Electronic Arts 2013 Annual Report Download - page 170

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
abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated. 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. During fiscal year
2012, we recognized losses of $21 million, representing an adjustment to our fiscal 2011 restructuring. During
fiscal year 2011, we recognized losses of $85 million, inclusive of 75 million related to the fiscal 2011
restructuring, on previously unrecognized minimum royalty-based commitments. In addition, we recognized
impairment charges of $40 million, inclusive of $27 million related to the fiscal 2011 restructuring, on royalty-
based assets. The losses and impairment charges related to restructuring and other restructuring plan-related
activities are presented in Note 7 of the Notes to Consolidated Financial Statements.
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,
2013 2012
Other current assets .......................................................... $ 63 $ 85
Other assets ................................................................ 93 102
Royalty-related assets ...................................................... $156 $187
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,
2013 2012
Accrued royalties ............................................................ $103 $ 98
Other accrued expenses ....................................................... 21 23
Other liabilities ............................................................. 46 52
Royalty-related liabilities ................................................... $170 $173
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