Electronic Arts 2005 Annual Report Download - page 143

Ñscal 2006. The deduction would result in an approximate 5.25 percent federal tax on a portion of the foreign
earnings repatriated. State, local and foreign taxes could apply as well. To qualify for this federal tax
deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan
established by our chief executive oÇcer and approved by the Board of Directors. Certain other criteria in the
Jobs Act must be satisÑed as well. The maximum amount of our foreign earnings that we may repatriate
subject to the Jobs Act deduction is $500 million.
As stated above, we have historically considered undistributed earnings of our foreign subsidiaries to be
indeÑnitely reinvested and, accordingly, no U.S. taxes have been provided thereon. As a result of the Jobs Act,
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 provisions of the Jobs Act, and if so, the amount that we would
repatriate. We may not 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 accurately determine the impact of a qualifying
repatriation, should we choose to make one, on our income tax expense for Ñscal 2006. If we decide to
repatriate a portion of our foreign earnings, we would be required to recognize income tax expense related to
the federal, state, local and foreign taxes that we would incur on the repatriated earnings when the decision is
made. We estimate that the reasonably possible amount of the income tax expense could be up to $35 million.
We expect to be in a position to Ñnalize our analysis no later than February 2006.
(11) STOCKHOLDERS' EQUITY
(a) Preferred Stock
As of March 31, 2005 and 2004, 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
Annual Report
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 back 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 were acquired or converted to common stock
and warrants.
At our Annual Meeting of Stockholders, held on July 29, 2004, our stockholders elected to amend and restate
our CertiÑcate of Incorporation to consolidate our Class A and Class B common stock into a single class of
common stock by reclassifying each outstanding share of Class A common stock as one share of common
stock and converting each outstanding share of Class B common stock into 0.001 share of common stock. Our
stockholders also elected to further amend and restate our CertiÑcate of Incorporation to increase the
authorized common stock from 500 million total shares of Class A and Class B common stock combined to
1 billion shares of the newly consolidated single class of common stock. These amendments were eÅective on
August 2, 2004. Prior year Class A common stock has been reclassiÑed to common stock to reÖect these
amendments.
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