Adobe 2002 Annual Report Download - page 109

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Foreign Currency Translation
We translate assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, at
exchange rates in effect at the balance sheet date. We translate revenues and expenses at the monthly average rates
of exchange prevailing during the year. We include the adjustment resulting from translating the financial statements
of such foreign subsidiaries in accumulated other comprehensive income, which is reflected as a separate component
of stockholders’ equity. Foreign currency transaction gains or losses are reported in interest and other income. For
the years ended November 29, 2002, November 30, 2001, and December 1, 2000, we reported a foreign exchange
transaction gain of $9.0 million and foreign exchange transaction losses of $3.2 million and $1.6 million,
respectively. On our foreign currency hedges of these transactions, we reported a net loss of $8.1 million and net
gains of $3.2 million and $0.5 million, for fiscal years 2002, 2001, and 2000, respectively.
Property and Equipment
We record property and equipment at cost. Depreciation and amortization are calculated using the straight-line
method over the shorter of the estimated useful lives (thirty-five years for buildings; two to seven years for furniture
and equipment) or lease terms (five to ten years for leasehold improvements) of the respective assets. We do not
currently have any capitalized website development costs. However, it is our policy to capitalize certain costs related
to website development in accordance with Statement of Position 98-1 (“SOP 98-1”), “Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.” Amortization on a straight-line basis begins once the
website is ready for its intended use.
Goodwill and Other Intangible Assets
Goodwill, purchased technology, and certain other intangible assets are stated at cost less accumulated
amortization and are reviewed periodically for impairment. In accordance with Statement of Financial Accounting
Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets,” goodwill and purchased intangibles
with indefinite useful lives acquired after June 30, 2001 are not amortized but will be reviewed periodically for
impairment. Accordingly, goodwill resulting from our acquisition of Accelio Corporation (“Accelio”) in April 2002
was not amortized. For goodwill and purchased intangibles acquired prior to and on June 30, 2001 and for purchased
intangibles with definite useful lives acquired subsequent to June 30, 2001, amortization is recorded utilizing the
straight-line method, which approximates the pattern of consumption, over the estimated useful lives of the
respective assets, generally from one to thirteen years.
Capitalization of computer software development costs, when material, begins upon the establishment of
technological feasibility, which is generally the completion of a working prototype that has been certified as having
no critical bugs and is a release candidate. To date, software development costs incurred between completion of a
working prototype and general availability of the related product have not been material.
Other Assets
Other assets include long-term investments and security deposits.
Our long-term investments include direct investments and indirect investments through Adobe Ventures in
privately held companies. We own limited partnership interests in four venture capital limited partnerships, Adobe
Ventures L.P., Adobe Ventures II, L.P., Adobe Ventures III, L.P., and Adobe Ventures IV, L.P. (collectively
“Adobe Ventures”), that invest in early stage companies with innovative technologies. In addition to the potential
for financial returns, our venture activities increase our knowledge of emerging markets and technologies, as well as
expand our ecosystem of Adobe products and services. The partnerships are managed by Granite Ventures, an
independent venture capital firm and sole general partner of Adobe Ventures.
The investments in Adobe Ventures are accounted for using the equity method of accounting, and accordingly,
the investments are adjusted to reflect our share of Adobe Ventures’ investment income (loss) and dividend
distributions. Under the terms of the partnership agreements, the general partner has the sole and exclusive right to
manage and control the partnerships. Adobe as the limited partner has certain rights, including replacing the general
partner and approving acquisitions that exceed certain established parameters. However, these rights are considered
to be protective rights and do not suggest an ability to control the partnerships. Adobe Ventures carry their