Adobe 2014 Annual Report Download - page 51

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51
Investment gains (losses), net fluctuated due to the following (in millions):
Fiscal
2014 Fiscal
2013 Fiscal
2012
Net gains related to our trading securities ................................................................ $ 1.9 $ 3.0 $ 1.6
Net losses related to our direct and indirect investments in privately held
companies.............................................................................................................. (0.8) — (0.2)
Write-downs due to other-than-temporary declines in value of our marketable
and non-marketable equity securities.................................................................... —(7.0)(0.1)
Gains from sale of marketable equity securities....................................................... — — 8.2
Total investment gains (losses), net.......................................................................... $ 1.1 $ (4.0) $ 9.5
During fiscal 2014, total investment gains (losses), net increased to net gains primarily due to write-downs for other-than-
temporary declines in value of our direct investments in privately held companies in fiscal 2013 that did not recur in fiscal 2014,
offset in part by a decrease in net gains related to our trading securities.
During fiscal 2013, total investment gains (losses), net decreased to net losses primarily due to a decrease in net realized
gains from the sale of marketable equity securities and an increase in write-downs for other-than-temporary declines in value of
our direct investments in privately held companies.
Provision for Income Taxes (dollars in millions)
Fiscal
2014 Fiscal
2013 Fiscal
2012 % Change
2014-2013 % Change
2013-2012
Provision ..................................................................... $ 93.0 $ 66.2 $ 286.0 40% (77)%
Percentage of total revenue....................................... 2% 2% 6%
Effective tax rate....................................................... 26% 19% 26%
Our effective tax rate increased by approximately seven percentage points during fiscal 2014 as compared to fiscal 2013.
The increase was primarily due to the expiration of the federal research and development tax credit in December 2013 and stronger
domestic profits for fiscal 2014.
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 reinstatement of the U.S. research and development credit and tax benefits recognized as
a result of the completion of certain income tax examinations.
In December 2014, the United States Congress passed an extension of the federal research and development tax credit
through December 31, 2014. As a result, we expect that our income tax provision for the first quarter of fiscal 2015 will include
a discrete tax benefit which will reduce our effective tax rate for the quarter and to a lesser extent the effective annual tax rate.
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. See Note 9 of our Notes to the Consolidated
Financial Statements for further information on our provision for income taxes.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at November 28, 2014 was $148.8 million, exclusive of interest and
penalties. If the total unrecognized tax benefits at November 28, 2014 were recognized in the future, $136.2 million of unrecognized
tax benefits would decrease the effective tax rate, which is net of an estimated $12.6 million federal benefit related to deducting
certain payments on future state tax returns.
As of November 28, 2014, the combined amount of accrued interest and penalties related to tax positions taken on our tax
returns was approximately $14.6 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