Adobe 1999 Annual Report Download - page 25

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and $2.2 million for accelerated depreciation related to the adjustment of the useful life of certain assets as
a result of decisions made by management as part of the restructuring program. Additionally, we incurred
a nonrecurring compensation charge totaling $2.6 million for a terminated employee, and we incurred
consulting fees of $1.6 million to assist in the restructuring of our operations.
In fiscal 1997, restructuring and other charges included a $1.8 million charge related to the acquisition
of intellectual property. This charge was offset by a $2.4 million gain related to the divestiture of a product
line.
Acquired in-process research and development
1999 Change 1998 Change 1997
Acquired in-process research and development . $3.6 NA — NA $6.0
Percentage of total revenue ............... 0.4% — 0.7%
Acquired in-process research and development of $3.6 million in fiscal 1999 is comprised of $3.0 mil-
lion and $0.6 million associated with the acquisitions of Attitude Software, LLC (‘‘Attitude Software’’) and
Photomerge Technology (‘‘Photomerge’’), respectively. The following is a summary of the projects
acquired in the acquisitions and the assumptions used in determining the value of the in-process research
and development costs.
During the fourth quarter of fiscal 1999 we acquired substantially all of the assets, consisting of
intellectual property, of Attitude Software. The acquisition was accounted for using the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16 (‘‘APB 16’’), and substan-
tially all of the purchase price of $3.0 million cash was allocated to in-process research and development
and expensed at the time of acquisition. The ongoing project at Attitude Software at the time of the
purchase included the development of the 3D Anarchy authoring product. We purchase this technology to
incorporate it into future versions of our existing Adobe products to further enhance the feature sets and
user interface contained within the products. At the date we acquired Attitude Software, it was estimated
that 50% of the development effort had been completed and that the remaining 50% of the development
effort would take approximately 18 months to complete and would cost $1.8 million. The efforts required
to complete the development of the technology primarily relate to additional design efforts to integrate the
technologies into several of Adobe’s products, finalization of coding, and completion testing. The value of
the in-process technology was determined by estimating the projected net cash flows related to products
the technology will be integrated into, including costs to complete the development of the technology and
the future net revenues that may be earned from the products, excluding the value attributed to the
existing technology with the products prior to the integration of the purchased technology. These cash
flows were discounted back to their net present value using a discount rate of 20%, exclusive of the value
attributable to the use of the in-process technologies in future products.
Additionally, during the fourth quarter of fiscal 1999, we acquired substantially all of the assets,
consisting of intellectual property, of Photomerge. In connection with the acquisition of Photomerge,
100% of the purchase price, or $600,000 cash, was allocated to in-process research and development due to
the state of completion and the uncertainty of the technology.
During fiscal 1997, we 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 acquisitions. 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 was subsequently sold to a management-led buyout group.