Adobe 2015 Annual Report Download - page 67

Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Revenue Reserve
Revenue reserve rollforward (in thousands):
2015 2014 2013
Beginning balance $ 17,402 $ 28,664 $ 57,058
Amount charged to revenue 45,676 45,550 74,031
Actual returns (43,632)(56,812)(102,425)
Ending balance $ 19,446 $ 17,402 $ 28,664
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) 2015 2014 2013
Beginning balance $ 7,867 $ 10,228 $ 12,643
Increase due to acquisition 326 51 1,038
Charged to operating expenses 1,472 603 933
Deductions(1) (2,372)(3,015)(4,386)
Ending balance $ 7,293 $ 7,867 $ 10,228
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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 40 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 equal weighting of 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 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 2015. We elected to use the Step 1 quantitative assessment
for our reporting units and determined there was no impairment of goodwill.
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