Adobe 2001 Annual Report Download - page 38

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We also recognize revenue under a subscription-based model for our Adobe Studio website, which we
launched in the fourth quarter of fiscal 2001. Revenue is recognized on a monthly basis from fees received
that month for providing software subscriptions for our hosted application.
Deferred revenue includes customer advances under OEM licensing agreements and maintenance
revenue for application products. We recognize deferred maintenance revenue ratably over the term of the
contract, generally twenty-four months. In cases where we will provide a specified free upgrade to an
existing product, we defer revenue until the future obligation is fulfilled.
We perform ongoing credit evaluations of our customers’ financial condition and generally do not
require collateral. We maintain allowances for potential credit losses and such losses have been within our
expectations.
Accounting for our Marketable and Non-marketable Fixed Income and Equity Securities
We classify all of our cash equivalents and short-term investments that are free of trading restrictions,
or become free of trading restrictions within one year, as ‘‘available-for-sale.’’ We carry these investments
at fair value, based on quoted market prices, and unrealized gains and losses, net of taxes, are included in
accumulated other comprehensive income, which is reflected as a separate component of stockholders’
equity. Realized gains and losses are recognized when realized on our consolidated statements of income.
We have a policy in place to review our equity holdings on a regular basis to evaluate whether or not each
security 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-temporary decline exists in one of our marketable equity securities, it is our policy to write
down these equity investments to the market value and record the related writedown as an investment loss
on our consolidated statements of income. For more information on our cash, cash equivalents, and
short-term investments, please refer to Note 3 of our Notes to Consolidated Financial Statements.
Our long-term investments include direct investments and indirect investments in privately-held
companies. We own limited partnership interests in four venture capital limited partnerships, Adobe
Ventures L.P.; Adobe Ventures II, L.P.; Adobe Ventures III, L.P., and Adobe Ventures IV, L.P. (collectively
‘‘Adobe Ventures’’), that invest in early stage companies with innovative technologies. In addition to the
potential for financial returns, our venture activities increase our knowledge of emerging markets and
technologies, as well as expand our ecosystem of Adobe products and services. The partnerships are
managed by Granite Ventures, an independent venture capital firm and sole general partner of Adobe
Ventures.
The investments in Adobe Ventures are accounted for using the equity method of accounting, and
accordingly, the investments are adjusted to reflect our share of Adobe Ventures’ investment income (loss)
and dividend distributions. 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, and, therefore, there is no established market for their securities. As such, the fair value of these
investments are determined by Granite Ventures using the most recent round of financing involving new
non-strategic investors, or estimates made by Granite Ventures. We have a policy in place to review the fair
value of these investments held by Adobe Ventures on a regular basis to evaluate the carrying value of the
investments in these companies. This policy includes, but is not limited to, reviewing each of the
companies’ cash position, financing needs, earnings/revenue outlook, operational performance,
management/ownership changes, and competition. The evaluation process is based on information that we
request from these privately-held companies. This information is not subject to the same disclosure
regulations as U.S. public companies, and as such, the basis for these evaluations is subject to the timing
and the accuracy of the data received from these companies. If we believe that the carrying value of a
company is carried at an amount in excess of fair value, it is our policy to record a reserve in addition to
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