Adobe 2001 Annual Report Download - page 39

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our equity method of accounting and the related writedown is recorded as an investment loss on our
consolidated statements of income. Estimating the fair value of non-marketable equity investments in
early-stage technology companies is inherently subjective and may contribute to significant volatility in our
reported results of operations.
We recognize realized gains and losses upon sale or maturity of these investments using the specific
identification method. For further information on our long-term investments, please refer to Note 5 of our
Notes to Consolidated Financial Statements.
Accounting for Leases of Property and Equipment
We entered into two operating lease agreements in 1999 and 2001 related to our headquarter office
buildings in San Jose, CA. The agreements qualify for operating lease accounting treatment under
SFAS 13, ‘‘Accounting for Leases,’’ and, as such, the buildings are not included on our balance sheet. These
agreements are subject to standard covenants, including liquidity, leverage, and profitability ratios that are
reported to the lessors quarterly. We believe we will be able to meet our obligations under the agreements,
but if we default on our commitments and are unable to remedy the default quickly enough, the lessors
may terminate all remaining commitments, demand payment equal to the lessor’s investment, or require us
to purchase, facilitate the sale of the buildings to a third party, or surrender the buildings. If we are
required to purchase the buildings, this will decrease our cash available for working capital and require us
to add the value of the buildings to our balance sheet. If we facilitate the sale or surrender the buildings,
this could require us to find alternate facilities on terms that may not be as favorable as the current
arrangement. As of November 30, 2001, we were in compliance with all covenants. For further information
on these leases, please refer to our ‘‘Commitments’’ section under ‘‘Liquidity and Capital Resources’’ and
Note 13 of our Notes to Consolidated Financial Statements.
We Disclose Pro Forma Financial Information
We prepare and release quarterly unaudited financial statements prepared in accordance with
generally accepted accounting principles (‘‘GAAP’’). We also disclose and discuss certain pro forma
financial information in the related earnings release and investor conference call. Our pro forma financial
information does not include unusual or non-recurring events or transactions, amortization of goodwill and
purchased intangibles, or gains and losses on investments in equity securities. We believe the disclosure of
the pro forma financial information helps investors more meaningfully evaluate the results of our ongoing
operations. However, we urge investors to carefully review the GAAP financial information included as
part of our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K, and our quarterly
earnings releases and compare that GAAP financial information with the pro forma financial results
disclosed in our quarterly earnings releases and investor calls.
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