EA 09.30.2012-10Q DOC
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2012
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
Redwood City, California
94065
(Address of principal executive offices)
(Zip Code)
(650) 628-1500
(Registrant’s telephone number, including area code)
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 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
(Do not check if a smaller reporting company)

¨
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
As of November 1, 2012, there were 305,135,363 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

1
Table of Contents

ELECTRONIC ARTS INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2012
Table of Contents
 
 
 
Page
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 6.

2
Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements (Unaudited)
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
(In millions, except par value data)
September 30,
2012
 
March 31,
2012 (a)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
871

 
$
1,293

Short-term investments
351

 
437

Marketable equity securities
93

 
119

Receivables, net of allowances of $182 and $252, respectively
643

 
366

Inventories
71

 
59

Deferred income taxes, net
64

 
67

Other current assets
239

 
268

Total current assets
2,332

 
2,609

Property and equipment, net
561

 
568

Goodwill
1,723

 
1,718

Acquisition-related intangibles, net
334

 
369

Deferred income taxes, net
49

 
42

Other assets
192

 
185

TOTAL ASSETS
$
5,191

 
$
5,491

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
219

 
$
215

Accrued and other current liabilities
874

 
857

Deferred net revenue (packaged goods and digital content)
953

 
1,048

Total current liabilities
2,046

 
2,120

0.75% convertible senior notes due 2016, net
549

 
539

Income tax obligations
209

 
189

Deferred income taxes, net
2

 
8

Other liabilities
231

 
177

Total liabilities
3,037

 
3,033

Commitments and contingencies (See Note 12)

 

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

 
—

Common stock, $0.01 par value. 1,000 shares authorized; 312 and 320 shares issued and outstanding, respectively
3

 
3

Paid-in capital
2,259

 
2,359

Accumulated deficit
(257
)
 
(77
)
Accumulated other comprehensive income
149

 
173

Total stockholders’ equity
2,154

 
2,458

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
5,191

 
$
5,491

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
 
(a) Derived from audited consolidated financial statements.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
Three Months Ended
September 30,
 
Six Months Ended
September 30,
(In millions, except per share data)
2012
 
2011
 
2012
 
2011
Net revenue:
 
 
 
 
 
 
 
Product
$
481

 
$
592

 
$
1,183

 
$
1,486

Service and other
230

 
123

 
483

 
228

Total net revenue
711

 
715

 
$
1,666

 
$
1,714

Cost of revenue:
 
 
 
 
 
 
 
Product
371

 
399

 
503

 
611

Service and other
74

 
33

 
147

 
61

Total cost of revenue
445

 
432

 
650

 
672

Gross profit
266

 
283

 
1,016

 
1,042

Operating expenses:
 
 
 
 
 
 
 
Research and development
314

 
318

 
604

 
603

Marketing and sales
212

 
222

 
357

 
362

General and administrative
99

 
88

 
185

 
162

Acquisition-related contingent consideration
—

 
17

 
(20
)
 
19

Amortization of intangibles
7

 
13

 
14

 
26

Restructuring and other charges
(2
)
 
(1
)
 
25

 
17

Total operating expenses
630

 
657

 
1,165

 
1,189

Operating loss
(364
)
 
(374
)
 
(149
)
 
(147
)
Interest and other expense, net
(4
)
 
(6
)
 
(9
)
 
(3
)
Loss before provision for (benefit from) income taxes
(368
)
 
(380
)
 
(158
)
 
(150
)
Provision for (benefit from) income taxes
13

 
(40
)
 
22

 
(31
)
Net loss
$
(381
)
 
$
(340
)
 
$
(180
)
 
$
(119
)
Net loss per share:
 
 
 
 
 
 
 
Basic and Diluted
$
(1.21
)
 
$
(1.03
)
 
$
(0.57
)
 
$
(0.36
)
Number of shares used in computation:
 
 
 
 
 
 
 
Basic and Diluted
316

 
331

 
317

 
331

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).


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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)
Three Months Ended
September 30,
 
Six Months Ended
September 30,
(In millions)
2012
 
2011
 
2012
 
2011
Net loss
$
(381
)
 
$
(340
)
 
$
(180
)
 
$
(119
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in unrealized gains on available-for-sale securities
17

 
42

 
(25
)
 
55

Reclassification adjustment for realized gains on available-for-sale securities
—

 
(1
)
 
—

 
(1
)
Change in unrealized losses on derivative instruments
(3
)
 
(1
)
 
(2
)
 
(1
)
Reclassification adjustment for realized losses on derivative instruments
1

 
—

 
1

 
2

Foreign currency translation adjustments
19

 
(22
)
 
2

 
(16
)
Total other comprehensive income (loss), net of tax
34

 
18

 
(24
)
 
39

Total comprehensive loss
$
(347
)
 
$
(322
)
 
$
(204
)
 
$
(80
)

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).


