THQ 2009 Annual Report Download - page 90

have not tax effected the cumulative translation adjustment as we have no intention of repatriating foreign
earnings.
We adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109,’’ (‘‘FIN 48’’) on April 1, 2007. Previously, we had
accounted for 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 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 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, 2008 was
$11.6 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at April 1, 2007 ..................................... $18,604
Additions based on tax positions related to the current year ........... 2,266
Reductions for tax positions of prior years ........................ (1,755)
Reductions as result of lapse of applicable statute of limitations ......... (229)
Settlements ............................................... (7,250)
Balance at April 1, 2008 ..................................... 11,636
Additions based on tax positions related to the current year ........... 807
Additions for tax positions of prior years ......................... 42
Reductions for tax positions of prior years ........................ (1,506)
Balance at March 31, 2009 .................................... $10,979
The total unrecognized tax benefit of $10.9 million is reflected in our consolidated balance sheet as
$6.1 million in net long-term deferred tax assets, and $4.8 million in other long-term liabilities. The amount
of unrecognized tax benefits at March 31, 2009 includes $5.4 million of unrecognized tax benefits which, if
ultimately recognized, will reduce our annual effective tax rate.
We are subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions.
Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. With few exceptions, we are no longer subject to
U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before
2004.
Our uncertain tax positions relate to tax years that remain subject to examination by the relevant tax
authorities. 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
expect some of these examinations to be concluded and settled in the next 12 months, however, 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.
Our policy is to recognize interest and penalty expense, if any, related to uncertain tax positions as a
component of income tax expense. For the fiscal years ended March 31, 2009 and 2008, we recognized
$0.2 million and $0.1 million in interest expense, respectively, related to uncertain tax positions. As of
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