Adobe 1998 Annual Report Download - page 67

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 15. FINANCIAL INSTRUMENTS (CONTINUED)
Concentration of risk
Financial instruments that potentially subject the Company to concentrations of credit risk are
primarily cash, cash equivalents, short-term investments, and accounts receivable.
The Company’s investment portfolio consists of investment-grade securities diversified among security
types, industries, and issuers. The Company’s investments are managed by recognized financial institutions
that follow the Company’s investment policy. The Company’s policy limits the amount of credit exposure
to any one issue or issuer, and the Company believes no significant concentration of credit risk exists with
respect to these investments.
Credit risk in receivables is limited to OEM customers and to dealers and distributors of hardware
and software products to the retail market. The Company adopts credit policies and standards to keep
pace with the evolving software industry. Management believes that any risk of accounting loss is
significantly reduced due to the diversity of its products, end users, and geographic sales areas. The
Company performs ongoing credit evaluations of its customers’ financial condition and requires letters of
credit or other guarantees, whenever deemed necessary.
A significant portion of the Company’s licensing revenue is derived from a small number of OEM
customers. The Company’s OEM customers on occasion seek to renegotiate their royalty arrangements.
The Company evaluates these requests on a case-by-case basis. If an agreement is not reached, a customer
may decide to pursue other options, which could result in lower licensing revenue for the Company. Also,
in the fall of 1997, one of Adobe’s largest PostScript customers, Hewlett-Packard Company, introduced a
clone version of Adobe PostScript in one family of monochrome laser printers.
Industry segment
Adobe and its subsidiaries operate in one dominant industry segment, as defined by SFAS No. 14,
‘‘Financial Reporting for Segments of a Business Enterprise.’’ The Company is engaged principally in the
design, development, manufacture, and licensing of computer software. In fiscal 1998, sales of application
products to a major distributor accounted for 13.5% of the Company’s total revenue and 14.4% of total
receivables. No customer accounted for more than 10% of the Company’s total revenue or total receiv-
ables in fiscal 1997 or 1996.
67