Electronic Arts 2016 Annual Report Download - page 160

penalties related to tax positions taken on our tax returns and included in non-current other liabilities was
approximately $15 million as of March 31, 2016 and $16 million as of March 31, 2015. There was approximately
$1 million decrease in in accrued interest and penalties during fiscal year 2016.
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. 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 2012.
We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2014.
We remain subject to income tax examination for several other jurisdictions including in France and Germany for
fiscal years after 2012, in the United Kingdom for fiscal years after 2014, and in Canada and 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 $50 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 “Convertible Notes”). The Convertible 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, and will mature on
July 15, 2016, unless purchased earlier or converted in accordance with their terms prior to such date. The
Convertible Notes are senior unsecured obligations and rank equally with all our other existing and future
unsubordinated obligations and any indebtedness that we may incur from time to time under our Credit Facility.
We separately account for the liability and equity components of the Convertible Notes. The initial carrying
amount of the equity component representing the conversion option is equal to the fair value of the Convertible
Note Hedge, as described below, which is a substantially identical instrument and was purchased on the same day
as the Convertible Notes. The initial carrying amount of the liability component was determined by deducting the
fair value of the equity component from the par value of the Convertible Notes as a whole, and represents the fair
value of a similar liability that does not have an associated convertible feature. A liability of $525 million as of
the initial date of issuance was recognized for the principal amount of the Convertible Notes representing the
present value of the Convertible Notes’ cash flows using a discount rate of 4.54 percent. The excess of the
principal amount of the liability component over its carrying amount is amortized to interest expense over the
term of the Convertible Notes using the effective interest method. The equity component on the date of issuance
was $107 million.
In accounting for $15 million of issuance costs paid in July 2011 related to the Convertible Notes issuance, we
allocated $13 million to the liability component and $2 million to the equity component. Debt issuance costs
attributable to the liability component are being amortized to interest expense over the term of the Convertible
Notes, and issuance costs attributable to the equity component were netted with the equity component in
additional paid-in capital.
The Convertible 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 Convertible Notes (equivalent to an
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