GameStop 2007 Annual Report Download - page 94

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The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and
foreign jurisdictions. The Internal Revenue Service (“IRS”) commenced an examination of the Company’s
U.S. income tax returns for the fiscal years ended on January 29, 2005 and January 28, 2006 in the first quarter
of fiscal 2007 that is anticipated to be completed in 2008. The Company does not anticipate any adjustments that
would result in a material impact on its consolidated financial statements. The Company is no longer subject to
U.S. federal income tax examination by tax authorities for years before and including the fiscal year ended
January 31, 2004. EB is no longer subject to U.S. federal income tax examination by tax authorities for years prior to
and including the fiscal year ended February 1, 2003.
With respect to state and local jurisdictions and countries outside of the United States, the Company and its
subsidiaries are typically subject to examination for three to six years after the income tax returns have been filed.
Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest
and penalties have been provided for in the accompanying financial statements for any adjustments that might be
incurred due to state, local or foreign audits.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), on February 4, 2007. As a result of the implementation of FIN 48, the Company recognized a
$16,679 increase in the liability for unrecognized tax benefits, interest and penalties, which was accounted for as a
reduction of the February 3, 2007 balance of retained earnings. As of February 4, 2007, the gross amount of
unrecognized tax benefits, interest and penalties was $25,250. The total amount of unrecognized tax benefit that, if
recognized, would affect the effective tax rate was $22,149 as of February 4, 2007. Additionally, adoption of FIN 48
resulted in the reclassification of certain accruals for uncertain tax positions in the amount of $7,864 from prepaid
taxes to other long-term liabilities in our consolidated balance sheet.
For the 52 weeks ended February 2, 2008, the Company recognized a decrease of $1,597 in the liability for
unrecognized tax benefits, respectively, and an increase of $572 for interest and penalties, respectively. As of
February 2, 2008, the gross amount of unrecognized tax benefits, interest and penalties was $24,225. The total
amount of unrecognized tax benefit that, if recognized, would affect the effective tax rate was $20,552. A
reconciliation of the changes in the gross balances of unrecognized tax benefits during fiscal 2007 follows:
February 2,
2008
(In thousands)
Beginning balance of unrecognized tax benefits ............................. $25,250
Increases related to current period tax positions............................ 132
Decreases related to prior period tax positions............................. (116)
Reductions as a result of a lapse of the applicable statute of limitations .......... (1,041)
Ending balance of unrecognized tax benefits................................ $24,225
The Company has historically recognized interest relating to income tax matters as a component of interest
expense and recognized penalties relating to income tax matters as a component of selling, general and admin-
istrative expense. Such interest and penalties have historically been immaterial. Subsequent to adoption of FIN 48,
the Company recognizes accrued interest and penalties related to income tax matters in income tax expense. The
Company had $3,101 in interest and penalties related to unrecognized tax benefits accrued at the date of adoption
and $3,673 as of February 2, 2008.
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s
unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settling
ongoing audits. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
F-27
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)