Adobe 2014 Annual Report Download - page 27

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employees, prohibitions on the conduct of our business, and damage to our reputation. We incur additional legal compliance costs
associated with our global operations and could become subject to legal penalties if we fail to comply with local laws and regulations
in U.S. jurisdictions or in foreign countries, which laws and regulations may be substantially different from those in the U.S. In
many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are
prohibited by U.S. regulations applicable to us, including the Foreign Corrupt Practices Act. Although we implement policies and
procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and
agents, as well as those companies to which we outsource certain of our business operations, including those based in or from
countries where practices that violate such U.S. laws may be customary, will not take actions in violation of our internal policies.
Any such violation, even if prohibited by our internal policies, could have an adverse effect on our business.
As a global business that generates approximately 44% of our total revenue from sales to customers outside of the Americas,
we are subject to a number of risks, including:
• foreign currency fluctuations;
• changes in government preferences for software procurement;
• international economic, political and labor conditions;
• tax laws (including U.S. taxes on foreign subsidiaries);
• increased financial accounting and reporting burdens and complexities;
• unexpected changes in, or impositions of, legislative or regulatory requirements;
• changes in laws governing the free flow of data across international borders;
• failure of laws to protect our intellectual property rights adequately;
• inadequate local infrastructure and difficulties in managing and staffing international operations;
• delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers;
• the imposition of governmental economic sanctions on countries in which we do business or where we plan to expand
our business;
• transportation delays;
• operating in locations with a higher incidence of corruption and fraudulent business practices; and
• other factors beyond our control, including terrorism, war, natural disasters and pandemics.
If sales to any of our customers outside of the Americas are delayed or canceled because of any of the above factors, our
revenues may decline.
In addition, approximately 52% of our employees are located outside the U.S. Accordingly, we are exposed to changes in
laws governing our employee relationships in various U.S. and foreign jurisdictions, including laws and regulations regarding
wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers’ compensation rates,
citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We may
continue to expand our international operations and international sales and marketing activities. Expansion in international markets
has required, and will continue to require, significant management attention and resources. We may be unable to scale our
infrastructure effectively or as quickly as our competitors in these markets, and our revenues may not increase to offset these
expected increases in costs and operating expenses, which would cause our results to suffer.
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
for various currencies. We regularly review our hedging program and make adjustments as necessary based on the 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.