Electronic Arts 2008 Annual Report Download - page 68

ISO Shares at the original issue price lapses, the participant will incur an AMT liability on the difference
between the option exercise price and the fair market value of the ISO Shares at vesting.
Alternative minimum taxable income is determined by adjusting regular taxable income for certain items,
increasing that income by certain tax preference items (including the difference between the fair market value
of the ISO Shares on the date of exercise and the exercise price) and reducing this amount by the applicable
exemption amount. The exemption amount for 2007 is $45,000 in the case of a joint return, subject to
reduction under certain circumstances. The AMT (imposed to the extent it exceeds the taxpayer’s regular
income tax) is 26% of an individual taxpayer’s alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000 in the case of married individuals filing a joint
return). If a disqualifying disposition of the ISO Shares occurs in the same calendar year as the exercise of an
incentive stock option, those ISO Shares are not included in the AMT calculation.
If a participant has to pay AMT, he or she is entitled to a credit against income tax (but not AMT) in later
years. Also, upon a sale of ISO Shares that is not a disqualifying disposition, alternative minimum taxable
income is reduced in the year of sale by the amount that was previously included in alternative minimum
taxable income in the year of exercise, the excess of the fair market value of the ISO Shares at exercise of the
amount paid for the ISO Shares.
Nonqualified Stock Options
A participant will generally not recognize any taxable income at the time a nonqualified stock option
(“NQSO”) is granted or vests provided the exercise price is no less than the fair market value of the
underlying shares on the grant date. Upon exercise of a vested NQSO, the participant will include in income
as compensation an amount equal to the difference between the fair market value of the shares on the date of
exercise and the participant’s exercise price. The included amount will be taxed as ordinary income to the
participant and will be subject to withholding by the Company or its subsidiary (by payment in cash,
withholding out of the award or withholding out of the participant’s salary). If a participant exercises an
NQSO before it has vested, the participant may incur an income tax liability as the shares vest and the
Company’s right to repurchase the shares at the original price lapses, unless the participant makes a timely
83(b) election. Upon resale of the shares by the participant, any subsequent appreciation or depreciation in the
value of the shares will be treated as a capital gain or loss, taxable at a rate that depends upon the length of
time the shares were held by the participant.
Restricted Stock Awards
A participant who receives a restricted stock award will include the amount of the award in income as
compensation at the time that any forfeiture restrictions on the shares of stock lapse, unless the participant
makes a timely 83(b) election. If the participant does not timely make an 83(b) election, the participant will
include in income the fair market value of the shares of stock on the date that the restrictions lapse as to those
shares, less any purchase price paid for such shares. The included amount will be taxed as ordinary income to
the participant and will be subject to withholding by the Company or its subsidiary (by payment in cash,
withholding out of the participant’s award or withholding out of the participant’s salary).
If the participant makes a timely 83(b) election, the participant will, at the time the award is received, include
the fair market value of the shares of stock on the date of receipt of the award (determined without regard to
lapse restrictions), less any purchase price paid for such shares in income as compensation. The income will
be subject to withholding by the Company or its subsidiary (by payment in cash, withholding out of the
participant’s salary or withholding out of the participant’s award). If the award is subsequently forfeited, the
participant will not receive any deduction for the amount previously taxed as ordinary income.
Restricted Stock Units
A participant will recognize income as compensation with respect to an award of restricted stock units at the
time that the restrictions lapse, provided the shares are issued on the date the restrictions lapse. The participant
will include in income the fair market value of the shares of stock on the date that the restrictions lapse as to
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