Electronic Arts 2001 Annual Report Download - page 56

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54
2001 AR
(14) BUSINESS COMBINATIONS
(a) Pogo Corporation
On February 28, 2001, EA.com acquired Pogo Corporation (now referred to as “Pogo”) for
$43,333,000, including an initial investment of $42,000,000 and the redemption of Pogo preferred stock of
$1,333,000. Pogo operates an ad-supported games service that reaches a broad consumer market. Pogo’s internet-
based family games focus on easy-to-play card, board and puzzle games.
The acquisition has been accounted for under the purchase method. The results of operations of Pogo and the
estimated fair market values of the acquired assets and liabilities have been included in the consolidated financial
statements from the date of acquisition. The adjusted allocation of the excess purchase price over the net tangible
assets acquired was $40,516,000, of which, based on management’s estimates prepared in conjunction with a
third party valuation consultant, $2,719,000 was allocated to purchased in-process research and development and
$37,797,000 was allocated to other intangible assets. Amounts allocated to other intangibles include goodwill of
$16,927,000, existing technology of $12,505,000, and other intangibles of $8,365,000. The allocation of intangible
assets is being amortized on a straight line basis over lives ranging from three to seven years.
Purchased in-process research and development includes the value of products in the development stage that
are not considered to have reached technological feasibility or to have alternative future use. Accordingly, this
non-recurring item was expensed in the Consolidated Statement of Operations upon consummation of the acquisi-
tion. The non-recurring charge for in-process research and development increased diluted loss per share by
approximately $0.01 and $0.07 in the fiscal year 2001 for Class A and Class B, respectively.
Pogo had various projects in progress at the time of the acquisition. As of the acquisition date, costs to com-
plete Pogo projects acquired were expected to be approximately $1,200,000 in future periods. The Company
believes there have been no significant changes to these estimates as of March 31, 2001. The Company currently
expects to complete the development of these projects at various dates through fiscal 2002 and to publish the
projects upon completion. In conjunction with the acquisition of Pogo, the Company accrued approximately
$100,000 related to direct transaction costs and other related costs.
The purchase price for the Pogo transaction was allocated to assets acquired and liabilities assumed as set forth
below (in thousands):
Current assets $ 3,048
Fixed assets 4,998
Other long-term assets 1,969
In-process technology 2,719
Goodwill and other intangibles 37,797
Liabilities (7,198)
Total cash paid $ 43,333