2K Sports 2008 Annual Report Download - page 96
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A reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
Years Ended October 31,
2008 2007 2006
U.S. federal statutory rate 35.0% (35.0)%(35.0)%
Foreign tax rate differential (19.2)% 8.6% 0.5%
State and local taxes, net of U.S. federal benefit 2.0% (0.5)% 1.0%
Federal valuation allowance (8.5)% 28.0% 32.5%
Other 4.1% 6.8% 1.2%
Effective tax rate 13.4% 7.9% 0.2%
The effects of temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
October 31,
2008 2007
Current deferred tax assets and (liabilities):
Sales returns and allowances (including bad debt) $ 9,129 $ 11,756
Inventory reserves 4,068 3,350
Deferred rent 2,423 3,668
Deferred revenue 13,520 1,980
Capital loss carryforward —6,145
Other 10,462 12,220
Capitalized software and depreciation (33,685) (44,960)
Total current deferred tax asset (liability) 5,917 (5,841)
Less: Valuation allowance (4,468) —
Net current deferred tax asset (liability)(a) 1,449 (5,841)
Non-current deferred tax assets:
Equity compensation 2,558 2,603
Domestic net operating loss carryforward 71,324 94,697
Foreign tax credit carryforward 5,947 3,789
Deferred revenue —14,480
Foreign net operating loss carryforwards 5,350 3,483
Intangible amortization 2,774 4,780
Capitalized software and depreciation 10,573 5,514
Total non-current deferred tax asset 98,526 129,346
Less: Valuation allowance (99,837) (123,616)
Net non-current deferred tax (liability) asset(b) (1,311) 5,730
Deferred taxes, net $ 138 $ (111)
(a) Included in prepaid expenses and other as of October 31, 2008 and accrued expenses and other current liabilities as of
October 31, 2007.
(b) Included in other long-term liabilities as of October 31, 2008 and other assets as of October 31, 2007.
The valuation allowance for deferred taxes is primarily attributable to net operating losses for which no
benefit is provided due to uncertainty with respect to their realization. In addition, during the year ended
October 31, 2008, we recorded a deferred tax benefit of $143 and a corresponding reduction to additional
paid-in-capital for the cancellation of certain stock options.
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