Electronic Arts 2012 Annual Report Download - page 154

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 was $77 million and $50 million
as of March 31, 2012 and 2011, respectively. Once the internal-use software is ready for its intended use, the assets are
depreciated on a straight-line basis over each asset’s estimated useful life, which is generally three years.
Acquisition-Related Intangibles and Other Long-Lived Assets
We record acquisition-related intangible assets that have finite useful lives, such as developed and core
technology, in connection with business combinations. We amortize the cost of acquisition-related intangible
assets on a straight-line basis over the lesser of their estimated useful lives or the agreement terms, typically from
two to fourteen years. We evaluate acquisition-related intangibles and other long-lived assets 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
assets or the strategy of our overall business and significant under-performance relative to projected future
operating results. When we consider such assets to be impaired, the amount of impairment we recognize is
measured by the amount by which the carrying amount of the asset exceeds its fair value. We recognized $12
million, $14 million, and $39 million in impairment charges in fiscal years 2012, 2011 and 2010, respectively.
The charges for fiscal year 2012 are included in cost of product revenue and cost of service and other revenue in
our Consolidated Statements of Operations. The charges for fiscal year 2011 are included in restructuring and
other charges and research and development in our Consolidated Statements of Operations. The charges for fiscal
year 2010 are included in restructuring and other charges in our Consolidated Statements of Operations.
Goodwill
On January 1, 2012, we adopted ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for
Impairment. ASU 2011-08 allows an entity to first assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. If an entity concludes it is more likely than not that the fair
value of a reporting unit exceeds its carrying amount, it need not perform the two-step impairment test. If based on that
assessment, we believe it is more likely than not that the fair value of its reporting units is less than its carrying value, a
two-step goodwill impairment test is required to be performed. 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 the individual assets and liabilities within each reporting unit. Our reporting units are
determined by the components of our operating segments that constitute a business for which discrete financial
information is available and segment management regularly reviews the operating results of that component. The fair
value of each reporting unit is estimated using the market approach, which utilizes comparable companies’ data, the
income approach, which utilizes discounted cash flows, or a combination thereof.
During the fiscal years ended March 31, 2012, 2011 and 2010, we completed our 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 charge on goodwill in fiscal years 2012, 2011 and 2010.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a government authority that are both imposed on and concurrent with specific revenue
transactions between us and our customers are presented on a net basis in our Consolidated Statements of
Operations.
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