicable credit term agreement. Payments will be made in United States dollars for all FPUs manufactured for sale in the North American Sales Territory, in Euros for all FPUs manufactured for sale in the European Sales Territory; in Yen for all FPUs manufactured for sale in the Japan Sales Territory;

24                  MICROSOFT CONFIDENTIAL


and United States dollars FPUs manufactured for sale in Asian Sales Territories. All payments will be made by wire transfer only, in accordance with the payment instructions set forth in the Durango Publisher Guide.
Any payments not paid when due or according to this Section 2 will bear interest. The interest rate will be [***] percent ([***]%) per month, or the highest rate permitted by applicable usury law, whichever is less. The rate will be calculated on a daily basis and compounded on the first day of each calendar month, from the date due until the date received by Microsoft. This Section 2 does not authorize late payments. Interest paid will not be in lieu of or prejudice any other right or remedy that Microsoft may have due to EA’s failure to make any payment according to this Section 2. EA has [***] days after invoice billing date to dispute the information presented in the invoice.
3.    Billing Address
EA has “bill to” addresses for the payment of royalties under this Agreement. Each “bill to” address will be for FPUs manufactured by Authorized Replicators located in a specific Sales Territory. If EA includes a “bill-to” address in a European country, EA (or a Publisher Affiliate) must execute a Publisher Enrollment Form with MIOL within ten (10) business days prior to establishing a billing address in a European country in the form attached as Exhibit 4 .
As of the Effective Date of this Agreement, EA’s billing address(es) is as follows:
Partner Name
ELECTRONIC ARTS INC.
EA Swiss Sarl
ELECTRONIC ARTS INC.
Electronic Arts K.K.
Address Line1
209 Redwood Shores Parkway
c/o Electronic Arts Limited , Onslow House , Guildford , Surrey GU1 4TN , United Kingdom
209 Redwood Shores Parkway
Nishi-shinjuku Bdg 4 7F
Address Line2
Executive Vice President,
Attn: Accounts Payable
ATTN: Accounts Payable
Mr. Masato Ichimiya
Address Line3
Business and Legal Affairs
 
 
Sumitomo Fudosan
City
REDWOOD CITY
Geneva
REDWOOD CITY
Shinjuku-ku Tokyo
State
CA
 
CA
 
Country
United States
  Switzerland
United States
Japan
Postal Code
94065
1204
94065-1175
4-33-4
Email
 
[***]
[***]
 
Telephone
[***]
[***]
[***]
[***]
Fax
[***]
[***]
[***]
 
 
 
 
 
4.     [***]
5.     Digital Content

5.1    EA may, from time to time, submit Digital Content to Microsoft for Microsoft to distribute via Xbox LIVE. EA will set the WSP for the Digital Content, which can be zero. Microsoft may choose to offer such Digital Content to Xbox LIVE End Users for a fee, this Digital Content may be offered for sale in currency or through redemption of [***] currency stored value systems, as determined by Microsoft. [***]. For each Digital Content item, for which Microsoft receives payment [***], Microsoft will pay EA a royalty calculated as follows (the “Royalty Fee”). [***].

5.2    [***]. For Digital Content that is offered by Microsoft to Xbox LIVE End Users for free and for which there is a WSP, the Royalty Fee will equal [***].


25                  MICROSOFT CONFIDENTIAL


5.3    For all [***] Digital Content sold via Xbox LIVE Marketplace or any other Microsoft controlled online marketplace or storefront [***], the Royalty Fee will equal [***]. For Digital Content that is offered by Microsoft to Xbox LIVE End Users for free and for which there is a WSP, the Royalty Fee will be [***].

5.4    Within [***] days after the end of each calendar quarter with respect to which Microsoft owes EA any Royalty Fees, Microsoft shall furnish EA with a statement, together with payment for any amount shown thereby to be due to EA. The statement will contain information sufficient to discern how the Royalty Fees were computed for each Digital Content item.
6.    Xbox LIVE Billing, Collection and Hosting
6.1    Microsoft is responsible for billing and collecting all fees associated with Xbox LIVE, including fees for subscriptions and/or any Digital Content for which an End User may be charged. Microsoft has the sole discretion to determine the fees charged for Xbox LIVE or Digital Content sold to End Users.
6.2    EA and Microsoft agree Microsoft is responsible for offering, hosting, fulfilling and delivering Digital Content, and any other Durango-related content or services provided to End Users except as provided below. [***].

7.    Third Party Royalties [***]
7.1    EA acknowledges and understands that under Section 22 of this Agreement, EA warrants and represents that EA has obtained and will maintain all third-party rights, consents and licenses necessary for the permitted exploitation of Software Title content and Digital Content under this Agreement, including payment of: (i) all so-called “record” royalties payable to artists, producers, engineers, mixers, A&R executives and other royalty participants arising from or related to the sales of Software Titles; (ii) all mechanical royalties payable to publishers of copyrighted musical compositions embodied in Software Title Content and Digital Content; (iii) all synchronization royalties payable to publishers of copyrighted musical compositions embodied in Software Title Content and Digital Content; (iv) all payments that may be required under collective bargaining agreements applicable to EA or its affiliates; and (v) any and all other royalties, fees or other amounts required to be paid.
7.2    [***].

