Adobe 2000 Annual Report Download

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1985
And it was revolutionary...
First came Desktop Publishing...

Table of contents

  • Page 1
    First came Desktop Publishing... And it was revolutionary...

  • Page 2
    And it was radical... Then came Web Publishing...

  • Page 3
    WHAT'S

  • Page 4
    NEXT? The (r)evolution has just begun. >

  • Page 5
    NETWORK PUBLISHING

  • Page 6
    ADOBE (r)evolut ion The Third Wave Anyone Anywhere Any Device Evolution or Revolution? Financial Highlights Letter to Stockholders Financials Adobe 2000 Annual Report

  • Page 7
    ... advance in publishing since movable type: Desktop Publishing. Graphic designers, previously bound to proprietary publishing systems, could now use page layout software like PageMaker and printing technologies like PostScript to create professional communications directly from their personal...

  • Page 8
    ... out new releases for simultaneous publication in both paper and eBook formats. And global organizations will save millions of dollars by creating content once, delivering it rapidly to multiple sites worldwide, and managing it from a central location. > > 2000 Adobe 2000 Annual Report The Third...

  • Page 9
    ... visually rich content- including digital images, motion graphics, and text- that can be viewed by anyone, anywhere, on any device. > > > The Third Wave > Evolution or Revolution? > Anyone > Financial Highlights > Anywhere Letter to Stockholders > Any Device > Financials Adobe 2000 Annual Report

  • Page 10
    ...the boardroom to create graphically rich information. In this vibrant environment, Adobe's vision is to provide the software tools needed for anyone to participate in the Network Publishing (r)evolution. Web designers will use Adobe graphics > > Forget hard-core programming. The tools for creating...

  • Page 11
    ...Portable Document Format. > > Forget hard-core programming. The tools for creating inspiring digital content are now within reach of anyone who wants to communicate better. > The Third Wave Evolution or Revolution? > Financial Highlights > Anyone Anywhere Any Device Adobe 2000 Annual Report Letter...

  • Page 12
    ... the world. Extended Web production teams will be able to collaborate from corporate headquarters, interactive agencies, and live/work lofts. Graphic designers will be able to manage projects at Internet speed with tools found at the Adobe Studio â„¢ > > Web producers in San Francisco. Designers in...

  • Page 13
    ... with Adobe InDesign and Adobe InScopeâ„¢ software. And corporate workgroups will be able to use the management capabilities found in Adobe ePaper Solutions to streamline the review, delivery, and security of mission-critical documents. > > Web producers in San Francisco. Designers in Singapore...

  • Page 14
    .... Web content creators will use a WAP emulator within the GoLive environment to preview exactly how digital content will appear on cellular phones. Traditional print and technical publishers working in dynamic, data-driven environments will use Adobe layout software to tag structured information...

  • Page 15
    ...> > Underlying the capabilit y to deliver visually rich digital content to any Internet device is the infrastructure of Network Publishing. > The Third Wave Evolution or Revolution? > Anyone > Financial Highlights > Anywhere Letter to Stockholders > Any Device > Financials Adobe 2000 Annual Report

  • Page 16
    ... Adobe Systems, our loyal customers, and our stockholders stand more than ready for the Network Publishing (r)evolution. With Network Publishing, you'll communicate over a wireless World Wide Web and see inspiration become reality in ways you've never imagined. Adobe 2000 Annual Report REVOLUTION...

  • Page 17
    FINANCIAL HIGHLIGHTS 19 98 $895 million TOTAL REVENUE 19 99 $1.015 billion > > 2000 $1.266 billion > The Third Wave > Evolution or Revolution? > Financial Highlights > Anyone > Anywhere Letter to Stockholders > Any Device > Financials Adobe 2000 Annual Report

  • Page 18
    ... $895 million $1.015 billion $1.266 billion Web Publishing ePaper Solut ions Cross-m edia Publishing OEM Post Script and Ot her > > > The Third Wave > Evolution or Revolution? > Financial Highlights > Anyone > Anywhere Letter to Stockholders > Any Device > Financials Adobe 2000 Annual Report

  • Page 19
    ...million units of products based on Photoshop software, and Photoshop technology has transformed the way information is presented on the World Wide Web. Today, with a full suite of equally powerful applications, Adobe Systems has become a recognized leader in the creation, management, and delivery of...

