Electronic Arts 2001 Annual Report Download - page 44

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42
2001 AR
(g) Inventories
Inventories are stated at the lower of cost or market. Inventories at March 31, 2001 and 2000 con-
sisted of:
(In thousands)
2001 2000
Raw materials and work in process $ 976 $ 920
Finished goods 14,710 22,066
$ 15,686 $ 22,986
(h) Advertising Costs
The Company generally expenses advertising costs as incurred, except for production costs
associated with media campaigns which are deferred and charged to expense at the first run of the ad. Cooperative
advertising with distributors and retailers is accrued when revenue is recognized. Cooperative advertising credits
are reimbursed when qualifying claims are submitted. For the fiscal years ended March 31, 2001, 2000 and 1999,
advertising expenses totaled approximately $75,429,000, $87,377,000 and $72,437,000, respectively.
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the accel-
erated and straight-line methods over the following useful lives:
Buildings 20 to 25 years
Computer equipment and software 3 to 7 years
Furniture and equipment 3 to 7 years
Leasehold improvements Lesser of the lease terms or the estimated
useful lives of the improvements
Under the provisions of Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use”, the Company capitalizes costs associated with customized internal-use
software systems that have reached the application stage and meet recoverability tests. Such capitalized costs
include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related
expenses for employees who are directly associated with the applications. Capitalization of such costs begins
when the preliminary project stage is complete and ceases at the point in which the project is substantially com-
plete and ready for its intended purpose. Capitalized costs associated with internal-use software amounted to
$74,684,000 at March 31, 2001, of which $60,754,000 is being depreciated on a straight-line basis over each pro-
ject’s estimated useful life.
(j) Intangible Assets
Intangible assets net of accumulated amortization at March 31, 2001 and 2000, of
$136,764,000, and $117,236,000, respectively, include goodwill, costs of obtaining product technology and non-
compete covenants which are amortized using the straight-line method over the lesser of their estimated useful
lives or the agreement terms, typically from two to twelve years. Amortization expense for fiscal years ended
March 31, 2001, 2000 and 1999 was $19,323,000, $11,989,000 and $5,880,000, respectively. The Company
assesses the recoverability of goodwill by determining whether the carried value of the assets may be recovered
through estimated future undiscounted net cash flows.