Electronic Arts 2008 Annual Report Download - page 167

The total liability for gross unrecognized tax benefits included in our Consolidated Balance Sheet as of April 1,
2007 was $283 million. The liability for gross unrecognized tax benefits increased by approximately
$29 million during the current year to a total liability as of March 31, 2008 of $312 million. Of these amounts,
$41 million of liabilities would be offset by prior cash deposits to tax authorities for issues pending resolution.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows
(in millions):
Balance as of April 1, 2007 ......................................................... $283
Increases in unrecognized tax benefits related to prior year tax positions ...................... 10
Decreases in unrecognized tax benefits related to prior year tax positions ..................... (9)
Increases in unrecognized tax benefits related to current year tax positions .................... 23
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............. —
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations .......... (2)
Changes in unrecognized tax benefits due to foreign currency translation ..................... 7
Balance as of March 31, 2008 ....................................................... $312
As of March 31, 2008, approximately $257 million of the unrecognized tax benefits would affect our effective
tax rate, as compared to $239 million as of April 1, 2007, if recognized upon resolution of the uncertain tax
positions.
Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized
in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued
interest and penalties related to tax positions taken on our tax returns and included in non-current other
liabilities was approximately $55 million as of March 31, 2008, as compared to $42 million as of April 1,2007.
Approximately $13 million of accrued interest expense related to estimated obligations for unrecognized tax
benefits was recognized during fiscal 2008.
Prior to April 1, 2007, we presented our estimated liability for unrecognized tax benefits as a current liability.
Beginning on April 1, 2007, however, FIN No. 48 requires us to classify liabilities for unrecognized tax
benefits based on whether we expect payment will be made within the next 12 months. Amounts expected to
be paid within the next 12 months are classified as a current liability and all other amounts are classified as a
non-current liability. In addition, prior to April 1, 2007 we presented our estimated state, local and interest
liabilities net of the estimated benefit we expect to receive from deducting such payments on future tax returns
(i.e., on a “net” basis). Beginning on April 1, 2007, FIN No. 48 requires this estimated benefit to be classified
as a deferred tax asset instead of a reduction of the overall liability (i.e., on a “gross” basis).
We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries
file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the
United Kingdom. The Internal Revenue Service (“IRS”) has completed its examination of our federal income
tax returns through fiscal year 2003. As of March 31, 2008, the IRS had proposed, and we had agreed to,
certain adjustments to our tax returns. The effects of these adjustments have been considered in estimating our
future obligations for unrecognized tax benefits and are not expected to have a material impact on our
financial position or results of operations. As of March 31, 2008, we had not agreed to certain other proposed
adjustments for fiscal years 1997 through 2003, and those issues were pending resolution by the Appeals
section of the IRS. Furthermore, the IRS has commenced an examination of our fiscal year 2004 and 2005 tax
returns. We are also under income tax examination in Canada for fiscal years 2004 and 2005. We remain
subject to income tax examination in Canada for fiscal years after 1999, in France, Germany, and the United
Kingdom for fiscal years after 2003, and in Switzerland for fiscal years after 2006.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid,
if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts
accrued for each year. While it is reasonably possible that some of the issues in the IRS and Canadian
examinations could be resolved in the next 12 months, at this stage of the process it is not practicable to
estimate a range of the potential change in the underlying unrecognized tax benefits.
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