Electronic Arts 2002 Annual Report Download - page 30

Amortization of Intangibles
% OF NET % OF NET
2002 REVENUES 2001 REVENUES % CHANGE
$25,418,000 1.5% $19,323,000 1.5% 31.5%
The amortization of intangibles results primarily from the acquisitions of Westwood, Kesmai, DreamWorks
Interactive, ABC Software, Pogo and other acquisitions. Amortization of intangibles was $12,888,000 for
EA Core and $12,530,000 for EA.com for fiscal 2002. Amortization of intangibles was $12,829,000 for
EA Core and $6,494,000 for EA.com for fiscal 2001.The increase in fiscal year 2002 for EA.com, com-
pared to the prior year, was due to the acquisition of Pogo in February 2001.
With the implementation of new accounting pronouncements (see Impact of Recently Issued Account-
ing Standards on page 38) as of April 2002, we will continue to amortize finite-lived intangibles, but will no
longer amortize goodwill and acquired workforce. Amortization of goodwill and acquired workforce totaled
approximately $13,125,000 for fiscal 2002 and approximately $9,182,000 for fiscal 2001. Based on intan-
gible assets as of March 31, 2002, we estimate that amortization of finite-lived intangibles will total
approximately $8,700,000 for fiscal 2003. Following adoption of SFAS 142, we will continue to evaluate
whether any event has occurred which might indicate that the carrying value of an intangible asset is not
recoverable. In addition, SFAS 142 requires that goodwill be subject to at least an annual assessment for
impairment by applying a fair value-based test. We are in the process of completing an evaluation for
impairment of goodwill in accordance with SFAS 142.We believe the implementation of SFAS 142 will not
have a material impact on our consolidated financial statements.
Charge for Acquired In-Process Technology
% OF NET % OF NET
2002 REVENUES 2001 REVENUES % CHANGE
$—N/A $2,719,000 0.2% (100.0%)
In connection with the acquisition of Pogo in the fourth fiscal quarter of fiscal 2001, we allocated and
expensed $2,719,000 of the $43,333,000 purchase price to acquired in-process technology. At the date of
acquisition, this amount was expensed as a non-recurring charge as the in-process technology had not yet
reached technological feasibility and had no alternative future uses. Pogo had various projects in progress
at the time of the acquisition. As of the acquisition date, costs to complete Pogo projects acquired were
expected to be approximately $1,200,000 in future periods. During fiscal 2002, all of these development
projects were completed and launched on Pogo gamesites. In conjunction with the acquisition of Pogo, we
accrued approximately $100,000 related to direct transaction and other related costs.
This charge was made after we concluded that the in-process technology had not reached technological
feasibility and had no alternative future use after taking into consideration the potential for usage of the
software in different products and resale of the software.
Charge for Restructuring and Impairment
% OF NET % OF NET
2002 REVENUES 2001 REVENUES % CHANGE
$20,303,000 1.2% $—N/A N/M
During fiscal 2002, we announced a restructuring plan for EA.com to reduce its workforce and consolidate
facilities.These restructuring and resulting asset impairment charges were necessary in order to focus on key
online priorities and reduce EA.com's operating cost structure. A pre-tax charge of $20,303,000 was recorded
in fiscal 2002, consisting of $4,173,000 for workforce reductions, $3,312,000 for consolidation of facilities
and other administrative charges and $12,818,000 for the write-off of non-current assets as a direct result of
the restructuring. The pre-tax charge of $20,303,000 consisted of $6,836,000 in cash outlays and
$13,467,000 in non-cash charges related to the write-offs of non-current assets and facilities. As of March 31,
2002, an aggregate of $4,016,000 in cash had been paid out under the restructuring plan. Of the remaining
cash outlay of $2,820,000, $1,590,000 is expected to occur in fiscal 2003 while the remaining $1,230,000
related to future lease payments will occur is fiscal years 2004 and beyond. Adjustments to the restructuring
reserves will be made in future periods, if necessary, based upon current events and circumstances.
EA 2002 AR
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