Electronic Arts 2016 Annual Report Download - page 139

Annual Report
Unrealized gains and losses on our short-term investments are recorded as a component of accumulated other
comprehensive income (loss) in stockholders’ equity, net of tax, until either (1) the security is sold, (2) the
security has matured, or (3) we determine that the fair value of the security has declined below its adjusted cost
basis and the decline is other-than-temporary. Realized gains and losses on our short-term investments are
calculated based on the specific identification method and are reclassified from accumulated other
comprehensive income (loss) to interest and other income (expense), net, or gains on strategic investments, net.
Determining whether a decline in fair value is other-than-temporary requires management judgment based on the
specific facts and circumstances of each security. The ultimate value realized on these securities is subject to
market price volatility until they are sold.
Our short-term investments are evaluated for impairment quarterly. We consider various factors in determining
whether we should recognize an impairment charge, including the credit quality of the issuer, the duration that
the fair value has been less than the adjusted cost basis, severity of the impairment, reason for the decline in
value and potential recovery period, the financial condition and near-term prospects of the investees, our intent to
sell and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in
market value, and any contractual terms impacting the prepayment or settlement process. If we conclude that an
investment is other-than-temporarily impaired, we recognize an impairment charge at that time in our
Consolidated Statements of Operations. Based on our evaluation, we did not consider any of our investments to
be other-than-temporarily impaired as of March 31, 2016 and 2015.
Inventories
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor and
freight-in and are stated at the lower of cost (using the weighted average costing method) or net realizable value.
We regularly review inventory quantities on-hand. We write down inventory based on excess or obsolete
inventories determined primarily by future anticipated demand for our products. Inventory write-downs are
measured as the difference between the cost of the inventory and market value, based upon assumptions about
future demand that are inherently difficult to assess. At the point of a loss recognition, a new, lower cost basis for
that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or
increase in that newly established basis.
Property and Equipment, Net
Property and equipment, net, are stated at cost. Depreciation is calculated using the straight-line method over the
following useful lives:
Buildings ..................................... 20to25years
Computer equipment and software ................. 3to6years
Equipment, furniture and fixtures, and other .......... 3to5years
Leasehold improvements ......................... Lesser of the lease term or the estimated useful lives
of the improvements, generally 1 to 10 years
We capitalize costs associated with internal-use software development once a project has reached the application
development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the
software, and payroll and payroll-related expenses for employees who are directly associated with the
development of the software. 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 $55 million and $62 million as of
March 31, 2016 and 2015, 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.
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