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71
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at December 2, 2011 was $163.6 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 within the next 12 months, 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 ranging
from $0 to approximately $40 million.
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 December 2, 2011 and December 3, 2010, the unamortized portion of the fair value of the residual value guarantees,
for both leases, remaining in other long-term liabilities and prepaid rent was $0.1 million and $0.7 million, respectively.
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 and from time to time, we are subject to claims
by our customers under these indemnification provisions. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Hedging Instruments
In countries outside the U.S., we transact business in U.S. dollars and various other currencies which subject us to exposure
from movements in exchange rates. We hedge our net recognized foreign currency assets and liabilities with foreign exchange
forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates.
Additionally, we may use foreign exchange option or forward contracts to hedge our Euro- , Yen-, or British Pound-denominated
revenue.
Our revenue exposures for fiscal 2011, 2010 and 2009 were as follows (in millions, except Yen):
Euro
Yen (in billions)
British Pounds
Fiscal
2011
€ 557.6
¥ 34.7
£ 144.8
Fiscal
2010
€ 542.9
¥ 35.6
£ 123.9
Fiscal
2009
€ 504.3
¥ 30.3
£ —
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