Adobe 2015 Annual Report Download - page 35

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Table of Contents
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto.
ACQUISITIONS
During fiscal 2015, we completed our acquisition of privately held Fotolia, a leading marketplace for royalty-free photos,
images, graphics and HD videos, for $807.5 million. During fiscal 2015, we integrated Fotolia into our Digital Media reportable
segment.
During fiscal 2013, we completed our acquisitions of privately held Neolane, a leader in cross-channel campaign
management technology for $616.7 million, and privately held Behance, an online social media platform to showcase and discover
creative work for $111.1 million. During fiscal 2013, we integrated Neolane and Behance into our Digital Marketing and Digital
Media reportable segments, respectively.
We also completed other immaterial business acquisitions during the fiscal years presented. Pro forma information has not
been presented for any of our fiscal 2015, 2014 and 2013 acquisitions as the impact to our Consolidated Financial Statements was
not material.
See Note 2 of our Notes to Consolidated Financial Statements for further information regarding these acquisitions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of
the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical
experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and
estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.
We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, business
combinations, goodwill impairment and income taxes have the greatest potential impact on our Consolidated Financial Statements.
These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and
estimates, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates
relative to our critical accounting policies have not differed materially from actual results.
Revenue Recognition
Our revenue is derived from the licensing of subscription, perpetual and time-based software products, associated software
maintenance and support plans, non-software related hosted services, consulting services, training and technical support.
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement
exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable.
Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have
a significant impact on the timing and amount of revenue we report.
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades,
maintenance and support, hosted services and consulting.
For our software and software-related multiple element arrangements, we must: (1) determine whether and when each
element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered
products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence (“VSOE”);
and (4) allocate the total price among the various elements. VSOE of fair value is used to allocate a portion of the price to the
undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements. Absent VSOE,
revenue is deferred until the earlier of the point at which VSOE of fair value exists for any undelivered element or until all elements
of the arrangement have been delivered. However, if the only undelivered element is maintenance and support, the entire
arrangement fee is recognized ratably over the performance period. Changes in assumptions or judgments or changes to the
elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a
particular period.