Adobe 2005 Annual Report Download - page 33

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• accounting for business combinations and related goodwill
In particular, the FASB recently issued SFAS 123R which requires the measurement of all share-based
payments to employees, including grants of employee stock options, using a fair-value-based method and the
recording of such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are
effective for annual periods beginning after June 15, 2005. We are required to adopt SFAS 123R in the first quarter
of fiscal year 2006. We believe that the adoption of SFAS 123R will have a significant adverse effect on our
reported financial results and may impact the way in which we conduct our business. Please refer to the section
entitled “Recent Accounting Pronouncements” for further information regarding SFAS 123R.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge
to earnings.
Under generally accepted accounting principles, we review our amortizable intangible assets for impairment
when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to
be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that
the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock
price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to
record a significant charge to earnings in our financial statements during the period in which any impairment of our
goodwill or amortizable intangible assets is determined resulting in an impact on our results of operations.
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
the amount of revenue or earnings in countries with low statutory tax rates, or by changes in the valuation of our
deferred tax assets and liabilities
In addition, we are subject to the continual examination of our income tax returns by the Internal Revenue
Service and other domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting
from these examinations to determine the adequacy of our provision for income taxes. Any adverse outcome from
these continual examinations may have an adverse effect on our operating results and financial position.
If we are unable to recruit and retain key personnel our business may be harmed.
Much of our future success depends on the continued service and availability of our senior management,
including our Chief Executive Officer and other members of our executive team. These individuals have acquired
specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our
business. Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel.
Experienced personnel in the information technology industry are in high demand and competition for their talents is
intense, especially in the Silicon Valley, where the majority of our employees are located. We have relied on our
ability to grant equity compensation as one mechanism for recruiting and retaining such highly skilled personnel.
Recently enacted accounting regulations requiring the expensing of equity compensation may impair our ability to
provide these incentives without incurring significant compensation costs. If we are unable to continue to
successfully attract and retain key personnel, our business may be harmed.
We may suffer losses from our equity investments which could harm our business.
We hold equity investments in public companies that have experienced significant declines in market value. We also
have investments and may continue to make future investments in privately held companies, many of which are
considered in the start-up or development stages. These investments are inherently risky, as the market for the
technologies or products these companies have under development is typically in the early stages and may never
materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and
any significant long-term declines in value of any of our investments could reduce our net income in future periods.