Electronic Arts 2014 Annual Report Download - page 138

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. 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. There were no material impairments in fiscal year 2014. We recognized $39 million and $12 million in
impairment charges in fiscal years 2013 and 2012, respectively. The charges for fiscal year 2013 consist of $34
million and $5 million that were recognized in cost of revenue and amortization of intangibles, respectively, on
our Consolidated Statement of Operations. The charges for fiscal year 2012 of $12 million were included in cost
of revenue on our Consolidated Statements of Operations.
Goodwill
In assessing impairment on our goodwill, we first analyze 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. The qualitative factors we assess
include long-term prospects of our performance, share price trends, market capitalization, and Company specific
events. If we conclude it is more likely than not that the fair value of a reporting unit exceeds its carrying
amount, we do not need to perform the two-step impairment test. If based on that assessment, we believe it is
more likely than not that the fair value of the reporting unit is less than its carrying value, a two-step goodwill
impairment test will 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. Reporting units are determined
by the components of operating segments that constitute a business for which (1) discrete financial information is
available, (2) segment management regularly reviews the operating results of that component, and (3) whether
the component has dissimilar economic characteristics to other components. We determined that it was more
likely than not that the fair value of our reporting unit exceeded its carrying amount and, as such, we did not need
to perform the two-step impairment test.
During the fiscal years ended March 31, 2014, 2013 and 2012, we completed our annual goodwill impairment
testing in the fourth quarter of each year and did not recognize any impairment charges on goodwill in fiscal
years 2014, 2013, and 2012.
Revenue Recognition, Sales Returns and Allowances, and Bad Debt Reserves
We derive revenue principally from sales of interactive software games, and related content and services on
(1) video game consoles (such as PlayStation 3 and 4 from Sony and Xbox 360 and Xbox One from Microsoft)
and PCs, and (2) mobile phones and tablets. We evaluate revenue recognition based on the criteria set forth in
FASB Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 985-605, Software:
Revenue Recognition. We classify our revenue as either product revenue or service and other revenue.
Product revenue. Our product revenue includes revenue associated with the sale of software games or related
content, whether delivered via a physical disc (e.g., packaged goods) or delivered digitally via the Internet (e.g.,
full-game downloads, micro-transactions), and licensing of game software to third-parties. Product revenue also
includes revenue from mobile full game downloads that do not require our hosting support, and sales of tangible
products such as hardware, peripherals, or collectors’ items.
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