Electronic Arts 2010 Annual Report Download - page 150

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 development of 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 and is
ready for its intended purpose. The net book value of capitalized costs associated with internal-use software
amounted to $37 million and $24 million as of March 31, 2010 and 2009, respectively, and are being depreciated
on a straight-line basis over each asset’s estimated useful life, which is generally three years.
Long-Lived Assets
We evaluate long-lived assets and certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is
measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to
be generated by the asset. This includes assumptions about future prospects for the business that the asset relates
to and typically involves computations of the estimated future cash flows to be generated by these businesses.
Based on these judgments and assumptions, we determine whether we need to take an impairment charge to
reduce the value of the asset stated on our Consolidated Balance Sheets to reflect its estimated fair value.
Judgments and assumptions about future values and remaining useful lives are complex and often subjective.
They can be affected by a variety of factors, including but not limited to, significant negative industry or
economic trends, significant changes in the manner of our use of the acquired assets or the strategy of our overall
business and significant under-performance relative to expected historical or projected future operating results. If
we were to consider such assets to be impaired, the amount of impairment we recognize would be measured by
the amount by which the carrying amount of the asset exceeds its fair value. We recognized $39 million, $25
million and $56 million in impairment charges in fiscal years 2010, 2009 and 2008, respectively. These charges
are included in restructuring charges on our Consolidated Statements of Operations.
Goodwill
We are required to perform a two-step approach to testing goodwill for impairment for each reporting unit
annually, or whenever events or changes in circumstances indicate that fair value of a reporting unit is below its
carrying amount. Our reporting units are determined by the components of our operating segments that constitute
a business for which (1) discrete financial information is available and (2) segment management regularly
reviews the operating results of that component. The first step measures for impairment by applying fair value-
based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by
applying fair value-based tests to individual assets and liabilities within each reporting unit. The fair value of
each reporting unit is estimated using a combination of the market approach, which utilizes comparable
companies’ data, and/or the income approach, which utilizes discounted cash flows.
During the fiscal years ended March 31, 2010 and 2008, we completed the first step of the annual goodwill
impairment testing in the fourth quarter of each year and found no indicators of impairment of our recorded
goodwill. We did not recognize an impairment loss on goodwill in fiscal years 2010 and 2008. Adverse economic
conditions, including the decline in our market capitalization and our expected financial performance, indicated
that a potential impairment of goodwill existed during the fiscal year ended March 31, 2009. As a result, we
performed goodwill impairment tests for our reporting units and determined that the fair value of our EA Mobile
reporting unit fell below the carrying value of that reporting unit. As a result, we conducted the second step in the
impairment testing and determined that the EA Mobile reporting unit’s goodwill was impaired. The fair value of
the EA Mobile reporting unit was determined using the income approach. Substantially all of our goodwill
associated with our EA Mobile reporting unit was derived from our fiscal 2006 acquisition of JAMDAT Mobile
Inc. During the fiscal year ended March 31, 2009, we recognized a goodwill impairment charge of $368 million
related to our EA Mobile reporting unit. See Note 17 for information regarding our segment information.
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