Adobe 2015 Annual Report Download - page 29

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resulting from the FASB’s and IASB’s efforts may require that we change how we process, analyze and report financial information
and that we change financial reporting controls.
It is not clear if or when these potential changes in accounting principles may become effective, whether we have the proper
systems and controls in place to accommodate such changes and the impact that any such changes may have on our financial
position and results of operations.
If our goodwill or amortizable intangible assets become impaired we could 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. GAAP requires us to test for goodwill 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 declines in stock price, market capitalization or cash flows and slower growth
rates in our industry. We could 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 were determined, negatively impacting our results of
operations.
Changes in tax rules and regulations, or interpretations thereof, 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. A significant portion
of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income
taxes on earnings from the United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the
subsidiaries’ earnings are considered permanently reinvested outside the United States. While we do not anticipate changing our
intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are
repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to
discrete items and to earnings considered as permanently reinvested in foreign operations. 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 the tax rates
in jurisdictions where our income is earned, by changes in or our interpretation of tax rules and regulations in the jurisdictions in
which we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax rates, or by changes
in the valuation of our deferred tax assets and liabilities. The United States, countries in the EU and other countries where we do
business have been considering changes in relevant tax, accounting and other laws, regulations and interpretations, including
changes to tax laws applicable to corporate multinationals such as Adobe. These potential changes could adversely affect our
effective tax rates or result in other costs to us.
In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service
(“IRS”) and other domestic and foreign tax authorities, including a current examination by the IRS of our fiscal 2010, 2011 and
2012 tax returns. These tax 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 examinations. We cannot
provide 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, availability and performance 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, especially in the event that we have not been successful in developing adequate succession plans. Our business
is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel across all levels of our organization.
Experienced personnel in the information technology industry are in high demand and competition for their talents is intense in
many areas where our employees are located. If we are unable to continue to successfully attract and retain key personnel, our
business may be harmed. Effective succession planning is also a key factor for our long-term success. Our failure to enable the
effective transfer of knowledge and facilitate smooth transitions of our key employees could adversely affect our long-term strategic
planning and execution.
We believe that a critical contributor to our success to date has been our corporate culture, which we have built to foster
innovation, teamwork and employee satisfaction. As we grow, including from the integration of employees and businesses acquired
in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture,
which could negatively affect our ability to retain and recruit personnel who are essential to our future success.