Electronic Arts 2012 Annual Report Download - page 177

Annual Report
The differences between the statutory tax expense (benefit) rate and our effective tax expense rate, expressed as a
percentage of income (loss) before benefit from income taxes, for the fiscal years ended March 31, 2012, 2011
and 2010 were as follows:
Year Ended March 31,
2012 2011 2010
Statutory federal tax expense (benefit) rate ............................... 35.0% (35.0%) (35.0%)
State taxes, net of federal benefit ....................................... (33.5%) (5.8%) (3.4%)
Differences between statutory rate and foreign effective tax rate .............. (33.5%) 12.3% 4.2%
Valuation allowance ................................................. (195.1%) 23.7% 17.2%
Research and development credits ...................................... (39.2%) (2.4%) (1.1%)
Non-deductible acquisition-related costs and tax expense from integration
restructurings .................................................... 16.7% — 8.2%
Differences between book and tax loss on strategic investments ............... — (8.6%) —
Expiration of statutes of limitations ..................................... (266.8%) — —
Non-deductible stock-based compensation ............................... 205.6% 12.1% 5.0%
Other ............................................................. (11.4%) 2.6% 0.8%
Effective tax benefit rate ............................................ (322.2%) (1.1%) (4.1%)
Undistributed earnings of our foreign subsidiaries amounted to approximately $1,415 million as of March 31,
2012. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. income taxes have
been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be
subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable
to various foreign countries. It is not practicable to determine the income tax liability that might be incurred if
these earnings were to be distributed.
The components of net deferred tax assets, as of March 31, 2012 and 2011 consisted of (in millions):
As of March 31,
2012 2011
Deferred tax assets:
Accruals, reserves and other expenses ......................................... $182 $178
Tax credit carryforwards .................................................... 201 181
Stock-based compensation .................................................. 49 66
Amortization ............................................................. — 12
Unrealized gain on marketable equity securities .................................. 14 —
Net operating loss & capital loss carryforwards .................................. 273 234
Total .................................................................. 719 671
Valuation allowance ....................................................... (487) (515)
Deferred tax assets, net of valuation allowance ................................ 232 156
Deferred tax liabilities:
Depreciation .............................................................. (19) (7)
State effect on federal taxes .................................................. (52) (56)
Amortization ............................................................. (44) —
Unrealized gain on marketable equity securities .................................. — (3)
Prepaids and other liabilities ................................................. (22) (27)
Total .................................................................. (137) (93)
Deferred tax assets, net of valuation allowance and deferred tax liabilities ........... $ 95 $ 63
The valuation allowance decreased by $28 million in fiscal year 2012, primarily due to the decrease in net
deferred tax assets as a result of the PopCap and KlickNation acquisitions.
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