Electronic Arts 2005 Annual Report Download - page 88

Interest and Other Income, Net
Interest and other income, net, for Ñscal years 2005 and 2004 was (in millions):
March 31, % of Net March 31, % of Net
2005 Revenue 2004 Revenue $ Change % Change
$56 1.8% $21 0.7% $35 163.8%
Interest and other income, net, in Ñscal 2005 increased from Ñscal 2004 primarily due to:
‚ An increase of $15 million in interest income, net, as a result of higher yields on higher average cash,
cash equivalents and short-term investments balances in Ñscal 2005.
‚ An increase of $10 million due to gains on investments.
‚ An increase of $8 million due to a net gain from our foreign currency activities.
Income Taxes
Income taxes for Ñscal years 2005 and 2004 were (in millions):
March 31, EÅective March 31, EÅective
2005 Tax Rate 2004 Tax Rate % Change
$221 30.5% $220 27.5% 0.7%
Our eÅective income tax rate reÖects tax beneÑts derived from signiÑcant operations outside the U.S., which
are generally taxed at rates lower than the U.S. statutory rate of 35 percent. The eÅective income tax rate was
30.5 percent for Ñscal 2005 and 27.5 percent for Ñscal 2004. Our increased eÅective income tax rate in Ñscal
2005 primarily reÖects the fact that we resolved certain tax-related matters with the Internal Revenue Service
during Ñscal 2004, which lowered our Ñscal 2004 income tax expense by approximately $20 million and
resulted in a 2.5 percent rate reduction. Additionally, adjustments related to certain tax audit developments, a
change in valuation allowance, and non-deductible acquisition-related costs, partially oÅset by the geographic
mix of taxable income subject to lower tax rates for Ñscal 2005, increased our eÅective income tax rate in Ñscal
2005.
We currently intend to indeÑnitely reinvest our accumulated foreign earnings outside the United States, and,
accordingly, have not provided for U.S. taxes that would be incurred if such earnings were repatriated back to
the U.S. Undistributed earnings of our foreign subsidiaries amounted to approximately $896 million as of
March 31, 2005.
Our eÅective income tax rates for Ñscal 2006 and future periods will depend on a variety of factors. For
example, changes in our business, including acquisitions, changes in our international structure, changes in the
geographic location of business functions or assets, changes in the geographic mix of income, as well as
changes in, or termination of, our agreements with tax authorities, valuation allowances, applicable accounting
rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and
other matters, and variations in the estimated and actual level of annual pre-tax income can aÅect the overall
eÅective income tax rate for future Ñscal years. In addition, we may incur additional tax expense to the extent
we undertake certain international restructurings that we are considering.
The American Jobs Creation Act of 2004 (the ""Jobs Act''), enacted on October 22, 2004, provides for a
temporary 85 percent dividends received deduction on certain foreign earnings repatriated in Ñscal 2005 or
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.
We historically have 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
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