Adobe 2001 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2001
OR
9TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
0-15175
(Commission file number)
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices) (Zip Code)
(408) 536-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes (No 9
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the registrant as of January 25,
2002 was $7,941,041,154.
The number of shares outstanding of the registrant’s common stock as of January 25, 2002 was 236,763,372.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Notice of
Annual Meeting of Stockholders to be held on April 11, 2002 are incorporated by reference into Part III.

Table of contents

  • Page 1
    ... of incorporation or organization) 345 Park Avenue, San Jose, California (Address of principal executive offices) 77-0019522 (I.R.S. Employer Identification No.) 95110-2704 (Zip Code) (408) 536-6000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12...

  • Page 2
    ... on Accounting and Financial Disclosure ...Directors and Executive Officers of the Registrant . . Executive Compensation ...Security Ownership of Certain Beneficial Owners and Certain Relationships and Related Transactions ...Management ... ... Exhibits, Financial Statement Schedule, and Reports on...

  • Page 3
    ... in 1982, Adobe Systems Incorporated (''Adobe'') builds award-winning software solutions for network publishing, including Web, print, ePaper, video, wireless and broadband applications. Its graphic design, imaging, and dynamic media authoring tools enable customers to create, manage, and deliver...

  • Page 4
    ..., graphic design, printing, publishing, architecture, fine arts, Web design/consulting, and entertainment. They use Adobe's illustration, digital imaging, and digital video software to create visually rich content found in communication media such as books, newspapers, magazines, Web sites...

  • Page 5
    ...-quality movies for video, film, multimedia, and streaming over the Web. Adobe Streamline-converts scanned bitmap images and shapes into smooth PostScript line art. Adobe SVG Viewer-a plug-in for Web browsers that allows users to view Web graphics created in Scalable Vector Graphics (''SVG'') format...

  • Page 6
    ...and layouts, and to publish documents across media; includes Adobe InDesign, Adobe Photoshop, Adobe Illustrator, and Adobe Acrobat. Adobe Acrobat eBook Reader-software that displays Adobe PDF-based eBooks in full color with the high quality and careful design found in printed books. Adobe Font Folio...

  • Page 7
    ... jobs on inkjet printers. Adobe Publishing Collection-suite of four award-winning application products that allows business users to create visually compelling print and online communication; includes Adobe PageMaker, Adobe Photoshop, Adobe Illustrator, and Adobe Acrobat. Adobe Studio-a new Web site...

  • Page 8
    ... customers and to grow our ePaper revenue. ePaper Solutions Products Adobe Acrobat-software that allows users to publish and distribute business documents using corporate e-mail and intranets, the Internet, or CD-ROM. Enables users to easily convert files from almost any application to Adobe PDF...

  • Page 9
    ...-reading software. Create Adobe PDF Online-a Web-hosted fee-based service that allows users to convert documents from a wide variety of applications into Adobe PDF files. OEM PostScript and Other OEM PostScript and Other Market Opportunity Graphics professionals and professional publishers require...

  • Page 10
    ... dynamic media software market is an increasingly competitive market as professional, enthusiast, and home users migrate away from analog video tools towards the use of digital camcorders and digital video production. Adobe After Effects and Adobe Premiere face increased competition from companies...

  • Page 11
    ... name, our support of Apple's new Mac OS X operating system, new product capabilities, and the recently improved infrastructure support by the industry for our solution. Adobe recently made available version 2.0 of InDesign, which will compete against the new version of Quark Xpress, version 5.0. In...

  • Page 12
    ... Adobe.com Web site. We support our worldwide distribution network and end-user customers with international offices around the world, including locations in Australia, Belgium, Brazil, Canada, China, Denmark, England, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Korea, Mexico...

  • Page 13
    ... portion of Adobe PostScript royalties from international sales of printers, imagesetters, and other output devices by our OEMs. We also license software with post-contract customer support (''PCS'') for two years. An amount equal to the fair value of the PCS is deferred and recognized as revenue...

  • Page 14
    ... loss on our consolidated statements of income. In March 1997, as part of our venture investing program, we established an internal limited partnership, Adobe Incentive Partners, L.P. (''AIP''), which allows certain of Adobe's executive officers to participate in cash or stock distributions...

