Adobe 2009 Annual Report Download - page 83

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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
83
Rights of Return, Rebates and Price Protection
As discussed above, we offer limited rights of return, rebates and price protection of our products under various policies
and programs with our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs
as an offset to revenue. Below is a summary of each of the general provisions in our contracts:
• Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition,
distributors are allowed to return products that have reached the end of their lives and products that are being
replaced by new versions.
• We offer rebates to our distributors, resellers and/or end user customers. The amount of revenue that is reduced for
distributor and reseller rebates is based on actual performance against objectives set forth by us for a particular
reporting period (volume, timely reporting, etc.). If mail-in or other promotional rebates are offered, the amount of
revenue reduced is based on the dollar amount of the rebate, taking into consideration an estimated redemption rate
calculated using historical trends.
• From time to time, we may offer price protection to our distributors that allow for the right to a credit if we
permanently reduce the price of a software product. The amount of revenue that is reduced for price protection is
calculated as the difference between the old and new price of a software product on inventory held by the
distributor prior to the effective date of the decrease.
Although our subscription contracts are generally non-cancelable, a limited number of customers have the right to cancel
their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. In the event
a customer cancels its contract, they are not entitled to a refund for prior services we have provided to them.
On a quarterly basis, the amount of revenue that is reserved for future returns is calculated based on our historical trends
and data specific to each reporting period. We review the actual returns evidenced in prior quarters as a percent of revenue to
determine a historical returns rate. We then apply the historical rate to the current period revenue as a basis for estimating
future returns. When necessary, we also provide a specific returns reserve for product in the distribution channel in excess of
estimated requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-
through, product plans and other factors.
Revenue Reserve
Revenue reserve rollforward (in thousands):
2009
2008
2007
Beginning balance ..................................
$
50,943
$
43,532
$
55,526
Increase due to acquisition ...........................
6,566
—
—
Amount charged to revenue ..........................
113,009
153,129
156,761
Actual returns .....................................
(136,117
)
(145,718
)
(168,755
)
Ending balance ....................................
$
34,401
$
50,943
$
43,532
Deferred Revenue
Deferred revenue consist of billings or payments received in advance of revenue recognition for our products and
services described above. We recognize deferred revenue as revenue only when the revenue recognition criteria are met.
Taxes Collected from Customers
We net taxes collected from customers against those remitted to government authorities in our financial statements.
Accordingly, taxes collected from customers are not reported as revenue.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses for fiscal 2009, 2008 and 2007 were $67.0 million,
$67.1 million and $45.3 million, respectively.