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ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
(In millions)
2012
 
2011
OPERATING ACTIVITIES
 
 
 
Net loss
$
(180
)
 
$
(119
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation, amortization and accretion, net
112

 
94

Stock-based compensation
83

 
81

Acquisition-related contingent consideration
(20
)
 
19

Non-cash restructuring charges
7

 
—

Net gains on investments and sale of property and equipment
—

 
(12
)
Change in assets and liabilities:
 
 
 
Receivables, net
(274
)
 
(215
)
Inventories
(13
)
 
(11
)
Other assets
—

 
(63
)
Accounts payable
9

 
(57
)
Accrued and other liabilities
109

 
2

Deferred income taxes, net
(10
)
 
(48
)
Deferred net revenue (packaged goods and digital content)
(95
)
 
(156
)
Net cash used in operating activities
(272
)
 
(485
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(56
)
 
(84
)
Proceeds from sale of property and equipment
—

 
26

Proceeds from maturities and sales of short-term investments
280

 
319

Purchase of short-term investments
(197
)
 
(179
)
Acquisition-related restricted cash
25

 
—

Acquisition of subsidiaries, net of cash acquired
(10
)
 
(657
)
Net cash provided by (used in) investing activities
42

 
(575
)
FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of common stock
18

 
35

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
—

 
3

Repurchase and retirement of common stock
(179
)
 
(189
)
Acquisition-related contingent consideration payment
(26
)
 
—

Net cash provided by (used in) financing activities
(189
)
 
424

Effect of foreign exchange on cash and cash equivalents
(3
)
 
(13
)
Decrease in cash and cash equivalents
(422
)
 
(649
)
Beginning cash and cash equivalents
1,293

 
1,579

Ending cash and cash equivalents
$
871

 
$
930

Supplemental cash flow information:
 
 
 
Cash paid (refunded) during the period for income taxes, net
$
17

 
$
(9
)
Cash paid during the period for interest
$
2

 
$
—

Non-cash investing activities:
 
 
 
Change in unrealized gains on available-for-sale securities, net of taxes
$
(25
)
 
$
55

Equity issued in connection with acquisition
$
—

 
$
87

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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 the Sony PLAYSTATION 3, Microsoft Xbox 360, and Nintendo Wii), personal computers, mobile devices (such as the Apple iPhone and Google Android compatible phones), tablets and electronic readers (such as the Apple iPad and Amazon Kindle), and the Internet. Our ability to publish games 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 generated substantial growth in new business models and alternative revenue streams (such as subscription, micro-transactions, and advertising) based on the continued expansion of our online and wireless platform. Some of our games are based on our own wholly-owned intellectual property (e.g., Battlefield, Mass Effect, Need for Speed, The Sims, Bejeweled, and Plants v. Zombies), and some of our games are based on content that we license from others (e.g., FIFA, Madden NFL, and Star Wars: The Old Republic). Our goal is to turn our core 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 and Play4Free.
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 ending or ended, as the case may be, March 31, 2013 and 2012 contain 52 weeks each, and ends or ended, as the case may be, on March 30, 2013 and March 31, 2012, respectively. Our results of operations for the three and six months ended September 30, 2012 and 2011 contained 13 and 26 weeks each, respectively, and ended on September 29, 2012 and October 1, 2011, respectively. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end.
The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals unless otherwise indicated) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012, as filed with the United States Securities and Exchange Commission (“SEC”) on May 25, 2012.

(2) FAIR VALUE MEASUREMENTS
Fair value is 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.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of September 30, 2012 and March 31, 2012, 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
 
  
 
 
 
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
As of
September 30,
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet Classification
Assets
 
 
 
 
 
 
 
 
 
Money market funds
$
200

 
$
200

 
$
—

 
$
—

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
180

 
—

 
180

 
—

 
Short-term investments
U.S. Treasury securities
95

 
95

 
—

 
—

 
Short-term investments
U.S. agency securities
74

 
—

 
74

 
—

 
Short-term investments and cash equivalents
Marketable equity securities
93

 
93

 
—

 
—

 
Marketable equity securities
Commercial paper
5

 
—

 
5

 
—

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

 
11

 
—

 
—

 
Other assets
Foreign currency derivatives
1

 
—

 
1

 
—

 
Other current assets
Total assets at fair value
$
659

 
$
399

 
$
260

 
$
—

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
88

 
$
—

 
$
—

 
$
88

 
Accrued and other current liabilities and other liabilities
Total liabilities at fair value
$
88

 
$
—

 
$
—

 
$
88

 
 

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

 
 
Change in fair value (c)
 
 
 
 
 
 
(20
)
 
 
Payments (d)
 
 
 
 
 
 
(4
)
 
 
Balance as of September 30, 2012
 
 
 
 
 
 
$
88

 
 

 

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Fair Value Measurements at Reporting Date Using
 
  
 
 
 
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
As of
March 31,
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet Classification
Assets
 
 
 
 
 
 
 
 
 
Money market funds
$
490

 
$
490

 
$
—

 
$
—

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
170

 
170

 
—

 
—

 
Short-term investments and cash equivalents
Corporate bonds
150

 
—

 
150

 
—

 
Short-term investments
Marketable equity securities
119

 
119

 
—

 
—

 
Marketable equity securities
U.S. agency securities
116

 
—

 
116

 
—

 
Short-term investments
Commercial paper
16

 
—

 
16

 
—

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

 
11

 
—

 
—

 
Other assets
Foreign currency derivatives
2

 
—

 
2

 
—

 
Other current assets
Total assets at fair value
$
1,074

 
$
790

 
$
284

 
$
—

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
112

 
$
—

 
$
—

 
$
112

 
Accrued and other current liabilities and other liabilities
Total liabilities at fair value
$
112

 
$
—

 
$
—

 
$
112

 
 

 
 
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
 
 
 
 
 
 
 
 
Contingent
Consideration
 
 
Balance as of March 31, 2011
 
 
 
 
 
 
$
51

 
 
Additions
 
 
 
 
 
 
100

 
 
Change in fair value (c)
 
 
 
 
 
 
11

 
 
Payment (d)
 
 
 
 
 
 
(25
)
 
 
Reclassification (e)
 
 
 
 
 
 
(25
)
 
 
Balance as of March 31, 2012
 
 
 
 
 
 
$
112

 
 

(a)
The deferred compensation plan assets consist of various mutual funds.