  • Page 20
    ... an of the Board and Chief Technology Officer Charles M . Geschke, Chairm an of the Board Bruce R. Chizen, President and Chief Executive Officer > The Third Wave > Anyone > Anywhere > Any Device Adobe 2000 Annual Report > > > > Evolution or Revolution? Financial Highlights Letter to Stockholders...

  • Page 21
    ... an of the Board and Chief Technology Officer Charles M . Geschke, Chairm an of the Board Bruce R. Chizen, President and Chief Executive Officer > The Third Wave > Anyone > Anywhere > Any Device Adobe 2000 Annual Report > > > > Evolution or Revolution? Financial Highlights Letter to Stockholders...

  • Page 22
    ..., Adobe GoLive 5.0 software garnered rave product reviews. And Adobe LiveM otion software gave Web designers an intuitive software tool that integrates with Photoshop and GoLive and produces compelling Web animations in the Macromedia® Flash ™ (SWF) file format. As Web publishers compete...

  • Page 23
    ...Web designers to showcase their products online, build strong Web brands, and make e-commerce a reality. For cross-media professionals, we continued to deliver layout tools that streamline the management of digital assets between the print and Web worlds. The latest update to Adobe InDesign software...

  • Page 24
    ... an of the Board and Chief Technology Officer Charles M . Geschke, Chairm an of the Board Bruce R. Chizen, President and Chief Executive Officer > The Third Wave > Anyone > Anywhere > Any Device Adobe 2000 Annual Report > > > > Evolution or Revolution? Financial Highlights Letter to Stockholders...

  • Page 25
    ... an of the Board and Chief Technology Officer Charles M . Geschke, Chairm an of the Board Bruce R. Chizen, President and Chief Executive Officer > The Third Wave > Anyone > Anywhere > Any Device Adobe 2000 Annual Report > > > > Evolution or Revolution? Financial Highlights Letter to Stockholders...

  • Page 26
    ..., this year Adobe Systems can be found once again in FORTUNE Magazine's " 100 Best Companies to Work for."We are also among the technology leaders committed to making a difference. Through cash grants, employee volunteer support, and nonprofit training, the Adobe Community Relations program makes...

  • Page 27
    (r)evolut ion Adobe 2000 Annual Report

  • Page 28
    2000 FINANCIAL REVIEW Financial Highlights Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity and Other Comprehensive Income 2 3 22 23 24 Consolidated ...

  • Page 29
    ... two-for-one stock split in the form of a stock dividend effected October 24, 2000. (1) In 2000, includes investment gains of $14.3 million, one-time gains from the sale of assets of $2.7 million, restructuring and other charges of $5.6 million, in-process research and development of $0.5 million...

  • Page 30
    ...media Publishing revenue comes primarily from the licensing of the following application products: Adobe Illustrator, PageMaker, InDesign, FrameMaker, Adobe Publishing Collection, Adobe Design Collection, Adobe Type Manager® , Adobe Type Library, PressReady™ , Adobe Font Folio , InCopy , Acrobat...

  • Page 31
    ... in fiscal 2000 compared to fiscal 1999 was the increased revenue from our Web and Dynamic Media Collection products, which were first introduced in the fourth quarter of fiscal 1999, and increased licensing of our LiveMotion, Adobe Premiere, After Effects, GoLive, and ActiveShare products. The...

  • Page 32
    ...primarily due to the new release of our GoLive product and increased licensing of our Photoshop, After Effects, and Adobe Premiere products. In addition, this segment experienced increased revenue from our Adobe Web Collection and Adobe Dynamic Media Collection products. The increase in revenue from...

  • Page 33
    ..., we are targeting research and development expenses to be 19% of revenue. Sales and Marketing 2000 CHANGE 1999 CHANGE 1998 Research and development expenses consist principally of salaries and benefits for software developers, contracted development efforts, related facilities costs, and expenses...

