Electronic Arts 2001 Annual Report Download - page 45

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ELECTRONIC ARTS
43
(k) Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset
and liability method, the Company recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The Company records a valuation allowance to reduce tax assets to an amount whose realization is
more likely than not.
(l) Foreign Currency Translation
For each of the Company’s foreign subsidiaries the functional currency is its local
currency. Assets and liabilities of foreign operations are translated into U.S. dollars using current exchange rates,
and revenues and expenses are translated into U.S. dollars using average exchange rates. The effects of foreign
currency translation adjustments are deferred and included as a component of accumulated other comprehensive
income (loss) in stockholders’ equity.
Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions
denominated in currencies other than the functional currency. Included in interest and other income in the state-
ments of operations are foreign currency transaction losses of $888,000, $1,781,000 and $1,168,000, for the fiscal
years ended March 31, 2001, 2000 and 1999, respectively.
(m) Net Income (Loss) Per Share
The following summarizes the computations of Basic Earnings Per Share (“EPS”)
and Diluted EPS. Basic EPS is computed as net earnings divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation plans including stock options, restricted stock awards, warrants and
other convertible securities using the treasury stock method.
Net income (loss) per share was calculated on a consolidated basis until Class A common stock and Class B com-
mon stock were created as a result of the approval of the Tracking Stock Proposal (see Note 2). Net income (loss)
per share is computed individually for Class A common stock and Class B common stock. Please see the discus-
sion regarding segment reporting in the MD&A.
Class A Class A Class B
(In thousands, except for per share amounts):
Common Common Common
Year Ended March 31, 2001 Stock-Basic Stock-Diluted Stock
Net income (loss) before retained interest in EA.com $ 142,422 $ (11,082) $ (153,504)
Net loss related to retained interest in EA.com (130,478) – 130,478
Net income (loss) $ 11,944 $ (11,082) $ (23,026)
Shares used to compute net income (loss) per share:
Weighted-average common shares 131,404 131,404 6,015
Dilutive stock equivalents – 652 –
Dilutive potential common shares 131,404 132,056 6,015
Net income (loss) per share:
Basic $ 0.09 N/A $ (3.83)
Diluted N/A $ (0.08) $ (3.83)