Adobe 2006 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2006 Adobe annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 125

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125

54
Interest and other income increased in fiscal 2005 compared to fiscal 2004 primarily due to higher interest
income as a result of higher levels of cash and higher interest rates during fiscal 2005, as well as higher gains on
our foreign currency hedging program.
Income Tax Provision
Fiscal
2006
% Change
2006 to 2005
Fiscal
2005
% Change
2005 to 2004 Fiscal
2004
Provision ................................... $ 173.9 7% $ 162.9 3% $ 158.2
Percentage of total revenues .. 7% 8% 10%
Effective tax rate.................... 26% 21% 26%
Our effective tax rate increased five percentage points during fiscal 2006 compared to fiscal 2005. The net
increase is primarily due to the expiration of the federal research and development tax credit on December 31,
2005 and because the 2005 effective tax rate included a tax benefit recognized in connection with the repatriation
of certain foreign earnings. In December 2006, after the end of Adobe's fiscal year, the federal research and
development tax credit was retroactively extended from January 1, 2006 until December 31, 2007 which includes
an 11 month period in Adobe’s 2006 fiscal year. The impact of this new tax law will be reflected in our fiscal
2007 results including approximately $12 million discrete item in our first quarter fiscal 2007 results for the credit
relating to fiscal 2006.
Our effective tax rate decreased four percentage points during fiscal 2005 as compared to fiscal 2004
primarily due to a tax benefit recognized as a result of the release of certain deferred tax liabilities in connection
with the repatriation of certain foreign earnings. In addition, our effective tax rate decreased one percentage point
due to a variety of factors, including higher profits earned by our international trading company which are taxed at
a lower statutory rate and a reduction of a valuation allowance against certain deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal
2006
% Change
2006 to 2005
Fiscal
2005
% Change
2005 to 2004 Fiscal
2004
Cash, cash equivalents and
short-term investments..........
$ 2,280.9
34%
$ 1,700.8
30%
$ 1,313.2
Working capital......................... 2,207.1 44% 1,528.2 38% 1,107.1
Stockholders’ equity.................. $ 5,151.9 176% $ 1,864.3 31% $ 1,423.5
Our primary source of cash is receipts from revenue. The primary uses of cash are payroll (salaries, bonuses,
and benefits), general operating expenses (marketing, travel, office rent) and cost of product revenue. Another
source of cash is proceeds from the exercise of employee options and another use of cash is our stock repurchase
program, which is detailed below.
Cash provided by operating activities for fiscal 2006, of $927.2 million, primarily comprised net income, net
of non-cash related expenses. The primary working capital source of cash was a decrease in other current assets
and increases in income taxes payable and deferred revenue. Income taxes payable increased primarily due to
higher current tax liabilities related to overall increased taxable income. Deferred revenue increased primarily due
to increased maintenance and support obligations. Working capital uses of cash included an increase in trade
receivables and decreases in accrued expenses and accrued restructuring. Our trade receivables increased due to
an increase in revenue. As compared to the same period last year, our days sales outstanding in trade receivables
(“DSO”) increased from 31 days to 48 days. The increase in DSO was due to an increase in revenue in the latter
part of the year due to timing of product shipments and an increase in certain receivables from the
Macromedia acquisition which have longer payment terms. Accrued expenses decreased because of compensation
related costs and other expenses. Accrued restructuring decreased because of payments made during fiscal 2006;
please refer to Note 9 of the Notes to Consolidated Financial Statements for more information.
Cash provided by operating activities for fiscal 2005, of $758.4 million, primarily comprised net income, net
of non-cash related expenses. Working capital sources of cash were increases in accrued expenses, income taxes