  • Page 34
    ... expenses consist principally of salaries and benefits, travel expenses, and related facilities costs for the finance, human resources, legal, information services, and executive personnel of Adobe. General and administrative expenses also include outside legal and accounting fees, provision for bad...

  • Page 35
    ... of two business units, charges for vacating leased facilities, and the cancelation of certain contracts. As of December 1, 2000, no obligations existed related to the fiscal 1999 and 1998 restructuring programs. Acquired In-Process Research and Development 2000 CHANGE 1999 CHANGE 1998 Acquired...

  • Page 36
    ... 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 would be integrated into, including costs to complete the development of the...

  • Page 37
    ... short-term investment balances, primarily as a result of cash used for stock repurchases. In addition, during fiscal 1999 more investments were made in tax-exempt securities. The decrease in interest and other income in fiscal 1999 was partially offset by a $5.7 million gain realized from the sale...

  • Page 38
    ... we plan to continue to repurchase stock under our share repurchase program. However, we believe that the increase in interest income may be offset by foreign currency charges for purchased options and market price volatility under our implementation of Statement of Financial Accounting Standards...

  • Page 39
    ... stated an effective tax rate target for fiscal 2001 of 34% and a days sales outstanding ("DSO") target range of 40-45 days. We use these targets to assist us in making decisions about our allocation of resources and investments, not as predictions of future results. The targets reflect a number of...

  • Page 40
    ... in lower licensing revenue to us over the past three years. Even though we continue to work with HP printer operations to incorporate Adobe PostScript and other technologies into other HP products, we expect continued lower revenue in this segment from HP. If other significant partners also decide...

  • Page 41
    ... introduced products and services are subject to a high level of uncertainty. The software industry addressing authoring and communications over the Internet is still developing. Standards defining Web graphics have not yet been finally adopted. In addition, new models for licensing software will...

  • Page 42
    ..., including rules relating to software revenue recognition purchase and pooling-of-interests accounting for business combinations the valuation of in-process research and development employee stock purchase plans stock option grants goodwill amortization RECENT ACCOUNTING PRONOUNCEMENTS have...

  • Page 43
    .... In May 2000, the EITF reached a consensus on Issue No. 00-14, "Accounting for Coupons, Rebates, and Discounts." Issue No. 00-14 addresses the recognition, measurement, and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be...

  • Page 44
    ...cost basis of $5.1 million. We expect to continue our investing activities, including expenditures for computer systems for research and development, sales and marketing, product support, and administrative staff. Furthermore, cash reserves may be used to purchase treasury stock and acquire software...

  • Page 45
    ... 1, 2000 consisted of obligations under operating leases, line of credit agreements, venture investing activities, and various service agreements. In August 1999, we entered into an operating lease agreement for two corporate headquarters office facilities in San Jose, California. The lease is...

  • Page 46
    ... using primarily forward contracts. We also hedge a percentage of forecasted international revenue with purchased options. At December 1, 2000, total outstanding contracts included $23.2 million in foreign currency forward exchange contracts and purchased put option contracts with a notional value...

  • Page 47
    ...this review determine at any time to change our hedging program. Equity Investments We are exposed to equity price risk on our portfolio of equity securities. As of December 1, 2000, our total equity holdings in publicly traded companies were valued at $90.2 million. We believe that it is reasonably...

  • Page 48
    ... Decrease to the Value of the Forward Contracts Given X% Increase in the Stock Price of the Underlying Equities FA I R VA L U E A S OF DECEMBER 1 2000 We do not use derivative financial instruments in our investment portfolio to manage interest rate risk. We do, however, limit our exposure to...

  • Page 49
    Consolidated Balance Sheets (In thousands, except per share data) DECEMBER 1 2000 DECEMBER 3 1999 ASSETS Current assets Cash and cash equivalents Short-term investments Trade receivables, net of allowances for doubtful accounts of $8,788 and $5,170, respectively Other receivables Deferred income ...

