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Goodwill and Intangible Assets Accounting Policy

Goodwill is assigned to one or more reporting segments on the date of acquisition. Adobe reviews the goodwill for impairment annually during the second quarter of each fiscal year. In performing the goodwill impairment test, Adobe first evaluates goodwill to determine if it is more likely than not that the occurrence of an event or change in circumstances has reduced the fair value of a reporting segment below its carrying value. The qualitative assessment requires that Adobe considers events or circumstances that may include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segments' net assets, and changes in the stock price. If, after assessing the totality of events or circumstances, Adobe determines that it is more likely than not that the fair value of the reporting segments are greater than the carrying amounts, then the two-step goodwill impairment test is not performed.

If the qualitative assessment indicates that the two-step quantitative analysis should be performed, Adobe evaluates goodwill for impairment by comparing the fair value of each of the reporting segments to its carrying value, including the associated goodwill. To determine the fair values, Adobe uses 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. Adobe's cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.

Adobe completed the annual goodwill impairment test in the second quarter of fiscal 2017. Adobe determined, after performing a qualitative review of each reporting segment, that it is more likely than not that the fair value of each of the reporting segments substantially exceeds the respective carrying amounts. Accordingly, there was no indication of impairment, and the two-step quantitative goodwill impairment test was not performed.

Adobe amortizes intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists. Adobe continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including the intangible assets may not be recoverable. When such events or changes in circumstances occur, Adobe assesses 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, Adobe recognizes an impairment loss based on any excess of the carrying amount over the fair value of the assets. Adobe did not recognize any intangible asset impairment charges in fiscal 2017, 2016 or 2015.

During fiscal 2017, Adobe's intangible assets were amortized over their estimated useful lives ranging from 1 to 14 years. Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed or on a straight-line basis when the consumption pattern is not apparent. The weighted average useful lives of Adobe's intangible assets were as follows:

Weighted AverageUseful Life (years)
Purchased technology 5
Customer contracts and relationships 9
Trademarks 8
Acquired rights to use technology 9
Localization 1
Other intangibles 5

Source: Adobe Systems Inc., Annual Report

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Goodwill and Intangible Assets Disclosure

Adobe Systems Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Purchased technology
Customer contracts and relationships
Trademarks
Acquired rights to use technology
Localization
Other intangibles
Other intangible assets
Purchased and other intangible assets, cost
Accumulated amortization
Purchased and other intangible assets, net
Goodwill
Goodwill and purchased and other intangibles

Source: Based on data from Adobe Systems Inc. Annual Reports

Item Description The company
Purchased and other intangible assets, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Adobe Systems Inc.'s purchased and other intangible assets, net declined from 2015 to 2016 and from 2016 to 2017.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Adobe Systems Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Goodwill and purchased and other intangibles Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Adobe Systems Inc.'s goodwill and purchased and other intangibles declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Analyst Adjustments: Removal of Goodwill

Adobe Systems Inc., adjustments to financial data

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Adjustment to Total Assets
Total assets (as reported)
Less: Goodwill
Total assets (adjusted)
Adjustment to Stockholders' Equity
Stockholders' equity (as reported)
Less: Goodwill
Stockholders' equity (adjusted)

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Adjusted Ratios: Removal of Goodwill (Summary)

Adobe Systems Inc., adjusted ratios

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE % % % % % %
Adjusted ROE % % % % % %
Return on Assets (ROA)
Reported ROA % % % % % %
Adjusted ROA % % % % % %
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Adobe Systems Inc.'s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adobe Systems Inc.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Adobe Systems Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Adobe Systems Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Revenue (USD $ in thousands)
Total assets (USD $ in thousands)
Total asset turnover1
Adjusted for Goodwill
Revenue (USD $ in thousands)
Adjusted total assets (USD $ in thousands)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Adobe Systems Inc.'s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Financial Leverage

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Total assets (USD $ in thousands)
Stockholders' equity (USD $ in thousands)
Financial leverage1
Adjusted for Goodwill
Adjusted total assets (USD $ in thousands)
Adjusted stockholders' equity (USD $ in thousands)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity
= ÷ =

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adobe Systems Inc.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Net income (USD $ in thousands)
Stockholders' equity (USD $ in thousands)
ROE1 % % % % % %
Adjusted for Goodwill
Net income (USD $ in thousands)
Adjusted stockholders' equity (USD $ in thousands)
Adjusted ROE2 % % % % % %

2017 Calculations

1 ROE = 100 × Net income ÷ Stockholders' equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders' equity
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Adobe Systems Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Net income (USD $ in thousands)
Total assets (USD $ in thousands)
ROA1 % % % % % %
Adjusted for Goodwill
Net income (USD $ in thousands)
Adjusted total assets (USD $ in thousands)
Adjusted ROA2 % % % % % %

2017 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Adobe Systems Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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