Adobe 2008 Annual Report Download - page 38

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38
where practices which violate such United States laws may be customary, will not take actions in violation of our policies.
Any such violation, even if prohibited by our policies, could have an adverse effect on our business.
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 for the Japanese Yen and the Euro. We regularly review our hedging program and 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 could result in unfavorable accounting charges.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). 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 stock-based compensation;
• accounting for income taxes; and
• accounting for business combinations and related goodwill.
For example, in the first quarter of fiscal 2006, we adopted SFAS No. 123 (revised 2004) (“SFAS 123R”), “Share-Based
Payment” which requires the measurement of all stock-based compensation 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
adoption of SFAS 123R has had, and will continue to have, a significant adverse effect on our reported financial results.
We also adopted FIN 48 in the first quarter of fiscal 2008. The adoption of FIN 48 resulted in an increase to both assets
and liabilities in our condensed consolidated balance sheet as of the beginning of fiscal 2008 and may create increased
volatility in our future operating results.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), (“SFAS 141R”), “Business Combinations,” which
changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition related
restructuring liabilities, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’ s
income tax valuation allowance. SFAS 141R is effective for financial statements issued for fiscal years beginning after
December 15, 2008. We are in the process of evaluating the impact of the pending adoption of Statement 141R. We currently
believe that the adoption of Statement 141R will result in the recognition of certain types of expenses in our results of
operations that we currently capitalize pursuant to existing accounting standards and may also impact our financial statements
in other ways.