Adobe 2012 Annual Report Download - page 86

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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):
2012 2011 2010
Beginning balance .................................................................................................... $ 60,887 $ 49,426 $ 34,401
Amount charged to revenue...................................................................................... 170,839 162,491 171,607
Actual returns............................................................................................................ (174,668)(151,030)(156,582)
Ending balance.......................................................................................................... $ 57,058 $ 60,887 $ 49,426
Deferred Revenue
Deferred revenue consists substantially of 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.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade
receivables. The allowance is based on both specific and general reserves. We regularly review our trade receivables allowances
by considering such factors as historical experience, credit-worthiness, the age of the trade receivable balances and current economic
conditions that may affect a customer’s ability to pay and we specifically reserve for those deemed uncollectible.
(in thousands) 2012 2011 2010
Beginning balance .................................................................................................... $ 15,080 $ 15,233 $ 15,225
Increase due to acquisition........................................................................................ 325 269 662
Charged to operating expenses................................................................................. 3,356 6,271 3,673
Deductions(1) ............................................................................................................. (6,118)(6,693)(4,327)
Ending balance.......................................................................................................... $ 12,643 $ 15,080 $ 15,233
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(1) Deductions related to the allowance for doubtful accounts represent amounts written off against the allowance, less recoveries.
Property and Equipment
We record property and equipment at cost less accumulated depreciation and amortization. Property and equipment are
depreciated using the straight-line method over their estimated useful lives ranging from 1 to 5 years for computers and equipment
as well as server hardware under capital leases, 1 to 6 years for furniture and fixtures and up to 35 years for buildings. Leasehold
improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated
useful lives ranging from 1 to 15 years.
Goodwill, Purchased Intangibles and Other Long-Lived Assets
We review our goodwill for impairment annually, or more frequently, if facts and circumstances warrant a review. We
completed our annual impairment test in the second quarter of fiscal 2012 and determined that there was no impairment.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)