Electronic Arts 2005 Annual Report Download - page 122

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 project stage is
complete and ceases at the point in which the project is substantially complete and ready for its intended
purpose. The net book value of capitalized costs associated with internal-use software amounted to $28 million
and $30 million as of March 31, 2005 and 2004, respectively, and are being depreciated on a straight-line basis
over each project's estimated useful life that ranges from three to Ñve years.
(h) Long-Lived Assets
We evaluate long-lived assets and certain identiÑable intangibles for impairment, in accordance with
SFAS No. 144, ""Accounting for the Impairment or Disposal of Long-Lived Assets'', whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash Öows
expected to be generated by the asset. This may include assumptions about future prospects for the business
that the asset relates to and typically involves computations of the estimated future cash Öows to be generated
by these businesses. Based on these judgments and assumptions, we determine whether we need to take an
impairment charge to reduce the value of the asset stated on the Consolidated Balance Sheets to reÖect its
actual fair value. Judgments and assumptions about future values and remaining useful lives are complex and
often subjective. They can be aÅected by a variety of factors, including but not limited to, signiÑcant negative
industry or economic trends, signiÑcant changes in the manner of our use of the acquired assets or the strategy
of our overall business and signiÑcant under-performance relative to expected historical or projected future
operating results. If such assets are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds its fair value. We did not record any asset
impairment charges in Ñscal 2005. During Ñscal 2004 and 2003, we recognized less than $1 million and
$66 million, respectively, of asset impairment charges. See Note 6 of the Notes to Consolidated Financial
Statements.
(i) Goodwill
SFAS No. 142, ""Goodwill and Other Intangible Assets'' requires that purchased goodwill and indeÑnite-lived
intangibles not be amortized. Rather, goodwill and indeÑnite-lived intangible assets are subject to at least an
annual assessment for impairment by applying a fair-value-based test.
SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The
Ñrst step tests for impairment by applying fair value-based tests at the reporting unit level. The second step (if
necessary), measures the amount of impairment by applying fair value-based tests to individual assets and
liabilities within each reporting unit. We completed the Ñrst step of transitional goodwill impairment testing
during the quarter ended June 30, 2002 and found no indicators of impairment of our recorded goodwill. As a
result, we recognized no transitional impairment loss in Ñscal 2003 in connection with the adoption of
SFAS No. 142.
(j) Concentration of Credit Risk
We extend credit to various companies in the retail and mass merchandising industries. Collection of trade
receivables may be aÅected by changes in economic or other industry conditions and may, accordingly, impact
our overall credit risk. Although we generally do not require collateral, we perform ongoing credit evaluations
of our customers and maintain reserves for potential credit losses. As of March 31, 2005, we had 13.5 percent
and 12.6 percent of our gross accounts receivable outstanding with Pinnacle, a European logistics and
collections company, and Wal-Mart Stores, Inc., respectively. As of March 31, 2004, we had 17.3 percent and
11.3 percent of our gross accounts receivable outstanding with Pinnacle and Wal-Mart Stores, Inc.,
respectively.
Short-term investments are placed with high-credit-quality Ñnancial institutions or in short-duration, high-
quality securities. We limit the amount of credit exposure in any one Ñnancial institution or type of investment
instrument.
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