Electronic Arts 2008 Annual Report Download - page 165

The differences between the statutory income tax rate and our effective tax expense (benefit) rate, expressed as
a percentage of income (loss) before provision for income tax expense (benefit) and minority interest, for the
years ended March 31, 2008, 2007 and 2006 were as follows:
2008 2007 2006
Year Ended March 31,
Statutory federal tax expense (benefit) rate ........................... (35.0%) 35.0% 35.0%
State taxes, net of federal benefit .................................. (2.7%) (0.7%) 0.8%
Differences between statutory rate and foreign effective tax rate. . .......... 1.9% (8.6%) (4.9%)
Research and development credits .................................. (1.5%) (3.0%) (0.2%)
Resolution of tax-related matters with tax authorities .................... — (0.2%) (6.1%)
Non-deductible acquisition-related costs and tax expense from integration
restructurings ............................................... 9.5% 7.2% 8.7%
Non-deductible losses on strategic investments ........................ 8.2% — —
Loss on facility impairment ...................................... 3.5% — —
Jobs Act, including state taxes .................................... — — 4.3%
Non-deductible stock-based compensation ............................ 5.5% 15.5% —
Other....................................................... 0.3% 3.0% —
Effective tax expense (benefit) rate ............................. (10.3%) 48.2% 37.6%
Undistributed earnings of our foreign subsidiaries amounted to approximately $1.3 billion as of March 31,
2008. 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 components of the deferred tax assets, net, as of March 31, 2008 and 2007 consisted of (in millions):
2008 2007
As of March 31,
Deferred tax assets:
Accruals, reserves and other expenses ........................................ $187 $101
Tax credit carryforwards .................................................. 109 60
Equity compensation ..................................................... 50 25
Net operating loss & capital loss carryforwards ................................. 78 8
Total............................................................... 424 194
Valuation allowance ...................................................... (22) (5)
Deferred tax asset net of valuation allowance ................................. 402 189
Deferred tax liabilities:
Depreciation ........................................................... (41) (41)
Amortization........................................................... (20) (21)
State effect on federal taxes ................................................ (34) (23)
Unrealized gain on marketable equity securities ................................. (3) —
Prepaids and other liabilities ............................................... (5) (3)
Total............................................................... (103) (88)
Deferred tax asset, net .................................................. $299 $101
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