TiVo 2005 Annual Report Download - page 87

Table of Contents
14. INCOME TAXES
Under various license agreements, the Company incurred $26,000, $113,000, and $420,000, in withholding taxes to the governments of Korea for the
fiscal year ended January 31, 2006, and Japan and Korea for the fiscal years ended January 31, 2005, and 2004, respectively. The payment of this withholding
tax generates a deferred tax asset. However, as the Company's ability to realize the benefits of this deferred tax asset is uncertain, a full valuation allowance
has been provided. The $26,000, $113,000, and $420,000 have been accounted for as a provision for income tax. The income tax expense differed from the
amounts computed by applying the U.S. federal income tax rate of 35% to pretax loss as a result of the following:
Fiscal Year Ended January 31,
2006 2005 2004
(In thousands)
Federal statutory rate of 35% $ (12,017) $ (27,898) $ (11,049)
State taxes 37 21 29
Foreign withholding tax 26 113 420
Foreign rate differential — — —
Net operating loss and temporary differences for which no tax benefit was realized 11,856 26,470 8,457
Non-deductible expenses and other 161 1,428 2,592
Total tax expense $ 63 $ 134 $ 449
The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets are presented below:
Fiscal Year Ended January 31,
2006 2005
(In thousands)
Deferred tax assets:
Net operating loss & credits $ 167,535 $ 178,192
Deferred revenue and rent 51,299 43,130
Capitalized research 36,694 18,003
Other 4,265 3,892
Total deferred tax assets 259,793 243,217
Valuation allowance (259,793) (243,217)
Net deferred tax assets (liabilities) $ — $ —
Management has established a valuation allowance for the portion of deferred tax assets for which realization is uncertain. The net change in the total
valuation allowance for the years ended January 31, 2006, 2005, and 2004 was an increase of $16.6 million, $25.7 million, and $6.5 million, respectively.
As of January 31, 2006, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $396.0 million
and $251.0 million, respectively, available to reduce future income subject to income taxes. The federal net operating loss carryforwards expire beginning in
2012 through 2026. State net operating loss carryforwards expire beginning in 2007 through 2018.
As of January 31, 2006, unused research and development tax credits of approximately $8.3 million and $9.4 million, respectively are available to
reduce future federal and California income taxes. The federal research credit carryforwards will begin to expire if not utilized by 2012. California research
and experimental tax credits carryforward indefinitely until utilized.
Approximately $6.0 million of the valuation allowance for deferred tax assets is attributable to employee stock option deductions, the benefit from
which will be allocated to paid-in capital rather than current earnings if subsequently recognized.
Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership
change," as defined in Section 382 of the Internal Revenue Code. The Company has not yet determined whether an ownership change occurred due to
significant stock transactions in each of the reporting years disclosed. If an ownership change has occurred, utilization of the net operating loss and tax credit
carryforwards could be significantly reduced.
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