THQ 2009 Annual Report Download - page 89

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,
2009 2008
Deferred income tax assets:
Accruals, reserves and other expenses ................ $ 33,438 $ 39,527
Tax credit carryforwards .......................... 31,090 21,581
Net operating loss carryforwards .................... 125,680 28,777
Depreciation and amortization ..................... 9,565 —
Unrealized loss on investments ..................... 3,445 —
Other ....................................... 27,910 17,129
Total deferred income tax assets ................... 231,128 107,014
Valuation allowance ............................. (164,225) (8,357)
Deferred tax asset, net of valuation allowance ......... 66,903 98,657
Deferred income tax liabilities:
Software development costs ....................... (58,809) (62,000)
Depreciation and amortization ..................... — (3,163)
Unrealized gain on investments ..................... — (1,050)
Total deferred income tax liabilities ................ (58,809) (66,213)
Net deferred tax asset (liability) ...................... $ 8,094 $ 32,444
As of March 31, 2009, current net deferred tax assets were $6.1 million and long term net deferred tax
assets were $2.0 million. 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, 2009, we have federal and various state net operating loss carryforwards totaling
$330.7 million and $316.7 million, respectively, that expire through 2029 and foreign net operating loss
carryforwards totaling $22.1 million that can be carried forward indefinitely.
The tax credit carryforwards as of March 31, 2009 includes research and development tax credit
carryforwards of $22.4 million and $17.9 million for federal and state purposes, respectively. The federal
tax credit carryforwards expire through 2029, while the majority of the state credits are from California and
can be carried forward indefinitely.
Our deferred tax assets were reduced by a valuation allowance of $164.2 million and $8.4 million as of
March 31, 2009 and March 31, 2008, respectively. We believe that it is more likely than not that the
deferred tax assets will not be fully realized. The deferred tax assets for which a valuation allowance has
been established include all domestic deferred tax assets, such as federal and state net operating loss carry-
forwards and research and development credit carry-forwards, as well as certain foreign net operating loss
carry-forwards.
A portion of the tax benefits associated with certain net operating loss carryforwards relates to employee
stock options. Pursuant to SFAS No. 109, ‘‘Accounting for Income Taxes’’ (‘‘FAS 109’’), current year net
operating losses have been reduced by $1.4 million for these items. A credit will be recorded to additional
paid-in capital when the net operating losses attributable to the employee stock options can be utilized to
reduce our income taxes payable.
At March 31, 2009 we had accumulated foreign earnings of $51.6 million. We do not plan to repatriate
these earnings, therefore, no U.S. income tax has been provided on the foreign earnings. Additionally, we
82