  • Page 50
    ... per share data) DECEMBER 1 2000 DECEMBER 3 1999 NOVEMBER 27 1998 YEARS ENDED Revenue Direct costs Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and other charges Amortization of goodwill and purchased intangibles Acquired...

  • Page 51
    ... Tax benefit from employee stock option plans Stock compensation expense Dividends declared Purchase of treasury stock Reissuance of treasury stock under employee stock and stock option plans Proceeds from sale of put warrants Balances as of December 3, 1999 See accompanying Notes to Consolidated...

  • Page 52
    ... loss Comprehensive income, net of tax Tax benefit from employee stock option plans Stock compensation expense Dividends declared Purchase of treasury stock Reissuance of treasury stock under employee stock and stock option plans Balances as of December 1, 2000 295,764 295,764 $ 369...

  • Page 53
    ... for losses on receivables Tax benefit from employee stock option plans Gains of Adobe Incentive Partners Loss on write-down of investments Gains on sales of equity securities Gain on sale of buildings Stock compensation expense Noncash restructuring and other charges Changes in operating assets...

  • Page 54
    ... 1 2000 DECEMBER 3 1999 NOVEMBER 27 1998 YEARS ENDED Cash ï¬,ows from financing activities: Purchase of treasury stock Proceeds from reissuance of treasury stock Proceeds from sale of put warrants Payment of dividends Net cash used for financing activities Effect of foreign currency exchange...

  • Page 55
    ... software solutions to businesses of all sizes. We distribute our products through a network of distributors and dealers, value-added resellers ("VARs"), systems integrators, and original equipment manufacturer ("OEM") partners; direct to end users through Adobe call centers; and through our own Web...

  • Page 56
    ... using a discount rate reflecting our average cost of funds. Employee Stock Plans We account for our employee stock plans, which consist of fixed Deferred revenue includes customer advances under OEM licensing agreements. Maintenance revenue for application products is deferred and recognized...

  • Page 57
    ...do not result in a liability on the balance sheet. Stock Split Adobe's Board of Directors approved a two-for-one stock split in the form of a stock dividend of our common stock to stockholders of record on October 2, 2000 effected October 24, 2000. All share and per share amounts referred to in the...

  • Page 58
    ..." of the Web page and all costs relating to software used to operate a Web site, should be accounted for under Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." However, if a plan exists or is being developed to market...

  • Page 59
    ... 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...

  • Page 60
    ... the developed technology, and the remaining $23.6 million was allocated to trademark, the value of the assembled workforce, and goodwill. AS OF DECEMBER 3, 1999 COST UNREALIZED GAINS UNREALIZED LOSSES E S T I M AT E D FA I R VA L U E Classified as current assets: Cash Cash equivalents: Money...

  • Page 61
    ... 152,070 We own a minority interest in certain companies and a majority interest in Adobe Ventures L.P.; Adobe Ventures II, L.P.; Adobe Ventures III, L.P.; and Adobe Ventures IV, L.P. (collectively "Adobe Ventures"). The limited partnership investments are accounted for under the equity method, as...

  • Page 62
    ... and losses are included in investment income. The stock of a substantial number of the technology companies held by Adobe Ventures at December 1, 2000 is not publicly traded, and therefore, there is no established market for these investments. As such, these investments are valued based on the most...

  • Page 63
    ... of our Printing Solutions business. This program included a reduction in force of 198 positions, two of which were executive positions. The reduction in force primarily affected our European headquarters in Edinburgh, Scotland and our North American headquarters in San Jose, California. In addition...

  • Page 64
    ...our product development efforts and to eliminate management redundancies in our organization. This program consisted of severance and related charges for 364 positions, four of which were executive positions. In addition, we divested two business units, canceled certain contracts, and vacated leased...

  • Page 65
    ... and liabilities as of fiscal 2000 and 1999 are presented below: YEARS ENDED DECEMBER 1 2000 DECEMBER 3 1999 Deferred tax assets: Computed "expected" tax expense State tax expense, net of federal benefit Nondeductible goodwill Tax-exempt income Tax credits Foreign tax rate differential Other, net...

