8x8 2008 Annual Report Download - page 61

positions and deductions not sustained on audit will not result in a material change to its financial position or results of
operations. Therefore, adoption of FIN 48 did not have a material effect on the Company’ s consolidated results of operations
and financial condition for the fiscal year ended March 31, 2008.
The Company had gross unrecognized tax benefits of approximately $2.0 million as of April 1, 2007. The application of FIN
48 would have resulted in a decrease in the accumulated deficit of $2.0 million, except that the decrease was fully offset by the
application of a valuation allowance. To the extent that the unrecognized tax benefits are ultimately recognized they may have
an impact on the effective tax rate in future periods; however, such impact to the effective tax rate would only occur if the
recognition of such unrecognized tax benefits occurs in a future period when the Company has already determined it is more
likely than not that its deferred tax assets are realizable. The following is a roll-forward of the Company’ s gross unrecognized
tax benefits associated with the Company’ s uncertain tax positions for the period April 1, 2007 to March 31, 2008 (in
thousands):
Unrecognized
Tax Benefits
Balance at April 1, 2007 $ 2,044
Gross increases - tax position in prior period -
Gross decreases - tax position in prior period -
Gross increases - tax positions related to the current year 78
Settlements -
Lapse of statue of limitations -
Balance at March 31, 2008 $ 2,122
The Company is subject to taxation in the U.S., California and various states and foreign jurisdictions in which we have or had
a subsidiary or branch operations. As of March 31, 2008, there are no active federal, state, or foreign income tax audits. The
1995 through 2008 tax years generally remain subject to examination by the Internal Revenue Service, California and various
states. The Company plans to extend the filing date of the 2008 federal tax return and all state income tax returns. In foreign
tax jurisdictions, the 2005 through 2008 tax years generally remain subject to examination by the foreign tax authorities.
The Company’ s policy for recording interest and penalties associated with audits is to record such items as a component of
operating expense income before taxes. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties
associated with any unrecognized tax benefits. Although timing of an audit is highly uncertain, the Company does not believe
it is reasonably possible that the unrecognized tax benefit would materially change in the next 12 months.
Undistributed earnings of the Company’ s foreign subsidiaries are indefinitely reinvested in foreign operations. No provision
has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount
of this liability.
4. COMMITMENTS AND CONTINGENCIES
Guarantees
Indemnifications
In the normal course of business, the Company indemnifies other parties, including customers, lessors and parties to other
transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless
against losses arising from a breach of representations or covenants or intellectual property infringement or other claims made
against certain parties. These agreements may limit the time within which an indemnification claim can be made and the
amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors.
It is not possible to determine the maximum potential amount of the Company’ s exposure under these indemnification
agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each
particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on
the Company’ s operating results, financial position or cash flows. Under some of these agreements, however, the Company’ s
potential indemnification liability might not have a contractual limit.
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