Electronic Arts 2014 Annual Report Download - page 160

The valuation allowance increased by $165 million in fiscal year 2014, primarily due to the increase in deferred
tax assets for U.S. tax credits that are not currently considered to be more likely than not to be realized.
As of March 31, 2014, we have federal net operating loss (“NOL”) carry forwards of approximately $402 million
of which approximately $48 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 in 2032. Furthermore, we have state net loss carry forwards of
approximately $932 million of which approximately $137 million is attributable to various acquired companies.
The state NOL, if not fully realized, will begin to expire in 2016. We also have U.S. federal, California and
Canada tax credit carry forwards of $365 million, $121 million and $14 million, respectively. The U.S. federal
tax credit carry forwards will begin to expire in 2019. The California and Canada tax credit carry forwards can be
carried forward indefinitely.
The total unrecognized tax benefits as of March 31, 2014 and 2013 were $232 million and $297 million,
respectively. As of March 31, 2014, no prior cash deposits to tax authorities for issues pending resolution as of
March 31, 2014 were available to offset tax liabilities. As of March 31, 2013, prior cash deposits to tax
authorities for issues pending resolution as of March 31, 2013 were available to offset $46 million of liabilities.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in
millions):
Balance as of March 31, 2012 ............................................................ $274
Increases in unrecognized tax benefits related to prior year tax positions ......................... 2
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (2)
Increases in unrecognized tax benefits related to current year tax positions ....................... 30
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... —
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............ (5)
Changes in unrecognized tax benefits due to foreign currency translation ........................ (2)
Balance as of March 31, 2013 ............................................................ 297
Increases in unrecognized tax benefits related to prior year tax positions ......................... 10
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (79)
Increases in unrecognized tax benefits related to current year tax positions ....................... 44
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (29)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............ (9)
Changes in unrecognized tax benefits due to foreign currency translation ........................ (2)
Balance as of March 31, 2014 ............................................................ $232
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, 2014, approximately $84 million of the unrecognized
tax benefits would affect our effective tax rate and approximately $148 million would result in adjustments to
deferred tax valuation allowance. As of March 31, 2013, approximately $106 million of the unrecognized tax
benefits would affect our effective tax rate and approximately $177 million would result in corresponding
adjustments to the 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 $16 million as of March 31, 2014, as compared to $23 million as of March 31, 2013. Accrued
interest expense related to estimated obligations for unrecognized tax benefits decreased by approximately $7
million during fiscal year 2014. There is no material change in accrued penalties during fiscal year 2014.
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