Adobe 2012 Annual Report Download - page 87

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Goodwill is assigned to one or more reporting segments on the date of acquisition. We evaluate goodwill for impairment
by comparing the fair value of each of our reporting segments to its carrying value, including the associated goodwill. To determine
the fair values, we use the market approach based on comparable publicly traded companies in similar lines of businesses and the
income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted
revenue, operating costs and other relevant factors.
We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever
an impairment indicator exists. We continually monitor events and changes in circumstances that could indicate carrying amounts
of our long-lived assets, including our intangible assets may not be recoverable. When such events or changes in circumstances
occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted
expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize
an impairment loss based on any excess of the carrying amount over the fair value of the assets. We did not recognize any intangible
asset impairment charges in fiscal 2012, 2011 or 2010.
Our intangible assets are amortized over their estimated useful lives of 1 to 13 years. Amortization is based on the pattern
in which the economic benefits of the intangible asset will be consumed. The weighted average useful lives of our intangible assets
was as follows:
Weighted
Average
Useful Life
(years)
Purchased technology ............................................................................................................................................ 5
Customer contracts and relationships .................................................................................................................... 10
Trademarks............................................................................................................................................................. 7
Acquired rights to use technology ......................................................................................................................... 9
Localization............................................................................................................................................................ 1
Other intangibles.................................................................................................................................................... 3
Software Development Costs
Capitalization of software development costs for software to be sold, leased, or otherwise marketed begins upon the
establishment of technological feasibility, which is generally the completion of a working prototype that has been certified as
having no critical bugs and is a release candidate. Amortization begins once the software is ready for its intended use, generally
based on the pattern in which the economic benefits will be consumed. To date, software development costs incurred between
completion of a working prototype and general availability of the related product have not been material.
Internal Use Software
We capitalize costs associated with customized internal-use software systems that have reached the application development
stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and
payroll-related expenses for employees, who are directly associated with the development of the applications. Capitalization of
such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially
complete and is ready for its intended purpose.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized
for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized
for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities,
and for operating losses and tax credit carryforwards. We record a valuation allowance to reduce deferred tax assets to an amount
for which realization is more likely than not.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)