(b)
The contingent consideration as of September 30, 2012 and March 31, 2012 represents the estimated fair value of the additional variable cash consideration payable primarily in connection with our acquisitions of PopCap Games, Inc. (“PopCap”), KlickNation Corporation (“KlickNation”), and Chillingo Limited (“Chillingo”) that is 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 a market participant’s view of the risk associated with the obligation. The weighted average of the discount rates used during the six months ended September 30, 2012 was 13 percent. The weighted average of the discount rates used during fiscal year 2012, was 12 percent. The significant unobservable input used in the fair value measurement of the acquisition-related contingent consideration payable are forecasted earnings. Significant changes in forecasted earnings would result in a significantly higher or lower fair value measurement. At September 30, 2012 and March 31, 2012, the fair market value of acquisition-related contingent consideration totaled $88 million and $112 million, respectively, compared to a maximum potential payout of $568 million and $572 million, respectively.

(c)
The change in fair value is reported as acquisition-related contingent consideration in our Condensed Consolidated Statements of Operations.


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(d)
During the six months ended September 30, 2012, we made a payment of $4 million to settle certain performance milestones achieved in connection with one of our acquisitions. During the fourth quarter of fiscal year 2012, we made a payment of $25 million to settle certain performance milestones achieved through December 31, 2011 in connection with our acquisition of Playfish Limited (“Playfish”).

(e)
During the fourth quarter of fiscal year 2012, we reclassified $25 million of contingent consideration in connection with our acquisition of Playfish to other current liabilities in our Condensed Consolidated Balance Sheet as the contingency was settled. This amount was paid during the second quarter of fiscal 2013.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three and six months ended September 30, 2012 and 2011, there were no material impairment charges for assets and liabilities measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.

(3) FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
As of September 30, 2012 and March 31, 2012, our cash and cash equivalents were $871 million and $1,293 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 September 30, 2012 and March 31, 2012 (in millions): 
 
As of September 30, 2012
 
As of March 31, 2012
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Gains
 
Losses
 
Gains
 
Losses
 
Corporate bonds
$
179

 
$
1

 
$
—

 
$
180

 
$
149

 
$
1

 
$
—

 
$
150

U.S. Treasury securities
95

 
—

 
—

 
95

 
166

 
—

 
—

 
166

U.S. agency securities
73

 
—

 
—

 
73

 
116

 
—

 
—

 
116

Commercial paper
3

 
—

 
—

 
3

 
5

 
—

 
—

 
5

Short-term investments
$
350

 
$
1

 
$
—

 
$
351

 
$
436

 
$
1

 
$
—

 
$
437

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, the severity of the impairment, the reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the investees, our intent to sell the investments, any contractual terms impacting the prepayment or settlement process, as well as if we would be required to sell an investment due to liquidity or contractual reasons before its anticipated recovery. Based on our review, we did not consider these investments to be other-than-temporarily impaired as of September 30, 2012 and March 31, 2012.
The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of September 30, 2012 and March 31, 2012 (in millions): 
 
As of September 30, 2012
 
As of March 31, 2012
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Short-term investments
 
 
 
 
 
 
 
Due in 1 year or less
$
132

 
$
132

 
$
207

 
$
207

Due in 1-2 years
112

 
112

 
123

 
124

Due in 2-3 years
106

 
107

 
106

 
106

Short-term investments
$
350

 
$
351

 
$
436

 
$
437



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Marketable Equity Securities
Our investments in marketable equity securities consist of investments in common stock of publicly-traded companies and are accounted for as available-for-sale securities and are recorded at fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive income in stockholders’ equity, net of tax, until either the security is sold or we determine that the decline in the fair value of a security to a level below its adjusted cost basis is other-than-temporary. We evaluate these investments for impairment quarterly. If we conclude that an investment is other-than-temporarily impaired, we recognize an impairment charge at that time in our Condensed Consolidated Statements of Operations.
Marketable equity securities consisted of the following as of September 30, 2012 and March 31, 2012 (in millions): 
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
As of September 30, 2012
$
32

 
$
61

 
$
—

 
$
93

As of March 31, 2012
$
32

 
$
87

 
$
—

 
$
119


We did not recognize any impairment charges during the three and six months ended September 30, 2012 and 2011 on our marketable equity securities. We did not sell any of our marketable securities during the three and six months ended September 30, 2012 and 2011.

