Blizzard 2010 Annual Report Download - page 69

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As of December 31, 2010, we had approximately $132 million in total unrecognized tax benefits of which
$130 million would affect our effective tax rate if recognized. A reconciliation of unrecognized tax benefits for the years
ended December 31, 2010, 2009 and 2008 is as follows (amounts in millions):
For the Years Ended
December 31,
2010 2009 2008
Unrecognized tax benefits balance at January 1 ...................................... $139 $103 $13
Assumption of unrecognized tax benefits upon the Business
Combination ........................................................................................ — — 73
Gross increase for tax positions of prior years ........................................ — 3 12
Gross decrease for tax positions of prior years ........................................ — (1) (2)
Gross increase for tax positions of current year ...................................... 21 35 7
Settlement with taxing authorities ........................................................... (16) — —
Lapse of statute of limitations ................................................................. (12) (1) —
Unrecognized tax benefits balance at December 31 ................................ $132 $139 $103
In addition, as of December 31, 2010 and 2009, we reflected $111 million and $123 million, respectively, of income
tax liabilities as non-current liabilities because payment of cash or settlement is not anticipated within one year of the balance
sheet date. These non-current income tax liabilities are recorded in other liabilities in the consolidated balance sheets as of
December 31, 2010 and 2009.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31,
2010 and 2009, we had approximately $11 million and $8 million, respectively, of accrued interest and penalties related to
uncertain tax positions. For the years ended December 31, 2010, 2009, and 2008, we recorded $3 million, $6 million and
$1 million of interest expense related to uncertain tax positions, respectively.
Vivendi Games results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal
and certain foreign, state and local income tax returns filed by Vivendi or its affiliates while Vivendi Games results for the
period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local
income tax returns filed by Activision Blizzard. Vivendi Games is no longer subject to U.S. federal income tax examinations
for tax years before 2002. Vivendi Games is also no longer subject to state examinations for tax years before 2000. Activision
Blizzard’s tax years 2007 through 2009 remain open to examination by the major taxing jurisdictions to which we are
subject, including the United States of America (“U.S.”) and non-U.S. locations. Activision Blizzard is currently under audit
by the California Franchise Tax Board for the tax years 2005 through 2007, and it is reasonably possible that the current
portion of our unrecognized tax benefits will significantly decrease within the next twelve months due to the outcome of
these audits.
On July 9, 2008, Activision Blizzard entered into a Tax Sharing Agreement (the “Tax Sharing Agreement”) with
Vivendi. The Tax Sharing Agreement generally governs Activision Blizzard’s and Vivendi’s respective rights,
responsibilities and obligations with respect to the ordinary course of business taxes. Currently, under the Tax Sharing
Agreement, with certain exceptions, Activision Blizzard generally is responsible for the payment of U.S. and certain non-
U.S. income taxes that are required to be paid to tax authorities on a stand-alone Activision Blizzard basis. In the event that
Activision Blizzard joins Vivendi in the filing of a group tax return, Activision Blizzard will pay its share of the tax liability
for such group tax return to Vivendi, and Vivendi will pay the tax liability for the entire group to the appropriate tax
authority. Vivendi will indemnify Activision Blizzard for any tax liability imposed upon it due to Vivendi’s failure to pay any
group tax liability. Activision Blizzard will indemnify Vivendi for any tax liability imposed on Vivendi (or any of its
subsidiaries) due to Activision Blizzard’s failure to pay any taxes it owes under the Tax Sharing Agreement.
Prior to the Business Combination, Vivendi Games’ income taxes are presented in the financial statements as if
Vivendi Games were a stand-alone taxpayer even though Vivendi Games’ operating results are included in the consolidated
federal, certain foreign, and state and local income tax returns of Vivendi or Vivendi’s subsidiaries. Based on the subsequent
filing of these tax returns by Vivendi or Vivendi’s subsidiaries, we determined that the amount paid by Vivendi Games was
greater than the actual amount due (and settled) based upon filing of these returns for the year ended December 31, 2008.
This difference between the amount paid and the actual amount due (and settled) represents a return of capital to Vivendi,
which was required in accordance with the terms of the Business Combination agreement immediately prior to the close of
the Business Combination. This difference has resulted in no additional payment to Vivendi and no impact to our
consolidated statement of cash flows for the years ended December 31, 2010 and 2009.