Adobe 2012 Annual Report Download - page 89

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89
process. In addition, our hedging policy establishes maximum limits for each counterparty. We monitor ratings, credit spreads and
potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we will adjust our
exposure to various counterparties.
The aggregate fair value of derivative instruments in net asset positions as of November 30, 2012 and December 2, 2011
was $13.5 million and $25.4 million, respectively. These amounts represent the maximum exposure to loss at the reporting date
as a result of all of the counterparties failing to perform as contracted. These exposures could be reduced by up to $1.0 million
and $3.9 million, respectively from liabilities included in master netting arrangements with those same counterparties.
Credit risk in receivables is limited to OEMs, dealers and distributors of hardware and software products to the retail market,
customers to whom we license software directly and our SaaS offerings. We are also experiencing elevated delinquency and bad
debt write-offs related to our receivables assumed in business combinations. A credit review is completed for our new distributors,
dealers and OEMs. We also perform ongoing credit evaluations of our customers’ financial condition and require letters of credit
or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk assessment of their
ability to pay, country risk and other factors and is not contingent on the resale of the product or on the collection of payments
from their customers. We also purchase credit insurance to mitigate credit risk in some foreign markets where we believe it is
warranted. If we license our software or provide SaaS services to a customer where we have a reason to believe the customer’s
ability to pay is not probable, due to country risk or credit risk, we will not recognize the revenue. We will revert to recognizing
the revenue on a cash basis, assuming all other criteria for revenue recognition has been met.
See Note 18 for information regarding our significant customers.
We derive a significant portion of our OEM PostScript and Other licensing revenue from a small number of OEMs. Our
OEMs on occasion seek to renegotiate their royalty arrangements. We evaluate these requests on a case-by-case basis. If an
agreement is not reached, a customer may decide to pursue other options, which could result in lower licensing revenue for us.
Recent Accounting Pronouncements
There have been no new accounting pronouncements made effective during the year ended November 30, 2012, that are
of significance, or potential significance, to us.
NOTE 2. ACQUISITIONS
Fiscal 2012 Acquisition
Efficient Frontier
On January 13, 2012, we completed our acquisition of privately held Efficient Frontier, a multi-channel digital ad buying
and optimization company. During the first quarter of fiscal 2012, we began integrating Efficient Frontier into our Digital Marketing
segment. The Efficient Frontier business adds cross-channel digital ad campaign forecasting, execution and optimization
capabilities to our Adobe Marketing Cloud, along with a social marketing engagement platform and social ad buying capabilities.
We have included the financial results of Efficient Frontier in our consolidated financial statements beginning on the acquisition
date.
Under the acquisition method of accounting, the total purchase price was allocated to Efficient Frontier’s net tangible and
intangible assets based upon their estimated fair values as of January 13, 2012. During fiscal 2012, we made adjustments to the
preliminary purchase price allocation. The total adjusted and final purchase price for Efficient Frontier was approximately $374.7
million of which approximately $291.4 million was allocated to goodwill, $122.7 million to identifiable intangible assets and $39.4
million to net liabilities assumed. The impact of this acquisition was not material to our consolidated financial statements.
Fiscal 2011 Acquisitions
During fiscal 2011, we completed six business combinations with aggregate purchase prices totaling approximately $281.0
million of which approximately $213.3 million was allocated to goodwill, $87.5 million to identifiable intangible assets and $19.8
million to net liabilities assumed. We also completed two asset acquisitions with aggregate purchase prices totaling $47.3 million.
We have included the financial results of the business combinations in our consolidated results of operations beginning on the
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)