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 September 30, 2012 and March 31, 2012 (in millions): 
 
As of September 30, 2012
 
As of March 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
0.75% Convertible Senior Notes due 2016
$
549

 
$
580

 
$
539

 
$
584

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 11 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 Condensed 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 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. 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 generally have a contractual term of approximately three months or less and are transacted near month-end. At each quarter-end, the fair value of the foreign currency forward contracts generally is not significant. We do not use foreign currency option or foreign currency forward contracts for speculative or trading purposes.
Cash Flow Hedging Activities
Our foreign currency option 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 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

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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 Condensed 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 expense, net, in our Condensed 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 expense, net, in our Condensed Consolidated Statements of Operations. As of September 30, 2012, we had foreign currency option contracts to purchase approximately $53 million in foreign currency and to sell approximately $94 million of foreign currency. All of the foreign currency option contracts outstanding as of September 30, 2012 will mature in the next 12 months. As of March 31, 2012, we had foreign currency option contracts to purchase approximately $74 million in foreign currency and to sell approximately $78 million of foreign currency. As of September 30, 2012, the fair value of these outstanding foreign currency option contracts was immaterial and are included in other current assets. As of March 31, 2012, these foreign currency option contracts outstanding had a total fair value of $2 million and are included in other current assets.
The effective and ineffective portions of the gains and losses from our foreign currency option contracts in our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2012 and 2011 were immaterial.
Balance Sheet Hedging Activities
Our foreign currency forward contracts are not designated as hedging instruments, and 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 Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other expense, net, in our Condensed 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 expense, net, in our Condensed Consolidated Statements of Operations. As of September 30, 2012, we had foreign currency forward contracts to purchase and sell approximately $352 million in foreign currencies. Of this amount, $343 million represented contracts to sell foreign currencies in exchange for U.S. dollars, and $9 million to sell foreign currency in exchange for British pounds sterling. As of March 31, 2012, we had foreign currency forward contracts to purchase and sell approximately $242 million in foreign currencies. Of this amount, $197 million represented contracts to sell foreign currencies in exchange for U.S. dollars, $37 million to purchase foreign currency in exchange for U.S. dollars, and $8 million to sell foreign currency in exchange for British pounds sterling. As of September 30, 2012 and March 31, 2012, the fair value of our foreign currency forward contracts was immaterial and is included in accrued and other liabilities.

The effect of foreign currency forward contracts in our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2012 and 2011, was as follows (in millions):
 
 
 
Amount of Gain (Loss) Recognized in Income from Derivatives
  
Location of Gain (Loss)
Recognized in Income from
Derivatives
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
Foreign currency forward contracts not designated as hedging instruments
Interest and other 
expense, net
 
$
(6
)
 
$
16

 
$
1

 
$
14



(5) BUSINESS COMBINATIONS

During the three and six months ended September 30, 2012, we completed one acquisition that did not have a significant impact on our Condensed Consolidated Financial Statements.



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(6) GOODWILL AND ACQUISITION-RELATED INTANGIBLES, NET
The changes in the carrying amount of goodwill are as follows (in millions): 
 
EA Labels Segment
As of March 31, 2012
 
Goodwill
$
2,086

Accumulated impairment
(368
)
Total
1,718

Goodwill acquired
3

Effects of foreign currency translation
2

As of September 30, 2012
 
Goodwill
2,091

Accumulated impairment
(368
)
Total
$
1,723

Amortization of intangibles for the three and six months ended September 30, 2012 and 2011, are classified in the Condensed Consolidated Statement of Operations as follows (in millions):
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Cost of product
$
8

 
$
6

 
$
17

 
$
8

Cost of service and other
6

 
2

 
12

 
3

Operating expenses
7

 
13

 
14

 
26

Total
$
21

 
$
21

 
$
43

 
$
37

Acquisition-related intangibles consisted of the following (in millions): 
 
As of September 30, 2012
 
As of March 31, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Acquisition-
Related
Intangibles, Net
Developed and core technology
$
525

 
$
(257
)
 
$
268

 
$
518

 
$
(229
)
 
$
289

Trade names and trademarks
131

 
(91
)
 
40

 
131

 
(84
)
 
47

Registered user base and other intangibles
90

 
(83
)
 
7

 
90

 
(80
)
 
10

Carrier contracts and related
85

 
(70
)
 
15

 
85

 
(67
)
 
18

In-process research and development
4

 
—

 
4

 
5

 
—

 
5

Total
$
835

 
$
(501
)
 
$
334

 
$
829

 
$
(460
)
 
$
369

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 two to fourteen years. As of September 30, 2012 and March 31, 2012, the weighted-average remaining useful life for acquisition-related intangible assets was approximately 5.3 years and 5.7 years, respectively.
As of September 30, 2012, future amortization of acquisition-related intangibles that will be recorded in cost of revenue and operating expenses is estimated as follows (in millions): 
Fiscal Year Ending March 31,
 
2013 (remaining six months)
$
38

2014
68

2015
63

2016
52

2017
43

Thereafter
70

Total
$
334


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(7) RESTRUCTURING AND OTHER CHARGES
Restructuring and other restructuring plan-related information as of September 30, 2012 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
11

 
2

 
9

 
—

 
3

 
—

 
—

 
25

Charges settled in cash
(9
)
 
—

 
(1
)
 
—

 
(3
)
 
(1
)
 
—

 
(14
)
Changes settled in non-cash
—

 
—

 
(7
)
 
—

 
—

 
—

 
—

 
(7
)
Balances as of September 30, 2012
$
2

 
$
2

 
$
1

 
$
—

 
$
75

 
$
2

 
$
—

 
$
82


Fiscal 2013 Restructuring

On May 7, 2012, 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. The majority of these actions were completed by September 30, 2012.

