Adobe 2002 Annual Report Download - page 69

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Revenue from our OEM PostScript and Other segment experienced a 15% decline in fiscal 2002 compared to
fiscal 2001, primarily as a result of a decline in the print business. We expect this segment to continue to decline in
fiscal 2003 relative to fiscal 2002, which may harm our business if the magnitude of the decline significantly
exceeds our expectations. The continuing weakness in the economy is contributing to the decrease in revenue for the
monochrome laser printers market, in addition to the decline in average selling prices of monochrome laser printers
and the increasing use of inkjet printers. If a current major customer decided to incorporate a clone version instead
of Adobe PostScript technology, it could seriously harm our business. Further, OEM partners on occasion seek to
renegotiate their royalty arrangements. We evaluate these requests on a case-by-case basis. If an agreement is not
reached, a customer may decide to pursue other options, which could result in lower licensing revenue for us.
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 industry for software that addresses authoring and
communications over the Internet is still developing. Standards defining Web graphics have not yet been fully
adopted. In addition, new models for licensing software will be needed to accommodate new information delivery
practices. The new models may be less lucrative for us than our existing business models. 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 derive a significant portion of our revenue and operating income from our customers located in Europe and
Japan. We generally experience lower revenue from our European operations in the third quarter because many
customers reduce their purchasing activities in the summer months. We are uncertain whether the recent currency
appreciation experienced in Europe and Japan will continue in the foreseeable future. Our operating results are
subject to fluctuations in foreign currency exchange rates. Dramatic fluctuations in foreign currency exchange rates
may have significant financial impact. We attempt to mitigate a portion of these risks through foreign currency
hedging, 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 regularly review our hedging program and will make adjustments based on our best
judgment. Our hedging activities may not offset more than a portion of the adverse financial impact resulting from
unfavorable movement in foreign currency exchange rates.
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 on our
reported results and may even affect the reporting of transactions completed before a change is announced. Our
accounting policies that recently have been or may be affected by changes in the accounting rules are as follows:
• software revenue recognition
• stock option grants and accounting for stock options
• accounting for business combinations
•accounting for variable interest entities
•goodwill and other intangible assets accounting
In particular, new FASB guidelines relating to accounting for goodwill could make our acquisition-related
charges less predictable in any given reporting period. It is possible that in the future, we may incur less frequent,
but larger, impairment charges related to goodwill we have already recorded, as well as goodwill arising out of
potential future acquisitions. See “Recent Accounting Pronouncements” for more information on this new FASB
guideline. Changes to these rules or the questioning of current practices may have a significant adverse effect on our
reported financial results or in the way in which we conduct our business. See the discussion under “Critical
Accounting Policies” below for additional information about our critical accounting policies and some risks
associated with these policies.