Electronic Arts 2005 Annual Report Download - page 109

become more signiÑcant, Microsoft and Sony could restrict our ability to provide online capabilities for our
console platform products. If Microsoft or Sony refused to approve our products with online capabilities or
signiÑcantly impacted the Ñnancial terms on which these services are oÅered to our customers, our business
could be harmed.
Our international net revenue is subject to currency Öuctuations.
For the Ñscal year ended March 31, 2005, international net revenue comprised 47 percent of our total net
revenue. We expect foreign sales to continue to account for a signiÑcant portion of our total net revenue. Such
sales are subject to unexpected regulatory requirements, tariÅs and other barriers. Additionally, foreign sales
are primarily made in local currencies, which may Öuctuate against the U.S. dollar. While we utilize foreign
exchange forward contracts to mitigate some foreign currency risk associated with foreign currency denomi-
nated assets and liabilities (primarily certain intercompany receivables and payables) and from time to time,
foreign currency option contracts to hedge foreign currency forecasted transactions (primarily related to a
portion of the revenue generated by our operational subsidiaries), our results of operations, including our
reported net revenue and net income, and Ñnancial condition would be adversely aÅected by unfavorable
foreign currency Öuctuations, particularly the Euro and Pound Sterling.
Changes in our tax rates or exposure to additional tax liabilities could adversely aÅect our operating
results and Ñnancial condition.
We are subject to income taxes in the United States and in various foreign jurisdictions. SigniÑcant judgment
is required in determining our worldwide provision for income taxes and, in the ordinary course of our
business, there are many transactions and calculations where the ultimate tax determination is uncertain. We
are also required to estimate what our taxes will be in the future. Although we believe our tax estimates are
reasonable, the estimate process is inherently uncertain, and our estimates are not binding on tax authorities.
Our eÅective tax rate could be adversely aÅected by changes in our business, including the mix of earnings in
countries with diÅering statutory tax rates, changes in the elections we make, changes in applicable tax laws as
well as other factors. Further, our tax determinations are regularly subject to audit by tax authorities and
developments in those audits could adversely aÅect our income tax provision. Should our ultimate tax liability
exceed our estimates, our income tax provision and net income could be materially aÅected.
We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added, net worth,
property and goods and services taxes, in both the United States and various foreign jurisdictions. We are
regularly under examination by tax authorities with respect to these non-income taxes. There can be no
Annual Report
assurance that the outcomes from these examinations, changes in our business or changes in applicable tax
rules will not have an adverse eÅect on our operating results and Ñnancial condition.
Changes in our worldwide operating structure could have adverse tax consequences.
We are in the process of examining our worldwide operating structure in light of changing tax laws, our current
and anticipated business operations, and the pending expiration of an oÅshore advance pricing agreements
with a foreign tax authority in December 2005 under which our current business operates. Certain changes
that we are considering, or a failure to make certain other changes, to our operating structure would increase
our tax expense.
In addition, while our current intention is to invest indeÑnitely our undistributed foreign earnings oÅshore, we
are in the process of evaluating whether we will change our intentions regarding a portion of our foreign
earnings and take advantage of the repatriation provision of the Jobs Act, and if so, the amount that we would
intend to repatriate. We may decide not to take advantage of the new law at all. In addition to not having
made a decision to repatriate any foreign earnings, we are not yet in a position to determine the impact of a
qualifying repatriation, should we choose to make one, on our income tax expense for Ñscal 2006.
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