Adobe 2010 Annual Report Download - page 71

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71
contract purchased to hedge our economic exposure related to our acquisition of Day, which was primarily offset by foreign
exchange losses and increased cash flow hedging costs.
Interest and other income (expense), net, decreased during fiscal 2009 as compared to fiscal 2008 primarily due to lower
interest rates, partially offset by higher average invested balances, realized gains on sales of fixed income securities and
lower foreign exchange losses.
Interest Expense
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0
million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). As of
November 27, 2009, we had an outstanding credit facility of $1.0 billion, which we repaid on February 1, 2010 with a portion
of the proceeds from our Notes. The increase in interest expense for fiscal 2010 is primarily due to interest associated with
higher borrowings resulting from the issuance of the Notes as well as an increase in our average borrowing rate due to the
Notes.
Interest expense for fiscal 2009 and 2008, primarily represents interest associated with our credit facility. Interest due
under the credit facility is paid upon expiration of the London interbank offered rate (“LIBOR”) contract or at a minimum,
quarterly. The decline in interest expense was primarily due to lower interest rates.
Investment Gains (Losses), Net
Investment gains (losses), net consists principally of realized gains and losses from the sale of marketable equity
investments, other-than-temporary declines in the value of marketable and non-marketable equity securities, unrealized
holding gains and losses associated with our deferred compensation plan assets (classified as trading securities), and gains
and losses of Adobe Ventures.
Investment gains and (losses), net fluctuated due to the following (in millions):
2010
2009
2008
Net (losses) gains related to our investments in Adobe Ventures and
cost method investments ....................................................................
$
(11.3
)
$
(18.7
)
$
15.9
Gains from sale of marketable equity securities ....................................
4.0
—
5.4
Write-downs due to other-than-temporary declines in value of our
marketable equity securities ...............................................................
—
(0.3
) (4.9
)
Net gains related to our trading securities ..............................................
1.2
2.0
—
Total investment gains (losses), net .......................................................
$
(6.1
)
$
(17.0
)
$
16.4
During fiscal 2010, net losses on our investments improved primarily due to a decrease in net unrealized losses incurred
on certain of our cost method investments during fiscal 2009 offset in part by an increase in net realized losses from our
Adobe Ventures portfolio of companies in fiscal 2010.
During fiscal 2009, net losses on our investments increased as compared to fiscal 2008 primarily due to an increase on
net unrealized losses related to our Adobe Ventures and cost method investments.
Provision for Income Taxes (dollars in millions)
Fiscal
2010
Fiscal
2009
Fiscal
2008
% Change
2010-2009
% Change
2009-2008
Provision .................................................
$
168.5
$
315.0
$
206.7
(47
)%
52
%
Percentage of total revenue .................
4
%
11
%
6
%
Effective tax rate .................................
18
%
45
%
19
%
Our effective tax rate decreased approximately 27 percentage points during fiscal 2010 as compared to fiscal 2009. The
decrease was primarily due to tax benefits recognized as a result of the completion in the fourth quarter of fiscal 2010 of a
U.S. income tax examination covering fiscal years 2005 through 2007 and stronger international profits, partially offset by
the expiration of the research and development credit on December 31, 2009.
Our effective tax rate increased approximately 26 percentage points during fiscal 2009 as compared to fiscal 2008. The
increase was primarily due to a one-time charge related to our acquisition of Omniture. The charge represented the tax cost of
inter-company transactions necessary to license certain Omniture assets to Adobe’ s trading companies so that Omniture’ s
services can be offered to customers from Adobe companies.