Adobe 2013 Annual Report Download - page 50

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50
Provision for Income Taxes (dollars in millions)
Fiscal
2013 Fiscal
2012 Fiscal
2011 % Change
2013-2012 % Change
2012-2011
Provision $ 66.2 $ 286.0 $ 202.4 (77)% 41%
Percentage of total revenue 2% 6% 5%
Effective tax rate 19% 26% 20%
Our effective tax rate decreased by approximately seven percentage points during fiscal 2013 as compared to fiscal 2012.
The decrease is primarily related to the retroactive reinstatement of the U.S. research and development credit which resulted in
the credits for both fiscal 2012 and 2013 being reflected in the fiscal 2013 results.
Our effective tax rate increased by approximately six percentage points during fiscal 2012 as compared to fiscal 2011. The
rate increase in fiscal 2012 was primarily related to the expiration of the U.S. research and development credit in fiscal 2011, as
well as items in fiscal 2011 including tax benefits associated with a favorable state income tax ruling and tax costs associated with
licensing acquired company assets to Adobe's trading companies that were not present in fiscal 2012.
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. Currently, there are a significant
amount of foreign earnings upon which U.S. income taxes have not been provided.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at November 29, 2013 was $136.1 million, exclusive of interest and
penalties. If the total unrecognized tax benefits at November 29, 2013 were recognized in the future, $125.6 million of unrecognized
tax benefits would decrease the effective tax rate, which is net of an estimated $10.5 million federal benefit related to deducting
certain payments on future state tax returns.
As of November 29, 2013, the combined amount of accrued interest and penalties related to tax positions taken on our tax
returns was approximately $11.4 million. This amount is included in non-current income taxes payable.
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 $5 million.
In July 2013, a U.S. income tax examination covering our fiscal years 2008 and 2009 was completed. Our accrued tax and
interest related to these years was $48.4 million and was previously reported in long-term income taxes payable. We settled the
tax obligation resulting from this examination with cash and income tax assets totaling $41.2 million, and the resulting $7.2 million
income tax benefit was recorded in the third quarter of fiscal 2013.
LIQUIDITY AND CAPITAL RESOURCES
This data should be read in conjunction with our Consolidated Statements of Cash Flows.
As of
(in millions) November 29, 2013 November 30, 2012
Cash and cash equivalents $ 834.6 $ 1,425.1
Short-term investments $ 2,339.2 $ 2,113.3
Working capital $ 2,520.3 $ 3,125.3
Stockholders’ equity $ 6,724.6 $ 6,665.2
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