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whileVivendiGamesresultsfortheperiodJuly10,2008throughDecember31,2008areincludedinthe
consolidatedfederalandcertainforeign,stateandlocalincometaxreturnsfiledbyActivisionBlizzard.
VivendiGamesisnolongersubjecttoU.S.federalincometaxexaminationsfortaxyearsbefore2002.
VivendiGamesisalsonolongersubjecttostateexaminationsfortaxyearsbefore2000.Activision
Blizzard’staxyears2006through2008remainopentoexaminationbythemajortaxingjurisdictionsto
whichwearesubject,includingtheUnitedStatesofAmerica(“U.S.”)andnonU.S.locations.Activision
BlizzardiscurrentlyunderauditbytheCaliforniaFranchiseTaxBoardforthetaxyears1996through
2004,anditisreasonablypossiblethatthecurrentportionofourunrecognizedtaxbenefitswill
significantlydecreasewithinthenexttwelvemonthsduetotheoutcomeoftheseaudits.
OnJuly9,2008,ActivisionBlizzardenteredintoaTaxSharingAgreement(the“TaxSharing
Agreement”)withVivendi.TheTaxSharingAgreementgenerallygovernsActivisionBlizzard’sand
Vivendi’srespectiverights,responsibilitiesandobligationswithrespecttotheordinarycourseofbusiness
taxes.Currently,undertheTaxSharingAgreement,withcertainexceptions,ActivisionBlizzardgenerally
isresponsibleforthepaymentofU.S.andcertainnonU.S.incometaxesthatarerequiredtobepaidtotax
authoritiesonastandaloneActivisionBlizzardbasis.IntheeventthatActivisionBlizzardjoinsVivendiin
thefilingofagrouptaxreturn,ActivisionBlizzardwillpayitsshareofthetaxliabilityforsuchgrouptax
returntoVivendi,andVivendiwillpaythetaxliabilityfortheentiregrouptotheappropriatetaxauthority.
VivendiwillindemnifyActivisionBlizzardforanytaxliabilityimposeduponitduetoVivendi’sfailureto
payanygrouptaxliability.ActivisionBlizzardwillindemnifyVivendiforanytaxliabilityimposedon
Vivendi(oranyofitssubsidiaries)duetoActivisionBlizzard’sfailuretopayanytaxesitowesunderthe
TaxSharingAgreement.
PriortotheBusinessCombination,VivendiGames’incometaxesarepresentedinthefinancial
statementsasifVivendiGameswereastandalonetaxpayereventhoughVivendiGames’operatingresults
areincludedintheconsolidatedfederal,certainforeign,andstateandlocalincometaxreturnsofVivendi
orVivendi’ssubsidiaries.BasedonthesubsequentfilingofthesetaxreturnsbyVivendiorVivendi’s
subsidiaries,wedeterminedthattheamountpaidbyVivendiGameswasgreaterthantheactualamountdue
(andsettled)baseduponfilingofthesereturnsfortheyearendedDecember31,2008.Thisdifference
betweentheamountpaidandtheactualamountdue(andsettled)representsareturnofcapitaltoVivendi,
whichwasrequiredinaccordancewiththetermsoftheBusinessCombinationagreementimmediately
priortothecloseoftheBusinessCombination.Thisdifferencehasresultedinnoadditionalpaymentto
VivendiandnoimpacttoourconsolidatedstatementofcashflowsfortheyearendedDecember31,2009.
Withinthenexttwelvemonths,itisreasonablypossiblewewillreduceapproximately$22million
ofpreviouslyunrecognizedtaxbenefitsduetotheexpirationofstatutesoflimitationandanticipated
closureofincometaxexaminations.
17.FairValueMeasurements
FASBliteratureregardingfairvaluemeasurementsforfinancialandnonfinancialassetsand
liabilitiesestablishesathreelevelfairvaluehierarchythatprioritizestheinputsusedtomeasurefairvalue.
Thishierarchyrequiresentitiestomaximizetheuseof“observableinputs”andminimizetheuseof
“unobservableinputs.”Thethreelevelsofinputsusedtomeasurefairvalueareasfollows:
• Level1—Quotedpricesinactivemarketsforidenticalassetsorliabilities.
• Level2—ObservableinputsotherthanquotedpricesincludedinLevel1,suchasquoted
pricesforsimilarassetsorliabilitiesinactivemarketsorotherinputsthatareobservableor
canbecorroboratedbyobservablemarketdata.
• Level3—Unobservableinputsthataresupportedbylittleornomarketactivityandthatare
significanttothefairvalueoftheassetsorliabilities.Thisincludescertainpricingmodels,
discountedcashflowmethodologiesandsimilartechniquesthatusesignificantunobservable
inputs.