Adobe 1998 Annual Report Download - page 46

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation
Assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, are
translated at year-end exchange rates. Revenues and expenses are translated at the average rates of
exchange prevailing during the year. The adjustment resulting from translating the financial statements of
such foreign subsidiaries is reflected as a separate component of stockholders’ equity. Certain other
transaction gains or losses, which have not been material, are reported in results of operations.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization are calculated using the
straight-line method over the shorter of the estimated useful lives (thirty-five years for the building; two to
seven years for furniture and equipment) or lease terms (five to nine years for leasehold improvements) of
the respective assets.
Other assets
Purchased technology, goodwill, and certain other intangible assets are stated at cost less accumulated
amortization. Amortization is recorded utilizing the straight-line method over the estimated useful lives of
the respective assets, generally three to seven years. Capitalization of computer software development
costs, when material, begins upon the establishment of technological feasibility, which is generally the
completion of a working prototype. Such costs are amortized using the greater of the ratio of current
product revenue to the total current and anticipated product revenue or the straight-line method over the
software’s estimated economic life, generally 9 to 36 months. The Company periodically reviews the net
realizable value of its intangible assets and adjusts the carrying amount accordingly.
Long-lived assets
The Company reviews property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
property and equipment is measured by comparison of its carrying amount to future net cash flows the
property and equipment are expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the property and
equipment exceeds its fair market value, as determined by discounted cash flows. The Company assesses
the recoverability of enterprise-level goodwill by determining whether the unamortized goodwill balance
can be recovered through undiscounted future results of the acquired operation. The amount of enter-
prise-level goodwill impairment, if any, is measured based on projected discounted future results using a
discount rate reflecting the Company’s average cost of funds.
Employee stock plans
The Company accounts for its employee stock plans, which consist of fixed stock option plans, an
employee stock purchase plan, and a performance and restricted stock plan, using the intrinsic value
method.
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