THQ 2011 Annual Report Download - page 75

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 were
as follows (amounts in thousands):


Deferred income tax assets:
Accruals, reserves and other expenses
Tax credit carryforwards
Net operating loss carryforwards
Depreciation and amortization
Unrealized loss on investments
Other
Total deferred income tax assets
Valuation allowance
Deferred tax asset, net of valuation allowance
Deferred income tax liabilities:
Software development costs
Unrealized gain on investments
Unrepatriated foreign earnings
Total deferred income tax liabilities
Net deferred tax asset
0DUFK

$ 29,118
41,676
182,002
7,469
806
51,412
312,483
(193,312)
119,171
(89,622)
(568)
(20,265)
(110,455)
$ 8,716

$ 35,281
36,194
129,252
7,760
1,557
23,166
233,210
(167,443)
65,767
(58,831)
(913)
—
(59,744)
$ 6,023
As of March 31, 2011, current net deferred tax assets were $8.2 million and long term net deferred tax assets were $0.5 million.
As of March 31, 2010, current net deferred tax assets were $5.6 million and long term net deferred tax assets were $0.4 million.
As of March 31, 2011, we have federal and various state net operating loss carryforwards totaling $509.2 million and $294.9 million,
respectively, that expire through 2031 and foreign net operating loss carryforwards totaling $5.5 million, the majority of which
can be carried forward through 2025, provided that we do not have an "ownership change," as defined in Section 382 of the Internal
Revenue Code, as amended. In order to discourage such an "ownership change" and protect our net operating loss carryforwards,
on May 12, 2010, we entered into a Section 382 Rights Agreement (for further information see "Note 22 — Stockholder's Rights
Plan").
The tax credit carryforwards as of March 31, 2011 include research and development tax credit carryforwards of $25.5 million
and $22.8 million for federal and state purposes, respectively. The federal tax credit carryforwards expire through 2031, while the
majority of the state credits are from California and can be carried forward indefinitely.
We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is
required. A cumulative taxable loss in recent years is significant negative evidence in considering whether deferred tax assets are
realizable. We have had three years of cumulative U.S. tax losses and can no longer rely on common tax planning strategies to
use U.S. tax losses and we are precluded from relying on projections of future taxable income to support the recognition of deferred
tax assets. As such, the ultimate realization of our deferred tax assets is dependent upon the existence of sufficient taxable income
generated in the carryforward periods. As a result, our U.S. net deferred tax assets are reduced by a valuation allowance of
$193.3 million and $167.4 million at March 31, 2011 and March 31, 2010, respectively, as we believe that it is more likely than
not that the deferred tax assets will not be fully realized. The increase in the valuation allowance was primarily due to our fiscal
2011 U.S. taxable loss. 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 carryforwards and research and development credit carryforwards, as well
as foreign tax credits.
At March 31, 2011 we had accumulated foreign earnings of $91.2 million. We have provided for taxes for the anticipated repatriation
of earnings of our foreign subsidiaries. There is no intention to repatriate any undistributed earnings of our foreign subsidiaries
above the amount for which taxes have already been provided.
We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions meeting the "more likely than not" threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
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