Electronic Arts 2016 Annual Report Download - page 158

We generated income in lower tax jurisdictions primarily related to our European and Asia Pacific businesses
that are headquartered in Switzerland.
Historically, we have considered all undistributed earnings of our foreign subsidiaries to be indefinitely
reinvested outside of the United States and, accordingly, no U.S. taxes have been provided thereon. During the
fourth quarter of fiscal year 2016, we issued the Senior Notes and we announced a $500 million stock repurchase
program. In light of these future obligations, we reevaluated our intent to indefinitely reinvest all earnings of
foreign subsidiary companies, and concluded that a portion of earnings of certain subsidiaries will no longer be
considered to be indefinitely reinvested. As a result, we have recognized a deferred tax liability of $43 million for
U.S. income taxes with respect to such earnings.
Undistributed earnings of our foreign subsidiaries that are considered to be indefinitely reinvested are $1,241
million as of March 31, 2016. As we currently have no plans to repatriate those earnings, 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. As we do not know the time or manner in which we would repatriate those
funds, it is not practicable to determine the impact of local taxes, withholding taxes and foreign tax credits
associated with the future repatriation of such earnings and therefore we cannot quantify the tax liability.
The components of net deferred tax assets, as of March 31, 2016 and 2015 consisted of (in millions):
As of March 31,
2016 2015
Deferred tax assets:
Accruals, reserves and other expenses ............................................. $171 $189
Tax credit carryforwards ....................................................... 334 312
Stock-based compensation ...................................................... 39 35
Net operating loss & capital loss carryforwards ...................................... 28 41
Total ..................................................................... 572 577
Valuation allowance ........................................................... (114) (555)
Deferred tax assets, net of valuation allowance .................................... 458 22
Deferred tax liabilities:
Amortization and Depreciation .................................................. (27) (32)
Unremitted earnings of foreign subsidiaries ......................................... (43) —
Prepaids and other liabilities .................................................... (3) (8)
Total ..................................................................... (73) (40)
Deferred tax assets, net of valuation allowance and deferred tax liabilities .............. $385 $ (18)
From the third quarter of fiscal year 2009 to the third quarter of fiscal year 2016, we maintained a 100%
valuation allowance against most of our U.S. deferred tax assets because there was insufficient positive evidence
to overcome the existing negative evidence such that it was not more likely than not that the U.S. deferred tax
assets were realizable. While we reported U.S. pre-tax income in fiscal year 2015, because we reported U.S. pre-
tax losses during the previous seven fiscal years, as well as in the second and third quarters of fiscal year 2016,
we continued to maintain the 100% valuation allowance through the third quarter of fiscal year 2016.
In the fourth quarter of fiscal year 2016, we realized significant U.S. pre-tax income for both the fourth quarter
and the fiscal year ended March 31, 2016. As of March 31, 2016, we had reported positive operating
performance in the U.S. for two consecutive fiscal years and had also reported a cumulative three-year U.S. pre-
tax profit. In addition, during the fourth quarter of fiscal year 2016, we completed our financial plan for fiscal
year 2017 and expect continued positive operating performance in the U.S. We also considered forecasts of
future taxable income and evaluated the utilization of tax credit carryforwards prior to their expiration. After
considering these factors, we determined that the positive evidence overcame any negative evidence and
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