Electronic Arts 2009 Annual Report Download - page 169

Annual Report
related to the closure of our Chertsey, England and Chicago, Illinois facilities, which included asset impairment
and lease termination costs, and (3) $39 million related to other costs including other contract terminations, as
well as IT and consulting costs to assist in the reorganization of our business support functions. During fiscal
year 2008, we completed the closure of our Chertsey facility and consolidated our Chertsey operations and
employees into our Guildford, England facility. The restructuring accrual of $3 million as of March 2009 related
to our fiscal 2008 reorganization is expected to be settled by March 2010. This accrual is included in other
accrued expenses presented in Note 9 of the Notes to Consolidated Financial Statements. In addition, over the
next six months, we expect to incur IT and consulting costs in connection with the reorganization of our business
support functions.
During fiscal year 2008, we commenced marketing our facility in Chertsey, England for sale and reclassified the
estimated fair value of the Chertsey facility from property and equipment, net, to other current assets as an asset
held for sale on our Consolidated Balance Sheets. Our reorganization charges include $72 million to write our
Chertsey facility down to its estimated fair value (less costs to sell the property), $22 million of which was
recognized in the fiscal year ended March 31, 2009. Although we continue to market our facility in Chertsey,
England for sale, for accounting purposes, based on current market conditions, we have reclassified the estimated
fair value of the Chertsey facility from other current assets as an asset held for sale back to property and
equipment, net, on our Consolidated Balance Sheets as of March 31, 2009 and have resumed recognizing the
depreciation expense for the facility.
In fiscal year 2010, we anticipate incurring between $5 million and $10 million of restructuring charges related to
the fiscal 2008 reorganization. Overall, including charges incurred through March 31, 2009, we expect to incur
cash and non-cash charges between $135 million and $140 million by March 2010. These charges will consist
primarily of employee-related costs (approximately $12 million), facility exit costs (approximately $80 million),
as well as other reorganization costs including other contract terminations and IT and consulting costs to assist in
the reorganization of our business support functions (approximately $45 million).
Other Restructurings
We also engaged in various other restructurings based on management decisions. From April 1, 2006 through
March 31, 2009, $40 million in cash had been paid out under these restructuring plans.
(8) ROYALTIES AND LICENSES
Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers, and
(3) co-publishing and distribution affiliates. 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 the delivery of product.
Royalty-based obligations with content licensors and distribution affiliates 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 an effective royalty
rate based on the total projected net revenue. Prepayments made to thinly capitalized independent software
developers and co-publishing affiliates are generally in connection with the development of a particular product
and, therefore, we are generally subject to development risk prior to the release of the 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
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