Electronic Arts 2004 Annual Report Download - page 87

consolidate local development eÅorts in Redwood City, California and Vancouver, British Columbia, Canada.
We recorded total pre-tax charges of $9.4 million, consisting of $7.3 million for consolidation of facilities,
$1.5 million for the write-oÅ of non-current assets, primarily leasehold improvements, and $0.6 million for
workforce reductions. The facilities charge was net of a reduction in deferred rent of $0.5 million. The exit
plans resulted in a workforce reduction of approximately 33 personnel in development and administrative
departments. The estimated costs for consolidation of facilities included contractual rental commitments
under the real estate lease for unutilized oÇce space, oÅset by estimated future sub-lease income.
Additionally, during the fourth quarter of Ñscal 2003, we approved a plan to consolidate the Los Angeles,
California, Irvine, California and Las Vegas, Nevada, studios into one major game studio in Los Angeles.
These measures were taken in order to maximize eÇciencies and streamline the creative development process
and operations of our studios. In connection with these consolidation activities, we recorded a total pre-tax
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 had sold over
20 million units worldwide at that time. 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 the 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
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