Adobe 2004 Annual Report Download - page 74

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In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (“FAS 109-1”),
“Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The AJCA
introduces a special 9% tax deduction on qualified production activities. FAS 109-1 clarifies that this tax
deduction should be accounted for as a special tax deduction in accordance with Statement 109. Pursuant to
the AJCA, Adobe will not be able to claim this tax benefit until the first quarter of fiscal 2006. We do not
expect the adoption of these new tax provisions to have a material impact on our consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (“FAS 109-2”), “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creations Act of 2004.” The AJCA introduces a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria
are met. FAS109-2 provides accounting and disclosure guidance for the repatriation provision. Although
FAS 109-2 is effective immediately, we do not expect to be able to complete our evaluation of the
repatriation provision until after Congress or the Treasury Department provides additional clarifying
language on key elements of the provision. In January 2005, the Treasury Department began to issue the
first of a series of clarifying guidance documents related to this provision. We expect to complete our
evaluation of the effects of the repatriation provision within the first two fiscal quarters of 2005. The range
of possible amounts that we are considering for repatriation under this provision is between zero and $500
million. While we estimate that the related potential range of additional income tax is between zero and $50
million, this estimation is subject to change following technical correction legislation that we believe is
forthcoming from Congress. The amount of additional income tax would be reduced by the part of the
eligible dividend that is attributable to foreign earnings on which a deferred tax liability had been
previously accrued.
In June 2004, the FASB issued Emerging Issues Task Force Issue No. 02-14 (“EITF 02-14”),
“Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common
Stock.” EITF 02-14 addresses whether the equity method of accounting applies when an investor does not
have an investment in voting common stock of an investee but exercises significant influence through other
means. EITF 02-14 states that an investor should only apply the equity method of accounting when it has
investments in either common stock or in-substance common stock of a corporation, provided that the
investor has the ability to exercise significant influence over the operating and financial policies of the
investee. The accounting provisions of EITF 02-14 are effective for reporting periods beginning after
September 15, 2004. We do not expect the adoption of EITF 02-14 to have a material impact on our
consolidated financial position, results of operations or cash flows.
In March 2004, the FASB issued EITF Issue No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments” which provided new guidance for
assessing impairment losses on investments. Additionally, EITF 03-1 includes new disclosure requirements
for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the
accounting provisions of EITF 03-1; however the disclosure requirements remain effective for annual
periods ending after June 15, 2004 (see Note 3). We will evaluate the impact of EITF 03-1 once final
guidance is issued.
In December 2003, the FASB issued FIN 46R which clarified some of the provisions of FIN 46 and
exempted certain entities from its requirements. FIN 46R was effective at the end of the first interim period
ending after December 15, 2003. We have considered the provisions of FIN 46R and believe it will not be
necessary to include in our consolidated financial statements any assets, liabilities, or activities of the third-
party entities holding our corporate headquarters leases. We have provided certain disclosures related to
these leases in other areas of this Annual Report on Form 10-K (see Note 15). Under the provisions of FIN
46R, we began consolidating our Adobe Ventures partnerships in the first quarter of fiscal 2004. This
consolidation did not have a material impact on our consolidated financial position, results of operations or
cash flows.
In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue
Recognition”, which superseded Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in
Financial Statements.” The primary purpose of SAB 104 was to rescind accounting guidance contained in
SAB 101 related to multiple element revenue arrangements, which was superseded as a result of the
issuance of Emerging Issues Task Force 00-21 (“EITF 00-21”), “Accounting for Revenue Arrangements