Adobe 2002 Annual Report Download - page 112

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81
Advertising Costs
We expense all advertising costs as incurred and classify these costs under sales and marketing expense.
Advertising costs for fiscal years 2002, 2001, and 2000 were $26.7 million, $30.5 million, and $32.9
million, respectively.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under the asset and liability method, we
recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the
financial statement carrying amounts and the tax basis of existing assets and liabilities. We record a valuation
allowance to reduce deferred tax assets to an amount for which realization is more likely than not. We also account
for any income tax contingencies in accordance with Statement of Financial Accounting Standards No. 5 (“SFAS
No. 5”), “Accounting for Contingencies.”
Foreign Currency and Other Hedging Instruments
On December 2, 2000, we adopted Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”),
“Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities and requires us to recognize these as either
assets or liabilities on the balance sheet and measure them at fair value. As described in Note 16, gains and losses
resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting. The adoption of this accounting standard did not have a material
impact on our financial position or results of operations.
Put Warrants and Call Options
We utilize put warrants and call options (“puts and calls”) to facilitate the repurchase of our common stock.
Our put and call option contracts provide that we, at our option, can settle with physical delivery or net shares equal
to the difference between the exercise price and the value of the option as determined by the contract. Accordingly,
these investments are initially measured at fair value and reported in stockholders’ equity as additional paid-in-
capital. Subsequent changes in fair value are not recognized. If these instruments are settled through the payment or
receipt of cash, additional paid-in-capital is adjusted.
Comprehensive Income
Statement of Financial Accounting Standards No. 130 (“SFAS No. 130”), “Reporting Comprehensive Income,”
establishes standards for the reporting and display of comprehensive income and its components in the financial
statements. Items of comprehensive income (loss) that we currently report are unrealized gains and losses on
marketable securities categorized as available-for-sale, foreign currency translation adjustments, and gains and
losses on derivative instruments qualifying as cash flow hedges, such as (i) hedging a forecasted transaction, (ii) the
variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (iii) a
foreign currency cash-flow hedge, or (iv) interest rate hedges. We display comprehensive income and its
components on our Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income.
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” This Statement
requires that goodwill and other intangibles with an indefinite useful life not be amortized, but be tested for
impairment at least annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001;
however, for new business combinations that occur after June 30, 2001, SFAS No. 142 is effective. In accordance
with SFAS No. 142, goodwill resulting from our recent acquisition of Accelio in April 2002 is not amortized. We
will fully adopt SFAS No. 142 beginning in our fiscal year 2003. We do not expect the adoption of SFAS No. 142 to
have a material impact on our financial position or results of operations. Amortization and impairment of goodwill
in fiscal 2002, 2001, and 2000 was $21.0 million, $14.3 million, and $7.0 million, respectively.