Adobe 1998 Annual Report Download - page 54

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 7. RESTRUCTURING AND OTHER CHARGES (CONTINUED)
analysis performed by a commercial real estate brokerage firm retained by the Company to sublease the
facilities, the leasehold improvements and other assets specifically identified under the restructuring
program as assets to be disposed of would have no future benefit to the Company as these assets would not
enhance the Company’s ability to sublease the facilities. Leasehold improvements consisted principally of a
product demonstration room, a computer room with a raised floor, and a single building reception area, all
of which would not be used by smaller tenants. Therefore, in accordance with SFAS No. 121, ‘‘Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,’’ the leasehold
improvements and telecommunications equipment were reported at the lower of the carrying amount or
fair value less costs to sell, which was zero. As of September 30, 1998, both of these facilities were fully
vacated.
Included in the restructuring charge is $6.0 million related to the divestitute of two business units.
Management and the Board of Directors approved the plan to divest of its Adobe Enterprise Publishing
Services, Inc. (‘‘AEPS’’) subsidiary located in Grand Rapids, Michigan, which provided tools and services
to companies implementing solutions based on Adobe Acrobat, and the Image Club Graphics business
(‘‘ICG’’) located in Calgary, Canada, which specialized in the production, electronic distribution and
marketing of visual content and typefaces, as they were no longer strategic to the the Company’s future
direction. The Company divested of these two business units with aggregate net assets of approximately
$6.0 million, including cash of $3.8 million, in exchange for $2.5 million in notes receivable and future
royalties. The Company fully offset the notes receivable with an allowance for doubtful accounts due to
significant uncertainties in collection. The two business units generated combined annual revenues of
approximately $25 million. Operating losses associated with these two business units were not material.
Canceled contracts of $6.2 million included penalty fees paid to allow the Company to end contractual
obligations as part of the divestitute of the ICG business unit, and the cancellation of an advertising
campaign supporting the Company’s brand marketing strategy, which was discontinued as part of the
restructuring program. As of November 27, 1998, $0.9 million remains accrued and is expected to be paid
by the third quarter of fiscal 1999.
Also included in restructuring and other charges is $0.5 million related to legal and public relations
fees incurred in connection with the restructuring program and $3.9 million of other charges not associated
with the Company’s restructuring program. The $3.9 million charge primarily included the write-off of
fixed assets resulting from an adjustment related to a physical observation of fixed assets, and the write-off
of goodwill as a result of management’s strategic decision to change the business and legal function of a
previously acquired Japanese operation. The accounting for the write-off was in accordance with
SFAS 121. As of November 27, 1998, the remaining $0.3 million accrual balance related to legal fees
associated with the divestiture of the two business units and employee terminations as part of the
severance program, and will be paid in the first half of fiscal 1999.
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