Adobe 2010 Annual Report Download - page 72

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In December 2010, the United States Congress passed an extension of the federal research and development tax credit
through December 31, 2011. As a result, we expect that our income tax provision for the first quarter of fiscal 2011 will
include a discrete tax benefit which will reduce our effective tax rate for the quarter and to a lesser extent the effective annual
tax rate.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at December 3, 2010 was $156.9 million, exclusive of $15.4 million of
interest and penalties.
In October 2010, a U.S. income tax examination covering our fiscal years 2005 through 2007 was completed. Our
accrued tax and interest related to these years was $59 million and was previously reported in long-term income taxes. We
paid $20 million in conjunction with the aforementioned resolution. A net income statement tax benefit in the fourth quarter
of fiscal 2010 of $39 million resulted.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax
payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet
classification of current and non-current assets and liabilities. We believe that before the end of fiscal 2011, it is reasonably
possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will
expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in
underlying unrecognized tax benefits ranging from $0 to approximately $5 million.
LIQUIDITY AND CAPITAL RESOURCES
This data should be read in conjunction with our Consolidated Statements of Cash Flows.
(in millions)
Fiscal
2010
Fiscal
2009
Cash and cash equivalents ................................................................................................
$
749.9
$
999.5
Short-term investments .....................................................................................................
$
1,718.1
$
905.0
Working capital .................................................................................................................
$
2,148.0
$
1,629.1
Stockholders’ equity .........................................................................................................
$
5,192.4
$
4,890.6
A summary of our cash flows is as follows:
(in millions)
Fiscal
2010
Fiscal
2009
Fiscal
2008
Net cash provided by operating activities ..................................................
$
1,113.0
$
1,117.8
$
1,280.7
Net cash used for investing activities .........................................................
(1,159.3
)
(1,497.1
)
(304.7
)
Net cash (used for) provided by financing activities ..................................
(215.3
)
477.6
(1,021.6
)
Effect of foreign currency exchange rates on cash and cash equivalents ...
12.0
14.7
(14.4
)
Net (decrease) increase in cash and cash equivalents ................................
$
(249.6
)
$
113.0
$
(60.0
)
Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses; general
operating expenses including marketing, travel and office rent; and cost of product revenue. Other sources of cash are
proceeds from the exercise of employee options and participation in ESPP. Another use of cash is our stock repurchase
program, which is described below.
Cash flows from operating activities
For fiscal 2010, net cash provided by operating activities of $1.1 billion was primarily comprised of net income plus the
net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in accrued
expenses and deferred revenue. Accrued expenses increased primarily due to amounts due under our fiscal 2010 annual
incentive plan and interest on our Notes both of which will be paid in the first quarter of fiscal 2011. During fiscal 2010, we
made our first semi-annual interest payment associated with our Notes totaling $31.1 million. Increases in deferred revenue
related primarily to activity from our acquisition of Omniture, the related renewal of calendar-year based contracts in addition
to increases in maintenance and support orders and royalty revenue deferrals related to changes in customer billing terms.
The primary working capital uses of cash were increases in trade receivables, prepaid expenses and other current assets
as well as decreases in taxes payable, accrued restructuring and trade payables. Trade receivables increased as a result of
products shipped and billed during the latter half of the fourth quarter of fiscal 2010 as a result of the launch of Acrobat X
and slower receivable payments pertaining to Omniture services. Increases in prepaid expenses and other current assets