Electronic Arts 2007 Annual Report Download - page 165

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The differences between the statutory income tax rate and our effective tax rate, expressed as a percentage of
income before provision for income taxes and minority interest, for the years ended March 31, 2007, 2006 and
2005 were as follows:
2007 2006 2005
Year Ended March 31,
Statutory federal tax rate................................................ 35.0% 35.0% 35.0%
State taxes, net of federal benefit ......................................... (0.7%) 0.8% 1.4%
Differences between statutory rate and foreign effective tax rate................... (8.6%) (4.9%) (7.3%)
Research and development credits ......................................... (3.0%) (0.2%) (0.5%)
Resolution of tax-related matters with tax authorities ........................... (0.2%) (6.1%) —
Non-deductible acquisition related costs and tax expense from integration
restructurings ...................................................... 7.2% 8.7% 0.8%
Change in valuation allowance ........................................... 0.7% 0.4% 0.5%
Jobs Act, including state taxes ........................................... — 4.3% —
Non-deductible stock based compensation ................................... 15.5% — —
Other .............................................................. 2.3% (0.4%) 0.6%
Effective tax rate .................................................. 48.2% 37.6% 30.5%
For fiscal 2007, our effective income tax rate was higher than the U.S. statutory rate of 35.0 percent due to a
number of factors, including certain non-deductible acquisition-related costs, tax expense from integration
restructurings, and certain non-deductible stock based compensation related to SFAS No. 123(R).
Undistributed earnings of our foreign subsidiaries amounted to approximately $1 billion as of March 31, 2007.
Those earnings are considered to be indefinitely 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. It is not practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed.
The IRS has examined our U.S. income tax returns for fiscal years 1997 through 2003 and has proposed
certain adjustments. We do not agree with these adjustments and are planning to contest them. In addition,
during the second quarter of fiscal 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.
Annual Report
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