8.    Taxes

Each party is responsible for taxes that are imposed on such party, and shall not be responsible for taxes that are imposed on the other party. Publisher shall be responsible for the billing, collecting and remitting of sales, use, value added, and other comparable taxes due with respect to the exercise of the licenses granted in this Agreement and any other activities of Publisher and its subsidiaries under this Agreement (including, without limitation, the collection of revenues).  Microsoft is not liable for any taxes (including, without limitation, any penalties or interest thereon) that Publisher or any of its subsidiaries is legally obligated to pay in connection with this Agreement, the exercise of any licenses granted in this Agreement or any other activities of Publisher and its subsidiaries under this Agreement.  Publisher is not liable for any income taxes that Microsoft is legally obligated to pay with respect to any amounts paid to Microsoft by Publisher under this Agreement.
All royalties and fees exclude any taxes, duties, levies, fees, excises or tariffs imposed on any of Publisher’s activities in connection with this Agreement.  Publisher shall pay to Microsoft any applicable taxes that are owed by Publisher solely as a result of entering into this Agreement and which are permitted to be collected from Publisher by Microsoft under applicable law, except to the extent that Publisher provides to Microsoft a valid exemption certificate for such taxes.  Publisher agrees to indemnify, defend and hold Microsoft harmless from any taxes (including, without limitation, sales or use taxes paid by Publisher to Microsoft) or claims, causes of action, costs (including, without limitation, reasonable attorneys’ fees) and any other liabilities of any nature whatsoever related to such taxes.
If, after a determination by foreign tax authorities, any taxes are required to be withheld on payments made by Publisher to Microsoft, Publisher may deduct such taxes from the amount owed Microsoft and pay them to the appropriate taxing

26                  MICROSOFT CONFIDENTIAL


authority; provided, however, that Publisher shall promptly secure and deliver to Microsoft an official receipt for any such taxes withheld or other documents necessary to enable Microsoft to claim a U.S. Foreign Tax Credit. Publisher and Microsoft shall cooperate to minimize any taxes that are imposed on each other to the extent possible under applicable law. 
This tax section shall govern the treatment of all taxes arising as a result of or in connection with this Agreement notwithstanding any other section of this Agreement.
9.    Audit
Each party shall keep all usual and proper records related to its performance under this Agreement (including any addendum or amendment thereof), including audited financial statements and support for all transactions related to the ordering, production, inventory, distribution and billing/invoicing information for a period of a minimum of [***] years from the date they are created.  Either party (the “Auditing Party”) may, upon [***] days’ notice, to cause a third party independent CPA or law firm to audit and/or inspect the other party’s (the “Audited Party”) records no more than [***] in any [***] month period in order to verify compliance with the financial, royalty and payment terms of this Agreement.  The Auditing Party shall have access to the previous [***] years of the Audited Party’s records from the date that the notice of audit request was received by the Audited Party. The right of inspection and consultation shall expire with respect to all records related to any amounts payable under this Agreement on the [***] anniversary of the date of the statement or payment to which such records relate. Any such audit will be conducted during regular business hours at the Audited Party’s offices.  Any such audit will be paid for by Auditing Party unless Material discrepancies are disclosed.  As used in this Section 9, "Material" means [***] percent ([***]%) of the amounts due to the Auditing Party within the audit period (net of any overpayments that may have occurred during such audit period).  If Material discrepancies are disclosed, the Audited Party agrees to pay the Auditing Party [***]. 

27                  MICROSOFT CONFIDENTIAL



EXHIBIT 3
AUTHORIZED AFFILIATES

EA affiliates authorized to perform the rights and obligations under this Agreement are:

I.    Name:         
Address:         
             
             
             
Billing Address (if different):    
             
             
             
Telephone:         
Fax:         


II.    Name:         
Address:         
             
             
             
Billing Address (if different):    
             
             
             

Telephone:         
Fax:         

EA will provide Microsoft at least thirty (30) calendar days prior written notice of the name and address of each additional EA affiliate that EA wishes to add to this Exhibit 3. Any additional EA affiliate may not perform any rights or obligations under the Agreement until it has signed and submitted a EA Affiliate Agreement (attached below) to Microsoft



















