Electronic Arts 2006 Annual Report Download - page 144

long-lived assets and deferred income tax assets as well as estimates used in our goodwill impairment test.
These estimates generally involve complex issues and require us to make judgments, involve analysis of
historical and future trends, can require extended periods of time to resolve, and are subject to change
from period to period. In all cases, actual results could diÅer materially from our estimates.
(e) Cash, Cash Equivalents, Short-Term Investments, Marketable Equity Securities and Other
Investments
Cash equivalents consist of highly liquid investments with insigniÑcant interest rate risk and original or
remaining maturities of three months or less at the time of purchase.
Short-term investments consist of securities with original or remaining maturities of greater than three
months at the time of purchase. The short-term investments are available for use in current operations or
other activities such as capital expenditures, business acquisitions, or stock repurchase programs.
As of March 31, 2006 and March 31, 2005, short-term investments and marketable equity securities were
classiÑed as available-for-sale and stated at fair value based upon quoted market prices for the securities or
similar Ñnancial instruments. Unrealized gains and losses are included as a separate component of
accumulated other comprehensive income, net of any related tax eÅect, in stockholders' equity. Realized
gains and losses are calculated based on the speciÑc identiÑcation method. We recognize an impairment
charge when we determine that a decline in the fair value of the securities below its cost basis is other-
than-temporary.
Investments in aÇliates consist of investments in equity securities accounted for under either the cost
method or the equity method in accordance with Accounting Principles Board Opinion (""APB'') No. 18,
""The Equity Method Of Accounting For Investments In Common Stock''. Our share of earnings or losses
of investments in aÇliates accounted for under the equity method is included in interest and other income,
net, in our Consolidated Statement of Operations, except for investments where we are not able to exercise
signiÑcant inÖuence over the operating and Ñnancing decisions of the investee, in which case the cost
method of accounting is used. We evaluate the investment in aÇliates to determine if events or changes in
circumstances indicate an other-than-temporary impairment in value. We recognize an impairment charge
when we determine an other-than-temporary impairment in value exists.
(f) Inventories
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor
and freight-in. Inventories are stated at the lower of cost (Ñrst-in, Ñrst-out method) or market.
(g) Property and Equipment, Net
Property and equipment, net, are stated at cost. Depreciation is calculated using the straight-line method
over the following useful lives:
Buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20 to 25 years
Computer equipment and software ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 to 5 years
Furniture and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 to 5 years
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Lesser of the lease term or the estimated useful
lives of the improvements, generally 1 to 10 years
Under the provisions of American Institute of CertiÑed Public Accountants Statement of Position
(""SOP'') 98-1, ""Accounting for the Costs of Computer Software Developed or Obtained for Internal Use'',
we capitalize costs associated with customized internal-use software systems that have reached the
application development 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 project stage is complete and ceases at the point in which the project is substantially complete
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