Since the inception of the fiscal 2013 restructuring plan through September 30, 2012, we have incurred charges of $22 million, consisting of (1) $11 million in employee-related expenses, (2) $9 million related to license termination costs, and (3) $2 million related to the closure of certain of our facilities. We anticipate incurring approximately $3 million of additional facility closure costs related to this plan during the three months ended December 31, 2012. Substantially all of these costs will be settled in cash by March 31, 2013, with the exception of approximately $4 million of license and lease termination costs, which will be settled by May 2016.
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 September 30, 2012, we have incurred charges of $171 million, consisting of (1) $128 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 $75 million restructuring accrual as of September 30, 2012 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 $11 million for the accretion of interest expense related to our amended licensing and developer agreements, of which $3 million will be recognized during the remainder of fiscal year 2013. This interest expense will be included in restructuring and other charges in our Condensed Consolidated Statement of Operations.
Overall, including $171 million in charges incurred through September 30, 2012, we expect to incur total cash and non-cash charges between $180 million and $185 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 $170 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 $2 million restructuring accrual as of September 30, 2012 related to our other restructuring plans is expected to be settled by September 2016.


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(8) 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 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 the three months ended September 30, 2012, we recognized losses of $9 million on previously unrecognized royalty-based commitments. During the six months ended September 30, 2012, we recognized losses of $18 million on previously unrecognized royalty-based commitments, inclusive of $9 million in license termination costs related to our fiscal 2013 restructuring. During the three and six months ended September 30, 2011, we recognized a reduction of accrued expenses of $1 million and additional losses of $14 million, respectively, representing adjustments to our fiscal 2011 restructuring. The losses related to restructuring and other plan-related activities are presented in Note 7.
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
September 30,
2012
 
As of
March 31,
2012
Other current assets
$
66

 
$
85

Other assets
102

 
102

Royalty-related assets
$
168

 
$
187

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
September 30,
2012
 
As of
March 31,
2012
Accrued and other current liabilities
$
149

 
$
121

Other liabilities
68

 
52

Royalty-related liabilities
$
217

 
$
173


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As of September 30, 2012, $1 million of restructuring accruals related to the fiscal 2013 restructuring plan, and $75 million of restructuring accruals related to the fiscal 2011 restructuring plan are included in royalty-related liabilities in the table above. See Note 7 for details of restructuring and other restructuring plan-related activities and Note 9 for the details of our accrued and other current liabilities.
In addition, as of September 30, 2012, we were committed to pay approximately $1,168 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 Condensed Consolidated Financial Statements.

(9) BALANCE SHEET DETAILS
Inventories
Inventories as of September 30, 2012 and March 31, 2012 consisted of (in millions): 
 
As of
September 30,
2012
 
As of
March 31,
2012
Raw materials and work in process
$
3

 
$
—

In-transit inventory
2

 
—

Finished goods
66

 
59

Inventories
$
71

 
$
59

Property and Equipment, Net
Property and equipment, net, as of September 30, 2012 and March 31, 2012 consisted of (in millions): 
 
As of
September 30,
2012
 
As of
March 31,
2012
Computer equipment and software
$
637

 
$
575

Buildings
341

 
339

Leasehold improvements
129

 
121

Office equipment, furniture and fixtures
73

 
72

Land
64

 
64

Warehouse equipment and other
10

 
10

Construction in progress
9

 
38

 
1,263

 
1,219

Less: accumulated depreciation
(702
)
 
(651
)
Property and equipment, net
$
561

 
$
568

Depreciation expense associated with property and equipment was $29 million and $57 million for the three and six months ended September 30, 2012, respectively. Depreciation expense associated with property and equipment was $26 million and $51 million for the three and six months ended September 30, 2011, respectively.
Acquisition-Related Restricted Cash Included in Other Current Assets
Included in other current assets on our Condensed Consolidated Balance Sheets was $6 million and $31 million of acquisition-related restricted cash as of September 30, 2012 and March 31, 2012, respectively. As these deposits are restricted in nature, they are excluded from cash and cash equivalents.

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Accrued and Other Current Liabilities
Accrued and other current liabilities as of September 30, 2012 and March 31, 2012 consisted of (in millions): 
 
As of
September 30,
2012
 
As of
March 31,
2012
Other accrued expenses
$
404

 
$
441

Accrued compensation and benefits
169

 
233

Deferred net revenue (other)
175

 
85

Accrued royalties
126

 
98

Accrued and other current liabilities
$
874

 
$
857

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 (Packaged Goods and Digital Content)
Deferred net revenue (packaged goods and digital content) was $953 million and $1,048 million as of September 30, 2012 and March 31, 2012, respectively. Deferred net revenue (packaged goods and digital content) includes the unrecognized revenue from (1) bundled sales of certain online-enabled packaged goods and digital content for which either we do not have VSOE for the online service that we provide in connection with the sale of the software or we have an obligation to provide future incremental unspecified digital content, (2) certain packaged goods sales of MMO role-playing games, and (3) sales of certain incremental content associated with our core subscription services that can only be played online, which are types of “micro-transactions.” We recognize revenue from sales of online-enabled packaged goods and digital content for which (1) we do not have VSOE for the online service that we provided in connection with the sale and (2) we have an obligation to deliver incremental unspecified digital content in the future without an additional fee on a straight-line basis generally over an estimated six-month period beginning in the month after shipment. 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).