28                  MICROSOFT CONFIDENTIAL


EA AFFILIATE AGREEMENT

For good and valuable consideration, ______________________, a corporation of ______________________ ("EA Affiliate") hereby covenants and agrees with Microsoft Licensing, GP , a Nevada general partnership that EA Affiliate will comply with all obligations of Electronic Arts Inc., a Delaware corporation ("EA") pursuant to that certain Durango Publisher License Agreement between Microsoft and EA dated ______________, 2012 (the "Agreement") and to be bound by the terms and conditions of this EA Affiliate Agreement. Capitalized terms used herein and not otherwise defined will have the same meaning as in the Agreement.
EA Affiliate acknowledges that its agreement herein is a condition for EA Affiliate to exercise the rights and perform the obligations established by the terms of the Agreement. EA Affiliate and EA will be jointly and severally liable to Microsoft for all obligations related to EA Affiliate’s exercise of the rights, performance of obligations, or receipt of Confidential Information under the Agreement, provided, however, that the rights set forth in Sections 10 - 14 of the Agreement shall be personal to EA per the terms of the Agreement and not to EA Affiliate. This EA Affiliate Agreement may be terminated in the manner set forth in the Agreement. Termination of this EA Affiliate Agreement does not terminate the Agreement.
IN WITNESS WHEREOF, EA Affiliate has executed this agreement as of the date set forth below. All signed copies of this EA Affiliate Agreement will be deemed originals.

___________________________
Signature                             

___________________________
Title

___________________________
Name (Print)    

___________________________
Date























29                  MICROSOFT CONFIDENTIAL


EXHIBIT 4

PUBLISHER ENROLLMENT FORM

This Durango Publisher License Enrollment (“Enrollment”) is entered into between Microsoft Ireland Operations Ltd. (“MIOL”) and EA Swiss SARL (“Publisher”), and effective as of the latter of the two signatures identified below. The terms of that certain Durango Publisher License Agreement signed by Microsoft Licensing GP , Microsoft Corporation, Electronic Arts Inc. and EA International (Studio & Publishing) Ltd. dated on or about _________________, 2012 (the “Durango PLA”) are incorporated herein by reference, with the exception that such incorporation does not create additional payment rights for EA Swiss SARL pursuant to this Enrollment beyond those provided for “EA” under Section 9 of the Durango PLA.

1.     Term . This Enrollment will expire on the date on which the Durango PLA expires, unless it is terminated earlier as provided for in that agreement.

2.     Territory . EA Swiss SARL shall be the billing entity for European Sales Territory, Asian Sales Territory and for countries in North American Sales Territory other than U.S. and Canada.

3.     Representations and warranties . By signing this Enrollment, the parties agree to be bound by the terms of this Enrollment, and Publisher represents and warrants that: (i) it has read and understood the Durango PLA, including any amendments thereto, and agree to be bound by those; (ii) it is either the entity that signed the Durango PLA or its affiliate; and (iii) the information that provided herein is accurate.

4.     Notices; Requests . All notices and requests in connection with this Agreement are deemed given (i) on the third day after they are deposited in the applicable country’s mail system (7 days if sent internationally), postage prepaid, certified or registered, return receipt requested; or (ii) the day after they are sent by overnight courier, charges prepaid, with a confirming fax; and addressed as follows:

Publisher: EA Swiss SARL
Attention:

VP Legal Affairs Europe
Electronic Arts Limited
Onslow House
Onslow Street
Guildford GU1 4TN
UK.

[***]

Microsoft: MICROSOFT IRELAND OPERATIONS LTD.
Attention:

with a cc to: MICROSOFT CORPORATION
      One Microsoft Way
      Redmond, WA 98052-6399

Attention: Law & Corporate Affairs Department
      Consumer Group
                             Fax: (425) 706-7329
        
or to such other address as the party to receive the notice or request so designates by written notice to the other.
4.     Billing Address .     Publisher’s billing address is provided in Durango PLA Exhibit 2.

MICROSOFT IRELAND OPERATIONS LTD.          EA Swiss SARL
                                                  
By (sign)                        By (sign)
                                                  
Name (Print)                        Name (Print)
                                                  
Title                            Title
                                                  
Date                            Date

30                  MICROSOFT CONFIDENTIAL


EA Swiss SARL
                             
By (sign)                        
                             
Name (Print)                        
                             
Title                            
                             
Date                                                         































31                  MICROSOFT CONFIDENTIAL


EXHIBIT 5
NON-DISCLOSURE FORM
MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT

This Non-Disclosure Agreement (the “Agreement”) is made and entered into as of the later of the two signature dates below.

COMPANY: ELECTRONIC ARTS
 
 
 
MICROSOFT CORPORATION
 
 
Address: 1900-250 Howe Street
Vancouver,
V6C 3R8
 
 
 
One Microsoft Way
Redmond, WA 98052-6399
 
 
 
 
 
 
 
 
Sign:  /s/ Paul Roberts                   
 
 
 
Sign:  /s/ Sue Grinius-Hill        
 
 
 
 
 
 
 
 
Print Name:  Paul Roberts                            
 
 
 
Print Name:  Sue Grinius-Hill                                
 
 
 
 
 
 
 
 
Print Title:  Director, World Wide Studios           
 
 
 
Print Title:  Senior Program Manger                         
 
 
 
 
 
 
 
 
Signature Date:  June 17, 2005                       
 
 
 
