Electronic Arts 2010 Annual Report Download - page 168

of certain of our facilities, and (3) $2 million related to asset impairments. We do not expect to incur any
additional restructuring charges under this plan. The restructuring accrual of $3 million as of March 31, 2010
related to our fiscal 2009 restructuring is expected to be settled by September 2016.
Fiscal 2008 Reorganization
In June 2007, we announced a plan to reorganize our business into several new divisions including, at the time
four new “Labels”: EA SPORTS, EA Games, EA Casual Entertainment and The Sims in order to streamline
decision-making, improve global focus, and speed new ideas to market. In October 2007, our Board of Directors
approved a plan of reorganization (“fiscal 2008 reorganization plan”) in connection with the reorganization of
our business into four new Labels. During fiscal year 2009, we consolidated and reorganized two of our Labels.
As a result, we have three Labels, EA SPORTS, EA Games and EA Play, as well as a new organization, EA
Interactive, which reports into our Global Publishing Organization. Each Label, as well as EA Interactive,
operates with dedicated studio and product marketing teams focused on consumer-driven priorities.
Since the inception of the fiscal 2008 reorganization plan through March 31, 2010, we have incurred charges of
$141 million, of which (1) $12 million were for employee-related expenses, (2) $83 million related to the closure
of our Chertsey, England and Chicago, Illinois facilities, which included asset impairment and lease termination
costs, and (3) $46 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. We do not expect to incur any
additional charges under this plan.
Other Restructurings
We also engaged in various other restructurings based on management decisions. From April 1, 2008 through
June 30, 2009, $7 million in cash had been paid out under these restructuring plans. The $7 million restructuring
accrual as of March 31, 2009 was reclassified during the three months ended June 30, 2009, from accrued and
other current liabilities to other liabilities on our Consolidated Balance Sheet.
(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 products.
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
liability when incurred, rather than recording the asset and liability upon execution of the contract. Royalty
liabilities are classified as current liabilities to the extent such royalty obligations are contractually due within the
next twelve months. As of March 31, 2010 and 2009, approximately $13 million and $37 million, respectively, of
minimum guaranteed royalty obligations had been recognized and are included in the royalty-related assets and
liabilities tables below.
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