Adobe 1998 Annual Report Download - page 49

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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)
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 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.
Reclassifications
Certain reclassifications were made to the fiscal 1997 and 1996 consolidated financial statements to
conform to the fiscal 1998 presentation. The Company also reclassified $3.4 million and $3.5 million of
in-process research and development charges recognized during the first half of fiscal 1998 to research and
development and general and administrative expenses, respectively, for the fiscal year ending Novem-
ber 27, 1998 financial statements.
NOTE 2. ACQUISITIONS
During fiscal 1997, the Company acquired three software companies, in separate transactions, for an
aggregate consideration of approximately $8.5 million. These acquisitions were accounted for using the
purchase method of accounting, and approximately $6.0 million of the purchase price was allocated to
in-process research and development and expensed at the time of the acquisition. One of the in-process
technologies acquired for $2.5 million was discontinued in fiscal 1998. The project associated with an
additional $2.8 million of the purchased in-process technology was canceled as part of the restructuring in
the third quarter of fiscal 1998 and subsequently sold to a management-led buyout group.
During fiscal 1996, the Company acquired Ares Software for approximately $15.5 million. The
acquisition was accounted for using the purchase method of accounting, and approximately $15.3 million
of the purchase price was allocated to in-process research and development and expensed at the time of
the acquisition. The value assigned to purchased in-process technology was based on a valuation prepared
by an independent third-party, estimating both the cost of developing and incorporating the in-process
technology into future versions of PostScript and the future cash flows from the enhanced PostScript
product, using a discount factor which takes into consideration the uncertainty surrounding the successful
development of the purchased in-process technology. The in-process technology was completed in fiscal
1997 and incorporated into PostScript 3.
In November 1996, the Company also acquired in-process research and development from Swell
Software for approximately $6.0 million. The research project was discontinued prior to reaching techno-
logical feasibility early in fiscal 1997.
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