Electronic Arts 2014 Annual Report Download - page 156

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 generally 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 abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated.
During fiscal year 2014, we recognized losses of $35 million, inclusive of impairment charges of $17 million on
royalty-based assets and $18 million of losses on previously unrecognized royalty-based commitments. During
fiscal year 2013, we recognized losses of $15 million on previously unrecognized royalty-based commitments,
inclusive of $9 million in license termination costs related to our fiscal 2013 restructuring. The losses related to
restructuring and other plan-related activities are presented in Note 8.
The current and long-term portions of prepaid royalties and minimum guaranteed royalty-related assets, included
in other current assets and other assets, consisted of (in millions):
As of March 31,
2014 2013
Other current assets .......................................................... $ 97 $ 63
Other assets ................................................................ 58 93
Royalty-related assets ...................................................... $155 $156
At any given time, depending on the timing of our payments to our co-publishing and/or distribution affiliates,
content licensors and/or independent software developers, we recognize unpaid royalty amounts owed to these
parties as accrued liabilities. The current and long-term portions of accrued royalties, included in accrued and
other current liabilities and other liabilities, consisted of (in millions):
As of March 31,
2014 2013
Accrued royalties ............................................................ $ 73 $103
Other accrued expenses ....................................................... 7 21
Other liabilities ............................................................. 53 46
Royalty-related liabilities ................................................... $133 $170
As of March 31, 2014, $1 million of restructuring accruals related to the fiscal 2013 restructuring plan, and $47
million of restructuring accruals related to the fiscal 2011 restructuring plan is included in royalty-related
liabilities in the table above. See Note 8 for details of restructuring and other restructuring plan-related activities
and Note 10 for the details of our accrued and other current liabilities.
In addition, as of March 31, 2014, we were committed to pay approximately $1,301 million to content licensors,
independent software developers, and co-publishing and/or distribution affiliates, but performance remained with
the counterparty (i.e., delivery of the product or content or other factors) and such commitments were therefore
not recorded in our Consolidated Financial Statements.
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