Signature Date:  7/15/05                                           

1          Definition of Confidential Information and Exclusions
(a)     “Confidential Information” means nonpublic information that a party to this Agreement (“Disclosing Party”) designates as being confidential to the party that receives such information (“Receiving Party”) or which, under the circumstances surrounding disclosure ought to be treated as confidential by the Receiving Party. “Confidential Information” includes, without limitation, information in tangible or intangible form relating to and/or including released or unreleased Disclosing Party software or hardware products, the marketing or promotion of any Disclosing Party product, Disclosing Party’s business policies or practices, and information received from others that Disclosing Party is obligated to treat as confidential. Except as otherwise indicated in this Agreement, the term “Disclosing Party” also includes all Affiliates of the Disclosing Party and, except as otherwise indicated, the term “Receiving Party” also includes all Affiliates of the Receiving Party. An “Affiliate” means any person, partnership, joint venture, corporation or other form of enterprise, domestic or foreign, including but not limited to subsidiaries, that directly or indirectly, control, are controlled by, or are under common control with a party. Prior to the time that any Confidential Information is shared with an Affiliate who has not signed this Agreement, the Receiving Party that executed this Agreement below (the “Signatory Receiving Party”) shall have entered into an appropriate written agreement with that Affiliate sufficient to enable the Disclosing Party and/or the Signatory Receiving Party to enforce all of the provisions of this Agreement against such Affiliate.
(b)     Confidential Information shall not include any information, however designated, that: (i) is or subsequently becomes publicly available without Receiving Party’s breach of any obligation owed Disclosing Party; (ii) became known to Receiving Party prior to Disclosing Party’s disclosure of such information to Receiving Party pursuant to the terms of this Agreement; (iii) became known to Receiving Party from a source other than Disclosing Party other than by the breach of an obligation of confidentiality owed to Disclosing Party; (iv) is independently developed by Receiving Party; or (v) constitutes Feedback (as defined in Section 5 of this Agreement).

32                  MICROSOFT CONFIDENTIAL


2.          Obligations Regarding Confidential Information
(a) Receiving Party shall:
 
 
(i)
Refrain from disclosing any Confidential Information of the Disclosing Party to third parties for five (5) years following the date that Disclosing Party first discloses such Confidential Information to Receiving Party, except as expressly provided in Sections 2(b) and 2(c) of this Agreement;
  
(ii)
Take reasonable security precautions, at least as great as the precautions it takes to protect its own confidential information, but no less than reasonable care, to keep confidential the Confidential Information of the Disclosing Party;
  
(iii)
Refrain from disclosing, reproducing, summarizing and/or distributing Confidential Information of the Disclosing Party except in pursuance of Receiving Party’s business relationship with Disclosing Party, and only as otherwise provided hereunder; and
 
(iv)
Refrain from reverse engineering, decompiling or disassembling any software code and/or pre-release hardware devices disclosed by Disclosing Party to Receiving Party under the terms of this Agreement, except as expressly permitted by applicable law.

(b) Receiving Party may disclose Confidential Information of Disclosing Party in accordance with a judicial or other governmental order, provided that Receiving Party either (i) gives the undersigned Disclosing Party reasonable noticeprior to such disclosure to allow Disclosing Party a reasonable opportunity to seek a protective order or equivalent, or (ii) obtains written assurance from the applicable judicial or governmental entity that it will afford the Confidential Information the highest level of protection afforded under applicable law or regulation. Notwithstanding the foregoing, the Receiving Party shall not disclose any computer source code that contains Confidential Information of the Disclosing Party in accordance with a judicial or other governmental order unless it complies with the requirement set forth in sub-section (i) of this Section 2(b).

(c) The Signatory Receiving Party may disclose Confidential Information only to Receiving Party’s employees and consultants on a need-to-know basis. The Receiving Party will have executed or shall execute appropriate written agreements with its employees and consultants sufficient to enable Receiving Party to enforce all the provisions of this Agreement.

(d) Receiving Party shall notify the undersigned Disclosing Party immediately upon discovery of any unauthorized use or disclosure of Confidential Information or any other breach of this Agreement by Receiving Party and its employees and consultants, and will cooperate with Disclosing Party in every reasonable way to help Disclosing Party regain possession of the Confidential Information and prevent its further unauthorized use or disclosure.

(e) Receiving Party shall, at Disclosing Party’s request, return all originals, copies, reproductions and summaries of Confidential Information and all other tangible materials and devices provided to the Receiving Party as Confidential Information, or at Disclosing Party’s option, certify destruction of the same.

3.  Remedies. The parties acknowledge that monetary damages may not be a sufficient remedy for unauthorized disclosure of Confidential Information and that Disclosing Party shall be entitled, without waiving any other rights or remedies, to such injunctive or equitable relief as may be deemed proper by a court of competent jurisdiction.

4.  Miscellaneous

(a)     All Confidential Information is and shall remain the property of Disclosing Party. By disclosing Confidential Information to Receiving Party, Disclosing Party does not grant any express or implied right to Receiving Party to or under any patents, copyrights, trademarks, or trade secret information except as otherwise provided herein. Disclosing Party reserves without prejudice the ability to protect its rights under any such patents, copyrights, trademarks, or trade secrets except as otherwise provided herein.

