Adobe 2004 Annual Report Download - page 45

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45
Due to the factors noted above, our future earnings and stock price may be subject to volatility, particularly on a
quarterly basis. Any shortfall in revenue or earnings or any delay in the release of any product or upgrade compared
to analysts’ or investors’ expectations has caused and could cause in the future an immediate and significant decline
in the trading price of our common stock. Additionally, we may not learn of such shortfalls or delays until late in the
fiscal quarter, which could result in an even more immediate and greater decline in the trading price of our common
stock. Finally, we participate in a highly dynamic industry. In addition to factors specific to us, changes in analysts’
earnings estimates for us or our industry, and factors affecting the corporate environment, our industry, or the
securities markets in general, will often result in volatility of our common stock price.
We are subject to risks associated with international operations which may harm our business.
We generate over 50% of our total revenue from sales to customers outside of the Americas. Sales to these
customers subject us to a number of risks, including (i) foreign currency fluctuations, (ii) changes in government
preferences for software procurement, (iii) international economic and political conditions, (iv) unexpected changes
in, or impositions of, international legislative or regulatory requirements, (v) inadequate local infrastructure, (vi)
delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade
barriers and restrictions, (vii) transportation delays, (viii) the burdens of complying with a variety of foreign laws,
and other factors beyond our control, including terrorism, war, natural disasters and diseases. If sales to any of our
customers outside of the Americas are delayed or cancelled because of any of the above factors, our revenue may be
negatively impacted.
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 the Japanese yen and the euro. We regularly review our hedging
program and will make adjustments based on our 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.
Changes in, or interpretations of, accounting rules and regulations, such as expensing of stock options, could result
in unfavorable accounting charges.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America. These principles are subject to interpretation by 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 retroactively affect
previously reported transactions. Our accounting policies that recently have been or may be affected by changes in
the accounting rules are as follows:
• software revenue recognition
• accounting for share-based payments
• accounting for income taxes
• accounting for business combinations and related goodwill
In particular, the FASB recently enacted SFAS 123R which will have a significant adverse effect on our
reported financial results and may impact the way in which we conduct our business.
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