Electronic Arts 2002 Annual Report Download - page 53

(h) Inventories
Inventories are stated at the lower of cost or market. Inventories at March 31, 2002 and 2001 consisted of:
(In thousands) 2002 2001
Raw materials and work in process $1,025 $976
Finished goods 22,755 14,710
$23,780 $15,686
(i) 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 advertis-
ing with distributors and retailers is accrued when revenue is recognized. Cooperative advertising credits
are reimbursed when qualifying claims are submitted.The Company has adopted the provisions of Emerging
Issues Task Force issue No. 01-09 (“EITF 01-09”),
“Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor’s Products”
.The adoption of EITF 01-09 did not have a material
impact in the Company’s consolidated financial position or results of operations. For the fiscal years ended
March 31, 2002, 2001 and 2000, advertising expenses totaled approximately $105,712,000, $75,429,000
and $87,377,000, respectively.
(j) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the accelerated 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 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 pro-
ject stage is complete and ceases at the point in which the project is substantially complete and ready for its
intended purpose. Capitalized costs associated with internal-use software amounted to $121,002,000 at March
31, 2002, and are being depreciated on a straight-line basis over each project’s estimated useful life.
(k) Intangible Assets
Intangible assets net of accumulated amortization at March 31, 2002 and 2001, of $110,512,000 and
$136,764,000, respectively, include goodwill, costs of obtaining product technology and noncompete
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, 2002, 2001 and 2000 was $25,418,000, $19,323,000 and $11,989,000, 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.
On April 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS
142”),
“Goodwill and Other Intangible Assets” ,which supersedes Accounting Principles Board Opinion No.
17 “Intangible Assets” .As a result of adopting this standard, the Company will continue to amortize finite-
lived intangibles, but will no longer amortize certain other intangible assets, most notably goodwill and
acquired workforce, which had a net book value at March 31, 2002 of $69,050,000. Amortization of good-
will and acquired workforce totaled approximately $13,125,000 for fiscal 2002, approximately $9,182,000
for fiscal 2001 and approximately $6,411,000 for fiscal 2000. Based on intangible assets as of March 31,
2002, the Company estimates that amortization of finite-lived intangibles will total approximately
$8,700,000 for fiscal 2003. Following adoption of SFAS 142, the Company 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.The Company is in the process of completing an evaluation
for impairment of goodwill in accordance with SFAS 142.The Company believes the implementation of
SFAS 142 will not have a material impact on its consolidated financial statements.
EA 2002 AR 49