Electronic Arts 2007 Annual Report Download - page 124

During fiscal 2006, restructuring charges were approximately $14 million, of which $8 million was for the
closure of certain United Kingdom facilities, $3 million for employee-related expenses, and $3 million in other
costs relating to our international publishing reorganization.
During the fourth quarter of fiscal 2006, we aligned our resources with our product plan for fiscal 2007 and
strategic opportunities relating to next-generation consoles, online and mobile platforms. As part of this
alignment we recorded a total pre-tax restructuring charge of $10 million, consisting entirely of one-time
benefits related to headcount reductions, which is included in restructuring charges in our Consolidated
Statement of Operations.
Interest and Other Income, Net
Interest and other income, net, for fiscal years 2006 and 2005 was as follows (in millions):
March 31,
2006
%ofNet
Revenue
March 31,
2005
%ofNet
Revenue $ Change % Change
$64 2% $56 2% $8 14%
For fiscal 2006, interest and other income, net, increased by $8 million, or 14 percent, as compared to fiscal
2005 primarily due to an increase of $31 million in interest income as a result of higher yields on our cash,
cash equivalent and short-term investment balances, partially offset by a net loss of $22 million in investments
and foreign currency activities.
Income Taxes
Income taxes for fiscal years 2006 and 2005 were as follows (in millions):
March 31,
2006
Effective
Tax Rate
March 31,
2005
Effective
Tax Rate % Change
$147 37.6% $221 30.5% (33%)
Our effective income tax rates were 37.6 percent and 30.5 percent for fiscal 2006 and fiscal 2005, respectively.
For fiscal 2006, our effective income tax rate was higher than the U.S. statutory rate of 35.0 percent for fiscal
2006 due to a number of factors, including the repatriation of foreign earnings in connection with the
American Jobs Creation Act of 2004, and additional charges resulting from certain non-deductible acquisition-
related costs during the second and fourth quarters of fiscal 2006, which were partially offset by other items.
Net Income
Net income for fiscal years 2006 and 2005 was as follows (in millions):
March 31,
2006
%ofNet
Revenue
March 31,
2005
%ofNet
Revenue $ Change % Change
$236 8% $504 16% $(268) (53%)
Net income decreased by $268 million, or 53 percent, in fiscal 2006 as compared to fiscal 2005. The decrease
was primarily due to a decrease in our net revenue and growth in our operating expenses. The growth in our
operating expenses was primarily driven by an increase in research and development expenses as we increased
our internal development efforts and invested in next-generation tools, technologies and titles, while at the
same time we continued to support current-generation product development.
Impact of Recently Issued Accounting Standards
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments —
An Amendment of FASB Statements No. 133 and 140”. SFAS No. 155 (1) permits fair value measurement for
any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation,
(2) clarifies that interest-only strips and principal-only strips are not subject to the requirements of
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, (3) establishes a requirement
to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that
are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies that
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