Adobe 2013 Annual Report Download - page 38

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to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance
to be recorded against a deferred tax asset.
Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax
laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic
tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could
be challenged by tax authorities. In addition, we are subject to the continual examination of our income tax returns by the IRS and
other domestic and foreign tax authorities, including a current examination by the IRS of our fiscal 2010, 2011 and 2012 tax
returns. We expect future examinations to focus on our intercompany transfer pricing practices as well as other matters. 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, the final determination of any of these examinations could significantly impact the amounts provided for
income taxes in our Consolidated Financial Statements.
Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the
amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results
and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates
of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our
actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant
portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S.
income taxes on earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the
subsidiaries' earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention
regarding permanently reinvested earnings, if certain 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.
Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to
discrete items and to earnings considered as permanently reinvested in foreign operations. Unanticipated changes in our tax rates
could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax
rates in jurisdictions where our income is earned, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions
in which we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax rates, by lapses
of the availability of the U.S. research and development tax credit, or by changes in the valuation of our deferred tax assets and
liabilities. The United States, countries in the European Union and other countries where we do business have been considering
changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to
corporate multinationals such as Adobe. These potential changes could adversely affect our effective tax rates or result in other
costs to us.
Recent Accounting Pronouncements
In December 2011, the FASB amended the accounting standards to increase the prominence of other comprehensive income
(“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in shareholders’ equity and
requires the components of OCI to be presented either in a single continuous statement of comprehensive income or in two
consecutive statements. We adopted the amended accounting standards at the beginning of our first quarter of fiscal 2013 by
electing to present consolidated statements of comprehensive income separate from the consolidated statements of income.
In February 2013, the FASB further amended the above accounting standards to improve the presentation of amounts
reclassified out of accumulated other comprehensive income in its entirety and by component by presenting the reclassification
adjustments on either the face of the statement where net income is presented or in a separate disclosure in the notes to the financial
statements. Amounts that are not required to be reclassified in their entirety to net income are required to be cross referenced to
related footnote disclosures that provide additional detail. We elected to early adopt the amended accounting standard at the
beginning of our second quarter of fiscal 2013 by electing to present the reclassification adjustments and other required disclosures
in a separate footnote.
The amended accounting standards only impact the financial statement presentation of OCI and do not change the
components that are recognized in net income or OCI. The adoption had no impact on the Company’s financial position or results
of operations.
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