Activision 2009 Annual Report Download - page 67
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55
Potential common shares are not included in the denominator of the diluted earnings per common share calculation
when inclusion of such shares would be anti-dilutive. Therefore, options to acquire 25 million, 20 million, and 40 million
shares of common stock were not included in the calculation of diluted earnings (loss) per common share for the years ended
December 31, 2010, 2009, and 2008, respectively, as the effect of their inclusion would be anti-dilutive.
16. Income Taxes
Domestic and foreign income before income taxes and details of the income tax expense (benefit) are as follows
(amounts in millions):
For the Years Ended
December 31,
2010 2009 2008
Income (loss) before income tax expense (benefit):
Domestic ................................................................................... $228 $(237) $(131)
Foreign ..................................................................................... 264 229 (56)
$492 $(8) $(187)
Income tax expense (benefit):
Current:
Federal .................................................................................. $314 $237 $251
State ...................................................................................... 31 46 49
Foreign ................................................................................. 29 14 41
Total current ......................................................................... 374 297 341
Deferred:
Federal .................................................................................. (264) (309) (294)
State ...................................................................................... 8 (75) (67)
Foreign ................................................................................. (45) (12) (62)
Release of valuation allowance ............................................ — (22) —
Total deferred ....................................................................... (301) (418) (423)
Add back benefit credited to additional paid-in capital:
Excess tax benefit associated with stock options...................... 1 — 2
Income tax expense (benefit)........................................................ $74 $(121) $(80)
The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate
and the income tax expense (benefit) (the effective tax rate) for each of the years are as follows:
For the Years Ended December 31,
2010 2009 2008
Federal income tax provision at statutory rate ......................................... $172 35% $(3) (35)% $(65) (35)%
State taxes, net of federal benefit ............................................................. 30 6 (17) (219) (6) (3)
Research and development credits ........................................................... (11) (2) (24) (302) (31) (17)
Domestic production activity deduction .................................................. (13) (3) (7) (89) (12) (6)
Foreign rate differential ........................................................................... (109) (22) (82) (1,040) (2) (1)
Change in valuation allowance ................................................................ — — (22) (286) 6 3
Change in tax reserves ............................................................................. (1) — 34 440 11 6
Foreign withholding tax ........................................................................... — — 2 24 8 4
Foreign tax credits ................................................................................... — — (3) (41) (15) (8)
Goodwill impairment ............................................................................... — — — — 7 4
Shortfall from employee stock option exercises ...................................... 8 1 2 27 — —
Return to provision adjustment ................................................................ — — — — 12 6
Other ........................................................................................................ (2) — (1) (13) 7 4
Income tax expense (benefit) ................................................................... $74 15% $(121) (1,534)% $(80) (43)%