  • Page 15
    Our equity investments and Adobe Ventures investments in equity securities at November 30, 2001 consisted of the following companies: Private Public Adobe Equity Investments AvantGo, Inc...Classmates Online, Inc. (formerly eCircles, Inc.) Datalogics, Inc...Digimarc Corporation ...Digital Think, Inc...

  • Page 16
    ..., we announced a proposed agreement to acquire Ottawa, Canada-based Accelio Corporation (''Accelio''). Accelio is a provider of Web-enabled solutions that help customers manage business processes driven by electronic forms. Under the terms of the agreement, Adobe's common stock valued at $72.0 (US...

  • Page 17
    ... into our software license agreements. We protect the source code of our software programs as trade secrets, and make source code available to OEMs only under limited circumstances and specific security and confidentiality constraints. Our products are generally licensed to end users on a ''right...

  • Page 18
    ... 1990 and held various senior management positions in sales and marketing for Adobe's Printing System's Division before joining the executive team in November 1997 as Vice President of Change Management. In June 1998, he was promoted to Vice President, Investor Relations and in April 1999, Mr...

  • Page 19
    ...countries under operating leases. We have one leased office building in San Jose, California that was vacated in connection with the restructuring program implemented in the third quarter of fiscal 1998. We have subleased the building but still have a commitment under this lease agreement until 2007...

  • Page 20
    ... program under which we may, from time to time, distribute as a dividend-in-kind shares of our equity holdings in investee companies to our stockholders. Under the terms of our line of credit agreement, corporate headquarters lease agreements, and real estate financing agreement, we may pay cash...

  • Page 21
    ...Equity compensation plans not approved by security holders* ...Total ...* 19,026,713 35,257,604 54,284,317 $27.18 $41.76 $36.65 26,811,909 4,304,938 31,116,847 Please see Note 10 of our Notes to Consolidated Financial Statements for a description of our 1999 Nonstatutory Stock Option Plan, which...

  • Page 22
    ...amounts and employee data) are derived from Adobe's consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and notes thereto, and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Nov. 30...

  • Page 23
    ... the date of this document. RESULTS OF OPERATIONS Overview Founded in 1982, Adobe Systems Incorporated (''Adobe'') builds award-winning software solutions for network publishing, including Web, ePaper, print, video, wireless and broadband applications. Its graphic design, imaging, dynamic media and...

  • Page 24
    ...: Illustrator, Design Collection, Adobe Publishing Collection, PageMaker, FrameMaker, Adobe Type products, InDesign, Adobe Acrobat InProduction, Adobe Content Server, Adobe PDF Transit, Adobe Studio, eBooks, and PressReady. The ePaper Solutions segment is derived from the licensing of Adobe Acrobat...

  • Page 25
    ...Design Collection, Adobe Type Manager, Acrobat InProduction, and PressReady products. The increase in revenue from this segment was partially offset by a decline in revenue from our Adobe Publishing Collection product, primarily due to the introduction of our new Adobe Web, Dynamic Media, and Design...

  • Page 26
    ... on long-term opportunities available in the new Network Publishing economy and make significant investments in the development of our application software products, including those targeted for the growing digital imaging and digital video franchises. We expect research and development expenses to...

  • Page 27
    ... outsourced technical support and order management fees. In addition, sales and marketing expenses increased in fiscal 2000 compared to fiscal 1999 due to our focus on general corporate brand advertising, as well as higher marketing, public relations, and trade show activities associated with new...

  • Page 28
    ... alternative employment within Adobe. The remaining credit was due to lower than expected charges related to vacating leased facilities. (For detailed information, see Note 7 of our Notes to Consolidated Financial Statements). During fiscal 1999 we implemented two different restructuring programs...

  • Page 29
    ... Content Server products. We released new products that contained the purchased technology in April 2001, with Acrobat eBook Reader 2.1 and Adobe Content Server 2.0. Acquired in-process research and development of $3.6 million in fiscal 1999 included $3.0 million and $0.6 million associated with...

  • Page 30
    ... other-than-temporary declines in the value of marketable equity securities, and equity method gains and losses of Adobe Ventures. During fiscal 2001, investment losses consisted of other-than-temporary writedowns related to our short-term investments in Tumbleweed Communications Corp. (''Tumbleweed...

