Blizzard 2005 Annual Report Download - page 78

The฀ tax฀ benefits฀ associated฀ with฀ certain฀ net฀ operating฀ loss฀ carryovers฀ relate฀ to฀ employee฀ stock฀ options.฀ Pursuant฀ to฀ SFAS฀ No.฀ 109,฀ net฀ operating฀ losses฀ have฀ been฀
reduced฀by฀$30.9฀million฀relating฀to฀these฀items฀which฀will฀be฀credited฀to฀additional฀paid-in฀capital฀when฀realized.
As฀of฀March฀31,฀2005,฀our฀available฀federal฀net฀operating฀loss฀carryforward฀of฀approximately฀$153.5฀million฀is฀subject฀to฀certain฀limitations฀as฀defined฀under฀Section฀382฀
of฀ the฀Internal฀Revenue฀ Code.฀ The฀ net฀ operating฀ loss฀carryforwards฀ expire฀ between฀ 2020฀ and฀ 2024.฀We฀ have฀various฀ state฀ net฀ operating฀ loss฀carryforwards฀ totaling฀
$102.5฀million฀which฀are฀not฀subject฀to฀limitations฀under฀Section฀382฀of฀the฀Internal฀Revenue฀Code.฀We฀have฀tax฀credit฀carryforwards฀of฀$31.4฀million฀and฀$22.3฀million฀for฀
federal฀and฀state฀purposes,฀respectively,฀which฀begin฀to฀expire฀in฀2006.
At฀March฀31,฀2005,฀our฀deferred฀income฀tax฀asset฀for฀tax฀credit฀carryforwards฀and฀net฀operating฀loss฀carryforwards฀was฀reduced฀by฀a฀valuation฀allowance฀of฀$25.7฀million฀
as฀compared฀to฀$18.9฀million฀in฀the฀prior฀fiscal฀year.฀Realization฀of฀the฀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฀
deferred฀tax฀asset฀will฀be฀realized.
Cumulative฀undistributed฀earnings฀of฀foreign฀subsidiaries฀for฀which฀no฀deferred฀taxes฀have฀been฀provided฀approximated฀$59.9฀million฀at฀March฀31,฀2005.฀Deferred฀income฀
taxes฀on฀these฀earnings฀have฀not฀been฀provided฀as฀these฀amounts฀are฀considered฀to฀be฀permanent฀in฀duration.
On฀October฀22,฀2004,฀the฀President฀of฀the฀United฀States฀signed฀the฀American฀Jobs฀Creation฀Act฀of฀2004฀(the฀“Act”).฀The฀Act฀raises฀a฀number฀of฀issues฀with฀respect฀to฀
accounting฀for฀income฀taxes.฀For฀companies฀that฀pay฀U.S.฀income฀taxes฀on฀manufacturing฀activities฀in฀the฀U.S.,฀the฀Act฀provides฀a฀deduction฀from฀taxable฀income฀equal฀
to฀a฀stipulated฀percentage฀of฀qualified฀income฀from฀domestic฀production฀activities.฀The฀manufacturing฀deduction฀provided฀by฀the฀Act฀replaces฀the฀extraterritorial฀income฀
(“ETI”)฀deduction฀currently฀in฀place.฀We฀currently฀derive฀benefits฀from฀the฀ETI฀exclusion฀which฀was฀repealed฀by฀the฀Act.฀Our฀exclusion฀for฀fiscal฀2005,฀2006,฀and฀2007฀will฀
be฀limited฀to฀95%,฀75%,฀and฀45%฀of฀the฀otherwise฀allowable฀exclusion฀and฀no฀exclusion฀will฀be฀available฀in฀fiscal฀2008฀and฀thereafter.฀The฀Act฀also฀creates฀a฀temporary฀
incentive฀for฀U.S.฀multinationals฀to฀repatriate฀accumulated฀income฀earned฀abroad฀by฀providing฀an฀85฀percent฀dividends฀received฀deduction฀for฀certain฀dividends฀from฀
