Adobe 2000 Annual Report Download - page 41

The Internet market is rapidly evolving and is characterized by an increasing number of
market entrants that have introduced or developed products addressing authoring and
communication over the Internet. As is typical in the case of a new and evolving industry,
demand and market acceptance for recently introduced products and services are subject
to a high level of uncertainty. The software industry addressing authoring and communica-
tions over the Internet is still developing. Standards defining Web graphics have not yet
been finally adopted. In addition, new models for licensing software will be needed to
accommodate new information delivery practices. Moreover, critical issues concerning the
commercial use of the Internet (including security, reliability, ease of use and access, cost,
and quality of service) remain unresolved and may affect the growth of Internet use,
together with the software standards and electronic media employed in such markets.
We have stated that we intend to increase our investment in e-business and enhanced
marketing activities in an effort to achieve revenue growth, but we can provide no assur-
ance that increased investment in this new market will result in increased revenue.
We derive a significant portion of our revenue and operating income from our customers
located in Europe, Japan, Asia Pacific, and Latin America. We generally experience lower
revenue from our European operations in the third quarter because many customers
reduce their purchasing activities in the summer months. Additionally, we are uncertain
whether the recent weakness experienced in the Asia Pacific and Latin America markets
will continue in the foreseeable future due to possible currency devaluation and liquidity
problems in these regions. While most of the revenue of our European subsidiaries has in
the past been denominated in U.S. dollars, in the first quarter of fiscal 2001 we began to
denominate revenue in euros in certain European countries. In addition, the majority of
our revenue derived from Japan is denominated in yen, and the majority of all our subsid-
iaries’ operating expenses are denominated in their local currencies. As a result, our
operating results are subject to fluctuations in foreign currency exchange rates. To date,
the financial impact of such fluctuations has not been significant. Our hedging policy
attempts to mitigate some of these risks, based on our best judgment of the appropriate
trade-offs among risk, opportunity, and expense. We have established a hedging program
to hedge our exposure to foreign currency exchange rate fluctuations, primarily of the
Japanese yen and the euro. We are currently reviewing our hedging program and will
make adjustments based on our best judgment. Our hedging program is not comprehen-
sive, and our program may not offset more than a portion of the adverse financial impact
resulting from unfavorable movement in foreign currency exchange rates.
In connection with the enforcement of our own intellectual property rights or in connec-
tion with disputes relating to the validity or alleged infringement of third-party rights, we
have been, are currently, and may in the future be subject to complex, protracted litigation
as part of our policy to vigorously defend our intellectual property rights. Intellectual
property litigation is typically very costly and can be disruptive to our business operations
by diverting the attention and energies of management and key technical personnel.
Although we have successfully defended or resolved past litigation, we may not prevail in
any ongoing or future litigation. Adverse decisions in such litigation could have negative
results, including subjecting us to significant liabilities, requiring us to seek licenses from
others, preventing us from manufacturing or licensing certain of our products, or causing
severe disruptions to our operations or the markets in which we compete, any one of
which could seriously harm our business.
We prepare our financial statements in conformity with accounting principles generally
accepted in the United States of America. These principles are subject to interpretation by
the American Institute of Certified Public Accountants (the “AICPA”), the Securities and
Exchange Commission (the “SEC”), and various bodies formed to interpret and create
appropriate accounting policies. A change in these policies can have a significant effect