Electronic Arts 2011 Annual Report Download - page 164

As of March 31, 2011, we have federal net operating loss (“NOL”) carry forwards of approximately $518 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 $735 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 $83 million, $95 million and $35 million, respectively. The U.S. federal tax credit
carry forwards will begin to expire in 2016. The California and Canada tax credit carry forwards can be carried
forward indefinitely.
The total unrecognized tax benefits as of March 31, 2011 and 2010 were $273 million and $278 million,
respectively. Of these amounts, $37 million and $35 million of liabilities would be offset by prior cash deposits
to tax authorities for issues pending resolution as of March 31, 2011 and 2010, respectively. A reconciliation of
the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):
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
Increases in unrecognized tax benefits related to prior year tax positions ......................... 9
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (41)
Increases in unrecognized tax benefits related to current year tax positions ....................... 46
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (14)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............. (12)
Changes in unrecognized tax benefits due to foreign currency translation ........................ 7
Balance as of March 31, 2011 ............................................................. $273
During the fiscal year ended March 31, 2011 we reached a final settlement with the Internal Revenue Service
(“IRS”) for the fiscal years 2000 through 2005. As a result, we recorded approximately $22 million of previously
unrecognized tax benefits and reduced our accrual for interest by approximately $10 million.
During the fiscal year ended March 31, 2010, we reached a final settlement with the 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. We also 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.
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, 2011, approximately $137 million of the unrecognized
tax benefits would affect our effective tax rate and approximately $123 million would result in corresponding
adjustments to the deferred tax valuation allowance. 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
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 $24 million as of March 31, 2011, as compared to $39 million as of March 31, 2010. Accrued
interest expense related to estimated obligations for unrecognized tax benefits decreased by approximately $15
million during fiscal year 2011. There is no material change in accrued penalties during fiscal year 2011.
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