Electronic Arts 2006 Annual Report Download - page 159

substantially all of which will result in cash expenditures by 2017. These restructuring costs will consist
primarily of employee-related relocation assistance (approximately $28 million), facility exit costs
(approximately $10 million), as well as other reorganization costs (approximately $8 million). While we
may incur severance costs paid to terminating employees in connection with the reorganization, we do not
expect these costs to be signiÑcant.
Fiscal 2006 Restructuring
During the fourth quarter of Ñscal 2006, we aligned our resources with our product plan for Ñscal 2007 and
strategic opportunities with next-generation consoles, online and mobile platforms. As part of this
alignment we recorded a total pre-tax restructuring charge of $10 million consisting entirely of one-time
beneÑts related to headcount reductions which are included in restructuring charges in our Consolidated
Statement of Operations. The restructuring accrual of $3 million is expected to be utilized during Ñscal
2007. This accrual is included in other accrued expenses presented in Note 8 of the Notes to Consolidated
Financial Statements.
Fiscal 2004 Studio Restructuring
During the fourth quarter of Ñscal 2004, we closed the majority of our leased studio facility in Walnut
Creek, California and our entire owned studio facility in Austin, Texas in order to consolidate local
development eÅorts in Redwood City, California. We recorded total pre-tax charges of $9 million,
consisting of $7 million for consolidation of facilities (net of expected future sublease income), $2 million
for workforce reductions of approximately 117 personnel and less than $1 million for the write-oÅ of non-
current assets, primarily leasehold improvements. As of March 31, 2006, an aggregate of $8 million in cash
had been paid out under the restructuring plans. In addition, we have made subsequent net adjustments of
approximately $3 million during Ñscal 2006 relating to projected future cash outlays under the Ñscal 2004
restructuring plan. The remaining projected net cash outlay of $5 million is expected to be utilized by
January 2009. The facilities-related accrued obligation shown above is net of $7 million of estimated future
sub-lease income. The restructuring accrual is included in other accrued expenses presented in Note 8 of
the Notes to Consolidated Financial Statements.
Fiscal 2003 and 2002 Restructurings
In Ñscal 2003 and 2002, we entered into various restructurings based on management decisions. As of
March 31, 2006, an aggregate of $19 million in cash had been paid out under the restructuring plans. In
addition, we have made subsequent net adjustments of approximately $1 million during Ñscal 2006 relating
to projected future cash outlays under the Ñscal 2003 restructuring plan. The remaining projected net cash
Annual Report
outlay of $2 million is expected to be utilized by December 2006. The facilities-related accrued obligation
shown above is net of $1 million of estimated future sub-lease income. The restructuring accrual is
included in other accrued expenses presented in Note 8 of the Notes to Consolidated Financial
Statements.
(7) ROYALTIES AND LICENSES
Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers
and (3) co-publishing and/or distribution aÇliates. License royalties consist of payments made to
celebrities, professional sports organizations, movie studios and other organizations for our use of their
trademarks, copyrights, personal publicity rights, content and/or other intellectual property. Royalty
payments to independent software developers are payments for the development of intellectual property
related to our games. Co-publishing and distribution royalties are payments made to third parties for
delivery of product.
Royalty-based obligations with content licensors and distribution aÇliates are either paid in advance and
capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based
obligations are generally expensed to cost of goods sold generally at the greater of the contractual rate or
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