Blizzard 2005 Annual Report Download - page 77

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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, 2005 2004 2003
Federal฀income฀tax฀provision฀at฀statutory฀rate 35.0% 35.0% 35.0%
State฀taxes,฀net฀of฀federal฀benefit 2.8 2.3 2.4
Research฀and฀development฀credits (6.4) (8.0) (6.0)
Incremental฀(decremental)฀effect฀of฀foreign฀tax฀rates (2.3) (2.3) (0.2)
Increase฀of฀valuation฀allowance 2.3 5.8 2.1
Rate฀changes —— 0.8
Other (1.4) 0.2 1.9
30.0% 33.0% 36.0%
Deferred฀income฀taxes฀reflect฀the฀net฀tax฀effects฀of฀temporary฀differences฀between฀the฀amounts฀of฀assets฀and฀liabilities฀for฀accounting฀purposes฀and฀the฀amounts฀used฀
for฀income฀tax฀purposes.฀The฀components฀of฀the฀net฀deferred฀tax฀asset฀and฀liability฀are฀as฀follows฀(amounts฀in฀thousands):
March 31, 2005 2004
Deferred฀asset:
Allowance฀for฀doubtful฀accounts $ 205 $ 634
Allowance฀for฀sales฀returns 8,580 8,334
Inventory฀reserve 391 385
Vacation฀and฀bonus฀reserve 2,961 2,771
Amortization฀and฀depreciation 4,306 5,036
Tax฀credit฀carryforwards 53,130 36,599
Net฀operating฀loss฀carryforwards 31,885 25,851
Other 3,899 2,248
Deferred฀asset 105,357 81,858
Valuation฀allowance (25,666) (18,857)
Net฀deferred฀asset 79,691 63,001
Deferred฀liability:
Capitalized฀research฀expenses 41,208 25,252
State฀taxes 3,682 2,558
Deferred฀liability 44,890 27,810
Net฀deferred฀asset $ 34,801 $ 35,191
page 76
Activision, Inc. — 2005 Annual Report
Notes to Consolidated Financial Statements