controlled฀foreign฀corporations.฀The฀deduction฀is฀subject฀to฀a฀number฀of฀limitations.฀The฀Act฀also฀provides฀for฀other฀changes฀in฀tax฀law฀that฀will฀affect฀a฀variety฀of฀taxpayers.฀
On฀December฀21,฀2004,฀the฀Financial฀Accounting฀Standards฀Board฀(“FASB”)฀issued฀two฀FASB฀Staff฀Positions฀(“FSP”)฀regarding฀the฀accounting฀implications฀of฀the฀Act฀
related฀to฀(1)฀the฀deduction฀for฀qualified฀domestic฀production฀activities฀and฀(2)฀the฀one-time฀tax฀benefit฀for฀the฀repatriation฀of฀foreign฀earnings.฀The฀FASB฀determined฀that฀
the฀deduction฀for฀qualified฀domestic฀production฀activities฀should฀be฀accounted฀for฀as฀a฀special฀deduction฀under฀FASB฀Statement฀No.฀109,฀“Accounting฀for฀Income฀Taxes.”฀
The฀FASB฀also฀confirmed,฀that฀upon฀deciding฀that฀some฀amount฀of฀earnings฀will฀be฀repatriated,฀a฀company฀must฀record฀in฀that฀period฀the฀associated฀tax฀liability.฀The฀
guidance฀in฀the฀FSPs฀applies฀to฀financial฀statements฀for฀periods฀ending฀after฀the฀date฀the฀Act฀was฀enacted.฀We฀are฀evaluating฀the฀Act฀at฀this฀time฀and฀have฀not฀yet฀deter-
mined฀whether฀we฀will฀avail฀ourselves฀of฀the฀opportunity฀of฀the฀one-time฀tax฀benefit฀for฀the฀repatriation฀of฀foreign฀earnings.฀We฀plan฀to฀complete฀our฀assessment฀before฀
the฀end฀of฀fiscal฀2006฀and฀are฀not฀currently฀in฀a฀position฀to฀estimate฀a฀range฀of฀possible฀repatriation฀amounts.
13. COMMITMENTS AND CONTINGENCIES
Credit Facilities
We฀have฀revolving฀credit฀facilities฀with฀our฀Centresoft฀subsidiary฀located฀in฀the฀UK฀(the฀“UK฀Facility”)฀and฀our฀NBG฀subsidiary฀located฀in฀Germany฀(the฀“German฀Facility”).฀
The฀UK฀Facility฀provided฀Centresoft฀with฀the฀ability฀to฀borrow฀up฀to฀Great฀British฀Pounds฀(“GBP”)฀8.0฀million฀($15.0฀million)฀and฀GBP฀8.0฀million฀($14.6฀million),฀including฀
issuing฀letters฀of฀credit,฀on฀a฀revolving฀basis฀as฀of฀March฀31,฀2005฀and฀2004,฀respectively.฀Furthermore,฀under฀the฀UK฀Facility,฀Centresoft฀provided฀a฀GBP฀0.6฀million฀($1.1฀
million)฀and฀a฀GBP฀0.3฀million฀($0.5฀million)฀guarantee฀for฀the฀benefit฀of฀our฀CD฀Contact฀subsidiary฀as฀of฀March฀31,฀2005฀and฀2004,฀respectively.฀The฀UK฀Facility฀bore฀
interest฀at฀LIBOR฀plus฀2.0%฀as฀of฀March฀31,฀2005฀and฀2004,฀is฀collateralized฀by฀substantially฀all฀of฀the฀assets฀of฀the฀subsidiary฀and฀expires฀in฀January฀2006.฀The฀UK฀
Facility฀also฀contains฀various฀covenants฀that฀require฀the฀subsidiary฀to฀maintain฀specified฀financial฀ratios฀related฀to,฀among฀others,฀fixed฀charges.฀As฀of฀March฀31,฀2005฀and฀
2004,฀we฀were฀in฀compliance฀with฀these฀covenants.฀No฀borrowings฀were฀outstanding฀against฀the฀UK฀Facility฀as฀of฀March฀31,฀2005฀or฀2004.฀The฀German฀Facility฀provided฀
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