Adobe 1998 Annual Report Download - page 24

of the appropriate trade-offs among risk, opportunity, and expense. The Company has established a
hedging program to hedge its exposure to foreign currency exchange rate fluctuations, primarily of the
Japanese yen. The Company’s hedging program is not comprehensive, and there can be no assurance that
the program will offset more than a portion of the adverse financial impact resulting from unfavorable
movement in foreign currency exchange rates.
On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the euro
as their common legal currency and established fixed conversion rates between their existing sovereign
currencies and the euro. The euro trades on currency exchanges and is available for non-cash transactions.
Based on its preliminary assessment, the Company does not believe the conversion will have a material
impact on the competitiveness of its products in Europe, where there already exists substantial price
transparency, or increase the likelihood of contract cancellations. Further, the Company expects that
modifications to comply with euro requirements have been and will continue to be made to its business
operations and systems on a timely basis and does not believe that the cost of such modifications will have
a material adverse impact on the Company’s results of operations or financial condition. There can be no
assurance, however, that the Company will be able to continue to complete such modifications on a timely
basis; any failure to do so could have a material adverse effect on the Company’s results of operations or
financial condition. In addition, the Company faces risks to the extent that suppliers, manufacturers,
distributors, and other vendors upon whom the Company relies and their suppliers are unable to make
appropriate modifications to support euro transactions. The inability of such third parties to support euro
transactions could have a material adverse effect on the Company’s results of operations or financial
condition.
In connection with the enforcement of its own intellectual property rights or in connection with
disputes relating to the validity or alleged infringement of third-party rights, the Company has been and
may in the future be subject to complex, protracted litigation as part of its policy to vigorously defend its
intellectual property rights. Intellectual property litigation is typically very costly and can be disruptive to
business operations by diverting the attention and energies of management and key technical personnel.
Although the Company has successfully defended past litigation, there can be no assurance that it will
prevail in any ongoing or future litigation. Adverse decisions in such litigation could subject the Company
to significant liabilities, require the Company to seek licenses from others, prevent the Company from
manufacturing or selling certain of its products, or cause severe disruptions to the Company’s operations
or the markets in which it competes, any one of which could have a material adverse effect on the results of
operations or financial condition of the Company.
The Company prepares its financial statements in conformity with generally accepted accounting
principles (‘‘GAAP’’). GAAP are subject to interpretation by the American Institute of Certified Public
Accountants (the ‘‘AICPA’’), the Securities and Exchange Commission (the ‘‘SEC’’) and various bodies
formed to interpret and create appropriate accounting policies. A change in these policies can have a
significant effect on the Company’s reported results, and may even affect the reporting of transactions
completed before a change is announced. Accounting policies affecting many other aspects of the
Company’s business, including rules relating to software revenue recognition, purchase and pool-
ing-of-interests accounting for business combinations, the valuation of in-process research and develop-
ment, employee stock purchase plans and stock option grants have recently been revised or are under
review by one or more groups. Changes to these rules, or the questioning of current practices, may have a
significant adverse effect on the Company’s reported financial results or in the way in which the Company
conducts its business.
Due to the factors noted above, the Company’s future earnings and stock price may be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels
expected by securities analysts could have, and has had in the past, an immediate and significant adverse
effect on the trading price of the Company’s common stock in any given period. Additionally, the
Company may not learn of such shortfalls until late in the fiscal quarter, which could result in an even
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