Adobe 2009 Annual Report Download - page 101

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
101
As of November 27, 2009, we have net operating loss carryforward assets of approximately $135.0 million for federal,
$56.2 million for state and $1.6 million related to foreign net operating losses. We also have federal and state tax credit
carryforwards of approximately $2.9 million and $13.8 million, respectively. The net operating loss carryforward assets,
federal tax credits and foreign tax credits will expire in various years from fiscal 2014 through 2029. The state tax credit
carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain credits are subject
to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized.
In addition, we have been tracking certain deferred tax attributes of $82.8 million which have not been recorded in the
financial statements pursuant to accounting standards related to stock-based compensation. These amounts are no longer
included in our gross or net deferred tax assets. Pursuant to these standards, the benefit of these deferred tax assets will be
recorded to equity when they reduce taxes payable.
A valuation allowance has been established for certain deferred tax assets related to the impairment of investments. At
the end of fiscal 2009, our valuation allowance was $4.3 million.
Accounting for Uncertainty in Income Taxes
On December 1, 2007, we adopted new standards related to how tax benefits for uncertain tax positions are to be
recognized, measured, and derecognized in the financial statements. These standards also specify how liabilities for uncertain
tax positions should be classified on the balance sheet. The adoption of these standards resulted in an increase of $3.9 million
to both assets and unrecognized tax benefits in our Consolidated Balance Sheets as of the beginning of fiscal 2008. Upon
adoption, the gross liability for unrecognized tax benefits at December 1, 2007 was $218.4 million, exclusive of interest and
penalties.
Prior to the adoption of this new accounting standard, we presented our estimated liability for unrecognized tax benefits
as a current liability. These new standards require liabilities for unrecognized tax benefits to be classified based on whether a
payment is expected to be made within the next 12 months. That is, amounts expected to be paid within the next 12 months
are to be classified as a current liability and all other amounts are to be classified as a non-current liability. As a result of
adopting these standards, we reclassified $197.7 million from current income taxes payable to long-term income taxes
payable, including accrued interest in our Consolidated Balance Sheets.
Prior to the adoption of this new accounting standard, we presented our estimated state, local and interest liabilities net
of the estimated benefit we expect to receive from deducting such payments on future tax returns (i.e., on a “net” basis).
These standards require this estimated benefit to be classified as a deferred tax asset instead of a reduction of the overall
liability (i.e., on a “gross” basis). Accordingly, we recognized additional deferred income tax assets of $3.9 million to present
the unrecognized tax benefits as gross amounts in our Consolidated Balance Sheets.
We classify interest and penalties on unrecognized tax benefits as income tax expense. As of December 1, 2007, the
combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-
current income taxes payable was approximately $42.8 million.
During fiscal 2009 and 2008, our aggregate changes in our total gross amount of unrecognized tax benefits are
summarized as follows (in thousands):
2009
2008
Beginning balance .....................................................
$
139,549
$
201,808
Gross increases in unrecognized tax benefits – prior year tax positions ..........
43,173
14,009
Gross increases in unrecognized tax benefits – current year tax positions .........
42,422
11,350
Settlements with taxing authorities ........................................
(429
)
(81,213
)
Lapse of statute of limitations ............................................
(12,585
)
(3,512
)
Foreign exchange gains and losses ........................................
5,910
(2,893
)
Ending balance ........................................................
$
218,040
$
139,549
As of November 27, 2009, the combined amount of accrued interest and penalties related to tax positions taken on our
tax returns and included in non-current income taxes payable was approximately $16.6 million.