Adobe 2001 Annual Report Download - page 69

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share data)
Note 1. Significant Accounting Policies (Continued)
Business’’. We will adopt SFAS 144 beginning in our fiscal year 2003. We do not expect the adoption of
SFAS 144 to have a material impact on our financial position or results of operations.
Stock Splits
Adobe’s Board of Directors approved two separate two-for-one stock splits in the form of stock
dividends of our common stock to stockholders effected October 24, 2000 and October 26, 1999. All share
and per share amounts referred to in the consolidated financial statements have been adjusted to reflect
these stock splits.
Employee Stock Plans
We account for our employee stock plans, which consist of fixed stock option plans, an employee stock
purchase plan, and a performance and restricted stock plan, using the intrinsic value method.
Revenue Recognition
In fiscal 2000, we adopted Statement of Position No. 98-9 (‘‘SOP 98-9’’), ‘‘Modifications of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions.’’ The adoption of SOP 98-9 did not
have a significant impact on our financial position or results of operations.
We recognize application products revenue upon shipment, net of estimated returns, provided that
collection is determined to be probable and no significant obligations remain. Application product revenue
from distributors is subject to agreements allowing limited rights of return, rebates, and price protection.
Accordingly, we reduce revenue recognized for estimated future returns, price protection when given, and
rebates at the time the related revenue is recorded. The estimates for returns are adjusted periodically
based upon historical rates of returns, inventory levels in the distribution channel, and other related
factors. The estimates and reserves for rebates and price protection are based on historical rates.
We provide free technical phone support to customers who are under warranty for support. We accrue
the estimated cost of free technical phone support upon shipment of software and amortize the accrued
internal and external cost of telephone support to sales and marketing expense.
We also license software with post-contract customer support (‘‘PCS’’) for two years. PCS includes
rights to upgrades, when and if available, a limited period of telephone support, updates, and bug fixes.
Statement of Position 97-2 (‘‘SOP 97-2’’), ‘‘Software Revenue Recognition,’’ as amended, generally
requires revenue earned on software arrangements involving multiple elements to be allocated to each
element based on the relative fair value of the elements. The arrangement fee for multiple-element
arrangements is allocated to each element of the arrangement, such as maintenance and support services,
based on the relative fair values of the elements. We determine the fair value of each element in multi-
element arrangements based on vendor-specific objective evidence (‘‘VSOE’’). VSOE for each element is
based on the price charged when the same element is sold separately. If evidence of fair value of all
undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue
is recognized using the residual method. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Revenue
allocated to maintenance and support is recognized ratably over the maintenance term (typically two
years).
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