  • Page 31
    ..., we recorded a net gain totaling $0.5 million related to mark-to-market adjustments of various other Adobe Ventures investments. We are uncertain of future investment gains or losses as they are primarily dependent upon the operations of the underlying investee companies and market valuations...

  • Page 32
    ...model targets for the first quarter of fiscal 2002: gross margin of 92-93%, pro forma operating profit margin of 25-28%, research and development expenses of 20-21% of revenue, sales and marketing expenses of 34-35% of revenue, and general and administrative expenses of 10-11% of revenue. We further...

  • Page 33
    ... controls and information management systems, and to attract, retain, motivate, and manage employees effectively; otherwise our business could be seriously harmed. Our ability to develop and market products, including upgrades of current products that successfully adapt to changing customer needs...

  • Page 34
    ... program has resulted in an increase in our dependence on a smaller number of distributors selling through a larger amount of our products. Additionally, one of our goals is to increase our direct distribution of our products to end users through our online store located on our Web site at www.adobe...

  • Page 35
    ... level of uncertainty. The software industry addressing authoring and communications over the Internet is still developing. Standards defining Web graphics have not yet been fully adopted. In addition, new models for licensing software will be needed to accommodate new information delivery practices...

  • Page 36
    .... Our accounting policies that may be affected by changes in the accounting rules are as follows: • rules relating to software revenue recognition • accounting for business combinations • the valuation of in-process research and development • employee stock purchase plans • stock option...

  • Page 37
    ... cost of free technical phone support upon shipment of software and amortize the accrued internal and external cost of telephone support to sales and marketing expense. We also license software with post-contract customer support (''PCS'') for two years. PCS includes rights to upgrades, when and...

  • Page 38
    .... Adobe Ventures carry their investments in equity securities at estimated fair market value and unrealized gains and losses are included in investment income (loss). The stock of a number of technology investments held by the limited partnerships at November 30, 2001 are not publicly traded...

  • Page 39
    ... our reported results of operations. We recognize realized gains and losses upon sale or maturity of these investments using the specific identification method. For further information on our long-term investments, please refer to Note 5 of our Notes to Consolidated Financial Statements. Accounting...

  • Page 40
    ... We account for our employee stock plans, consisting of fixed stock option plans, an employee stock purchase plan, and a performance and restricted stock plan, using the intrinsic value method. Please see our Note 10 of the Notes to Consolidated Financial Statements for the pro forma amounts of net...

  • Page 41
    ... stockholders' equity. Realized gains and losses are recognized when realized on the consolidated statements of income. Our cash, cash equivalents, and short-term investments decreased $98.3 million, or 14%, from December 1, 2000, primarily due to the purchase of treasury stock in the amount of $485...

  • Page 42
    ..., including expenditures for computer systems for research and development, sales and marketing, product support, and administrative staff. Furthermore, cash reserves may be used to purchase treasury stock and strategically acquire companies, products, or technologies. Adobe's Board of Directors...

  • Page 43
    ... a substantive net worth, not a special purpose entity. In August 1999, Adobe entered into a five-year lease agreement for our corporate headquarters office buildings in San Jose, California. Under the agreement, we have an option to purchase the buildings at any time during the lease term for $142...

  • Page 44
    ... buildings. The agreement qualifies for operating lease accounting treatment under SFAS 13 and, as such, the buildings and the related obligation are not included on our balance sheet, but the lease payments are reflected in the schedule of future minimum lease payments. At the end of the lease term...

  • Page 45
    ... counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However, to mitigate that risk we only contract with high quality counterparties with specific minimum rating requirements. In addition, our hedging policy establishes maximum limits for each...

  • Page 46
    ... has experienced an other-than-temporary decline in fair value. Our policy includes, but is not limited to, reviewing each of the companies' cash position, earnings/revenue outlook, stock price performance over the past six months, liquidity and management/ownership. If we believe that an other-than...

  • Page 47
    ... X% decrease in each stock's price Fair Value as of November 30, 2001 (50%) (35%) (15%) Marketable equity securities ...Equity Forward Contracts $(18.9) $(13.2) $(5.7) $37.8 We also have a policy to hedge a certain portion of our equity holdings in publicly traded companies. From time to time...

  • Page 48
    ...amount in excess of fair value, it is our policy to record a reserve in addition to our equity method of accounting and the related writedown is recorded as an investment loss on our consolidated statements of income. Facility Leases We are exposed to interest rate risk associated with leases of our...

