Electronic Arts 2009 Annual Report Download - page 170

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, 2009 and 2008, approximately $37 million and
$10 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. We
evaluate long-lived royalty-based assets for impairment based on the provisions of SFAS No. 144 (i.e.,onan
undiscounted cash flow basis when impairment indicators exist). Unrecognized minimum royalty-based
commitments are accounted for as executory contracts and, therefore, any losses on these commitments are
recognized when the underlying intellectual property is abandoned (i.e., cease use) or the contractual rights to use
the intellectual property are terminated consistent with the provisions of SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. During fiscal years 2009 and 2008, we recognized loss charges of
$43 million and loss and impairment charges of $4 million, respectively, related to our royalty agreements. We
had no loss or impairment charges during fiscal year 2007. The loss charges in fiscal year 2009 primarily relate
to an amendment of a licensor agreement in which we terminated certain rights we previously had to use the
licensor’s intellectual property.
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):
As of March 31,
2009 2008
Other current assets .......................................................... $ 74 $ 54
Other assets ................................................................ 47 62
Royalty-related assets ...................................................... $121 $116
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):
As of March 31,
2009 2008
Accrued and other current liabilities ............................................. $237 $200
Other liabilities ............................................................. 29 3
Royalty-related liabilities ................................................... $266 $203
In addition, as of March 31, 2009, we were committed to pay approximately $1,465 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 10 of the Notes to Consolidated Financial Statements.
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