2K Sports 2004 Annual Report Download - page 62

The differences between the provision for income taxes and the income tax computed using the U.S. statutory
federal income tax rate to pretax income are as follows:
Years Ended October 31,
2004 2003 2002
Statutory federal tax expense ......................................... $33,814 $57,860 $42,324
Changes in expenses resulting from:
State taxes, net of federal benefit ................................... 1,651 4,035 2,995
Foreign tax expense differential .................................... (3,738) 2,191 568
Extraterritorial income exclusion ................................... (3,858) (9,163) —
Valuation allowances ............................................... 1,299 10,429 1,101
Provision for settlement, not deductible ............................ 2,625 — —
Other permanent items ............................................. (561) 1,845 2,387
Income tax expense ................................................ $31,232 $67,197 $49,375
The components of the net deferred tax asset as of October 31, 2004 and 2003 consists of the following:
2004 2003
Current:
Deferred tax asset:
Bad debt allowance ............................................ $ 3,871 $ 1,405
Other — including reserves .................................... 5,942 6,768
Compensation benefit .......................................... 1,741 —
Total current deferred tax assets ................................ 11,554 8,173
Long-term deferred tax assets: .................................
Depreciation and amortization .................................. 6,220 160
State net operating losses ....................................... 4,773 3,311
Foreign net operating losses .................................... 3,240 3,240
Capital loss carryforward ....................................... 7,799 7,963
Less: Valuation allowances ..................................... (15,813) (14,514)
Total long-term deferred tax assets ................................ 6,219 160
Long-term deferred tax liability:
Capitalized software ............................................ (5,233) (8,486)
Net deferred tax asset (liability) .................................. $ 12,540 $ (153)
At October 31, 2004, the Company had capital loss carryforwards totaling approximately $20,000. The capital
loss carryforwards will expire in the periods fiscal 2006 through fiscal 2008. Management does not expect
to generate sufficient taxable income from capital transactions prior to the expiration of these benefits, and
accordingly a valuation allowance of $7,800 has been recorded for this asset as it is more likely than not that
the deferred tax asset related to these carryforwards will not be realized. At October 31, 2004, the Company
had foreign net operating losses of approximately $11,000 expiring between fiscal 2005 and fiscal 2010, and
state net operating losses of approximately $62,000 expiring between fiscal 2021 and fiscal 2023. Management
does not expect to generate sufficient certain state and foreign taxable income in future years to fully utilize
the net operating losses carryforwards before expiration, accordingly valuation allowances have been recorded
for these assets in the amounts of $4,773 and $3,240, respectively.
The total amount of undistributed earnings of foreign subsidiaries was approximately $89,700 and $60,700
for the years ended October 31, 2004 and 2003, respectively. It is the Company’s intention to reinvest
undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance.
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
13. INCOME TAXES (Continued)
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