Electronic Arts 2012 Annual Report Download - page 130

Interest and Other Income (Expense), Net
Interest and other income (expense), net, for fiscal years 2012 and 2011 were as follows (in millions):
March 31,
2012
% of Net
Revenue
March 31,
2011
% of Net
Revenue $ Change % Change
$(17) — $10 — $(27) (270%)
Interest and other income (expense), net decreased by $27 million, or 270 percent, during fiscal year 2012 as
compared to the fiscal year 2011, primarily due to (1) a $19 million increase in interest expense due to our 0.75%
Convertible Senior Notes due 2016, which were issued in July 2011 and (2) $8 million increase in foreign
currency transaction losses as compared to the same period in the prior year.
Income Taxes
Benefit from income taxes for fiscal years 2012 and 2011 was as follows (in millions):
March 31,
2012
Effective
Tax Rate
March 31,
2011
Effective
Tax
Rate
$(58) (322.2%) $(3) (1.1%)
Our effective tax rate for the fiscal year 2012 was a tax benefit of 322.2 percent. Our effective tax rate for the
fiscal year 2011 was a tax benefit of 1.1 percent. In fiscal year 2012 we recorded approximately $58 million of
additional net deferred tax liabilities related to the PopCap and KlickNation Corporation (“KlickNation”)
acquisitions. These additional deferred tax liabilities create a new source of taxable income, thereby requiring us
to release a portion of our deferred tax asset valuation allowance with a related reduction in income tax expense
of $58 million. In addition, during the three months ended March 31, 2012, we recorded $48 million of additional
tax benefits related to the expiration of statutes of limitations in non-U.S. tax jurisdictions.
Consistent with prior years, the fiscal year 2012 effective tax rate continues to differ from the statutory rate of
35.0 percent as a result of the utilization of U.S. deferred tax assets subject to a valuation allowance and non-U.S.
profits subject to a reduced or zero tax rate, partially offset by non-deductible stock-based compensation. In
addition, the fiscal year 2012 effective tax rate is impacted by tax benefits related to the expiration of statutes of
limitations and the resolution of examinations by taxing authorities, as well as a reduction in the U.S. valuation
allowance related to the PopCap and KlickNation acquisitions. In fiscal year 2011, the effective tax rate differs
from the statutory rate of 35.0 percent primarily due to U.S. losses for which no benefit is recognized, non-U.S.
losses with a reduced or zero tax benefit and non-deductible stock-based compensation expenses, partially offset
by tax benefits related to the expiration of statutes of limitations and resolution of examination by taxing
authorities.
Our effective income tax rates for fiscal year 2013 and future periods will depend on a variety of factors,
including changes in the deferred tax valuation allowance, as well as changes in our business such as acquisitions
and intercompany transactions, changes in our international structure, changes in the geographic location of
business functions or assets, changes in the geographic mix of income, changes in or termination of our
agreements with tax authorities, applicable accounting rules, applicable tax laws and regulations, rulings and
interpretations thereof, developments in tax audit and other matters, and variations in our annual pre-tax income
or loss. We incur certain tax expenses that do not decline proportionately with declines in our pre-tax
consolidated income or loss. As a result, in absolute dollar terms, our tax expense will have a greater influence on
our effective tax rate at lower levels of pre-tax income or loss than at higher levels. In addition, at lower levels of
pre-tax income or loss, our effective tax rate will be more volatile.
Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted
by tax law have not been considered as a source of future taxable income that is available to realize the benefit of
deferred tax assets.
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