Electronic Arts 2005 Annual Report Download - page 126

In December 2004, the Financial Accounting Standards Board (""FASB'') issued SFAS No. 123 (revised
2004) (""SFAS No. 123R''), ""Share-Based Payment''. SFAS No. 123R requires that the cost resulting from
all share-based payment transactions be recognized in Ñnancial statements using a fair-value-based method.
The statement replaces SFAS No. 123, supersedes APB No. 25, and amends SFAS No. 95, ""Statement of
Cash Flows''. While the fair value method under SFAS No. 123R is very similar to the fair value method
under SFAS No. 123 with regards to measurement and recognition of stock-based compensation, manage-
ment is currently evaluating the impact of several of the key diÅerences between the two standards on our
consolidated Ñnancial statements. For example, SFAS No. 123 permits us to recognize forfeitures as they
occur while SFAS No. 123R will require us to estimate future forfeitures and adjust our estimate on a
quarterly basis. SFAS No. 123R also will require a classiÑcation change in the statement of cash Öows,
whereby a portion of the tax beneÑt from stock options will move from operating cash Öow activities to
Ñnancing cash Öow activities (total cash Öows will remain unchanged).
In March 2005, the Securities and Exchange Commission (""SEC'') released SAB No. 107, ""Share-based
Payment'', which provides the views of the staÅ regarding the interaction between SFAS No. 123R and
certain SEC rules and regulations for public companies. In April 2005, the SEC adopted a rule that amends
the compliance dates of SFAS No. 123R. Under the revised compliance dates, we will be required to adopt
the provisions of SFAS No. 123R no later than the Ñrst interim period of Ñscal 2007. While management
continues to evaluate the impact of SFAS No. 123R on our consolidated Ñnancial statements, we currently
believe that the expensing of stock-based compensation will have an impact on our Consolidated Statements
of Operations similar to our pro forma disclosure under SFAS No. 123, as amended.
(p) Foreign Currency Translation
For each of our foreign operating subsidiaries the functional currency is its local currency. Assets and liabilities
of foreign operations are translated into U.S. dollars using month-end exchange rates, and revenue and
expenses are translated into U.S. dollars using average exchange rates. The eÅects of foreign currency
translation adjustments are included as a component of accumulated other comprehensive income (loss) in
stockholders' equity.
Foreign currency transaction gains and losses are a result of the eÅect of exchange rate changes on
transactions denominated in currencies other than the functional currency. Included in interest and other
income, net in the Consolidated Statements of Operations are foreign currency transaction gains (losses) of
$(23) million, $44 million and $22 million for the Ñscal years ended March 31, 2005, 2004 and 2003,
respectively.
(q) Impact of Recently Issued Accounting Standards
In March 2004, the FASB ratiÑed the other-than-temporary impairment measurement and recognition
guidance and certain disclosure requirements for impaired securities as described in EITF Issue No. 03-1,
""The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments''.In
September 2004, the FASB issued a proposed StaÅ Position (""FSP'') EITF Issue No. 03-1-a, ""Implementa-
tion Guidance for the Application of Paragraph 16 of EITF 03-1''. The proposed FSP will provide
measurement and recognition guidance with respect to debt securities that are impaired solely due to interest
rates and/or sector spreads. In October 2004, the FASB delayed the eÅective date for the other-than-
temporary impairment measurement and recognition guidance contained in paragraphs 10-20 of EITF Issue
No. 03-1 until FSP Issue No. 03-1-a is issued. However, this delay does not suspend the requirement to
recognize other-than-temporary impairments as required by existing authoritative literature; nor does it delay
the required disclosures about unrealized losses that have not been recognized as other-than-temporary
impairments in paragraphs 21-22 of EITF Issue No. 03-1. See Note 2 of the Notes to Consolidated Financial
Statements. Management is unable to determine what impact the adoption of the measurement and
recognition guidance in EITF Issue No. 03-1 will have on our consolidated Ñnancial statements.
In November 2004, the FASB issued SFAS No. 151, ""Inventory Costs Ì an amendment of ARB No. 43,
Chapter 4''. SFAS No. 151 amends the guidance in Accounting Research Bulletin (""ARB'') No. 43,
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