Electronic Arts 2016 Annual Report Download - page 159

Annual Report
concluded that it was more likely than not that the U.S. deferred tax assets were realizable. As a result, we
released the valuation allowance against all of the U.S. federal deferred tax assets and a portion of the U.S. state
deferred tax assets during the fourth quarter of fiscal year 2016.
The valuation allowance decreased by $441 million in fiscal year 2016, primarily due to the release of the
valuation allowance on U.S. deferred tax assets. As of March 31, 2016, we maintained a valuation allowance of
$114 million, primarily related to certain U.S. state deferred tax assets and foreign capital loss carryovers, due to
uncertainty about the future realization of these assets. In determining the amount of deferred tax assets that are
more likely than not to be realized, we evaluated the potential to realize the assets through the utilization of tax
loss and credit carrybacks, the reversal of existing taxable temporary differences, future taxable income exclusive
of the reversal of existing taxable temporary differences, and certain tax planning strategies.
As of March 31, 2016, we have state net operating loss carry forwards of approximately $1,016 million of which
approximately $130 million is attributable to various acquired companies. These carryforwards, if not fully
realized, will begin to expire in 2017. We also have U.S. federal, California and Canada tax credit carryforwards
of $373 million, $93 million and $8 million, respectively. The U.S. federal tax credit carryforwards will begin to
expire in 2024. The California and Canada tax credit carryforwards can be carried forward indefinitely.
The total unrecognized tax benefits as of March 31, 2016, 2015 and 2014 were $331 million, $254 million and
$232 million, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits is
summarized as follows (in millions):
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
Increases in unrecognized tax benefits related to prior year tax positions ......................... 9
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (14)
Increases in unrecognized tax benefits related to current year tax positions ....................... 50
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (6)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............. (7)
Changes in unrecognized tax benefits due to foreign currency translation ........................ (10)
Balance as of March 31, 2015 ............................................................. 254
Increases in unrecognized tax benefits related to prior year tax positions ......................... 33
Decreases in unrecognized tax benefits related to prior year tax positions ........................ (4)
Increases in unrecognized tax benefits related to current year tax positions ....................... 63
Decreases in unrecognized tax benefits related to settlements with taxing authorities ............... (10)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations ............. (4)
Changes in unrecognized tax benefits due to foreign currency translation ........................ (1)
Balance as of March 31, 2016 ............................................................. $331
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, 2016, approximately $305 million of the unrecognized
tax benefits would affect our effective tax rate and approximately $26 million would result in 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
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