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67
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):
2013 2012 2011
Beginning balance $ 57,058 $ 60,887 $ 49,426
Amount charged to revenue 74,031 170,839 162,491
Actual returns (102,425)(174,668)(151,030)
Ending balance $ 28,664 $ 57,058 $ 60,887
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) 2013 2012 2011
Beginning balance $ 12,643 $ 15,080 $ 15,233
Increase due to acquisition 1,038 325 269
Charged to operating expenses 933 3,356 6,271
Deductions(1) (4,386)(6,118)(6,693)
Ending balance $ 10,228 $ 12,643 $ 15,080
________________________________________
(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
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.
Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)