Blizzard 2007 Annual Report Download - page 82

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85
A C T I V I S I O N , I N C . • • 2 0 0 7 A N N U A L R E P O R T
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):
As of March 31, 2007 2006
Deferred asset:
Allowance for doubtful accounts $ 369 $ 739
Allowance for sales returns 14,094 16,200
Inventory reserve 1,507 2,474
Vacation and bonus reserve 5,996 4,993
Amortization and depreciation 1,566 3,970
Tax credit carryforwards 89,014 74,488
Net operating loss carryforwards 29,822 13,770
Stock-based compensation 11,879 3,272
Other 8,958 6,209
Deferred asset 163,205 126,115
Valuation allowance (382) (35,555)
Net deferred asset 162,823 90,560
Deferred liability:
Capitalized development expenses 50,159 22,537
State taxes 12,309 5,814
Deferred liability 62,468 28,351
Net deferred asset $ 100,355 $ 62,209
The tax benefits associated with certain net operating loss carryforwards relate to employee stock
options. For the year ended March 31, 2006, pursuant to SFAS No. 109, deferred tax assets for net
operating losses did not include $30.9 million relating to these items which will be credited to
additional paid-in capital when realized. For the year ended March 31, 2007, $30.9 million relating to
these items was realized and included in deferred tax assets for net operating losses; however,
a reserve was established for this amount, as well as a reserve of $20.6 million for tax credits and
foreign taxes. These reserves were established because the tax positions are subject to certain
assumptions of the relevant legislative and judicial history that may or may not be accepted by the
tax authorities.
As of March 31, 2007, our available federal net operating loss carryforward of approximately $34.9
million is subject to certain limitations as defined under Section 382 of the Internal Revenue Code.
The net operating loss carryforwards expire between 2022 and 2026. We have various state net
operating loss carryforwards totaling $17.6 million which are not subject to limitations under Section
382 of the Internal Revenue Code. We have tax credit carryforwards of $52.5 million and $36.5 million
for federal and state purposes, respectively, which begin to expire in fiscal year 2008.