Adobe 2004 Annual Report Download - page 70

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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 2002.
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 have not been capitalized.
Other Assets
Other assets include long-term investments, security deposits and a land deposit. Other assets also
include the fair value of the residual value guarantee associated with our lease on two buildings we occupy
as part of our headquarters, in accordance with FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.” 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
three venture capital limited partnerships ― Adobe Ventures 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. 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 consolidated in accordance with FASB Interpretation No. 46R
(“FIN 46R”) a revision to FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest
Entities.” 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 December 3, 2004
and 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 evaluation includes, but is not limited to, reviewing each company’s cash position,
financing needs, earnings/revenue outlook, operational performance, management/ownership changes and
competition. In the case of privately held companies, this evaluation is based on information that we
Fiscal Years
2004 2003 2002
Net income as reported ................................................................................ $ 450,398 $ 266,344 $ 191,399
Add back: Amortization and impairment of goodwill and purchased and
other intangibles ......................................................................................
― ― 20,973
Adjusted net income .................................................................................... $ 450,398 $ 266,344 $ 212,372
Basic net income per share:
Net income per share as reported................................................................. $ 1.89 $ 1.14 $ 0.81
Add back: Amortization and impairment of goodwill and purchased and
other intangibles per share.......................................................................
― ― 0.09
Adjusted net income per share..................................................................... $ 1.89 $ 1.14 $ 0.90
Diluted net income per share:
Net income per share as reported................................................................. $ 1.82 $ 1.10 $ 0.79
Add back: Amortization and impairment of goodwill and purchased and
other intangibles per share.......................................................................
― ― 0.09
Adjusted net income per share..................................................................... $ 1.82 $ 1.10 $ 0.88