(10) INCOME TAXES
We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. In addition, jurisdictions with a projected loss for the year, jurisdictions with a year-to-date loss where no tax benefit can be recognized, and jurisdictions where we are unable to estimate an annual effective tax rate are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
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 carry forwards. 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. 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 or until other significant positive evidence arises that suggest that these benefits are more likely than not to be realized.
During the three months ended September 30, 2011, we recorded approximately $55 million of additional net deferred tax liabilities related to the PopCap acquisition. 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 $55 million.
The provision for income taxes reported for the three and six months ended September 30, 2012 is based on our projected annual effective tax rate for fiscal year 2013, and also includes certain discrete tax benefits recorded during the period. Our effective tax rate for the three and six months ended September 30, 2012 was a tax expense of 3.5 percent and 13.9 percent,

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respectively, as compared to a tax benefit of 10.5 percent and 20.7 percent, respectively, for the same periods of fiscal 2012. The effective tax rate for the three and six months ended September 30, 2012 differs from the statutory rate of 35.0 percent primarily due to the U.S. losses for which no benefit is recognized and non-U.S. losses with a reduced or zero tax benefit. The effective tax rate for the three and six months ended September 30, 2011 differs from the statutory rate of 35.0 percent primarily due to the utilization of U.S. deferred tax assets which were subject to a valuation allowance, a reduction in the U.S. valuation allowance related to the PopCap acquisition, and non-U.S. profits subject to a reduced or zero tax rate. The effective tax rate for the three and six months ended September 30, 2012 differs from the same period in fiscal year 2012 primarily due to greater tax benefits recorded in fiscal year 2012 related to the reduction of the U.S. valuation allowance for the PopCap acquisition.
During the three months ended September 30, 2012, we recorded a net increase of $9 million in gross unrecognized tax benefits. The total gross unrecognized tax benefits as of September 30, 2012 is $283 million, of which approximately $43 million is offset by prior cash deposits to tax authorities for issues pending resolution. 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 September 30, 2012, if recognized, approximately $102 million of the unrecognized tax benefits would affect our effective tax rate and approximately $168 million would result in adjustments to deferred tax assets with corresponding adjustments to the valuation allowance.
During the three months ended September 30, 2012, we recorded a net increase in taxes of $2 million for accrued interest and penalties related to tax positions taken on our tax returns. As of September 30, 2012, the combined amount of accrued interest and penalties related to uncertain tax positions included in income tax obligations on our Condensed Consolidated Balance Sheet was approximately $23 million.
The IRS has completed its examination of our federal income tax returns through fiscal year 2005, and is currently examining our returns for fiscal years 2006 through 2011. We are also currently under income tax examination in Canada for fiscal years 2004 and 2005, and in France for fiscal years 2006 through 2008. We remain subject to income tax examination for several other jurisdictions including Canada for fiscal years after 2003, in France for fiscal years after 2008, in Germany for fiscal years after 2007, in the United Kingdom for fiscal years after 2009, 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 $81 million of the reserves for 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 our income tax provision (benefit) and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.

(11) FINANCING ARRANGEMENTS
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 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 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 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

18
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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 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 Condensed Consolidated Balance Sheet as follows (in millions): 
  
As of
September 30,
2012
 
As of
March 31,
2012
Principal amount of Notes
$
633

 
$
633

Unamortized discount of the liability component
(84
)
 
(94
)
Net carrying amount of Notes
$
549

 
$
539

Equity component, net
$
105

 
$
105

Interest expense recognized related to the Notes are as follows (in millions): 
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Amortization of debt discount
$
5

 
$
4

 
$
10

 
$
4

Amortization of debt issuance costs
1

 
1

 
2

 
1

Coupon interest expense
1

 
1

 
2

 
1

Total interest expense related to Notes
$
7

 
$
6

 
$
14

 
$
6

As of September 30, 2012, the remaining life of the Notes is 3.8 years.
Convertible Note Hedge and Warrants Issuance
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 September 30, 2012, 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 its 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.

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Credit Facility
On August 30, 2012, we entered into a $500 million 3.5 years 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 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 September 30, 2012, 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.   

(12) COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of September 30, 2012, 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: FIFA, FIFPRO Foundation, FAPL (Football Association Premier League Limited), and DFL Deutsche Fußball Liga GmbH (German Soccer League) (professional soccer); National Basketball Association (professional basketball); PGA TOUR, Tiger Woods and Augusta National (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. (most of Hasbro’s toy and game intellectual properties); and LucasArts and Lucas Licensing (Star Wars: The Old Republic). 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.


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The following table summarizes our minimum contractual obligations as of September 30, 2012 (in millions): 
 
 
 
Fiscal Year Ending March 31,
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
(Remaining
 
 
 
 
 
 
 
 
 
 
 
Total
 
six mos.)
 
2014
 
2015
 
2016
 
2017
 
Thereafter
Unrecognized commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Developer/licensor commitments
$
1,168

