Adobe 2008 Annual Report Download - page 88

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paid on these earnings. As of November 28, 2008, the cumulative amount of earnings upon which U.S. income taxes have
not been provided is approximately $1.1 billion. The unrecognized deferred tax liability for these earnings is approximately
$342.0 million.
As of November 28, 2008, we have net operating loss carryforward assets of approximately $19.0 million for federal,
$7.7 million for state and $1.3 million related to foreign net operating losses. We also have federal, state and foreign tax
credit carryforwards of approximately $8.6 million, $10.9 million and $3.5 million, respectively. The net operating loss
carryforward assets, federal tax credits and foreign tax credits will expire in various years from fiscal 2014 through 2029. The
state tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain
credits are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized.
In addition, we have been tracking certain deferred tax attributes of $49.0 million which have not been recorded in the
financial statements pursuant to SFAS 123R. These amounts are no longer included in our gross or net deferred tax assets.
Pursuant to SFAS 123R, footnote 82, the benefit of these deferred tax assets will be recorded to equity when they reduce
taxes payable.
A valuation allowance has been established for certain deferred tax assets related to the impairment of investments. At
the end of fiscal 2008, our valuation allowance was $1.5 million.
Adoption of FIN 48
We adopted both FIN 48 and FSP FIN 48-1 on December 1, 2007. The adoption of FIN 48 resulted in an increase of
$3.9 million to both assets and unrecognized tax benefits in our consolidated balance sheet as of the beginning of fiscal 2008.
Upon adoption, the gross liability for unrecognized tax benefits at December 1, 2007 was $218.4 million, exclusive of
interest and penalties. The total amount of gross FIN 48 liabilities included $57.7 million that relates to certain tax attributes
from acquired companies, including Macromedia. These liabilities from acquired companies are not recorded on our balance
sheet because they are related to positions that have not yet been claimed on our income tax returns.
We have historically presented our estimated liability for unrecognized tax benefits as a current liability. FIN 48 requires
liabilities for unrecognized tax benefits to be classified based on whether a payment is expected to be made within the next
12 months. That is, amounts expected to be paid within the next 12 months are to be classified as a current liability and all
other amounts are to be classified as a non-current liability. As a result of adopting FIN 48, we reclassified $197.7 million
from current income taxes payable to long-term income taxes payable, including accrued interest on the balance.
We have historically presented our estimated state, local and interest liabilities net of the estimated benefit we expect to
receive from deducting such payments on future tax returns (i.e., on a “net” basis). FIN 48 requires this estimated benefit to
be classified as a deferred tax asset instead of a reduction of the overall liability (i.e., on a “gross” basis). Thus, we
recognized additional deferred income tax assets of $3.9 million to present the unrecognized tax benefits as gross amounts on
our consolidated balance sheet.
Our policy to classify interest and penalties on unrecognized tax benefits as income tax expense did not change upon the
adoption of FIN 48. As of December 1, 2007, the combined amount of accrued interest and penalties related to tax positions
taken on our tax returns and included in non-current income taxes payable was approximately $42.8 million.