Adobe 2010 Annual Report Download - page 106

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
106
Deferred Tax Assets and Liabilities
The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities
as of December 3, 2010 and November 27, 2009 are presented below (in thousands):
2010
2009
Deferred tax assets:
Acquired technology ...............................................................................................
$
3,774
$
937
Reserves and accruals .............................................................................................
72,395
68,472
Deferred revenue .....................................................................................................
17,114
17,441
Unrealized losses on investments............................................................................
6,263
15,263
Stock-based compensation ......................................................................................
73,985
56,541
Net operating loss of acquired companies...............................................................
24,284
56,138
Credits .....................................................................................................................
8,629
12,205
Capitalized expenses ...............................................................................................
9,188
5,701
Other .......................................................................................................................
12,889
11,603
Total gross deferred tax assets ............................................................................
228,521
244,301
Deferred tax asset valuation allowance ...................................................................
(5,691
)
(4,283
)
Total deferred tax assets ......................................................................................
222,830
240,018
Deferred tax liabilities:
Depreciation and amortization ................................................................................
(38,524
)
(11,975
)
Undistributed earnings of foreign subsidiaries........................................................
(55,841
)
(210,619
)
Acquired intangible assets ......................................................................................
(148,316
)
(192,493
)
Total deferred tax liabilities ................................................................................
(242,681
)
(415,087
)
Net deferred tax (liabilities) assets ..............................................................................
$
(19,851
)
$
(175,069
)
The deferred tax assets and liabilities for fiscal 2010 and fiscal 2009 include amounts related to various acquisitions.
The total change in deferred tax assets and liabilities in fiscal 2010 includes changes that are recorded to OCI, additional
paid-in capital, goodwill and retained earnings.
We repatriated $700 million of undistributed foreign earnings for which a deferred tax liability had been previously
recognized. As such, a long-term deferred tax liability of approximately $200 million was reclassified from deferred income
taxes to income taxes payable in the first quarter of fiscal 2010 and was paid during fiscal 2010.
We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered
permanently reinvested outside the U.S. To the extent that the foreign earnings previously treated as permanently reinvested
are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. As of
December 3, 2010, the cumulative amount of earnings upon which U.S. income taxes have not been provided is
approximately $1.9 billion. The unrecognized deferred tax liability for these earnings is approximately $545.4 million.
As of December 3, 2010, we have U.S. net operating loss carryforward assets of approximately $68.3 million for federal
and $7.7 million for state. We also have federal and state tax credit carryforwards of approximately $3.7 million and $7.6
million, respectively. The net operating loss carryforward assets, federal tax credits and foreign tax credits will expire in
various years from fiscal 2011 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 $50.2 million which have not been recorded in the
financial statements pursuant to accounting standards related to stock-based compensation. These amounts are no longer
included in our gross or net deferred tax assets. Pursuant to these standards, 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 2010, our valuation allowance was $5.7 million.