Blizzard 2011 Annual Report Download - page 69

As of December 31, 2011, we had approximately $154 million in total unrecognized tax benefits of which
$152 million would affect our effective tax rate if recognized. A reconciliation of unrecognized tax benefits for the years ended
December 31, 2011, 2010 and 2009 is as follows (amounts in millions):
For the Years Ended
December 31,
2011 2010 2009
Unrecognized tax benefits balance at January 1 .......................................... $132 $139 $103
Gross increase for tax positions of prior years ............................................. 4 — 3
Gross decrease for tax positions of prior years ............................................ — — (1)
Gross increase for tax positions of current year ........................................... 65 21 35
Settlement with taxing authorities ................................................................ — (16) —
Lapse of statute of limitations ...................................................................... (47) (12) (1)
Unrecognized tax benefits balance at December 31 .................................... $154 $132 $139
In addition, as of December 31, 2011 and 2010, we reflected $146 million and $111 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, 2011 and 2010.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31,
2011 and 2010, we had approximately $12 million and $11 million, respectively, of accrued interest and penalties related to
uncertain tax positions. For the years ended December 31, 2011, 2010, and 2009, we recorded $1 million, $3 million and
$6 million, respectively, of interest expense related to uncertain tax positions.
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.
For periods prior to the Business Combination, Vivendi Games’ income taxes were presented in the financial
statements as if Vivendi Games were a stand- alone taxpayer even though Vivendi Games’ operating results were 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, in accordance with the terms of the Business Combination agreement, occurred 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, 2011, 2010, and 2009.
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 or state examinations for tax years before 2000.
Activision Blizzard’s tax years 2008 through 2010 remain open to examination by the major taxing jurisdictions to
which we are subject. The Internal Revenue Service is currently examining the Company’s federal tax returns for the 2009 tax
year. The Company also has several state and non-U.S. audits pending. Although the final resolution of the Company’s global
tax disputes is uncertain, based on current information, in the opinion of the Company’s management, the ultimate resolution of
these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of
operations.
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