Electronic Arts 2004 Annual Report Download - page 98

During the Ñscal year ended March 31, 2003, we successfully prevailed in Tax Court proceedings with respect
to previously-contested deÑciencies issued by the Internal Revenue Service (""IRS'') in conjunction with its
audit of our U.S. income tax returns for the Ñscal years 1993 through 1996. In addition, the IRS examined
our U.S. income tax returns for Ñscal years 1997 through 1999 and has proposed certain adjustments. During
the fourth quarter of Ñscal 2004, we resolved certain of these matters with the Internal Revenue Service,
which lowered our income tax expense by $19.7 million and resulted in a 2.5 percent rate reduction. However,
we have not resolved certain other issues identiÑed by the IRS for these tax years and are planning to contest
them. In addition, the IRS has recently commenced an examination of our U.S. income tax returns for Ñscal
years 2000 through 2003. While the ultimate resolution of tax audits involves a degree of uncertainty, we
believe that adequate amounts of tax accruals have been provided for any adjustments that are expected to
result for these years.
(12) STOCKHOLDERS' EQUITY
(a) Preferred Stock
As of March 31, 2004 and 2003, we had 10,000,000 shares of preferred stock authorized but unissued. The
rights, preferences, and restrictions of the preferred stock may be designated by the Board of Directors
without further action by our stockholders.
(b) Tracking Stock
On March 22, 2000, our stockholders authorized the issuance of a new series of common stock, designated as
Class B common stock (""Tracking Stock''). The Tracking Stock was intended to reÖect the performance of
the EA.com business segment. As a result of the approval of the Tracking Stock Proposal, our existing
common stock was re-classiÑed as Class A common stock and was intended to reÖect the performance of the
EA Core business segment. With the authorization of the Class B common stock, we transferred a portion of
our consolidated assets, liabilities, revenue, expenses and cash Öows to EA.com Inc., a wholly-owned
subsidiary of Electronic Arts.
In March 2003, we consolidated the operations of EA.com into our core operations in order to increase
eÇciency, simplify our reporting structure and more directly integrate our online activities into our core
console and PC business. As a result, we eliminated dual class reporting starting in Ñscal 2004. The majority of
outstanding Class B options and warrants not directly held by us have been acquired or converted to Class A
shares and warrants.
(13) EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS
(a) Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan program, which commenced in September 1991, whereby eligible
employees may authorize payroll deductions of up to 10 percent of their compensation to purchase shares at
85 percent of the lower of the fair market value of the Class A common stock on the date of commencement of the
offering or on the last day of the six-month purchase period. A new Employee Stock Purchase Plan program, the
""2000 Class A Employee Stock Purchase Plan'' was approved by the Board of Directors in May 2000 and
commenced in August 2000. In addition, we have a stock purchase plan which was adopted without stockholder
approval, the International Employee Stock Purchase Plan, which was terminated by the Board of Directors in
connection with the amendment of the stockholder-approved Plan discussed below as of February 2003.
The International Employee Stock Purchase Plan was adopted by the Board of Directors in June 1996 and
amended in October 1998, February 1999 and February 2002 and is in all material respects identical to the
2000 Class A Employee Stock Purchase Plan approved by the stockholders for U.S. employees. In February
2003, the Board of Directors approved an amendment to the 2000 Class A Employee Stock Purchase Plan to
segregate provisions of the Plan for purchases intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended (the ""Code'') for participants residing in the U.S., from those that are not
intended to qualify under Section 423 of the Code for participants residing outside of the U.S. Accordingly,
we will no longer issue Class A common stock under the International Employee Stock Purchase Plan.
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