Electronic Arts 2006 Annual Report Download - page 167

The diÅerences between the statutory income tax rate and our eÅective tax rate, expressed as a percentage
of income before provision for income taxes and minority interest, for the years ended March 31, 2006,
2005 and 2004 were as follows:
Year Ended March 31,
2006 2005 2004
Statutory federal tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0% 35.0% 35.0%
State taxes, net of federal beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.8% 1.4% 1.8%
DiÅerences between statutory rate and foreign eÅective tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4.9%) (7.3%) (6.2%)
Research and development credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.2%) (0.5%) (0.6%)
Resolution of tax-related matters with tax authorities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6.1%) Ì (2.5%)
Non-deductible acquisition related costs and tax expense from integration
restructurings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.7% 0.8% Ì
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.4% 0.5% Ì
Jobs Act Repatriation, including state taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.3% Ì Ì
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.4%) 0.6% Ì
EÅective tax rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37.6% 30.5% 27.5%
Our eÅective income tax rate was higher than the U.S. statutory rate of 35.0 percent due to a number of
factors, including the repatriation of foreign earnings in connection with the American Jobs Creation Act
of 2004 (the ""Jobs Act'') and additional charges resulting from certain intercompany transactions during
the second and fourth quarters of Ñscal 2006, non-deductible acquisition related costs from our acquisitions
of JAMDAT and an additional 10 percent of DICE, which were partially oÅset by other items.
Undistributed earnings of our foreign subsidiaries amounted to approximately $873 million as of March 31,
2006. Those earnings are considered to be indeÑnitely reinvested and, accordingly, no U.S. income taxes
have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we
would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to various foreign countries.
The IRS examined our U.S. income tax returns for Ñscal 1997 through 1999 and proposed certain
adjustments. During the fourth quarter of Ñscal 2004, we resolved certain of these matters with the IRS,
which lowered our income tax expense by approximately $20 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 examined our U.S. income tax returns for Ñscal years
Annual Report
2000 through 2003 and proposed certain adjustments. We do not agree with these adjustments and are
planning to contest them. During the second quarter of Ñscal 2006, we recorded various adjustments for
the resolution of certain tax-related matters with foreign tax authorities that resulted in a 6.1 percent rate
reduction. While the ultimate resolution of tax audits is uncertain, we expect that the aggregate tax
accruals which have been provided should be adequate for the aggregate adjustments that are likely to
result for these years.
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