Adobe 2005 Annual Report Download - page 32

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Our future operating results are difficult to predict and are likely to fluctuate substantially from quarter to quarter
and as a result the market price of our common stock may be volatile and our stock price could decline.
As a result of a variety of factors discussed herein, our quarterly revenues and operating results for a particular
period are difficult to predict. Our revenues may grow at a slower rate than experienced in previous periods and, in
particular periods, may decline. Additionally, we periodically provide operating model targets. These targets reflect
a number of assumptions, including assumptions about product pricing and demand, economic and seasonal trends,
manufacturing costs and volumes, the mix of shrink-wrap and licensing revenue, full and upgrade products,
distribution channels and geographic markets. If one or more of these assumptions prove incorrect, our actual results
may vary materially from those anticipated, estimated or projected.
Due to the factors noted above, our future earnings and stock price may be subject to volatility, particularly on a
quarterly basis. Shortfalls in revenue or earnings or delays in the release of products or upgrades compared to
analysts’ or investors’ expectations have 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, have resulted, and may in the future result, in volatility of our common stock price.
We are subject to risks associated with international operations which may harm our business.
We typically 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, including more stringent consumer and data protection 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 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, such as expensing of stock options, could result in
unfavorable accounting charges.
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting
principles. 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 share-based payments
• accounting for income taxes