  • Page 66
    ...in accrued expenses on the Consolidated Balance Sheet. 38 39 established an internal limited partnership, Adobe Incentive Partners, L.P. ("AIP"), which allows certain of our executive officers to participate in cash or stock distributions from Adobe's venture investments. Adobe is both the general...

  • Page 67
    ... PLANS Stock Option Plans As of December 1, 2000, we had reserved 142.0 million shares of com- mon stock for issuance under our 1994 and 1999 Stock Option Plans (the "Option Plans") for employees, which provide for the granting of stock options to employees and officers at the fair market value...

  • Page 68
    ...not yet vested. In fiscal 2000, 1999, and 1998, we granted 453,885; 1,047,920; and 75,400 shares of restricted stock, respectively, and the weighted average fair value of the shares employee participants to purchase shares of our common stock at a discount through payroll deductions. For offerings...

  • Page 69
    .... The assumptions used to value the option grants and purchase rights are stated as follows: YEARS ENDED DECEMBER 1 2000 DECEMBER 3 1999 NOVEMBER 27 1998 Expected life of options Expected life of restricted stock Expected life of purchase rights Volatility Risk-free interest rate Dividend yield...

  • Page 70
    ...our stock, including direct purchases, open market purchases, accelerated stock purchase programs, and other potential methods. ances under employee stock plans, we repurchased approximately 7.2 million, 22.4 million, and 1.4 million shares in fiscal 2000, 1999, and 1998, respectively, at a cost of...

  • Page 71
    ... for two corporate headquarters office facilities in San Jose, California. The lease is for a period of five years and is subject to standard covenants including financial ratios. We have an option to purchase the buildings at any time during the term for an amount equal to the total investment of...

  • Page 72
    ..., beginning December 2000. The first such payment was made in December 2000. In addition, the loan must be repaid in full within thirty days of any termination of the executive's employment. tions of credit risk are primarily cash, cash equivalents, short-term investments, and accounts receivable.

  • Page 73
    ...create Web sites with graphics, images, videos, and animations. The Cross-media Publishing segment provides software for professional page layout, illustration, business publishing, and printing. The ePaper Solutions segment allows users to convert information to Adobe Portable Document Format ("PDF...

  • Page 74
    ... operating segments for the fiscal years 2000, 1999, and 1998: WEB CROSS-MEDIA PUBLISHING PUBLISHING e PA P E R SOLUTIONS OEM POSTSCRIPT AND OTHER A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements for the fiscal...

  • Page 75
    ...fiscal 2000, licenses of application products to Ingram Micro, Inc. ("Ingram") and Tech Data Corporation ("Tech Data") accounted ...accounted for 14% of our total receivables. NOTE 17. SUBSEQUENT EVENTS In December 2000, our Board of Directors approved an increase to Adobe's authorized common stock...

  • Page 76
    ... the venture stock dividend program under which we may, from time to time, distribute as a dividend-in-kind shares of our equity holdings in investee companies to our stockholders. Under the terms of our line of credit agreement and corporate headquarters lease agreement, we may pay cash dividends...

  • Page 77
    ... balance฀the฀relative฀cost฀and฀expected฀benefits฀of฀the฀controls.฀Management฀believes฀that฀ the฀Company's฀accounting฀controls฀provide฀reasonable฀assurance฀that฀errors฀or฀irregularities฀that฀could฀be฀material฀to฀the฀consolidated฀financial...

  • Page 78
    Independent Auditors' Report To the Board of Directors and Stockholders of Adobe Systems Incorporated: We have audited the accompanying consolidated balance sheets of Adobe Systems Incorporated and subsidiaries as of December 1, 2000 and December 3, 1999, and the related consolidated statements of ...

  • Page 79
    .... To contact Adobe's Investor Relations department directly, please use the following contact information: Investor Relations Department Adobe Systems Incorporated 345 Park Avenue San Jose, CA 95110-2704 USA Tel: 408-536-4416 Fax: 408-537-4034 [email protected] To report a change of address or lost stock...