THQ 2008 Annual Report Download - page 39

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As of April 1, 2007, we adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting for Uncertainty
in Income Taxes—an interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). Previously, we had accounted
for income tax contingencies in accordance with SFAS No. 5, ‘‘Accounting for Contingencies.’’ As required by
FIN 48, 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 income 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 settlement with the
relevant tax authority. At the adoption date, we applied FIN 48 to all income tax positions for which the
statute of limitations remained open. Our adoption of FIN 48 on April 1, 2007 had no impact on our April 1,
2007 beginning retained earnings balance. The amount of unrecognized tax benefits as of April 1, 2007 and
March 31, 2008 was $18.6 million and $11.6 million, respectively. The contingent tax liability relates to tax
positions taken in previously filed tax returns and similar positions expected to be taken in our current year
income tax returns. A portion of the contingent tax liability relates to fiscal years under examination. On
May 24, 2007 we received notification from the IRS that the Joint Committee on Taxation had completed its
review of our file and took no exception to the conclusions reached by the IRS. We have evaluated the
impact of the conclusions reached in the IRS examination in the FIN 48 measurement and recognition
process. We are currently under routine examination by the IRS for our income tax returns for fiscal years
2004 through 2007 and by various state jurisdictions for fiscal years subsequent to 2003. We do not expect
these examinations to be concluded and settled in the next 12 months, therefore, we are currently unable to
estimate the potential impact to the liability for unrecognized tax benefits or the timing of such changes. We
do not anticipate any significant changes in the unrecognized tax benefits in fiscal 2009 related to the
expiration of the statutes of limitations.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurement’’ (‘‘FAS 157’’). FAS 157
provides a single definition of fair value, together with a framework for measuring it, and requires
additional disclosure about the use of fair value to measure assets and liabilities. In February 2008, the
FASB issued FSP FAS 157-2, ‘‘Effective Date of FASB Statement No. 157’’ which defers the
implementation for certain non-recurring, nonfinancial assets and liabilities from fiscal years beginning
after November 15, 2007 to fiscal years beginning after November 15, 2008, which will be our fiscal year
2010. The statement provisions effective as of April 1, 2008, do not have a material effect on our results of
operations, financial position, or cash flows. We are evaluating the impact, if any, the adoption of the
remaining provisions will have on our results of operations, financial position or cash flows.
In February 2007, the FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and
Financial Liabilities—Including an Amendment of FASB Statement No. 115’’ (‘‘FAS 159’’). FAS 159
permits an entity to choose to measure many financial instruments and certain other items at fair value at
specified election dates. Subsequent unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings. We adopted this statement on April 1, 2008 and did not
make this election. As such, the adoption of this statement did not have any impact on our results of
operations, financial position or cash flows.
In May 2008, the FASB issued SFAS No. 162, ‘‘The Hierarchy of Generally Accepted Accounting
Principles’’ (‘‘FAS 162’’). FAS 162 is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements
that are presented in conformity with GAAP for nongovernmental entities. FAS 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, ‘‘The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.’’ We do not expect the adoption of this statement to have a material impact on our results of
operations, financial position or cash flows.
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