  • Page 49
    ...$1.2 million; the third quarter includes investment gain of $9.4 million and amortization of goodwill and purchased intangibles of $1.2 million; the fourth quarter includes investment loss of $7.4 million, acquired in-process research and development of $0.5 million, and amortization of goodwill and...

  • Page 50
    ...2002. We are incorporating that information here by reference. Item 13. Certain Relationships and Related Transactions During fiscal 1999, we entered into two separate loan agreements with Graham Freeman, an executive officer, to assist with his relocation to San Jose, California. The first loan in...

  • Page 51
    ... under Delaware law and Adobe's Bylaws. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this report 1. Financial statements • Management's Report • Independent Auditors' Report • Consolidated Balance Sheets November 30, 2001 and...

  • Page 52
    ... and Adobe Systems (Delaware) Incorporated, a Delaware corporation Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on 5/22/01 Fourth Amended and Restated Agreement between the Company and Computershare Investor Services, LLC 1984 Stock Option Plan...

  • Page 53
    ..., Inc. Lease agreement between Adobe Systems and Selco Service Corporation Participation agreement among Adobe Systems, Selco Service Corporation, et al. Confidential Resignation Agreement* Executive Severance Plan in the Event of a Change of Control* Subsidiaries of the Registrant Consent of KPMG...

  • Page 54
    We will furnish any exhibit listed above that is not included here. You must specifically request the exhibit you would like to receive and pay our reasonable expenses in furnishing it to you. You should call or write: Investor Relations Department 345 Park Avenue San Jose, CA 95110-2704 408-536-...

  • Page 55
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ADOBE SYSTEMS INCORPORATED By: /s/ MURRAY J. DEMO Murray J. Demo, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to...

  • Page 56
    ...Adobe Acrobat Acrobat Capture Acrobat eBook Reader Acrobat Reader Acrobat Messenger ActiveShare Adobe Dimensions Adobe Font Folio Adobe PhotoDeluxe Adobe Premiere Adobe Studio Adobe Type Manager After Effects AlterCast Atmosphere Distiller ePaper Extreme FrameMaker GoLive Illustrator InCopy InDesign...

  • Page 57
    ... Statements and Supplementary Data, Adobe's consolidated financial statements are provided in this separate section. The consolidated financial statements included in this section are as follows: Page ɀ ɀ Management's Report ...Independent Auditors' Report ...Consolidated Balance Sheets...

  • Page 58
    ..., and are recorded properly to permit the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In designing control procedures, management recognizes that errors or irregularities may nevertheless occur...

  • Page 59
    ...of Adobe Systems Incorporated and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are...

  • Page 60
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) November 30, 2001 December 1, 2000 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $10,099 and $8,788, ...

  • Page 61
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years Ended December 1, 2000 November 30, 2001 December 3, 1999 Revenue ...Direct costs ...Gross profit ...Operating expenses: Research and development ...Sales and marketing ...General and ...

  • Page 62
    ... ...Dividends declared ...Purchase of treasury stock ...Reissuance of treasury stock under employee stock and stock option plans ...Proceeds from sale of put warrants ...Balances as of December 3, 1999 ...Comprehensive income: Net income ...Other comprehensive income, net of tax: Net unrealized loss...

  • Page 63
    ... - - Other comprehensive income ...Comprehensive income, net of tax ...Tax benefit from employee stock option plans ...Stock compensation expense ...Dividends declared ...Purchase of treasury stock ...Reissuance of treasury stock under employee stock and stock option plans ... - 45,692 4,503 17,997...

  • Page 64
    ...receivables ...Tax benefit from employee stock option plans ...Equity method (gains) loss of Adobe Ventures and cost method investments ...Loss on other-than-temporary declines of equity securities ...Gains on sales of equity securities ...Gain on sale of buildings ...Noncash restructuring and other...

  • Page 65
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) Years Ended December 1, 2000 November 30, 2001 December 3, 1999 Cash flows from financing activities: Purchase of treasury stock ...Proceeds from reissuance of treasury stock . Proceeds from sale of put ...

  • Page 66
    ... Accounting Policies Operations Founded in 1982, Adobe Systems Incorporated (''Adobe'') builds award-winning software solutions for Network Publishing, including Web, print, video, wireless and broadband applications. Its graphic design, imaging, dynamic media and authoring tools enable customers...

