Adobe 1998 Annual Report Download - page 27

In June 1998, the FASB issued SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging
Activities.’’ SFAS No. 133 establishes accounting and reporting standards for derivative financial instru-
ments and for hedging activities and requires the Company to recognize all derivatives as either assets or
liabilities on the balance sheet and measure them at fair value. Gains and losses resulting from changes in
fair value would be accounted for depending on the use of the derivative and whether it is designated and
qualifies for hedge accounting. The Company will be required to implement SFAS No. 133 for its fiscal
year 2000. The Company has not determined the impact that SFAS No. 133 will have on its financial
statements and believes that such determination will not be meaningful until closer to the date of initial
adoption.
LIQUIDITY AND CAPITAL RESOURCES
1998 Change 1997 Change 1996
Cash, cash equivalents, and short-term investments ...... $272.5 (46)% $503.0 (11)% $564.1
Working capital ................................ $205.0 (55)% $454.3 (10)% $506.1
Stockholders’ equity ............................. $516.4 (28)% $715.4 1% $706.5
The Company’s cash, cash equivalents, and short-term investments, consisting principally of municipal
bonds, money market mutual funds, U.S. Treasury notes, and auction rate certificate securities, decreased
$230.4 million in fiscal 1998 from fiscal 1997. All of the Company’s cash equivalents and short-term
investments are classified as available-for-sale under the provisions of SFAS No. 115, and accordingly, the
securities are carried at fair value with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders’ equity.
Major sources of cash during fiscal 1998 included cash generated from operations of $203.5 million,
sale of short-term investments, net of purchases, of $69.6 million, and the proceeds from the reissuance of
treasury stock of $70.9 million, primarily related to the exercise of stock options and sale of stock under the
Employee Stock Purchase Plan. Major uses of cash during fiscal 1998 included $379.2 million to
repurchase Adobe common stock, additions to other assets of $57.5 million, capital expenditures totaling
$59.7 million, and the payment of dividends of $16.3 million.
The Company expects to continue its investing activities, including expenditures for computer systems
for research and development, sales and marketing, product support, and administrative staff. Further-
more, cash reserves may be used to acquire software companies, products, or technologies complementary
to the Company’s business.
In September 1997, the Company’s Board of Directors authorized, subject to certain business and
market conditions, the purchase of up to an additional 15 million shares of the Company’s common stock
over a two-year period. This new stock repurchase program was in addition to an existing program,
whereby the Company has been authorized to repurchase shares to offset issuances under employee stock
option and stock purchase plans. The Company repurchased approximately 10.5 million shares and
approximately 6.3 million shares of its common stock in fiscal 1998 and 1997, respectively. These stock
repurchase programs are intended to enhance stockholder value by reducing the number of outstanding
shares, absolutely, and, for the previously existing program, to net offsetting increases due to employee
stock purchases and stock option exercises. As of November 27, 1998, management is authorized to
repurchase an additional 836,000 shares under the 15 million share repurchase program. The Company has
sold put warrants which will expire in the first quarter of fiscal 1999 for all but 228 of those remaining
authorized shares. The timing and size of any future stock repurchases are subject to market conditions,
stock prices and the Company’s cash position and other cash requirements going forward.
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