8-KOther Events

ADOBE INC. 8-K Report, Corporate Update (Oct 11, 2006)

Filed October 11, 2006For Securities:ADBE

Summary

Adobe Systems Incorporated (ADBE) filed an 8-K on October 11, 2006, disclosing the findings of a voluntary review of its stock option granting practices from 1997 to 2006. While the review, conducted by a Special Committee of outside directors with independent counsel and accounting firm assistance, found no evidence of fraud or intentional wrongdoing, it did identify certain instances where non-executive employee grants were not sufficiently finalized as of the reported grant date, or where adjustments were made post-grant without a corresponding change to the measurement date. The company believes the impact of these findings to be immaterial to individual prior years and the aggregate for the fiscal year 2006. Furthermore, Adobe is evaluating the impact of SEC Staff Accounting Bulletin No. 108 (SAB 108), which permits the adjustment of prior immaterial errors. Adobe estimates that, under SAB 108, these historical uncorrected differences will result in a cumulative effect adjustment reducing its opening retained earnings balance as of December 5, 2005, by approximately $25 to $30 million. The company is continuing its evaluation, and the actual reduction may differ from this estimate.

Key Highlights

  • 1Adobe Systems conducted a voluntary review of its stock option granting practices covering 1997-2006.
  • 2No fraud or intentional wrongdoing was found in the stock option granting practices.
  • 3Certain non-executive employee stock option grants lacked definitive documentation at the reported grant date.
  • 4Some employee grants were adjusted after the grant date without a corresponding change to the measurement date.
  • 5The company considers the impact of these instances to be immaterial for prior years and the aggregate for fiscal year 2006.
  • 6Adobe is evaluating the adoption of Staff Accounting Bulletin No. 108 (SAB 108).
  • 7SAB 108 adoption is expected to result in a cumulative adjustment reducing opening retained earnings by an estimated $25-$30 million as of December 5, 2005.

Frequently Asked Questions

The main purpose of this 8-K filing was to disclose the findings of Adobe Systems' voluntary review of its stock option granting practices between 1997 and 2006 and to inform investors about the potential impact of adopting Staff Accounting Bulletin No. 108 (SAB 108) on the company's financial statements.

No, the review of executive officer grants conducted earlier in the year uncovered no improper grants to executive officers. The issues identified related to grants made to non-executive employees.

The company believes the direct impact of the identified stock option granting issues is immaterial to prior years and the aggregate for fiscal year 2006. However, adopting SAB 108 is expected to require a cumulative adjustment to reduce the opening retained earnings balance as of December 5, 2005, by an estimated $25 to $30 million to correct prior immaterial errors.

Staff Accounting Bulletin No. 108 (SAB 108) provides guidance on the cumulative effect of financial statement errors. It allows companies to correct prior year immaterial errors as a cumulative effect adjustment to the opening balance of retained earnings. Adobe is using this guidance to address the historical uncorrected differences identified during its stock option review.