Electronic Arts 2008 Annual Report Download - page 159

product. Accordingly, payments that are due prior to completion of a product are generally expensed to
research and development over the development period as the services are incurred. Payments due after
completion of the product (primarily royalty-based in nature) are generally expensed as cost of goods sold.
Our contracts with some licensors include minimum guaranteed royalty payments which are initially recorded
as an asset and as a liability at the contractual amount when no performance remains with the licensor. When
performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a
liability when incurred, rather than recording the asset and liability upon execution of the contract. Minimum
royalty payment obligations are classified as current liabilities to the extent such royalty payments are
contractually due within the next twelve months. As of March 31, 2008 and 2007, approximately $10 million
and $9 million, respectively, of minimum guaranteed royalty obligations had been recognized and are included
in the royalty-related assets and liabilities tables below.
Each quarter, we also evaluate the future realization of our royalty-based assets as well as any unrecognized
minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product
sales. Any impairments or losses determined before the launch of a product are charged to research and
development expense. Impairments or losses determined post-launch are charged to cost of goods sold. In
either case, we rely on estimated revenue to evaluate the future realization of prepaid royalties and
commitments. If actual sales or revised revenue estimates fall below the initial revenue estimate, then the
actual charge taken may be greater in any given quarter than anticipated. During fiscal 2008 and 2006, we
recognized impairment charges of $4 million and $16 million, respectively. We had no impairment charges
during fiscal 2007.
The current and long-term portions of prepaid royalties and minimum guaranteed royalty-related assets,
included in other current assets and other assets, consisted of (in millions):
2008 2007
As of March 31,
Other current assets ........................................................ $ 54 $ 69
Other assets .............................................................. 62 40
Royalty-related assets ..................................................... $116 $109
At any given time, depending on the timing of our payments to our co-publishing and/or distribution affiliates,
content licensors and/or independent software developers, we recognize unpaid royalty amounts owed to these
parties as either accounts payable or accrued liabilities. The current and long-term portions of accrued
royalties, included in accrued and other current liabilities as well as other liabilities, consisted of (in millions):
2008 2007
As of March 31,
Accrued and other current liabilities . ........................................... $200 $91
Other liabilities ........................................................... 3 3
Royalty-related liabilities .................................................. $203 $94
In addition, as of March 31, 2008, we were committed to pay approximately $1,540 million to content
licensors and co-publishing and/or distribution affiliates, but performance remained with the counterparty (i.e.,
delivery of the product or content or other factors) and such commitments were therefore not recorded in our
Consolidated Financial Statements. See Note 9 of the Notes to Consolidated Financial Statements.
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