 
$
66

 
$
166

 
$
164

 
$
207

 
$
58

 
$
507

Marketing commitments
273

 
49

 
53

 
34

 
34

 
20

 
83

Operating leases
196

 
26

 
51

 
42

 
29

 
16

 
32

0.75% Convertible Senior Notes due 2016 interest (a)
19

 
2

 
5

 
5

 
5

 
2

 
—

Other purchase obligations
45

 
15

 
22

 
8

 
—

 
—

 
—

Total unrecognized commitments
1,701

 
158

 
297

 
253

 
275

 
96

 
622

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

 
—

 
—

 
—

 
—

 
633

 
—

Licensing and lease obligations (b)
95

 
21

 
27

 
20

 
5

 
20

 
2

Total recognized commitments
728

 
21

 
27

 
20

 
5

 
653

 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Commitments
$
2,429

 
$
179

 
$
324

 
$
273

 
$
280

 
$
749

 
$
624

(a)
Included in the $19 million coupon interest on the 0.75% Convertible Senior Notes due 2016 is $1 million of accrued interest recognized as of September 30, 2012. 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 $84 million of unamortized discount of the liability component. See Note 11 for additional information regarding our 0.75% Convertible Senior Notes due 2016.
(b)
See Note 7 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 Condensed Consolidated Financial Statements. In addition, the amounts in the table above are presented based on the dates the amounts are contractually due as of September 30, 2012; 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 September 30, 2012, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $261 million, of which we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.
In addition to what is included in the table above as of September 30, 2012, primarily in connection with our PopCap, KlickNation, and Chillingo acquisitions, we may be required to pay an additional $568 million of cash consideration based upon the achievement of certain performance milestones through March 31, 2015. As of September 30, 2012, we have accrued $88 million of contingent consideration on our Condensed Consolidated Balance Sheet representing the estimated fair value of the contingent consideration.
Legal Proceedings
In June 2008, Geoffrey Pecover filed an antitrust class action in the United States District Court for the Northern District of California, alleging that EA obtained an illegal monopoly in a discreet antitrust market that consists of “league-branded football simulation video games” by bidding for, and winning, exclusive licenses with the NFL, Collegiate Licensing Company and Arena Football League. In December 2010, the district court granted the plaintiffs’ request to certify a class of plaintiffs consisting of all consumers who purchased EA’s Madden NFL, NCAA Football or Arena Football video games after 2005. In May 2012, the parties reached a settlement in principle to resolve all claims related to this action. As a result, we recognized a

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$27 million accrual for the fourth quarter of fiscal 2012 associated with the potential settlement. In July 2012, the plaintiffs filed a motion with the court to approve the settlement. On October 5, 2012, the court granted its preliminary approval of the settlement and scheduled a hearing to consider the court’s final approval of the settlement for February 7, 2013.
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 Condensed Consolidated Financial Statements.

(13) STOCK-BASED COMPENSATION
Valuation Assumptions
We are required to 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.
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 2008 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 (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 (of our common stock and of the common stock of our peer companies within the NASDAQ-100 Index), 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 were as follows:
 
Stock Option Grants
 
ESPP
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Risk-free interest rate
0.4 - 1.0%

 
0.4 - 1.2%

 
0.4 - 1.0%

 
0.4 - 1.8%

 
0.1 - 0.2%

 
0.1
%
Expected volatility
40 - 45%

 
41 - 44%

 
40 - 46%

 
40 - 44%

 
41 - 42%

 
39 - 40%

Weighted-average volatility
42
%
 
44
%
 
44
%
 
43
%
 
41
%
 
39
%
Expected term
4.3 years

 
4.4 years

 
4.4 years

 
4.4 years

 
6 - 12 months

 
6 - 12 months

Expected dividends
None

 
None

 
None

 
None

 
None

 
None


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The estimated assumptions used in the Monte-Carlo simulation model to value our market-based restricted stock units were as follows: 
 
Six Months Ended
September 30,
 
2012
 
2011
Risk-free interest rate
0.2 - 0.4%

 
0.2 - 0.6%

Expected volatility
17 - 116%

 
14 - 83%

Weighted-average volatility
36
%
 
35
%
Expected dividends
None

 
None

There were no market-based restricted stock units granted during the three months ended September 30, 2012 and 2011.
Stock-Based Compensation Expense
Employee stock-based compensation expense recognized during the three and six months ended September 30, 2012 and 2011 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.
The following table summarizes stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and the ESPP included in our Condensed Consolidated Statements of Operations (in millions):
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Cost of revenue
$
—

 
$
—

 
$
1

 
$
1

Research and development
27

 
28

 
49

 
51

General and administrative
9

 
9

 
18

 
18

Marketing and sales
8

 
6

 
15

 
11

Stock-based compensation expense
$
44

 
$
43

 
$
83

 
$
81

During the three and six months ended September 30, 2012 and 2011, we did not recognize any provision for or benefit from income taxes related to our stock-based compensation expense.
As of September 30, 2012, our total unrecognized compensation cost related to stock options was $8 million and is expected to be recognized over a weighted-average service period of 2.2 years. As of September 30, 2012, our total unrecognized compensation cost related to restricted stock and restricted stock units (collectively referred to as “restricted stock rights”) was $301 million and is expected to be recognized over a weighted-average service period of 2.0 years. Of the $301 million of unrecognized compensation cost, $16 million relates to market-based restricted stock units and $1 million relates to performance-based restricted stock units.
Stock Options
The following table summarizes our stock option activity for the six months ended September 30, 2012:
 
Options
(in thousands)
 
Weighted-
Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value
(in millions)
Outstanding as of March 31, 2012
9,774

 
$
34.17

 
 
 
 
Granted
240

 
12.97

 
 
 
 
Exercised
(11
)
 
13.11

 
 
 
 
Forfeited, cancelled or expired
(797
)
 
35.46

 
 
 
 
