Adobe 2009 Annual Report Download - page 71

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The gross liability for unrecognized tax benefits at November 27, 2009 was $218.0 million, exclusive of interest and
penalties. The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax
payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet
classification of current and non-current assets and liabilities. We believe that before the end of fiscal 2010, it is reasonably
possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will
expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in
underlying unrecognized tax benefits equal to $0 to approximately $10.0 million. These amounts would decrease income tax
expense under accounting for income taxes and as a result of the revised accounting guidance for business combinations in
fiscal 2010. See Note 1 of our Notes to Consolidated Financial Statements. Under the revised accounting guidance for
business combinations, adjustments to acquired income tax liabilities (including adjustments for acquisitions completed prior
to the effective date) that are recorded subsequent to the acquisition date will be recognized in income from continuing
operations, with certain exceptions, if such changes occur after the measurement period.
Royalties
We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense
is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual
value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our
Consolidated Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East
and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with
the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to our Consolidated Statements of
Income over the life of the leases. As of November 27, 2009, the unamortized portion of the fair value of the residual value
guarantees remaining in other long-term liabilities and prepaid rent was $1.3 million.
Indemnifications
In the normal course of business, we provide indemnifications of varying scope to customers against claims of
intellectual property infringement made by third-parties arising from the use of our products. Historically, costs related to
these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of
these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for
certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the director’s or officer’s lifetime. The maximum
potential amount of future payments we could be required to make under these indemnification agreements is unlimited;
however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any
future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable
insurance coverage is minimal.
As part of our limited partnership interests in Adobe Ventures, we have provided a general indemnification to Granite
Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences
while Granite Ventures is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on
behalf of the partnership. We are unable to develop an estimate of the maximum potential amount of future payments that
could potentially result from any hypothetical future claim, but believe the risk of having to make any payments under this
general indemnification to be remote.
Recent Accounting Pronouncements
See Note 1 of our Notes to Consolidated Financial Statements for information regarding the effect of new accounting
pronouncements on our financial statements.