Adobe 2008 Annual Report Download - page 89

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89
Summary FIN 48 Changes
During fiscal 2008, our aggregate changes in our total gross amount of unrecognized tax benefits are summarized as
follows:
Beginning balance as of December 1, 2007 .......................
$
201,808
Gross increases in unrecognized tax benefits – prior year tax positions
14,009
Gross increases in unrecognized tax benefits – current year tax positions
11,350
Settlements with taxing authorities .............................
(81,213
)
Lapse of statute of limitations .................................
(3,512
)
Foreign exchange gains and losses ..............................
(2,893
)
Ending balance as of November 28, 2008 ........................
$
139,549
The gross liability for unrecognized tax benefits at November 28, 2008 of $139.5 million is exclusive of interest and
penalties. If the total FIN 48 gross liability for unrecognized tax benefits at November 28, 2008 were recognized in the
future, the following amounts, net of an estimated $12.9 million benefit related to deducting such payments on future tax
returns, would result: $57.7 million of unrecognized tax benefits would decrease the effective tax rate and $68.9 million
would decrease goodwill.
As of November 28, 2008, 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 $15.3 million.
We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. We are subject
to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities. Our major
tax jurisdictions are the U.S., Ireland and California. For California, Ireland and the U.S., the earliest fiscal years open for
examination are 2001, 2002 and 2005, respectively.
In August 2008, a U.S. income tax examination covering our fiscal years 2001 through 2004 was completed. Our
accrued tax and interest related to these years was $100.0 million and was previously reported in long-term income taxes
payable. In conjunction with this resolution, we requested and received approval from the IRS to repatriate certain foreign
earnings in a tax-free manner, which resulted in a reduction of our long-term deferred income tax liability of $57.8 million.
Together, these liabilities on our balance sheet decreased by $157.8 million. Also in August 2008, we paid $80.0 million in
conjunction with the aforementioned resolution, credited additional paid-in-capital for $41.3 million due to our use of certain
tax attributes related to stock option deductions, including a portion of certain deferred tax assets not recorded in our financial
statements pursuant to SFAS 123R and made other individually immaterial adjustments to our tax balances totaling $15.8
million. A net income statement tax benefit in the third quarter of fiscal 2008 of $20.7 million resulted.
The accounting treatment related to certain unrecognized tax benefits from acquired companies, including Macromedia,
will change when SFAS 141R becomes effective. SFAS 141R will be effective in the first quarter of our fiscal year 2010. At
such time, any changes to the recognition or measurement of these unrecognized tax benefits will be recorded through
income tax expense, where currently the accounting treatment would require any adjustment to be recognized through the
purchase price as an adjustment to goodwill.
The timing of the resolution of income tax examinations is highly uncertain and the amounts ultimately paid, if any,
upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
While it is reasonably possible that some issues in the IRS and other examinations could be resolved within the next
12 months, based upon the current facts and circumstances, we cannot estimate the timing of such resolution or range of
potential changes as it relates to the unrecognized tax benefits that are recorded as part of our financial statements. We do not
expect any material settlements in fiscal 2009 but it is inherently uncertain to determine.