Adobe 2012 Annual Report Download - page 102

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repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. As of November 30,
2012, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $2.9 billion.
The unrecognized deferred tax liability for these earnings is approximately $0.8 billion.
As of November 30, 2012, we have U.S. net operating loss carryforwards of approximately $33.7 million for federal and
$77.7 million for state. We also have federal, state and foreign tax credit carryforwards of approximately $1.9 million, $18.0
million and $17.6 million, respectively. The net operating loss carryforward assets, federal tax credits and foreign tax credits will
expire in various years from fiscal 2017 through 2032. 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 $45.0 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
if and when they reduce taxes payable.
As of November 30, 2012, a valuation allowance of $28.2 million has been established for certain deferred tax assets related
to the impairment of investments and certain foreign assets. For fiscal 2012, the total change in the valuation allowance was $23.0
million, of which $2.1 million was recorded as a tax benefit through the income statement.
Accounting for Uncertainty in Income Taxes
During fiscal 2012 and 2011, our aggregate changes in our total gross amount of unrecognized tax benefits are summarized
as follows (in thousands):
2012 2011
Beginning balance ............................................................................................................................ $ 163,607 $ 156,925
Gross increases in unrecognized tax benefits – prior year tax positions........................................ 1,038 11,901
Gross decreases in unrecognized tax benefits – prior year tax positions....................................... — (4,154)
Gross increases in unrecognized tax benefits – current year tax positions.................................... 23,771 32,420
Settlements with taxing authorities ................................................................................................ (1,754)(29,101)
Lapse of statute of limitations........................................................................................................ (25,387)(3,825)
Foreign exchange gains and losses................................................................................................. (807)(559)
Ending balance.................................................................................................................................. $ 160,468 $ 163,607
As of November 30, 2012, 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 $12.5 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 2005, 2006 and 2008, respectively. We regularly assess the likelihood of outcomes resulting from these examinations to
determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the
current examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination
of any of these examinations will not have an adverse effect on our operating results and financial position.
In August 2011, a Canadian income tax examination covering our fiscal years 2005 through 2008 was completed. Our
accrued tax and interest related to these years was approximately $35 million and was previously reported in long-term income
taxes payable. We reclassified approximately $17 million to short-term income taxes payable and decreased deferred tax assets
by approximately $18 million in conjunction with the aforementioned resolution.
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. The Company believes that before the end of fiscal 2013, it is reasonably possible
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)