Adobe 1999 Annual Report Download - page 56

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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Reclassifications
Certain reclassifications were made to the fiscal 1998 and 1997 consolidated financial statements to
conform to the fiscal 1999 presentation, including certain reclassifications within operating expenses and
between operating expenses and direct costs that were made to enable management to better analyze
financial results. These reclassifications did not impact total operating profit in fiscal 1998 and 1997.
NOTE 2. ACQUISITIONS
During the fourth quarter of fiscal 1999 the Company acquired substantially all of the assets,
consisting of intellectual property, of Attitude Software, LLC (‘‘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 substantially 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. This technology was purchased for incorporation into future versions of existing Adobe products
to further enhance the feature sets and user interface contained within the products. At the date the
Company 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 eighteen
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 the
Company’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, the Company acquired substantially all of the
assets, consisting of intellectual property, of Photomerge Technology. In connection with the acquisition of
Photomerge Technology, 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.
On January 4, 1999, the Company acquired substantially all of the assets, consisting of intellectual
property and a minimal amount of fixed assets, of both GoLive Systems, Inc., a Delaware corporation, and
GoLive Systems GmbH and Co. KG, a German limited partnership (together ‘‘GoLive Systems’’). GoLive
Systems creates Web site development software, which enables users to effectively use the Internet for
professional publishing and communication. The acquisition was accounted for under the purchase
method of accounting in accordance with APB 16. The initial purchase price of the acquisition was
approximately $31.0 million cash, plus additional contingency payments of up to $8.0 million based on
achieving certain technical and employment milestones. The Company determined that certain milestones
had been reached as of March 5, 1999, and as such, $4.0 million in contingent payments were recorded as
additional purchase price and paid throughout fiscal 1999. Approximately $11.4 million of the purchase