Adobe 1998 Annual Report Download - page 25

more immediate and adverse effect on the trading price of the Company’s common stock. Finally, the
Company participates in a highly dynamic industry. In addition to factors specific to the Company, changes
in analysts’ earnings estimates for the Company or its industry and factors affecting the corporate
environment, the Company’s industry, or the securities markets in general will often result in significant
volatility of the Company’s common stock price.
‘‘Year 2000’’ Issues
The Company is addressing a broad range of issues associated with the programming code in existing
computer systems as the year 2000 approaches. The ‘‘Year 2000’’ problem is complex, as many computer
systems will be affected in some way by the rollover of the two-digit year value to 00. Systems that do not
properly recognize such information could generate erroneous data or cause a system to fail. The Year
2000 issue creates risk for the Company from unforeseen problems in its products or its own computer and
embedded systems and from third parties with whom the Company deals on financial and other transac-
tions worldwide. Failure of the Company’s and/or third parties’ computer systems or Year 2000 defects in
the Company’s products could have a material impact on the Company’s ability to conduct its business.
The Company has commenced a phased program to inventory, assess, remediate, test, implement and
develop contingency plans for all mission-critical applications and products potentially affected by the Year
2000 issue (the ‘‘Y2K Program’’). To accelerate overall completion, activities in each phase are often
concurrent rather than serial, but all phases, except developing contingency plans, are expected to be
completed by mid-1999. Additionally, the Company has opened a dedicated Year 2000 test laboratory for
both internal business process and product testing. All Company business groups are involved in the Y2K
Program efforts.
The Company has identified three potential areas of impact for review: (1) the software and systems,
including embedded systems, used in the Company’s internal business processes; (2) third party vendors,
manufacturers and suppliers; and (3) the Company’s software products offered to customers. The
Company’s current estimate of the aggregate costs to be incurred for the Y2K Program is approximately
$3.0 million, which is expected to be funded from operating cash flows. If the Company encounters
significant unforeseen Year 2000 problems, either in its products or internal business systems or in relation
to third party vendors, manufacturers or suppliers, actual costs could materially exceed this estimate.
Internal Business Processes. The Company has substantially completed its inventory of Year 2000
impacted software and is assessing its centralized computer and embedded systems to identify any
potential Year 2000 issues. The Company’s financial information systems include an SAP system recently
implemented in the United States, Japan, and Asia Pacific and Latin America, and an Oracle system in
Europe that has recently been upgraded to a recent version. SAP and Oracle have informed the Company,
and the Company believes, that these systems are Year 2000 compliant. The Company has a number of
projects underway to replace or upgrade hardware and software that are known to be Year 2000
non-compliant. The Company currently expects to substantially complete remediation, validation and
implementation of its internal systems by mid-1999. In addition, in order to protect against the acquisition
of additional products that may not be Year 2000 ready, the Company has implemented a policy requiring
Year 2000 review of products sold or licensed to the Company prior to their acquisition. However, if
implementation of replacement or upgraded systems or software is delayed, or if significant new
non-compliance issues are identified, the Company’s results of operations or financial condition could be
materially adversely affected.
Third Party Vendors, Manufacturers and Suppliers. The Company is also in the process of contacting
its critical suppliers, manufacturers, distributors and other vendors to determine that their operations and
the products and services that they provide to the Company are Year 2000 compliant. Where practicable,
the Company will attempt to mitigate its risks with respect to the failure of third parties to be Year 2000
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