Activision 2008 Annual Report Download - page 84

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Deferred income taxes reflect the net tax effects of temporary differences between the
amounts of assets and liabilities for accounting purposes and the amounts used for income tax
purposes. At December 31, 2007, the components of the net deferred tax assets were presented on
the basis of what would be attributable to Vivendi Games if it were to be deconsolidated from
Vivendi or Vivendi’s subsidiaries. The components of the net deferred tax assets (liabilities) are as
follows (amounts in millions):
As of December 31,
2008 2007
(As Adjusted)
Deferred tax assets:
Reserves and allowances......................................................................................... $35 $18
Allowance for sales returns and price protection..................................................... 59 12
Inventory reserve..................................................................................................... 13 —
Accrued expenses.................................................................................................... 46 2
Accrued legal and professional fees ........................................................................ 28 —
Accrued restructuring.............................................................................................. 15 1
Deferred revenue..................................................................................................... 326 81
Deferred compensation............................................................................................ 1 2
Depreciation ............................................................................................................ 9 —
Tax credit carryforwards ......................................................................................... 30 29
Net operating loss carryforwards............................................................................. 24 28
State taxes................................................................................................................ 19 3
Stock-based compensation ...................................................................................... 58 74
Foreign deferred assets............................................................................................ 27 3
Other........................................................................................................................ 4 3
Deferred tax assets....................................................................................................... 694 256
Valuation allowance.................................................................................................... (22) (22)
Deferred tax assets, net of valuation allowance........................................................... 672 234
Deferred tax liabilities:
Intangibles ............................................................................................................... (691) (22)
Prepaid royalties...................................................................................................... (10) (38)
Capitalized software development expenses ........................................................... (50) —
Depreciation ............................................................................................................ — (2)
Other........................................................................................................................ — (5)
Deferred tax liabilities ......................................................................................... (751) (67)
Net deferred tax assets (liabilities) .............................................................................. $(79) $167
As of December 31, 2008, our available federal net operating loss carryforward of
approximately $1 million is subject to certain limitations as defined under Section 382 of the
Internal Revenue Code. The net operating loss carryforwards will begin to expire in 2023. We
have various state net operating loss carryforwards totaling $17 million which are not subject to
limitations under Section 382 of the Internal Revenue Code and will begin to expire in 2013. We
have tax credit carryforwards of $6 million and $25 million for federal and state purposes,
respectively, which begin to expire in fiscal 2016.
Through our foreign operations, we have approximately $77 million in net operating loss
carryforwards at December 31, 2008, attributed mainly to losses in France, Ireland, and Sweden.