Electronic Arts 2014 Annual Report Download - page 161

Annual Report
We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries
file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the United
Kingdom. During the fourth quarter of the fiscal year ended March 31, 2014 we reached a final settlement with
the Internal Revenue Service (“IRS”) for the fiscal years 2006 through 2008. As a result, we recorded
approximately $73 million of previously unrecognized tax benefits and reduced our accrual for interest by
approximately $6 million. The recognition of approximately $19 million of these previously unrecognized tax
benefits resulted in a reduction to our effective tax rate. The remainder, approximately $54 million, resulted in a
corresponding adjustment to the deferred tax valuation allowance. The IRS is currently examining our returns for
fiscal years 2009 through 2011, and we remain subject to income tax examination by the IRS for fiscal years
after 2011.
On January 18, 2011, we received a Corporation Notice of Reassessment (the “Notice”) from the Canada
Revenue Agency (“CRA”) claiming that we owe additional taxes, plus interest and penalties, for the 2004 and
2005 tax years. During the fourth quarter of the fiscal year ended March 31, 2014, we reached a final settlement
with the CRA for the 2004 and 2005 tax years. In addition, we reached agreement on the major terms of a
bilateral Advance Pricing Agreement (“APA”) with the IRS and the CRA for fiscal years 2006 through 2016. As
a result, we recorded approximately $17 million of previously unrecognized tax benefits and reduced our accrual
for interest by approximately $3 million. The recognition of these previously unrecognized tax benefits resulted
in a reduction to our effective rate.
We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2012,
in Germany for fiscal years 2008 through 2012, in Spain for fiscal years 2010 through 2013, and in Italy for
fiscal years 2009 through 2011. We remain subject to income tax examination for several other jurisdictions
including in France for fiscal years after 2011, in Germany for fiscal years after 2012, in the United Kingdom for
fiscal years after 2012, and in Switzerland for fiscal years after 2007.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if
any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued
for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and
jurisdictions, it is reasonably possible that a reduction of up to $11 million of unrecognized tax benefits may
occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of
statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting
effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any
settlements.
(12) FINANCING ARRANGEMENT
0.75% Convertible Senior Notes Due 2016
In July 2011, we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016
(the “Notes”). The Notes are senior unsecured obligations which pay interest semiannually in arrears at a rate of
0.75% per annum on January 15 and July 15 of each year, beginning on January 15, 2012 and will mature on
July 15, 2016, unless earlier purchased or converted in accordance with their terms prior to such date. The Notes
are senior in right of payment to any unsecured indebtedness that is expressly subordinated in right of payment to
the Notes.
The Notes are convertible into cash and shares of our common stock based on an initial conversion value of
31.5075 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion
price of approximately 31.74 per share). Upon conversion of the Notes, holders will receive cash up to the
principal amount of each Note, and any excess conversion value will be delivered in shares of our common stock.
Prior to April 15, 2016, the Notes are convertible only if (1) the last reported sale price of the common stock for
at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on
the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 percent of the
conversion price ($41.26 per share) on each applicable trading day; (2) during the five business day period after
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