Adobe 2001 Annual Report Download - page 29

Acquired In-Process Research and Development
2001 Change 2000 Change 1999
Acquired in-process research and
development ....................... $— (100)% $0.5 (87)% $3.6
Percentage of total revenue .............. —% —% 0.4%
In fiscal 2000, we recorded $0.5 million of acquired in-process research and development related to
our acquisition of Glassbook, Inc. (‘‘Glassbook’’). The acquisition was accounted for under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No. 16 (‘‘APB 16’’). Based
on an independent appraiser’s valuation, $0.5 million of the total $28.0 million purchase price was
allocated to in-process research and development due to the state of the development and the uncertainty
of the technology. The ongoing project at Glassbook at the time of the purchase included the development
of the Glassbook Reader and the Glassbook 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 the acquisitions of Attitude Software, LLC (‘‘Attitude Software’’) and
Photomerge Technology (‘‘Photomerge’’), respectively. The following is a summary of the projects
acquired in the acquisitions and the assumptions used in determining the value of the in-process research
and development costs.
During the fourth quarter of fiscal 1999, we acquired substantially all of the assets, consisting of
intellectual property, of Attitude Software. The acquisition was accounted for using the purchase method
of accounting in accordance with APB 16, and substantially all of the purchase price of $3.0 million cash
was allocated to in-process research and development and expensed at the time of acquisition. The
ongoing project at Attitude Software at the time of the purchase included the development of the 3D
Anarchy authoring product. We purchased this technology to incorporate it into future versions of our
existing Adobe products to further enhance the feature sets and user interface contained within the
products. We are incorporating the purchased technology into one of our products, which has not yet been
released. At the date we acquired Attitude Software, it was estimated that 50% of the development effort
had been completed and that the remaining 50% of the development effort would take approximately
18 months to complete and would cost $1.8 million. The efforts required to complete the development of
the technology primarily related to additional design efforts to integrate the technology into several of
Adobe’s products, finalization of coding, and completion testing. The value of the in-process technology
was determined by estimating the projected net cash flows related to products the technology would be
integrated into, including costs to complete the development of the technology and the future net revenues
that may be earned from the products, excluding the value attributed to the existing technology with the
products prior to the integration of the purchased technology. These cash flows were discounted back to
their net present value using a discount rate of 20%, exclusive of the value attributable to the use of the
in-process technologies in future products.
Additionally, during the fourth quarter of fiscal 1999, we acquired substantially all of the assets,
consisting of intellectual property, of Photomerge. In connection with the acquisition of Photomerge,
100% of the purchase price, or $0.6 million cash, was allocated to in-process research and development
due to the early stage of development and the uncertainty of the technology. This purchased technology
was incorporated into our Photoshop Elements product, which we released in April 2001.
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