Adobe 2008 Annual Report Download - page 39

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39
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to
earnings.
Under GAAP, we review our goodwill and 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. For example, our Mobile and Device Solutions business, which will be
reported as part of our Platform segment in fiscal 2009, is in an emerging market with high growth potential. We recently
announced the Open Screen Project. As part of the project, we will be removing the license fees on the next major releases of
Adobe Flash Player and Adobe AIR for devices. Accordingly, we would expect revenue from this segment to decrease
beginning in the first quarter of fiscal 2009. Although we would expect this decrease to be offset in time by an increased
demand for tooling products, server technologies, hosted services and applications, if future revenue or revenue forecasts for
our Platform segment do not meet our expectations, we may be required to record a charge to earnings reflecting an
impairment of recorded goodwill or intangible assets.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.
We are a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. 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, or interpretation of, tax rules and regulations in the jurisdictions in which we do business, by
unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, by lapses of the
availability of the U.S. research and development tax credit, 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 IRS and other domestic and
foreign tax authorities, including a current examination by the IRS for our fiscal 2005, 2006 and 2007 tax returns. These
examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. We regularly
assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income
taxes and have reserved for potential adjustments that may result from the current examination. We believe such estimates to
be reasonable; however, there can be no assurance that the final determination of any of these examinations will not 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. 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 Bay Area, where many 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. Additionally, the recent significant adverse volatility in our stock price has resulted
in many employees’ stock option exercise prices exceeding the underlying stock’s market value as well as deterioration in the
value of employees’ restricted stock units granted, thus lessening the effectiveness of retaining employees through stock-
based awards. If we are unable to continue to successfully attract and retain key personnel, our business may be harmed.