Electronic Arts 2004 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2004 Electronic Arts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

restructuring charge of $5.1 million, including $1.6 million for the shutdown of facilities related to non-
cancelable lease payments for permanently vacated properties and associated costs, $2.0 million for the write-
oÅ of abandoned equipment and leasehold improvements at facilities that were permanently vacated and
$1.5 million for employee severance expenses related to involuntary terminations.
Fiscal 2003 Online Restructuring
In March 2003, we consolidated the operations of EA.com into our core business, and eliminated separate
reporting for its Class B common stock for all future reporting periods after Ñscal 2003. We consider online
functionality to be an integral component of our existing and future products.
During Ñscal 2003, we recorded restructuring charges, including asset impairment, of $67.0 million, consisting
of $1.8 million for workforce reductions, $2.3 million for consolidation of facilities and other administrative
charges, and $62.9 million for the write-oÅ of non-current assets. The estimated costs for workforce
reduction included severance charges for terminated employees, costs for certain outplacement service
contracts and costs associated with the tender oÅer to retire employee Class B options. The workforce
reduction resulted in the termination of approximately 50 positions. The consolidation of facilities resulted in
the closure of EA.com's Chicago and Virginia facilities and an adjustment for the closure of EA.com's
San Diego studio in Ñscal 2002. The estimated costs for consolidation of facilities and other administrative
charges included contractual rental commitments under real estate leases for unutilized oÇce space reduced
by estimated future sub-lease income and costs to close the facilities.
As part of the restructuring eÅorts, we performed impairment tests under SFAS No. 144, ""Accounting for the
Impairment or Disposal of Long-Lived Assets'', to evaluate the recoverability of our long-lived assets and
remaining Ñnite-lived identiÑable intangible assets utilized in the EA.com business. This test was performed
in the fourth quarter of Ñscal 2003 in conjunction with the overall valuation of the EA.com legal entity and its
Class B common stock. In February 2003, our only outside holder of Class B common stock, AOL, exercised
its right to exchange its Class B shares for shares of Class A common stock. In late December 2002, EA.com
launched The Sims Online, an online game based on our ""The Sims'' line of PC games, which have sold over
20 million units worldwide. The Sims Online was expected to be EA.com's Öagship online subscription
oÅering. As of March 31, 2003, the number of units sold and the number of subscribers for this product along
with other EA.com revenue were signiÑcantly below our expectations. We considered these developments to
be a triggering event under SFAS No. 144, which caused us to cancel most of our plans to develop similar
online products that would have utilized long-lived assets associated with the EA.com business. Impairment
charges on long-lived assets amounted to $62.9 million and included $24.9 million relating to impaired
customized internal-use software systems for the EA.com infrastructure, $25.6 million for other long-lived
assets and $12.4 million of Ñnite-lived intangibles impairment charges relating to EA.com's acquisitions of
Kesmai Corporation and Pogo Corporation (now referred to as ""Kesmai'' and ""Pogo'', respectively) studios.
As of March 31, 2003, there were no Ñnite-lived intangible balances remaining related to Kesmai and Pogo
studios.
In conjunction with our annual policy to reassess the remaining useful lives of goodwill and certain indeÑnite-
lived intangibles and test the recoverability of these long-lived assets in accordance with SFAS No. 142, our
fair value based tests did not indicate an impairment of our recorded goodwill and certain indeÑnite-lived
intangibles at the EA.com reporting unit level as of January 1, 2003. The remaining portion of Kesmai
goodwill assets as of March 31, 2003 was $13.8 million. The remaining portion of Pogo goodwill assets as of
March 31, 2003 was $15.9 million. There are no assurances that future impairment tests will not result in a
charge to earnings and a corresponding write down of goodwill and certain indeÑnite-lived intangibles.
The following table reÖects our unaudited pro forma consolidated basic earnings per share for the Ñscal years
ended 2003 and 2002 as if the consolidation of the operations of our EA.com business segment into our core
32