Adobe 2003 Annual Report Download - page 69

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69
The following table presents net income and per share amounts for all periods presented, as adjusted,
to exclude the amortization of goodwill and purchased and other intangibles as if the provisions of SFAS
142 had been in effect from the beginning of fiscal 2001.
Software Development Costs
Capitalization of software development costs begins upon the establishment of technological
feasibility, which is generally the completion of a working prototype that has been certified as having no
critical bugs and is a release candidate or when alternative future use exists. To date, software development
costs incurred between completion of a working prototype and general availability of the related product
have not been material and, in accordance with our policy, have not been capitalized.
Other Assets
Other assets include long-term investments, long-term prepaid royalties and security deposits. Our
long-term investments include investments in privately held companies that we make either directly or
indirectly through venture capital limited partnerships. 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 often
increase our knowledge of emerging markets and technologies, as well as expand our opportunities to
provide 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. Under the terms of the partnership agreements, the general partner has the sole
and exclusive right to manage and control the partnerships. Adobe as the limited partner has certain rights,
including the ability to approve the replacement of the general partner and investments that exceed certain
established parameters. However, these rights are considered protective rights and do not suggest an ability
to control the partnerships. Adobe Ventures carry their investments in equity securities at estimated fair
market value and unrealized gains and losses are included in investment gain (loss) on our consolidated
statements of income. The stock of a number of technology investments held by Adobe Ventures at
November 28, 2003 is not publicly traded and, therefore, there is no established market for these securities.
In order to determine the fair market value of these investments, we use the most recent round of financing
involving new non-strategic investors or estimates of current market value made by Granite Ventures. It is
our policy to review the fair value of these investments held by Adobe Ventures, as well as our direct
investments, on a regular basis to evaluate the carrying value of the investments in these companies. This
Year Ended
November 28,
2003
November 29,
2002
November 30,
2001
Net income as reported ..................................................................................... $ 266,344 $ 191,399 $ 205,644
Add back: Amortization and impairment of goodwill and purchased and
other intangibles ...........................................................................................
―
20,973
14,281
Adjusted net income ......................................................................................... $ 266,344 $ 212,372 $ 219,925
Basic net income per share:
Net income per share as reported ...................................................................... $ 1.14 $ 0.81 $ 0.86
Add back: Amortization and impairment of goodwill and purchased and
other intangibles per share............................................................................
―
0.09
0.06
Adjusted net income per share .......................................................................... $ 1.14 $ 0.90 $ 0.92
Diluted net income per share:
Net income per share as reported ...................................................................... $ 1.10 $ 0.79 $ 0.83
Add back: Amortization and impairment of goodwill and purchased and
other intangibles per share............................................................................
―
0.09
0.06
Adjusted net income per share .......................................................................... $ 1.10 $ 0.88 $ 0.89