Adobe 2001 Annual Report Download - page 96

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 15. Financial Instruments (Continued)
Our investment portfolio consists of investment-grade securities diversified among security types,
industries, and issuers. Our investments are managed by recognized financial institutions that follow
Adobe’s investment policy. Our policy limits the amount of credit exposure to any one security issue or
issuer, and we believe no significant concentration of credit risk exists with respect to these investments.
Credit risk in receivables is limited to OEM partners and to dealers and distributors of hardware and
software products to the retail market. We adopt 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 our products, end users, and geographic sales areas. We perform ongoing credit
evaluations of our customers’ financial condition and require letters of credit or other guarantees,
whenever deemed necessary. For discussion of significant customers as of November 30, 2001, see Note 16.
We distribute our application products primarily through distributors, resellers, and retailers
(collectively referred to as ‘‘distributors’’). A significant amount of our revenue for application products is
from two distributors. One of these distributors recently restructured its operations, reducing the number
of facilities it operates, including those handling Adobe products, which may harm our operating results. In
addition, we have revised our channel program to reduce the overall number of our distributors worldwide
and focus our channel efforts on larger distributors. This revision of the channel program has resulted in
an increase in our dependence on a smaller number of distributors selling through a larger amount of our
products. Additionally, one of our goals is to increase our direct distribution of our products to end users
through our online store located on our Web site at www.adobe.com. Any such increase in our direct
revenue efforts will place us in increased competition with our channel distributors and with newer types of
distribution of our products by online, Internet-based resellers of our products. While we anticipate that
the restructuring and streamlining of our product distribution channels and the increase in the scope of our
direct sales efforts will eventually improve our business by decreasing discounts or rebate programs
provided to distributors, decreasing product returns, and shortening inventory cycles, these changes could
instead seriously harm our business.
We derive a significant portion of our OEM PostScript and Other licensing revenue from a small
number of OEM partners. Our OEM partners on occasion seek to renegotiate their royalty arrangements.
We evaluate 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 us.
Note 16. Industry Segment and Geographic Information
Beginning in fiscal 2002, we have realigned our business segments to reflect the way we will manage
our business. Please see Item 1 of our business section for details on our new segments. During fiscal 2001,
we evaluated our business using our old segments.
During fiscal 2001, 2000, and 1999, we had four reportable segments that offered different product
lines: Web Publishing, Cross-media Publishing, ePaper Solutions, and OEM PostScript and Other. The
Web Publishing segment provides users with software for creating Web page layouts and Web animations
and editing and enhancing digital images, photographs, and video. The Cross-media Publishing segment
provides software for professional page layout, illustration, business publishing, and printing. The ePaper
Solutions segment provides software that allows users to speed the distribution of information with
documents that can be viewed, approved and printed across a broad range of hardware and software
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