Electronic Arts 2012 Annual Report Download - page 173

Annual Report
Other Restructurings and Reorganization
We also engaged in various other restructurings and a reorganization based on management decisions made prior
to April 1, 2008. From April 1, 2008 through March 31, 2012, $31 million in cash has been paid out under these
restructuring plans. In December 2007, we commenced marketing our facility in Chertsey, England for sale
related to our 2008 reorganization. In August 2011, we completed the sale of our facility in Chertsey, England for
$26 million and recognized a gain of $10 million. The gain is included in restructuring and other charges on our
Consolidated Statement of Operations for the fiscal year ended March 31, 2012.
Fiscal 2013 Restructuring
On May 7, 2012, we announced a plan of restructuring to align our cost structure with our ongoing digital
transformation. Under this plan, we anticipate reducing our workforce and incurring other costs. We expect the
majority of these actions to be completed by September 30, 2012.
In connection with this plan, we anticipate incurring approximately $40 million in total costs, of which
approximately $31 million will result in future cash expenditures. All of these charges are expected to occur
during the fiscal year ending March 31, 2013. These costs will consist of severance and other employee-related
costs (approximately $23 million), license termination costs (approximately $11 million) and other costs
(approximately $6 million).
(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 revenue generally at the greater of the contractual rate or an effective royalty
rate based on the total projected net revenue for contracts with guaranteed minimums. Prepayments made to
thinly capitalized independent software developers and co-publishing affiliates are generally made 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 revenue.
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 payments are contractually due within the
next 12 months.
Each quarter, we also evaluate the expected 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 revenue. We evaluate
long-lived royalty-based assets for impairment generally using undiscounted cash flows 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
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