Electronic Arts 2010 Annual Report Download - page 173

Annual Report
The valuation allowance increased by $82 million in fiscal year 2010, primarily due to the increase in deferred
tax assets for U.S. tax losses and tax credits that are not currently considered to be more likely than not to be
realized.
As of March 31, 2010, we have federal net operating loss (“NOL”) carry forwards of approximately $512 million
of which approximately $150 million is attributable to various acquired companies. These acquired net operating
loss carry forwards are subject to an annual limitation under Internal Revenue Code Section 382. The federal
NOL, if not fully realized, will begin to expire 2028. Furthermore, we have state net loss carry forwards of
approximately $637 million of which approximately $118 million is attributable to various acquired companies.
The state NOL, if not fully realized, will begin to expire 2016. We also have U.S. federal, California and Canada
tax credit carry forwards of $103 million, $88 million and $36 million, respectively. The U.S. federal tax credit
carry forwards will begin to expire 2016. The California and Canada tax credit carry forwards can be carried
forward indefinitely.
In February 2006, the FASB issued FASB ASC 740, Income Taxes, that clarifies the accounting and recognition
for income tax positions taken or expected to be taken in our tax returns. We adopted FASB ASC 740 on April 1,
2007, and recognized the cumulative effect of a change in accounting principle by recognizing a decrease in the
liability for unrecognized tax benefits of $18 million, with a corresponding increase to beginning retained
earnings. We also recognized an additional decrease in the liability for unrecognized tax benefits of $14 million
with a corresponding increase in beginning paid-in capital related to the tax benefits of employee stock options.
In our second quarter of fiscal year 2008, we increased the beginning retained earnings by approximately $1
million to reflect an immaterial revision to the cumulative effect of the adoption.
The total unrecognized tax benefits as of March 31, 2010 and 2009 were $278 million in each year. Of these
amounts, $35 million and $56 million of liabilities would be offset by prior cash deposits to tax authorities for
issues pending resolution as of March 31, 2010 and 2009, respectively. A reconciliation of the beginning and
ending balance of unrecognized tax benefits is summarized as follows (in millions):
Balance as of March 31, 2008 ............................................................. $312
Increases in unrecognized tax benefits related to prior year tax positions ......................... 21
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (24)
Increases in unrecognized tax benefits related to current year tax positions ....................... 36
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (13)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............. (29)
Changes in unrecognized tax benefits due to foreign currency translation ........................ (25)
Balance as of March 31, 2009 ............................................................. $278
Increases in unrecognized tax benefits related to prior year tax positions ......................... 10
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (8)
Increases in unrecognized tax benefits related to current year tax positions ....................... 69
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (45)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............. (31)
Changes in unrecognized tax benefits due to foreign currency translation ........................ 5
Balance as of March 31, 2010 ............................................................. $278
During the three months ended September 30, 2009, we reached a final settlement with the Internal Revenue
Service (“IRS”) for the fiscal years 1997 through 1999. As a result, we recognized a tax benefit of approximately
$6 million due to a reduction in our accrual for interest and penalties.
During the three months ended June 30, 2009, we recognized approximately $21 million of previously
unrecognized tax benefits and reduced our accrual for interest and penalties by approximately $12 million due to
the expiration of statutes of limitation in the United Kingdom.
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