Outstanding as of September 30, 2012
9,206

 
33.54

 
4.41
 
$
—

Vested and expected to vest
9,134

 
33.68

 
4.37
 
$
—

Exercisable as of September 30, 2012
8,476

 
34.90

 
4.08
 
$
—


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The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price as of September 30, 2012, 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 the three and six months ended September 30, 2012 were $4.36 and $4.65, respectively. We issue new common stock from our authorized shares upon the exercise of stock options.
Restricted Stock Rights
The following table summarizes our restricted stock rights activity, excluding performance-based and market-based restricted stock unit activity discussed below, for the six months ended September 30, 2012:
 
Restricted Stock
Rights
(in thousands)
 
Weighted-
Average Grant
Date Fair Value
Balance as of March 31, 2012
16,323

 
$
20.73

Granted
7,938

 
12.51

Vested
(4,583
)
 
21.56

Forfeited or cancelled
(993
)
 
18.86

Balance as of September 30, 2012
18,685

 
17.13

The weighted-average grant date fair values of restricted stock rights granted during the three and six months ended September 30, 2012 were $12.43 and $12.51, respectively.
Performance-Based Restricted Stock Units
The following table summarizes our performance-based restricted stock unit activity for the six months ended September 30, 2012: 
 
Performance-
Based Restricted
Stock Units
(in thousands)
 
Weighted-
Average Grant
Date Fair Value
Balance as of March 31, 2012
1,421

 
$
50.35

Vested
(19
)
 
15.39

Forfeited or cancelled
(55
)
 
46.48

Balance as of September 30, 2012
1,347

 
51.00

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 over a three year period. The maximum number of common shares that could vest is approximately 2 million for market-based restricted stock units. The following table summarizes our market-based restricted stock unit activity for the six months ended September 30, 2012. We present shares granted at 100 percent of target of the number of stock units that may potentially vest. 
 
Market-Based
Restricted Stock
Units
(in thousands)
 
Weighted-
Average Grant
Date Fair Value
Balance as of March 31, 2012
520

 
$
34.77

Granted
670

 
10.45

Vested
(111
)
 
34.77

Forfeited or cancelled
(62
)
 
34.77

Balance as of September 30, 2012
1,017

 
18.75


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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 next 18 months. We completed our program in April 2012. We repurchased approximately 32 million shares in the open market under the program. During the three months ended June 30, 2012, we repurchased and retired approximately 4.3 million shares of our common stock for approximately $71 million.

In July 2012, our Board of Directors authorized a new program to repurchase up to $500 million of our common stock. Under the 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 the program and the repurchase program may be modified, suspended or discontinued at any time. During the three months ended September 30, 2012, we repurchased and retired approximately 8.4 million shares of our common stock for approximately $108 million under this new program. We continue to actively repurchase shares under this program.

During the six months ended September 30, 2012, we repurchased and retired approximately 12.7 million shares of our common stock for approximately $179 million.
Annual Meeting of Stockholders
At our Annual Meeting of Stockholders, held on July 26, 2012, our stockholders approved 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 6,180,000 shares, and to increase the limit on the number of shares that may be covered by equity awards to eligible persons under the Equity Plan in a fiscal year.

(14) NET LOSS PER SHARE
As a result of our net loss for the three and six months ended September 30, 2012, we have excluded all outstanding equity-based instruments from the diluted loss per share ("Diluted EPS") calculation as their inclusion would have had an antidilutive effect. Had we reported net income for these periods, an additional 2 million shares of common stock would have been included in the number of shares used to calculate Diluted EPS for both the three and six months ended September 30, 2012.

As a result of our net loss for the three and six months ended September 30, 2011, we have excluded all outstanding equity-based instruments from the Diluted EPS calculation as their inclusion would have had an antidilutive effect. Had we reported net income for these periods, an additional 6 million shares and 7 million shares of common stock would have been included in the number of shares used to calculate Diluted EPS, respectively.

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 three and six months ended September 30, 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 11 for additional information related to our 0.75% Convertible Senior Notes due 2016 and related Convertible Note Hedge and Warrants.

(15) SEGMENT INFORMATION
Our reporting segments are 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.

Our business is currently organized around our six operating labels, EA Games, EA SPORTS, Maxis, BioWare, PopCap and All Play. During the three months ended September 30, 2012, we renamed our Social/Mobile studios to All Play. Our CODM regularly reviews the results of each of the operating labels. Due to their similar economic characteristics, products, and distribution methods, all six of the operating labels are aggregated into one reportable segment (the “EA Labels” segment) as shown below. In addition to assessing performance and allocating resources based on our operating segments, to a lesser degree, our CODM also reviews results based on geographic performance.

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The following table summarizes the financial performance of the EA Labels segment and a reconciliation of the EA Labels segment’s income to our consolidated operating loss for the three and six months ended September 30, 2012 and 2011 (in millions):
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
EA Labels segment:
 
 
 
 
 
 
 
Net revenue before revenue deferral
$
1,059

 
$
1,012

 
$
1,526

 
$
1,518

Depreciation and amortization
(13
)
 
(15
)
 
(29
)
 
(30
)
Other expenses
(792
)
 
(805
)
 
(1,253
)
 
(1,334
)
EA Labels segment income
254

 
192

 
244

 
154

Reconciliation to consolidated operating loss:
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
Revenue deferral
(880
)
 
(800
)
 
(1,195
)
 
(1,050
)
Recognition of revenue deferral
511

 
481

 
1,290

 
1,206

Other net revenue
21

 
22

 
45

 
40

Depreciation and amortization
(37
)
 
(32
)
 
(71
)