Adobe 2015 Annual Report Download - page 38

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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 United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless
the subsidiaries’ earnings are considered permanently reinvested outside the United States. 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, 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
On November 20, 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17, Balance Sheet
Classification of Deferred Taxes, requiring all deferred tax assets and liabilities, and any related valuation allowance, to be classified
as non-current on the balance sheet. The classification change for all deferred taxes as non-current simplifies entities’ processes
as it eliminates the need to separately identify the net current and net non-current deferred tax asset or liability in each jurisdiction
and allocate valuation allowances. We elected to prospectively adopt the accounting standard in the beginning of our fourth quarter
of fiscal 2015. Prior periods in our Consolidated Financial Statements were not retrospectively adjusted.
Recent Accounting Pronouncements Not Yet Effective
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and
permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No.
2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new
revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not
earlier than the original effective date. Accordingly, the updated standard is effective for us in the first quarter of fiscal 2019. We
have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our
Consolidated Financial Statements and related disclosures.
With the exception of the new revenue standard discussed above, there have been no new accounting pronouncements not
yet effective that have significance, or potential significance, to our Consolidated Financial Statements.