Activision 2009 Annual Report Download - page 68

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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. The components of the net deferred tax
assets (liabilities) are as follows (amounts in millions):
As of
December 31,
2010 2009
Deferred tax assets:
Reserves and allowances ......................................................................... $29 $36
Allowance for sales returns and price protection .................................... 72 64
Inventory reserve ..................................................................................... 23 17
Accrued expenses .................................................................................... 117 53
Deferred revenue ..................................................................................... 377 292
Tax credit carryforwards ......................................................................... 25 61
Net operating loss carryforwards ............................................................. 16 18
Stock-based compensation ...................................................................... 99 119
Foreign deferred assets ............................................................................ 15 27
Other ........................................................................................................ 17 17
Deferred tax assets....................................................................................... 790 704
Deferred tax assets, net of valuation allowance ........................................... 790 704
Deferred tax liabilities:
Intangibles ............................................................................................... (209) (407)
Prepaid royalties ...................................................................................... (2) (5)
Capitalized software development expenses ........................................... (42) (56)
State taxes ................................................................................................ (9) (8)
Deferred tax liabilities ................................................................................. (262) (476)
Net deferred tax assets ................................................................................. $528 $228
As of December 31, 2010, our available federal net operating loss carryforward of less than a million is subject to
certain limitations as defined under Section 382 of the Internal Revenue Code. The net operating loss carryforward 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 $5 million and $20 million for federal and state purposes, respectively, which begin to expire in fiscal 2016.
Through our foreign operations, we have approximately $54 million in net operating loss carryforwards at
December 31, 2010, attributed mainly to losses in France, Ireland, and Sweden. We evaluate our deferred tax assets,
including net operating losses, to determine if a valuation allowance is required. We assess whether a valuation allowance
should be established or released based on the consideration of all available evidence using a “more likely than not” standard.
In making such judgments, significant weight is given to evidence that can be objectively verified. At December 31, 2010,
there are no valuation allowances on deferred tax assets.
Realization of the U.S. deferred tax assets is dependent upon the continued generation of sufficient taxable income
prior to expiration of tax credits and loss carryforwards. Although realization is not assured, management believes it is more
likely than not that the net carrying value of the U.S. deferred tax assets will be realized.
Cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been provided
approximated $759 million at December 31, 2010. Deferred income taxes on these earnings have not been provided as these
amounts are considered to be permanent in duration. It is not practical to estimate the amount of tax that would be payable
upon distribution of these earnings.