Adobe 2006 Annual Report Download - page 92

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92
subsidiaries’ earnings are considered permanently reinvested outside the United States. To the extent that
the foreign earnings previously treated as permanently reinvested are repatriated, the related United States
tax liability may be reduced by any foreign income taxes paid on these earnings. As of December 1, 2006,
the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately
$400.7 million. The unrecognized deferred tax liability for these earnings is approximately $134.5 million.
As of December 1, 2006, we have net operating loss carryforwards attributable to various acquired
companies of approximately $134 million, which, if not used, will expire between fiscal 2013 and 2019.
These net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code
Section 382, but are expected to be fully realized.
For financial reporting purposes, a valuation allowance has been established for certain deferred tax
assets related to the write-down of investments. At the end of fiscal 2006, our valuation allowance was $1.2
million.
We are currently under examination by the Internal Revenue Service for our fiscal 2001, 2002, and
2003 tax returns. Although we believe our judgments, assumptions and estimates are reasonable, changes in
tax laws or our interpretation of tax laws and the resolution of the current and any future tax audits could
significantly impact the amounts provided for income taxes in our consolidated financial statements.
Although the ultimate outcome is unknown, we have reserved for potential adjustments that may result
from the current examination and we believe that the final outcome will not have a material effect on our
results of operations.
At the end of fiscal 2006, we had federal and state tax credit carry-forwards of approximately $2
million and $45 million, respectively. The state tax credit carry-forwards can be carried forward
indefinitely.
Below is a summary of our income tax payable activity for fiscal 2006 and 2005:
2006 2005
Beginning balance.................................. $ 154,529 $ 145,913
Current year liability .............................. 50,804 87,153
Macromedia acquisition......................... 22,972 —
Payments and reclassifications............... (49,937) (78,537)
Ending balance....................................... $ 178,368 $ 154,529
Note 9. Restructuring
In the first quarter of fiscal 2006, pursuant to Board of Directors’ approval, we initiated plans to
restructure both the pre-merger operations of Adobe and Macromedia to eliminate certain duplicative
activities, focus our resources on future growth opportunities and reduce our cost structure. In connection
with the worldwide restructuring plan, we recognized costs related to termination benefits for employee
positions that were eliminated and for the closure of duplicative facilities. We also recognized costs related
to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service
contracts held by Macromedia.