Blizzard 2010 Annual Report Download - page 32

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20
Investment and other income, net decreased in 2009 as compared to 2008, primarily as a result of lower interest
rates, losses on foreign exchange derivative contracts in 2009 as compared with gains in 2008, and certain investment-related
gains in 2008. Partially offsetting these decreases was an $8 million increase due to the reduction in fair value of a financial
liability relating to a contingent earn-out liability from a previous acquisition.
Income Tax Expense (Benefit) (amounts in millions)
Year
Ended
December 31,
2010
% of
Pretax
income
Year
Ended
December 31,
2009
% of
Pretax
income
Year
Ended
December 31,
2008
% of
Pretax
income
Increase
(Decrease)
2010 v
2009
Increase
(Decrease)
2009 v
2008
Income Tax Expense (Benefit) ....... $74 15% $(121) NM% $(80) (43)% $195 $(41)
The income tax expense of $74 million in 2010 reflects an effective tax rate of 15%. The effective tax rate of 15%
for 2010 differs from the statutory rate of 35% primarily due to foreign income taxes provided at lower rates, a beneficial
geographic mix in profitability, recognition of Federal and California research and development credits and IRC 199
domestic production deductions. The federal research credit was reinstated in December 2010 for tax years January 1, 2010-
December 31, 2011.
For 2010, our effective tax rate of 15% differs from the effective tax rate for 2009, primarily due to the loss from the
impairment of intangible assets which resulted in a book tax benefit at the U.S. statutory rate and the release of valuation
allowances on net operating losses deductions which provided additional benefit on both a book and taxable income basis for
2009. For 2008, the tax benefit as a result of net income (loss) before income taxes was offset by tax benefits from net
operating losses surrendered and the release of valuation allowances.
Liquidity and Capital Resources
Sources of Liquidity (amounts in millions)
For the Years Ended December 31,
2010 2009
Increase
(Decrease)
2010 v 2009
Cash and cash equivalents ...................................................................................................... $2,812 $2,768 $44
Short-term investments ........................................................................................................... 696 477 219
$3,508 $3,245 $263
Percentage of total assets ........................................................................................................ 26% 24%
For the Years Ended December 31,
2010 2009 2008
Increase
(Decrease)
2010 v 2009
Increase
(Decrease)
2009 v 2008
Cash flows provided by operating activities .............................. $1,376 $1,183 $379 $193 $804
Cash flows provided by (used in) investing activities ............... (312) (443) 1,101 131 (1,544)
Cash flows provided by (used in) financing activities ............... (1,053) (949) 1,488 (104) (2,437)
Effect of foreign exchange rate changes .................................... 33 19 (72) 14 91
Net increase (decrease) in cash and cash equivalents ................ $44 $(190) $2,896 $234 $(3,086)
For 2010, the primary drivers of cash flows provided by operating activities included the collection of customer
receivables generated by the sale of our products and digital and subscription revenues, partially offset by payments to
vendors for the manufacture, distribution and marketing of our products, payments to third-party developers and intellectual
property holders, tax liabilities, and payments to our workforce. Cash flows used in investing activities reflect that we
purchased short-term investments totaling $800 million, made capital expenditures of $97 million primarily for property and
equipment, and received $580 million upon the maturity of investments, the majority of which consisted of our U.S.
treasuries and government agency securities during the year ended December 31, 2010. Cash flows used in financing
activities primarily reflect our repurchase of 85 million shares of our common stock for an aggregate purchase price of
$959 million under the stock repurchase program and payment of a cash dividend of $189 million to shareholders of our
common stock, partially offset by $73 million of proceeds from issuance of shares of common stock to employees pursuant to
stock option exercises.