Adobe 2004 Annual Report Download - page 32

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32
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion (presented in millions, except share and per share amounts) should be read in
conjunction with the consolidated financial statements and notes thereto.
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements,
including statements regarding product plans and investing activities, that involve risks and uncertainties that could
cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are
not limited to, those discussed in this section under “Factors That May Affect Future Performance.” You should
carefully review the risks described herein and in other documents we file from time to time with the Securities and
Exchange Commission (“SEC”), including the Quarterly Reports on Form 10-Q to be filed in 2005. When used in
this report, the words “expects,” “could,” “would”, “may,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “targets,” “estimates,” “looks for,” “looks to,” and similar expressions, as well as statements regarding
Adobe’s focus for the future, are generally intended to identify forward-looking statements. You should not place
undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form
10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document.
OVERVIEW
Founded in 1982, Adobe offers a line of software and services for consumers, creative professionals and
enterprises, in both private and public sectors. Our products enable customers to create, manage and deliver visually
rich, compelling and reliable content. We distribute our products through a network of distributors and dealers,
VARs, systems integrators, ISVs and OEMs; direct to end users; and through our own Web site at www.adobe.com.
We also license our technology to major hardware manufacturers, software developers and service providers and we
offer integrated software solutions to businesses of all sizes. We have operations in the Americas, EMEA, and Asia.
Our software runs on Microsoft Windows, Apple Macintosh, Linux, UNIX and various non-personal computer
platforms, depending on the product.
CRITICAL ACCOUNTING ESTIMATES
In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can
have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions,
judgments and estimates on historical experience and various other factors that we believe to be reasonable under
the circumstances. Actual results could differ materially from these estimates under different assumptions or
conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes
accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue
recognition and income taxes have the greatest potential impact on our consolidated financial statements, so we
consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated
with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting
policies have not differed materially from actual results. For further information on our critical accounting policies,
see the discussion in the section titled “Recent Accounting Pronouncements” below and Note 1 of our Notes to
Consolidated Financial Statements.
Revenue Recognition
We recognize revenue in accordance with current generally accepted accounting principles that have been
prescribed for the software industry. Revenue recognition requirements in the software industry are very complex
and are subject to change. Our revenue recognition policy is one of our critical accounting policies because revenue
is a key component of our results of operations and is based on complex rules which require us to make judgments
and estimates. In applying our revenue recognition policy we must determine which portions of our revenue are
recognized currently and which portions, if any, must be deferred. In order to determine current and deferred
revenue, we make judgments and estimates with regard to future deliverable products and services and the
appropriate pricing for those products and services. Our assumptions and judgments regarding future products and
services could differ from actual events, thus materially impacting our financial position and results of operations.