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12. Income Taxes
Domestic and foreign income before income taxes and details of the income tax provision are as follows (amounts
in thousands):
Year ended March 31, 2004 2003 2002
Income before income taxes:
Domestic $ 84,339 $ 78,761 $ 67,553
Foreign 31,653 24,646 15,567
$115,992 $103,407 $ 83,120
Income tax expense (benefit):
Current:
Federal $ 502 $ 1,703 $ 648
State 311 413 20
Foreign 9,899 7,872 5,053
Total current 10,712 9,988 5,721
Deferred:
Federal 14,113 1,794 (18,751)
State (871) 3,065 (4,555)
Foreign 1,906 (1,504) (46)
Total deferred 15,148 3,355 (23,352)
Add back benefit credited to additional paid-in capital:
Tax benefit related to stock option and warrant exercises 12,417 23,884 48,513
Income tax provision $ 38,277 $ 37,227 $ 30,882
The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate
and the income tax provision for each of the years are as follows:
Year ended March 31, 2004 2003 2002
Federal income tax provision at statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 2.3 2.4 3.5
Research and development credits (8.0) (6.0) (1.8)
Incremental (decremental) effect of foreign tax rates (2.3) (0.2) (1.4)
Increase of valuation allowance 5.8 2.1 2.4
Rate changes — 0.8 —
Other 0.2 1.9 (0.5)
33.0% 36.0% 37.2%
Activision, Inc. — 2004 Annual Report
page 63