  • Page 67
    ... release candidate. To date, software development costs incurred between completion of a working prototype and general availability of the related product have not been material. Our long-term investments include direct investments and indirect investments in privately-held companies. We own limited...

  • Page 68
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 1. Significant Accounting Policies (Continued) managed by Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures. The ...

  • Page 69
    ... cost of free technical phone support upon shipment of software and amortize the accrued internal and external cost of telephone support to sales and marketing expense. We also license software with post-contract customer support (''PCS'') for two years. PCS includes rights to upgrades, when and...

  • Page 70
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 1. Significant Accounting Policies (Continued) We record OEM licensing revenue, primarily royalties, when OEM partners ship products incorporating Adobe software, ...

  • Page 71
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 1. Significant Accounting Policies (Continued) Prior to our adoption of SFAS 133, we accounted for our derivatives under SFAS 52, ''Foreign Currency Translation.'' ...

  • Page 72
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 1. Significant Accounting Policies (Continued) effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS 143 to have a ...

  • Page 73
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 2. Acquisitions (Continued) products. We released new products that contained the purchased technology in April 2001, with Acrobat eBook Reader 2.1 and Adobe ...

  • Page 74
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 3. Cash, cash equivalents, and short-term investments Cash, cash equivalents, and short-term investments consisted of the following: Carrying Value As of November ...

  • Page 75
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 3. Cash, cash equivalents, and short-term investments (Continued) Approximately $196.6 million and $224.9 million in investments are classified as cash equivalents ...

  • Page 76
    ... Adobe Ventures L.P. and Adobe Ventures II, L.P. and certain equity securities of privately-held companies. Adobe is both the general partner and a limited partner of AIP. Other limited partners are executive officers and former executive officers of Adobe who are or were involved in Adobe's venture...

  • Page 77
    .... Adobe Ventures carry their investments in equity securities at estimated fair market value and unrealized gains and losses are included in investment income (loss). The stock of a number of technology investments held by the limited partnerships at November 30, 2001 are not publicly traded...

  • Page 78
    ...digital imaging, digital video, and ePaper-based businesses in fiscal 2002. As part of the restructuring program, we implemented a reduction in force of 247 positions, affecting organizations throughout the company. The reductions came predominantly from sales and marketing and in our North American...

  • Page 79
    ... operations in North America. This restructuring program included a reduction in force of 86 positions and the closure of the North American distribution warehouse as a result of our decision to outsource our North American distribution operation and the majority of our customer support services...

  • Page 80
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 7. Restructuring and Other Charges (Continued) The following table depicts the activity for the 1999 second-quarter restructuring program through December 1, 2000: ...

  • Page 81
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 8. Income Taxes Income before income taxes includes net income from foreign operations... in lieu of taxes attributable to employee stock plans ... $ 52,355 16,087 ...

  • Page 82
    ... 401(k) of the Internal Revenue Code, which is a pretax savings plan covering substantially all of our United States employees. Under the plan, eligible employees may contribute up to 18% of their pretax salary, subject to the Internal Revenue Service annual contribution limits. In fiscal 2001...

  • Page 83
    ... venture investing program, we established an internal limited partnership, Adobe Incentive Partners, L.P. (''AIP''), which allows certain of our executive officers to participate in cash or stock distributions from Adobe's venture investments. Adobe is both the general partner and a limited partner...

  • Page 84
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 10. Employee Stock Plans (Continued) generally vest 25% after the first year and ratably thereafter such that 50% and 100% are vested after the second and third ...

  • Page 85
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 10. Employee Stock Plans (Continued) Stock option activity for fiscal 2001, 2000, and 1999 is presented below: November 30, 2001 Weighted Average Number of Exercise...

  • Page 86
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 10. Employee Stock Plans (Continued) Restricted shares issued under the Plan generally vest annually between two to three years but are considered outstanding at ...

  • Page 87
    ... stock purchase plan, and a performance and restricted stock plan, using the intrinsic value method. The following table sets forth the pro forma amounts of net income and net income per share that would have resulted if we accounted for our employee stock plans under the fair value recognition...

  • Page 88
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 10. Employee Stock Plans (Continued) Black-Scholes option pricing model. The assumptions used to value the option grants and purchase rights are stated as follows: ...

