Adobe 2005 Annual Report Download - page 74

74
voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most
voluntary changes in accounting principle be recognized with a cumulative effect adjustment in net income
of the period of the change. SFAS 154 is effective for accounting changes made in annual periods
beginning after December 15, 2005.
In December 2004, the FASB issued SFAS 123R requires the measurement of all employee share-
based payments to employees, including grants of employee stock options, using a fair-value-based method
and the recording of such expense in our consolidated statements of income. In April 2005, the SEC
announced that the accounting provisions of SFAS 123R are to be applied in the first quarter of the fiscal
year beginning after June 15, 2005. As a result, we are now required to adopt SFAS 123R in the first
quarter of fiscal 2006 and will recognize stock-based compensation expense using the modified prospective
method. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to
financial statement recognition. See “Stock-Based Incentive Compensation” above for the pro forma net
income and net income per share amounts, for fiscal 2003 through fiscal 2005, as if we had used a fair-
value-based method similar to the methods required under SFAS 123R to measure compensation expense
for employee stock incentive awards. We are evaluating the requirements under SFAS 123R and expect the
adoption to have a significant adverse impact on our consolidated statements of income and net income per
share.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (“FAS 109-1”),
“Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The AJCA
introduced a special 9% tax deduction on qualified production activities. FAS 109-1 clarifies that this tax
deduction should be accounted for as a special tax deduction in accordance with Statement 109. Pursuant to
the AJCA, Adobe will not be able to claim this tax benefit until the first quarter of fiscal 2006. We do not
expect the adoption of these new tax provisions to have a material impact on our consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (“FAS 109-2”), “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creations Act of 2004.” The AJCA introduced a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria
are met. Starting in the first quarter of fiscal 2005, Adobe adopted the accounting and disclosure
requirements as outlined in FAS 109-2. See Note 8 for further information regarding this provision.
Note 2. Acquisitions
On May 3, 2004, we acquired Q-Link Technologies, Inc (“Q-Link”), a privately held company, for
$15.9 million in cash. Q-Link provided Java-based workflow technology that was integrated with our
Intelligent Document platform to enable customers to integrate document process management with core
applications. Goodwill was allocated to our Intelligent Document segment. Purchased technology is being
amortized to cost of product revenue over its estimated useful life of three years. The consolidated financial
statements include the operating results of Q-Link from the date of purchase. Pro forma results of
operations have not been presented because the effect of this acquisition was not material.