(b)    In the event that the Disclosing Party provides any computer software and/or hardware to the Receiving Party as Confidential Information under the terms of this Agreement, such computer software and/or hardware may only be used by the Receiving Party for evaluation and providing Feedback (as defined in Section 5 of this Agreement) to the Disclosing Party. Unless otherwise agreed by the Disclosing Party and the Receiving Party, all such computer software and/or hardware is provided “AS IS” without warranty of any kind, and Receiving Party agrees that neither Disclosing Party nor its suppliers shall be liable for any damages whatsoever arising from or relating to Receiving Party’s use of or inability to use such software and/or hardware.

(c)    The parties agree to comply with all applicable international and national laws that apply to (i) any Confidential Information, or (ii) any product (or any part thereof), process or service that is the direct product of the Confidential Information, including the

33                  MICROSOFT CONFIDENTIAL


U.S. Export Administration Regulations, as well as end-user, end-use and destination restrictions issued by U.S. and other governments. For additional information on exporting Microsoft products, see http://www.microsoft.com/exporting/.

(d)     The terms of confidentiality under this Agreement shall not be construed to limit either the Disclosing Party or the Receiving Party’s right to independently develop or acquire products without use of the other party’s Confidential Information. Further, the Receiving Party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information of the Disclosing Party, provided that the Receiving Party shall not disclose the Confidential Information except as expressly permitted pursuant to the terms of this Agreement. The term “residuals” means information in intangible form, which is retained in memory by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein. The Receiving Party shall not have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. However, this sub-paragraph shall not be deemed to grant to the Receiving Party a license under the Disclosing Party’s copyrights or patents.
 
(e)    None of the provisions of this Agreement shall be deemed to have been waived by any act or acquiescence on the part of Disclosing Party, the Receiving Party, their agents, or employees, but only by an instrument in writing signed by an authorized employee of Disclosing Party and the Receiving Party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision(s) or of the same provision on another occasion.
(f)     If either Disclosing Party or the Receiving Party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs. This Agreement shall be construed and controlled by the laws of the State of Washington, and the parties further consent to exclusive jurisdiction and venue in the federal courts sitting in King County, Washington, unless no federal subject matter jurisdiction exists, in which case the parties consent to the exclusive jurisdiction and venue in the Superior Court of King County, Washington. Company waives all defenses of lack of personal jurisdiction and forum non conveniens. Process may be served on either party in the manner authorized by applicable law or court rule.
(g)     This Agreement shall be binding upon and inure to the benefit of each party’s respective successors and lawful assigns; provided, however, that neither party may assign this Agreement (whether by operation of law, sale of securities or assets, merger or otherwise), in whole or in part, without the prior written approval of the other party. Any attempted assignment in violation of this Section shall be void.
(h)     If any provision of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remaining provisions shall remain in full force and effect.
(i)     Either party may terminate this Agreement with or without cause upon ninety (90) days prior written notice to the other party sent to the address listed above (and if to Microsoft, with a cc to “Law & Corporate Affairs, attn.. NDA, LCA Records. All sections of this Agreement shall survive any such termination.
(k)    This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It shall not be modified except by written agreement dated subsequent to the date of this Agreement and signed on behalf of the parties by their respective duly authorized representatives.
5.  Suggestions and Feedback.     The Receiving Party may from time to time provide suggestions, comments or other feedback (“Feedback”) to the Disclosing Party with respect to Confidential Information provided originally by the Disclosing Party. Both parties agree that all Feedback is and shall be given entirely voluntarily. Feedback, even if designated as confidential by the party offering the Feedback, shall not, absent a separate written agreement, create any confidentiality obligation for the receiver of the Feedback. Receiving Party will not give Feedback that is subject to license terms that seek to require any Disclosing Party product, technology, service or documentation incorporating or derived from such Feedback, or any Disclosing Party intellectual property, to be licensed or otherwise shared with any third party. Furthermore, except as otherwise provided herein or in a separate subsequent written agreement between the parties, the receiver of the Feedback shall be free to use, disclose, reproduce, license or otherwise distribute, and exploit the Feedback provided to it as it sees fit, entirely without obligation or restriction of any kind on account of intellectual property rights or otherwise.








34                  MICROSOFT CONFIDENTIAL


EXHIBIT 6

[***] [EXHIBIT 6 HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.]

35                  MICROSOFT CONFIDENTIAL



EXHIBIT 7

USER ACTIVITY DATA; TECHNICAL COOPERATION;
AND ADDITIONAL XBOX LIVE TERMS

[***].
1. [***]
2.    Rights to Usage Data and Analytics
2.1    [***] . The sharing of this data between Microsoft and EA will be subject to the parties’ mutual agreement on the type, scope and extent of data to be shared, and will conform to the respective End User privacy policies, the terms for Xbox LIVE and EA Services, and applicable laws [***].
    2.2     Usage Data . EA acknowledges and accepts that the operation of the Xbox LIVE service and EA Services requires that both parties collect and store End User usage data [***]. Each party shall make all requisite disclosures and obtain consent as necessary to engage in [***] collection of Aggregate Usage Data and Personal Data in compliance with all applicable law and as mutually agreed to by the parties. [***].