  • Page 89
    ... 5.0 million shares of our common stock over a two-year period. We have not made any purchases under this 5.0 million share repurchase program. Combined Programs Our put and call option contracts provide that we, at our option, can settle with physical delivery or net shares equal to the difference...

  • Page 90
    ...; 2006-$17.0 million; and $33.2 million thereafter. In September 2001, we entered into a real estate development agreement for the construction of an office building in downtown San Jose, California. Under the agreement the lessor will finance up to $117.0 million over a two-year period, toward the...

  • Page 91
    ... a substantive net worth, not a special purpose entity. In August 1999, Adobe entered into a five-year lease agreement for our corporate headquarters office buildings in San Jose, California. Under the agreement, we have an option to purchase the buildings at any time during the lease term for $142...

  • Page 92
    ... material adverse effect on our financial position and results of operations. Note 14. Related Party Transactions During fiscal 1999, we entered into two separate loan agreements with an executive officer to assist with his relocation to San Jose, California. The first loan in the amount of $550,000...

  • Page 93
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 14. Related Party Transactions (Continued) target compensation (base pay and management incentive plan bonuses) for twelve (12) months, (ii) pay for his COBRA ...

  • Page 94
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 15. Financial Instruments (Continued) transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash ...

  • Page 95
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 15. Financial Instruments (Continued) Balance Sheet Hedging-Hedging of Foreign Currency Assets and Liabilities We hedge our net recognized foreign currency assets ...

  • Page 96
    ... digital images, photographs, and video. The Cross-media Publishing segment provides software for professional page layout, illustration, business publishing, and printing. The ePaper Solutions segment provides software that allows users to speed the distribution of information with documents that...

  • Page 97
    ... out by our old operating segments for the fiscal years 2001, 2000, and 1999: Web Publishing Cross-media Publishing ePaper Solutions OEM PostScript and Other Total Fiscal 2001 Revenue ...Direct costs ...Gross profit ...Fiscal 2000 Revenue ...Direct costs ...Gross profit ...Fiscal 1999 Revenue...

  • Page 98
    ... we will manage our business. A newly named Graphics segment will in the future replace the former Web Publishing segment and will include Adobe Illustrator. The Adobe GoLive and Web Collection products will be reported in the Cross-media Publishing segment. For more information on our new segments...

  • Page 99
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except share and per share data) Note 16. Industry Segment and Geographic Information (Continued) Revenue and long-lived asset information by geographic areas for each of the years in the three-year ...

  • Page 100
    ..., we announced a proposed agreement to acquire Ottawa, Canada-based Accelio Corporation (''Accelio''). Accelio is a provider of Web-enabled solutions that help customers manage business processes driven by electronic forms. Under the terms of the agreement, Adobe's common stock valued at $72.0 (US...

  • Page 101
    ... Statements and Supplementary Data, Adobe's financial statement schedule is provided in this separate section. The financial statement schedule included in this section is as follows: Schedule Number Financial Statement Schedule Description Schedule II Valuation and Qualifying Accounts 101

  • Page 102
    ..., and credit insurance) in Asia, and improved collections of our Royalty accounts. In fiscal 2000, the charge to operating expenses related primarily to two separate bankruptcy filings, one involving a U.S. and the other a European distributor, an insolvent royalty customer, and higher potential...

  • Page 103
    ... Statement Schedules and Reports on Form 8-K, the exhibits filed as part of this report are provided in this separate section. The exhibits included in this section are as follows: Exhibit Number Description 10 .77 10 .78 10 .79 10 .80 21 23 Lease agreement between Adobe Systems and Selco Service...

  • Page 104
    ...SL Adobe Systems Italia SRL Adobe Systems Nordic AB Adobe Systems Norge AS Adobe Systems Software Ireland Limited Frame Technology International Limited Asia: Adobe Adobe Adobe Adobe Adobe Systems Systems Systems Systems Systems Company Ltd. India Pvt. Ltd. Korea Ltd. Pte. Ltd. Pty. Ltd. California...

  • Page 105
    ... of our report dated December 11, 2001, relating to the consolidated balance sheets of Adobe Systems Incorporated and subsidiaries as of November 30, 2001 and December 1, 2000, and the related consolidated statements of income, stockholders' equity and other comprehensive income, and cash flows for...