Adobe 2002 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2002 Adobe annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 147

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147

35
increased in fiscal 2001 compared to fiscal 2000 due to higher average cash balances resulting in an increase in
interest income of $1.8 million. The increase in interest and other income in fiscal 2001 compared to fiscal 2000 was
partially offset by foreign currency losses of $4.4 million. These foreign currency losses resulted from the
implementation of Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for
Derivative Instruments and Hedging Activities” and subsequent recording of the cost of hedging foreign currency
exposures in interest and other income. In addition, in fiscal 2000, interest and other income increased due to a one-
time gain of $2.5 million from the sale of a corporate facility in Edinburgh, Scotland.
Income Tax Provision
2002 Change 2001 Change 2000
Income tax provision ............................................. $ 93.3 (8)% $ 101.3 (35)% $ 155.9
Percentage of total revenue.................................... 8.0% 8.2 % 12.3%
Effective tax rate.................................................... 32.8% 33.0 % 35.1%
Our effective tax rate decreased in fiscal 2002 from fiscal 2001 and from fiscal 2000 to fiscal 2001, due to tax
benefits associated with the restructuring of our international operations. Part of the tax rate decrease in fiscal year
2002 was offset by a tax rate increase, approximately 0.8%, due to the non-tax deductible goodwill
impairment expense.
Factors That May Affect Our Future Performance
We believe that in the future our results of operations could be affected by various factors, including:
•adverse changes in general economic or political conditions in any of the major countries in which we
do business
• introduction of new products by existing and new competitors, particularly Microsoft
• delays in shipment of our new products or major new versions of existing products
• difficulties in transitions to new markets, including the enterprise, government, corporate business and
consumer markets
• inability to attract and retain key personnel
• lack of market acceptance of new products and upgrades
• weakness in demand for application software, computers, and printers
• downward sales price adjustments
• intellectual property disputes and litigation
• industry transitions to new business models
• renegotiation or termination of royalty or intellectual property licensing arrangements
• changes in accounting rules
• market risks associated with our equity investments (as discussed later under “Quantitative and
Qualitative Disclosures about Market Risk”)
We periodically provide operating model targets for revenue, expenses, gross margin, operating profit, other
income, tax rate, and share count. We use these targets to assist us in making decisions about our allocation of
resources and investments, not as predictions of future results. The targets reflect a number of assumptions,
including assumptions about:
•product pricing and demand
•manufacturing costs and volumes
•the mix of application products and licensing revenue, full and upgrade products, distribution channels,
and geographic distribution
• no change occurring in the global market conditions affecting our customers