Adobe 2007 Annual Report Download - page 37

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37
We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure.
Our operating results are subject to fluctuations in foreign currency exchange rates. We attempt to mitigate a portion of
these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity
and expense. We have established a hedging program to partially hedge our exposure to foreign currency exchange rate
fluctuations primarily for the Japanese Yen and the Euro. We regularly review our hedging program and will make
adjustments as necessary based on the judgment factors discussed above. Our hedging activities may not offset more than a
portion of the adverse financial impact resulting from unfavorable movement in foreign currency exchange rates, which could
adversely affect our financial condition or results of operations.
Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America. These principles are subject to interpretation by the SEC and various bodies formed to interpret
and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results
and may even retroactively affect previously reported transactions. Our accounting principles that recently have been or may
be affected by changes in the accounting principles are as follows:
• software revenue recognition;
• accounting for stock-based compensation;
• accounting for income taxes; and
• accounting for business combinations and related goodwill.
In particular, in the first quarter of fiscal 2006, we adopted Statements of Financial Accounting Standards (“SFAS”)
No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment” which requires the measurement of all stock-based
compensation to employees, including grants of employee stock options, using a fair-value-based method and the recording
of such expense in our consolidated statements of income. The adoption of SFAS 123R had a significant adverse effect on
our reported financial results. It will continue to significantly adversely affect our reported financial results and may impact
the way in which we conduct our business.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to
earnings.
Under accounting principles generally accepted in the United States of America, we review our amortizable intangible
assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill
is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating
that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock
price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a
significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or
amortizable intangible assets is determined, resulting in an impact on our results of operations. In particular, our Mobile and
Device Solutions segment, which primarily consists of assets acquired in the Macromedia acquisition, is in an emerging
market with high growth potential. Revenue is based on the introduction of new products and future royalties. If future
revenue or revenue forecasts for this segment do not meet our expectations, we will be required to record a charge to earnings
reflecting an impairment of this recorded goodwill or intangible assets.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.
Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could
be unfavorably affected by changes in tax laws or the interpretation of tax laws, by unanticipated decreases in 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 continual examination of our income tax returns by the Internal Revenue Service