2.2.1    EA shall have the right to require End Users to register with EA for the use of the EA Services prior to accessing the EA Services. [***].

2.2.2    In using any Personal Data and all other data that EA receives about End Users via Durango and Xbox LIVE (including the data described in Section 2.1 above of this Exhibit), EA shall comply with applicable law, and EA’s privacy policy. [***].

2.2.3    [***].

3 .    “ EA Services ” means services (other than the Xbox LIVE Base Service, defined in Section 4 below) made available to End Users by EA through Xbox LIVE [***].

3.1    [***] EA shall adhere to the following:

(i)    EA shall monitor the operation and performance of the EA Services, respond to technical and End User inquiries, and conduct similar business hours and practices in a manner consistent with industry standards.

(ii)    The parties shall mutually agree on communication processes for sharing information with and updating each other’s technical teams. EA shall make commercially reasonable efforts to adhere to a mutually agreed set of technical processes, policies, rules, and procedures for sharing schedules, screen shots, updates, schedule information, and other relevant technical information. EA shall promptly notify Microsoft if it discovers a technical problem with Xbox LIVE. EA shall provide Microsoft with its weekly or monthly service (network, server, content, data) maintenance schedule (i.e., windows kept open for periodic maintenance). The parties shall mutually agree upon detailed procedures for notification, escalation and reporting of scheduled and unscheduled maintenance, and problems that might occur with the EA Services, and EA shall adhere to such procedures.
    
(iii)    [***].
(iv)    [***].
3.2    [***].


36                  MICROSOFT CONFIDENTIAL


4.    Xbox LIVE

4.1    “ Base Service ” shall mean a base level of Xbox LIVE services available to End Users consisting of online multiplayer gameplay for a fee payable to Microsoft or its affiliates, as designated from time to time by Microsoft or its affiliates. The Base Service and the terms and conditions for Base Online Features are further defined in the Durango Publisher Guide. “ Base Online Game Features ” shall mean a Software Title’s Online Game Features that are available to End Users as part of the Base Service.

4.2    Microsoft shall operate Xbox LIVE in a manner that meets or exceeds [***] those specific requirements set forth below in this section. Microsoft shall comply with all applicable laws and regulations in the hosting and operation of Xbox LIVE. Microsoft shall be solely responsible for providing customer support to End Users with respect to Xbox LIVE (other than customer support relating to Software Titles, Online Features or EA Service(s)). Microsoft shall adhere to the following requirements:
        (i)    Microsoft shall monitor the operation and performance of Xbox LIVE, respond to technical and End User inquiries, and conduct similar business hours and practices in a manner consistent with industry standards.

         (ii)    [***]. Microsoft shall make [***] efforts to adhere to a mutually agreed set of technical processes, policies, rules, and procedures for sharing schedules, screen shots, updates, schedule information, and other relevant technical information. Microsoft shall promptly notify EA if it discovers a technical problem with the EA Services. Microsoft shall provide EA with its [***] maintenance schedule (i.e., windows kept open for periodic maintenance). The parties shall mutually agree upon detailed procedures for notification, escalation and reporting of scheduled and unscheduled maintenance, and problems that might occur with Xbox LIVE, and Microsoft shall adhere to such procedures.

(iii)    [***].
(iv)    [***].

4.3     End User Terms of Use . Use of Xbox LIVE by End Users shall be subject to Xbox LIVE Terms of Use, which may be amended by Microsoft from time to time (“Terms of Use”). [***].

5. Customer Support

As between Microsoft and EA, EA shall be solely responsible for providing customer support to End Users with respect to and for the EA Service(s). EA shall provide all End Users who use any EA Service with appropriate contact information (including EA’s street address and telephone number, and the applicable individual/group responsible for customer support), and shall also provide all such information to Microsoft for posting on http://www.xbox.com (or appropriate website). Customer support shall at all times conform to the Customer Service Requirements with respect to which Microsoft notifies EA in writing [***]. Except as expressly set forth herein, EA acknowledges and accepts that Microsoft shall have no support responsibilities whatsoever to End Users with respect to the Online Game Features or EA Service(s), and Microsoft acknowledges that EA has no responsibility whatsoever to End Users with respect to Xbox LIVE features, functionality or services other than the Online Features and EA Service(s). The parties shall reasonably cooperate with respect to the re-direction of customer service calls to each other, as appropriate, depending on the nature of the issue raised by the End User.

6.    Additional Xbox LIVE Terms
6.1      Token Promotions. Microsoft intends to make available on Durango and Xbox LIVE some method for content to be delivered to End Users by EA for promotional purposes. This may be in the form of “tokens” as available on Xbox 360 or by other means. The terms and process for these “tokens” or alternative method will be defined in the Durango Publisher Guide.
6.2     User Generated Content. Microsoft will develop a program for User Generated Content to be made available on Durango and Xbox LIVE. This may be in a similar form as on Xbox 360. The terms and process for User Generated Content will be defined in the Durango Publisher Guide.

