Electronic Arts 2010 Annual Report Download - page 174

A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable
resolution of the uncertain tax positions. As of March 31, 2010, approximately $130 million of the unrecognized
tax benefits would affect our effective tax rate and approximately $132 million would result in corresponding
adjustments to the deferred tax valuation allowance. As of March 31, 2009, approximately $166 million of the
unrecognized tax benefits would affect our effective tax rate and approximately $94 million would result in
adjustments to deferred tax valuation allowance.
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 $39 million as of March 31, 2010, as compared to $56 million as of March 31, 2009. Accrued
interest expense related to estimated obligations for unrecognized tax benefits decreased by approximately $13
million during fiscal 2010. Accrued penalties decreased by approximately $4 million during fiscal 2010.
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 IRS has completed its examination of our federal income tax returns through fiscal year 2005. As
of March 31, 2010, the IRS had proposed, and we had agreed to, certain adjustments to our tax returns for fiscal
years 2000 through 2005. 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, 2010, we had not agreed to certain other proposed adjustments for fiscal
years 2000 through 2005, and those issues were pending resolution by the Appeals section of the IRS.
Furthermore, the IRS has commenced an examination of our fiscal year 2006, 2007 and 2008 tax returns. We are
also currently under income tax examination in Canada for fiscal years 2004 and 2005, and in France for fiscal
years 2006 through 2008. We remain subject to income tax examination for several other jurisdictions including
Canada for fiscal years after 2001, in France for fiscal years after 2008, in Germany for fiscal years after 2007, in
the United Kingdom for fiscal years after 2008, and in Switzerland for fiscal years after 2007.
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. Although potential resolution of uncertain tax positions involve multiple tax periods and
jurisdictions, it is reasonably possible that a reduction of up to $30 million of unrecognized tax benefits may
occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of
statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting
effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any
settlements.
(11) COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of March 31, 2010, we leased certain of our current facilities, furniture and equipment under non-cancelable
operating lease agreements. We were required to pay property taxes, insurance and normal maintenance costs for
certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.
See Note 9 regarding the purchase of our Redwood Shores headquarters facilities on July 13, 2009.
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products we produce in our studios are designed and created by our employee designers, artists, software
programmers and by non-employee software developers (“independent artists” or “third-party developers”). We
typically advance development funds to the independent artists and third-party developers during development of
our games, usually in installment payments made upon the completion of specified development milestones.
Contractually, these payments are generally considered advances against subsequent royalties on the sales of the
products. These terms are set forth in written agreements entered into with the independent artists and third-party
developers.
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