Adobe 2004 Annual Report Download - page 46

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the amount of revenue or earnings in countries with low statutory tax rates, or by changes in the valuation of our
deferred tax assets and liabilities
In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue
Service and other domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting
from these examinations to determine the adequacy of our provision for income taxes. Any adverse outcome from
these continuous examinations may have an adverse effect on our operating results and financial position.
We may suffer losses from our equity investments which could harm our business.
We hold equity investments in public companies that have experienced significant declines in market value. We
also have investments and may continue to make future investments in privately held companies, many of which are
considered in the start-up or development stages. These investments are inherently risky, as the market for the
technologies or products these companies have under development is typically in the early stages and may never
materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and
any significant long-term declines in value of any of our investments could reduce our net income in future periods.
We are uncertain about future investment gains and losses, as they are primarily dependent upon the operations of
the underlying investee companies.
If we are unable to recruit and retain skilled personnel our business may be harmed.
Much of our future success depends on the continued service and availability of skilled personnel. Experienced
personnel in the information technology industry are in high demand and competition for their talents is intense,
especially in the Silicon Valley, where the majority of our employees are located. We have relied on our ability to
grant equity compensation as one mechanism for recruiting and retaining such highly skilled personnel. Recently
enacted accounting regulations requiring the expensing of equity compensation may impair our ability to provide
these incentives without incurring significant compensation costs. If we are unable to continue to successfully attract
and retain key personnel, our business may be harmed.
EMPLOYEE AND DIRECTOR STOCK OPTIONS
Option Program Description
Our stock option program is a long-term retention program that is intended to attract, retain and provide
incentives for talented employees, officers and directors, and to align stockholder and employee interests. We
consider our stock option program critical to our operation and productivity; essentially all of our employees
participate. Option vesting periods are generally three years for all of the plans within our stock option program. For
further information regarding our stock option program, see Note 11 of our Notes to Consolidated Financial
Statements.
All stock option grants to executive officers are made after a review by and with the approval of the Executive
Compensation Committee of the Board of Directors. All members of the Executive Compensation Committee are
independent directors, as defined in the current rules applicable to issuers traded on the Nasdaq Stock Market. See
the “Report of the Executive Compensation Committee” appearing in our 2005 Proxy Statement for further
information concerning the policies and procedures, of the Company and the Executive Compensation Committee,
regarding the use of stock options for executive officers.
In May 2003, a stock option exchange program was initiated that allowed eligible employees to exchange
options granted with an option price greater than $40.00 per share for a lesser number of new options, according to
specified exchange ratios. The program excluded executive officers and members of our Board of Directors. The
cancellation date for the program was June 16, 2003. We accepted for cancellation, options to purchase
approximately 7.1 million shares of common stock. On December 17, 2003, eligible employees received new
options to purchase approximately 3.4 million shares of common stock, in exchange for such cancelled options, with
an exercise price of $39.10.