37                  MICROSOFT CONFIDENTIAL



6.3    [***].


38                  MICROSOFT CONFIDENTIAL


SUBSIDIARIES OF THE REGISTRANT
 
Exhibit 21.01
 
 
 
 
 
Name in
 
 
 
Jurisdiction
Corporate Articles
 
Doing Business As
 
of Incorporation
 
 
 
 
 
Electronic Arts Belgium
 
Electronic Arts Belgium
 
Belgium
EA Bermuda Partnership
 
EA Bermuda Partnership
 
Bermuda
EA General Partner Limited
 
EA General Partner Limited
 
Bermuda
EA International (Studio and Publishing) Ltd.
 
EA International (Studio and Publishing) Ltd.
 
Bermuda
Electronic Arts Limitada
 
Electronic Arts Ltda.
 
Brazil
Pandemic Studios LLC
 
Pandemic Studios LLC
 
California
KlickNation LLC
 
KlickNation LLC
 
California
KlickNation New LLC
 
KlickNation New LLC
 
California
BioWare ULC
 
BioWare ULC
 
Canada
Electronic Arts (Canada), Inc.
 
Electronic Arts (Canada), Inc.
 
Canada
The Capture Lab Inc
 
The Capture Lab Inc
 
Canada
EA Mobile (Canada) ULC
 
EA Mobile (Canada) ULC
 
Canada
Beijing Playfish Game Technology Limited
 
Beijing Playfish Game Technology Limited
 
China
Electronic Arts Computer Software (Shanghai) Co., Ltd.
 
Electronic Arts Computer Software (Shanghai) Co., Ltd.
 
China
Shanghai PopCap Software Co. Ltd.
 
Shanghai PopCap Software Co. Ltd.
 
China
Firemint Proprietary Limited
 
Firemint Proprietary Limited
 
Commonwealth of Australia
EA Sports Proprietary Limited
 
EA Sports Proprietary Limited
 
Commonwealth of Australia
Electronic Arts Proprietary Limited
 
Electronic Arts Proprietary Limited
 
Commonwealth of Australia
Electronic Arts Czech Republic s.r.o.
 
EA Czech Republic
 
Czech Republic
EA Delaware LLC
 
EA Delaware LLC
 
Delaware
EA Entertainment, Inc.
 
EA Entertainment, Inc.
 
Delaware
EA Mobile (Canada Holdings) Inc.
 
EA Mobile (Canada Holdings) Inc.
 
Delaware
Electronic Arts Productions Inc.
 
Crocodile Productions
 
Delaware
Electronic Arts Redwood LLC
 
Electronic Arts Redwood LLC
 
Delaware
Electronic Arts Transfer Company
 
Electronic Arts Transfer Company
 
Delaware
Electronic Arts US Co.
 
Electronic Arts US Co.
 
Delaware
Electronic Arts World II LLC
 
Electronic Arts World II LLC
 
Delaware
Electronic Arts World LLC
 
Electronic Arts World LLC
 
Delaware
Playfish, Inc.
 
Playfish, Inc.
 
Delaware
MPP Holdings, Inc.
 
MPP Holdings, Inc.
 
Delaware
MPP Studios, Inc.
 
MPP Studios, Inc.
 
Delaware
PopCap Games, LLC
 
PopCap Games, LLC
 
Delaware
Electronic Arts Denmark A.p.S.
 
EA Denmark
 
Denmark
Electronic Arts Finland OY
 
Electronic Arts Finland OY
 
Finland
Electronic Arts - Tiburon, A Florida Corporation
 
Tiburon
 
Florida
Electronic Arts Publishing SARL
 
Electronic Arts Publishing SARL
 
France
Electronic Arts GmbH
 
Electronic Arts GmbH
 
Germany
Electronic Arts Greece Commercial Limited Liability Company
 
EA Greece
 
Greece
Electronic Arts HK Limited
 
Electronic Arts HK Limited
 
Hong Kong
PopCap Holdings (Hong Kong) Limited
 
PopCap Holdings (Hong Kong) Limited
 
Hong Kong
Electronic Arts Games (India) Private Limited
 
Electronic Arts Games (India) Private Limited
 
India
Electronic Arts Ireland Limited
 
Electronic Arts Ireland Limited
 
Ireland
PopCap Games International Limited
 
PopCap Games International Limited
 
Ireland
Electronic Arts Italia s.r.l.
 
EA Italy
 
Italy
Electronic Arts K.K.
 
Electronic Arts K.K.
 
Japan
Electronic Arts Korea LLC
 
Electronic Arts Korea LLC
 
South Korea
Electronic Arts (India Holdings) Inc.
 
Electronic Arts (India Holdings) Inc.
 
Mauritius





Name in
 
 
 
Jurisdiction
Corporate Articles
 
Doing Business As
 
of Incorporation
Electronic Arts Mauritius Limited
 
Electronic Arts Mauritius Limited
 
Mauritius
EA México S. de R.L. de C.V.
 
EA México S. de R.L. de C.V.
 
