TeleNav 2010 Annual Report Download - page 57

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some
portion or all of the deferred tax assets, on a jurisdiction by jurisdiction basis, will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of taxable income in the future. Due to the
uncertainty surrounding our ability to realize such deferred tax assets, we had a valuation allowance in amount
equal to total deferred assets as of June 30, 2008. After considering both positive and negative evidence, during
fiscal 2009, we determined that it was more likely than not that $2.5 million of our U.S. federal and state deferred
tax assets would be realizable, based on our earnings history and projected future taxable income. As a result, we
recognized an income tax benefit of $2.5 million in fiscal 2009 from the release of a portion of our valuation
allowance. Further, during fiscal 2010, we determined that it was now more likely than not that the remaining
U.S. federal and state deferred tax assets would be realizable based on continued earnings history and projected
future income. As a result, we recognized an income tax benefit of $390,000 in fiscal 2010 from the release of
the remaining U.S. federal and state valuation allowance. Through June 30, 2010 we have recorded a full
valuation allowance for the deferred tax assets from our United Kingdom and China entities as of the periods
ended June 30, 2008, 2009, and 2010 due to our earnings history in these jurisdictions and uncertainty regarding
our ability to realize these deferred tax assets in the future.
We make estimates and judgments about our future taxable income that are based on assumptions that are
consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our
valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance
would be recorded in the income statement for the periods in which the adjustment is determined to be required.
On July 1, 2009, we adopted the Financial Accounting Standards Board, or FASB, standard for accounting
for uncertainty in income taxes. The revised standard, now codified under the “Income Taxes Topic in the FASB
Accounting Standards Codification” clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and
measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate
settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the
probability of various possible outcomes. We consider many factors when evaluating and estimating our tax
positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual
outcomes.
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