Adobe 2008 Annual Report Download - page 49

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term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected
dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of grant and revise
those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-
vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
If we use different assumptions for estimating stock-based compensation expense in future periods or if actual
forfeitures differ materially from our estimated forfeitures, the change in our stock-based compensation expense could
materially affect our operating income, net income and net income per share.
Goodwill Impairment
We complete our goodwill impairment test on an annual basis, during the second quarter of our fiscal year, or more
frequently, if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance
sheet may exist. In order to estimate the fair value of goodwill, we typically estimate future revenue, consider market factors
and estimate our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we
need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value.
Assumptions, judgments and estimates about future values are complex and often subjective. They can be affected by a
variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our
business strategy or our internal forecasts. Although we believe the assumptions, judgments and estimates we have made in
the past have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our
reported financial results.
Accounting for Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is
recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions,
judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities
and any valuation allowance to be recorded against a deferred tax asset.
Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current
tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and
domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax
positions that could be challenged by tax authorities. 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. Although we believe our assumptions, judgments and estimates are reasonable, changes in
tax laws or our interpretation of tax laws and the resolution of the current and any future tax audits could significantly impact
the amounts provided for income taxes in our consolidated financial statements.
Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of
the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating
results and the underlying amount and category of income in future years could render our current assumptions, judgments
and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned
above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial
position and results of operations.
RESULTS OF OPERATIONS
Overview of 2008
During fiscal 2008, our software and technologies continued to redefine how people engage with ideas and
information—anytime, anywhere and through virtually any medium. Given our solid execution during the year, we were
able to deliver strong revenue and earnings growth when compared to the previous year.