Mexico
Mobile Post Production, Inc.
 
Mobile Post Production, Inc.
 
Nevada
Electronic Arts New Zealand
 
Electronic Arts New Zealand
 
New Zealand
Electronic Arts Norway AS
 
Electronic Arts Norway
 
Norway
Electronic Arts Polska Sp. Z.O.O.
 
EA Poland
 
Poland
S.C. Electronic Arts Romania SRL
 
S.C. Electronic Arts Romania SRL
 
Romania
Electronic Arts OOO
 
Electronic Arts OOO
 
Russia
MPP RUS Limited Company
 
MPP RUS Limited Company
 
Russia
Electronic Arts Asia Pacific Pte Ltd
 
Electronic Arts Asia Pacific Pte Ltd
 
Singapore
EA Software South Africa (Proprietary) Ltd.
 
EA Software South Africa (Proprietary) Ltd.
 
South Africa
Electronic Arts Software S.L.
 
Electronic Arts Software S.L.
 
Spain
Digital Illusions CE AB
 
Digital Illusion CE AB
 
Sweden
EA Digital Illusions CE AB
 
EA Digital Illusions CE AB
 
Sweden
Electronic Arts Sweden AB
 
EA Sweden
 
Sweden
ESN Social Software AB
 
ESN Social Software AB
 
Sweden
JOOSEO Capital Operations Uppsala
 
JOOSEO Capital Operations Uppsala
 
Sweden
ABC Software GmbH
 
ABC Software GmbH
 
Switzerland
EA Swiss Sarl
 
EA Swiss Sarl
 
Switzerland
Bioware Austin LLC
 
Bioware Austin LLC
 
Texas
Electronic Arts C.V.
 
Electronic Arts C.V.
 
The Netherlands
Electronic Arts Nederland B.V.
 
Electronic Arts B.V.
 
The Netherlands
Playfish Limited
 
Playfish Limited
 
United Kingdom
Chillingo Limited
 
Chillingo Limited
 
United Kingdom
Click Gamer Technologies Limited
 
Click Gamer Technologies Limited
 
United Kingdom
Criterion Software Group Limited
 
Criterion Software Group Limited
 
United Kingdom
Criterion Software International Limited
 
Criterion Software International Limited
 
United Kingdom
Criterion Software Limited
 
Criterion Software Limited
 
United Kingdom
Electronic Arts (UK) Limited
 
Electronic Arts (UK) Limited
 
United Kingdom
Electronic Arts Limited
 
Electronic Arts Limited
 
United Kingdom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors
Electronic Arts Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333‑39432, 333‑44222, 333‑67430, 333‑99525, 333‑107710, 333‑117990, 333‑127156, 333‑131933, 333‑138532, 333‑145182, 333‑148596, 333‑152757, 333‑161229, 333‑168680, 333‑176181, 333‑183077, and 333‑190355) and the registration statement on Form S-3 (No. 333-177824) of Electronic Arts Inc. (the Company) of our reports dated May 21, 2014, with respect to the consolidated balance sheets of Electronic Arts Inc. as of March 29, 2014 and March 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended March 29, 2014, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of March 29, 2014, which reports appear in the March 29, 2014 annual report on Form 10‑K of the Company.
/s/ KPMG LLP
Santa Clara, California
May 21, 2014





Exhibit 31.1
ELECTRONIC ARTS INC.
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
I, Andrew Wilson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Electronic Arts Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

Dated: May 21, 2014
By:
 
/s/ Andrew Wilson
 
 
 
Andrew Wilson
 
 
 
Chief Executive Officer







Exhibit 31.2
ELECTRONIC ARTS INC.
Certification of Executive Vice President, Chief Financial Officer
Pursuant to Rule 13a-14(a) of the Exchange Act
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Blake Jorgensen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Electronic Arts Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

Dated: May 21, 2014
By:
 
/s/ Blake Jorgensen
 
 
 
Blake Jorgensen
 
 
 
Executive Vice President,
 
 
 
Chief Financial Officer







Exhibit 32.1
ELECTRONIC ARTS INC.
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Electronic Arts Inc. on Form 10-K for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew Wilson, Chief Executive Officer of Electronic Arts Inc., certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that to my knowledge:  
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.
 

/s/ Andrew Wilson
Andrew Wilson
Chief Executive Officer
Electronic Arts Inc.
 
May 21, 2014

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Electronic Arts and will be retained by Electronic Arts and furnished to the Securities and Exchange Commission or its staff upon request.






Exhibit 32.2
ELECTRONIC ARTS INC.
Certification of Executive Vice President, Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Electronic Arts Inc. on Form 10-K for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Blake Jorgensen, Executive Vice President and Chief Financial Officer of Electronic Arts Inc., certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.
 

/s/ Blake Jorgensen
Blake Jorgensen
Executive Vice President,
Chief Financial Officer
Electronic Arts Inc.
 
May 21, 2014

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Electronic Arts and will be retained by Electronic Arts and furnished to the Securities and Exchange Commission or its staff upon request.