THQ 2008 Annual Report Download - page 85

The differences between the U.S. federal statutory tax rate and our effective tax rate, expressed as a
percentage of income before income taxes and minority interest, were as follows:
Fiscal Year Ended
March 31,
2008 2007 2006
U.S. federal statutory tax rate .................................... (35.0)% 35.0% 35.0%
Impact of changes in unrecognized tax benefits ....................... (6.4) — —
State taxes, net of federal impact .................................. (5.7) 0.2 (2.5)
Tax exempt interest income ...................................... (3.3) (2.9) (5.1)
Research and development credits ................................. (3.2) (4.3) (5.4)
Non-deductible stock-based compensation ........................... 2.8 2.0 —
Rate differences in foreign taxes and other .......................... 1.5 (1.2) (2.9)
Effective tax rate ............................................ (49.3)% 28.8% 19.1%
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 income tax asset and liability are as follows (in thousands):
March 31,
2008 2007
Deferred income tax assets:
Accruals, reserves and other expenses ................. $ 39,527 $ 29,080
Tax credit carryforwards ........................... 21,581 22,371
Net operating loss carryforwards ..................... 28,777 5,513
Other ........................................ 17,129 2,859
Total deferred income tax assets ................... 107,014 59,823
Valuation allowance .............................. (8,357) (7,126)
Deferred tax asset, net of valuation allowance ......... 98,657 52,697
Deferred income tax liabilities:
Software development costs ........................ (62,000) (60,207)
Depreciation and amortization ...................... (3,163) (2,065)
Unrealized gain on investments ...................... (1,050) (260)
Total deferred income tax liabilities ................. (66,213) (62,532)
Net deferred tax asset (liability) .................... $ 32,444 $ (9,835)
As of March 31, 2008, current net deferred tax liabilities were $29.3 million and long term net deferred tax
assets were $61.7 million. As of March 31, 2007, current net deferred tax liabilities were $25.6 million and
long-term net deferred tax assets were $15.8 million.
The tax credit carryforwards as of March 31, 2008 includes research and development tax credit
carryforwards of $11.1 million and $11.6 million for federal and state purposes, respectively. The federal
tax credit carryforward expires in 2028, while the majority of the state credits are from California and can
be carried forward indefinitely. In addition, we have foreign tax credit carryforwards of $3.0 million. These
credits expire in 2018.
As of March 31, 2008, we have federal and various state net operating loss carryforwards totaling $69.6 and
$70.9 million, respectively, that expire between 2008 and 2028 and foreign net operating loss carryforwards
totaling $22.3 million that can be carried forward indefinitely. At March 31, 2008, our deferred income tax
asset for net operating loss carryforwards was reduced by a valuation allowance of $8.4 million as
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