Electronic Arts 2014 Annual Report Download - page 143

Annual Report
involves assumptions about future activity. Certain taxable temporary differences that are not expected to reverse
during the carry forward periods permitted by tax law cannot be considered as a source of future taxable income
that may be available to realize the benefit of deferred tax assets.
Based on the assumptions and requirements noted above, we have recorded a valuation allowance against most of
our U.S. deferred tax assets. In addition, we expect to provide a valuation allowance on future U.S. tax benefits
until we can sustain a level of profitability in the U.S., or until other significant positive evidence arises that
suggest that these benefits are more likely than not to be realized.
Impact of Recently Issued Accounting Standards
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property,
Plant, and Equipment (Topic 360). The amendments of this ASU require that only the disposals representing a
strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a
major effect on the organization’s operations and financial results. The disclosure requirements will be effective
for annual periods (and interim periods within those annual periods) beginning after December 15, 2014, and will
require prospective application. Early adoption is permitted. We expect to adopt this new standard in the first
quarter of fiscal year 2016. We do not expect the adoption to have a material impact on our Consolidated
Financial Statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 220): Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The
amendments of this ASU require that entities that have an unrecognized tax benefit and a net operating loss
carryforward or similar tax loss or tax credit carryforward in the same jurisdiction as the uncertain tax position
present the unrecognized tax benefit as a reduction of the deferred tax asset for the loss or tax credit carryforward
rather than as a liability when the uncertain tax position would reduce the loss or tax credit carryforward under
the tax law. The disclosure requirements will be effective for annual periods (and interim periods within those
annual periods) beginning after December 15, 2013, and will require prospective application. Early adoption is
permitted. The adoption will impact our balance sheet only, and we expect to adopt this new standard in the first
quarter of fiscal year 2015. While we have not completed our analysis, we anticipate the adoption will result in
equal reductions to both deferred tax assets and noncurrent income tax obligations between $80 million and $90
million.
(2) FAIR VALUE MEASUREMENTS
There are various valuation techniques used to estimate fair value, the primary one being the price that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining fair value, we consider the principal or most advantageous market in
which we would transact and consider assumptions that market participants would use when pricing the asset or
liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and
nonrecurring basis.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
•Level 1. Quoted prices in active markets for identical assets or liabilities.
•Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for
similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions
(less active markets), or model-derived valuations in which all significant inputs are observable or can be
derived principally from or corroborated with observable market data for substantially the full term of the
assets or liabilities.
•Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of assets or liabilities.
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