Autodesk 2005 Annual Report Download - page 70

The valuation allowance decreased by $21.4 million in fiscal 2005 and increased by $11.9 million in fiscal 2004
and $7.6 million in fiscal 2003. During fiscal 2005, Autodesk re-assessed the realizability of certain deferred tax
assets related to stock option deductions that had not been previously recognized. As a result of recent U.S.
operating results, as well as U.S. jurisdictional forecasts of pretax operating results, we believe these deferred
tax assets are realizable based on the “more likely than not” standard required for recognition. Accordingly, during
fiscal 2005, the Company reduced the valuation allowance relating to tax benefits of stock option deductions
by $21.1 million and credited additional paid in capital by an equal and offsetting amount. As of January 31, 2005,
Autodesk no longer records a valuation allowance relating to tax benefits of stock option deductions.
Approximately $21.1 million of the valuation allowance at January, 31 2004 and $9.0 million at January 31, 2003
related to tax benefits of stock option deductions.
No provision has beenmade for federal income taxes on unremitted earnings of certain of Autodesk’s foreign
subsidiaries (cumulatively $143.0 million at January 31, 2005) because Autodesk plans to reinvest such earnings
for the foreseeable future. At January 31, 2005, the unrecognized deferred tax liability for these earnings was
approximately $49.0 million.
Realization of the Company’s net deferred tax assets of $119.3 million is dependent upon the Company
generating approximately $306.0 million of future taxable income in appropriate tax jurisdictions to obtain
benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. The amount
of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable
income are reduced.
Cash payments (refunds) for income taxes were approximately $16.5 million in fiscal 2005, ($19.3) million
in fiscal 2004, and $19.3 million in fiscal 2003.
During fiscal 2005, the increase in net operating loss carryforwards related primarily to stock option
deductions, which have been offset against additional paid in capital. Autodesk has $291.3 million of cumulative
federal tax loss carryforwards and $47.8 million of cumulative state tax loss carryforwards, which may be available
to reduce future income tax liabilities in certain jurisdictions. The federal tax loss carryforwards will expire
beginning January 31, 2008 through January 31, 2026. The state tax loss carryforwards will expire beginning
January 31, 2006 through January 31, 2016. Autodesk has recorded a valuation allowance against some deferred
tax assets including the tax benefit of certain tax loss carryforwards of acquired companies due to the uncertainty
of their realizability.
Autodesk has $18.8 million of cumulative federal research tax credit carryforwards and $6.7 million of cumulative
state research tax credit carryforwards, which may be available to reduce future income tax liabilities in the U.S. and
California. The federal credit carryforward will expire beginning January 31, 2019 through January 31, 2026. The state
credit carryforward may reduce future California income tax liabilities indefinitely.
Autodesk also has $16.8 million of cumulative foreign tax credit carryforwards, which may be available to
reduce future U.S. tax liabilities. The federal credit will expire beginning January 31, 2014 through January 31, 2016.
As a result of certain employment actions and capital investments undertaken by Autodesk, income earned
in certain countries is subject toreduced taxrates and in some cases is wholly exempt fromtaxes for years through
fiscal 2009. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $18.0
million ($0.08 per basic net income per share) in fiscal 2005, less than $0.1 million in fiscal 2004 and $0.4 million
in fiscal 2003. The amounts for fiscal 2005 include consideration of incremental tax benefits received from the
recent DRD Legislation.
During fiscal 2005, the American Jobs Creation Act of 2004 was signed into law which allows for the
repatriation of foreign dividends at a rate lower than the 35% federal statutory rate through a one-time election
(“DRD Legislation”). Because Autodesk believes that it will be able to repatriate foreign earnings under this DRD
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4. Income Taxes (Continued)
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